-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TKONV9T3neEeduSiYkeUcTntapPC3VPfMXqozt9cRtJ/iyaf1zllUaUFQWb06uHV lcrnciYKJ27t6JXM3L/YYQ== 0001012870-98-001814.txt : 19980716 0001012870-98-001814.hdr.sgml : 19980716 ACCESSION NUMBER: 0001012870-98-001814 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19980715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EBAY INC CENTRAL INDEX KEY: 0001065088 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-59097 FILM NUMBER: 98666218 BUSINESS ADDRESS: STREET 1: 2005 HAMILTON AVE STREET 2: STE 350 CITY: SAN JOSE STATE: CA ZIP: 95125 MAIL ADDRESS: STREET 1: 2005 HAMILTON AVE STREET 2: STE 350 CITY: SAN JOSE STATE: CA ZIP: 95125 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- EBAY INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7389 77-0430924 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
--------------- 2005 HAMILTON AVENUE, SUITE 350 SAN JOSE, CALIFORNIA 95125 (408) 369-4830 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- GARY F. BENGIER VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 2005 HAMILTON AVENUE, SUITE 350 SAN JOSE, CALIFORNIA 95125 (408) 369-4830 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: LAIRD H. SIMONS III, ESQ. WILLIAM H. HINMAN, JR., ESQ. MATTHEW P. QUILTER, ESQ. SHEARMAN & STERLING JEFFREY R. VETTER, ESQ. 555 CALIFORNIA ST. TYLER R. COZZENS, ESQ. SAN FRANCISCO, CALIFORNIA 94104 DOROTHY L. HINES, ESQ. (415) 616-1100 FENWICK & WEST LLP TWO PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94306 (650) 494-0600 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------- Common Stock, par value $0.001 per share... $64,400,000 $18,998.00
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JULY 15, 1998 SHARES [LOGO] EBAY INC. COMMON STOCK (PAR VALUE $.001 PER SHARE) ----------- Of the shares of Common Stock offered hereby, shares are being sold by eBay Inc. and shares are being sold by a Selling Stockholder on behalf of a charitable foundation established by the Company. See "Principal and Selling Stockholders". The Company will not receive any of the proceeds from the sale of the shares being sold by the Selling Stockholder. Prior to the offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $ and $ per share. For factors to be considered in determining the initial public offering price, see "Underwriting". SEE "RISK FACTORS" ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. Application has been made for quotation of the Common Stock on the Nasdaq National Market under the symbol "EBAY". ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -----------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO OFFERING PRICE DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDER --------------- ------------ ----------- ------------------- Per Share......... $ $ $ $ Total (3)......... $ $ $ $
- ----- (1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting estimated expenses of $ payable by the Company. (3) The Company has granted the Underwriters an option for 30 days to purchase up to an additional shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to Company will be $ , $ and $ , respectively. See "Underwriting". ----------- The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that the shares will be ready for delivery in New York, New York on or about , 1998, against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE BANCAMERICA ROBERTSON STEPHENS BT ALEX. BROWN ----------- The date of this Prospectus is , 1998. [Picture of sample items available for auction by community members of eBay with the following text at bottom of page: Still Searching the Internet?] eBay(TM), the eBay logo, SafeHarbor(TM), Up4Sale(TM) and the "World's Personal Trading Community(TM)" are trademarks of the Company. This Prospectus also includes trade dress, trade names and trademarks of other companies. Use or display by eBay of other parties' trademarks, trade dress or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of eBay by, the trademark or trade dress owners. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 DESCRIPTION OF ARTWORK: The gatefold includes a sample picture of the eBay homepage The following text is contained on this gatefold: [Two page screen shot of eBay home page with textual descriptions of eBay service attributes, surrounded by the following text flowed to both sides] Welcome to the place where buyers and sellers deal with each other directly. This is eBay. It's an online auction community where over a million people visit every month. And they certainly seem to love their eBay (some have called it the thrill of the hunt)! In fact, this year alone, more than 500,000 new users have joined eBay--that's nearly 3,000 new community members just like you every day. With a total of 846 categories, and about half a million items available on any given day, eBay is already the largest and most popular person-to-person trading community on the Internet--and there are an average of over 70,000 new items every day. All kinds of people are turning to eBay to find all kinds of stuff that was costly or difficult to find before. Collectors and people with small businesses have often been able to expand in ways they'd never thought they could before coming to eBay (boundaries, geography, and distribution are kind of irrelevant on eBay). It doesn't seem to matter whether they're buying, selling, devoted to a hobby or collection or even running a little business--a lot of people are talking about the kind of success they're finding on eBay. When you buy or sell on eBay, you're dealing with another individual-- someone who knows exactly what they're selling or what they're looking for. Everyone is encouraged to (and most do) talk about what it's like to trade with someone. This feedback and rating system is an efficient way to check out the integrity of sellers and buyers. A positive eBay rating is worth its weight in gold...but beware...get too many negative ratings, and nobody in the community is going to do business with you (wouldn't it be nice if the rest of life was this clear cut?) So whether you're looking for a rare 1922 Hamilton pocket watch or a retired Chilly the Polar Bear Beanie Baby(R), give it a try--and see if you'd like to make eBay your personal trading community--because even if you could find it somewhere else...what fun would that be? [Artwork] (C)1998 eBay Inc. All rights reserved. PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Financial Statements and Pro Forma Financial Information and Notes thereto appearing elsewhere in this Prospectus, including the information under "Risk Factors." Unless otherwise indicated, all information in this Prospectus (i) reflects the conversion of all outstanding shares of Preferred Stock of the Company into shares of Common Stock upon the consummation of this offering, (ii) reflects a three-for-one stock split of the Company's Common Stock to be effected prior to the effectiveness of the Registration Statement of which this Prospectus forms a part and (iii) assumes the Underwriters' over- allotment option will not be exercised. See "Description of Capital Stock" and "Underwriting." Unless otherwise indicated, the terms "Company" and "eBay" refer to eBay Inc., its California predecessor and its consolidated subsidiary. THE COMPANY eBay is the world's largest and most popular person-to-person trading community on the Internet. eBay pioneered online person-to-person trading by developing a Web-based community in which buyers and sellers are brought together in an efficient and entertaining auction format to buy and sell personal items such as antiques, coins, collectibles, computers, memorabilia, stamps and toys. The eBay service permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items in a fully-automated, topically-arranged, intuitive and easy-to-use online service that is available 24 hours a day, seven days a week. From inception through June 30, 1998, eBay hosted over 15 million auctions resulting in gross merchandise sales in excess of $340 million. During the first half of 1998, the number of registered eBay users grew from approximately 340,000 to over 850,000 and the number of simultaneous auctions being conducted through eBay increased from approximately 200,000 to over 500,000. The Company believes that this critical mass of buyers, sellers and items listed for sale creates a cycle that helps eBay continue to grow its user base. Sellers are attracted to eBay as a result of the large number of potential buyers, and buyers in turn are attracted to eBay by the broad selection of goods listed on eBay. eBay provides buyers and sellers a place to socialize, to discuss topics of common interest and, ultimately, to conduct business in a compelling trading environment, thus fostering a large and growing commerce-oriented online community. The Internet offers for the first time the opportunity to create a compelling global marketplace for person-to-person trading--the exchange of goods between individuals. This trading has traditionally been conducted through trading forums, such as classified advertisements, collectibles shows, garage sales and flea markets, or through intermediaries, such as auction houses and local dealer shops. These markets are highly inefficient because: (i) their fragmented, regional nature makes it difficult and expensive for buyers and sellers to meet, exchange information and complete transactions; (ii) they offer a limited variety and breadth of goods; (iii) they often have high transaction costs from intermediaries; and (iv) they are information inefficient, as buyers and sellers lack a reliable and convenient means of setting prices for sales or purchases. Despite these inefficiencies, the Company believes that the market for traditional person-to-person trading in the U.S. through auctions and classified ads exceeded $50 billion in goods sold in 1997. An Internet-based centralized trading place can overcome the inefficiencies associated with traditional person-to-person trading by facilitating buyers and sellers meeting, listing items for sale, exchanging information, interacting with each other and, ultimately, consummating transactions. Through such a trading place, buyers can access a significantly broader selection of goods to purchase and sellers have the opportunity to sell their goods efficiently to a broader base of buyers. As a result, a significant market opportunity exists for an Internet-based centralized trading place that applies the unique attributes of the Internet to facilitate person-to-person trading. 3 eBay offers Web users the opportunity to join the world's largest Internet- based, person-to-person trading community. Any visitor to eBay can browse among over 500,000 items for sale, many of which are unique or otherwise hard to find, organized across 846 product categories, facilitating easy exploration. Browsers and buyers can also search auction listings for specific items or search by category, keyword, seller name, recently-commenced auctions or auctions about to end. eBay's auction format fosters a sense of urgency among buyers to bid for goods and creates an entertaining and compelling trading environment. Within minutes of registering as an eBay user, a seller can immediately list an item for sale, identify a minimum price for opening bids and specify how long the auction will last. Sellers pay a nominal placement fee for an item based on the seller's minimum price for the item, ranging from $0.25 to $2.00, and can highlight their auction for additional fees, ranging from $2.00 to $49.95. At the end of the auction period, if a bid exceeds the seller's minimum price, eBay automatically notifies the buyer and seller via email and then the buyer and seller consummate the transaction independently of eBay. At the time of notification, eBay charges the seller a success fee that steps down from 5% to 1.25% based on the closing price of the item. Buyers are not charged for making bids or purchases through eBay. At no point during the process does the Company take possession of either the item being sold or the buyer's payment for the item. Following completion of a transaction, each user is encouraged to submit compliments or criticism to the trading profile of his or her trading partner on eBay's "Feedback Forum." This Feedback Forum, which was pioneered by eBay, is intended to reduce the anonymity and uncertainty of dealing with an unknown trading partner and to help overcome initial user hesitancy when trading over the Web. eBay's Feedback Forum and comprehensive community services, such as chat rooms, bulletin boards and email, are designed to foster safe, direct interaction between buyers and sellers with similar interests, thus promoting a sense of community among users and encouraging consumer loyalty and repeat usage. These benefits have contributed to the successful completion of well over 50% of all auctions listed on eBay since inception. eBay's objective is to enhance its position as the world's leading online person-to-person trading community. Key elements of the Company's strategy include: (i) growing the eBay community and eBay brand, both to attract new members and to maintain the vitality of the eBay community; (ii) broadening eBay's trading platform by growing existing product categories, promoting new product categories and expanding internationally; (iii) fostering eBay community affinity; (iv) enhancing eBay site features and functionality through the introduction of personalization features, new auction formats and category- specific content; (v) introducing pre- and post-trade value-added services, such as shipping and third-party escrow services; and (vi) leveraging its unique business model, which does not require it to carry inventory or maintain a sales force, to grow its business. The Company was formed as a sole proprietorship in September 1995, incorporated in California in May 1996 and reincorporated in Delaware in April 1998. The Company's principal executive offices are located at 2005 Hamilton Avenue, Suite 350, San Jose, California 95125. The Company's telephone number is (408) 369-4830 and its Web site is located at www.ebay.com. Information contained on the Company's Web site shall not constitute a part of this Prospectus. EBAY FOUNDATION In June 1998, the Company established a charitable fund known as the eBay Foundation, which is administered by the Community Foundation Silicon Valley. To capitalize this foundation, eBay donated 107,250 shares of Common Stock to the Community Foundation Silicon Valley on behalf of the eBay Foundation. The Community Foundation Silicon Valley is selling 10,725 shares of Common Stock in this offering on behalf of the eBay Foundation. Through the Community Foundation Silicon Valley, the eBay Foundation will make grants to charitable organizations. The Company intends to involve the members of the eBay community in determining the charitable purposes to which proceeds from the sale of these shares will be devoted. 4 THE OFFERING Common Stock offered by the Company... shares Common Stock offered by the Selling Stockholder on behalf of the eBay Foundation........................... shares Common Stock to be outstanding after shares(1) this offering........................ Use of proceeds....................... For general corporate purposes, including to fund working capital, and to repay indebtedness. See "Use of Proceeds." Proposed Nasdaq National Market sym- "EBAY" bol..................................
SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, -------------- ---------------- 1996 1997 1997 1998 ------ ------- ------- -------- STATEMENT OF INCOME DATA: Net Revenues................................... $ 372 $ 5,744 $ 1,658 $ 14,922 Gross profit................................... 358 4,998 1,498 13,186 Income from operations......................... 253 1,487 844 2,824 Net income..................................... 148 874 486 348 Net income per share (2): Basic......................................... $ 0.07 $ 0.11 $ 0.08 $ 0.03 Weighted average shares--basic................ 2,125 7,438 6,163 10,711 Diluted....................................... $ 0.01 $ 0.03 $ 0.02 $ 0.01 Weighted average shares--diluted.............. 14,315 27,553 25,811 34,231 Pro forma net income per share (3): Basic......................................... $ 0.06 $ 0.02 Weighted average shares--basic................ 14,591 19,145 Diluted....................................... $ 0.03 $ 0.01 Weighted average shares--diluted.............. 27,553 34,231 SUPPLEMENTAL OPERATING DATA: Number of registered users at end of period.... 41 341 150 851 Gross merchandise sales ....................... $7,279 $95,271 $26,967 $243,745 Number of auctions listed...................... 289 4,394 1,237 10,793
JUNE 30, 1998 ---------------------------------------- PRO FORMA ACTUAL PRO FORMA (4) AS ADJUSTED (4)(5) ------- ------------- ------------------ BALANCE SHEET DATA: Cash and cash equivalents............ $10,716 $10,716 $ Working capital...................... 8,803 8,803 Total assets......................... 19,815 19,815 Debt and leases, long-term portion... 167 167 Series B Mandatorily Redeemable Con- vertible Preferred Stock............ 5,157 -- Total stockholders' equity........... 9,122 14,279
- -------- (1) Based on shares of Common Stock outstanding as of June 30, 1998. Excludes (i) 1,071,159 shares of Common Stock issuable upon the exercise of stock options outstanding as of June 30, 1998, at a weighted average per share exercise price of $3.52, under the Company's 1996 Stock Option Plan (the "1996 Plan"), the Company's 1997 Stock Option Plan (the "1997 Plan") and option grants outside of the 1996 Plan and 1997 Plan, (ii) 961,500 shares of Common Stock available for future grant as of June 30, 1998 under the Company's 1997 Plan, (iii) an additional 4,700,000 shares available for future grant or issuance under the Company's 1998 Equity Incentive Plan (the "Equity Incentive Plan") and 1998 Directors Stock Option Plan (the "Directors Plan") and (iv) 300,000 shares available for issuance under the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") which number is subject to automatic annual increases up to a maximum of 1,500,000 shares. Subsequent to June 30, 1998, the Company granted options to purchase an additional 584,250 shares of Common Stock under the 1997 Plan. See "Capitalization," "Management--Director Compensation," "Management--Employee Benefit Plans," "Description of Capital Stock" and Notes 8, 9, 10 and 11 of Notes to Consolidated Financial Statements. (2) See Note 1 of Notes to Consolidated Financial Statements for a description of the method used to compute basic and diluted net income per share. (3) Pro forma net income per share gives effect to the conversion of all outstanding shares of the Company's Series A Convertible Preferred Stock and Series B Mandatorily Redeemable Convertible Preferred Stock into Common Stock upon the closing of this offering as if such conversion had occurred on January 1, 1997, or the date of original issuance, if later. See Note 1 of Notes to Consolidated Financial Statements for a description of the method used to compute pro forma basic and diluted net income per share. (4) Gives effect to the conversion of all outstanding shares of the Company's Series A Convertible Preferred Stock and Series B Mandatorily Redeemable Convertible Preferred Stock into Common Stock upon the closing of this offering. See "Capitalization." (5) Adjusted to give effect to the sale of the shares of Common Stock offered by the Company hereby, at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses, and the application of the net proceeds therefrom. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS This offering involves a high degree of risk. In addition to the other information set forth in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing any of the shares of Common Stock of the Company. This Prospectus contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. When used in this Prospectus, the words "expects," "anticipates," "intends" and "plans" and similar expressions are intended to identify certain of these forward-looking statements. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from those discussed in this Prospectus. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Prospectus. LIMITED OPERATING HISTORY; NO ASSURANCE OF CONTINUED PROFITABILITY The Company was formed as a sole proprietorship in September 1995 and incorporated in May 1996. Thus, it has only a limited operating history on which to base an evaluation of its business and prospects. The Company's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as online commerce. To address these risks and uncertainties, the Company must, among other things, maintain and increase the number of its registered users, items listed on its service, completed auctions, maintain and enhance its brand, implement and execute its business and marketing strategy successfully, continue to develop and upgrade its technology and information- processing systems, continue to enhance the eBay service to meet the needs of a changing market, provide superior customer service, respond to competitive developments and attract, integrate, retain and motivate qualified personnel. There can be no assurance that the Company will be successful in accomplishing all of these things, and the failure to do so could have a material adverse effect on the Company's business, results of operations and financial condition. The Company believes that its continued growth and profitability will depend in large part on its ability to (i) increase its brand name awareness, (ii) provide its customers with superior community and trading experiences and (iii) maintain sufficient transaction volume to attract buyers and sellers. Accordingly, the Company intends to invest heavily in marketing and promotion, site development, technology and operating infrastructure development. Although the Company has experienced significant revenue growth and significant growth in the number of its registered users and items listed for auction by its users in recent periods, such growth rates are not sustainable and will decrease in the future. In view of the rapidly evolving nature of the Company's business and its limited operating history, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as indications of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS; SEASONALITY The Company's operating results have varied on a quarterly basis during its short operating history and may fluctuate significantly as a result of a variety of factors, many of which are outside the Company's control. Factors that may affect the Company's quarterly operating results include: (i) the Company's ability to retain an active user base, attract new users who list items for sale and who complete transactions through its service and maintain customer satisfaction; (ii) the Company's ability to manage the number of items listed on its service; (iii) the announcement or introduction of new sites, services and products by the Company or its competitors; (iv) the success of the Company's brand building and marketing campaigns; (v) price competition; (vi) the level of use of the Internet and online 6 services; (vii) increasing consumer confidence in and acceptance of the Internet and other online services for commerce and, in particular, the trading of products such as those listed on eBay; (viii) consumer confidence in the security of transactions over the Internet; (ix) the Company's ability to upgrade and develop its systems and infrastructure to accommodate growth; (x) the Company's ability to attract new personnel in a timely and effective manner; (xi) the volume of items listed on the Company's Web site; (xii) the timing, cost and availability of advertising in traditional media and on other Web sites and online services; (xiii) technical difficulties or service interruptions; (xiv) the amount and timing of operating costs and capital expenditures relating to expansion of the Company's business, operations and infrastructure; (xv) consumer trends and popularity of certain categories of collectible items; (xvi) volume, size, timing and completion rate of trades on eBay; (xvii) governmental regulation by Federal or local governments; and (xviii) general economic conditions as well as economic conditions specific to the Internet and online commerce industries. As a result of the Company's limited operating history and the emerging nature of the markets in which it competes, it is difficult for the Company to forecast its revenues or earnings accurately. In addition, the Company has no backlog and a significant portion of the Company's net revenues for a particular quarter are derived from auctions that are listed and completed during that quarter. The Company's current and future expense levels are based largely on its investment plans and estimates of future revenues and are, to a large extent, fixed. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to the Company's planned expenditures would have an immediate adverse effect on the Company's business, results of operations and financial condition. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service or marketing decisions that could have a material adverse effect on its business, results of operations and financial condition. The Company believes that its results of operations are somewhat seasonal in nature, with fewer auctions listed around the Thanksgiving and Christmas holidays in the fourth quarter. The Company's limited operating history, however, makes it difficult to fully assess the impact of these seasonal factors or whether or not its business is susceptible to cyclical fluctuations in the U.S. economy. In addition, the Company believes that its rapid growth may have overshadowed whatever seasonal or cyclical factors might have influenced its business to date. There can be no assurance that seasonal or cyclical variations in the Company's operations will not become more pronounced over time or that they will not materially adversely affect its results of operations in the future. Moreover, consumer "fads" and other changes in consumer trends may cause significant fluctuations in the Company's operating results from one quarter to the next. See "--Risks Related to Consumer Trends." Due to the foregoing factors, the Company's quarterly revenues and operating results are difficult to forecast. The Company believes that period-to-period comparisons of its operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is likely that in one or more future quarters the Company's operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of the Common Stock would almost certainly be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANAGEMENT OF POTENTIAL GROWTH; NEW MANAGEMENT TEAM; DEPENDENCE ON KEY PERSONNEL The Company is currently experiencing a period of significant expansion and anticipates that further expansion will be required to address potential growth in its customer base and market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on the Company's management, operational and financial resources. From inception to June 30, 1998, the Company expanded from one to 76 employees. Certain members of the Company's management, including the Company's President and Chief Executive Officer, have joined the Company within the 7 last year. The Company's new employees include a number of key managerial, marketing, planning, technical and operations personnel who have not yet been fully integrated into the Company, and the Company expects to add additional key personnel in the near future. To manage the expected growth of its operations and personnel, the Company will be required to improve existing and implement new transaction processing, operational and financial systems, procedures and controls, and to expand, train and manage its growing employee base. The Company also will be required to expand its finance, administrative and operations staff. Further, the Company may be required to enter into relationships with various strategic partners, Web sites and other online service providers and other third parties necessary to the Company's business. There can be no assurance that the Company's current and planned personnel, systems, procedures and controls will be adequate to support the Company's future operations, that management will be able to hire, train, retain, motivate and manage required personnel or that Company management will be able to identify, manage and exploit existing and potential strategic relationships and market opportunities. The failure of the Company to manage growth effectively could have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Employees." The Company's performance is substantially dependent on the continued services and on the performance of its senior management and other key personnel. The Company's performance also depends on the Company's ability to retain and motivate its other officers and key employees. The loss of the services of any of its executive officers or other key employees could have a material adverse effect on the Company's business, results of operations and financial condition. The Company does not have long-term employment agreements with any of its key personnel and maintains no "key person" life insurance policies. The Company's future success also depends on its ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be able to successfully attract, integrate or retain sufficiently qualified personnel. In particular, the Company has encountered difficulties in attracting a sufficient number of qualified software developers for its Web site and transaction processing systems, and there can be no assurance that the Company will be able to retain and attract such developers. The failure to retain and attract the necessary personnel could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Employees" and "Management." DEVELOPING MARKET; DEPENDENCE ON CONTINUED GROWTH OF ONLINE PERSON-TO-PERSON COMMERCE The market for the sale of goods over the Internet, particularly through person-to-person trading, is a new and emerging market. The Company's future revenues and profits are substantially dependent upon the widespread acceptance and use of the Internet and other online services as a medium for commerce by consumers. Rapid growth in the use of and interest in the Web, the Internet and other online services is a recent phenomenon and there can be no assurance that this acceptance and use will continue to develop or that a sufficiently broad base of consumers will adopt, and continue to use, the Internet as a medium of commerce. Demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty, and there exist few proven services and products. Growth in the Company's user base relies on obtaining consumers who have historically used traditional means of commerce to purchase goods. For the Company to be successful, these consumers must accept and use novel ways of conducting business and exchanging information. In addition, the Internet may not be commercially viable in the long term for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies, performance improvements and security measures. To the extent that the Internet continues to experience significant growth in the number of users, their frequency of use or their bandwidth requirements, there can be no assurance that the infrastructure 8 for the Internet and other online services will be able to support the demands placed upon them. In addition, the Internet or other online services could lose their viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet or other online service activity, or due to increased governmental regulation. Changes in or insufficient availability of telecommunications services to support the Internet or other online services also could result in slower response times and adversely affect usage of the Internet and other online services generally and the eBay service in particular. If use of the Internet and other online services does not continue to grow or grows more slowly than expected, if the infrastructure for the Internet and other online services does not effectively support growth that may occur, or if the Internet and other online services do not become a viable commercial marketplace, the Company's business, results of operations and financial condition would be materially adversely affected. RISK OF CAPACITY CONSTRAINTS The Company seeks to generate a high volume of traffic and transactions on the eBay service. Accordingly, the satisfactory performance, reliability and availability of the Company's Web site, processing systems and network infrastructure are critical to the Company's reputation and its ability to attract and retain large numbers of users who bid for or sell items on its service while maintaining adequate customer service levels. The Company's revenues depend on the number of items listed by users, the volume of user auctions that are successfully completed and the final prices paid for the items listed. Any system interruptions that result in the unavailability of the Company's service or reduced customer activity would reduce the volume of items listed and auctions completed and could affect the average selling price of the items. Interruptions of service may also diminish the attractiveness of the Company and its services. The Company has experienced periodic system interruptions, which it believes will continue to occur from time to time. Any substantial increase in the volume of traffic on the Company's Web site or in the number of auctions being conducted by customers will require the Company to expand and upgrade its technology, transaction processing systems and network infrastructure. There can be no assurance that the Company will be able to accurately project the rate or timing of increases, if any, in the use of the eBay service or timely expand and upgrade its systems and infrastructure to accommodate such increases in a timely manner. Any failure to expand or upgrade its systems could have a material adverse effect on the Company's business, results of operations and financial condition. The Company uses internally developed systems for its service and transaction processing, including billing and collections processing. The Company must continually enhance and improve these systems in order to accommodate the level of use of eBay. Furthermore, in the future, the Company may add additional features and functionality to its services that would result in the need to develop or license additional technologies. The Company's inability to add additional software and hardware or to develop and further upgrade its existing technology, transaction processing systems or network infrastructure to accommodate increased traffic on the eBay service or increased transaction volume through its processing systems or to provide new features or functionality may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired quality of the user's experience on the eBay service, and delays in reporting accurate financial information. In addition, although the Company works to prevent unauthorized access to Company data, it is impossible to completely eliminate this risk. There can be no assurance that the Company will be able in a timely manner to effectively upgrade and expand its systems or to integrate smoothly any newly developed or purchased technologies with its existing systems. Any inability to do so would have a material adverse effect on the Company's business, results of operations and financial condition. See "--Risk of System Failures" and "Business--Operations and Technology." 9 RISK OF SYSTEM FAILURES The Company's success, and in particular its ability to facilitate trades successfully and provide high quality customer service, depends on the efficient and uninterrupted operation of its computer and communications hardware systems. Substantially all of the Company's computer hardware for operating the eBay service is currently located at the facilities of Exodus Communications, Inc. ("Exodus") in Santa Clara, California. These systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, break-ins, sabotage, intentional acts of vandalism and similar events. The Company does not presently have fully redundant systems, a formal disaster recovery plan or alternative providers of hosting services and does not carry sufficient business interruption insurance to compensate it for losses that may occur. Despite any precautions taken by, and planned to be taken by the Company, the occurrence of a natural disaster or other unanticipated problems at the Exodus facility could result in interruptions in the services provided by the Company. In addition, the failure by Exodus to provide the data communications capacity required by the Company, as a result of human error, natural disaster or other operational disruption, could result in interruptions in the Company's service. Any damage to or failure of the systems of the Company could result in reductions in, or terminations of, the eBay service, which could have a material adverse effect on the Company's business, results of operations and financial condition. In the case of frequent or persistent system failures, the Company's reputation and name brand could be materially adversely affected. Although the Company has implemented certain network security measures, its servers are also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of data or the inability to complete customer auctions, any and all of which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Operations and Technology" and "-- Facilities. " INTENSE COMPETITION The market for person-to-person trading over the Internet is new, rapidly evolving and intensely competitive, and the Company expects competition to intensify further in the future. Barriers to entry are relatively low, and current and new competitors can launch new sites at a relatively low cost using commercially-available software. The Company currently or potentially competes with a number of other companies. The Company's direct competitors include various online person-to-person auction services, including Onsale Exchange, a division of Onsale, Inc. ("Onsale"); Auction Universe, a Times-Mirror Company; Excite, Inc. ("Excite"); and a number of other small services, including those that serve specialty markets. The Company also competes indirectly with business-to-consumer online auction services such as Onsale, First Auction, ZAuction and Surplus Auction. The Company potentially faces competition from a number of large online communities and services that have expertise in developing online commerce and in facilitating online person-to-person interaction. Certain of these potential competitors, including Amazon.com, America Online, Inc. ("AOL"), Microsoft Corporation ("Microsoft") and Yahoo! Inc. ("Yahoo!"), currently offer a variety of business-to-consumer trading services and classified ad services and certain of these companies may introduce person-to-person trading to their large user populations. Other large companies with strong brand recognition and experience in online commerce, such as Cendant Corporation, QVC and large newspaper or media companies may also seek to compete in the online auction market. Competitive pressures created by any one of these companies, or by the Company's competitors collectively, could have a material adverse effect on the Company's business, results of operations and financial condition. The Company believes that the principal competitive factors in its market are volume and selection of goods, population of buyers and sellers, community cohesion and interaction, customer service, reliability of delivery and payment by users, brand recognition, Web site convenience and accessibility, 10 price, quality of search tools and system reliability. Many of the Company's current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing, technical and other resources than the Company. In addition, other online trading services may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well- financed companies as use of the Internet and other online services increases. Therefore, certain of the Company's competitors with other revenue sources may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to Web site and systems development than the Company or may try to attract traffic by offering services for free. Increased competition may result in reduced operating margins, loss of market share and diminished value in the Company's brand. There can be no assurance that the Company will be able to compete successfully against current and future competitors. Further, as a strategic response to changes in the competitive environment, the Company may, from time to time, make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on its business, results of operations and financial condition. New technologies and the expansion of existing technologies may increase the competitive pressures on the Company by enabling the Company's competitors to offer a lower-cost service. Certain Web- based applications that direct Internet traffic to certain Web sites may channel users to trading services that compete with the Company. Although the Company has established Internet traffic arrangements with several large online services and search engine companies, there can be no assurance that these arrangements will be renewed on commercially reasonable terms or that they will otherwise continue to result in increased usage of the eBay service. In addition, companies that control access to transactions through network access or Web browsers could promote the Company's competitors or charge the Company substantial fees for inclusion. Any and all of these events could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Competition." RISKS ASSOCIATED WITH BRAND DEVELOPMENT The Company believes that its historical growth has been largely attributable to word-of-mouth. Despite this historical organic growth, the Company believes that continuing to strengthen its brand is critical to achieving widespread acceptance of eBay, particularly in light of the competitive nature of the Company's market. Promoting and positioning its brand will depend largely on the success of the Company's marketing efforts and the ability of the Company to provide high quality services. In order to promote its brand, the Company will need to increase its marketing budget and otherwise increase its financial commitment to creating and maintaining brand loyalty among users. There can be no assurance that brand promotion activities will yield increased revenues or that any such revenues would offset the expenses incurred by the Company in building its brand. Further, there can be no assurance that any new users attracted to eBay will conduct transactions over eBay on a regular basis. If the Company fails to promote and maintain its brand or incurs substantial expenses in an attempt to promote and maintain its brand or if the Company's existing or future strategic relationships fail to promote the Company's brand or increase brand awareness, the Company's business, results of operations and financial condition would be materially adversely affected. See "Business--eBay Strategy." RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH NEW SERVICES, FEATURES AND FUNCTIONS The market in which the Company competes is characterized by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. These market characteristics are exacerbated by the emerging nature of the Web and the apparent need of companies from a multitude of industries to offer Web- based products and services. Accordingly, the Company's future success will depend on its ability to adapt to rapidly changing technologies, to adapt its services to evolving industry standards and to continually improve the performance, features and reliability of its service in response to competitive 11 service and product offerings and evolving demands of the marketplace. The failure of the Company to adapt to such changes would have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures by the Company to modify or adapt its services or infrastructure, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business-- Operations and Technology." The Company plans to expand its operations by developing and promoting new or complementary services, products or transaction formats or expanding the breadth and depth of services. There can be no assurance that the Company would be able to expand its operations in a cost-effective or timely manner or that any such efforts would maintain or increase overall market acceptance. Furthermore, any new business or service launched by the Company that is not favorably received by consumers could damage the Company's reputation and diminish the value of its brand name. Expansion of the Company's operations in this manner would also require significant additional expenses and development, operations and other resources and would strain the Company's management, financial and operational resources. The lack of market acceptance of such services or the Company's inability to generate satisfactory revenues from such expanded services to offset their cost could have a material adverse effect on the Company's business, results of operations and financial condition. RISKS RELATED TO CONSUMER TRENDS The Company derives substantially all of its revenues from fees from sellers for listing products for sale on its service and fees from successfully completed auctions. The Company's future revenues will depend upon continued demand for the types of goods that are listed by users of the eBay service. The popularity of certain categories of items, such as toys, dolls and memorabilia, among consumers may vary over time due to perceived scarcity, subjective value, and societal and consumer trends in general. For example during the three months ended June 30, 1998, the Company had, at times, over 30,000 simultaneous auctions listed in its "Beanie Babies" category. A decline in the popularity of, or demand for, certain collectibles or other items sold through the eBay service could reduce the overall volume of transactions on the eBay service, resulting in reduced revenues. In addition, certain consumer "fads" may temporarily inflate the volume of certain types of items listed on the eBay service, placing a significant strain upon the Company's infrastructure and transaction capacity. These trends may also cause significant fluctuations in the Company's operating results from one quarter to the next. Any decline in demand for the goods offered through the eBay service as a result of changes in consumer trends could have a material adverse effect on the Company's business, results of operations and financial condition. RISKS ASSOCIATED WITH CERTAIN ACTIVITIES ON THE COMPANY'S SERVICE The law relating to the liability of providers of online services for activities of their users on the service is currently unsettled. While the Company does not pre-screen the types of goods offered on eBay, the Company is aware that certain goods, such as alcohol, tobacco, firearms, adult material and other goods that may be subject to regulation by local, state or federal authorities have been traded on the eBay service. There can be no assurance that the Company will be able to prevent the unlawful exchange of goods on its service or that it will successfully avoid civil or criminal liability for unlawful activities carried out by users through the Company's service. The imposition upon the Company of potential liability for unlawful activities of users of the eBay service could require the Company to implement measures to reduce its exposure to such liability, which may require, among other things, the Company to spend substantial resources and/or or to discontinue certain service offerings. Any costs incurred as a result of such liability or asserted liability could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Government Regulation." 12 In addition, the Company's success depends largely upon sellers reliably delivering and accurately representing the listed goods and buyers paying the agreed purchase price. The Company takes no responsibility for delivery of payment or goods to any user of the eBay service. The Company has received in the past, and anticipates that it will receive in the future, communications from users who did not receive the purchase price or the goods that were to have been exchanged. While the Company can suspend the accounts of users who fail to fulfill their delivery obligations to other users, the Company, beyond crediting sellers with the amount of their fees in certain circumstances, does not have the ability to otherwise require users to make payments or deliver goods and the Company does not compensate users who believe they have been defrauded by other users. The Company also from time to time receives complaints from buyers as to the quality of the goods purchased. Although the Company has attempted to reduce its liability to buyers for unfulfilled transactions or other claims related to the quality of the purchased goods and although the average transaction size is approximately $40.00, the Company may in the future receive additional requests from users requesting reimbursement or threatening legal action against the Company if no reimbursement is made. Any resulting litigation could be costly for the Company, divert management attention and could result in increased costs of doing business, or otherwise have a material adverse effect on the Company's business, results of operations and financial condition. Any negative publicity generated as a result of fraudulent or deceptive conduct by users of eBay could damage the Company's reputation and diminish the value of its brand name, which could have a material adverse effect on the Company's business, results of operations and financial condition. The Company does not pre-screen the goods that are listed by users on eBay or the contents of their listings, which may include text and images. The Company has received in the past, and anticipates that it will receive in the future, communications alleging that certain items sold through the eBay service infringe third-party copyrights, trademarks or other intellectual property rights. While the Company's user policy prohibits the sale of goods which may infringe third-party intellectual property rights and the Company is empowered to suspend the account of any user who infringes third-party intellectual property rights, there can be no assurance that an allegation of infringement will not result in litigation against the Company. Any such litigation could be costly for the Company and could result in increased costs of doing business, or could in some other manner have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--The eBay Service." ONLINE COMMERCE SECURITY RISKS A significant barrier to online commerce and communications is the secure transmission of confidential information over public networks. Currently, a significant number of eBay users authorize the Company to bill their credit card accounts directly for all transaction fees charged by the Company. The Company relies on encryption and authentication technology licensed from third parties to provide the security and authentication technology to effect secure transmission of confidential information, including customer credit card numbers. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments will not result in a compromise or breach of the technology used by the Company to protect customer transaction data. If any such compromise of the Company's security were to occur, it could have a material adverse effect on the Company's reputation and, therefore, on its business, results of operations and financial condition. Furthermore, a party who is able to circumvent the Company's security measures could misappropriate proprietary information or cause interruptions in the Company's operations. The Company may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and other online services and the privacy of users may also inhibit the growth of the Internet and other online services generally, and the Web in particular, especially as a means of conducting commercial transactions. To the extent that activities of the Company involve the storage and transmission of proprietary information, such as credit card numbers, 13 security breaches could damage the Company's reputation and expose the Company to a risk of loss or litigation and possible liability. The Company's insurance policies carry low coverage limits, which may not be adequate to reimburse the Company for losses caused by security breaches. There can be no assurance that the Company's security measures will prevent security breaches or that failure to prevent such security breaches will not have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Operations and Technology." RISKS ASSOCIATED WITH ACQUISITIONS If appropriate opportunities present themselves, the Company intends to acquire businesses, technologies, services or products that the Company believes are strategic. For example, the Company recently acquired Jump Incorporated ("Jump") the developer and operator of Up4Sale, an advertising- supported online trading service for an aggregate transaction value of $2.3 million. The Company currently has no understandings, commitments or agreements with respect to any other material acquisition and no other material acquisition is currently being pursued. There can be no assurance that the Company will be able to identify, negotiate or finance future acquisitions successfully, or to integrate such acquisitions with its current business. The process of integrating an acquired business, technology, service or product into the Company may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of the Company's business. Moreover, there can be no assurance that the anticipated benefits of any acquisition, including Jump, will be realized. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's business, results of operations and financial condition. Any such future acquisitions of other businesses, technologies, services or products might require the Company to obtain additional equity or debt financing, which might not be available on terms favorable to the Company, or at all, and such financing, if available, might be dilutive. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Acquisition of Jump." DEPENDENCE ON THE WEB INFRASTRUCTURE The success of the eBay service will depend in large part upon the development and maintenance of the Web infrastructure, such as a reliable network backbone with the necessary speed, data capacity and security, or timely development of complementary products such as high speed modems, for providing reliable Web access and services. Because global commerce and the online exchange of information is new and evolving, it is difficult to predict with any assurance whether the Web will prove to be a viable commercial marketplace in the long term. The Web has experienced, and is expected to continue to experience, significant growth in the numbers of users and amount of traffic. To the extent that the Web continues to experience increased numbers of users, frequency of use or increased bandwidth requirements of users, there can be no assurance that the Web infrastructure will continue to be able to support the demands placed on it by this continued growth or that the performance or reliability of the Web will not be adversely affected. Furthermore, the Web has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and could face such outages and delays in the future, including outages and delays resulting from the inability of certain computers or software to distinguish dates in the 21st century from dates in the 20th century. See "--Year 2000 Implications." These outages and delays could adversely affect the level of Web usage and also the level of traffic and the processing of auctions on eBay. In addition, the Web could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of activity or due to increased governmental regulation. There can be no assurance that the infrastructure or complementary products or services necessary to make the Web a viable commercial marketplace for the long term will be developed or that if they are developed, that the Web will become a viable commercial marketplace for services such as those 14 offered by the Company. If the necessary infrastructure, standard or protocols or complementary products, services or facilities are not developed, or if the Web does not become a viable commercial marketplace, the Company's business, results of operations and financial condition will be materially and adversely affected. Even if the infrastructure, standards or protocols or complementary products, services or facilities are developed and the Web becomes a viable commercial marketplace in the long term, the Company might be required to incur substantial expenditures in order to adapt its service to changing Web technologies, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business-- Industry Background." RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S SERVICE The law relating to the liability of online services companies for information carried on or disseminated through their services is currently unsettled. It is possible that claims could be made against online services companies under both United States and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the nature and content of the materials disseminated through their services. Several private lawsuits seeking to impose such liability upon other online services companies are currently pending. In addition, legislation has been proposed that imposes liability for or prohibits the transmission over the Internet of certain types of information. The eBay service features a Feedback Forum, which includes information from users regarding the reliability of other users in promptly paying or delivering goods sold in an auction transaction. Although all such feedback is generated by users and not by the Company, it is possible that a claim of defamation or other injury could be made against the Company for content posted in the Feedback Forum. The imposition upon the Company and other online services providers of potential liability for information carried on or disseminated through their services could require the Company to implement measures to reduce its exposure to such liability, which may require the Company to expend substantial resources and/or to discontinue certain service offerings. In addition, the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could impact the growth of Internet use. While the Company carries liability insurance, it may not be adequate to fully compensate the Company in the event the Company becomes liable for information carried on or disseminated through its service. Any costs not covered by insurance incurred as a result of such liability or asserted liability could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Government Regulation" and "--Privacy Policy." GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES The Company is not currently subject to direct federal, state or local regulation, and laws or regulations applicable to access to or commerce on the Internet, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Although sections of the Communications Decency Act of 1996 (the "CDA") that, among other things, proposed to impose criminal penalties on anyone distributing "indecent" material to minors over the Internet, were held to be unconstitutional by the U.S. Supreme Court, there can be no assurance that similar laws will not be proposed and adopted. Certain members of Congress have recently discussed proposing legislation that would regulate the distribution of "indecent" material over the Internet in a manner that they believe would withstand challenge on constitutional grounds. The nature of such similar legislation and the manner in which it may be interpreted and enforced cannot be fully determined and, therefore, legislation similar to the CDA could subject the Company and/or its customers to potential liability, which in turn could have an adverse effect on the Company's business, results of operations and financial condition. The adoption of any such laws or regulations might also decrease the rate of growth of Internet use, which in turn could decrease the demand for 15 the eBay service or increase the cost of doing business or in some other manner have a material adverse effect on the Company's business, results of operations and financial condition. In addition, applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy is uncertain. The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. In addition, numerous states, including the State of California in which the Company's headquarters are located, have regulations regarding the manner in which "auctions" may be conducted and the liability of "auctioneers" in conducting such auctions. The Company does not believe that such regulations, which were adopted prior to the advent of the Internet, govern the operations of the Company's business nor have any claims been filed by any state implying that the Company is subject to such legislation. There can be no assurance, however, that a state will not attempt to impose these regulations upon the Company in the future or that such imposition will not have a material adverse effect on the Company's business, results of operations and financial condition. Several states have also proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. Changes to existing laws or the passage of new laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace that could reduce demand for the services of the Company or increase the cost of doing business as a result of litigation costs or increased service delivery costs, or could in some other manner have a material adverse effect on the Company's business, results of operations and financial condition. In addition, because the Company's services are accessible worldwide, and the Company facilitates sales of goods to users worldwide, other jurisdictions may claim that the Company is required to qualify to do business as a foreign corporation in a particular state or foreign country. The Company is qualified to do business in two states in the United States, and failure by the Company to qualify as a foreign corporation in a jurisdiction where it is required to do so could subject the Company to taxes and penalties for the failure to qualify and could result in the inability of the Company to enforce contracts in such jurisdictions. Any such new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to the Company's business, could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business--Government Regulation" and "--Privacy Policy." SALES AND OTHER TAXES The Company does not collect sales or other similar taxes in respect of goods sold by users through the eBay service. However, one or more states may seek to impose sales tax collection obligations on out-of-state companies such as the Company which engage in or facilitate online commerce, and a number of proposals have been made at the state and local level that would impose additional taxes on the sale of goods and services through the Internet. Such proposals, if adopted, could substantially impair the growth of electronic commerce, and could adversely affect the Company's opportunity to derive financial benefit from such activities. Moreover, a successful assertion by one or more states or any foreign country that the Company should collect sales or other taxes on the exchange of merchandise on its system could have a material adverse effect on the Company's business, results of operations and financial condition. Legislation limiting the ability of the states to impose taxes on Internet- based transactions has been proposed in the U.S. Congress. There can be no assurance that this legislation will ultimately be enacted into law or that the final version of this legislation will not contain a limited time period in which such tax moratorium will apply. In the event that the tax moratorium is imposed for a limited time period, there 16 can be no assurance that the legislation will be renewed at the end of such period. Failure to enact or renew this legislation could allow various states to impose taxes on Internet-based commerce and the imposition of such taxes could have a material adverse affect on the Company's business, results of operations and financial condition. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS A component of the Company's strategy is to expand internationally. Expansion into the international markets will require management attention and resources. The Company has limited experience in localizing its service, and the Company believes that many of its competitors are also undertaking expansion into foreign markets. There can be no assurance that the Company will be successful in expanding into international markets. In addition to the uncertainty regarding the Company's ability to generate revenues from foreign operations and expand its international presence, there are certain risks inherent in doing business on an international basis, including, among others, regulatory requirements, legal uncertainty regarding liability, tariffs, and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, different accounting practices, problems in collecting accounts receivable, political instability, seasonal reductions in business activity and potentially adverse tax consequences, any of which could adversely affect the success of the Company's international operations. To the extent the Company expands its international operations and has additional portions of its international revenues denominated in foreign currencies, the Company could become subject to increased risks relating to foreign currency exchange rate fluctuations. There can be no assurance that one or more of the factors discussed above will not have a material adverse effect on the Company's future international operations and, consequently, on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--eBay Strategy." PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS The Company regards the protection of its copyrights, service marks, trademarks, trade dress and trade secrets as critical to its future success and relies on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protect its proprietary rights in products and services. The Company has entered into confidentiality and invention assignment agreements with its employees and contractors, and nondisclosure agreements with parties with which it conducts business in order to limit access to and disclosure of its proprietary information. There can be no assurance that these contractual arrangements or the other steps taken by the Company to protect its intellectual property will prove sufficient to prevent misappropriation of the Company's technology or to deter independent third-party development of similar technologies. The Company pursues the registration of its trademarks and service marks in the U.S. and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which the Company's services are made available online. The Company has licensed in the past, and expects that it may license in the future, certain of its proprietary rights, such as trademarks or copyrighted material, to third parties. While the Company attempts to ensure that the quality of the eBay brand is maintained by such licensees, there can be no assurance that such licensees will not take actions that might materially adversely affect the value of the Company's proprietary rights or reputation, which could have a material adverse effect on the Company's business, results of operations and financial condition. The Company also relies on certain technologies that it licenses from third parties, such as Oracle Corporation ("Oracle"), Microsoft and Sun Microsystems Inc. ("Sun"), the suppliers of key database technology, the operating system and specific hardware components for the eBay service. There can be no assurance that these third-party technology licenses will continue to be available to the Company on commercially reasonable terms. The loss of such technology could require the Company to obtain substitute technology of lower quality or performance standards or at greater cost, which could materially adversely affect the Company's business, results of operations and financial condition. 17 To date, the Company has not been notified that its technologies infringe the proprietary rights of third parties, but there can be no assurance that third parties will not claim infringement by the Company with respect to past, current or future technologies. The Company expects that participants in its markets will be increasingly subject to infringement claims as the number of services and competitors in the Company's industry segment grows. Any such claim, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to the Company or at all. As a result, any such claim could have a material adverse effect upon the Company's business, results of operations and financial condition. See "Business--Intellectual Property Rights." YEAR 2000 IMPLICATIONS Many current installed computer systems and software products are coded to accept only two-digit entries in the date code field and cannot reliably distinguish dates beginning on January 1, 2000 from dates prior to the year 2000. Many companies' software and computer systems may need to be upgraded or replaced in order to correctly process dates beginning in 2000 and to comply with the "Year 2000" requirements. The Company has reviewed its internal programs and has determined that there are no significant Year 2000 issues within the Company's systems or services. However, although the Company believes that its systems are Year 2000 compliant, the Company utilizes third- party equipment and software that may not be Year 2000 compliant. Failure of such third-party equipment or software to properly process dates for the year 2000 and thereafter could require the Company to incur unanticipated expenses to remedy any problems, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." POSSIBLE VOLATILITY OF STOCK PRICE The trading price of the Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as actual or anticipated variations in the Company's quarterly operating results, announcements of technological innovations, or new services by the Company or its competitors, changes in financial estimates by securities analysts, conditions or trends in the Internet and online commerce industries, changes in the market valuations of other Internet or online service companies, announcements by the Company or its competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments, additions or departures of key personnel, sales of Common Stock or other securities of the Company in the open market and other events or factors, many of which are beyond the Company's control. Further, the stock markets in general, and the Nasdaq National Market and the market for Internet-related and technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. The trading prices of many technology companies' stocks are at or near historical highs and reflect valuations substantially above historical levels. There can be no assurance that these trading prices and valuations will be sustained. These broad market and industry factors may materially and adversely affect the market price of the Common Stock, regardless of the Company's operating performance. Market fluctuations, as well as general political and economic conditions such as recession or interest rate or currency rate fluctuations, may also adversely affect the market price of the Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against such company. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, results of operations and financial condition. 18 CONTROL BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS Upon completion of this offering, the Company's executive officers and directors (and their affiliates) will, in the aggregate, own approximately % of the Company's outstanding Common Stock ( % if the Underwriters' over- allotment option is exercised in full). As a result, such persons, acting together, will have the ability to control all matters submitted to stockholders of the Company for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of the Company's assets) and to control the management and affairs of the Company. Accordingly, such concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company, impede a merger, consolidation, takeover or other business combination involving the Company or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could have an adverse effect on the market price of the Company's Common Stock. See "Management" and "Principal and Selling Stockholders." FUTURE CAPITAL NEEDS The Company currently anticipates that the net proceeds of this offering, together with its available funds, will be sufficient to meet its anticipated needs for working capital, capital expenditures and business expansion through at least the next 18 months. Thereafter, the Company may need to raise additional funds. The Company may need to raise additional funds sooner in order to fund more rapid expansion, to develop new or enhanced services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of the Company's Common Stock. There can be no assurance that additional financing will be available on terms favorable to the Company or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to fund its expansion, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures. Such inability could have a material adverse effect on the Company's business, results of operations and financial condition. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations--Liquidity and Capital Resources." SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of the Company's Common Stock (including shares issued upon the exercise of outstanding options) in the public market after this offering could adversely affect the market price of the Common Stock. Such sales also might make it more difficult for the Company to sell equity or equity-related securities in the future at a time and price that the Company deems appropriate. In addition to the shares of Common Stock offered hereby (assuming no exercise of the Underwriters' over-allotment option), as of the date of this Prospectus, there will be 36,249,801 shares of Common Stock outstanding, all of which are restricted securities ("Restricted Securities") under the Securities Act of 1933, as amended (the "Securities Act"). As of such date, no Restricted Securities will be eligible for sale in the public market, and Restricted Securities will remain subject to the Company's right to repurchase such shares at the original purchase price. Following the expiration of 120-day lock-up agreements with the representatives of the Underwriters, 23,671,779 Restricted Securities will be available for sale in the public market (excluding those that remain subject to the right of repurchase) and the remaining Restricted Securities will be eligible for sale from time to time thereafter upon expiration of applicable holding periods under Rule 144 under the Securities Act and the Company's right to repurchase unvested shares. In addition, as of June 30, 1998, there were outstanding options to purchase 1,071,159 shares of the Company's Common Stock, all of which were exercisable. Substantially, all of the shares issuable upon exercise of such options will be subject to 19 lock-up agreements. The representatives of the several underwriters acting together may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. In addition, the holders of 29,629,425 Restricted Securities are entitled to certain rights with respect to registration of such shares for sale in the public market. If such holders sell in the public market, such sales could have a material adverse effect on the market price of the Company's Common Stock. Immediately after this offering, the Company intends to register approximately 7,032,659 shares of Common Stock subject to outstanding options and reserved for issuance under its stock option and purchase plans. See "Shares Eligible for Future Sale." CERTAIN ANTI-TAKEOVER PROVISIONS Upon the closing of this offering, the Company's Board of Directors will have the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Company's Common Stock at a premium over the market price of the Common Stock, and may adversely affect the market price of, and the voting and other rights of the holders of, the Common Stock. The Company has no current plans to issue shares of Preferred Stock. In addition, certain provisions of the Company's Amended and Restated Certificate of Incorporation and Bylaws, including provisions that divide the Board of Directors into three classes to serve staggered three-year terms, prohibit the stockholders from taking action by written consent and restrict the ability of stockholders to call special meetings, may also make it more difficult for a third party to acquire a majority of the Company's voting stock or effect a change in control of the Company. The Company is also subject to certain provisions of Delaware law that could have the effect of delaying, deterring or preventing a change in control of the Company, including Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder unless certain conditions are met. In addition, the Company's certificate of incorporation and bylaws contain certain provisions that, together with the ownership position of the Company's executive officers and directors and their affiliates, could discourage potential takeover attempts and make more difficult attempts by stockholders to change management which could adversely affect the market price of the Company's Common Stock. See "Description of Capital Stock." BROAD MANAGEMENT DISCRETION OVER ALLOCATION OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discount and estimated offering expenses, are estimated to be approximately $ million. The primary purposes of this offering are to obtain additional capital, create a public market for the Common Stock and facilitate future access to public markets. The Company expects to use the net proceeds primarily for working capital, to repay certain indebtedness and for other general corporate purposes. A portion of the net proceeds also may be used to acquire or invest in complementary businesses, technologies, products or services. Accordingly, the Company's management will retain broad discretion as to the allocation of the proceeds of this offering. The failure of management to apply such funds effectively could have a material adverse effect on the Company's business, results of operations and financial condition. See "Use of Proceeds." 20 NO PRIOR MARKET FOR COMMON STOCK Prior to this offering, there has been no public market for the Company's Common Stock, and there can be no assurance that an active public market will develop or be sustained after this offering or that investors will be able to sell the Common Stock should they desire to do so. The initial public offering price will be determined by negotiations between the Company and the representatives of the Underwriters and may bear no relationship to the price at which the Common Stock will trade upon completion of this offering. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. IMMEDIATE AND SUBSTANTIAL DILUTION The initial public offering price is substantially higher than the net tangible book value per outstanding share of Common Stock. Purchasers of the Common Stock in this offering will suffer immediate and substantial dilution of $ per share in the net tangible book value of the Common Stock from the initial public offering price. To the extent that outstanding options to purchase the Company's Common Stock are exercised, there may be further dilution. See "Dilution." 21 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered by the Company hereby are estimated to be approximately $ million (approximately $ million if the over-allotment option is exercised in full) at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses. The primary purposes of this offering are to obtain additional capital, create a public market for the Common Stock and facilitate future access to public markets. The Company will not receive any proceeds from the sale of the Common Stock by the Selling Stockholder. The Company intends to use substantially all of the net proceeds of this offering for general corporate purposes, including working capital. The Company also intends to use a portion of the net proceeds to repay all outstanding indebtedness under a bank credit line ($431,000 at June 30, 1998). This credit line matures on January 5, 2000 and bears interest at the bank's prime rate plus 1.25%. The Company may also use a portion of the net proceeds, currently intended for general corporate purposes, to acquire or invest in businesses, technologies or products that are complementary to the Company's business. The Company has no present plans or commitments and is not currently engaged in any negotiations with respect to such transactions that are material. Pending such uses, the Company intends to invest the net proceeds from this offering in short-term, interest-bearing, investment-grade securities. The Company will have significant discretion as to the use of the net proceeds from this offering. See "Risk Factors--Future Capital Needs" and "--Broad Management Discretion Over Allocation of Proceeds." DIVIDEND POLICY The Company has not declared or paid any cash dividends on its capital stock and does not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of the Company's credit line prohibit the payment of cash dividends on its capital stock. 22 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1998: (i) on an actual basis; (ii) on a pro forma basis to reflect the conversion of all outstanding shares of Preferred Stock into Common Stock upon the closing of this offering; and (iii) on a pro forma as adjusted basis to reflect this conversion and the application of the net proceeds from the sale of the shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses.
JUNE 30, 1998 ------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- (IN THOUSANDS) Debt and leases, current portion(1)............. $ 314 $ 314 $ ------- ------- ---- Debt and leases, long-term portion(1)........... 167 167 ------- ------- ---- Series B Mandatorily Redeemable Convertible Pre- ferred Stock................................... 5,157 -- ------- ------- ---- Stockholders' equity: Series A Preferred Stock, $0.001 par value per share; actual--1,676 shares authorized, 1,676 shares issued and outstanding; pro forma-- 6,000 shares authorized, no shares issued and outstanding; pro forma as adjusted--5,000 shares authorized, no shares issued and outstanding.................................. 4 -- Common Stock, $0.001 par value per share; actual--60,000 shares authorized, 26,974 shares issued and outstanding; pro forma-- 60,000 shares authorized, 36,250 shares issued and outstanding; pro forma as adjusted--200,000 shares authorized, shares issued and outstanding(2)............. 27 36 Additional paid-in capital.................... 14,150 19,302 Notes receivable from stockholders............ (1,536) (1,536) Unearned compensation......................... (4,801) (4,801) Retained earnings............................. 1,278 1,278 ------- ------- ---- Total stockholders' equity.................. 9,122 14,279 ------- ------- ---- Total capitalization...................... $14,760 $14,760 $ ======= ======= ====
- -------- (1) See Note 5 of Notes to Consolidated Financial Statements. (2) Excludes (i) 1,071,159 shares of Common Stock issuable upon the exercise of stock options outstanding as of June 30, 1998, at a weighted average per share exercise price of $3.52, under the 1996 Plan, the 1997 Plan and outside the 1996 Plan and 1997 Plan, (ii) 961,500 shares of Common Stock available for future grant as of June 30, 1998 under the 1997 Plan, (iii) an additional 4,700,000 shares available for future grant or issuance immediately after the offering under the Equity Incentive Plan and the Directors Plan and (iv) 300,000 shares initially available for issuance immediately after the offering under the Purchase Plan which number is subject to automatic annual increases, up to a maximum of 1,500,000 shares. Subsequent to June 30, 1998, the Company granted options to purchase an additional 584,250 shares of Common Stock under the 1997 Plan. See "Management--Director Compensation," "Management--Employee Benefit Plans," "Description of Capital Stock" and Notes 8, 9, 10 and 11 of Notes to Consolidated Financial Statements. 23 DILUTION The pro forma net tangible book value of the Company as of June 30, 1998 was $12.1 million, or $0.33 per share of Common Stock. "Pro forma net tangible book value per share" is determined by dividing the pro forma number of outstanding shares of Common Stock (assuming the conversion of all outstanding shares of Preferred Stock into shares of Common Stock) into the net tangible book value of the Company (total tangible assets less total liabilities). After giving effect to the receipt of the estimated net proceeds from the sale by the Company of the shares of Common Stock offered by the Company hereby (based upon an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses), the pro forma net tangible book value of the Company as of June 30, 1998 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution: Assumed initial public offering price per share................. $ Pro forma net tangible book value per share as of June 30, 1998.......................................................... $0.33 Increase per share attributable to new investors............... ----- Pro forma net tangible book value per share after the offering.. ---- Dilution per share to new investors............................. $ ====
The following table summarizes as of June 30, 1998, on the pro forma basis described above, the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid by existing stockholders and by investors purchasing shares of Common Stock in this offering (before deducting the estimated underwriting discount and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ------------------------ PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------- ------------------- Existing stockholders...... 36,249,801 % $ 8,236,000 % $0.23 New investors(1)........... ---------- --- ------------- ------ Total...................... 100% $ 100% ========== === ============= ======
- -------- (1) If the Underwriters' over-allotment is exercised in full, the number of shares held by new investors will be increased to , or % of the total shares of Common Stock to be outstanding after this offering. The foregoing discussion and tables assume no exercise of any stock options outstanding as of June 30, 1998. As of June 30, 1998, there were options outstanding to purchase a total of 1,071,159 shares of Common Stock with a weighted average exercise price of $3.52 per share. In addition, subsequent to June 30, 1998, the Company issued options to purchase an aggregate of 584,250 shares of Common Stock under the 1997 Plan. To the extent that any of these options are exercised, there will be further dilution to new public investors. See "Capitalization," "Management--Employee Benefit Plans" and Note 10 of Notes to Consolidated Financial Statements. 24 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with, and are qualified by reference to, the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. The consolidated statement of income data for the years ended December 31, 1996 and 1997 and the consolidated balance sheet data at December 31, 1996 and 1997, are derived from, and are qualified by reference to, the audited consolidated financial statements of the Company included elsewhere in this Prospectus. The consolidated statement of income data for the six months ended June 30, 1997 and 1998 and the consolidated balance sheet data at June 30, 1998 have been derived from the unaudited consolidated financial statements included elsewhere in this Prospectus. The unaudited consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair presentation of the financial position and results of operations for the period. Operating results for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998.
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, -------------------- --------------------- 1996(1) 1997 1997 1998 -------------------- --------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF INCOME DATA: Net revenues....................... $ 372 $ 5,744 $ 1,658 $ 14,922 Cost of net revenues............... 14 746 160 1,736 -------- --------- --------- ---------- Gross profit....................... 358 4,998 1,498 13,186 -------- --------- --------- ---------- Operating expenses Sales and marketing............... 32 1,730 212 4,610 Product development............... 28 831 209 1,548 General and administrative........ 45 950 233 4,054 Acquired research and development...................... -- -- -- 150 -------- --------- --------- ---------- Total operating expenses.......... 105 3,511 654 10,362 -------- --------- --------- ---------- Income from operations............. 253 1,487 844 2,824 Interest and other income, net..... 1 56 4 76 -------- --------- --------- ---------- Income before income taxes......... 254 1,543 848 2,900 Provision for income taxes......... (106) (669) (362) (2,552) -------- --------- --------- ---------- Net income......................... $ 148 $ 874 $ 486 $ 348 ======== ========= ========= ========== Net income per share(2): Basic............................. $ 0.07 $ 0.11 $ 0.08 $ 0.03 ======== ========= ========= ========== Weighted average shares--basic.... 2,125 7,438 6,163 10,711 ======== ========= ========= ========== Diluted........................... $ 0.01 $ 0.03 $ 0.02 $ 0.01 ======== ========= ========= ========== Weighted average shares--diluted.. 14,315 27,553 25,811 34,231 ======== ========= ========= ========== SUPPLEMENTAL OPERATING DATA: Number of registered users at end of period......................... 41 341 150 851 Gross merchandise sales(3)......... $ 7,279 $ 95,271 $ 26,967 $ 243,745 Number of auctions listed.......... 289 4,394 1,237 10,793
DECEMBER 31, ------------- JUNE 30, 1996 1997 1998 ------------- -------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents.............................. $ 103 $ 3,723 $10,716 Working capital........................................ 194 3,843 8,803 Total assets........................................... 308 5,619 19,815 Debt and leases, long-term portion..................... -- 305 167 Series B Mandatorily Redeemable Convertible Preferred Stock and Series B warrants........................... -- 3,018 5,157 Total stockholders' equity............................. 162 1,015 9,122
- -------- (1) Includes the results of operations for the Company's predecessor sole proprietorship from September 1995 to December 1995. The sole proprietorship had no revenues and immaterial expenses prior to January 1, 1996. (2) See Note 1 of Notes to Consolidated Financial Statements for a description of the method used to compute basic and diluted net income per share, respectively. (3) Represents the aggregate sales prices of all goods for which an auction was successfully concluded (i.e., there was at least one bid above the seller's specified minimum price or reserve price, whichever is higher). 25 SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA Effective June 30, 1998, the Company acquired all the outstanding shares of Jump Incorporated ("Jump"), the developer and operator of Up4Sale, an advertising-supported online trading service in an auction format. The acquisition has been accounted for using the purchase method of accounting, and accordingly the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The total purchase price of approximately $2.3 million consisted of 142,848 shares of the Company's Common Stock with an estimated fair value of approximately $2.0 million and other acquisition-related expenses of approximately $335,000, consisting primarily of payments for non-compete agreements totaling approximately $208,000 and legal and other professional fees. Of the total purchase price, approximately $150,000 was allocated to in-process technology and was immediately charged to operations as the technology had not reached technological feasibility as of the acquisition date and had no alternative future use. The remainder of the purchase price was allocated to net tangible liabilities assumed ($31,000) and intangible assets, including completed technology ($500,000), the customer list ($1.5 million), covenants not to compete ($208,000) and goodwill ($24,000). The intangible assets will be amortized over their estimated useful lives, which range from eight to 24 months. The unaudited pro forma consolidated statement of income data reflects the acquisition of Jump as if such acquisition had occurred on January 1, 1997. The pro forma consolidated statement of income data is presented for informational purposes only and may not be indicative of the results of operations had the acquisition occurred on January 1, 1997, nor do they purport to indicate the future results of operations of the Company.
YEAR ENDED SIX MONTHS DECEMBER 31, 1997 ENDED JUNE 30, 1998 ------------------ ------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA: Net revenues..................... $ 5,755 $ 14,934 Cost of net revenues............. 755 1,739 ------------------ ------------------ Gross profit..................... 5,000 13,195 ------------------ ------------------ Operating expenses Sales and marketing............. 1,897 4,445 Product development............. 841 1,556 General and administrative...... 957 4,075 Amortization of intangible assets......................... 1,810 354 ------------------ ------------------ Total operating expenses........ 5,505 10,430 ------------------ ------------------ Income (loss) from operations.... (505) 2,765 Interest and other income, net... 56 75 ------------------ ------------------ Income (loss) before income tax- es.............................. (449) 2,840 Provision for income taxes....... (600) (2,483) ------------------ ------------------ Net income (loss)................ $ (1,049) $ 357 ================== ================== Pro forma net income (loss) per share(1): Basic........................... $ (0.07) $ .02 ================== ================== Weighted average shares--basic.. 14,734 19,287 ================== ================== Diluted......................... $ (0.07) $ .01 ================== ================== Weighted average shares--dilut- ed............................. 14,734 34,374 ================== ==================
- -------- (1) See Note D of Notes to Consolidated Pro Forma Financial Information for a description of the method used to compute basic and diluted net income per share, respectively. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW eBay is the world's largest and most popular person-to-person trading community on the Internet. eBay pioneered online person-to-person trading by developing a Web-based community in which buyers and sellers are brought together in an efficient and entertaining auction format to buy and sell personal items such as antiques, coins, collectibles, computers, memorabilia, stamps and toys. The eBay service permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items in a fully-automated, topically-arranged, intuitive and easy-to-use service that is available online 24 hours a day, seven days a week. eBay was formed as a sole proprietorship in September 1995 and operated its online auction service under the name of "Auction Web." In order to build a critical mass of customers, it offered this service without charge until February 1996. The Company was incorporated in May 1996, but had no employees other than the founder until July 1996 and, at December 31, 1996, had only six employees. During its first two years, eBay attracted buyers and sellers almost exclusively through word of mouth. In September 1997, the Company began to target potential customers and to build and promote its brand through online banner ads and promotions and advertisements in targeted publications. Also in September 1997, the Company renamed its auction service to "eBay" and launched a second generation of this service with a redesigned user interface and a new robust, scalable "backend" transaction processing architecture. The Company's total headcount grew to 41 by December 31, 1997 and to 76 by June 30, 1998. From December 31, 1997 to June 30, 1998, the number of registered eBay users grew from approximately 340,000 to over 850,000 and the number of simultaneous auctions being conducted through eBay increased from approximately 200,000 to over 500,000. During the same period, aggregate cumulative gross merchandise sales to date grew from approximately $100 million to over $340 million. Substantially all of the Company's revenues come from placement and success fees paid by sellers; eBay charges no fees to buyers and, to date, has chosen to sell almost no advertising on its Web site. Sellers pay a nominal placement fee to list items for sale: $0.25 for an auction with a minimum starting price of less than $10.00; $0.50 for a minimum starting price of $10.00 to $24.99; $1.00 for a minimum starting price of $25.00 to $49.99; and $2.00 for a minimum starting price of $50.00 or more. By paying additional placement fees, sellers can have items featured in various ways. Sellers can highlight their auctions by utilizing a bold font for the auction heading for an additional fee of $2.00. Sellers with a favorable feedback rating can have their auctions featured as "Super Featured Auctions" for $49.95, which allows their items to be rotated on the eBay home page, or as "Category Featured Auctions" for $9.95, which allows their items to be featured within a particular eBay product category. Sellers for whom a three, five or seven day auction is successfully concluded (i.e., there is at least one bid above the seller's specified minimum or reserve price, whichever is higher) also pay a success fee for each item sold that is equal to 5% of the first $25 of the purchase price, 2.5% of any purchase price between $25.01 and $1,000 and 1.25% of any purchase price over $1,000. Revenues from placement fees are recognized at the time that the item is listed; revenues related to success fees are recognized at the time that the auction is successfully concluded. At no point during the auction process does the Company take possession of either the item being sold or the buyer's payment for the item. Fees to sellers are aggregated and billed on a monthly basis. A substantial majority of customer accounts are settled by directly charging credit card numbers provided by sellers. Provisions for estimated uncollectible accounts and authorized credits resulting from incomplete auction transactions are provided for at the time of revenue recognition. To date, the Company has not incurred a material amount of customer credits. In certain instances, customers will deposit funds with eBay in anticipation of future transactions; these prepayments appear on the Company's balance sheet 27 as customer advances. For the six months ended June 30, 1998, the average sales price of goods sold through eBay was approximately $40.00. The Company's business model is significantly different from many existing online auction and other electronic commerce businesses. Because individual sellers and not the Company sell the items listed, the Company has no product cost of goods sold, no procurement, carrying or shipping costs and no inventory risk. The Company's rate of expense growth is primarily driven by increases in headcount and expenditures on advertising and promotion. Since neither of these types of expenses is directly linked to revenue growth, the Company has operated profitably since the first full quarter that it charged fees for its auction service and the Company's business model has the potential for significant additional operating leverage. However, in the short term, the Company intends to increase its expenses significantly, and in particular its advertising and promotion expenses, in an effort to maintain a high level of revenue growth. Effective June 30, 1998, the Company acquired all the outstanding shares of Jump, the developer and operator of Up4Sale, an advertising-supported online trading service in an auction format. The acquisition has been accounted for using the purchase method of accounting, and accordingly the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The fair value of intangible assets was determined using a combination of methods, including replacement cost estimates for acquired research and development and completed technology, a risk-adjusted income approach for the acquired customer list and the amounts paid for covenants not to compete. The total purchase price of approximately $2.3 million consisted of 142,848 shares of the Company's Common Stock with an estimated fair value of approximately $2.0 million and other acquisition related expenses of approximately $335,000, consisting primarily of payments for non-compete agreements totaling approximately $208,000 and legal and other professional fees. Of the total purchase price, approximately $150,000 was allocated to in-process technology and was immediately charged to operations as the technology had not reached technological feasibility as of the acquisition date and had no alternative future use. The remainder of the purchase price was allocated to net tangible liabilities assumed ($31,000) and intangible assets, including completed technology ($500,000), the customer list ($1.5 million), covenants not to compete ($208,000) and goodwill ($24,000). The intangible assets will be amortized over their estimated useful lives which range from eight to 24 months. The Company has only a limited operating history on which to base an evaluation of its business and prospects. The Company's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as online commerce. 28 QUARTERLY RESULTS OF OPERATIONS The following table sets forth, for the periods presented, certain data from the Company's consolidated statement of income, such data as a percentage of net revenues and certain supplemental operating data. The consolidated statement of income data has been derived from the Company's unaudited consolidated financial statements, which, in management's opinion, have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods presented. This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.
THREE MONTHS ENDED --------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1997 1997 1997 1997 1998 1998 -------- -------- --------- -------- -------- -------- (IN THOUSANDS) Net revenues............ $ 604 $ 1,054 $ 1,459 $ 2,627 $ 5,981 $ 8,941 Cost of net revenues.... 33 127 253 333 630 1,106 ------ ------- ------- ------- -------- -------- Gross profit............ 571 927 1,206 2,294 5,351 7,835 ------ ------- ------- ------- -------- -------- Operating expenses: Sales and marketing... 83 129 369 1,149 2,106 2,504 Product development... 58 151 257 365 518 1,030 General and adminis- trative.............. 95 138 260 457 962 3,092 Acquired research and development.......... -- -- -- -- -- 150 ------ ------- ------- ------- -------- -------- Total operating ex- penses.............. 236 418 886 1,971 3,586 6,776 ------ ------- ------- ------- -------- -------- Income from operations.. 335 509 320 323 1,765 1,059 Interest and other in- come, net.............. 2 2 26 26 22 54 ------ ------- ------- ------- -------- -------- Income before income taxes.................. 337 511 346 349 1,787 1,113 Provision for income taxes.................. (144) (218) (147) (160) (1,573) (979) ------ ------- ------- ------- -------- -------- Net income.............. $ 193 $ 293 $ 199 $ 189 $ 214 $ 134 ====== ======= ======= ======= ======== ======== AS A PERCENTAGE OF NET REVENUES: Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of net revenues.... 5.5 12.0 17.3 12.7 10.5 12.4 ------ ------- ------- ------- -------- -------- Gross profit............ 94.5 88.0 82.7 87.3 89.5 87.6 ------ ------- ------- ------- -------- -------- Operating expenses: Sales and marketing... 13.7 12.3 25.3 43.7 35.2 28.0 Product development... 9.6 14.3 17.6 13.9 8.7 11.5 General and adminis- trative.............. 15.7 13.1 17.9 17.4 16.1 34.6 Acquired research and development.......... -- -- -- -- -- 1.7 ------ ------- ------- ------- -------- -------- Total operating ex- penses.............. 39.0 39.7 60.8 75.0 60.0 75.8 ------ ------- ------- ------- -------- -------- Income from operations.. 55.5 48.3 21.9 12.3 29.5 11.8 Interest and other in- come, net.............. 0.3 0.2 1.8 1.0 0.4 0.6 ------ ------- ------- ------- -------- -------- Income before income taxes.................. 55.8 48.5 23.7 13.3 29.9 12.4 Provision for income taxes.................. (23.8) (20.7) (10.1) (6.1) (26.3) 10.9 ------ ------- ------- ------- -------- -------- Net income.............. 32.0% 27.8% 13.6% 7.2% 3.6% 1.5% ====== ======= ======= ======= ======== ======== SUPPLEMENTAL OPERATING DATA (IN THOUSANDS): Number of registered us- ers at end of period... 88 150 223 341 580 851 Gross merchandise sales (1).................... $9,337 $17,630 $24,281 $44,022 $104,113 $139,632 Number of auctions list- ed..................... 442 794 1,178 1,979 4,209 6,584
- -------- (1) Represents the aggregate sales prices of all goods for which an auction was successfully concluded (i.e., there was at least one bid above the seller's specified minimum price or reserve price, whichever is higher). 29 NET REVENUES The Company's net revenues increased sequentially each quarter throughout the comparison periods. Substantially all of these increases resulted from growth in the number of items of merchandise listed by sellers for auction on the Company's Web site and from the number of auction transactions successfully concluded by the Company. The Company did not increase the amounts of its basic placement fees or success fees during the comparison periods. Increases in fees for specific featured placements and in average transaction size did not have a material impact on net revenue growth. The Company expects that the rate of its net revenue growth in future periods will decline significantly from the rates of net revenue growth experienced in recent quarters. COST OF NET REVENUES Cost of net revenues primarily represents costs for customer support and Web site operations, including fees for independent contractors, compensation for Company customer support and site operations personnel and, to a lesser extent, ISP connectivity charges, bank processing charges for customer fees paid by credit cards and depreciation of the equipment required for the Company's site operations. The Company's cost of net revenues increased substantially each quarter throughout the comparison periods. Cost of net revenues increased rapidly from the first quarter of 1997 through the third quarter of 1997 due to significantly increased expenditures for contractors and for new employees as the Company began to build an in-house customer support group. The Company also incurred substantial additional ISP connectivity charges in anticipation of launching the Company's renamed "eBay" person-to-person trading service in the third quarter of 1997. Bank processing charges for customer fees paid by credit cards also increased from the first quarter of 1997 through the third quarter of 1997 as the number of placements and successfully completed auctions increased. These rapid increases, coupled with slower growth in net revenues from the second quarter to the third quarter of 1997, caused cost of net revenues to peak at 17.3% of net revenues in the third quarter of 1997. Thereafter, extremely rapid net revenue growth and the partially fixed nature of certain components of cost of net revenues caused cost of net revenues to decline to 10.5% of net revenues in the first quarter of 1998. With a slowing of the Company's net revenue growth rate in the second quarter of 1998 and significant increases in bank processing charges for customer fees paid by credit cards, depreciation of the equipment required for the Company's site operations, and ISP connectivity charges, cost of net revenues again increased as a percentage of net revenues to 12.4%. The Company anticipates that its costs of net revenues will vary, and may increase, as a percentage of net revenues in future quarters as the Company expands its Web site operations group and pays royalties for software licenses to enhance its Web site. SALES AND MARKETING The Company's sales and marketing expenses are comprised primarily of compensation for the Company's sales and marketing personnel, advertising, trade show and other promotional costs, expenses for creative design of the Company's Web site and an allocation of the Company's occupancy costs and other overhead. Sales and marketing expenses increased substantially each quarter throughout the comparison periods driven by increases in compensation associated with additional headcount and, in the last two quarters of 1997 and the first quarter of 1998, increases in advertising and promotional expenses. The rapid growth in personnel-related expenses in the third and fourth quarters of 1997, together with the significant increases in advertising and promotional expenses in the third and especially the fourth quarters of 1997, resulted in sales and marketing expenses increasing from 12.3% of net revenues in the second quarter of 1997 to 43.7% of net revenues in the fourth quarter of 1997. A reduction in the growth rate of personnel costs, coupled with the 128% growth in net revenues from the fourth quarter of 1997 to the first quarter of 1998, caused sales and marketing expenses to decline to 35.2% of net revenues. A reduction in advertising and promotional expenses from the first quarter of 1998 to the second quarter of 1998 caused sales and marketing expenses to 30 decline to 28.0% of net revenues in the second quarter of 1998. The Company expects to increase its sales and marketing expenses substantially in future quarters, particularly for advertising and promotion, and, as a result, expects that its sales and marketing expenses will increase both in absolute dollars and as a percentage of net revenues for at least the next several quarters. PRODUCT DEVELOPMENT The Company's product development expenses consist primarily of compensation for the Company's product development staff and payments to outside contractors and, to a lesser extent, of depreciation on equipment used for development and an allocation of the Company's occupancy costs and other overhead. The Company expenses product development costs as they are incurred. Product development expenses increased substantially each quarter throughout the comparison periods. Compensation and other personnel-related expenses grew most rapidly on a percentage basis between the first quarter of 1997 and the second quarter of 1997 and net revenues grew most slowly between the second and third quarters of 1997, causing product development expenses as a percentage of net revenues to increase from 9.6% in the first quarter of 1997 to 17.6% in the third quarter of 1997. With accelerating net revenue growth rates, product development expenses declined to 8.7% of net revenues by the first quarter of 1998. Product development expenses increased to 11.5% of net revenues in the second quarter of 1998 as the Company significantly increased its engineering staff and use of outside contractors and the rate of net revenue growth again declined. The Company anticipates that product development expenses will increase as a percentage of net revenues in the third and fourth quarters of 1998 due to significant additional hiring. Thereafter, the Company expects that product development expenses will increase in absolute dollars but may begin to decline as a percentage of net revenues. GENERAL AND ADMINISTRATIVE The Company's general and administrative expenses consist primarily of compensation for personnel and, to a lesser extent, fees for outside professional advisors and an allocation of the Company's occupancy costs and other overhead. General and administrative expenses increased as a percentage of net revenues from 13.1% in the second quarter of 1997 to 17.9% in the third quarter of 1997 as personnel-related costs increased and the rate of net revenue growth declined, and declined as a percentage of net revenues in the fourth quarter of 1997 and first quarter of 1998 as a result of the extremely rapid growth in net revenues. General and administrative expenses increased as a percentage of net revenues to 34.6% in the second quarter of 1998 because, in that quarter, the Company donated 107,250 shares of its Common Stock, with an estimated fair value of $1.2 million, to a charitable foundation and recorded compensation expense of $429,000 associated with purchases of Common Stock by its outside directors. The Company expects that general and administrative expenses will continue to grow in absolute dollars but may decline gradually as a percentage of net revenues, and fluctuate from quarter to quarter depending on the rate of net revenue growth. INTEREST AND OTHER INCOME, NET Interest and other income, net, in each quarter resulted primarily from interest on cash and cash equivalents offset in part by interest expense on the Company's borrowings under its line of credit. The increase in interest and other income, net between the second and third quarters of 1997 was a result of interest earned on the net proceeds from the Company's sale of Series B Mandatorily Redeemable Convertible Preferred Stock ("Series B Preferred Stock") and warrants to purchase such shares of stock (the "Series B Warrants") in June 1997. The decrease in the first quarter of 1998 was due to increased interest expense, partially offset by increased interest income earned on proceeds from employee stock option exercises. The increase in the second quarter of 1998 was a result of interest earned on proceeds from the May 1998 exercise of the Series B Warrants and employee stock option exercises. 31 PROVISION FOR INCOME TAXES The Company's effective federal and state income tax rate was approximately 43.0% in each quarter of 1997 and 88.0% in the first two quarters of 1998. The Company's effective tax rate during the comparison periods varied significantly as a result of non-deductible stock compensation and the tax-free acquisition of Jump. STOCK-BASED COMPENSATION In the quarters ended June 30, September 30 and December 31, 1997 and March 31 and June 30, 1998, the Company recorded aggregate unearned compensation totalling $5.8 million in connection with the grant of certain stock options subsequent to April 1997, which amount is being amortized over the four-year vesting period of such options. Of the total unearned compensation, approximately $25,000, $355,000 and $583,000 was amortized in the quarters ended December 31, 1997 and March 31 and June 30, 1998, respectively. The Company expects per quarter amortization of approximately $750,000 during the remainder of 1998, between $370,000 and $630,000 during 1999 and between $200,000 and $330,000 during 2000 and annual amortization of $450,000 during 2001 and $75,000 during 2002 related to these options. These amortization amounts are allocated among operating expense categories based upon the primary activity of the related employee. See Note 10 of Notes to Consolidated Financial Statements. YEARS ENDED DECEMBER 31, 1996 AND 1997 AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998. The following table sets forth, for the periods presented, certain data from the Company's consolidated statement of income as a percentage of net revenues. The information for the six-month periods has been derived from the Company's unaudited consolidated financial statements, which, in management's opinion, have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods presented. This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, -------------- ------------------ 1996 1997 1997 1998 ------ ------ -------- -------- Net revenues................................ 100.0% 100.0% 100.0% 100.0% Cost of net revenues........................ 3.8 13.0 9.7 11.6 ------ ------ -------- -------- Gross profit................................ 96.2 87.0 90.3 88.4 ------ ------ -------- -------- Operating expenses Sales and marketing....................... 8.6 30.1 12.8 30.9 Product development....................... 7.5 14.5 12.6 10.4 General and administrative................ 12.1 16.5 14.0 27.2 Acquired research and development......... -- -- -- 1.0 ------ ------ -------- -------- Total operating expenses................ 28.2 61.1 39.4 69.5 ------ ------ -------- -------- Income from operations...................... 68.0 25.9 50.9 18.9 Interest and other income, net.............. 0.3 1.0 0.2 0.5 ------ ------ -------- -------- Income before income taxes.................. 68.3 26.9 51.1 19.4 Provision for income taxes.................. (28.5) (11.6) (21.8) (17.1) ------ ------ -------- -------- Net income.................................. 39.8% 15.2% 29.3% 2.3% ====== ====== ======== ========
32 NET REVENUES The Company's net revenues increased from $372,000 in 1996 to $5.7 million in 1997 and from $1.7 million in the first six months of 1997 to $14.9 million in the first six months of 1998. The increases between the comparison periods were primarily the result of growth in the number of items of merchandise listed by sellers for auction on the Company's Web site and from the number of auction transactions successfully concluded by the Company. The increase from 1996 to 1997 was, to a lesser extent, the result of small increases in average transaction size and certain increases in the placement fees for various forms of featured placements for listed items. The total number of items listed grew from approximately 285,000 in 1996 to approximately 4.4 million in 1997 and from approximately 1.2 million in the first six months of 1997 to approximately 10.8 million in the first six months of 1998. COST OF NET REVENUES Cost of net revenues increased from $14,000, or 3.8% of net revenues, in 1996 to $746,000, or 13.0% of net revenues, in 1997. Cost of net revenues increased from $160,000, or 9.7% of net revenues, in the first six months of 1997 to $1.7 million, or 11.6% of net revenues, in the first six months of 1998. The increase in absolute dollars and percentages between the comparison periods resulted primarily from the Company's building of a customer support organization, increases in bank processing charges for customer fees paid by credit cards, depreciation of the equipment required for the Company's site operations and ISP connectivity charges. SALES AND MARKETING The Company's sales and marketing expenses increased from $32,000, or 8.6% of net revenues, in 1996 to $1.7 million, or 30.1% of net revenues, in 1997. Sales and marketing expenses increased from $212,000, or 12.8% of net revenues, in the first six months of 1997 to $4.6 million, or 30.9% of net revenues, in the first six months of 1998. The increases from 1996 to 1997 resulted primarily from the building of a sales and marketing organization, which began late in the fourth quarter of 1996, and the decision to begin substantial advertising and promotional activities, which occurred in the third quarter of 1997. The increases from the first six months of 1997 to the first six months of 1998 resulted primarily from continued growth in the number of sales and marketing personnel and from increases in advertising and promotional expenses, which were less than $20,000 in the first six months of 1997 and over $2.6 million in the first six months of 1998. PRODUCT DEVELOPMENT The Company's product development expenses increased from $28,000, or 7.5% of net revenues, in 1996 to $831,000, or 14.5% of net revenues, in 1997. Product development expenses increased in absolute dollars but decreased as a percentage of net revenues from $209,000, or 12.6% of net revenues, in the first six months of 1997 to $1.5 million, or 10.4 % of net revenues, in the first six months of 1998. The increases in absolute dollars between the comparison periods resulted primarily from increases in salaries, benefits and other personnel-related expenses as the Company significantly increased the size of its research and development staff. GENERAL AND ADMINISTRATIVE The Company's general and administrative expenses increased from $45,000, or 12.1% of net revenues, in 1996 to $950,000, or 16.5% of net revenues, in 1997. General and administrative expenses increased from $233,000, or 14.0% of net revenues, in the first six months of 1997 to $4.1 million, or 27.2% of net revenues, in the first six months of 1998. The increases from 1996 to 1997 resulted primarily from increases in salaries, benefits and other personnel- related expenses and, to a lesser extent, from increases in the allowance for doubtful accounts, fees for professional services and allocations of occupancy costs and other overhead. The increases from the first six months of 1997 to 33 the first six months of 1998 resulted primarily from the Company's contribution in June 1998 of 107,250 shares of the Company's Common Stock with an estimated fair value of $1.2 million to a charitable foundation. In June 1998 the Company also recorded compensation expense of $429,000 associated with purchases of restricted shares of Common Stock by its outside directors. Increases in personnel-related expenses, the allowance for doubtful accounts, fees for professional services and allocations of occupancy costs and other overhead also contributed to the increase. ACQUIRED RESEARCH AND DEVELOPMENT During the six months ended June 30, 1998, the Company recognized $150,000 for in-process technology acquired in the acquisition of Jump. See Note 2 of Notes to Consolidated Financial Statements and the Notes to Consolidated Pro Forma Financial Information included elsewhere in this Prospectus. INTEREST AND OTHER INCOME, NET The Company's interest and other income, net increased from $1,000 in 1996 to $56,000 in 1997 and from $4,000 in the first six months of 1997 to $76,000 in the first six months of 1998. Substantially all of the increases between the comparison periods were a result of increased cash and cash equivalents, which resulted from interest earned on the net proceeds from the Company's sales of Series B Preferred Stock and Series B Warrants in June 1997 and, in the case of the six-month comparison periods, the exercise of those warrants in May 1998 and the exercise of employee stock options. PROVISION FOR INCOME TAXES The Company's effective federal and state income tax rate was 41.7% in 1996, 43.4% in 1997 and 88.0% in the first six months of 1998. The Company's effective tax rate during the comparison periods varied significantly as a result of non-deductible stock compensation and the tax-free acquisition of Jump. STOCK-BASED COMPENSATION In 1997 and 1998, the Company recorded aggregate unearned compensation totaling $5.8 million in connection with the grant of certain stock options subsequent to April 1997, which amount is being amortized over the four-year vesting period of such options. Of the total unearned compensation, approximately $25,000 and $1.0 million was amortized in 1997 and the first six months of 1998, respectively. These amortization amounts are allocated among operating expense categories based upon the primary activity of the related employee. See Note 10 of Notes to Consolidated Financial Statements. FACTORS AFFECTING RESULTS OF OPERATIONS AND FINANCIAL CONDITION eBay was formed as a sole proprietorship in September 1995 and incorporated in May 1996. Thus, it has only a limited operating history on which to base an evaluation of its business and prospects. The Company's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as online commerce. To address these risks and uncertainties, the Company must, among other things, maintain and increase the number of its registered users, items listed on its service and completed auctions, maintain and enhance its brand, implement and execute its business and marketing strategy successfully, continue to develop and upgrade its technology and information-processing systems, continue to enhance the eBay service to meet the needs of a changing market, provide superior customer service, respond to competitive developments, and attract, integrate, retain and motivate qualified personnel. There can be no 34 assurance that the Company will be successful in accomplishing all of these things, and the failure to do so could have a material adverse effect on the Company's business, results of operations and financial condition. The Company believes that its continued growth will depend in large part on its ability to: (i) increase its brand name awareness, (ii) provide its customers with superior community and trading experiences and (iii) maintain sufficient transaction volume to attract buyers and sellers. Accordingly, the Company intends to invest heavily in marketing and promotion, site development, technology and operating infrastructure development. Although the Company has experienced significant revenue growth and significant growth in the number of its registered users and items listed for auction by its users in recent periods, such growth rates are not sustainable and will decrease in the future. In view of the rapidly evolving nature of the Company's business and its limited operating history, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as indications of future performance. The Company's operating results have varied on a quarterly basis during its short operating history and may fluctuate significantly as a result of a variety of factors, many of which are outside the Company's control. Factors that may affect the Company's quarterly operating results include: (i) the Company's ability to retain an active user base, attract new users who effect transactions through its service and maintain customer satisfaction; (ii) the Company's ability to manage the number of items listed on its service; (iii) the announcement or introduction of new sites, services and products by the Company or its competitors; (iv) the success of the Company's brand building and marketing campaigns; (v) price competition; (vi) the level of use of the Internet and online services; (vii) increasing consumer confidence in and acceptance of the Internet and other online services for commerce and, in particular, the trading of products such as those listed on eBay; (viii) consumer confidence in the security of transactions over the Internet; (ix) the Company's ability to upgrade and develop its systems and infrastructure to accommodate growth; (x) the Company's ability to attract new personnel in a timely and effective manner; (xi) the volume of items listed on the Company's Web site; (xii) the timing, cost and availability of advertising in traditional media and on other Web sites and online services; (xiii) technical difficulties or service interruptions; (xiv) the amount and timing of operating costs and capital expenditures relating to expansion of the Company's business, operations and infrastructure; (xv) consumer trends and popularity of certain categories of collectible items; (xvi) volume, size, timing and completion rate of trades on eBay; (xvii) governmental regulation by Federal or local governments; and (xviii) general economic conditions and economic conditions specific to the Internet and online commerce industries. As a result of the Company's limited operating history and the emerging nature of the markets in which it competes, it is difficult for the Company to forecast its revenues or earnings accurately. In addition, the Company has no backlog and a significant portion at the Company's net revenues for a particular quarter are derived from auctions that are listed and completed during that quarter. The Company's current and future expense levels are based largely on its investment plans and estimates of future revenues and are, to a large extent, fixed. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to the Company's planned expenditures would have an immediate adverse effect on the Company's business, results of operations and financial condition. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service or marketing decisions that could have a material adverse effect on its business, results of operations and financial condition. The Company believes that its results of operations are somewhat seasonal in nature, with fewer auctions around the Thanksgiving and Christmas holidays in the fourth quarter. The Company's limited operating history, however, makes it difficult to fully assess the impact of these seasonal factors or whether or not its business is susceptible to cyclical fluctuations in the U.S. economy. In addition, the 35 Company believes that its rapid growth may have overshadowed whatever seasonal or cyclical factors might have influenced its business to date. There can be no assurance that seasonal or cyclical variations in the Company's operations will not become more pronounced over time or that they will not materially adversely affect its results of operations in the future. Moreover, consumer "fads" and other changes in consumer trends may cause significant fluctuations in the Company's operating results from one quarter to the next. Due to the foregoing factors, the Company's quarterly revenues and operating results are difficult to forecast. The Company believes that period-to-period comparisons of its operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is likely that in one or more future quarters the Company's operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of the Common Stock would almost certainly be materially adversely affected. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily from net cash generated from operating activities and, to a lesser extent, from the sale of Series B Preferred Stock and Series B Warrants, proceeds from the exercise of those warrants and proceeds from the exercise of stock options. Net cash provided by operating activities was $113,000, $789,000 and $5.2 million in 1996, 1997 and the first six months of 1998, respectively. Net cash provided by operating activities resulted primarily from the Company's net income before non-cash charges for amortization of unearned compensation, the provision for doubtful accounts and depreciation and amortization, as well as increases in various liability categories, offset in part by increases in accounts receivable. Net cash used in investing activities was $25,000, $680,000 and $3.3 million in 1996, 1997 and the first six months of 1998, respectively. Net cash used in investing activities in each of these periods was entirely the result of purchases of property and equipment, primarily computer equipment and furniture and fixtures. Net cash provided by financing activities was $15,000, $3.5 million and $5.1 million in 1996, 1997 and the first six months of 1998, respectively. Net cash provided by financing activities in 1996 resulted almost entirely from sales of Common Stock and Series A Preferred Stock. Net cash provided by financing activities in 1997 resulted primarily from the sale of $3.0 million of Series B Preferred Stock and Series B Warrants and borrowings of $545,000 against a bank line of credit. See Notes 5 and 8 of Notes to Consolidated Financial Statements. Net cash provided by financing activities in the first six months of 1998 resulted primarily from proceeds from the exercise of Series B Warrants of $2.0 million and proceeds from the sale of restricted Common Stock in the aggregate amount of $3.2 million. At June 30, 1998, the principal source of liquidity for the Company was $10.7 million of cash and cash equivalents. As of that date, the Company also had a line of credit in the amount of $750,000, none of which remained available for borrowing. Borrowings under the line of credit accrue interest at a variable rate determined by the bank, are repayable in 24 monthly installments of principal and interest through January 2000 and are secured by certain assets of the Company. Under the line of credit, the Company is required to maintain certain financial covenants. The Company was in compliance with all of these covenants at June 30, 1998. See Note 5 of Notes to Consolidated Financial Statements. The Company had no material commitments for capital expenditures at June 30, 1998 but expects such expenditures to be at least $1.1 million in the second half of 1998 and at least $6.1 million in 1999. Such expenditures will primarily be for computer equipment, furniture and fixtures and leasehold 36 improvements. In addition, the Company anticipates implementing a mirrored Web site outside of California during the second half of 1998 and moving to a new facility in the second half of 1999. The Company also has total minimum lease obligations of $1.7 million under certain noncancellable operating leases and $23,000 under certain capital leases. The Company believes that its existing cash and cash equivalents, the net proceeds from this offering and any cash generated from operations will be sufficient to fund its operating activities, capital expenditures and other obligations through at least the next 18 months. However, if during that period or thereafter the Company is not successful in generating sufficient cash flow from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to the Company, these failures could have a material adverse effect on the Company's business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of its then-current stockholders would be reduced. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standard Board ("FASB") recently issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes to equity (net assets) during a period from non-owner sources. SFAS No. 130 is effective for financial statements for fiscal years beginning after December 15, 1997. To date, the Company has not had any transactions that are required to be reported in comprehensive income. The FASB recently issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997. The Company has determined that it does not have any separately reportable business segments. The American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect that the adoption of SOP No. 98-1 will have a material impact on its financial statements. YEAR 2000 ISSUES Many current installed computer systems and software products are coded to accept only two-digit entries in the date code field and cannot reliably distinguish dates beginning on January 1, 2000 from dates prior to the year 2000. Many companies' software and computer systems may need to be upgraded or replaced in order to correctly process dates beginning in 2000 and to comply with the "Year 2000" requirements. The Company has reviewed its internal programs and has determined that there are no significant Year 2000 issues within the Company's systems or services. However, the Company utilizes third- party equipment and software that may not be Year 2000 compliant. Failure of such third-party equipment or software to process properly dates for the year 2000 and thereafter could require the Company to incur unanticipated expenses to remedy any problems, which could have a material adverse effect on the Company's business, results of operations and financial condition. 37 BUSINESS This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in these forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Risk Factors." THE COMPANY eBay is the world's largest and most popular person-to-person trading community on the Internet. eBay pioneered online person-to-person trading by developing a Web-based community in which buyers and sellers are brought together in an efficient and entertaining auction format to buy and sell personal items such as antiques, coins, collectibles, computers, memorabilia, stamps and toys. The eBay service permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items in a fully-automated, topically-arranged, intuitive and easy-to-use online service that is available 24 hours a day, seven days a week. From inception through June 30, 1998, eBay hosted over 15 million auctions resulting in gross merchandise sales in excess of $340 million. During the first half of 1998, the number of registered eBay users grew from approximately 340,000 to over 850,000 and the number of simultaneous auctions being conducted through eBay increased from approximately 200,000 to over 500,000. The Company believes that this critical mass of buyers, sellers and items listed for sale creates a cycle that helps eBay to continue to grow its user base. Sellers are attracted to eBay as a result of the large number of potential buyers, and buyers in turn are attracted to eBay by the broad selection of goods listed on eBay. eBay provides buyers and sellers a place to socialize, to discuss topics of common interest and, ultimately, to conduct business in a compelling trading environment, thus fostering a large and growing commerce-oriented online community. INDUSTRY BACKGROUND GROWTH OF THE INTERNET AND ONLINE COMMERCE The Internet has emerged as a global medium enabling millions of people worldwide to share information, communicate and conduct business electronically. International Data Corporation ("IDC") estimates that the number of Web users will grow from approximately 69 million worldwide in 1997 to approximately 320 million worldwide by the end of 2002. This growth is expected to be driven by the large and growing number of PCs installed in homes and offices, the decreasing cost of PCs, easier, faster and cheaper access to the Internet, improvements in network infrastructure, the proliferation of Internet content and the increasing familiarity and acceptance of the Internet by businesses and consumers. The Internet possesses a number of unique characteristics that differentiate it from traditional media: users communicate or access information without geographic or temporal limitations; users access dynamic and interactive content on a real-time basis; and users communicate and interact instantaneously with a single individual or with entire groups of individuals. As a result of these characteristics, Web usage is expected to continue to grow rapidly. The growing adoption of the Web represents an enormous opportunity for businesses to conduct commerce over the Internet. IDC estimates that commerce over the Internet will increase from approximately $32 billion worldwide in 1998 to approximately $130 billion worldwide in 2000. While companies initially focused on facilitating and conducting transactions between businesses over the Internet, a number of companies more recently have focused on facilitating a wide variety of business-to-consumer transactions. These companies typically use the Internet to offer standard products and services that can be easily described with graphics and text and do not necessarily require physical presence for purchase, such as books, CDs, videocassettes, automobiles, home loans, airline tickets and online banking and stock trading. The Internet gives these companies the opportunity to develop one-to-one relationships with customers worldwide from a central location without having to make the 38 significant investments required to build a number of local retail presences, manage a worldwide distribution infrastructure or develop the printing and mailing infrastructure associated with traditional direct marketing activities. While companies have generally focused on applying these benefits in business-to-business and business-to-consumer transactions, a significant market opportunity exists to apply these same advantages to facilitate person- to-person trading over the Internet. THE PERSON-TO-PERSON TRADING MARKET OPPORTUNITY The exchange of goods between individuals--person-to-person trading--has traditionally been conducted through trading forums such as classified advertisements, collectibles shows, garage sales and flea markets or through intermediaries, such as auction houses and local dealer shops. These markets are highly inefficient, making person-to-person trading difficult for buyers and sellers. Their fragmented, regional nature makes it difficult and expensive for buyers and sellers to meet, exchange information and complete transactions. The localized nature of these markets also results in a limited variety and breadth of goods available in any one location. Buyers are limited to searching through local classified ads or to traveling to numerous geographically-dispersed flea markets, trade shows or dealer shops in order to find items of interest. These markets often have high transaction costs because intermediaries either mark up goods for resale or charge a commission. Because these markets are information inefficient, buyers and sellers lack a reliable and convenient means of setting prices for sales or purchases. Despite these inefficiencies, the Company believes that the market for traditional person-to-person trading in the U.S. through auctions and classified ads exceeded $50 billion in goods sold in 1997. The Internet offers for the first time the opportunity to create a compelling global marketplace that overcomes the inefficiencies associated with traditional person-to-person trading while offering the benefits of Internet-based commerce to the person-to-person trading market. An Internet- based centralized trading place facilitates buyers and sellers meeting, listing items for sale, exchanging information, interacting with each other and, ultimately, consummating transactions. It allows buyers and sellers to trade directly, bypassing traditional intermediaries and lowering costs for both parties. This trading place is global in reach, offering buyers a significantly broader selection of goods to purchase and providing sellers the opportunity to sell their goods efficiently to a broader base of buyers. It offers significant convenience, allowing trading at all hours and providing continually-updated information. By leveraging the interactive nature of the Internet, this trading place also facilitates a sense of community through direct buyer and seller communication, thereby enabling the interaction between individuals with mutual interests. In addition, this community orientation, facilitation of direct buyer and seller communication and efficient access to information on a particular buyer or seller's trading history can help alleviate the risks of anonymous trading. As a result, there exists a significant market opportunity for an Internet-based centralized trading place that applies the unique attributes of the Internet to facilitate person-to-person trading. THE EBAY SOLUTION eBay pioneered person-to-person trading of a wide range of goods over the Internet using an efficient and entertaining auction format and has grown into the largest and most popular person-to-person trading community on the Internet. The core eBay service permits sellers to list items for sale, buyers to bid for and purchase items of interest and all eBay users to browse through listed items from any place in the world at any time. eBay offers buyers a large selection of new and used items that can be difficult and costly to find through traditional means such as classified advertisements, collectibles shows, garage sales and flea markets or through intermediaries, such as auction houses and local dealer shops. eBay also enables sellers to reach a larger number of buyers more cost-effectively than traditional person-to- person trading forums. 39 The eBay service was originally introduced in September 1995 to create an efficient marketplace for individuals to trade with one another. Begun as a grassroots online trading community, eBay primarily attracted buyers and sellers through word-of-mouth and by providing buyers and sellers with a place to socialize, to discuss topics of common interest and ultimately to trade goods with one another. The number of categories under which eBay users list goods for auction has grown from 10 categories, when eBay was first introduced, to 846 categories of items as of June 30, 1998. Categories on eBay currently include antiques, coins, collectibles, computers, memorabilia, stamps and toys. From inception through June 30, 1998, eBay hosted over 15 million auctions, resulting in gross merchandise sales of over $340 million. From December 31, 1997 to June 30, 1998, the number of registered eBay users grew from approximately 340,000 to over 850,000 and the number of simultaneous auctions being conducted through eBay increased from approximately 200,000 to over 500,000. The principal reasons for eBay's success are the following: LARGEST ONLINE TRADING MARKET. Unlike traditional person-to-person trading forums, eBay has aggregated a critical mass of buyers, sellers and items listed for sale. As a result, eBay has become the largest online person-to-person trading market. As of June 30, 1998, eBay had over 850,000 registered users and was offering 846 product categories with over 500,000 items for auction, many of which were unique or otherwise hard to find. The Company believes that this critical mass of buyers, sellers and items listed for sale creates a cycle that helps eBay to continue to grow its user base. Sellers are attracted to eBay as a result of the large number of potential buyers and buyers in turn are attracted to eBay by the broad selection of goods listed on eBay. COMPELLING TRADING ENVIRONMENT. eBay has created a distinctive trading environment by utilizing an entertaining auction format, establishing procedural rules and promoting community values that are designed to facilitate trade and communications between buyers and sellers, without the need for eBay to intervene and play a significant role in the trading process. The auction format creates a sense of urgency among buyers to bid for goods because of the uncertain future availability of a unique item on the site. Similarly, by accepting multiple bids at increasing prices, its auction format provides sellers a more efficient means of obtaining a maximum price for their products. To date, well over 50% of auctions listed on eBay have been successfully completed. The Company encourages every eBay user to provide comments and feedback on other eBay users with whom they interact and offers user profiles that provide feedback ratings and incorporate these comments. The Company believes that this Feedback Forum helps make users more comfortable with dealing with an unknown trading partner over the Web. The Company also offers a SafeHarbor program, which provides guidelines for trade, helps provide information to resolve user disputes and responds to reports of misuse of the eBay service. COST EFFECTIVE, CONVENIENT TRADING. eBay allows its buyers and sellers to bypass traditionally expensive, regionally-fragmented intermediaries and transact business on a 24 hour a day, seven day a week basis. Because eBay carries no inventory, sellers bypass costly traditional intermediaries, thus allowing for a lower selling costs and increasing the sellers' likelihood of finding buyers willing to pay his or her target price. To list an item on eBay, sellers pay only a nominal placement fee ranging from $0.25 to $2.00 and then pay an additional success fee that steps down from 5% to 1.25% of the transaction value only if an auction is concluded with a successful bid. As a result, sellers for the first time can sell relatively inexpensive items which had previously been prohibitively expensive to list through most traditional trading forums. By allowing sellers to conveniently reach a broad range of buyers, eBay also ameliorates the time-consuming, logistical inconvenience of individual selling. Buyers have access to a broad selection of items and avoid the need to pay expensive markups or commissions to intermediaries. Buyers are not charged for trading through eBay. The critical mass of items listed on eBay provides a mutual benefit for buyers and sellers to more effectively determine an appropriate price for an item. 40 STRONG COMMUNITY AFFINITY. The Company believes that fostering direct interaction between buyers and sellers with similar interests has enabled it to create a loyal, active community of users. eBay has introduced a variety of features and services designed to strengthen this sense of community among eBay users. The Company facilitates communications between buyers and sellers by offering chat rooms, bulletin boards and customer support assistance from eBay personnel and other eBay users and by providing community features that are designed to encourage consumer loyalty and repeat usage. INTUITIVE USER EXPERIENCE. The eBay service is a fully-automated, topically- arranged, intuitive and easy-to-use online service that is available on a 24 hour a day, seven day a week basis. Within minutes of completing a simple online form, a seller can immediately list items for sale on the service, and buyers can submit bids for items quickly and easily. Buyers can easily search the hundreds of thousands of items listed by category or specific item. During the course of the auction, bidders are notified by email of the status of their bids on a daily basis and are notified immediately if they are outbid. Sellers and successful bidders are automatically notified when an auction is completed. To assist users further, the Company offers customer support via email and support bulletin boards staffed on a 24 hour a day, seven day a week basis. EBAY STRATEGY The Company's objective is to build upon its position as the world's leading online person-to-person trading community. The key elements of eBay's strategy are: GROW THE EBAY COMMUNITY AND THE EBAY BRAND. The Company believes that building greater awareness of the eBay brand within and beyond the eBay community is critical to expanding its user base and to maintaining the vitality of the eBay community. Although the Company's historical growth has been largely attributable to word-of-mouth, the Company intends to build its user base and its brand name aggressively. The Company has prepared a substantial national advertising campaign, both in traditional media and online, that is designed to attract new eBay users. The campaign will include advertising in targeted publications, strategic advertising and sponsorship placements on high-traffic Web sites, radio and television advertising campaigns and active participation in other forums such as selected trade shows. The Company intends to focus on reinforcing its brand within the existing eBay community through marketing programs on eBay and sales of eBay- branded merchandise. BROADEN THE EBAY TRADING PLATFORM. The Company intends to pursue a multi- pronged strategy for growing the eBay platform within existing product categories, across new product categories and internationally. The Company will target key vertical markets in its user programs and marketing activities. The Company also intends to grow existing product categories by introducing category-specific bulletin boards and chat rooms, integrating category-specific content, advertising its service in targeted publications and participating in targeted trade shows. In addition, the Company intends to broaden the range of products offered on its trading platform by seeking to attract new users from the general audience of Internet users and adding product categories, content and other services or features to meet this new user demand. The Company believes that there are significant opportunities for person-to-person trading worldwide and therefore intends to leverage the eBay service and brand name internationally by developing eBay for selected international markets and marketing and promoting these services actively. FOSTER EBAY COMMUNITY AFFINITY. The Company believes that it has developed the largest and one of the most loyal person-to-person trading communities on the Web and that enhancing the eBay community experience will help the Company foster further growth and a greater sense of loyalty among eBay users. The Company seeks to maintain a critical mass of frequent buyers and sellers with a vested interest in the eBay community so that sellers will continue to be attracted to the service by 41 the large number of potential buyers and buyers will be attracted to eBay by the large number of items listed by these sellers. Consistent with its desire to foster community, the Company has organized a charitable fund, known as the eBay Foundation, and intends to involve the members of the eBay community in determining to which charitable purposes the eBay Foundation's funds will be applied. ENHANCE FEATURES AND FUNCTIONALITY. The Company intends to update and enhance the features and functionality of eBay frequently in order to continue to improve the user trading experience through eBay. The Company recently introduced personalization features such as My eBay, a customizable user interface that tracks a user's recent auction activity and account balance information and highlights auctions of specified items. The Company intends to introduce other features, such as new auction formats, category-specific content and other features designed to enhance the eBay experience. The Company will continue to provide rapid system response and transaction processing time by investing in its infrastructure in order to accommodate additional users, content and auctions. EXPAND VALUE-ADDED SERVICES. In order to offer an "end-to-end" person-to- person trading service, the Company intends to offer a variety of pre- and post-trade services to enhance the user experience. The Company intends to introduce pre-trade services, such as services to facilitate scanning and uploading of photographs of listed items, and post-trade services, such as third-party escrow services and arrangements with shippers to help sellers ship their products more easily. The Company may pursue strategic relationships with third parties to provide many of these value-added services. LEVERAGE UNIQUE BUSINESS MODEL. The Company believes that its business model, which does not require it to carry an inventory or to maintain a sales force, provides a number of competitive advantages. The Company intends to devote the capital that would otherwise be used for those purposes towards growing eBay's business, enhancing its person-to-person trading services, building brand awareness and pursuing other strategic opportunities. THE EBAY SERVICE The eBay trading platform is a robust, Internet-based, person-to-person centralized trading place that facilitates buying and selling of a wide variety of items. [DIAGRAM OF BUYING-SELLING PROCESS] 42 REGISTRATION. While any visitor to eBay can browse through the eBay service and view the items listed for auction, in order to bid for an item or to list an item for sale, buyers and sellers must first register with eBay. Users register by completing a short online form and thereafter can immediately bid for an item or list an item for sale. BUYING ON EBAY. Buyers typically enter eBay through its home page, which contains a listing of product categories that allows for easy exploration of current auctions. Bidders can search for specific items by browsing through a list of auctions within a category or subcategory and then "click through" to a detailed description for a particular item. Bidders can also search specific categories or the entire database of auction listings using keywords to describe the types of products in which they are interested, and eBay's search engine will generate a list of relevant auctions with links to the detailed descriptions. Each auction is assigned a unique identifier so that users can easily search for and track specific auctions. Users can also search for a particular bidder or seller by name in order to review his or her auction and feedback history. Within each category section eBay highlights auctions commenced within the past 24 hours in a "New Today" section; auctions ending on that day in an "Ending Today" section; and auctions ending within three hours under a "Going, Going, Gone" section. Once a bidder has found an item of interest and registered with eBay, the bidder enters the maximum amount he or she is willing to pay at that time. In the event of competitive bids, the eBay service automatically increases bidding in increments based upon the then current highest bid for the item, up to the bidder's maximum price. As eBay encourages direct interaction between buyers and sellers, bidders wishing additional information about a listed item can access the seller's email address and contact the seller for additional information. The Company believes that this interaction between bidders and sellers leverages the personal, one-to-one nature of person-to-person trading on the Web and is an important element of the eBay experience. Once each bid is made, a confirmation is sent to the bidder via email, an outbid notice is sent to the next highest bidders and the item's auction status is automatically updated. During the course of the auction, bidders are notified of the status of their bids via email on a daily basis and are notified immediately after they are outbid. Bidders are not charged for making bids or purchases through eBay. SELLING ON EBAY. A seller registered with eBay can list a product for auction by completing a short online form. The seller selects a minimum price for opening bids for the item and chooses whether the auction will last three, five or seven days. Additionally, a seller may select a reserve price for an item, which is the minimum price at which the seller is willing to sell the item and is typically higher than the minimum price set for opening bids. The reserve price is not disclosed to bidders. A seller can elect to sell items in individual auctions or, if he or she has multiple identical items, can elect to hold a "Dutch Auction." For example, an individual wishing to sell 10 identical watches could hold 10 individual auctions or hold a Dutch Auction in which the 10 highest bidders would each receive a watch and all lower bids would be rejected. A seller may also specify that an auction will be a private auction. With this format, bidders' e-mail addresses are not disclosed on the item screen or bidding history screen. Sellers pay a nominal placement fee to list items for sale--$0.25 for an auction with a minimum starting price of less than $10.00, $0.50 for a minimum starting price of $10.00 to $24.99, $1.00 for a minimum starting price of $25.00 to $49.99 and $2.00 for a minimum starting price of $50.00 or more. By paying incremental placement fees, sellers can have items featured in various ways. The seller can highlight his or her auctions by utilizing a bold font for the auction heading for an additional fee of $2.00. A seller with a favorable feedback rating can have his or her auction featured as a "Super Featured Auction" for $49.95, which allows the seller's item to be rotated on the eBay home page, or as a "Category Featured Auction" for $9.95, which allows the seller's item to be featured within a particular eBay category. A seller can also include a description of the product with links to the seller's Web site. In addition, the seller can include a photograph in the description if the seller posts the photograph on a Web site and provides eBay with the appropriate Web address. During the course of an auction, sellers are notified of the status of their auctions on a daily basis via email. 43 HOW TRANSACTIONS ARE COMPLETED. At the end of an auction period, if a bid exceeds the minimum price and, if one is set, the reserve price, eBay automatically notifies the buyer and seller via email and the buyer and seller can then consummate the transaction independently of eBay. At the time of the email notification, eBay charges the seller a success fee equal to 5% of the first $25 of the purchase price, 2.5% of any purchase price between $25.01 and $1,000 and 1.25% of any purchase price over $1,000. At no point during the process does the Company take possession of either the item being sold or the buyer's payment for the item. Rather, the buyer and seller must independently arrange for the shipment of and payment for the item, with the buyer typically paying for shipping. A seller can view the buyer's feedback rating and then determine the manner of payment, such as personal check, cashier's check or credit card, and also whether to ship the item before or after the payment is received. In the event the buyer and seller are unable to complete the transaction, eBay credits the seller the amount of the success fee. Invoices for placement fees, additional listing fees and success fees are sent via email to sellers on a monthly basis. Typically, sellers have a credit card account on file with eBay and that account is charged shortly after the invoice is sent. FEEDBACK FORUM. eBay pioneered this feature to facilitate the establishment of reputations within its community by encouraging individuals to record comments about their trading partners on each transaction or other eBay users with whom they have interacted. Every registered eBay user is issued a trading profile, on which users who have conducted business or interacted with the person may submit compliments or criticism. This information is recorded in a feedback profile that includes a feedback rating for the person and indicates comments from other eBay users who have interacted with that person over the past seven days, the past month, the past six months and beyond. Users who have developed positive reputations over time will have a star symbol displayed next to their user name, which is color coded to indicate the amount of positive feedback as compared to negative feedback received by the user. eBay users may review a person's feedback profile to check on the person's reputation within the eBay community before deciding to bid on an item listed by that person or in determining how to complete the payment for and delivery of the item. The Company believes its Feedback Forum is extremely useful in overcoming initial user hesitancy when trading over the Web as it reduces the anonymity and uncertainty of dealing with an unknown trading partner. WHAT CAN BE PURCHASED OR SOLD ON EBAY. The eBay service has grown from offering 10 product categories when it was first introduced in September 1995 to offering over 846 categories as of June 30, 1998. As the number of product categories has grown, the Company periodically organizes the categories under different headings to reflect the major types of items currently listed. As of June 30, 1998, these product categories were organized under the following headings: Antiques Memorabilia Dolls, Figures Books, Magazines Collectibles Trading Cards Coins Jewelry, Gemstones Computers Toys Stamps Miscellaneous Each category has numerous subcategories. Today eBay offers a selection of over 500,000 items, with the most popular items sold on eBay being those that are relatively standardized or are well-represented with a photo (and therefore can be evaluated to some degree without a physical inspection), are small and easily shippable, and are relatively inexpensive. As the eBay community grows and additional items are listed, the Company will continue to organize auctions under additional categories to respond to the needs of the eBay community. COMMUNITY SERVICES. Beyond providing a convenient means of trading, eBay has devoted substantial resources to building an online person-to-person trading community, which the Company believes is one of the strongest on the Web. Key components of the Company's community philosophy 44 are maintaining an honest and open marketplace and treating individual users with respect. The Company offers a variety of community and support features that are designed to solidify the growth of the eBay community and to build eBay user affinity and loyalty. eBay facilitates email communications between buyers and sellers and offers category-specific chat rooms, the eBay Cafe (a chat room for the entire eBay community), question and answer sections, a bulletin board devoted to user feedback on new features, an announcements section that covers new features on eBay or other eBay news, customer support boards and "items wanted" listings where users can post notices seeking specific items. eBay also offers My eBay, which permits users to receive a report of their recent activity on eBay, including bidding activity, selling activity, account balances, favorite categories and recent feedback. Users with their own Web pages can also post link buttons from the user's page to eBay and to a list of items the user has for sale on eBay. In addition, in June 1998, the Company donated 107,250 shares of Common Stock to the Community Foundation Silicon Valley, a tax-exempt donor-advised public charity and established a fund, known as the "eBay Foundation." Through the Community Foundation Silicon Valley, the eBay Foundation will make grants to charitable organizations. The Company intends to involve the members of the eBay community in determining the charitable purposes to which proceeds from the sale of these shares will be devoted. CUSTOMER SUPPORT. The Company devotes significant resources to providing personalized, timely customer service and support. eBay offers customer support on a 24 hour a day, seven day a week basis. Most customer support inquiries are handled via email, with customer email inquiries typically being answered within 24 hours after submission. The Company offers an online tutorial for new eBay users and maintains two live customer support bulletin boards, where users can post questions that will be answered by eBay customer support personnel or other eBay users. In addition, the Company offers the SafeHarbor program which provides guidelines for trade, helps provide information to resolve user disputes and responds to reports of misuses of the eBay service. ACQUISITION OF JUMP On June 30, 1998, the Company acquired Jump, the developer and operator of Up4Sale, an advertising-supported online trading service in an auction format. The Company acquired Jump in order to provide it with an additional environment in which to introduce complementary future services. In order to bid or sell on Up4Sale, users must first register and neither buyers nor sellers currently pay any fees to bid for or list items for auction. Once an auction is successfully completed, the buyer and seller then independently complete the sale. In connection with the acquisition of Jump, which was accounted for under the purchase method of accounting, the Company issued 142,848 shares of its Common Stock in exchange for all of the outstanding capital stock of Jump. In addition, the four principal employees of Jump entered into four year employment agreements with the Company. The Company currently operates Up4Sale as an independent service, but may, in the future, integrate Up4Sale and its users into the eBay service. MARKETING eBay's marketing strategy is to promote its brand and attract buyers and sellers to the eBay service. To attract users to its site, eBay historically has relied primarily on word-of-mouth and, to a lesser extent, on distribution or sponsorship relationships with high traffic Web sites. Today, the Company employs a variety of methods to promote its brand and attract potential buyers and sellers. Currently, eBay utilizes strategic purchases of online advertising to place advertisements in areas in which it believes it can reach its target audience. The Company also engages in a number of marketing activities in traditional media such as advertising in print media and at trade shows and other events. eBay also advertises in a number of targeted publications. The Company recently began a substantial national advertising campaign, both in traditional media and online, that is designed to attract new eBay users. This campaign will include print, radio and television campaigns, strategic advertising and sponsorship placements on high-traffic Web sites and advertising in other media. eBay also engages 45 in a number of on-site marketing programs, including offering a variety of eBay-branded merchandise through the online "eBay Store." OPERATIONS AND TECHNOLOGY eBay has built a robust, scalable user interface and transaction processing system that is based on internally-developed proprietary software. The Company's system maintains data records for over 850,000 registered users, over 500,000 simultaneous, open auctions, and over 2 million closed, but viewable, auctions from the previous 30 days. During June 1998, the eBay service served over 11 million page views per day, processed over 1.2 million searches per day, received over 80,000 new listings per day and received over 280,000 bids per day. During that month, eBay also sent out more than 500,000 registration- and auction-related emails per day to users. The eBay system also handles all other aspects of the auction process including notifying users via email when they initially register for the service, they place a successful bid, they are outbid, they place an item for sale and an auction ends. Furthermore, the system sends daily status updates to any active sellers and bidders regarding the state of their current auctions. The system maintains user registration information, billing accounts, current auctions and historical listings. All data are regularly archived to a data warehouse. Complete listings of all items for sale are generated every hour. The system updates a text-based search engine hourly with the titles and descriptions of new items, as well as pricing and bidding updates for active items. Every time an item is listed on the service, a listing enhancement option is selected by a seller, or an auction closes with a bid in excess of the seller-specified minimum bid, the system makes an entry into the seller's billing account. The system sends electronic invoices to all sellers via email on a monthly basis. For convenience, sellers may place a credit card account number on file with eBay and their account balance is billed directly. In addition to these features, the eBay service also supports a number of community bulletin board and chat areas where users and eBay support personnel can interact. The Company's system has been designed around industry standard architectures and has been designed to reduce downtime in the event of outages or catastrophic occurrences. The eBay service provides 24 hour a day, seven day a week availability, subject to a short maintenance period for a few hours during one night per week. eBay's system hardware is hosted at the Exodus facility in Santa Clara, California, which provides redundant communications lines and emergency power backup. The Company's system consists of Sun database servers running Oracle relational database management systems and a suite of Pentium- based Microsoft Internet servers running on the Windows NT operating system. The Company's Internet servers also utilize VeriSign Inc. digital certificates for authentication. The Company uses Resonate's load balancing systems and its own redundant servers to provide for fault tolerance. As of June 30, 1998, the Company had 23 personnel on its development staff. The Company incurred $28,000, $831,000 and $1.5 million in product development expenses in 1996, 1997 and the six months ended June 30, 1998, respectively. The Company anticipates that it will continue to devote significant resources to product development in the future as it adds new features and functionality to the eBay service. The market in which the Company competes is characterized by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. Accordingly, the Company's future success will depend on its ability to adapt to rapidly changing technologies, to adapt its services to evolving industry standards and to continually improve the performance, features and reliability of its service in response to competitive service and product offerings and evolving demands of the marketplace. The failure of the Company to adapt to such changes would have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures by the Company to modify or adapt its services or infrastructure which could have a material adverse effect on the Company's business, 46 results of operations and financial condition. See "Risk Factors--Rapid Technological Change; Risks Associated with New Services, Features and Functions." COMPETITION The market for person-to-person trading over the Internet is new, rapidly evolving and intensely competitive, and the Company expects competition to intensify further in the future. Barriers to entry are relatively low, and current and new competitors can launch new sites at a relatively low cost using commercially available software. The Company currently or potentially competes with a number of other companies. The Company's direct competitors include various online person-to-person auction services, including Onsale Exchange, a division of Onsale; Auction Universe, a Times-Mirror Company; Excite; and a number of other small services, including those that serve specialty markets. The Company also competes indirectly with business-to-consumer online auction services such as Onsale, First Auction, ZAuction and Surplus Auction. The Company potentially faces competition from a number of large online communities and services that have expertise in developing online commerce and in facilitating online person-to-person interaction. Certain of these potential competitors, including Amazon.com, AOL, Microsoft and Yahoo! currently offer a variety of business-to-consumer trading services and classified ad services, and certain of these companies may introduce person-to-person trading to their large user populations. Other large companies with strong brand recognition and experience in online commerce, such as Cendant Corporation, QVC and large newspaper or media companies may also seek to compete in the online auction market. Competitive pressures created by any one of these companies, or by the Company's competitors collectively, could have a material adverse effect on the Company's business, results of operations and financial condition. The Company believes that the principal competitive factors in its market are volume and selection of goods, population of buyers and sellers, community cohesion and interaction, customer service, reliability of delivery and payment by users, brand recognition, Web site convenience and accessibility, price, quality of search tools and system reliability. Many of the Company's current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing, technical and other resources than the Company. In addition, other online trading services may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well- financed companies as use of Internet and other online services increases. Therefore, certain of the Company's competitors may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies or may try to attract traffic by offering services for free and devote substantially more resources to Web site and systems development than the Company. Increased competition may result in reduced operating margins, loss of market share and diminished value in the Company's brand. There can be no assurance that the Company will be able to compete successfully against current and future competitors. Further, as a strategic response to changes in the competitive environment, the Company may, from time to time, make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on its business, results of operations and financial condition. New technologies and the expansion of existing technologies may increase the competitive pressures on the Company by enabling the Company's competitors to offer a lower-cost service. Certain Web-based applications that direct Internet traffic to certain Web sites may channel users to trading services that compete with the Company. Although the Company has established Internet traffic arrangements with several large online services and search engine companies, there can be no assurance that these arrangements will be renewed on commercially reasonable terms or that they will otherwise continue to result in increased users of the eBay service. In addition, companies that control access to transactions through network access or Web browsers could promote the Company's competitors or charge the Company substantial fees for inclusion. Any and all of these events could have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors--Intense Competition." 47 INTELLECTUAL PROPERTY The Company regards the protection of its copyrights, service marks, trademarks, trade dress and trade secrets as critical to its future success and relies on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protect its proprietary rights in products and services. The Company has entered into confidentiality and invention assignment agreements with its employees and contractors, and nondisclosure agreements with its suppliers and strategic partners in order to limit access to and disclosure of its proprietary information. There can be no assurance that these contractual arrangements or the other steps taken by the Company to protect its intellectual property will prove sufficient to prevent misappropriation of the Company's technology or to deter independent third- party development of similar technologies. The Company pursues the registration of its trademarks and service marks in the U.S. and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which the Company's services are made available online. The Company has licensed in the past, and expects that it may license in the future, certain of its proprietary rights, such as trademarks or copyrighted material, to third parties. While the Company attempts to ensure that the quality of the eBay brand is maintained by such licensees, there can be no assurance that such licensees will not take actions that might materially adversely affect the value of the Company's proprietary rights or reputation, which could have a material adverse effect on the Company's business, results of operations and financial condition. The Company also relies on certain technologies that it licenses from third parties, such as Oracle, Microsoft and Sun, the suppliers of key database technology, the operating system and specific hardware components for the eBay service. There can be no assurance that these third-party technology licenses will continue to be available to the Company on commercially reasonable terms. The loss of such technology could require the Company to obtain substitute technology of lower quality or performance standards or at greater cost, which could materially adversely affect the Company's business, results of operations and financial condition. To date, the Company has not been notified that its technologies infringe the proprietary rights of third parties, but there can be no assurance that third parties will not claim infringement by the Company with respect to past, current or future technologies. The Company expects that participants in its markets will be increasingly subject to infringement claims as the number of services and competitors in the Company's industry segment grows. Any such claim, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to the Company or at all. As a result, any such claim could have a material adverse effect upon the Company's business, results of operations and financial condition. See "Risk Factors--Protection and Enforcement of Intellectual Property Rights." PRIVACY POLICY The Company believes that issues relating to privacy and use of personal information relating to Internet users are becoming increasingly important as the Internet and its commercial use grow. The Company has adopted a detailed privacy policy that outlines how eBay uses information concerning its users and the extent to which other registered eBay users may have access to this information. Users must acknowledge and agree to this policy when registering for the eBay service. The Company does not sell or rent any personally identifiable information about its users to any third party, however, the Company does disclose information to sellers and winning bidders that contains the seller's and winning bidder's name, email address and telephone number. The Company also uses information about its users for internal purposes only in order to improve marketing and promotional efforts, to analyze site usage statistically, and to improve content, product offerings and site layout. eBay is a member of the TRUSTe program, a non-profit independent organization which audits Web sites' privacy statements and audits their adherence thereto. 48 GOVERNMENT REGULATION The Company is not currently subject to direct federal, state or local regulation, and laws or regulations applicable to access to or commerce on the Internet, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Although sections of the CDA that, among other things, proposed to impose criminal penalties on anyone distributing "indecent" material to minors over the Internet, were held to be unconstitutional by the U.S. Supreme Court, there can be no assurance that similar laws will not be proposed and adopted. Certain members of Congress have recently discussed proposing legislation that would regulate the distribution of "indecent" material over the Internet in a manner that they believe would withstand challenge on constitutional grounds. The nature of such similar legislation and the manner in which it may be interpreted and enforced cannot be fully determined and, therefore, legislation similar to the CDA could subject the Company and/or its customers to potential liability, which in turn could have an adverse effect on the Company's business, results of operations and financial condition. The adoption of any such laws or regulations might also decrease the rate of growth of Internet use, which in turn could decrease the demand for the eBay service or increase the cost of doing business or in some other manner have a material adverse effect on the Company's business, results of operations and financial condition. In addition, applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy is uncertain. The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. In addition, numerous states, including the State of California in which the Company's headquarters are located, have regulations regarding the manner in which "auctions" may be conducted and the liability of "auctioneers" in conducting such auctions. The Company does not believe that such regulations, which were adopted prior to the advent of the Internet, govern the operations of the Company's business nor have any claims been filed by any state implying that the Company is subject to such legislation. There can be no assurance, however, that a state will not attempt to impose these regulations upon the Company in the future or that such imposition will not have a material adverse effect on the Company's business, results of operations and financial condition. Several states have also proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. Changes to existing laws or the passage of new laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace that could reduce demand for the services of the Company or increase the cost of doing business as a result of litigation costs or increased service delivery costs, or could in some other manner have a material adverse effect on the Company's business, results of operations and financial condition. In addition, because the Company's services are accessible worldwide and the Company facilitates sales of goods to users worldwide, other jurisdictions may claim that the Company is required to qualify to do business as a foreign corporation in a particular state or foreign country. The Company is qualified to do business in two states in the United States, and failure by the Company to qualify as a foreign corporation in a jurisdiction where it is required to do so could subject the Company to taxes and penalties for the failure to qualify and could result in the inability of the Company to enforce contracts in such jurisdictions. Any such new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to the Company's business, could have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors--Governmental Regulation and Legal Uncertainties." 49 EMPLOYEES As of June 30, 1998, the Company had 76 employees, including 11 in customer support, 23 in product development, 19 in sales, marketing and business development, and 23 in administration. The Company has never had a work stoppage, and no employees are represented under collective bargaining agreements. The Company considers its relations with its employees to be good. The Company believes that its future success will depend in part on its continued ability to attract, integrate, retain and motivate highly qualified technical and managerial personnel, and upon the continued service of its senior management and key technical personnel, none of whom is bound by an employment agreement. Competition for qualified personnel in the Company's industry and geographical location is intense, and there can be no assurance that the Company will be successful in attracting, integrating, retaining and motivating a sufficient numbers of qualified personnel to conduct its business in the future. See "Risk Factors--Management of Growth; Dependence on Key Personnel." FACILITIES The Company's principal administrative, marketing and product development facilities are located in approximately 22,148 square feet of office space in San Jose, California. Currently, 12,733 square feet of this facility are occupied under a sub-lease expiring in December 1999, 2,978 square feet are occupied under a lease expiring in October 1999 and 6,437 square feet are occupied under a lease expiring in June 2001. Neither the sub-lease nor the leases provide for a renewal option. As a result of the Company's recent acquisition of Jump, the Company also has facilities in Cincinnati, Ohio that are leased on a month to month basis. The Company intends to obtain additional office space in 1999 to accommodate its anticipated growth. The Company believes that this additional space will be available and that its current facilities, together with this additional space, will be adequate to meet its needs for the foreseeable future. 50 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the executive officers and directors of the Company:
NAME AGE POSITION ---- --- -------- Pierre M. Omidyar....... 31 Founder, Chairman of the Board and a director Margaret C. Whitman..... 41 President, Chief Executive Officer and a director Gary F. Bengier......... 43 Chief Financial Officer and Vice President Operations Jeffrey S. Skoll........ 33 Vice President Strategic Planning and Analysis Steven P. Westly........ 41 Vice President Marketing and Business Development Michael K. Wilson....... 41 Vice President Product Development and Site Operations Scott D. Cook (1)....... 45 Director Robert C. Kagle (1)(2).. 42 Director Howard D. Schultz (2)... 44 Director
- -------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Each director will hold office until the next Annual Meeting of Stockholders and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Each officer serves at the discretion of the Board of Directors (the "Board"). Pierre M. Omidyar founded the Company as a sole proprietorship in September 1995. He has been a director and Chairman of the Board since the Company's incorporation in May 1996 and also served as its Chief Executive Officer, Chief Financial Officer and President from inception to February 1998, November 1997 and August 1996, respectively. Prior to founding eBay, Mr. Omidyar was a developer services engineer at General Magic, a mobile communication platform company from December 1994 to July 1996. Mr. Omidyar co-founded Ink Development Corp. (later renamed eShop) in May 1991 and served as a software engineer there from May 1991 to September 1994. Mr. Omidyar holds a B.S. degree in Computer Science from Tufts University. Margaret C. Whitman has served as President and Chief Executive Officer of the Company since February 1998 and a director since March 1998. From January 1997 to February 1998, she was General Manager of the Preschool Division of Hasbro Inc., a toy company. From February 1995 to December 1997, Ms. Whitman was employed by FTD, Inc. ("FTD"), a floral products company, most recently as President, Chief Executive Officer and a director. From October 1992 to February 1995, Ms. Whitman was employed by The Stride Rite Corporation, in various capacities, including President, Stride Rite Children's Group and Executive Vice President, Product Development, Marketing & Merchandising, Keds Division. From May 1989 to October 1992, Ms. Whitman was employed by The Walt Disney Company ("Disney"), an entertainment company, most recently as Senior Vice President, Marketing, Disney Consumer Products. Before joining Disney, Ms. Whitman was at Bain & Co., a consulting firm, most recently as a Vice President. Ms. Whitman holds an A.B. degree in Economics from Princeton University and an M.B.A. degree from the Harvard Business School. Gary F. Bengier has served as Chief Financial Officer of the Company since November 1997. From February 1997 to October 1997, Mr. Bengier was Vice President and Chief Financial Officer of VXtreme, Inc. a developer of Internet video streaming products. Prior to that time, Mr. Bengier was Corporate Controller at Compass Design Automation, a publisher of electronic circuit design software, 51 from February 1993 to February 1997. Mr. Bengier holds a B.B.A. degree in Computer Science and Operations Research from Kent State University and an M.B.A. degree from the Harvard Business School. Jeffrey S. Skoll has served as the Company's Vice President Strategic Planning and Analysis since February 1998, its President from August 1996 to February 1998 and as a director from December 1996 to March 1998. From July 1995 to July 1996, Mr. Skoll served as Channel Marketing Manager for Knight- Ridder Information Inc., an online information services company and from September 1993 to July 1995 was a student at the Stanford Graduate School of Business. Prior to that time, Mr. Skoll was President of Skoll Engineering, a systems consulting firm that he founded, from September 1987 to August 1993. Mr. Skoll has a B.a.S.C. degree in Electrical Engineering from the University of Toronto and an M.B.A. degree from the Stanford Graduate School of Business. Steven P. Westly has served as the Company's Vice President Marketing and Business Development since August 1997. From July 1996 to August 1997, Mr. Westly was Vice President, Business Development of WhoWhere?, an Internet directory and Web-based email company. Prior to that time, Mr. Westly was Director of Sales for Netcom, an Internet service provider, from August 1995 to July 1996 and was Deputy Director of Office of Economic Development, City of San Jose, California, from April 1991 to August 1995. Before joining the Office of Economic Development, Mr. Westly served as President of Codd and Date International, a relational database consulting firm, from January 1990 to March 1992 and was the Managing Director of Bridgemere Capital, an investment banking firm, from 1987 to 1990. Mr. Westly holds a B.A. degree in History from Stanford University and an M.B.A. degree from the Stanford Graduate School of Business. Michael K. Wilson has served as the Company's Vice President Product Development and Site Operations since January 1997. From October 1995 to January 1997, Mr. Wilson was Vice President of WELL Engaged, L.L.C., a wholly- owned subsidiary of The Well, a software company. Prior to that time, Mr. Wilson was an engineer for daVinci Time and Space, a television company, from February 1995 to October 1995, an engineer for eShop, a software company, from February 1992 to August 1994 and a Director of Mainframe Engineering for Neuron Data, an engineering company, from 1987 to 1991. Before joining Neuron Data, Mr. Wilson worked in several capacities at Oracle Corporation from 1982 to 1987, Chevron from 1979 to 1983, and Macy's, a retailer, from 1975 to 1979. Scott D. Cook has served as a director of the Company since June 1998. Mr. Cook is the founder of Intuit Inc. ("Intuit") and has been a director of Intuit, a financial software developer, since March 1984 and its Chairman of the Board since March 1993. From March 1984 to April 1994, Mr. Cook served as President and Chief Executive Officer of Intuit. Mr. Cook also serves on the board of directors of Amazon.com and Broderbund Software, Inc. Mr. Cook holds a Bachelor of Arts degree in Economics and Mathematics from the University of Southern California and an M.B.A. degree from the Harvard Business School. Robert C. Kagle has served as a director of the Company since June 1997. Mr. Kagle has been a Member of Benchmark Capital Management Co., L.L.C. ("Benchmark"), the General Partner of Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P., since its founding in May 1995. Mr. Kagle also has been a General Partner of Technology Venture Investors since January 1984. Mr. Kagle holds a B.S. degree in Electrical and Mechanical Engineering from the General Motors Institute (renamed Kettering University in January 1998) and an M.B.A. degree from the Stanford Graduate School of Business. Howard D. Schultz has served as a director of the Company since June 1998. Mr. Schultz is the founder of Starbucks Corp ("Starbucks"), a provider of gourmet coffee, and has been its Chairman of the Board and Chief Executive Officer since its inception in 1985. From 1985 to June 1994, Mr. Schultz was also President of Starbucks. Mr. Schultz was the director of Retail Operations and Marketing for 52 Starbucks Coffee Company, a predecessor to Starbucks from September 1982 to December 1985 and was the Chairman of the Board, Chief Executive Officer and President of Il Giornale Coffee Company, a predecessor to Starbucks, from January 1986 to July 1987. Mr. Schultz is also one of two founding members of Maveron LLC, a company providing advisory services to consumer-based businesses, and is one of two members of a limited liability company that serves as a general partner of its affiliated venture capital fund, Maveron Equity Partners, L.P. (together, "Maveron"). BOARD COMMITTEES The Audit Committee of the Board consists of Robert C. Kagle and Scott D. Cook. The Audit Committee reviews the Company's financial statements and accounting practices, makes recommendations to the Board regarding the selection of independent auditors and reviews the results and scope of the audit and other services provided by the Company's independent auditors. The Compensation Committee of the Board consists of Robert C. Kagle and Howard D. Schultz. The Compensation Committee makes recommendations to the Board concerning salaries and incentive compensation for the Company's officers and employees and administers the Company's employee benefit plans. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee of the Board was at any time since the formation of the Company an officer or employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on the Company's Board or Compensation Committee. DIRECTOR COMPENSATION Directors of the Company do not receive cash compensation for their services as directors but are reimbursed for their reasonable expenses for attending Board and Board Committee meetings. In June 1998, Mr. Cook and Mr. Schultz were each granted an option to purchase 150,000 shares of Common Stock of the Company at an exercise price of $9.33 per share in connection with their service on the Board. Such options were immediately exercisable. Prior to exercise, Mr. Schultz assigned the beneficial interest in his option to acquire 112,500 of these shares to his affiliate, Maveron. Mr. Schultz thereafter exercised his option to acquire 37,500 shares in exchange for a full recourse five year promissory note for $350,000 at an interest rate of 8% per year. Interest on the note is payable annually and the principal is due June 30, 2003. In addition, Mr. Schultz exercised, on behalf of Maveron, the assigned portion of the option to acquire the remaining 112,500 shares in exchange for $1.05 million in cash. The shares of Common Stock received are subject to the Company's right of repurchase at a repurchase price equal to the exercise price of the option that lapses as to 25% of the shares on the first anniversary of the date of grant and 2.08% each full succeeding month thereafter. Unvested shares at termination of service are subject to the Company's right of repurchase. Also in June 1998, each of Mr. Cook and Mr. Schultz's Maveron affiliate purchased an additional 107,250 shares of Common Stock at a price of $9.33 per share for cash. In July 1998, the Board adopted, subject to stockholder approval, the Directors Plan and reserved a total of 200,000 shares of the Company's Common Stock for issuance thereunder. Members of the Board who are not employees of the Company, or any parent, subsidiary or affiliate of the Company, are eligible to participate in the Directors Plan. The option grants under the Directors Plan are automatic and nondiscretionary, and the exercise price of the options must be 100% of the fair market value of the Common Stock on the date of grant. Each eligible director who first becomes a member of the Board on or after the effective date of the Registration Statement of which this Prospectus forms a part (the "Effective Date") will initially be granted an option to purchase 30,000 shares (an "Initial Grant") on the date such director first becomes a director. Immediately following each Annual Meeting 53 of the Company, each eligible director will automatically be granted an additional option to purchase 5,000 shares if such director has served continuously as a member of the Board since the date of such director's Initial Grant or, if such director was ineligible to receive an Initial Grant, since the Effective Date. The term of such options is ten years, provided that they will terminate 7 months following the date the director ceases to be a director or a consultant of the Company (twelve months if the termination is due to death or disability). All options granted under the Directors Plan will vest as to 25% of the shares on the first anniversary of the date of grant and as to 2.08% of the shares each month thereafter, provided the optionee continues as a member of the Board or as a consultant to the Company. EXECUTIVE COMPENSATION The following table sets forth all compensation awarded to, earned by or paid for services rendered to the Company in all capacities during the year ended December 31, 1997 by the Company's Chief Executive Officer (the "Named Executive Officer"). No other executive officer who held office at December 31, 1997 met the definition of "most highly compensated officer" within the meaning of the SEC's executive compensation disclosure rules. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM --------------------- AND OTHER ANNUAL OTHER NAME AND PRINCIPAL POSITIONS YEAR SALARY(1) BONUS COMPENSATION COMPENSATION - ---------------------------- ---- ---------- ----- ------------ ------------ Pierre Omidyar(2).............. 1997 $65,446.16 -- -- -- Founder and Chief Executive Officer
- -------- (1) Ms. Whitman and Messrs. Bengier, Westly and Wilson, currently the executive officers of the Company with the highest annual rates of compensation, but who did not otherwise meet the definition of "most highly compensated officer" at December 31, 1997, are compensated at annual salary rates of $175,000, $125,000, $120,000 and $120,000, respectively. (2) Mr. Omidyar was the Chief Executive Officer of the Company at December 31, 1997. In February 1998, Margaret C. Whitman was hired as the Company's Chief Executive Officer. 54 The Named Executive Officer has never been granted options by the Company. The following executive officers received grants of options during the period from January 1, 1997 to June 30, 1998 pursuant to the 1996 Plan or the 1997 Plan. OPTION GRANTS FROM JANUARY 1, 1997 TO JUNE 30, 1998
POTENTIAL REALIZABLE PERCENTAGE OF VALUE AT ASSUMED NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION UNDERLYING EMPLOYEES FROM FOR OPTION TERM(3) OPTIONS 1/1/97 TO EXERCISE PRICE EXPIRATION ---------------------- NAME GRANTED(1) 6/30/98(2) PER SHARE DATE 5% 10% ---- ---------- -------------- -------------- ---------- ---------- ----------- Margaret C. Whitman..... 2,400,000 30.8% $0.20 1/20/2008 $ 301,869 $ 764,996 Gary F. Bengier......... 525,000 6.7 0.10 12/3/2007 33,017 83,671 Steven P. Westly........ 792,000 10.2 0.10 10/30/2007 49,808 126,224 9,000 0.1 0.20 1/20/2008 1,132 2,869 12,000 0.2 0.67 3/4/2008 5,031 12,750 9,000 0.1 2.00 4/13/2008 11,320 28,687 6,000 0.1 9.33 6/8/2008 35,218 89,250 Michael K. Wilson....... 600,000 7.7 0.02 1/13/2007 6,289 15,937 300,000 3.9 0.10 10/30/2007 18,867 47,812
- ------- (1) Options granted in 1997 and 1998 were granted under either the 1996 Plan or the 1997 Plan. All options granted are immediately exercisable and are either incentive stock options or nonqualified stock options that were granted at fair market value and generally vest over four years at the rate of 25% of the shares subject to the option on the first anniversary of either the vesting base date specified in the Stock Option Agreement if the option was granted under the 1996 Plan or the first vesting date specified in the Stock Option Agreement if the option was granted under the 1997 Plan and 2.08% per month thereafter. Upon certain changes in control of the Company, this vesting schedule will accelerate as to all shares that are then unvested. Unvested shares are subject to the Company's right of repurchase upon termination of employment. Options expire ten years from the date of grant. See "--Employee Benefit Plans" and "--Compensation Arrangements" for a description of the material terms of these options. (2) Based on granted options to purchase 7,789,500 shares of Common Stock of the Company during the period from January 1, 1997 to June 30, 1998. (3) Potential realizable values are net of the exercise price but before any payment of taxes, and are based on the assumption that the Common Stock of the Company appreciates at the annual compounded rate shown from the date of grant until the expiration of the ten-year term. The 5% and 10% assumed annual rates of stock price appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of future Common Stock prices. 55 The following table sets forth the number of shares acquired and the value realized upon exercise of stock options during the period from January 1, 1997 to June 30, 1998 and the number of shares of Common Stock covered by both exercisable and unexercisable stock options held as of June 30, 1998 by each of the executive officers of the Company described in footnote (1) to the previous table. Also reported are values of "in-the-money" options, which represent the positive spread between the respective exercise prices of outstanding stock options and an assumed initial public offering price of $ per share. AGGREGATE OPTION EXERCISES FROM JANUARY 1, 1997 TO JUNE 30, 1998 AND VALUES AT JUNE 30, 1998
VALUE OF NUMBER OF SECURITIES UNEXERCISED NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT JUNE 30, 1998 JUNE 30, 1998 ACQUIRED ON VALUE ------------------------- ------------------------- NAME EXERCISE(1) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Margaret C. Whitman..... 2,400,000 $ -- -- -- -- Gary F. Bengier......... 525,000 -- -- -- -- Steven P. Westly........ 828,000 -- -- -- -- Michael K. Wilson....... 600,000(3) 300,000 -- $ (4) --
- -------- (1) Except as otherwise noted, all of the shares acquired are unvested as of June 30, 1998 and subject to the Company's right of repurchase upon termination of employment at a price equal to the exercise price of the option pursuant to which the shares were acquired. (2) Based on a value of $ , the assumed initial public offering price per share, minus the per share exercise price, multiplied by the number of shares issued upon exercise of the option. (3) As of June 30, 1998, 212,499 shares of the 600,000 shares acquired are vested and 387,501 shares are unvested and subject to the Company's right of repurchase upon termination of employment. All of the 300,000 shares underlying the immediately exercisable option are unvested as of June 30, 1998 and are subject to the Company's right of repurchase upon termination of Mr. Wilson's employment. (4) Based on a value of $ , the assumed initial public offering price per share, minus the per share exercise price, multiplied by the number of shares issuable upon exercise of the option. EMPLOYEE BENEFIT PLANS 1996 STOCK OPTION PLAN. In December 1996 the Board adopted, and in December 1997 the stockholders approved, the 1996 Plan. At that time, 5,100,000 shares of Common Stock were reserved for issuance under the 1996 Plan, which number was decreased to 2,100,000 in June 1997 and further decreased to 1,506,000 in December 1997. Shares covered by any option granted under the 1996 Plan which expires unexercised become available again for grant under the 1996 Plan. As of June 30, 1998, options to purchase 1,473,375 shares had been exercised and options to purchase 32,625 of Common Stock were outstanding with a weighted average exercise price of $0.10 and no shares were available for future grants. Following the closing of this offering, no additional options will be granted under the 1996 Plan. Options granted under the 1996 Plan are subject to terms substantially similar to those described below with respect to options to be granted under the 1998 Equity Incentive Plan. The 1996 Plan does not provide for issuance of restricted stock or stock bonus awards. 1997 STOCK OPTION PLAN. In June 1997, the Board adopted and in December 1997, the stockholders approved the 1997 Plan. At that time, 6,000,000 shares of Common Stock were reserved for issuance under the 1997 Plan, which number was increased to 6,594,000 in December 1997. As of June 30, 1998, options to purchase 4,868,961 shares of Common Stock had been exercised, options to purchase 888,534 shares of Common Stock were outstanding under the 1997 Plan with a 56 weighted average exercise price of $2.66 and 961,500 shares were available for future grants. Following the closing of this offering, no additional options will be granted under the 1997 Plan. Options granted under the 1997 Plan are subject to terms substantially similar to those described below with respect to options to be granted under the 1998 Equity Incentive Plan. The 1997 Plan does not provide for issuance of restricted stock or stock bonus awards. 1998 EQUITY INCENTIVE PLAN. In July 1998, the Board adopted, subject to stockholder approval the Equity Incentive Plan and reserved 4,500,000 shares for issuance thereunder. The Equity Incentive Plan will become effective on the Effective Date and will serve as the successor to the 1996 Plan and the 1997 Plan (the "Prior Plans"). Options granted under the Prior Plans before their termination will remain outstanding according to their terms, but no further options will be granted under the Prior Plans after the Effective Date. Shares that: (a) are subject to issuance upon exercise of an option granted under the Equity Incentive Plan that cease to be subject to such option for any reason other than exercise of such option; (b) have been issued pursuant to the exercise of an option granted under the Equity Incentive Plan that are subsequently forfeited or repurchased by the Company at the original purchase price; (c) are subject to an award granted pursuant to a restricted stock purchase agreement under the Equity Incentive Plan that are subsequently forfeited or repurchased by the Company at the original issue price; or (d) are subject to stock bonuses granted under the Equity Incentive Plan that otherwise terminate without shares being issued, will again be available for grant and issuance under the Equity Incentive Plan. In addition, any authorized shares not issued or subject to outstanding grants under the Prior Plans on the Effective Date and any shares issued under the Prior Plans that are forfeited or repurchased by the Company or that are issuable upon exercise of options granted pursuant to the Prior Plans that expire or become unexercisable for any reason without having been exercised in full, will no longer be available for grant and issuance under the Prior Plans but will be available for grant and issuance under the Equity Incentive Plan. The Equity Incentive Plan will terminate in July 2008, unless sooner terminated in accordance with the terms of the Equity Incentive Plan. The Equity Incentive Plan authorizes the award of options, restricted stock awards and stock bonuses (each an "Award"). No person will be eligible to receive more than 1,000,000 shares in any calendar year pursuant to Awards under the Equity Incentive Plan other than a new employee of the Company who will be eligible to receive no more than 2,000,000 shares in the calendar year in which such employee commences employment. The Equity Incentive Plan is administered by the Compensation Committee, which currently consists of Messrs. Kagel and Schultz, both of whom are "non-employee directors" under applicable federal securities laws and "outside directors" as defined under applicable federal tax laws. The committee has the authority to construe and interpret the Equity Incentive Plan and any agreement made thereunder, grant Awards and make all other determinations necessary or advisable for the administration of the Equity Incentive Plan. The Equity Incentive Plan provides for the grant of both incentive stock options ("ISOs") that qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options ("NQSOs"). ISOs may be granted only to employees of the Company or of a parent or subsidiary of the Company. NQSOs (and all other Awards other than ISOs) may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any parent or subsidiary of the Company, provided such consultants, independent contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital- raising transaction ("Eligible Service Providers"). The exercise price of ISOs must be at least equal to the fair market value of the Company's Common Stock on the date of grant. (The exercise price of ISOs granted to 10% stockholders must be at least equal to 110% of that value.) The exercise price of NQSOs must be at least equal to 85% of the fair market value of the Company's Common Stock on the date of grant. The maximum term of options granted under the Equity Incentive Plan is ten years. Awards granted under the Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the optionee only by the optionee (unless otherwise determined by the Compensation Committee and set forth in 57 the Award agreement with respect to Awards that are not ISOs). Options granted under the Equity Incentive Plan generally expire three months after the termination of the optionee's service to the Company or a parent or subsidiary of the Company, except in the case of death or disability, in which case the options generally may be exercised up to 12 months following the date of death or termination of service. Options will generally terminate immediately upon termination for cause. In the event of the Company's dissolution or liquidation or a "change in control" transaction, outstanding Awards may be assumed or substituted by the successor corporation (if any). In the discretion of the Compensation Committee the vesting of such Awards may accelerate upon such transaction. 1998 EMPLOYEE STOCK PURCHASE PLAN. In July 1998, the Board adopted, subject to stockholder approval, the Purchase Plan and reserved a total of 300,000 shares of the Company's Common Stock for issuance thereunder. On each January 1, the aggregate number of shares reserved for issuance under the Purchase Plan shall be increased automatically by the number of shares purchased under the Purchase Plan in the preceding calendar year. The aggregate number of shares reserved for issuance under the Purchase Plan shall not exceed 1,500,000 shares. The Purchase Plan will be administered by the Compensation Committee of the Board. The Compensation Committee will have the authority to construe and interpret the Purchase Plan and its decision in such capacity will be final and binding. The Purchase Plan will become effective on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market. Employees generally will be eligible to participate in the Purchase Plan if they are customarily employed by the Company (or its parent or any subsidiaries that the Company designates) for more than 20 hours per week and more than five months in a calendar year and are not (and would not become as a result of being granted a right to participate in the Purchase Plan) 5% stockholders of the Company (or its designated parent or subsidiaries). Under the Purchase Plan, eligible employees will be permitted to acquire shares of the Company's Common Stock through payroll deductions. Eligible employees may select a rate of payroll deduction between 2% and 10% of their W-2 cash compensation and are subject to certain maximum purchase limitations described in the Purchase Plan. A participant may change the rate of payroll deductions or withdraw from an Offering Period by notifying the Company in writing. Participation in the Purchase Plan will end automatically upon termination of employment for any reason. Each Offering Period under the Purchase Plan will be for two years and consist of four six-month Purchase Periods. The first Offering Period is expected to begin on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market. Depending on the Effective Date, the first Purchase Period may be more or less than six months long. Offering Periods and Purchase Periods thereafter will begin on May 1 and November 1. The purchase price for the Company's Common Stock purchased under the Purchase Plan is 85% of the lesser of the fair market value of the Company's Common Stock on the first day of the applicable Offering Period or the last day of each Purchase Period. The Compensation Committee will have the power to change the duration of Offering Periods without stockholder approval, if such change is announced at least 15 days prior to the beginning of the Offering Period to be affected. The Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code. Rights granted under the Purchase Plan will not be transferable by a participant other than by will or the laws of descent and distribution. The Purchase Plan will provide that, in the event of the proposed dissolution or liquidation of the Company, each Offering Period that commenced prior to the closing of such proposed transaction shall continue for the duration of such Offering Period, provided that the Compensation Committee may fix a different date for termination of the Purchase Plan. The Purchase Plan will terminate in July 2008, unless earlier terminated pursuant to the terms of the Purchase Plan. The Board will have the authority to amend, terminate or extend the term of the Purchase Plan, except that no such action may adversely affect any outstanding options previously granted under the Purchase Plan and stockholder approval is required to increase the number of shares that may be issued or to change the terms of eligibility under the Purchase Plan. Notwithstanding the foregoing, the Board may make such amendments to the Purchase Plan as the Board determines to be advisable if the financial accounting treatment for the 58 Purchase Plan is different than the financial accounting treatment in effect on the date the Purchase Plan was adopted by the Board. 401(k) Plan. The Company sponsors the eBay, Inc. 401(k) Savings Plan (the "401(k) Plan"), a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code of 1986, as amended. All employees who are 21 years old are eligible to participate and may enter the 401(k) Plan as of the first day of any month ("Participants"). Participants may make pre-tax contributions to the 401(k) Plan of up to 25% of their eligible earnings, subject to a statutorily prescribed annual limit. The Company may make matching contributions on a discretionary basis to the 401(k) Plan. Each Participant is fully vested in his or her contributions, any Company matching contributions, and the investment earnings thereon. Contributions by the participants or the Company to the 401(k) Plan, and the income earned on such contributions, are generally not taxable to the participants until withdrawn. Contributions by the Company, if any, are generally deductible by the Company when made. Participant and Company contributions are held in trust as required by law. Individual Participants may direct the trustee to invest their accounts in authorized investment alternatives. The Company has made no matching contributions to the 401(k) Plan as of June 30, 1998. COMPENSATION ARRANGEMENTS Ms. Whitman's employment offer letter provides for an initial annual base salary of $175,000 and an initial bonus of up to $100,000. It also provides that in the event Ms. Whitman's employment is terminated for other than cause, she will continue to receive her salary compensation for six months and, if at the end of such period Ms. Whitman remains unemployed, she will be eligible to receive additional salary compensation for the lesser of six months or until she becomes employed. Ms. Whitman was also granted an immediately exercisable option to purchase 2,400,000 shares of Common Stock. As described under "Certain Transactions," Ms. Whitman exercised this option. The shares issued to her remain subject to the Company's right to repurchase "unvested" shares upon the termination of her employment. This right to repurchase has lapsed with respect to 30,000 shares, will lapse with respect to 570,000 shares on February 14, 1999 and will lapse with respect to a number of shares equal to one forty- eighth of the total shares granted at the end of each month thereafter; provided, however, that if Ms. Whitman's employment with the Company is terminated by the Company without cause prior to February 14, 1999, such repurchase rights will lapse at a rate of one forty-eighth of the total shares originally subject to the option at the end of each full month following February 14, 1998. Mr. Bengier's employment offer letter provides for an initial annual base salary of $125,000. Mr. Bengier was also granted an immediately exercisable option to purchase 525,000 shares of Common Stock, which he exercised in full in January 1998. The shares are subject to the Company's right to repurchase unvested shares upon termination of employment, which right lapses at a rate of 25% of the shares on the first anniversary of his employment and one forty- eighth of the total shares at the end of each month thereafter. Upon the occurrence of certain change-in-control transactions during Mr. Bengier's first year of employment, such repurchase rights will lapse at the rate of one forty- eighth of the total shares originally subject to the option at the end of each full month following the date of grant. Mr. Westly's employment offer letter provides for an initial annual base salary of $120,000 and a $25,000 signing bonus. Mr. Westly was also granted immediately exercisable options to purchase 828,000 shares of Common Stock which he exercised in full in January, May and June 1998 subject to the Company's right to repurchase unvested shares upon termination of employment, which lapses at a rate of 25% of the shares originally subject to the option on the first anniversary of his employment and one forty-eighth of the shares originally subject to the option at the end of each month thereafter; provided, however, that in the event Mr. Westly's employment is terminated by the Company without cause during his first year of employment then one forty-eighth of the total shares subject to the option will vest at the end of each full month following the date of grant. During his first year of employment, 59 Mr. Westly received an additional $30,000 bonus and was granted an option to purchase an additional 36,000 shares of Common Stock. Mr. Wilson's employment offer letter provides for an initial annual base salary of $78,000. Mr. Wilson was also granted an immediately exercisable option to purchase 600,000 shares of Common Stock which he exercised in full in January 1998 subject to the Company's right to repurchase unvested shares upon termination of employment, which lapses at a rate of 25% of the shares on the first anniversary of his employment and one forty-eighth of the total shares at the end of each month thereafter. Mr. Skoll's employment offer letter of October 16, 1996 provided for an initial annual salary of $30,000 and a 30-day right to purchase the shares of Common Stock which he currently owns subject to the Company's right of repurchase through June 30, 2000. The right of repurchase lapses with respect to seven forty-eighths of the total shares purchased on February 1, 1997 and with respect to an additional one forty-eighth of the shares on the first day of each month thereafter. In the event of an acquisition of the Company or other similar transaction, the right of repurchase will expire with respect to all of the shares subject to the Company's right of repurchase. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY As permitted by the Delaware General Corporation Law (the "DGCL"), the Company's Amended and Restated Certificate of Incorporation, which will become effective upon the closing of this offering, includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the DGCL (regarding unlawful dividends and stock purchases) or (iv) for any transaction from which the director derived an improper personal benefit. As permitted by the DGCL, the Company's Amended and Restated Bylaws, which will become effective upon the completion of this offering, provide that (i) the Company is required to indemnify its directors and officers to the fullest extent permitted by the DGCL, subject to certain very limited exceptions, (ii) the Company may indemnify its other employees and agents to the extent that it indemnifies its officers and directors, unless otherwise required by law, its Amended and Restated Certificate of Incorporation, its Amended and Restated Bylaws or agreements, (iii) the Company is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the DGCL, subject to certain very limited exceptions and (iv) the rights conferred in the Amended and Restated Bylaws are not exclusive. Prior to the completion of this offering, the Company intends to enter into Indemnification Agreements with each of its current directors and officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Company regarding which indemnification is sought, nor is the Company aware of any threatened litigation that may result in claims for indemnification. The Registrant, with approval by the Registrant's Board of Directors, expects to obtain directors' and officers' liability insurance. 60 CERTAIN TRANSACTIONS Since inception (May 13, 1996), there has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer or holder of more than 5% of the Common Stock of the Company had or will have a direct or indirect interest other than (i) compensation arrangements, which are described where required under "Management" and (ii) the transactions described below. For clarity of presentation, share numbers and per share prices for the transactions described below are for a three-for-one stock split of both Common and Preferred Stock to be effected prior to the effective date of the Registration Statement of which this Prospectus forms a part. Although not actually split, each share of Preferred Stock will automatically convert into three shares of Common Stock upon the closing of this offering. Common Stock at Formation. Pursuant to a Stock Purchase and Restriction Agreement dated May 20, 1996, the Company sold an aggregate of 14,700,000 shares of Common Stock to Pierre Omidyar, the Company's founder. Mr. Omidyar has served as a director of the Company since its inception and was the Company's Chief Executive Officer from its inception until February 1998. In consideration for the shares issued, Mr. Omidyar transferred to the Company certain assets valued at $14,262. Of these shares, 4,500,000 were subsequently exchanged for shares of the Company's Series A Preferred Stock as discussed below. All of Mr. Omidyar's remaining 10,200,000 shares of Common Stock are subject to a Stock Restriction Agreement dated December 12, 1996 between Mr. Omidyar and the Company ("Stock Restriction Agreement") and a Stock Restriction and Co- Sale Agreement dated as of June 20, 1997 between Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P. (collectively, the "Investors"), Pierre Omidyar and Jeffrey Skoll (collectively, the "Founders") and the Company (the "Co-Sale Agreement"). Under the Stock Restriction Agreement, all of the 10,200,000 shares of Common Stock are subject to the Company's right to repurchase unvested shares if Mr. Omidyar's employment terminates. The 10,200,000 shares vested as to 3,612,501 shares on February 1, 1997 and vest as to 212,499.99 shares on the first day of each month thereafter through the close of business on September 1, 1999, at which time all of the shares will be vested. The vesting of shares accelerates such that any unvested shares become fully vested in the event of a sale of the Company, which includes a sale, lease or disposition of substantially all of the Company's assets, any merger or consolidation of the Company into another entity, or any other corporate reorganization where the stockholders immediately prior to such event do not retain at least 50% of the voting power of and interest in the successor entity or any transaction or series of related transactions in which more than 50% of the Company's voting power is transferred ("Sale of the Company"). In addition to the foregoing, under the Co-Sale Agreement, the vesting of shares will accelerate upon termination of employment, such that immediately prior to such termination an additional 1,275,000 shares will become vested and not subject to repurchase by the Company. See "Principal and Selling Stockholders." Series A Preferred Stock and Recapitalization. In December 1996, the Company created a class of Preferred Stock and designated 4,500,000 shares of such Preferred Stock as Series A Preferred Stock, all of which stock the Company issued to Pierre Omidyar in exchange for 4,500,000 shares of his Common Stock. In June 1997, pursuant to an Anti-Dilution Agreement dated December 30, 1996 between the Company, Pierre Omidyar and Jeffrey Skoll, Mr. Omidyar's Series A Preferred Stock holdings were increased to 5,029,425. In December 1996, pursuant to a Restricted Stock Purchase Agreement dated December 12, 1996 between the Company and Jeffrey Skoll ("Restricted Stock Agreement"), the Company sold 61 10,200,000 shares of its Common Stock to Mr. Skoll at a purchase price of $0.0066 per share or an aggregate of $68,000, which price was determined by the Board to be the fair market value of the Common Stock. Mr. Skoll, the first full-time employee of the Company and its President from August 1996 to February 1998, has served as the Company's Vice President Strategic Planning and Analysis since February 1998. Mr. Skoll acquired the shares of Common Stock with the proceeds from a full recourse loan governed by the Loan and Pledge Agreement between Mr. Skoll and the Company. Under such agreement, Mr. Skoll must repay the entire principal of the loan by December 31, 2002 and pay interest, which accrues at the rate of 6% per year, simple interest, on the first anniversary of the exercise date and on each subsequent anniversary until all principal and accrued interest is paid in full. All of Mr. Skoll's 10,200,000 shares of Common Stock are subject to the Restricted Stock Agreement. Under the Restricted Stock Agreement, Mr. Skoll's shares of Common Stock are subject to the Company's right to repurchase unvested shares if his employment terminates. The 10,200,000 shares vested as to 1,487,499 shares on February 1, 1997 and vest as to 212,499.99 shares on the first day of each month thereafter through the close of business on June 30, 2000, at which time all of the shares will be vested. The vesting of shares accelerates such that any unvested shares become fully vested in the event of a Sale of the Company. In addition to the foregoing, under the Co-Sale Agreement, the vesting of shares will accelerate upon termination of employment, such that immediately prior to such termination an additional 1,275,000 shares will become vested and not subject to repurchase by the Company. See "Principal and Selling Stockholders." Series B Preferred Stock. In June 1997, the Company sold an aggregate of 2,632,122 shares and 367,878 shares of Series B Preferred Stock at a purchase price of $1.00 per share and issued warrants to purchase 1,052,850 and 147,150 shares of Series B Preferred Stock at an exercise price of $1.66 per share to Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P., respectively, for an aggregate purchase price of $3,000,000, which amount was paid in cash. The warrants were exercised in May 1998. Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P. each exercised all of their warrants to purchase Series B Preferred Stock in May 1998 for an aggregate purchase price of $2,000,000, the entire amount of which was paid in cash. See "Principal and Selling Stockholders." Investor Rights Agreement. In June 1997, the Company, the Investors and the Founders entered into an Investor Rights Agreement under which the Investors and Founders have certain registration rights with respect to their shares of Common Stock following this offering. See "Description of Capital Stock-- Registration Rights." Officer Loans. In December 1996, as discussed above, Jeffrey Skoll purchased 10,200,000 shares of the Company's Common Stock for $68,000 under the terms of a Loan and Pledge Agreement effective as of December 1996 between Mr. Skoll and the Company. From January 1998 through June 1998, in connection with the exercise of stock options granted under the 1996 Plan and the 1997 Plan, the Company permitted Margaret C. Whitman, the Company's President and Chief Executive Officer since February 1998 to purchase 2,400,000 shares of Common Stock in exchange for a $60,000 cash payment, a $180,000 Secured Full Recourse Promissory Note dated February 3, 1998 and a $240,000 Secured Non-Recourse Promissory Note dated February 3, 1998; Steven P. Westly, the Company's Vice President Marketing and Business Development since August 1997, to purchase 828,000 shares of Common Stock in exchange for cash payments totaling $17,920 and Secured Full Recourse Promissory Notes dated January 27, 1998, May 21, 1998, May 26, 1998 and June 26, 1998 in the amounts of $71,280, $16,200, $7,200 and $50,400, respectively; Michael K. Wilson, the Company's Vice President Product Development and Site Operations since January 1997, to purchase 600,000 shares of Common Stock in exchange for a $1,000 cash payment and a Secured Full Recourse Promissory Note dated January 28, 1998 in the amount of $9,000 and 62 Gary F. Bengier, the Company's Chief Financial Officer and Vice President Operations since November 1997, to purchase 525,000 shares of Common Stock in exchange for a $5,250 cash payment and a Secured Full Recourse Promissory Note dated January 26, 1998 in the amount of $47,250. Each note is secured by the Common Stock purchased with the note except for Ms. Whitman's notes which are each secured by all the shares purchased with both the full recourse and the non-recourse notes. Each note bears interest at the rate of 8%, compounded semi-annually. Interest on the unpaid principal is due on December 1 of each year and the principal balance is due in full on December 1, 2002. See "Principal and Selling Stockholders." eBay Foundation. In June 1998, the Company established a fund known as the eBay Foundation, which is administered by the Community Foundation Silicon Valley, and donated 107,250 shares of Common Stock to the Community Foundation Silicon Valley on behalf of the eBay Foundation. The Community Foundation Silicon Valley is selling 10,725 shares of Common Stock in this offering on behalf of the eBay Foundation. 63 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information known to the Company with respect to beneficial ownership of the Company's Common Stock as of June 30, 1998 by (i) each stockholder known by the Company to be the beneficial owner of more than 5% of the Company's Common Stock, (ii) each director of the Company, (iii) the Named Executive Officer, (iv) all executive officers and directors as a group and (v) the Selling Stockholder.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1) ------------------------------ SHARES --------------------- NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT(2) - ------------------------ ---------------- ------------- ------------- ---------- ---------- Pierre M. Omidyar(3).... 15,229,425 42.0% -- 15,229,425 Jeffrey S. Skoll(4)..... 10,200,000 28.1 -- 10,200,000 Robert C. Kagle Benchmark Funds(5)..... 8,791,836 21.5 -- 8,791,836 Margaret C. Whitman(6).. 2,400,000 6.6 -- 2,400,000 Scott D. Cook(7)........ 257,250 * -- 257,250 Howard D. Schultz(8).... 257,250 * -- 257,250 Community Foundation Silicon Valley(9)...... 107,250 * 10,725 96,525 All directors and executive officers as a group (9 persons)(10).. 39,388,761 95.7 -- 39,388,761
- -------- * Represents beneficial ownership of less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of June 30, 1998 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (2) Assumes that the Underwriters' over-allotment option to purchase up to shares from the Company is not exercised. (3) Mr. Omidyar is the Founder and Chairman of the Board of the Company. Included in the number of shares he beneficially owns are an aggregate of 2,295,918 shares held of record ("Omidyar Pledged Shares"), 2,014,378.5 shares of which are pledged to Benchmark Capital Partners, L.P. and 281,539.5 shares of which are pledged to Benchmark Founders Fund, L.P., to secure a $749,999.88 full recourse loan made to Mr. Omidyar pursuant to the Loan and Pledge Agreement dated June 27, 1997. All of the Omidyar Pledged Shares are also subject to an immediately exercisable call option pursuant to the Call Option Agreement dated June 27, 1997 among the Benchmark Funds and Mr. Omidyar and are covered by a put option pursuant to the Put Option Agreement dated June 27, 1997 among the same parties. Also included in the number of shares Mr. Omidyar beneficially owns are (i) approximately 3,187,500 shares that were unvested as of June 30, 1998 and subject to the Company's right of repurchase at $.0066 per share, (ii) 150,000 shares held of record by The Cyrus Omidyar Income Trust dated May 4, 1998 and (iii) 150,000 shares held of record by The Elahe Mir-Djalali Income Trust dated May 4, 1998. See "Certain Transactions" and "Description of Capital Stock." The address for Mr. Omidyar is 2005 Hamilton Avenue, Suite 350, San Jose, California 95125. 64 (4) Mr. Skoll is the Vice President Strategic Planning and Analysis of the Company. Included in the number of shares he beneficially owns are an aggregate of 2,295,918 shares held of record ("Skoll Pledged Shares"), 2,014,378.5 shares of which are pledged to Benchmark Capital Partners, L.P. and 281,539.5 shares of which are pledged to Benchmark Founders Fund, L.P. to secure a $749,999.88 full recourse loan made to Mr. Skoll pursuant to the Loan and Pledge Agreement dated June 27, 1997. All of the Skoll Pledged Shares are also subject to an immediately exercisable call option pursuant to the Call Option Agreement dated June 27, 1997 among the Benchmark Funds and Mr. Skoll and are covered by a put option pursuant to the Put Option Agreement dated June 27, 1997 among the same parties. Also included in the number of shares Mr. Skoll beneficially owns are (i) approximately 5,312,502 shares that were unvested as of June 30, 1998 and subject to the Company's right of repurchase at their original issue price of $0.0066 per share and (ii) 60,000 shares held of record by The Skoll Family 1998 Trust. See "Certain Transactions" and "Description of Capital Stock." The address for Mr. Skoll is 2005 Hamilton Avenue, Suite 350, San Jose, California 95125. (5) Represents 3,684,972 shares held of record and 4,028,757 shares held beneficially by Benchmark Capital Partners, L.P. and 515,028 shares held of record and 563,079 shares held beneficially by Benchmark Founders' Fund, L.P. (collectively, the "Benchmark Funds"). Of the shares held beneficially by the Benchmark Funds, 4,591,836 of such shares are also included in the above table as shares held of record by Pierre Omidyar and Jeffrey Skoll. Messers. Omidyar and Skoll pledged such shares to secure full recourse loans obtained from the Benchmark Funds pursuant to separate Loan and Pledge Agreements each dated June 27, 1997 between the Benchmark Funds and each Founder individually. Such shares are also covered by put options and immediately exercisable call options pursuant to Put Option Agreements and Call Option Agreements, each of which is dated June 27, 1997, between the Benchmark Funds and each Founder individually. See "Description of Capital Stock." Mr. Kagle, a director of the Company, is a Member of Benchmark Capital Management Co., L.L.C., which is the General Partner of Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P. Mr. Kagle disclaims beneficial ownership of shares held by such entities except for his proportional interest therein. The address for Mr. Kagle and these entities is c/o Benchmark Capital Management Co., L.L.C., 2480 Sand Hill Road, Suite 200, Menlo Park, California 94025. (6) Ms. Whitman is the President and Chief Executive Officer of the Company. All of the shares owned by Ms. Whitman are unvested as of June 30, 1998 and subject to the Company's right of repurchase at their original issue price of $0.20 per share. Includes 27,000 shares held by eight relatives of Ms. Whitman. The address for Ms. Whitman is 2005 Hamilton Avenue, Suite 350, San Jose, California 95125. (7) Includes 150,000 shares which are unvested as of June 30, 1998 and subject to the Company's right of repurchase at their original issue price of $9.33 per share. See "Management-Director Compensation." (8) Includes 107,250 shares held of record by Maveron. Also includes 150,000 shares issued to Mr. Schultz upon exercise of an option that were unvested as of June 30, 1998 and subject to the Company's right of repurchase at their original issue price of $9.33 per share. Of these 150,000 unvested shares, Mr. Schultz has transferred 112,500 shares to Maveron. See "Management--Director Compensation." (9) In June 1998, the Company established a fund known as the eBay Foundation, which is administered by the Community Foundation Silicon Valley, and to capitalize this foundation, donated 107,250 shares of Common Stock to the Community Foundation Silicon Valley. The Community Foundation Silicon Valley is selling 10,725 shares of Common Stock in this offering. (10) Includes 300,000 shares subject to immediately exercisable options outstanding as of June 30, 1998 and 1,953,000 unvested shares as of June 30, 1998 subject to the Company's right of repurchase at such shares' original issue price held by three executive officers not named in this table. 65 DESCRIPTION OF CAPITAL STOCK Immediately following the closing of this offering, the authorized capital stock of the Company will consist of 200,000,000 shares of Common Stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock, $0.001 par value per share. As of June 30, 1998, and assuming the conversion of all outstanding Preferred Stock into Common Stock upon the closing of this offering, there were outstanding 36,249,801 shares of Common Stock held of record by 67 stockholders and options to purchase 1,071,159 shares of Common Stock. COMMON STOCK Subject to preferences that may apply to shares of Preferred Stock outstanding at the time, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board of Directors may from time to time determine. Each stockholder is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in the Company's Certificate of Incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The Common Stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon a liquidation, dissolution or winding-up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock and any participating Preferred Stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding Preferred Stock and payment of other claims of creditors. Each outstanding share of Common Stock is, and all shares of Common Stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, each outstanding share of Preferred Stock (the "Convertible Preferred" ) will be converted into shares of Common Stock. See Note 8 of Notes to Consolidated Financial Statements for a description of the Convertible Preferred. Following the offering, the Company will be authorized, subject to limitations prescribed by Delaware law, to provide for the issuance of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding) without any further vote or action by the stockholders. The Board may authorize the issuance of Preferred Stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the Common Stock. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of the Company and may adversely affect the market price of the Common Stock and the voting and other rights of the holders of Common Stock. The Company has no current plans to issue any shares of Preferred Stock. REGISTRATION RIGHTS Pursuant to an Investor Rights Agreement dated June 20, 1997 between the Company, the Founders and the Investors (the "Rights Agreement"), the Investors, holding an aggregate of 4,200,000 shares of Common Stock of the Company issuable upon conversion of the Series B Preferred Stock, and the Founders, holding an aggregate of 25,429,425 shares of Common Stock of the Company, 5,029,425 shares of which are issuable upon conversion of the Series A Preferred Stock, (collectively the "Registrable Securities"), have certain registration rights for the Registrable 66 Securities at any time after six months following the closing of this offering. Under the Rights Agreement, the Investors, by written request of at least two- thirds of the holders of the Investors' Registrable Securities then outstanding, may demand that the Company file a registration statement under the Securities Act covering all or a portion of the Investors' Registrable Securities, provided that, in the case of a registration on a form other than a Form S-3, the offering is for at least 50% of the then outstanding Investors' Registrable Securities, or in the case of a registration on a Form S-3, there is a reasonably anticipated aggregate offering price to the public of at least $1,000,000. The Investors have the right to demand two registrations on a form other than Form S-3 and not more than one Form S-3 registration in any six- month period. These registration rights are subject to the Company's right to delay the filing of a registration statement, not more than once in a 12-month period, for not more than 90 days, in the case of a registration on a form other than a Form S-3, and 60 days, in the case of a registration on a Form S- 3, after receiving the registration demand. In addition, the Investors and Founders have certain "piggyback" registration rights. If the Company proposes to register any of its Common Stock under the Securities Act (other than pursuant to the Investors' demand registration rights noted above), the Investors or Founders may require the Company to include all or a portion of their Registrable Securities in such registration; provided, however, that the managing underwriter, if any, of any such offering has certain rights to limit the number of, or in the case of the Company's initial public offering, to exclude all or a portion of the Registrable Securities proposed to be included in such registration. All registration expenses incurred in connection with the above registrations will be borne by the Company. The selling Investor or Founder pays all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of his or its Registrable Securities. Demand and piggyback registration rights under the Rights Agreement terminate with respect to each Investor or Founder, as applicable, seven years after the closing date of this offering; provided, however, that each Investor's and Founder's rights under the Rights Agreement will terminate earlier when such Investor or Founder may sell all its shares in a three-month period under Rule 144 of the Securities Act. PUT/CALL OPTIONS ON COMMON STOCK In June 1997, each Founder entered into a separate Loan and Pledge Agreement dated June 27, 1997 with the Investors under which each Founder obtained a full recourse loan of $749,999.88, of which $658,030.39 was made by Benchmark Capital Partners, L.P. and $91,969.49 was made by Benchmark Founders Fund, L.P. Each Founder secured his loan with a pledge of 2,295,918 shares of Common Stock for an aggregate of 4,591,836 shares, of which 4,028,757 shares were pledged to Benchmark Capital Partners, L.P. and 563,079 shares were pledged to Benchmark Founders Fund, and a security interest in such Founder's rights under the Put Option Agreement and the Call Option Agreement each dated June 27, 1997 among the Investors and each Founder individually. The loans are due June 27, 2002 and bear interest, compounded annually, at a rate of 7% per annum. Under each Call Option Agreement, each Founder granted the Investors an option to call all of the shares covered by each option at any time from the date of the agreement up to June 27, 2001 at an exercise price equal to an aggregate of $749,999.88 together with the aggregate amount of interest accrued through the date of exercise under the applicable Loan and Pledge Agreement of even date. Under each Put Option Agreement, the Investors granted to each Founder an option to put all of the shares covered by each option to the Investors at any time during the six month period that follows the four year and six month "blackout period" commencing on the date of the agreement. 67 ANTI-TAKEOVER PROVISIONS Delaware Law Upon the closing of this offering, the Company will be subject to the provisions of Section 203 of the Delaware General Corporation Law (the "Anti- Takeover Law") regulating corporate takeovers. The Anti-Takeover Law prevents certain Delaware corporations, including those whose securities are listed on the Nasdaq National Market, from engaging, under certain circumstances, in a "business combination" (which includes a merger or sale of more than 10% of the corporation's assets) with any "interested stockholder" (a stockholder who owns 15% or more of the corporation's outstanding voting stock, as well as affiliates and associates of any such persons) for three years following the date that such stockholder became an "interested stockholder" unless (i) the transaction is approved by the Board of Directors prior to the date the "interested stockholder" attained such status, (ii) upon consummation of the transaction that resulted in the stockholder's becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer), or (iii) on or subsequent to such date the "business combination" is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the "interested stockholder." A Delaware corporation may "opt out" of the Anti-Takeover Law with an express provision in its original certificate of incorporation or an express provision in its certificate or incorporation or bylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. The Company has not "opted out" of the provisions of the Anti-Takeover Law. The statute could prohibit or delay mergers or other takeover or change-in-control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. Charter and Bylaw Provisions The Company's Amended and Restated Bylaws, which will be in effect upon the completion of this offering, will provide for the division of the Board into three classes as nearly equal in size as possible with staggered three-year terms. The classification of the Board could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company. In addition, the Amended and Restated Bylaws will provide that any action required or permitted to be taken by the stockholders of the Company at an annual meeting or a special meeting of the stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. The Amended and Restated Bylaws will provide that special meetings of the stockholders may only be called by the Chairman of the Board, the Chief Executive Officer or, if none, the President of the Company or by the Board. The Company's Amended and Restated Certificate of Incorporation and its Amended and Restated Bylaws will provide that the Company will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to the Company, which may include services in connection with takeover defense measures. Such provisions may have the effect of preventing changes in the management of the Company. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is ChaseMellon Shareholder Services L.L.C. LISTING The Company has applied to list its Common Stock on the Nasdaq National Market under the trading symbol "EBAY." 68 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the Common Stock of the Company, and there can be no assurance that a significant public market for the Common Stock will develop or be sustained after this offering. Future sales of substantial amounts of Common Stock (including shares issued upon exercise of outstanding options) in the public market after this offering could adversely affect market prices prevailing from time to time and could impair the Company's ability to raise capital through sale of its equity securities. As described below, no shares currently outstanding will be available for sale immediately after this offering due to certain contractual restrictions on resale. Sales of substantial amounts of Common Stock of the Company in the public market after the restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon completion of this offering, the Company will have outstanding shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options. Of these shares, the shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining shares held by existing stockholders are subject to lock-up agreements generally providing that, with certain limited exceptions, the stockholder will not (i) offer to sell, sell, contract to sell, pledge or otherwise dispose of any shares of Common Stock owned of record or beneficially prior to the offering or any securities convertible into or exchangeable for such shares of Common Stock, (ii) establish a "put equivalent position" with respect to such Common Stock within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or (iii) publicly announce an intention to take any of the actions set forth in (i) or (ii) for a period of 120 days following the date of the final Prospectus for this offering without the prior written consent of Goldman Sachs & Co. acting alone or each of the above listed representatives acting together. As a result of these lock-up agreements, notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of these shares will be saleable until 121 days after the date of the final Prospectus. Beginning 121 days after the date of the final Prospectus, 23,671,779 of these shares will be eligible for sale in the public market, although a portion of such shares will be subject to certain volume limitations pursuant to Rule 144. The remaining Restricted Shares will become eligible for sale from time to time thereafter upon expiration of applicable holding periods under Rule 144 under the Securities Act and the Company's right to repurchase unvested shares. Holders of options to purchase Common Stock of the Company are also subject to 120-day lock-up agreements. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year (including the holding period of any prior owner except an affiliate) would be entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) 1% of the number of shares of Common Stock then outstanding (which will equal approximately shares immediately after this offering) or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirement, of Rule 144. Any employee, officer or director of 69 or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this Prospectus before selling such shares. However, all shares issued pursuant to Rule 701 are subject to lock-up agreements and will only become eligible for sale at the earlier of the expiration of the 120-day lock-up agreements or no sooner than 90 days after the offering upon obtaining the prior written consent of Goldman Sachs & Co. or the representatives of the Underwriters. Immediately after this offering, the Company intends to file a registration statement under the Securities Act covering shares of Common Stock subject to outstanding options under the 1996 Plan or the 1997 Plan or reserved for issuance under the Equity Incentive Plan, the Directors Plan or the Purchase Plan. Based on the number of shares subject to outstanding options at June 30, 1998 and currently reserved for issuance under all such plans, such registration statement would cover approximately 7,032,659 shares. Such registration statement will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market immediately after the 120-day lock-up agreements expire. Also beginning six months after the date of this offering, certain holders of shares of Common Stock will be entitled to certain rights with respect to registration of such shares of Common Stock for offer and sale to the public. See "Description of Capital Stock--Registration Rights." LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Shearman & Sterling, San Francisco, California. EXPERTS The financial statements included in this Prospectus have been audited by PricewaterhouseCoopers LLP independent accountants. The companies and periods covered by these audits are indicated in the individual reports of PricewaterhouseCoopers LLP. Such financial statements have been so included in reliance on the reports of PricewaterhouseCoopers LLP given on the authority of said firm as experts in auditing and accounting. 70 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedule thereto. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedule thereto. Statements contained in this Prospectus regarding the contents of any contract or any other document to which reference is made are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement and the exhibits and schedule thereto may be inspected without charge at the offices of the Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies of all or any part of the Registration Statement may be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549 upon the payment of the fees prescribed by the Commission. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that file electronically with the Commission. Information concerning the Company is also available for inspection at the offices of the Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. 71 EBAY INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- EBAY INC. CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants........................................ F-2 Consolidated Balance Sheet............................................... F-3 Consolidated Statement of Income......................................... F-4 Consolidated Statement of Stockholders' Equity........................... F-5 Consolidated Statement of Cash Flows..................................... F-6 Notes to Consolidated Financial Statements............................... F-7 PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Overview................................................................. F-23 Pro Forma Consolidated Statement of Operations........................... F-24 Notes to Pro Forma Consolidated Financial Information.................... F-25 JUMP INCORPORATED FINANCIAL STATEMENTS Report of Independent Accountants........................................ F-26 Balance Sheet............................................................ F-27 Statement of Operations.................................................. F-28 Statement of Shareholders' Deficit....................................... F-29 Statement of Cash Flows.................................................. F-30 Notes to Financial Statements............................................ F-31
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of eBay Inc. The stock split described in Note 11 to the consolidated financial statements has not been consummated at July 15, 1998. When it has been consummated, we will be in a position to furnish the following report: "In our opinion, the accompanying balance sheet and the related statements of income, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of eBay Inc. at December 31, 1996 and 1997, and the results of its operations and its cash flows for the years ended December 31, 1996 and 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." Price Waterhouse LLP San Jose, California March 31, 1998 F-2 EBAY INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA DECEMBER 31, STOCKHOLDERS' -------------- JUNE 30, EQUITY AT 1996 1997 1998 JUNE 30, 1998 ------ ------- -------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............. $103 $ 3,723 $10,716 Accounts receivable, net.............. 166 1,024 2,846 Other current assets.................. 16 220 453 ----- ------- ------- Total current assets................ 285 4,967 14,015 Property and equipment, net............. 23 652 3,584 Intangible assets, net.................. -- -- 2,216 ----- ------- ------- $308 $ 5,619 $19,815 ===== ======= ======= LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Debt and leases, current portion...... $ 1 $ 258 $ 314 Accounts payable...................... 23 252 1,841 Customer advances..................... -- 128 390 Income taxes payable.................. 50 169 1,033 Other current liabilities............. 17 317 1,634 ----- ------- ------- Total current liabilities........... 91 1,124 5,212 Debt and leases, long-term portion...... -- 305 167 Deferred tax liabilities................ 55 157 157 ----- ------- ------- 146 1,586 5,536 ----- ------- ------- Series B Mandatorily Redeemable Convertible Preferred Stock and Series B warrants (Notes 8 and 11)............ -- 3,018 5,157 $ -- ----- ------- ------- ------- Commitments (Note 6) Stockholders' equity: Series A Convertible Preferred Stock, $0.001 par value; 1,676 shares authorized, 1,676 shares issued and outstanding, no shares pro forma (unaudited).......................... 4 4 4 -- Common Stock, $0.001 par value, 60,000 shares authorized; 20,400, 20,400 and 26,974 (unaudited) shares issued and outstanding; 36,250 (unaudited) shares issued and outstanding pro forma................................ 20 20 27 36 Additional paid-in capital............ 58 877 14,150 19,302 Notes receivable from stockholders.... (68) (68) (1,536) (1,536) Unearned compensation................. -- (794) (4,801) (4,801) Retained earnings..................... 148 976 1,278 1,278 ----- ------- ------- ------- Total stockholders' equity.......... 162 1,015 9,122 $14,279 ===== ======= ======= ======= $308 $ 5,619 $19,815 ===== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 EBAY INC. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ---------------- ------------------ 1996 1997 1997 1998 ------- ------- -------- -------- (UNAUDITED) Net revenues.............................. $ 372 $ 5,744 $ 1,658 $ 14,922 Cost of net revenues...................... 14 746 160 1,736 ------- ------- -------- -------- Gross profit.......................... 358 4,998 1,498 13,186 Operating expenses: Sales and marketing..................... 32 1,730 212 4,610 Product development..................... 28 831 209 1,548 General and administrative.............. 45 950 233 4,054 Acquired research and development....... -- -- -- 150 ------- ------- -------- -------- Total operating expenses.............. 105 3,511 654 10,362 ------- ------- -------- -------- Income from operations.................... 253 1,487 844 2,824 Interest and other income, net............ 1 59 6 101 Interest expense.......................... -- (3) (2) (25) ------- ------- -------- -------- Income before income taxes................ 254 1,543 848 2,900 Provision for income taxes................ (106) (669) (362) (2,552) ------- ------- -------- -------- Net income................................ $ 148 $ 874 $ 486 $ 348 ======= ======= ======== ======== Net income per share: Basic................................... $ 0.07 $ 0.11 $ 0.08 $ 0.03 ======= ======= ======== ======== Weighted average shares--basic.......... 2,125 7,438 6,163 10,711 ======= ======= ======== ======== Diluted................................. $ 0.01 $ 0.03 $ 0.02 $ 0.01 ======= ======= ======== ======== Weighted average shares--diluted........ 14,315 27,553 25,811 34,231 ======= ======= ======== ======== Pro forma net income per share: Basic................................... $ 0.06 $ 0.02 ======= ======== Weighted average shares--basic.......... 14,591 19,145 ======= ======== Diluted................................. $ 0.03 $ 0.01 ======= ======== Weighted average shares--diluted........ 27,553 34,231 ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 EBAY INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
SERIES A CONVERTIBLE NOTES PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL ---------------- ------------- PAID-IN FROM UNEARNED RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION EARNINGS EQUITY ------- ------- ------ ------ ---------- ------------ ------------ -------- ------------- Issuance of Common Stock for cash and note.................. -- $ -- 20,400 $ 20 $ 58 $ (68) $ -- $ -- $ 10 Issuance of Preferred Stock................. 1,676 4 -- -- -- -- -- -- 4 Net income............. -- -- -- -- -- -- -- 148 148 ------- ------- ------ ---- ------- ------- ------- ------ ------ Balance at December 31, 1996...... 1,676 4 20,400 20 58 (68) -- 148 162 Accretion of Series B Mandatorily Redeemable Convertible Preferred Stock to redemption value................. -- -- -- -- -- -- -- (46) (46) Unearned compensation.. -- -- -- -- 819 -- (819) -- -- Amortization of unearned compensation.......... -- -- -- -- -- -- 25 -- 25 Net income............. -- -- -- -- -- -- -- 874 874 ------- ------- ------ ---- ------- ------- ------- ------ ------ Balance at December 31, 1997...... 1,676 4 20,400 20 877 (68) (794) 976 1,015 Accretion of Series B Mandatorily Redeemable Convertible Preferred Stock to redemption value (Unaudited)..... -- -- -- -- -- -- -- (46) (46) Unearned compensation (Unaudited)........... -- -- -- -- 5,375 -- (5,375) -- -- Amortization of unearned compensation (Unaudited)........... -- -- -- -- -- -- 1,368 -- 1,368 Issuance of Common Stock for cash and notes (Unaudited)..... -- -- 6,324 7 4,683 (1,468) -- -- 3,222 Issuance of Common Stock for acquisition of Jump Incorporated (Unaudited)........... -- -- 143 -- 2,000 -- -- -- 2,000 Contribution of Common Stock to charitable foundation (Unaudited)........... -- -- 107 -- 1,215 -- -- -- 1,215 Net income (Unaudited)........... -- -- -- -- -- -- -- 348 348 ------- ------- ------ ---- ------- ------- ------- ------ ------ Balance at June 30, 1998 (Unaudited)............ 1,676 $ 4 26,974 $ 27 $14,150 $(1,536) $(4,801) $1,278 $9,122 ======= ======= ====== ==== ======= ======= ======= ====== ======
The accompanying notes are an integral part of these consolidated financial statements. F-5 EBAY INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, -------------- ----------------- 1996 1997 1997 1998 ----- ------- -------- -------- (UNAUDITED) Cash flows from operating activities: Net income................................. $ 148 $ 874 $ 486 $ 348 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts............ 18 290 30 765 Depreciation and amortization.............. 2 74 3 388 Amortization of unearned compensation...... -- 25 -- 1,368 Charitable contribution of Common Stock.... -- -- -- 1,215 Series B Preferred Stock issued for servic- es........................................ -- -- -- 93 Acquired research and development.......... -- -- -- 150 Changes in current assets and liabilities: Accounts receivable....................... (184) (1,148) (301) (2,575) Other current assets...................... (16) (204) (9) (233) Accounts payable.......................... 23 229 33 1,574 Customer advances......................... -- 128 28 262 Income taxes payable...................... 50 119 261 864 Other current liabilities................. 17 300 137 980 Deferred tax liabilities.................. 55 102 55 -- ----- ------- ------- -------- Net cash provided by operating activities... 113 789 723 5,199 ----- ------- ------- -------- Cash flows from investing activities: Purchases of property and equipment........ (25) (680) (72) (3,311) ----- ------- ------- -------- Net cash used in investing activities....... (25) (680) (72) (3,311) ----- ------- ------- -------- Cash flows from financing activities: Proceeds from Series A Preferred Stock..... 4 -- -- -- Proceeds from Series B Preferred Stock and Series B warrants......................... -- 2,972 2,972 2,000 Proceeds from Common Stock................. 10 -- -- 3,222 Proceeds from debt issuance................ 1 545 -- -- Principal payments on debt and leases...... -- (6) (2) (117) ----- ------- ------- -------- Net cash provided by financing activities... 15 3,511 2,970 5,105 ----- ------- ------- -------- Net increase in cash and cash equivalents... 103 3,620 3,621 6,993 Cash and cash equivalents at beginning of period..................................... -- 103 103 3,723 ----- ------- ------- -------- Cash and cash equivalents at end of period.. $ 103 $ 3,723 $ 3,724 $ 10,716 ===== ======= ======= ======== Supplemental cash flow disclosures: Cash paid for interest..................... $ -- $ 3 $ 2 $ 22 Cash paid for income taxes................. $ 1 $ 452 $ 48 $ 1,684 Non-cash investing and financing activities: Property and equipment leases.............. $ -- $ 23 $ 23 $ -- Common Stock issued for notes receivable... $ 68 $ -- $ -- $ 1,468 Common Stock issued for acquisition........ $ -- $ -- $ -- $ 2,000 Series B Preferred Stock issued for servic- es........................................ $ -- $ -- $ -- $ 93
The accompanying notes are an integral part of these consolidated financial statements. F-6 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: THE COMPANY eBay Inc. (the "Company") was incorporated in California in May 1996, and operates an online person-to-person trading community. eBay pioneered online person-to-person trading by developing a Web-based community in which buyers and sellers are brought together in an auction format to trade personal items such as antiques, coins, collectibles, computers, memorabilia, stamps and toys. The eBay service permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items in a fully-automated, topically-arranged service that is available online 24 hours a day, seven days a week. The Company operates in one business segment. REINCORPORATION In March 1998, the Company's Board of Directors authorized the reincorporation of the Company in the State of Delaware. As a result of the reincorporation, the Company is authorized to issue 60,000,000 shares of $.001 par value Common Stock and 6,000,000 shares of $.001 par value Preferred Stock. The Board of Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The financial statements as of June 30, 1998 and for the six months then ended are consolidated and include the accounts of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. From September 1995 ("Inception") through May 1996, eBay operated as a sole proprietorship. The sole proprietorship recognized no revenues and incurred no expenses during the period from Inception to December 31, 1995. The sole proprietorship recognized revenue totaling $30,000 and incurred expenses totaling $29,000 during the period from January 1, 1996 until incorporation in May 1996. The results of operations for this period have been included in the 1996 financial statements to facilitate presentation. CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of deposits in money market funds. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited with high credit quality financial institutions. The Company's accounts receivable are derived from revenue earned from customers located in the U.S. and throughout the world and are denominated in U.S. F-7 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) dollars. Accounts receivable balances are typically settled through customer credit cards and, as a result, the majority of accounts receivable are collected upon processing of credit card transactions. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. During the years ended December 31, 1996 and 1997, and the six months ended June 30, 1997 and 1998 (unaudited), no customers accounted for more than 10% of net revenues or net accounts receivable. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and capital lease obligations are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. PROPERTY AND EQUIPMENT Property and equipment are stated at historical cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, generally three years or less, or the shorter of the lease term or the estimated useful lives of the assets, if applicable. INTANGIBLE ASSETS Goodwill and other intangible assets resulting from the acquisition of Jump Incorporated were estimated by management to be primarily associated with the acquired customer list, workforce and technological know how. As a result of the rapid technological changes occurring in the Internet industry and the intense competition for qualified Internet professionals, recorded goodwill and other intangible assets are amortized on a straight-line basis over the estimated periods of benefit, which range from 8 to 24 months. See Note 2-- Acquisition. REVENUE RECOGNITION Revenues are derived primarily from placement fees charged for the listing of items for auction and success fees calculated as a percentage of the final sales transaction value. Revenues related to placement fees are recognized at the time the item is listed, while those related to success fees are recognized at the time that the auction is successfully concluded. Provisions for doubtful accounts and authorized credits resulting from incomplete auction transactions are provided at the time of revenue recognition based upon the Company's historical experience. PRODUCT DEVELOPMENT COSTS Product development costs include expenses incurred by the Company to develop, enhance, manage, monitor and operate the Company's Web site. Product development costs are expensed as incurred. ADVERTISING EXPENSE Advertising costs are expensed as incurred and totaled $0, $478,000, $0 (unaudited) and $2.0 million (unaudited) during the years ended December 31, 1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively. F-8 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the exercise price. INCOME TAXES Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. NET INCOME PER SHARE The Company computes net income per share in accordance with SFAS No. 128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares, composed of unvested restricted Common Stock and incremental common shares issuable upon the exercise of stock options and warrants and upon conversion of Series A and Series B Convertible Preferred Stock, are included in diluted net income per share to the extent such shares are dilutive. F-9 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the computation of basic and diluted net income per share for the periods indicated, (in thousands, except per share amounts):
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, --------------- ------------------ 1996 1997 1997 1998 ------ ------- -------- -------- (UNAUDITED) Numerator: Net income.............................. $ 148 $ 874 $ 486 $ 348 Accretion of Series B Mandatorily Redeemable Convertible Preferred Stock to redemption value.................... -- (46) -- (46) ------ ------- -------- -------- Net income available to common stockholders........................... $ 148 $ 828 $ 486 $ 302 ====== ======= ======== ======== Denominator: Weighted average shares................. 10,200 20,400 20,400 25,519 Weighted average unvested common shares subject to repurchase agreements....... (8,075) (12,962) (14,237) (14,808) ------ ------- -------- -------- Denominator for basic calculation....... 2,125 7,438 6,163 10,711 Weighted average effect of dilutive securities: Series A Preferred Stock.............. 4,115 5,029 5,029 5,029 Series B Preferred Stock.............. -- 2,124 166 3,404 Series B Preferred Stock warrants..... -- -- -- 229 Unvested common shares subject to repurchase agreements................ 8,075 12,962 14,237 14,808 Employee stock options................ -- -- 216 50 ------ ------- -------- -------- Denominator for diluted calculation..... 14,315 27,553 25,811 34,231 ====== ======= ======== ======== Net income per share: Basic................................... $ 0.07 $ 0.11 $ 0.08 $ 0.03 ====== ======= ======== ======== Diluted................................. $ 0.01 $ 0.03 $ 0.02 $ 0.01 ====== ======= ======== ========
PRO FORMA NET INCOME PER SHARE (UNAUDITED) Pro forma net income per share for the year ended December 31, 1997 and the six months ended June 30, 1998 is computed using the weighted average number of common shares outstanding, including the pro forma effects of the automatic conversion of the Company's Series A and Series B Convertible Preferred Stock into shares of the Company's Common Stock effective upon the closing of the Company's initial public offering as if such conversion occurred on January 1, 1997, or at date of original issuance, if later. The resulting pro forma adjustment includes an increase in the weighted average shares used to compute basic net income per share of 7,153,000 and 8,434,000 for the year ended December 31, 1997 and the six months ended June 30, 1998, respectively. Pro forma diluted net income per share is computed using the pro forma weighted average number of common and common equivalent shares outstanding. Pro forma common equivalent shares, composed of unvested restricted Common Stock and incremental common shares issuable upon the exercise of stock options and warrants, are included in diluted net income per share to the extent such shares are dilutive. F-10 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED) Effective upon the closing of this Offering, the outstanding shares of Series A and Series B Convertible Preferred Stock will automatically convert into 5,029,425 and 4,246,248 shares, respectively, of Common Stock. The pro forma effects of these transactions are unaudited and have been reflected in the accompanying pro forma consolidated balance sheet at June 30, 1998. See Note 11--Subsequent Events. UNAUDITED INTERIM RESULTS The accompanying interim consolidated financial statements as of June 30, 1998, and for the six months ended June 30, 1997 and 1998, are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows as of June 30, 1998 and for the six months ended June 30, 1997 and 1998. The financial data and other information disclosed in these notes to consolidated financial statements related to these periods are unaudited. The results for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. COMPREHENSIVE INCOME Effective January 1, 1998 the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive income. RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform to the current period presentation. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The disclosures prescribed by SFAS No. 131 will be effective for the year ending December 31, 1998. The Company has determined that it does not have any separately reportable business segments as of June 30, 1998. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect that the adoption of SOP No. 98-1 will have a material impact on its consolidated financial statements. F-11 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 2--ACQUISITION (UNAUDITED): Effective June 30, 1998, the Company acquired all the outstanding shares of Jump Incorporated ("Jump"), which provides a forum where Internet users can buy and sell items in an online auction format. The acquisition has been accounted for using the purchase method of accounting and accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The fair value of intangible assets was determined using a combination of methods, including replacement cost estimates for acquired research and development and completed technology, a risk-adjusted income approach for the acquired customer list and the amounts paid for covenants not to compete. The total purchase price of approximately $2.3 million consisted of 142,848 shares of the Company's Common Stock with an estimated fair value of approximately $2.0 million and other acquisition related expenses of approximately $335,000, consisting primarily of payments for non-compete agreements totaling approximately $208,000 and legal and other professional fees. Of the total purchase price, approximately $150,000 was allocated to in- process technology and was immediately charged to operations because such in- process technology had not reached the stage of technological feasibility at the acquisition date and had no alternative future use. The remainder of the purchase price was allocated to net tangible liabilities assumed ($31,000) and intangible assets, including completed technology ($500,000), customer list ($1.5 million), covenants not to compete ($208,000) and goodwill ($24,000). The intangible assets will be amortized over their estimated useful lives of 8 to 24 months. The acquisition has been structured as a tax free exchange of stock, therefore, the differences between the recognized fair values of the acquired assets, including tangible assets, and their historical tax bases are not deductible for tax purposes. The following unaudited pro forma consolidated financial information reflects the results of operations for the year ended December 31, 1997 and the six months ended June 30, 1998, as if the acquisition had occurred on January 1, 1997 and 1998, respectively, and after giving effect to purchase accounting adjustments. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place on January 1, 1997 or 1998, and may not be indicative of future operating results, (in thousands, except per share amounts).
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED 1997 JUNE 30, 1998 ------------ ------------- (UNAUDITED) Revenues............................................. $ 5,755 $14,934 Loss from operations................................. (655) 1,774 Net loss............................................. (1,199) (565) Net loss per share: Basic and diluted.................................. $ (0.16) $ (0.06) Weighted average shares............................ 7,581 10,854
F-12 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--BALANCE SHEET COMPONENTS (IN THOUSANDS):
DECEMBER 31, -------------- 1996 1997 JUNE 30, 1998 ------ ------- ------------- (UNAUDITED) Accounts receivable, net: Accounts receivable............................ $ 184 $ 1,385 $ 4,482 Less: Allowance for doubtful accounts.......... (18) (308) (1,073) Allowance for authorized credits............. -- (53) (563) ----- ------- ------- $ 166 $ 1,024 $ 2,846 ===== ======= ======= Property and equipment, net: Computer equipment............................. $ 25 $ 608 $ 3,784 Furniture and fixtures......................... -- 115 226 Leasehold improvements......................... -- 5 38 ----- ------- ------- 25 728 4,048 Less: Accumulated depreciation and amortiza- tion.......................................... (2) (76) (464) ----- ------- ------- $ 23 $ 652 $ 3,584 ===== ======= =======
Property and equipment includes $0, $23,000 and $23,000 (unaudited) of equipment under capital leases at December 31, 1996 and 1997 and June 30, 1998, respectively. Accumulated depreciation of assets under capital leases totaled $0, $7,000 and $11,000 (unaudited) at December 31, 1996 and 1997, and June 30, 1998, respectively.
DECEMBER 31, ------------- 1996 1997 JUNE 30, 1998 ------ ------ ------------- (UNAUDITED) Intangible assets, net: Purchased technology.............................. $ -- $ -- $ 500 Covenants not to compete.......................... -- -- 208 Customer list..................................... -- -- 1,484 Goodwill.......................................... -- -- 24 ------ ------ ------ -- -- 2,216 Less: Accumulated amortization.................... -- -- -- ------ ------ ------ $ -- $ -- $2,216 ====== ====== ====== Other current liabilities: Accrued compensation and related benefits......... $ 17 $ 68 $ 213 Advertising accruals.............................. -- -- 546 Other accruals.................................... -- 249 875 ------ ------ ------ $ 17 $ 317 $1,634 ====== ====== ======
F-13 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--RELATED PARTY TRANSACTIONS: NOTES RECEIVABLE FROM STOCKHOLDERS At December 31, 1996 and 1997 and June 30, 1998 (unaudited), the Company held a note receivable from an officer of the Company totaling $68,000. The note is full recourse, is secured by Common Stock and bears simple interest at 6% per annum. Interest is due and payable on each anniversary date of the note. The principal is due on or before December 31, 2002. At June 30, 1998, the Company also held notes receivable from employees and a director totaling $1.5 million (unaudited) representing amounts owed to the Company from the early exercise of stock options. These notes include full recourse and non- recourse obligations, are secured by common stock and bear interest at a rate of 8% per annum. Interest is due and payable on December 1st of each year, and the principal is due on or before December 1, 2002. PROFESSIONAL SERVICES In connection with the recruitment of its Chief Executive Officer, the Company engaged the services of an executive search firm affiliated with a holder of the Company's Series B Mandatorily Redeemable Convertible Preferred Stock. During the six months ended June 30, 1998, the Company paid total fees for services performed of $93,000 (unaudited) and issued 46,248 shares (unaudited) of Series B Mandatorily Redeemable Convertible Preferred Stock with a fair value on the date earned of $93,000 (unaudited). The amount paid for the services and the fair value of the shares are included in general and administrative expenses in the consolidated statement of income for the six months ended June 30, 1998. NOTE 5--DEBT: LINE OF CREDIT At December 31, 1997 and June 30, 1998, the Company had $545,000 and $431,000 (unaudited), respectively, outstanding under a line of credit with a financial institution. The line of credit provides for a revolving line, including an equipment sub-limit facility, of up to $750,000 and is secured by certain assets of the Company. Advances under the equipment sub-limit facility were limited to specific property and equipment acquisitions through January 5, 1998. The line of credit accrues interest at a variable rate determined by the bank (9.75% at December 31, 1997 and June 30, 1998 (unaudited)) and is repayable in twenty-four monthly installments of principal and accrued interest through January 5, 2000. Under the line of credit, the Company is required to comply with certain financial covenants. The Company was in compliance with all such covenants at December 31, 1997 and June 30, 1998, (unaudited). As of December 31, 1997, the future payments under the line of credit were as follows, (in thousands):
YEAR ENDING DECEMBER 31, ------------ 1998................................................................ $ 251 1999................................................................ 272 2000................................................................ 22 ----- 545 Less current portion................................................ (251) ----- Long-term portion................................................... $ 294 =====
F-14 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--COMMITMENTS: LEASES The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through the year 2001. Rent expense for the years ended December 31, 1996 and 1997, and for the six months ended June 30, 1997 and 1998, totaled $9,000, $223,000, $32,000 (unaudited) and $271,000 (unaudited), respectively. Future minimum lease payments under non-cancelable operating leases and capital leases, including lease commitments entered into subsequent to December 31, 1997, are as follows, (in thousands):
YEARS ENDING CAPITAL OPERATING DECEMBER 31, LEASES LEASES ------------ ------- --------- 1998..................................................... $10 $ 653 1999..................................................... 10 701 2000..................................................... 3 247 2001..................................................... -- 108 --- ------ Total minimum lease payments............................. 23 $1,709 ====== Less amount representing interest........................ (5) --- Present value of capital lease obligations............... 18 Less current portion..................................... (7) --- Long-term portion........................................ $11 ===
LETTER OF CREDIT At December 31, 1997 and June 30, 1998 (unaudited), the Company maintained a $202,000 letter of credit to secure the lease deposit on its office facility. The letter of credit expires December 1, 1999, and is secured by the line of credit. ADVERTISING At December 31, 1997 the Company had $750,000 committed under certain non- cancelable advertising agreements extending into fiscal 1998. NOTE 7--INCOME TAXES: The provision for income taxes consists of the following, (in thousands):
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED JUNE 30, ------------- --------------- 1996 1997 1997 1998 ------ ------ --------------- (UNAUDITED) Current: Federal......................................... $ 40 $ 450 $ 294 $ 2,020 State and local................................. 11 117 68 532 ------ ------ ------ -------- 51 567 362 2,552 ------ ------ ------ -------- Deferred: Federal......................................... 47 87 -- -- State and local................................. 8 15 -- -- ------ ------ ------ -------- 55 102 -- -- ------ ------ ------ -------- $ 106 $ 669 $ 362 $ 2,552 ====== ====== ====== ========
F-15 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate of 34% to income before income taxes, (in thousands):
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED JUNE 30, ------------- --------------- 1996 1997 1997 1998 ------ ------ --------------- (UNAUDITED) Provision at statutory rate...................... $ 87 $ 525 $ 288 $ 986 Permanent differences: Acquisition costs.............................. -- -- -- 295 Stock compensation............................. -- -- -- 705 Other.......................................... -- 12 6 34 State taxes, net of federal benefit.............. 19 132 68 532 ------ ------ ------ -------- $ 106 $ 669 $ 362 $ 2,552 ====== ====== ====== ========
Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax liabilities consist of the following, (in thousands):
DECEMBER 31, ------------- JUNE 30, 1996 1997 1998 ------ ------ ----------- (UNAUDITED) Deferred tax liabilities: Accruals and reserves............................... $ 54 $ 154 $154 Depreciation........................................ 1 3 3 ----- ------ ---- $ 55 $ 157 $157 ===== ====== ====
NOTE 8--CONVERTIBLE PREFERRED STOCK: Convertible Preferred Stock at December 31, 1997 was composed of the following, (in thousands):
SHARES ---------------------- LIQUIDATION REDEMPTION AUTHORIZED OUTSTANDING AMOUNT AMOUNT ---------- ----------- ----------- ---------- Series A.......................... 1,676 1,676 $1,000 $ -- Series B.......................... 1,415 1,000 4,500 3,000 Undesignated...................... 2,909 -- -- -- ----- ----- ------ ------ 6,000 2,676 $5,500 $3,000 ===== ===== ====== ======
At June 30, 1998, the redemption amount of the Series B Mandatorily Redeemable Convertible Preferred Stock was $5.1 million (unaudited) based on 1.4 million shares outstanding. See Note 11--Subsequent Events. The holders of Preferred Stock have various rights and preferences as follows: VOTING Each share of Series A and Series B has voting rights equal to the number of shares of Common Stock into which it is convertible and votes together as one class with the Common Stock. F-16 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As long as shares of Series B remain outstanding, the Company must obtain the approval of the holders of not less than two-thirds of the shares of Series B to alter the articles of incorporation as related to Series B, change the number of shares of Preferred Stock or Series B Preferred Stock, authorize or issue shares of any class of stock having rights and privileges superior to or in parity with Series B, authorize a liquidation event, increase the authorized number of directors, pay or declare dividends, or repurchase or acquire any shares of Common Stock other than pursuant to the terms of an equity incentive agreement giving the Company the right to repurchase the shares upon termination of the agreement. DIVIDENDS Holders of Series B are entitled to receive cumulative dividends at the per annum rate of $0.30 per share, payable as and when declared by the Board of Directors in preference and priority to payment of any dividend on any shares of Series A Preferred or Common Stock. Holders of Series A are entitled to receive non-cumulative dividends at the per annum rate of $0.05 per share, payable as and when declared by the Board of Directors in preference and priority to any payment of any dividend on any shares of Common Stock. No dividends have been declared or paid from inception through December 31, 1997, or during the six months ended June 30, 1998 (unaudited). LIQUIDATION In the event of any liquidation, dissolution or winding up of the Company, including a merger, acquisition or sale of assets where the beneficial owners of the Company's Common Stock and Preferred Stock own less than 51% of the resulting voting power of the surviving entity, the holders of Series B are entitled to receive an amount equal to $4.50 per share plus any declared but unpaid dividends prior and in preference to any distribution to the holders of Series A or the holders of Common Stock. If the assets and funds thus distributed are insufficient to permit full payment to holders of Series B, all assets and funds will be distributed ratably among the holders of Series B. After payment has been made to the holders of Series B, the holders of Series A are entitled to receive an amount equal to $0.5965 per share plus any declared but unpaid dividends prior and in preference to the holders of Common Stock. If the assets and funds thus distributed are insufficient to permit full payment to holders of Series A, all remaining assets and funds will be distributed ratably among the holders of all classes of stock based on the number of shares held by each holder. After payment has been made to the holders of Series B and Series A, the remaining assets of the Company will be distributed ratably among the holders of all classes of stock based on the number of shares held by each holder. Distribution rights for the holders of Series B, as described, will cease at such time as the holders receive an aggregate of $9.00 per share. REDEMPTION Upon the request of holders of at least two-thirds of the outstanding shares of Series B, the shares may be redeemed in three annual installments beginning not earlier than January 1, 2003 and continuing thereafter on the first and second anniversaries of the initial redemption date. The shares may be redeemed at a price equal to the original issue price, subject to adjustment for dilution and declared but unpaid dividends. The difference between the Series B carrying value and its redemption value (resulting primarily from the value attributed to the Series B warrants) is being accreted ratably as a charge to retained earnings through January 1, 2003. F-17 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Series A Convertible Preferred Stock has no redemption privileges. CONVERSION Each share of Series A and Series B is convertible, at the option of the holder, according to a conversion ratio which is three-for-one, subject to adjustment for dilution. Each share of Series A and Series B automatically converts into the number of shares of Common Stock into which such shares are convertible at the then effective conversion ratio upon either the closing of a public offering of Common Stock at a per share price of at least $4.00 per share with gross proceeds of at least $7,500,000, or the date upon which a total of two-thirds of the number of shares of such series of Preferred Stock originally issued have been converted into shares of Common Stock. WARRANTS FOR SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK In connection with the issuance of Series B, the Company issued warrants to purchase 400,000 additional shares of Series B with an exercise price of $5.00 per share. The warrants can be exercised up to the earlier of the closing of a public offering, the proceeds of which exceed $7,500,000, or June 2000. The Company determined that the fair value of the warrants approximated $278,000 on the date of grant. See Note 11--Subsequent Events. NOTE 9--COMMON STOCK: The Company's Certificate of Incorporation, as amended, authorizes the Company to issue 60,000,000 shares of Common Stock. A portion of the shares are subject to repurchase by the Company over a four year period from the earlier of the issuance date or employee hire date, as applicable. At December 31, 1997 and June 30, 1998, there were 11,050,000 and 14,115,442 (unaudited) shares, respectively, subject to repurchase rights at an average price of $0.01 and $0.19 (unaudited), respectively, per share. At June 30, 1998, the Company had reserved shares of Common Stock for future issuance as follows, (in thousands):
JUNE 30, 1998 ------------- (UNAUDITED) Conversion of Series A Preferred Stock......................... 5,029 Conversion of Series B Preferred Stock......................... 4,246 Exercise of options under stock option plans................... 2,033 ------ 11,308 ======
NOTE 10--EMPLOYEE BENEFIT PLANS: 401(K) SAVINGS PLAN The Company has a savings plan (the "Savings Plan") that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating employees may defer a percentage (not to exceed 25%) of their eligible pretax earnings up to the Internal Revenue Service's annual contribution limit. All employees on the United States payroll of the Company are eligible to participate in the Plan. The Company is not required to contribute to the Savings Plan and has made no contributions since the inception of the Savings Plan. F-18 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) STOCK OPTION PLANS In December 1996, the Company's Board of Directors adopted the 1996 Stock Option Plan, and in June 1997, adopted the 1997 Stock Option Plan (collectively, the "Plans"). The Plans provide for the granting of stock options to employees and consultants of the Company. Options granted under the Plans may be either incentive stock options ("ISO") or nonqualified stock options ("NSO"). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees and consultants. Options under the Plans may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO may not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a 10% shareholder may not be less than 110% of the estimated fair value of the shares on the date of grant. Options are exercisable immediately, subject to repurchase rights held by the Company which lapse over a maximum period of ten years, at such times and under such conditions as determined by the Board of Directors, generally four years. The following table summarizes activity under the Plans for the years ended December 31, 1996 and 1997 and the six months ended June 30, 1998 (shares in thousands):
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED -------------------------------- JUNE 30, 1996 1997 1998 --------------- ---------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- -------- --------- (UNAUDITED) Outstanding at beginning of period................ -- $ -- 225 $0.01 3,930 $ 0.07 Granted................... 225 0.01 3,864 0.07 3,702 1.74 Exercised................. -- -- -- -- (6,492) 0.43 Cancelled................. -- -- (159) 0.03 (69) 1.88 --- ----- -------- Outstanding at end of period................... 225 0.01 3,930 0.07 1,071 3.52 === ===== ======== Options exercisable at period end............... 225 3,930 0.07 1,071 3.52 === ===== ======== Weighted average minimum value of options granted during period................... 0.01 0.29 3.20
The following table summarizes information about fixed stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE AT DECEMBER 31, 1997 DECEMBER 31, 1997 ------------------------------------- ------------------------ WEIGHTED- AVERAGE WEIGHTED WEIGHTED- NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE RANGE OF EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE - ----------------- -------------- ----------- -------- -------------- --------- (IN THOUSANDS) (IN THOUSANDS) $0.01-$0.01...... 872 9.0 years $0.01 872 $0.01 0.03- 0.10...... 3,058 9.7 0.09 3,058 0.09 ----- ----- 3,930 9.6 0.07 3,930 0.07 ===== =====
F-19 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes information about fixed stock options outstanding at June 30, 1998 (unaudited):
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE AT JUNE 30, 1998 JUNE 30, 1998 -------------------------------------- ------------------------ WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE RANGE OF EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ----------------- -------------- ----------- --------- -------------- --------- (IN THOUSANDS) (IN THOUSANDS) $0.03-$0.20............. 429 9.3 years $0.10 429 $0.10 0.67- 2.00............. 244 9.8 1.97 244 1.97 3.00- 3.00............. 75 9.9 3.00 75 3.00 9.33- 9.33............. 323 9.9 9.33 323 9.33 ----- ----- 1,071 9.6 3.52 1,071 3.52 ===== =====
FAIR VALUE DISCLOSURES The Company calculated the minimum fair value of each option grant on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions:
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED --------------- JUNE 30, 1996 1997 1998 ------ ------ ----------- (UNAUDITED) Risk-free interest rates....................... 6.0% 5.9% 5.5% Expected lives (in years)...................... 5.0 5.0 3.5 Dividend yield................................. 0% 0% 0% Expected volatility............................ 0% 0% 0%
The compensation cost associated with the Company's stock-based compensation plans, determined using the minimum value method prescribed by SFAS No. 123, did not result in a material difference from the reported net income for the years ended December 31, 1996 and 1997 and for the six months ended June 30, 1997 and 1998 (unaudited). UNEARNED STOCK-BASED COMPENSATION In connection with certain stock option grants during the year ended December 31, 1997 and the six months ended June 30, 1998, the Company recognized unearned compensation totaling $819,000 and $5.0 million (unaudited), respectively, which is being amortized over the four year vesting periods of the related options. Amortization expense recognized during the year ended December 31, 1997 and the six months ended June 30, 1998 totaled approximately $25,000 and $1.0 million (unaudited), respectively. F-20 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--SUBSEQUENT EVENTS (UNAUDITED): STOCK SPLIT Prior to the effectiveness of the Company's initial public offering, the Company's Board of Directors intends to effect a three-for-one stock split of the outstanding shares of Common Stock. All share and per share information included in these consolidated financial statements have been retroactively adjusted to reflect this stock split. SERIES B WARRANTS In May 1998, the Series B warrants were exercised, resulting in the issuance of 400,000 shares of Series B Mandatorily Redeemable Convertible Preferred Stock in exchange for cash proceeds totaling $2.0 million. See Note 8-- Convertible Preferred Stock. SALE OF COMMON STOCK In June 1998, in connection with the appointment of two outside directors, the Company sold an aggregate of 214,500 shares of Common Stock to two directors and realized net proceeds of $2.0 million. The Company recognized the $429,000 difference between the estimated fair value of the stock and the price paid by the two directors as general and administrative expense during the six months ended June 30, 1998. EMPLOYEE STOCK PURCHASE PLAN In July 1998, the Board adopted, subject to stockholder approval, the 1998 Employee Stock Purchase Plan (the "Purchase Plan") and reserved 300,000 shares of Common Stock for issuance thereunder. On each January 1, the aggregate number of shares reserved for issuance under the Purchase Plan will be increased automatically by the number of shares purchased under the Purchase Plan in the preceding calendar year. The aggregate number of shares reserved for issuance under the Purchase Plan shall not exceed 1,500,000 shares. The Purchase Plan will become effective on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market. Employees generally will be eligible to participate in the Purchase Plan if they are customarily employed by the Company for more than 20 hours per week and more than five months in a calendar year and are not (and would not become as a result of being granted an option under the Purchase Plan) 5% stockholders of the Company. Under the Purchase Plan, eligible employees may select a rate of payroll deduction between 2% and 10% of their W-2 cash compensation subject to certain maximum purchase limitations. Each offering period will have a maximum duration of two years and consists of four six- month Purchase Periods. The first Offering Period is expected to begin on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market. Depending on the Effective Date, the first Purchase Period may be more or less than six months long. Offering Periods and Purchase Periods thereafter will begin on April 1 and November 1. The price at which the Common Stock is purchased under the Purchase Plan is 85% of the lesser of the fair market value of the Company's Common Stock on the first day of the applicable offering period or on the last day of that purchase period. The Purchase Plan will terminate after a period of ten years unless terminated earlier as permitted by the Purchase Plan. F-21 EBAY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1998 EQUITY INCENTIVE PLAN In July 1998, the Board adopted, subject to stockholder approval, the 1998 Equity Incentive Plan (the "1998 Plan") and reserved 4,500,000 shares of Common Stock for issuance thereunder. The 1998 Plan authorized the award of options, restricted stock awards and stock bonuses (each an "Award"). No person will be eligible to receive more than 1,000,000 shares in any calendar year pursuant to Awards under the 1998 Plan other than a new employee of the Company who will be eligible to receive no more than 2,000,000 shares in the calendar year in which such employee commences employment. Options granted under the 1998 Plan may be either incentive stock options ("ISO") or nonqualified stock options ("NSO"). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, officers, directors, consultants, independent contractors and advisors of the Company. Options under the Plan may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO may not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a 10% shareholder may not be less than 110% of the estimated fair value of the shares on the date of grant. The maximum term of options granted under the 1998 Plan is ten years. 1998 DIRECTORS STOCK OPTION PLAN In July 1998, the Board adopted, subject to stockholder approval, the Directors Plan and reserved a total of 200,000 shares of the Company's Common Stock for issuance thereunder. Members of the Board who are not employees of the Company, or any parent, subsidiary or affiliate of the Company, are eligible to participate in the Directors Plan. The option grants under the Directors Plan are automatic and nondiscretionary, and the exercise price of the options must be 100% of the fair market value of the Common Stock on the date of grant. Each eligible director who first becomes a member of the Board on or after the effective date of the Registration Statement of which this Prospectus forms a part (the "Effective Date") will initially be granted an option to purchase 30,000 shares (an "Initial Grant") on the date such director first becomes a director. Immediately following each Annual Meeting of the Company, each eligible director will automatically be granted an additional option to purchase 5,000 shares if such director has served continuously as a member of the Board since the date of such director's Initial Grant or, if such director was ineligible to receive an Initial Grant, since the Effective Date. The term of such options is ten years, provided that they will terminate 7 months following the date the director ceases to be a director or a consultant of the Company (twelve months if the termination is due to death or disability). All options granted under the Directors Plan will vest as to 25% of the shares on the first anniversary of the date of grant and as to 2.08% of the shares each month thereafter, provided the optionee continues as a member of the Board or as a consultant to the Company. F-22 EBAY INC. PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OVERVIEW Effective June 30, 1998, the Company acquired all the outstanding shares of Jump Incorporated ("Jump"), which provides a forum where Internet users can buy and sell items in an online auction format. The acquisition has been accounted for using the purchase method of accounting and accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The fair value of intangible assets was determined using a combination of methods, including replacement cost estimates for acquired research and development and completed technology, a risk-adjusted income approach for the acquired customer list and the amounts paid for covenants not to compete. The total purchase price of approximately $2.3 million consisted of 142,848 shares of the Company's Common Stock with an estimated fair value of approximately $2.0 million and other acquisition related expenses of approximately $335,000, consisting primarily of payments for non-compete agreements totaling approximately $208,000 and legal and other professional fees. Of the total purchase price, approximately $150,000 was allocated to in- process technology and immediately charged to operations because such in- process technology had not reached the stage of technological feasibility at the acquisition date and had no alternative future use. The remainder of the purchase price was allocated to net tangible liabilities assumed ($31,000) and intangible assets, including completed technology ($500,000), customer list ($1.5 million), covenants not to compete ($208,000) and goodwill ($24,000). The acquired intangible assets will be amortized over their estimated useful lives of 8 to 24 months. The acquisition has been structured as a tax free exchange of stock, therefore, the differences between the recognized fair values of acquired assets, including tangible assets, and their historical tax bases are not deductible for tax purposes. The following unaudited pro forma consolidated financial statement of operations gives effect to this acquisition as if it had occurred on January 1, 1997, by consolidating the results of operations of Jump with the results of operations of eBay Inc. for the year ended December 31, 1997 and the six months ended June 30, 1998. The unaudited pro forma consolidated statement of operations are not necessarily indicative of the operating results that would have been achieved had the transactions been in effect as of the beginning of the periods presented and should not be construed as being representative of future operating results. The historical financial statements of the Company and Jump are included elsewhere in this Prospectus and the unaudited pro forma consolidated financial information presented herein should be read in conjunction with those financial statements and related notes. F-23 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1997 SIX MONTHS ENDED JUNE 30, 1998 ------------------------------------------------ -------------------------------------------- JUMP JUMP EBAY INC. INCORPORATED ADJUSTMENTS PRO FORMA EBAY INC. INCORPORATED ADJUSTMENTS PRO FORMA --------- ------------ ----------- --------- --------- ------------ ----------- --------- Net revenues............ $5,744 $ 11 $ -- $ 5,755 $14,922 $ 12 $ -- $14,934 Cost of net revenues.... 746 9 -- 755 1,736 3 -- 1,739 ------ ---- ------- ------- ------- ---- ----- ------- Gross profit........... 4,998 2 -- 5,000 13,186 9 -- 13,195 ------ ---- ------- ------- ------- ---- ----- ------- Operating expenses: Sales and marketing.... 1,730 2 165(C) 1,897 4,445 -- -- 4,445 Product development.... 831 10 841 1,548 8 -- 1,556 General and administrative........ 950 7 957 4,054 21 -- 4,075 Amortization of intangible assets..... -- -- 1,810(A)(B) 1,810 -- -- 354(B) 354 ------ ---- ------- ------- ------- ---- ----- ------- Total operating expenses.............. 3,511 19 1,975 5,505 10,047 29 354 10,430 ------ ---- ------- ------- ------- ---- ----- ------- Income from operations............ 1,487 (17) (1,975) (505) 3,139 (20) (354) 2,765 ------ ---- ------- ------- ------- ---- ----- ------- Interest and other income, net............ 59 -- -- 59 101 -- -- 101 Interest expense........ (3) -- -- (3) (25) (1) -- (26) ------ ---- ------- ------- ------- ---- ----- ------- Income (loss) before income taxes........... 1,543 (17) (1,975) (449) 3,215 (21) (354) 2,840 ------ ---- ------- ------- ------- ---- ----- ------- Provision for income taxes.................. (669) -- 69(C) (600) (2,483) -- -- (2,483) ------ ---- ------- ------- ------- ---- ----- ------- Net income (loss)....... $ 874 $(17) $(1,906) $(1,049) $ 732 $(21) $(354) $ 357 ====== ==== ======= ======= ======= ==== ===== ======= Pro forma net income per share (D): Basic.................. $ (0.07) $ .02 ======= ======= Weighted average shares--basic......... 14,734 19,287 ======= ======= Diluted................ $ (0.07) $ .01 ======= ======= Weighted average shares--diluted....... 14,734 34,374 ======= =======
See accompanying notes to Pro Forma Consolidated Financial Information F-24 EBAY INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS) The following adjustments were applied to the Company's historical financial statements and those of Jump to arrive at the pro forma consolidated financial information. The pro forma consolidated financial information excludes the non-recurring charge for acquired in-process technology associated with the acquisition totaling $150,000. (A) To record amortization of acquired completed technology totaling $500,000 over the estimated period of benefit of 8 months. (B) To record amortization of: acquired customer list totaling $1.5 million over the estimated period of benefit of 15 months, covenants not to compete totaling $208,000 over the estimated period of benefit of 24 months, and acquired goodwill totaling $24,000 over the estimated period of benefit of 15 months. (C) To record employment agreement signing bonuses and related income tax effect totaling $165,000 and $69,000, respectively, for employees of Jump subsequently retained by the Company. (D) Pro forma basic net income per share for the year ended December 31, 1997 and the six months ended June 30, 1998 is computed using the weighted average number of common shares outstanding, including the pro forma effects of the automatic conversion of the Company's Series A and Series B Convertible Preferred Stock into shares of the Company's Common Stock effective upon the closing of this Offering as if such conversion occurred on January 1, 1997, or at date of original issuance, if later. Pro forma diluted net income per share is computed using the pro forma weighted average number of common and common equivalent shares outstanding. Pro forma common equivalent shares, composed of unvested restricted Common Stock and incremental common shares issuable upon the exercise of stock options and warrants, are included in diluted net income per share to the extent such shares are dilutive. Differences between historical weighted average shares outstanding and pro forma weighted average shares outstanding used to compute net income per share result from the inclusion of shares issued in conjunction with the acquisition as if such shares were outstanding from January 1, 1997 and from the automatic conversion of the Company's Series A and Series B Convertible Preferred Stock effective upon the close of this Offering. F-25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Jump Incorporated In our opinion, the accompanying balance sheet and the related statements of operations, of shareholders' deficit and of cash flows present fairly, in all material respects, the financial position of Jump Incorporated at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Jose, California July 10, 1998 F-26 JUMP INCORPORATED BALANCE SHEET
DECEMBER 31, JUNE 30, 1997 1998 ------------ ----------- (UNAUDITED) ASSETS Current assets: Cash................................................. $ 1,112 $ 1,200 Accounts receivable, net............................. 5,344 12,243 -------- -------- Total current assets............................... 6,456 13,443 Property and equipment, net............................ 8,997 8,668 -------- -------- $ 15,453 $ 22,111 ======== ======== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable..................................... $ 3,475 $ 18,148 Accrued interest on notes payable to shareholders.... 435 1,093 Notes payable to shareholders........................ 21,786 34,128 -------- -------- 25,696 53,369 -------- -------- Shareholders' deficit Common Stock, no par value; 500 shares authorized; 300 issued and outstanding.......................... 6,900 6,900 Accumulated deficit.................................. (17,143) (38,158) -------- -------- Total shareholders' deficit........................ (10,243) (31,258) -------- -------- $ 15,453 $ 22,111 ======== ========
The accompanying notes are an integral part of these financial statements. F-27 JUMP INCORPORATED STATEMENT OF OPERATIONS
YEAR SIX MONTHS ENDED ENDED DECEMBER 31, JUNE 30, 1997 1998 ------------ ----------- (UNAUDITED) Revenue: Advertising.......................................... $ -- $ 12,243 Consulting services.................................. 11,344 -- -------- -------- Total revenues..................................... 11,344 12,243 -------- -------- Cost of revenues: Advertising.......................................... -- 3,000 Consulting services.................................. 8,766 -- -------- -------- Total cost of revenues............................. 8,766 3,000 -------- -------- Gross profit........................................... 2,578 9,243 Operating expenses: General and administrative........................... 7,314 21,223 Product development.................................. 10,410 8,377 Sales and marketing.................................. 1,562 -- -------- -------- Total operating expenses........................... 19,286 29,600 -------- -------- Loss from operations................................... (16,708) (20,357) Interest expense....................................... (435) (658) -------- -------- Net loss............................................... $(17,143) $(21,015) ======== ========
The accompanying notes are an integral part of these financial statements. F-28 JUMP INCORPORATED STATEMENT OF SHAREHOLDERS' DEFICIT
COMMON STOCK ------------- ACCUMULATED SHARES AMOUNT DEFICIT TOTAL ------ ------ ----------- -------- Issuance of Common Stock................... 300 $6,900 $ -- $ 6,900 Net loss................................... -- -- (17,143) (17,143) --- ------ -------- -------- Balance at December 31, 1997............... 300 6,900 (17,143) (10,243) Net loss (Unaudited)....................... -- -- (21,015) (21,015) --- ------ -------- -------- Balance at June 30, 1998 (Unaudited)....... 300 $6,900 $(38,158) $(31,258) === ====== ======== ========
The accompanying notes are an integral part of these financial statements. F-29 JUMP INCORPORATED STATEMENT OF CASH FLOWS
YEAR ENDED SIX MONTHS DECEMBER 31, JUNE 30, 1997 1998 ------------ ----------- (UNAUDITED) Cash flows from operating activities: Net loss............................................ $(17,143) $(21,015) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization..................... 1,365 1,896 Changes in current assets and liabilities: Accounts receivable.............................. (5,344) (6,899) Accounts payable................................. 3,475 14,673 Accrued interest on notes payable to sharehold- ers............................................. 435 658 -------- -------- Net cash used in operating activities................. (17,212) (10,687) -------- -------- Cash flows from investing activities: Purchase of property and equipment.................. (10,362) (1,567) -------- -------- Net cash used in investing activities................. (10,362) (1,567) -------- -------- Cash flows from financing activities: Proceeds for issuance of Common Stock............... 6,900 -- Proceeds from notes payable to shareholders......... 21,786 12,342 -------- -------- Net cash provided by financing activities............. 28,686 12,342 -------- -------- Net increase in cash.................................. 1,112 88 Cash at beginning of period........................... -- 1,112 -------- -------- Cash at end of period................................. $ 1,112 $ 1,200 ======== ========
The accompanying notes are an integral part of these financial statements. F-30 JUMP INCORPORATED NOTES TO FINANCIAL STATEMENTS NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: THE COMPANY Jump Incorporated (the "Company") was incorporated in Ohio in October 1996. The Company provides a forum where Internet users can buy and sell items in an online auction format. For the period from inception (October 1996) through December 31, 1996, the Company had no revenues and incurred no expenses. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and accounts receivable. Cash is deposited with high credit quality financial institutions. The Company's accounts receivable are derived from revenue earned from customers located in the U.S. and are denominated in U.S. dollars. The Company had a single customer for the year ended December 31, 1997 that accounted for all of the consulting revenue and accounts receivable. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments, including cash, accounts receivable, accounts payable and accrued interest to shareholders are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. PROPERTY AND EQUIPMENT Property and equipment are stated at historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three years. PRODUCT DEVELOPMENT COST Product development costs include expenses incurred by the Company to develop, enhance, manage, monitor and operate the Company's Web site. Product development costs are expensed as incurred. REVENUE RECOGNITION Advertising revenue is derived from the sale of advertising space on the Company's Web site. Advertising revenue is recognized over the period the advertisement is displayed. F-31 JUMP INCORPORATED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Consulting revenue was derived from a single time and material agreement and was recognized and billed as services were provided. INCOME TAXES Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. UNAUDITED INTERIM RESULTS The accompanying interim financial statements as of June 30, 1998, and for the six months ended June 30, 1998, are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and its cash flows as of June 30, 1998 and for the six months ended June 30, 1998. The financial data and other information disclosed in these notes to financial statements related to these periods are unaudited. The results for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive income. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The disclosures prescribed by SFAS No. 131 will be effective for the year ending December 31, 1998. The Company has determined that it does not have any separately reportable business segments as of June 30, 1998. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect that the adoption of SOP No. 98-1 will have a material impact on its consolidated financial statements. F-32 JUMP INCORPORATED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 2--BALANCE SHEET COMPONENTS:
DECEMBER 31, JUNE 30, 1997 1998 ------------ ----------- (UNAUDITED) Property and equipment, net: Computer equipment...... $10,362 $11,929 Less: Accumulated depre- ciation and amortiza- tion................... (1,365) (3,261) ------- ------- $ 8,997 $ 8,668 ======= =======
NOTE 3--INCOME TAXES: No deferred provision or benefit for income taxes has been recorded as the Company is in a net deferred tax asset position as a result of net operating losses for which a full valuation has been provided as management believes that it is more likely than not, based on available evidence, that the deferred tax assets will not be realized. At June 30, 1998, the Company has federal net operating loss carryforwards of approximately $16,000, which expire in 2012. The income tax benefit from the utilization of net operating loss carryforwards may be limited in certain circumstances including, but not limited to, cumulative stock ownership changes of more than 50% over a three year period. NOTE 4--BORROWINGS: NOTES PAYABLE At December 31, 1997 and June 30, 1998, notes payable consists of amounts payable to shareholders of the Company totaling 21,786 and 34,128 (unaudited), respectively. The notes are payable upon demand by the holders and bear simple interest from 5.6% to 6.2% per annum. NOTE 6--SUBSEQUENT EVENTS (UNAUDITED): On June 30, 1998, eBay Inc. acquired all of the Company's outstanding shares of Common Stock, at which time the Company became a wholly owned subsidiary of eBay Inc. F-33 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company and the Selling Stockholders have agreed to sell to each of the Underwriters named below (the "Underwriters"), and each of such Underwriters, for whom Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation, BancAmerica Robertson Stephens and BT Alex. Brown Incorporated are acting as representatives, has severally agreed to purchase from the Company and the Selling Stockholders, the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES OF COMMON UNDERWRITER STOCK ----------- --------- Goldman, Sachs & Co............................................... Donaldson, Lufkin & Jenrette Securities Corporation............... BancAmerica Robertson Stephens.................................... BT Alex. Brown Incorporated....................................... --- Total......................................................... ===
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession of not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. The Company has granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of additional shares of Common Stock at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the shares of Common Stock offered hereby. The Company has agreed that, during the period beginning from the date of this Prospectus and continuing to and including the date 120 days after the date of the final Prospectus for this offering, it will not offer, sell, contract to sell or otherwise dispose of any securities of the Company (other than pursuant to employee stock option or stock purchase plans existing, or on the conversion or exchange of convertible or exchangeable securities outstanding, on the date of this Prospectus) which are substantially similar to the Common Stock or which are convertible into or exchangeable for securities which are substantially similar to the Common Stock without the prior written consent of the representatives, except for the shares of Common Stock offered in connection with the offering. U-1 In addition, the Company's officers and directors and substantially all holders of shares of capital stock of the Company, including the Selling Stockholder, have agreed that, subject to certain limited exceptions, they will not (i) offer to sell, sell, contract to sell, pledge or otherwise dispose of any shares of Common Stock owned of record or beneficially prior to the offering or any securities convertible into or exchangeable for such shares of Common Stock, (ii) establish a "put equivalent position" with respect to such Common Stock within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or (iii) publicly announce an intention to take any of the actions set forth in (i) or (ii) for a period of 120 days following the date of the final Prospectus for this offering without the prior written consent of the representatives. At the request of the Company, the Underwriters have reserved up to shares of Common Stock for sale, at the initial public offering price, to employees and friends of the Company through a directed share program. The number of shares of Common Stock available for sale to the general public in the public offering will be reduced to the extent such persons purchase such reserved shares. The representatives of the Underwriters have informed the Company that they do not expect sales to accounts over which the Underwriters exercise discretionary authority to exceed 5% of the total number of shares of Common Stock offered by them. Prior to the offering, there has been no public market for the shares. The initial public offering price will be negotiated among the Company and the representatives of the Underwriters. Among the factors to be considered in the determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuation of companies in related business. In connection with the offering, the Underwriters may purchase and sell the Common Stock in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created by the Underwriters in connection with the offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Common Stock; and syndicate short positions created by the Underwriters involve the sale by the Underwriters of a greater number of shares of Common Stock than they are required to purchase from the Company in the offering. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the securities sold in the offering for their account may be reclaimed by the syndicate if such shares of Common Stock are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Common Stock which may be higher than the price that might otherwise prevail in the open market; and these activities, if commenced, may be discontinued at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. Application has been made for quotation of the Common Stock on the Nasdaq National Market under the symbol "EBAY". The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. U-2 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE- SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR- MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 Use of Proceeds.......................................................... 22 Dividend Policy.......................................................... 22 Capitalization........................................................... 23 Dilution................................................................. 24 Selected Consolidated Financial Data..................................... 25 Selected Pro Forma Consolidated Financial Data.......................................................... 26 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 27 Business................................................................. 38 Management............................................................... 51 Certain Transactions..................................................... 61 Principal and Selling Stockholders....................................... 64 Description of Capital Stock............................................. 66 Shares Eligible for Future Sale.......................................... 69 Legal Matters............................................................ 70 Experts.................................................................. 70 Additional Information................................................... 71 Index to Financial Statements............................................ F-1 Underwriting............................................................. U-1
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPEC- TUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHARES EBAY INC. COMMON STOCK (PAR VALUE $.001 PER SHARE) ----------- [LOGO] ----------- GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE BANCAMERICA ROBERTSON STEPHENS BT ALEX. BROWN REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses to be paid by the Company in connection with the sale of the shares of Common Stock being registered hereby. All amounts are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market filing fee. Securities and Exchange Commission registration fee................. $18,998 NASD filing fee..................................................... 6,940 Nasdaq National Market filing fee................................... * Accounting fees and expenses........................................ * Legal fees and expenses............................................. * Road show expenses.................................................. * Printing and engraving expenses..................................... * Blue sky fees and expenses.......................................... * Transfer agent and registrar fees and expenses...................... * Miscellaneous....................................................... * ------- Total............................................................. $ * =======
- -------- *To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). As permitted by the Delaware General Corporation Law, the Registrant's Amended and Restated Certificate of Incorporation, which will become effective upon the closing of this offering, includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for any transaction from which the director derived an improper personal benefit. As permitted by the Delaware General Corporation Law, the Amended and Restated Bylaws of the Registrant, which will become effective upon the closing of this offering, provide that (i) the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions, (ii) the Registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law, (iii) the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions and (iv) the rights conferred in the Amended and Restated Bylaws are not exclusive. The Registrant intends to enter into Indemnification Agreements with each of its current directors and officers to give such directors and officers additional contractual assurances regarding the scope II-1 of the indemnification set forth in the Registrant's Amended and Restated Certificate of Incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Registrant regarding which indemnification is sought, nor is the Registrant aware of any threatened litigation that may result in claims for indemnification. Reference is also made to Section of the Underwriting Agreement, which provides for the indemnification of officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provision in the Registrant's Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and the Indemnification Agreements entered into between the Registrant and each of its directors and officers may be sufficiently broad to permit indemnification of the Registrant's directors and officers for liabilities arising under the Securities Act. The Registrant, with approval by the Registrant's Board of Directors, expects to obtain directors' and officers' liability insurance. See also the undertakings set out in response to Item 17. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
EXHIBIT DOCUMENT NUMBER -------- ------ Form of Underwriting Agreement*....................................... 1.01 Registrant's Amended and Restated Certificate of Incorporation........ 3.01 Registrant's Amended and Restated Bylaws.............................. 3.05 Investor Rights Agreement dated June 20, 1997......................... 4.02 Form of Indemnification Agreement..................................... 10.01
- -------- * To be supplied by amendment. II-2 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following table sets forth information regarding all securities sold by the Registrant since its inception on May 13, 1996. All share numbers reflect a 3-for-1 stock split to be effected immediately prior to the effectiveness of this offering. For clarity of presentation, share numbers for the transactions described below are adjusted for this proposed stock split and reflect a split of both Common and Preferred Stock, although not actually split, each share of Preferred Stock will convert into three shares of Common Stock upon the closing of this offering.
NUMBER OF AGGREGATE PURCHASE PRICE CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SECURITIES AND FORM OF CONSIDERATION ------------------- ------------ --------------------- ---------- ------------------------- Pierre M. Omidyar 5/20/96 Common Stock 14,700,000 $14,262 consisting of cash of $10,167 and accounts receivable of $4,095 from Founder's sole proprietorship. Pierre M. Omidyar 12/12/96 Series A Preferred 5,029,425 In exchange for Stock 4,500,000 of the above listed shares of Common Stock Jeffrey S. Skoll 12/12/96 Common Stock 10,200,000 $68,000 Promissory Note due December 31, 2002 with simple interest at 6% per year Two affiliated venture 6/27/97 Series B Preferred 3,000,000 $3,000,000 cash capital funds Stock and Warrants to purchase 1,200,000 shares of Series B Preferred Stock at $1.66 per share Consultant 3/13/98 Series B Preferred 46,248 Payment of $92,496 Stock for certain executive recruiting services provided to the Company. Two affiliated venture 5/7/98 Series B Preferred 1,200,000 $2,000,000 cash capital funds Stock (Warrant Exercise) Scott D. Cook 6/30/98 Common Stock 107,250 $1,001,000 cash Howard D. Schultz 6/30/98 Common Stock (option 150,000 $1,050,000 cash and exercise) $350,000 Promissory Note due June 30, 2003 with interest at 8% per year Maveron Equity Partners, 6/30/98 Common Stock 107,250 $1,001,000 cash L.P. Four individuals 6/30/98 Common Stock 142,848 Issued in exchange for all of the outstanding shares of Jump Incorporated acquired by Registrant Employee/optionees 1/1/98- Common Stock (option 6,342,336 $1,410,544 cash and 6/30/98 exercises) Promissory Notes
II-3 All sales of Common Stock made pursuant to the exercise of stock options granted under the 1996 Plan and the 1997 Plan to Registrant's officers, directors, employees and consultants were made in reliance on Rule 701 under the Securities Act or on Section 4(2) of the Securities Act. All other sales were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. These sales were made without general solicitation or advertising. Each purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment and represented to the Registrant that the shares were being acquired for investment. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 1.01 Form of Underwriting Agreement*. 2.01 Agreement and Plan of Merger by and between eBay, Inc., a California Corporation, and Registrant. 2.02 Agreement and Plan of Merger and Reorganization among Registrant, Jump Acquisition Sub, Inc., Jump Incorporated and Certain Shareholders of Jump Incorporated dated as of June 30, 1998. 3.01 Registrant's Certificate of Incorporation. 3.02 Registrant's Certificate of Designation of Preferred Stock. 3.03 Form of Registrant's Certificate of Amendment of Certificate of Incorporation*. 3.04 Form of Registrant's Amended and Restated Certificate of Incorporation to be effective upon the closing of this offering*. 3.05 Registrant's Bylaws. 3.06 Form of Registrant's Amended and Restated Bylaws to be effective immediately upon the closing of this offering*. 4.01 Form of Specimen Certificate for Registrant's Common Stock*. 4.02 Investor Rights Agreement, dated June 20, 1997, between the Registrant and certain stockholders named therein. 5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered*. 10.01 Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers. 10.02 Registrant's 1996 Stock Option Plan and related documents. 10.03 Registrant's 1997 Stock Option Plan and related documents. 10.04 Registrant's 1998 Equity Incentive Plan and related documents. 10.05 Registrant's 1998 Directors Stock Option Plan and related documents. 10.06 Registrant's 1998 Employee Stock Purchase Plan. 10.07 Office Lease between Connecticut General Life Insurance Company, a Connecticut corporation, and the Registrant dated September 30, 1996, as amended through March 1998. 10.08 Sublease between Information Storage Devices, Inc., a California corporation, and Registrant dated August 4, 1997. 10.09 Office Lease between Connecticut General Life Insurance Company, a Connecticut corporation, and the Registrant dated April 10, 1998, as amended June 9, 1998. 10.10 Imperial Bank Starter Kit Loan and Security Agreement dated July 20, 1997 between Imperial Bank and Registrant. 10.11 Intellectual Property Security Agreement dated July 20, 1997 between Imperial Bank and Registrant. 10.12 Exodus Communications, Inc. Internet Services and Products Agreement and Co-Location Addendum effective as of May 1, 1997*. 10.13 License Agreement between Thunderstone Software and Registrant.
II-4
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 10.14 Employment Letter Agreement dated October 16, 1996 between Jeffrey Skoll and Registrant. 10.15 Employment Letter Agreement dated December 9, 1996 between Michael Wilson and Registrant. 10.16 Employment Letter Agreement dated August 8, 1997 between Steven Westly and Registrant. 10.17 Employment Letter Agreement dated September 15, 1997 between Gary Bengier and Registrant. 10.18 Employment Letter Agreement dated January 16, 1998 between Margaret C. Whitman and Registrant. 21.01 List of Subsidiaries. 23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).* 23.02 Consent of PricewaterhouseCoopers LLP, independent accountants. 24.01 Power of Attorney (see Page II-6 of this Registration Statement). 27.01 Financial Data Schedule.
- -------- * To be supplied by amendment. (B) FINANCIAL STATEMENT SCHEDULES. No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN JOSE, STATE OF CALIFORNIA, ON THE 10TH DAY OF JULY, 1998. eBay Inc. By: /s/ Margaret C. Whitman _________________________________ MARGARET C. WHITMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Margaret C. Whitman, Pierre M. Omidyar and Gary F. Bengier, and each of them, his or her true and lawful attorneys- in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post- effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. NAME TITLE DATE PRINCIPAL EXECUTIVE OFFICER /s/ Margaret C. Whitman President and Chief July 10, 1998 - ------------------------------------- Executive Officer MARGARET C. WHITMAN PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER: /s/ Gary F. Bengier Vice President and July 10, 1998 - ------------------------------------- Chief Financial GARY F. BENGIER Officer ADDITIONAL DIRECTORS: /s/ Pierre M. Omidyar Director July 10, 1998 - ------------------------------------- PIERRE M. OMIDYAR /s/ Scott D. Cook Director July 10, 1998 - ------------------------------------- SCOTT D. COOK /s/ Robert C. Kagle Director July 10, 1998 - ------------------------------------- ROBERT C. KAGLE /s/ Howard D. Schultz Director July 10, 1998 - ------------------------------------- HOWARD D. SCHULTZ II-6 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 1.01 Form of Underwriting Agreement*. 2.01 Agreement and Plan of Merger by and between eBay, Inc., a California Corporation, and Registrant. 2.02 Agreement and Plan of Merger and Reorganization among Registrant, Jump Acquisition Sub, Inc., Jump Incorporated and Certain Shareholders of Jump Incorporated dated as of June 30, 1998. 3.01 Registrant's Certificate of Incorporation. 3.02 Registrant's Certificate of Designation of Preferred Stock. 3.03 Form of Registrant's Certificate of Amendment of Certificate of Incorporation*. 3.04 Form of Registrant's Amended and Restated Certificate of Incorporation to be effective upon the closing of this offering*. 3.05 Registrant's Bylaws. 3.06 Form of Registrant's Amended and Restated Bylaws to be effective immediately upon the closing of this offering*. 4.01 Form of Specimen Certificate for Registrant's Common Stock*. 4.02 Investor Rights Agreement, dated June 20, 1997, between the Registrant and certain stockholders named therein. 5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered*. 10.01 Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers. 10.02 Registrant's 1996 Stock Option Plan and related documents. 10.03 Registrant's 1997 Stock Option Plan and related documents. 10.04 Registrant's 1998 Equity Incentive Plan and related documents. 10.05 Registrant's 1998 Directors Stock Option Plan and related documents. 10.06 Registrant's 1998 Employee Stock Purchase Plan. 10.07 Office Lease between Connecticut General Life Insurance Company, a Connecticut corporation, and the Registrant dated September 30, 1996, as amended through March 1998. 10.08 Sublease between Information Storage Devices, Inc., a California corporation, and Registrant dated August 4, 1997. 10.09 Office Lease between Connecticut General Life Insurance Company, a Connecticut corporation, and the Registrant dated April 10, 1998, as amended June 9, 1998. 10.10 Imperial Bank Starter Kit Loan and Security Agreement dated July 20, 1997 between Imperial Bank and Registrant. 10.11 Intellectual Property Security Agreement dated July 20, 1997 between Imperial Bank and Registrant. 10.12 Exodus Communications, Inc. Internet Services and Products Agreement and Co-Location Addendum effective as of May 1, 1997*. 10.13 License Agreement between Thunderstone Software and Registrant. 10.14 Employment Letter Agreement dated October 16, 1996 between Jeffrey Skoll and Registrant. 10.15 Employment Letter Agreement dated December 9, 1996 between Michael Wilson and Registrant. 10.16 Employment Letter Agreement dated August 8, 1997 between Steven Westly and Registrant. 10.17 Employment Letter Agreement dated September 15, 1997 between Gary Bengier and Registrant. 10.18 Employment Letter Agreement dated January 16, 1998 between Margaret C. Whitman and Registrant. 21.01 List of Subsidiaries. 23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).* 23.02 Consent of PricewaterhouseCoopers LLP, independent accountants. 24.01 Power of Attorney (see Page II-6 of this Registration Statement). 27.01 Financial Data Schedule.
- ------- * To be supplied by amendment. EX-2.01 2 AGMT & PLAN OF MERGER BETWEEN EBAY & REGISTRANT EXHIBIT 2.01 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is made as ---------------- of April 28, 1998 by and between eBay, Inc., a California corporation ("eBay ---- California"), and eBay Inc., a Delaware corporation ("eBay Delaware"). eBay - ---------- ------------- California and eBay Delaware are hereinafter sometimes collectively referred to as the "Constituent Corporations." ------------------------ R E C I T A L S ---------------- A. eBay California was incorporated on May 13, 1996. Its current authorized capital stock consists of: (1) 20,000,000 shares of Common Stock, no par value ("eBay California Common Stock"), of which 7,299,000 shares are issued ---------------------------- and outstanding; and (2) 6,000,000 shares of Preferred Stock, no par value ("eBay California Preferred Stock"), of which 2,676,475 shares are issued and - --------------------------------- outstanding (consisting of 1,676,475 shares of Series A Preferred Stock and 1,000,000 shares of Series B Preferred Stock). B. eBay Delaware was incorporated on March 13, 1998. Its authorized capital stock consists of: (1) 20,000,000 shares of Common Stock, with a par value of $0.001 per share ("eBay Delaware Common Stock"), of which 1,000 shares -------------------------- are issued and outstanding; and (2) 6,000,000 shares of Preferred Stock, $0.001 par value ("eBay Delaware Preferred Stock"), none of which shares are issued and ----------------------------- outstanding. C. The respective Boards of Directors of eBay California and eBay Delaware deem it advisable and to the advantage of each of the Constituent Corporations that eBay California merge with and into eBay Delaware upon the terms and subject to the conditions set forth in this Merger Agreement for the purpose of effecting a change of the state of incorporation of eBay California from California to Delaware. D. The Boards of Directors of each of the Constituent Corporations have approved this Merger Agreement. NOW, THEREFORE, the parties do hereby adopt the plan of reorganization set forth in this Merger Agreement and do hereby agree that eBay California shall merge with and into eBay Delaware on the following terms, conditions and other provisions: 1. MERGER AND EFFECTIVE TIME. At the Effective Time (as defined ------------------------- below), eBay California shall be merged with and into eBay Delaware (the "Merger"), and eBay Delaware shall be the surviving corporation of the Merger ------ (the "Surviving Corporation"). The Merger shall become effective upon the close --------------------- of business on the date when a duly executed copy of this Merger Agreement, along with all required officers' certificates, is filed with the Secretary of State of the State of Delaware, (the "Effective Time"). -------------- eBay, Inc. Agreement and Plan of Merger 2. EFFECT OF MERGER. At the Effective Time, the separate corporate ---------------- existence of eBay California shall cease; the corporate identity, existence, powers, rights and immunities of eBay Delaware as the Surviving Corporation shall continue unimpaired by the Merger; and eBay Delaware shall succeed to and shall possess all the assets, properties, rights, privileges, powers, franchises, immunities and purposes, and be subject to all the debts, liabilities, obligations, restrictions and duties of eBay California, all without further act or deed. The Certificate of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation. 3. GOVERNING DOCUMENTS. At the Effective Time, the Certificate of ------------------- Incorporation of eBay Delaware in effect immediately prior to the Effective Time shall become the Certificate of Incorporation of the Surviving Corporation and the Bylaws of eBay Delaware in effect immediately prior to the Effective Time shall become the Bylaws of the Surviving Corporation. 4. DIRECTORS AND OFFICERS. At the Effective Time, the directors and ---------------------- officers of eBay Delaware shall be and become the directors and officers (holding the same titles and positions) of the Surviving Corporation and after the Effective Time shall serve in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation. 5. CONVERSION OF SHARES OF EBAY CALIFORNIA. Subject to the terms and --------------------------------------- conditions of this Agreement, at the Effective Time, each share of eBay California Common Stock outstanding immediately prior thereto shall be automatically changed and converted into one fully paid and nonassessable, issued and outstanding share of eBay Delaware Common Stock. At the Effective Time: (a) each share of eBay California Series A Preferred Stock outstanding immediately prior thereto shall be automatically changed and converted into one fully paid and nonassessable, issued and outstanding share of eBay Delaware Series A Preferred Stock; and (b) each share of eBay California Series B Preferred Stock outstanding immediately prior thereto shall be automatically changed and converted into one fully paid and nonassessable, issued and outstanding share of eBay Delaware Series B Preferred Stock. 6. CANCELLATION OF SHARES OF EBAY DELAWARE. At the Effective Time, --------------------------------------- all of the previously issued and outstanding shares of eBay Delaware Common Stock that were issued and outstanding immediately prior to the Effective Time shall be automatically retired and canceled. 7. STOCK CERTIFICATES. At and after the Effective Time, all of the ------------------ outstanding certificates that, prior to that date, represented shares of eBay California Common Stock shall be deemed for all purposes to evidence ownership of and to represent the number of shares of eBay Delaware Common Stock into which such shares of eBay California Common Stock are converted as provided herein. At and after the Effective Time, all of the outstanding certificates that, prior to that date, represented shares of a series of eBay California Preferred Stock shall be deemed for all purposes to evidence ownership of and to represent the number of shares of the series of eBay Delaware Preferred Stock into which such shares of eBay California Preferred Stock are converted as provided herein. The registered owner on the books and records of eBay California of any such outstanding stock certificate for eBay California Common Stock or eBay California Preferred Stock shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to eBay Delaware or its transfer agent, be entitled to exercise any voting and other rights with respect to, and to receive any dividend and other distributions upon, the 2 eBay, Inc. Agreement and Plan of Merger shares of eBay Delaware Common Stock or eBay Delaware Preferred Stock evidenced by such outstanding certificate as above provided. 8. CONVERSION OF OPTIONS AND WARRANTS. At the Effective Time, all ---------------------------------- outstanding and unexercised portions of all options to purchase a share of eBay California Common Stock under the eBay California 1996 Stock Option Plan and the eBay California 1997 Stock Option Plan shall become options to purchase a share of eBay Delaware Common Stock (subject to the elimination of fractional shares as provided in Section 9 below) at the original exercise price per share and shall, to the extent permitted by law and otherwise reasonably practicable, have the same term, exercisability, vesting schedule, status as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), if applicable, and all other material terms and conditions (including ---- but not limited to the terms and conditions applicable to such options by virtue of the eBay California 1996 Stock Option Plan and the eBay California 1997 Stock Option Plan). Continuous employment with eBay California will be credited to an optionee for purposes of determining the vesting of the number of shares of eBay Delaware Common Stock under a converted eBay California option at the Effective Time. Additionally, at the Effective Time, eBay Delaware shall adopt and assume the eBay California 1996 Stock Option Plan and the eBay California 1997 Stock Option Plan. At the Effective Time, all outstanding and unexercised portions of all warrants to purchase or acquire eBay California Preferred Stock shall become warrants to purchase or acquire, on the same terms and conditions, the same number of shares of the same series of eBay Delaware Preferred Stock. 9. FRACTIONAL SHARES. No fractional shares of eBay Delaware Common ----------------- Stock or Preferred Stock will be issued in connection with the Merger. In lieu thereof, eBay Delaware shall pay each shareholder of eBay California who would otherwise be entitled to receive a fractional share of eBay Delaware Common Stock or Preferred Stock (assuming the aggregation of all shares held by the same holder of more than one stock certificate representing shares of eBay California Common Stock or Preferred Stock, as the case may be) a cash amount equal to the applicable fraction multiplied by the fair market value of a share of eBay Delaware Common Stock or Preferred Stock, as the case may be, as determined by the Board of Directors of eBay Delaware in good faith (the "Fair ---- Market Value Per Share"). Upon exercise of each assumed option of eBay - ---------------------- California to purchase eBay Delaware Common Stock, cash will be paid by eBay Delaware in lieu of any fractional share of eBay Delaware Common Stock, respectively, issuable upon exercise of such option, and the amount of cash received for such fractional share shall be the Fair Market Value Per Share upon exercise thereof multiplied by the applicable fraction, less the unpaid exercise price per share for such fraction. 10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations ---------------------- of eBay California under or with respect to every plan, trust, program and benefit then in effect or administered by eBay California for the benefit of the directors, officers and employees of eBay California or any of its subsidiaries shall become the lawful obligations of eBay Delaware and shall be implemented and administered in the same manner and without interruption until the same are amended or otherwise lawfully altered or terminated. Effective at the Effective Time, eBay Delaware hereby expressly adopts and assumes all obligations of eBay California under such employee benefit plans. 11. FURTHER ASSURANCES. From time to time, as and when required by ------------------ the Surviving Corporation or by its successors or assigns, there shall be executed and delivered on behalf of eBay California such deeds, assignments and other instruments, and there shall be taken 3 eBay, Inc. Agreement and Plan of Merger or caused to be taken by it all such further action as shall be appropriate, advisable or necessary in order to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation the title to and possession of all property, interests, assets, rights, privileges, immunities, powers, franchises and authority of eBay California, and otherwise to carry out the purposes of this Merger Agreement. The officers and directors of the Surviving Corporation are fully authorized in the name of and on behalf of eBay California, or otherwise, to take any and all such actions and to execute and deliver any and all such deeds and other instruments as may be necessary or appropriate to accomplish the foregoing. 12. CONDITION. The consummation of the Merger is subject to the --------- approval of this Merger Agreement and the Merger contemplated hereby by the shareholders of eBay California and by the sole stockholder of eBay Delaware, prior to or at the Effective Time. 13. ABANDONMENT. At any time before the Effective Time, this Merger ----------- Agreement may be terminated and the Merger abandoned by the Board of Directors of eBay California or eBay Delaware, notwithstanding approval of this Merger Agreement by the Boards of Directors and shareholders of eBay California and eBay Delaware. 14. AMENDMENT. At any time before the Effective Time, this Merger --------- Agreement may be amended, modified or supplemented by the Boards of Directors of the Constituent Corporations, notwithstanding approval of this Merger Agreement by the shareholders of eBay California and eBay Delaware; provided, however, -------- ------- that any amendment made subsequent to the adoption of this Agreement by the shareholders of eBay California or the sole stockholder of eBay Delaware shall not: (i) alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or upon conversion of any shares of any class or series of eBay California; (ii) alter or change any of the terms of the Certificate of Incorporation of the Surviving Corporation to be effected by the Merger; or (iii) alter or change any of the terms or conditions of this Merger Agreement if such alteration or change would adversely affect the holders of any shares of any class or series of eBay California or eBay Delaware. 15. TAX-FREE REORGANIZATION. The Merger is intended to be a tax-free ----------------------- plan of reorganization within the meaning of Section 368(a)(1)(F) of the Code. 16. GOVERNING LAW. This Agreement shall be governed by and construed ------------- under the internal laws of the State of Delaware as applied to agreements among California residents entered into and to be performed entirely within California, without reference to the principles of conflicts of law or choice of laws, except to the extent that the laws of the State of Delaware would apply in matters relating to the internal affairs of eBay Delaware and the Merger. 17. COUNTERPARTS. In order to facilitate the filing and recording of ------------ this Merger Agreement, it may be executed in any number of counterparts, each of which shall be deemed to be an original. 4 eBay, Inc. Agreement and Plan of Merger IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf of each of the Constituent Corporations and attested by their respective officers hereunto duly authorized. eBAY, INC. eBAY INC. a California corporation a Delaware corporation By: /s/ Gary Bengier By: /s/ Gary Bengier, ----------------------------- ----------------------------- Gary Bengier Gary Bengier, Vice President and Vice President and Chief Financial Officer Chief Financial Officer ATTEST: ATTEST: - ------ ------ By: /s/ Matthew P. Quilter By: /s/ Matthew P. Quilter ----------------------------- ----------------------------- Matthew P. Quilter, Secretary Matthew P. Quilter, Secretary [SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER] 5 EX-2.02 3 AGMT & PLAN OF MERGER & REORGANIZATION EXHIBIT 2.02 ================================================================================ AGREEMENT AND PLAN OF MERGER AND REORGANIZATION among: eBay Inc., a Delaware corporation; Jump Acquisition Sub, Inc. an Ohio corporation; Jump Incorporated, an Ohio corporation; and Certain Shareholders of Jump Incorporated ___________________________ Dated as of June 30, 1998 ___________________________ ================================================================================ 1. TABLE OF CONTENTS
PAGE SECTION 1. DESCRIPTION OF TRANSACTION................................................................... 1 1.1 Merger of Merger Sub into the Company.................................................... 1 1.2 Effect of the Merger..................................................................... 1 1.3 Closing; Effective Time.................................................................. 2 1.4 [Articles of Incorporation] and Bylaws; Directors and Officers........................... 3 1.5 Conversion of Shares..................................................................... 3 1.6 Closing of the Company's Transfer Books.................................................. 3 1.7 Exchange of Certificates................................................................. 4 1.8 Tax Consequences......................................................................... 4 1.9 Prepayment of Loans to Company Shareholders.............................................. 4 1.10 Further Action........................................................................... 5 SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDERS................... 5 2.1 Due Organization; No Subsidiaries; Etc................................................... 5 2.2 Articles of Incorporation and Bylaws; Records............................................ 6 2.3 Capitalization, Etc...................................................................... 6 2.4 Financial Statements..................................................................... 7 2.5 Absence of Changes....................................................................... 7 2.6 Title to Assets.......................................................................... 8 2.7 Bank Accounts............................................................................ 8 2.8 Equipment; Leasehold..................................................................... 8 2.9 Proprietary Assets....................................................................... 9 2.10 Contracts................................................................................ 10 2.11 Liabilities.............................................................................. 11 2.12 Compliance with Legal Requirements....................................................... 11 2.13 Governmental Authorizations.............................................................. 11 2.14 Tax Matters.............................................................................. 12 2.15 Employee and Labor Matters; Benefit Plans................................................ 13 2.16 Environmental Matters.................................................................... 13
Table Of Contents (continued)
Page 2.17 Related Party Transactions............................................................... 13 2.18 Legal Proceedings; Orders................................................................ 14 2.19 Authority; Binding Nature of Agreement................................................... 14 2.20 Non-Contravention; Consents.............................................................. 14 2.21 Full Disclosure.......................................................................... 15 2.22 Investment Representations............................................................... 15 SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...................................... 16 3.1 Authority; Binding Nature of Agreement................................................... 16 3.2 Valid Issuance........................................................................... 17 SECTION 4. INDEMNIFICATION, ETC......................................................................... 17 4.1 Survival of Representations, Etc......................................................... 17 4.2 Indemnification by Company Shareholders.................................................. 17 4.3 Threshold; Recourse...................................................................... 18 4.4 Escrow of Shares; Satisfaction of Indemnification Claim.................................. 18 4.5 No Contribution.......................................................................... 22 4.6 Defense of Third Party Claims............................................................ 22 4.7 Exercise of Remedies by Indemnitees Other Than Parent.................................... 23 SECTION 5. MISCELLANEOUS PROVISIONS..................................................................... 24 5.1 Designated Shareholders' Agent........................................................... 24 5.2 Further Assurances....................................................................... 24 5.3 Fees and Expenses........................................................................ 24 5.4 Attorneys' Fees.......................................................................... 24 5.5 Notices.................................................................................. 25 5.6 Confidentiality.......................................................................... 25 5.7 Headings................................................................................. 25 5.8 Counterparts............................................................................. 26 5.9 Governing Law............................................................................ 26 5.10 Successors and Assigns................................................................... 26 5.11 Specific Performance..................................................................... 26
ii. Table Of Contents (continued)
Page 5.12 Waiver.................................................................................... 26 5.13 Amendments................................................................................ 26 5.14 Severability.............................................................................. 27 5.15 Parties in Interest....................................................................... 27 5.16 Entire Agreement.......................................................................... 27 5.17 Construction.............................................................................. 27
iii. AGREEMENT AND PLAN OF MERGER AND REORGANIZATION This Agreement And Plan Of Merger And Reorganization ("Agreement") is made and entered into as of June 30, 1998, by and among: eBay Inc., a Delaware corporation ("Parent"); Jump Acquisition Sub, Inc., an Ohio corporation and a wholly owned subsidiary of Parent ("Merger Sub"); Jump Incorporated, an Ohio corporation (the "Company"); and Walter N. Carroll, Christopher M. Downie, Thomas P. Duvall and Robert J. Ratterman (the "Company Shareholders"). Recitals A. Parent, Merger Sub and the Company intend to effect a merger of Merger Sub into the Company in accordance with this Agreement and the Ohio General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly owned subsidiary of Parent. B. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). C. This Agreement has been approved by the respective boards of directors of Parent, Merger Sub and the Company and has been approved by the shareholders of Merger Sub and the shareholders of the Company. D. The Company Shareholders own a total of 300 shares of the Common Stock, no par value per share, of the Company constituting all of the outstanding capital stock of the Company (the "Company Shares"). Agreement The parties to this Agreement agree as follows: SECTION 1. Description of Transaction. 1.1 Merger of Merger Sub into the Company. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the Surviving corporation in the Merger (the "Surviving Corporation"). 1.2 Effect of the Merger. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the Ohio General Corporation Law. 1. 1.3 Closing; Effective Time. (a) The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Cooley Godward llp, Five Palo Alto Square, Palo Alto, California 94306 at 10:00 a.m. Ohio time on June 30, 1998 (the "Closing Date"). Contemporaneously with or as promptly as practicable after the Closing, a properly executed certificate of merger conforming to the requirements of (S)1701.81(A) of the Ohio General Corporation Law shall be filed with the Secretary of State of the State of Ohio. The Merger shall become effective at the time such certificate of merger is filed with and accepted by the Secretary of State of the State of Ohio (the "Effective Time"). (b) in addition to the foregoing, at the Closing: (i) the Company and each Company Shareholder shall enter into an employment agreement in substantially the form attached hereto as Exhibit 1.3(b)(i) (each, an "Employment Agreement"); (ii) the Company and each Company Shareholder shall enter into an non-competition agreement in substantially the form attached hereto as Exhibit 1.3(b)(ii) (each, a "Non-Competition Agreement"); and (iii) each Company Shareholder shall tender his resignation as a director and officer of the Company. (iv) the Company, (or the Company Shareholders, as applicable) shall deliver, or provide with respect to 1.3(b)(iv)(2)-(3) an affidavit of intended filing within 60 days of the Closing Date, the following documents: (1) Copies of the Company's charter documents and copies of the resolutions approving this transaction all certified by an appropriate officer of the Company; (2) A recently-updated "good standing" certificate of the Company; (3) A recently-dated certificate from the applicable taxing agency in Ohio showing payment of all recent franchise taxes, if applicable; (4) Stock Certificates representing all of the outstanding common stock of the Company for cancellation at the Closing; (5) The Company's minute books; (6) A legal opinion of Taft, Stettinius & Hollister, L.L.P. in form and substance reasonably acceptable to parent and its counsel carry the matters set forth in Exhibit 1.3(b)(iv)(6); 2. (7) Such other documents as may reasonably be requested by Parent and its counsel; and (v) Parent shall deliver the following day: (1) Stock certificates, in the name of each Company Shareholder, representing the number of shares of the common stock of Parent, par value $.001 per share, ("Parent Common Stock") to each Company Shareholder equal to the Exchange Ratio (as defined in Section 1.5 below) times the number of shares of Company Common Stock owned) by each Company Shareholder, less such Common Shareholder's share of the Escrow Fund; (2) Such other documents as the Company or it's counsel shall reasonably request; (3) Check in the amount required to be paid at closing pursuant to the terms of the Employment Agreements and Non-Competition Agreements; and 1.4 Articles of Incorporation and Code of Regulations; Directors and Officers. (a) The Articles of Incorporation of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Articles of Incorporation of Merger Sub as in effect immediately prior to the Effective Time; (b) the Code of Regulations of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Code of Regulations of Merger Sub as in effect immediately prior to the Effective Time; and (c) the directors and officers of the Surviving Corporation immediately after the Effective Time shall be the individuals identified on Exhibit 1.4. 1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any shareholder of the Company: (a) each share of Company Common Stock outstanding immediately prior to the Effective Time shall be converted into the right to receive 158.73 (the "Exchange Ratio") shares of Parent Common Stock (and cash in lieu of any fractional share of Parent Common Stock; and (b) each share of the common stock, no par value per share, of Merger Sub outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation. No fractional shares of Parent Common Stock shall be issued, but in lieu thereof each holder of shares of Company Common Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock shall receive from Parent a cash amount equal to $42.00 multiplied by the fraction of a share of Parent Common Stock to which such holder would otherwise be entitled. 1.6 Closing of the Company's Transfer Books. At the Effective Time, holders of certificates representing shares of the Company's capital stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as shareholders of 3. the Company, and the stock transfer books of the Company shall be closed with respect to all shares of such capital stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of the Company's capital stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any of such shares of the Company's capital stock (a "Company Stock Certificate") is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.7. 1.7 Exchange of Certificates. (a) Immediately after the Effective Time, each Company Shareholder shall surrender each Company Stock Certificate held by such Company Shareholder, together with such other documents as may be reasonably required by Parent, to Parent, in exchange for a certificate representing the number of whole shares of Parent Common Stock that such holder has the right to receive pursuant to the provisions of this Section 1 (less the number of shares that such holder has the right to receive but which are being placed in the Escrow Fund in accordance with Section 4.4), and the Company Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this Section 1.7, each Company Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive upon such surrender a certificate representing shares of Parent Common Stock as contemplated by this Section 1. (b) Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable to any holder or former holder of capital stock of the Company pursuant to this Agreement such amounts as Parent or the Surviving Corporation may be required to deduct or withhold therefrom under the Code or under any provision of state, local or foreign tax law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the person or entity to whom such amounts would otherwise have been paid. (c) Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of capital stock of the Company for any shares of Parent Common Stock (or dividends or distributions with respect thereto), or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property, escheat or similar law. 1.8 Tax Consequences. For federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368 of the Code. The parties to this Agreement hereby adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. 1.9 Prepayment of Loans to Company Shareholders. Immediately after the Effective Time, Parent shall cause the Company to repay, at any time within one year of the Closing Date, the Shareholder Indebtedness (as such term is defined in Section 2.4) to the Company's Shareholders. 4. 1.10 Further Action. If, at any time after the Effective Time, any further action is determined by Parent to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation or Parent with full right, title and possession of and to all rights and property of Merger Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Merger Sub, in the name of the Company and otherwise) to take such action. SECTION 2. Representations and Warranties of the Company and the Company Shareholders. Except as set forth on a disclosure schedule delivered to Parent on the date of this Agreement and certified by the Company Shareholders (the "Disclosure Schedule"). The Company and the Company Shareholders jointly and severally represent and warrant, to and for the benefit of the Indemnitees, as follows: 2.1 Due Organization; No Subsidiaries; Etc. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Company Contracts (as defined in Section 2.10). (b) The Company has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than the name "Jump Incorporated" and "Up4Sale". (c) To the best of the knowledge of the Company and the Company Shareholders, the Company is qualified, authorized, registered or licensed to do business as a foreign corporation in, and is in good standing as a foreign corporation in, each jurisdiction where such qualification, authorization, registration licensing or good standing is required. (d) The entire board of directors of the Company is comprised of Company Shareholders. (e) The Company does not own any interest in any corporation, partnership, limited liability company, joint venture or similar entity ("Entity") and has never owned, beneficially or otherwise, any shares or other securities of, or any direct or indirect equity interest in, any Entity. The Company has not agreed and is not obligated to make any future investment in or capital contribution to any Entity. Part 2.1(e) of the Disclosure Schedule accurately describes the Company's "Spark! Leadership" program. The Company has no Liabilities associated with the Spark! Leadership program and the Company may discontinue its Spark! Leadership program at any time without any penalty or any other Liability to the Company. 5. 2.2 Articles of Incorporation and Code of Regulations; Records. The Company has delivered to Parent accurate and complete copies of: (1) the Company's articles of incorporation and Code of Regulations; (2) the stock records of the Company; and (3), the minutes and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the shareholders of the Company, the board of directors of the Company and all committees of the board of directors of the Company. There have been no formal meetings or other proceedings of the shareholders of the Company, the board of directors of the Company or any committee of the board of directors of the Company that are not fully reflected in such minutes or other records. There has not been any violation of any of the provisions of the Company's articles of incorporation or Code of Regulations, and the Company has not taken any action that is inconsistent in any material respect with any resolution adopted by the Company's shareholders, the Company's board of directors or any committee of the Company's board of directors. The books of account, stock records, minute books and other records of the Company are accurate, up-to-date and complete in all material respects, and have been maintained in accordance with prudent business practices. The Company has never amended its articles of incorporation or Code of Regulations. The Company has not effected or been a party to any merger, consolidation, business combination, reorganization, or sale of all or a portion of the assets or capital stock of the Company, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction. 2.3 Capitalization, Etc. (a) The authorized capital stock of the Company consists of: 500 shares of Common Stock, no par value, of which 300 shares have been issued and are outstanding as of the date of this Agreement. All of the outstanding shares of Company Common Stock have been duly authorized and validly issued, and are fully paid and non-assessable. The Company Shareholders collectively own, of record and beneficially, all of the issued and outstanding shares of Company Common Stock. (b) There is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of the Company; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of the Company; (iii) written, oral or other agreement, contract, understanding, note or other legally binding commitment or instrument ("Contract") under which the Company is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) to the best of the knowledge of the Company and the Company Shareholders, condition or circumstance that may give rise to or provide a basis for the assertion of a claim by any person or entity to the effect that such person or entity is entitled to acquire or receive any shares of capital stock or other securities of the Company. 6. (c) All outstanding shares of Company Common Stock have been issued and granted in compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in applicable Contracts. (d) The Company has never declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of capital stock, and has not repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities of the Company; (e) Other than in connection with the issuance of the Company Common Stock to the Company Shareholders in connection with the Company's formation, the Company has never sold, issued or authorized the issuance of (i) any capital stock or other security, (ii) any option or right to acquire any capital stock or any other security, or (iii) any instrument convertible into or exchangeable for any capital stock or other security; 2.4 Financial Statements. (a) The Company has delivered to Parent unaudited balance sheets of the Company as of June 26, 1998 (the "Interim Balance Sheet") and the related unaudited income statement, statement of stockholders' equity and statement of cash flows of the Company for the periods then ended (collectively, the "Financial Statements"). The Financial Statements: (i) were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered (except that the Financial Statements do not contain footnotes and the Financial Statement for the period ended June 30, 1998 is subject to normal and recurring year-end adjustments which will not, individually or in the aggregate, be material in amount), and (ii) fairly present the financial position of the Company as of the respective dates thereof and the results of operations of the Company for the periods covered thereby. (b) All debts, obligations and other liabilities of any nature of the Company ("Liabilities") are accurately and completely recorded on the Interim Balance Sheet or Part 2.4(b) of the Disclosure Schedule regardless of whether any such Liability would be required to be disclosed on a balance sheet in accordance with generally accepted accounting principles. Any and all past, present or future Shareholder Indebtedness is accurately reflected in the Financial Statements. 2.5 Absence of Changes. Since the date of the Interim Balance Sheet: (a) there has not been any material adverse change in the Company's business, condition, assets, liabilities or operations, and, to the best of the knowledge of the Company and the Company Shareholders, no event has occurred that could reasonably be expected to have a material adverse effect on the Company's business, condition, assets, liabilities, operations, financial performance or prospects (a "Material Adverse Effect"). (b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the Company assets; 7. (c) the Company has not incurred or guaranteed any indebtedness for borrowed money or any other Liabilities in excess of $5,000.00; (d) the Company has not entered into any transaction or taken any other material action outside the ordinary course of business or inconsistent with its past practices; (e) the Company has not entered into any transaction with any Related Party (or such term is defined in Section 2.17) including any loan to any Company Shareholder; and (f) the Company has not agreed or committed to take any of the actions referred to in clauses "(c)" through "(e)" above. 2.6 Title to Assets. (a) The Company owns, and has good, valid and marketable title to, all assets purported to be owned by it, including: (i) all assets reflected on the Interim Balance Sheet; (ii) all assets referred to in Part 2.9 of the Disclosure Schedule and all of the Company's rights under the Company Contracts and User Agreements (as defined in Section 2.10); and (iii) all other assets reflected in the Company's books and records as being owned by the Company. All of said assets are owned by the Company free and clear of any lien, pledge, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or other restriction or encumbrance of any nature ("Encumbrance"), except for any immaterial lien for current taxes not yet due and payable which has arisen in the ordinary course of business. (b) The assets referred to in clauses (i) and (ii) of subsection 2.6(a) above constitute all of the assets that are material to the business of the Company or are necessary to conduct such business as it has been and is being conducted. (c) As of the date hereof, not less than 53,000 member accounts have been established for use of the Company's online auction services. 2.7 Bank Accounts. The Company has provided Parent with accurate information with respect to each account maintained by or for the benefit of the Company at any bank or other financial institution. 2.8 Equipment; Leasehold. (a) All material items of equipment and other tangible assets owned by or leased to the Company are adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are adequate for the conduct of the Company's business in the manner in which such business is currently being conducted. 8. (b) The Company does not own any real property or any interest in real property, except for the leasehold created under the real property lease identified in Part 2.10(b) of the Disclosure Schedule. 2.9 Proprietary Assets. (a) Part 2.9 of the Disclosure Schedule identifies all Proprietary Assets owned by the Company ("Company Proprietary Assets"). No Proprietary Asset is licensed to the Company by any person or entity (except for any Proprietary Asset that is licensed to the Company under any third party software license generally available to the public at a cost of less than $10,000). The Company has good, valid and marketable title to all of the Company Proprietary Assets free and clear of all liens and other Encumbrances. The Company is not obligated to make any payment to any person or entity for the use of any Company Proprietary Asset. The Company has not developed jointly with any other person or entity any Proprietary Asset with respect to which such other person or entity has any rights. (b) The Company has taken all measures and precautions as are consistent with prudent business practices to protect and maintain the confidentiality and secrecy of all Company Proprietary Assets (except Company Proprietary Assets whose value would be unimpaired by public disclosure) and otherwise to maintain and protect the value of all Company Proprietary Assets. The Company has not disclosed or delivered to any person or entity or entity, or permitted the disclosure or delivery to any person or entity or entity of the source code, or any portion or aspect of the source code, of any Company Proprietary Asset. (c) The Company is not infringing, misappropriating or making any unlawful use of, and the Company has not at any time infringed, misappropriated or made any unlawful use of and none of the Company Proprietary Assets infringes or conflicts with, any Proprietary Asset owned or used by any other person or entity. To the best of the knowledge of the Company and the Company Shareholders, no other person or entity is infringing, misappropriating or making any unlawful use of, and no Proprietary Asset owned or used by any other person or entity infringes or conflicts with, any Company Proprietary Asset. (d) The Company Proprietary Assets constitute all the Proprietary Assets necessary to enable the Company to conduct its business in the manner in which such business has been and is being conducted. The Company has not entered into any covenant not to compete or Contract limiting its ability to exploit fully and freely any of its Proprietary Assets or to transact business in any market or geographical area or with any person or entity. For purposes of this Agreement "Proprietary Asset" shall mean any: (a) patent, patent application, trademark (whether registered or unregistered), trademark application, trade name, fictitious business name, service mark (whether registered or unregistered), service mark application, copyright (whether registered or unregistered), copyright 9. application, maskwork, maskwork application, trade secret, know-how, customer list, franchise, system, computer software, computer program, invention, design, blueprint, engineering drawing, proprietary product, technology, proprietary right or other intellectual property right or intangible asset; or (b) right to use or exploit any of the foregoing. (e) No IP addresses owned, controlled or used by the Company has been blocked or is currently blocked by any third party, nor is the Company aware of any threats to block such IP addresses. To the best of the knowledge of the Company and the Company Shareholders, the Company (or its domain names or any IP address owned, controlled or used by the Company) is not currently and has not been on the Realtime Blackhole List or any other similar list of rogue or blacklisted websites, nor is the Company aware of any threats to place the Company on such lists. 2.10 Contracts. (a) There is no, and there has never been any Contract between the Company and its customers relating to the online services provided by the Company to is customers other than Contracts with terms identical to the form(s) of user agreement(s) previously provided to Parent (the "User Agreements"); (b) Part 2.10(b) of the Disclosure Schedule is a complete and accurate list of each Contract other than a User Agreement: (i) to which the Company is a party; (ii) by which the Company or any of its assets is or may become bound or under which the Company has, or may become subject to, any obligation; or (iii) under which the Company has or may acquire any right or interest involving or potentially involving more than $5,000.00 (each such Contract being referred to herein as a "Company Contract"). (c) The Company has delivered to Parent accurate and complete copies of all written Contracts identified in Part 2.10(b) of the Disclosure Schedule, including all amendments thereto. There is no Company Contract that is not in written form. (d) (i) The Company has not violated or breached, or committed any default under, any Company Contract or User Agreement; (ii) to the best of the knowledge of the Company and the Company Shareholders, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, result in any such violation or breach; and (iii) the Company has not waived any of its material rights under any Company Contract. (e) The Company Contracts and User Agreements collectively constitute all of the Contracts necessary to enable the Company to conduct its business in the manner in which its business is currently being conducted. (f) Except as described on Part 2.10(b) of the Disclosure Schedule, each Contract listed or required to be listed on Part 2.10(b) of the Disclosure Schedule is terminable by the Company on no more than 90-days written notice without any penalty or 10. any other Liability to the Company (including any advertising Contract listed or required to be listed on such Schedule). 2.11 Liabilities. (a) The Company has no accrued, contingent or other liabilities of any nature, either matured or unmatured (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles, and whether due or to become due), except for liabilities identified as such in the "liabilities" column of the Interim Balance Sheet. (b) Following the consummation of the Merger, should Parent discontinue the online auction services offered by the Company, neither Parent nor the Company will be liable or have any continuing obligations as a result of any promotional policy or program that the Company maintains, supports or has any obligations with respect to (including its "Free Auctions Forever" "Spark! Leadership" and "Tell A Friend" programs) or that the Company has ever maintained supported or had obligations with respect to ("Promotional Policy"). The Company is not currently in violation of or in breach under the terms of any Promotional Policy. All Liabilities associated with any Promotional Policy are fully reflected on the Interim Balance Sheet. 2.12 Compliance with Legal Requirements. To the best of the knowledge of the Company and the Company Shareholders, the Company is, and has at all times since inception been, in compliance with all applicable federal, state, local, municipal or other laws, statutes, ordinances, codes, or other similar rules and regulations ("Legal Requirements") issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any federal, state, local, municipal, foreign or other government or governmental or quasi-governmental authority ("Governmental Body"). The Company has not received any notice or other communication from any person, entity or Governmental Body regarding any actual or possible violation of, or failure to comply with, any Legal Requirement. Part 2.12 of the Disclosure Schedule describes each inquiry, notice and other communication received by the Company and the Company Shareholders from any Governmental Body (including the Federal Bureau of Alcohol, Tobacco and Firearms or the Federal Trade Commission) regarding the operation of the Company's website, any members using the Company's website or any items offered for sale on such website. 2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule identifies each permit, license, registration, qualification, approval, or similar authorization issued or granted by a Governmental Body (a "Governmental Authorization") to the Company, and the Company has delivered to Parent accurate and complete copies of all Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule. The Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule are valid and in full force and effect, and collectively constitute all Governmental Authorizations necessary to enable the Company to conduct its business in the manner in which its 11. business is currently being conducted. The Company is, and at all times since inception has been, in substantial compliance with the terms and requirements of the respective Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule. Since inception, the Company has not received any notice or other communication from any Governmental Body regarding (a) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization, or (b) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization. 2.14 Tax Matters. (a) All Tax Returns required to be filed by or on behalf of the Company with any Governmental Body with respect to any taxable period ending on or before the Closing Date (the "Company Returns") (i) have been filed on or before the applicable due date (including any extensions of such due date), and (ii) have been, or will be when filed, accurately and completely prepared in all material respects in compliance with all applicable Legal Requirements. All amounts shown on the Company Returns to be due on or before the Closing Date have been paid. The Company has delivered to Parent accurate and complete copies of all Company Returns filed since inception. (b) No Company Return relating to income Taxes has ever been examined or audited by any Governmental Body. No claim or Proceeding is pending or has been threatened against or with respect to the Company in respect of any Tax and no notice of deficiency or similar document has been received by the Company with respect to any Tax. There are no liens for Taxes upon any of the assets of the Company except liens for current Taxes not yet due and payable. The Company has not entered into or become bound by any agreement or consent with any Governmental Body relating to Taxes and the Company is not, and has never been, a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar Contract. The Company has properly withheld all amounts required to be withheld for its employees for all federal, state and local tax purposes. For purposes of this Agreement: "Tax" shall mean any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body; and "Tax Return" shall mean any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, 12. collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax. 2.15 Employee and Labor Matters; Benefit Plans. (a) Except as set forth on Part 2.15(a) of the Disclosure Schedule, the Company does not sponsor, maintain, contribute to and is not required to contribute to any salary, bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance pay, termination pay, hospitalization, medical, life or other insurance, supplemental unemployment benefits, profit- sharing, pension or retirement plan (including any employee pension benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended)), program or agreement for the benefit of any current or former employee, director shareholder or other person. (b) Except as set forth on Part 2.15(b) of the Disclosure Schedule, other than the Company Shareholders, the Company does not and has not employed or utilized the services of any employees or consultants. All individuals who are performing or have performed services for the Company and are or were classified as "independent contractors" for tax purposes qualify for such classification. (c) The "Advisory Board" is a voluntary program and the Company has not paid, reimbursed, incentivized, granted any interests, rights or equity to or made any commitment or promise to (written or oral) and has no obligation or Contract to, pay, reimburse, incentivize, grant any interests, rights or equity to or otherwise compensate the members of the Advisory Board. 2.16 Environmental Matters. The Company is in compliance with all applicable federal, state and local Legal Requirements relating to pollution or protection of human health or the environment ("Environmental Laws"). The Company is not required to possess any permits or other Governmental Authorizations under applicable Environmental Laws for the ownership of its properties or conduct of its business. 2.17 Related Party Transactions. Except as set forth in Part 2.17 of the Disclosure Schedule, no Related Party (a) has any direct or indirect interest in any material asset used in or otherwise relating to the business of the Company (other than the Company Shareholders by virtue of their ownership of the Company Shares); (b) has loaned money to or is indebted to the Company; (c) has entered into, or has had any direct or indirect financial interest in, any material Contract, transaction or business dealing involving the Company; (d) is competing directly or indirectly, with the Company; or (e) has any claim or right against the Company. (For purposes of this Section 2.17 each of the following shall be deemed to be a "Related Party": (i) each of the Company Shareholders; (ii) each individual who is, or who has at any time since inception been, an officer of the Company; (iii) each member of the immediate family of each of the individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other than the Company) in which any one of the individuals referred to in clauses "(i)", "(ii)" and "(iii)" above holds 13. (or in which more than one of such individuals collectively hold), beneficially or otherwise, a material voting, proprietary or equity interest.) 2.18 Legal Proceedings; Orders. (a) There is no action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel ("Legal Proceeding") pending or, to the best of the knowledge of the Company and the Company Shareholders threatened, against the Company or any of the Company Shareholders relating to the business of the Company: (i) that involves the Company or any of the assets owned or used by the Company or any person or whose liability the Company has or may have retained or assumed, either contractually or by operation of law; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or any of the other transactions contemplated by this Agreement. No event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that could reasonably be expected to, give rise to or serve as a basis for the commencement of any such Legal Proceeding. No Legal Proceeding has ever been commenced by or has ever been pending against the Company. (b) There is no order, writ, injunction, judgment or decree to which the Company, or any of the assets owned or used by the Company, is subject. None of the Company Shareholders is subject to any order, writ, injunction, judgment or decree that relates to the Company's business or to any of the assets owned or used by the Company. No officer or other employee of the Company is subject to any order, writ, injunction, judgment or decree that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the Company's business. 2.19 Authority; Binding Nature of Agreement. The Company has the absolute and unrestricted right, power and authority to enter into and to perform its obligations under this Agreement; and the execution, delivery and performance by the Company of this Agreement have been duly authorized by all necessary action on the part of the Company, its shareholders and its board of directors. This Agreement constitutes the legal, valid and binding obligation of the Company and each Company Shareholder, enforceable against the Company and each Company Shareholder in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 2.20 Non-Contravention; Consents. Neither (1) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, nor (2) the consummation of the Merger or any of the other transactions contemplated by this Agreement, will directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of (i) any of the provisions of 14. the Company's articles of incorporation or Code of Regulations, or (ii) any resolution adopted by the Company's shareholders, the Company's board of directors or any committee of the Company's board of directors; (b) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the Company's business or to any of the assets owned or used by the Company; (c) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Company Contract, or give any person or the right to (i) declare a default or exercise any remedy under any such Company Contract, (ii) accelerate the maturity or performance of any such Company Contract, or (iii) cancel, terminate or modify any such Company Contract; or (d) result in the imposition or creation of any lien or other Encumbrance upon or with respect to any asset owned or used by the Company (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of the Company). The Company is not and will not be required to make any filing with or give any notice to, or to obtain any consent, approval or other authorization from, any person or in connection with (x) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, or (y) the consummation of the Merger or any of the other transactions contemplated by this Agreement. 2.21 Full Disclosure. This Agreement (including the Disclosure Schedule) does not (i) contain any representation, warranty or information that is false or misleading with respect to any material fact, or (ii) omit to state any material fact or necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading. 2.22 Investment Representations. (a) Each Company Shareholder is acquiring the Parent Common Stock solely for his own account for investment and not with a view to distribution or resale. Each Company Shareholder agrees that he will not sell, hypothecate, pledge or otherwise dispose of the Parent Common Stock to be received by him in the Merger in whole or in part unless such Parent Common Stock either has been registered under the Securities Act of 1933, as amended (the "Securities Act") and any applicable state securities law, or is exempt from the registration requirements of the Securities Act and any such state securities law. (b) Each Company Shareholder has sufficient knowledge and experience in (i) business and financial matters and (ii) the technology of Parent and industry in which Parent operates, such that he is able to evaluate Parent, its proposed activities and the risks and merits of an investment in Parent Common Stock. Each Company Shareholder has the ability to accept the high risk and lack of liquidity inherent in this type of investing. 15. (c) Each Company Shareholder recognizes that investment in Parent involves certain risks and has reviewed and understands all of the risk factors related to an investment in Parent. (d) Each Company Shareholder has had the opportunity to ask questions of and receive answers from the representatives of Parent concerning the terms, conditions and activities of Parent and to obtain any additional information necessary to verify the accuracy of the information provided. (e) Each Company Shareholder has been advised to consult with its own attorney regarding legal matters concerning this investment in Parent. (f) Each Company Shareholder is aware that the Parent Common Stock it will receive in the Merger has not been registered under the Securities Act (and that no such registration is contemplated) and are being sold in reliance upon the exemption from the registration requirements under that Act provided in Regulation D and/or Section 4(2). Each Company Shareholder further understands that it is not anticipated that there will be any market for its interest in Parent and that he must therefore bear the economic risk of this investment for indefinitely. Each Company Shareholder is also aware that: (i) Parent is under no obligation to file a registration statement with respect to such Parent Common Stock to be issued to him in the Merger; and (ii) the provisions of Rule 144 under the Act will permit resale of the Parent Common Stock to be issued to him in the Merger only under limited circumstances. The undersigned acknowledges that transfer of the Parent Common Stock is restricted by state and federal securities laws and that each certificate representing such shares shall bear a legend identical or similar in effect to the following legend (together with any legend or legends required by state securities laws or otherwise): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE" SECTION 3. Representations and Warranties of Parent and Merger Sub. Parent and Merger Sub jointly and severally represent and warrant to the Company and the Signing Shareholders as follows: 3.1 Authority; Binding Nature of Agreement. Parent and Merger Sub have the absolute and unrestricted right, power and authority to perform their obligations under this Agreement; and the execution, delivery and performance by Parent and Merger Sub of this Agreement (including the contemplated issuance of Parent Common Stock in the Merger in accordance with this Agreement) have been duly authorized by all necessary 16. action on the part of Parent and Merger Sub and their respective boards of directors. No vote of Parent's stockholders is needed to approve the Merger. This Agreement constitutes the legal, valid and binding obligation of Parent and Merger Sub, enforceable against them in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 3.2 Valid Issuance. The Parent Common Stock to be issued in the Merger will, when issued in accordance with the provisions of this Agreement be validly issued, fully paid and nonassessable. SECTION 4. Indemnification, Etc. 4.1 Survival of Representations, Etc. The representations and warranties made by the Company Shareholders in this Agreement shall survive the Closing and shall expire on the first anniversary of the Closing Date; provided, however, that if, at any time prior to the first anniversary of the Closing Date, any Indemnitee (acting in good faith) delivers to any of the Company Shareholders a written notice alleging the existence of an inaccuracy in or a breach of any of the representations and warranties made by the Company Shareholders (and setting forth in reasonable detail the basis for such Indemnity's belief that such an inaccuracy or breach may exist) and asserting a claim for recovery under Section 4.2 based on such alleged inaccuracy or breach, then the claim asserted in such notice shall survive the first anniversary of the Closing until such time as such claim is fully and finally resolved. The representations, warranties, covenants and obligations of the Company and the Company Shareholders, and the rights and remedies that may be exercised by the Indemnitees, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or knowledge of, any of the Indemnitees or any of their Representatives. For purposes of this Agreement, the term Indemnitee shall mean the following person or Entities: (a) Parent; (b) Parent's current and future affiliates (including the Surviving Corporation); (c) the respective attorneys, accountants and other representatives of the person or Entities referred to in clauses "(a)" and "(b)" above; and (c) the respective successors and assigns of the person or Entities referred to in clauses "(a)", "(b)" and "(c)" above; provided, however, that the Company Shareholders shall not be deemed to be "Indemnitees." 4.2 Indemnification by Company Shareholders. (a) From and after the Effective Time (but subject to Section 4.1), the Company Shareholders, jointly and severally, shall hold harmless and indemnify each of the Indemnitees from and against, and shall compensate and reimburse each of the Indemnitees for, any loss, damage, injury, liability, claim, demand, settlement, judgment, fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost (including costs of investigation) or expense of any nature ("Damages") which are directly or indirectly suffered or incurred by any of the Indemnitees or to which any of the Indemnitees may 17. otherwise become subject (regardless of whether or not such Damages relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with: (i) any inaccuracy in or breach of any representation or warranty set forth in Section 2 (without giving effect to any "Material Adverse Effect" or other materiality qualification or any similar qualification contained or incorporated directly or indirectly in such representation or warranty); (ii) any breach of any covenant or obligation of the Company or any of the Company Shareholders contained in this Agreement or in any of the other agreements and instruments delivered in connection with the transactions contemplated hereby; or (iii) any Legal Proceeding relating to any inaccuracy or breach of the type referred to in clause "(i)" or "(ii)" above (including any Legal Proceeding commenced by any Indemnitee for the purpose of enforcing any of its rights under this Section 4). (b) The Company Shareholders acknowledge and agree that, if the Surviving Corporation suffers, incurs or otherwise becomes subject to any Damages as a result of or in connection with any inaccuracy in or breach of any representation, warranty, covenant or obligation, then (without limiting any of the rights of the Surviving Corporation as an Indemnitee) Parent shall also be deemed, by virtue of its ownership of the stock of the Surviving Corporation, to have incurred Damages as a result of and in connection with such inaccuracy or breach. 4.3 Threshold; Recourse. (a) The Company Shareholders shall not be required to make any indemnification payment pursuant to Section 4.2(a) for any inaccuracy in or breach of any of their representations and warranties set forth in Section 2 unless the Damages arising from such inaccuracy or breach that have been directly or indirectly suffered or incurred by any one or more of the Indemnitees, or to which any one or more of the Indemnitees has or have otherwise become subject, exceed $5,000 in any individual case and $25,000 in the aggregate. If the total amount of such Damages exceed $5,000 or $25,000 as the case may be, then the Indemnitees shall be entitled to be indemnified against and compensated and reimbursed for the full amount of such Damages and not merely for the portion of such damages exceeding $5,000 or $25,000 as the case may be. (b) Other than in the case of fraud or willful misconduct, in the event that any Indemnitee shall become entitled to any indemnification under this Section 4, resort to the Escrow Shares (as defined in Section 4.4) shall be the sole and exclusive remedy for such Indemnitee. In the case of fraud or willful misconduct, the Indemnitees may seek recourse against the Escrow Shares as well as any such other remedies as may be available in law or in equity. 4.4 Escrow of Shares; Satisfaction of Indemnification Claim. (a) On the date hereof, Parent shall issue a certificate for 9,524 shares of Parent Common Stock (the "Escrow Shares") in the name of the eBay Inc. as escrow agent (the "Escrow Agent"), evidencing the shares of Parent Common Stock to be held in escrow (the "Escrow Fund") in accordance with this Agreement. The Escrow Fund shall be held 18. as a trust fund and shall not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any party hereto. The Escrow Agent agrees to accept delivery of the Escrow Fund and to hold the Escrow Fund in escrow (the "Escrow"), subject to the terms and conditions of this Agreement. In the event that, after the Closing, the Company Shareholders desire to replace the Escrow Agent with an independent third party escrow agent, Parent and the Company Shareholders hereby agree to replace eBay Inc. as Escrow Agent with a third party escrow agent reasonably acceptable to Parent and the Company Shareholders and to enter into an Escrow Agreement with such third party with terms substantially similar to the terms contained herein. In such event, Parent on the one hand and the Company Shareholders on the other hand agree that they would each be responsible for the paying of 50% of the legal and other fees and expenses associated with establishing and maintaining such third party escrow account. (b) The Escrow Shares shall be used to compensate and reimburse each of the Indemnitees for indemnifiable claims as set forth herein. The Escrow Fund shall be security for such indemnity obligation, subject to the limitations, and in the manner provided, in this Agreement. (c) On any matter brought before the Parent stockholders for a vote, the Escrow Agent shall vote the Escrow Shares in the Escrow Fund as directed by the Company Shareholders individually. Each Company Shareholder shall have the right to direct the vote of 25% of the number of Escrow Shares then held in the Escrow Account. (d) Any distributions of cash, securities or other property in respect of or in exchange for any of the Escrow Shares in the Escrow Fund, other than distributions of capital stock of Parent (by way of stock dividend, stock split or otherwise) not constituting a dividend for purposes of Section 301 of the Code, shall be payable and distributed directly to the Escrow and shall become a part of the Escrow Fund and become included in the definition of "Escrow Shares". At the time any of the Escrow Shares in the Escrow Fund are required to be released from the Escrow to any person pursuant to this Escrow Agreement, any distributions of capital stock of Parent previously made in respect of such released Escrow Shares and held in the Escrow shall be released from the Escrow to such person. Each certificate representing shares deposited in the Escrow Fund shall be accompanied by executed stock powers, executed in blank as to the assignee and certificate number, in form sufficient for the transfer thereof. It is understood that shares of Parent Common Stock which may be distributed on or with respect to the shares in the Escrow Fund during the term of this Agreement by reason of stock dividends, stock splits or otherwise shall be deposited directly by Parent with the Escrow Agent (with the applicable executed stock powers) pursuant to the terms and conditions hereof (such additional shares shall be deemed to become a part of the Escrow Fund when deposited with the Escrow Agent). 19. (e) The interests of the Company Shareholders in the Escrow and in the Escrow Shares in the Escrow Fund shall not be assignable or transferable, other than by operation of law. (f) No fractional shares of Parent Common Stock shall be retained in or released from the Escrow pursuant to this Agreement. In connection with any release of Shares from the Escrow, the Escrow Agent shall be permitted to "round down" or to follow such other rounding procedures as the Escrow Agent reasonably determines to be appropriate in order to avoid (i) retaining any fractional shares in the Escrow Fund or (ii) releasing any fractional shares from the Escrow. (g) If Parent determines in good faith that it is entitled, under the terms of this Agreement, to make a claim against the Escrow for indemnification, then Parent may deliver to the Designated Shareholders" Agent (as defined in Section 5.1) a written notice of such inaccuracy or breach (a "Claim Notice") setting forth (i) a brief description of the circumstances supporting Parent's reasonable belief that such inaccuracy or breach exists or has occurred, and (ii) to the extent possible, a non-binding, preliminary estimate of the aggregate dollar amount of all indemnifiable claims that have arisen and may arise as a result of such inaccuracy or breach (such aggregate amount being referred to as the "Claim Amount"). Such Claim Notice must be delivered on or before the first anniversary of the Closing Date. (h) Within thirty (30) days after the delivery of a Claim Notice to the Designated Shareholders" Agent, the Designated Shareholders" Agent shall deliver to the Escrow Agent, a written notice (the "Response Notice") containing: (i) instructions to the effect that Shares having a Fair Market Value (as defined below) equal to the entire Claim Amount set forth in such Claim Notice is to be released from the Escrow to Parent; or (ii) instructions to the effect that Escrow Shares having a Fair Market Value equal to a specified portion (but not the entire amount) of the Claim Amount set forth in such Claim Notice are to be released from the Escrow to Parent, together with a statement that the remaining portion of such Claim Amount is being disputed; or (iii) a statement that the entire Claim Amount set forth in such Claim Notice is being disputed. If no Response Notice is received by Parent from the Designated Shareholders" Agent within thirty (30) days after the delivery of a Claim Notice to the Designated Shareholders" Agent, then the Designated Shareholders" Agent shall be deemed to have given instructions that shares of Parent Common Stock having a Fair Market Value equal to the entire Claim Amount set forth in such Claim Notice are to be released to Parent from the Escrow. (i) If the Designated Shareholders" Agent gives (or is deemed to have given) instructions that Escrow Shares having a Fair Market Value equal to the entire Claim Amount set forth in a Claim Notice are to be released from the Escrow to Parent, then the Escrow Agent shall promptly following the required delivery date for the Response Notice transfer, deliver and assign to Parent such number of Escrow Shares from the Escrow Fund as have a Fair Market Value equal to the Claim Amount (or such lesser amount as is then held in Escrow). 20. (j) If a Response Notice delivered by the Designated Shareholders" Agent in response to a Claim Notice contains instructions to the effect that Shares having a Fair Market Value equal to a specified portion (but not the entire amount) of the Claim Amount set forth in such Claim Notice are to be released from the Escrow to Parent, then (i) the Escrow Agent shall promptly following the required delivery date for the Response Notice transfer, deliver and assign to Parent such number of Shares from the Escrow Fund as have a Fair Market Value equal to such specified portion of such Claim Amount, and (ii) the procedures set forth in subsection 4.4(k) of this Agreement shall be followed with respect to the remaining portion of such Claim Amount. (k) If a Response Notice delivered by the Designated Shareholders" Agent in response to a Claim Notice contains a statement that all or a portion of the Claim Amount set forth in such Claim Notice is being disputed (such Claim Amount or the disputed portion thereof being referred to as the "Disputed Amount"), then, notwithstanding anything contained in Section 4 of this Agreement, the Escrow Agent shall continue to hold in Escrow (in addition to any other Shares of Parent Common Stock permitted to be retained in Escrow, whether in connection with any other dispute or otherwise) Shares of Parent Common Stock having a Fair Market Value equal to 120% of the Disputed Amount. Such amount shall continue to be held in the Escrow until (i) delivery of a notice executed by Parent and the Designated Shareholders" Agent setting forth instructions to the Escrow Agent regarding the release of such Escrow Shares, or (ii) delivery of a copy of a final and non-appealable judgment of a court setting forth instructions to the Escrow Agent as to the release of such shares. The Escrow Agent shall thereupon release shares of Parent Common Stock from the Escrow in accordance with the instructions set forth in such notice or arbitrator's award. (l) In the event that any Response Notice indicates that there is a Disputed Amount, the Designated Shareholders" Agent and Parent shall for a period of 60 days attempt in good faith to resolve the rights of the respective parties with respect to such claims. If the Designated Shareholders" Agent and Parent should so agree, a notice setting forth such agreement shall be signed by both parties and delivered to the Escrow Agent who shall thereupon transfer, deliver and assign to Parent such amount as is equal to the agreed upon amount (or such lesser amount as is then held in Escrow). (m) After the first anniversary of the Closing Date, the Escrow Agent shall release to the Company Shareholders from the Escrow all shares then held in the Escrow, except for any amounts that are to be retained in the Escrow in accordance with subsection 4.4(k) of this Agreement. (n) If the Escrow Agent becomes obligated to transfer to Parent any shares held in the Escrow Fund in accordance with the terms of this Agreement, the Escrow Agent shall deliver certificates representing such shares together with a completed stock power to Parent. If the Escrow Agent becomes obligated to transfer to the Company Shareholders any Escrow Shares held in the Escrow Fund in accordance with the terms of this Agreement, the Escrow Agent shall deliver the certificate representing the shares in the 21. Escrow Fund, together with a completed stock power, to the Parent. Any distribution of all or a portion of the Shares in the Escrow Fund to the Company Shareholders shall be made 25% to each Company Shareholder and in such event, Parent agrees to issue one or more certificates representing each Company Shareholder's pro rata portion of the Escrow Fund and to deliver such certificates or to cause its transfer agent to deliver such certificate to each respective Company Shareholder at the address set forth on the transfer agent's books and records or, at the request of the Company Shareholder, and upon submission of evidence satisfactory to Parent of such designation, to deliver such certificate to the Company Shareholder's designee. (o) For purposes of this Agreement, the "Fair Market Value" of each of the Escrow Shares in the Escrow Fund shall be deemed to be the average closing price for a share of Parent Common Stock for the ten trading days immediately prior to the release of shares of Parent Common Stock from the Escrow; provided, however, that, in the event that the Parent Common Stock is not listed or quoted on a securities exchange or quotation system at the time the Escrow Shares are to be release from Escrow, the Fair Market Value of each of the Escrow Shares shall be $42.00 (as adjusted as appropriate to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected by Parent between the Effective Time and the date such liability is to be satisfied). 4.5 No Contribution. Each Company Shareholder waives, and acknowledges and agrees that he shall not have and shall not exercise or assert (or attempt to exercise or assert), any right of contribution, right of indemnity or other right or remedy against the Surviving Corporation in connection with any indemnification obligation or any other liability to which he may become subject under or in connection with this Agreement. 4.6 Defense of Third Party Claims. In the event of the assertion or commencement by any person, Entity or Governmental Body of any claim or Legal Proceeding (whether against the Surviving Corporation, against Parent or against any other person, Entity or Governmental Body) with respect to which any of the Company Shareholders may become obligated to hold harmless, indemnify, compensate or reimburse any Indemnitee pursuant to this Section 4, Parent shall have the right, at its election, to proceed with the defense of such claim or Legal Proceeding on its own. If Parent so proceeds with the defense of any such claim or Legal Proceeding: (a) all reasonable expenses relating to the defense of such claim or Legal Proceeding shall be borne and paid exclusively by the Company Shareholders; (b) each Company Shareholder shall make available to Parent any documents and materials in his possession or control that may be necessary to the defense of such claim or Legal Proceeding; and (c) Parent shall have the right to settle, adjust or compromise such claim or Legal Proceeding with the consent of the Company Shareholders" Agent (as defined in Section 5.1); provided, however, that such consent shall not be unreasonably withheld. Parent shall give the Designated Shareholders" Agent prompt notice of the commencement of any such Legal Proceeding against Parent or the Surviving Corporation; provided, however, that any failure on the part of Parent to so notify the Designated 22. Shareholders" Agent shall not limit any of the obligations of the Company Shareholders under this Section 4 (except to the extent such failure materially prejudices the defense of such Legal Proceeding). 4.7 Exercise of Remedies by Indemnitees Other Than Parent. No Indemnitee (other than Parent or any successor thereto or assign thereof) shall be permitted to assert any indemnification claim or exercise any other remedy under this Agreement unless Parent (or any successor thereto or assign thereof) shall have consented to the assertion of such indemnification claim or the exercise of such other remedy. 4.8 General Release. (a) Each Company Shareholder, for himself and for each of such Company Shareholder's Associated Parties, hereby generally, irrevocably, unconditionally and completely releases and forever discharges each of the Releasees from, and hereby irrevocably, unconditionally and completely waives and relinquishes, each of the Released Claims. (b) Each Company Shareholder also hereby waives the benefits of, and any rights such Company Shareholder may have under, any statute or common law principle of similar effect in any jurisdiction. For purposes of this Agreement: "Associated Parties", when used herein with respect to a Company Shareholder, shall mean and include: (i) such Company Shareholder's predecessors, successors, executors, administrators, heirs and estate; (ii) such Company Shareholder's past, present and future assigns, agents and representatives; (iii) each entity that such Company Shareholder has the power to bind (by such Company Shareholder's acts or signature) or over which such Company Shareholder directly or indirectly exercises control; and (iv) each entity of which such Company Shareholder owns, directly or indirectly, at least 50% of the outstanding equity, beneficial, proprietary, ownership or voting interests. "Releasees" shall mean and include: (i) Parent; (ii) the Company; (iii) each of the direct and indirect subsidiaries of the Company; (iv) each other affiliate of the Company; and (v) the successors and past, present and future assigns, directors, officers, employees, agents, attorneys and representatives of the respective entities identified or otherwise referred to in clauses "(i)" through "(iv)" of this sentence, other than the Company Shareholders. "Claims" shall mean and include all past, present and future disputes, claims, controversies, demands, rights, obligations, liabilities, actions and causes of action of every kind and nature, including: (i) any unknown, unsuspected or undisclosed claim; (ii) any claim or right that may be asserted or exercised by a Company Shareholder in such Company Shareholder's capacity as a stockholder, director, officer or employee of the 23. Company or in any other capacity; and (iii) any claim, right or cause of action based upon any breach of any express, implied, oral or written contract or agreement. "Released Claims" shall mean and include each and every Claim that (i) any Company Shareholder or any Associated Party of any Company Shareholder may have had in the past, may now have or may have in the future against any of the Releasees, and (ii) has arisen or arises directly or indirectly out of, or relates directly or indirectly to, any circumstance, agreement, activity, action, omission, event or matter occurring or existing on or prior to the date of this General Release (excluding only claims related to the Shareholder Indebtedness and such Company Shareholder's rights, if any, under this Agreement, the Employment Agreement and the Non-Competition Agreement). SECTION 5. Miscellaneous Provisions. 5.1 Designated Shareholders' Agent. The Company Shareholders hereby irrevocably appoint Walter Carroll as their agent for purposes of Section 4 (the "Designated Shareholders" Agent"), and Walter Carroll hereby accepts his appointment as the Designated Shareholders" Agent. Parent shall be entitled to deal exclusively with the Designated Shareholders" Agent on all matters relating to Section 4, and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Company Shareholder by the Designated Shareholders" Agent, and on any other action taken or purported to be taken on behalf of any Company Shareholder by the Designated Shareholders" Agent, as fully binding upon such Company Shareholder. If the Designated Shareholders" Agent shall die, become disabled or otherwise be unable to fulfill his responsibilities as agent of the Company Shareholders, then the Company Shareholders shall, within ten days after such death or disability, appoint a successor agent and, promptly thereafter, shall notify Parent of the identity of such successor. Any such successor shall become the "Designated Shareholders" Agent" for purposes of Section 4 and this Section 5.1. If for any reason there is no Designated Shareholders" Agent at any time, all references herein to the Designated Shareholders" Agent shall be deemed to refer to the Company Shareholders. 5.2 Further Assurances. Each party hereto shall execute and cause to be delivered to each other party hereto such instruments and other documents, and shall take such other actions, as such other party may reasonably request (prior to, at or after the Closing) for the purpose of carrying out or evidencing any of the transactions contemplated by this Agreement. 5.3 Fees and Expenses. Each party to this Agreement shall bear and pay all fees, costs and expenses (including legal fees and accounting fees) that have been incurred or that are incurred by such party in connection with the transactions contemplated by this Agreement. 5.4 Attorneys' Fees. If any action or proceeding relating to this Agreement or the enforcement of any provision of this Agreement is brought against any party hereto, the prevailing party shall be entitled to recover reasonable attorneys' fees, costs and 24. disbursements (in addition to any other relief to which the prevailing party may be entitled). 5.5 Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto): if to Parent: eBay Inc. 2005 Hamilton Ave. Ste. #350 Attention:Legal Department Telephone: (408) 369-4830 Fax: (408) 369-0667 if to the Company: Jump Incorporated 5592 Sidney Rd. Cincinnati, OH 54238 Attention: Walter Carroll Telephone: (513) 922-9752 if to any of the Company Shareholders: Walter Carroll 5592 Sidney Rd. Cincinnati, OH 54238 Telephone: (513) 922-9752 5.6 Confidentiality. On and at all times after the Closing Date, each Company Shareholder shall keep confidential, and shall not use or disclose to any other person or entity, any non-public document or other non-public information in such Company Shareholder's possession that relates to the business of the Company or Parent. 5.7 Headings. The underlined headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement. 25. 5.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. 5.9 Governing Law. This Agreement shall be construed in accordance with, and governed in all respects by, the internal laws of the State of California (without giving effect to principles of conflicts of laws). 5.10 Successors and Assigns. This Agreement shall be binding upon: the Company and its successors and assigns (if any); the Company Shareholders and their respective personal representatives, executors, administrators, estates, heirs, successors and assigns (if any); Parent and its successors and assigns (if any); and Merger Sub and its successors and assigns (if any). This Agreement shall inure to the benefit of: the Company; the Company Shareholders; Parent; Merger Sub; the other Indemnitees (subject to Section 4.8); and the respective successors and assigns (if any) of the foregoing. Parent may freely assign any or all of its rights under this Agreement (including its indemnification rights under Section 4), in whole or in part, to any other person or entity without obtaining the consent or approval of any other party hereto or of any other person or entity. 5.11 Specific Performance. The parties to this Agreement agree that, in the event of any breach or threatened breach by any party to this Agreement of any covenant, obligation or other provision set forth in this Agreement for the benefit of any other party to this Agreement, such other party shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) an injunction restraining such breach or threatened breach. 5.12 Waiver. (a) No failure on the part of any person or entity to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any person or entity in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. (b) No person or entity shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such person or entity; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given. 5.13 Amendments. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of all of the parties hereto. 26. 5.14 Severability. In the event that any provision of this Agreement, or the application of any such provision to any person or entity or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to person or entitys or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by law. 5.15 Parties in Interest. Except for the provisions of Section 4, none of the provisions of this Agreement is intended to provide any rights or remedies to any person or entity other than the parties hereto and their respective successors and assigns (if any). 5.16 Entire Agreement. This Agreement and the other agreements referred to herein set forth the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter hereof and thereof; 5.17 Construction. (a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders. (b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement. (c) As used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words "without limitation." (d) Except as otherwise indicated, all references in this Agreement to "sections" and "Exhibits" are intended to refer to Sections of this Agreement and Exhibits to this Agreement. 27. The parties hereto have caused this Agreement to be executed and delivered as of June 30, 1998. eBay Inc., a Delaware corporation Jump Incorporated, an Ohio corporation By: /s/ J Skoll By:/s/ Robert J. Ratterman - --------------------------------- --------------------------------------- Name:Jeff Skoll Name:Robert J. Ratterman Title:Vice President Strategic Planning Title:Co-President By:/s/ Christopher M. Downie ------------------------------------ Name:Christopher M. Downie Title:Co-President Jump Acquisition Corp., an Ohio corporation Company Shareholders By:/s/ J Skoll /s/ Walter N. Carroll --------------------------------- ------------------------------- Name: Jeff Skoll Walter N. Carroll Title: President /s/ Christopher M. Downie ------------------------------- Christopher M. Downie /s/ Thomas D. Duvall ------------------------------- Thomas D. Duvall /s/ Robert J. Ratterman ------------------------------- Robert J. Ratterman 28. EX-3.01 4 REGISTRANT'S CERTIFICATE OF INCORPORATION EXHIBIT 3.01 CERTIFICATE OF INCORPORATION OF eBAY INC. ARTICLE I The name of the corporation is eBay Inc. ARTICLE II The address of the registered office of the corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent. The name of its registered agent at that address is Incorporating Services, Ltd.. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV The total number of shares of all classes of stock which the corporation has authority to issue is Twenty Six Million (26,000,000) shares, consisting of two classes: Twenty Million (20,000,0000 shares of Common Stock, $0.001 par value per share, and Six Million (6,000,000) shares of Preferred Stock, $0.001 par value per share. The Board of Directors is authorized, subject to any limitations prescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series, and, by filing a Certificate of Designation pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). The number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote, unless a vote of any other holders is required pursuant to a Certificate or Certificates establishing a series of Preferred Stock. Except as otherwise expressly provided in any Certificate of Designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board of Directors without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock, or any future class or series of Preferred Stock or Common Stock. ARTICLE V The Board of Directors of the corporation shall have the power to adopt, amend or repeal Bylaws of the corporation. ARTICLE VI Election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. ARTICLE VII To the fullest extent permitted by law, no director of the corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision. ARTICLE VIII The name and mailing address of the incorporator is Matthew P. Quilter, c/o Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306. The undersigned incorporator hereby acknowledges that the foregoing certificate is his act and deed and that the facts stated herein are true. Date: March 12, 1998 /s/ Matthew P. Quilter ------------------------------------ Matthew P. Quilter, Incorporator -2- EX-3.02 5 REGISTRANT'S CERTIFICATE OF DESIGNATION EXHIBIT 3.02 eBAY INC. CERTIFICATE OF DESIGNATION OF PREFERRED STOCK eBay Inc., a Delaware corporation (the "Corporation"), does hereby certify that pursuant to the authority contained in Article IV of its Certificate of Incorporation, and in accordance with the provisions of Section 151 of the Delaware General Corporation Law, the Corporation's Board of Directors has duly adopted the following resolution creating three separate series of Preferred Stock designated as Series A Preferred Stock, Series B Preferred Stock and Series B1 Preferred Stock. RESOLVED, that the Corporation hereby designates and creates three (3) separate series of the authorized Preferred Stock designated respectively, as Series A Preferred Stock, Series B Preferred Stock and Series B1 Preferred Stock as follows: A. Of the six million (6,000,000) shares of Preferred Stock, par value $0.001, authorized to be issued by the Corporation, one million six hundred seventy-six thousand, four hundred seventy-five (1,676,475) are hereby designated as "Series A Preferred," one million four hundred thousand (1,415,416) shares are hereby designated as "Series B Preferred" and one million four hundred thousand (1,415,416) shares are hereby designated as "Series B1 Preferred." Any shares of Series A Preferred, Series B Preferred or Series B1 Preferred that are acquired by the Corporation, whether by redemption, purchase, conversion or otherwise, so that such shares are issued but not outstanding, may not be reissued as shares of any such series or as shares of the class of Preferred Stock. Upon the retirement of any such shares and the filing of a certificate of retirement pursuant to Sections 103 and 243 of the Delaware General Corporation Law with respect thereto, the shares of such series shall be eliminated and the number of shares of Preferred Stock shall be reduced accordingly. The rights, preferences, privileges and restrictions granted to and imposed upon the respective classes and series of the Corporation's capital stock are set forth below in Article B. Nothing in this Article A shall limit the Board of Directors' ability to designate and establish the rights, preferences, privileges and restrictions of the remaining authorized but unissued Preferred Stock of the Corporation. B. Rights, Preferences and Restrictions of Preferred Stock. The rights, ------------------------------------------------------- preferences, restrictions and other matters relating to the Series A Preferred, Series B Preferred and Series B1 Preferred are as follows: 1. Dividends. --------- (a) The holders of Series B Preferred and Series B1 Preferred shall be entitled to receive, out of any funds legally available therefor, dividends on each outstanding share of Series B Preferred and Series B1 Preferred at an annual rate of $0.30 per share of Series B Preferred and Series B1 Preferred held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, payable when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on any shares of Series A Preferred or Common Stock (other than those payable solely in Common Stock or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants pursuant to contractual arrangements). The holders of Series A Preferred shall be entitled to receive, out of any funds legally available therefor, dividends on each outstanding share of Series A Preferred at an annual rate of $0.05 per share of Series A Preferred held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, payable when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on any shares of Common Stock (other than those payable solely in Common Stock or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants pursuant to contractual arrangements). The right to such dividends shall be cumulative as to the Series B Preferred and Series B1 Preferred and shall be non-cumulative as to the Series A Preferred. No right shall accrue to holders of Series A Preferred by reason of the fact that dividends on such shares are not declared or paid in any prior year whether or not the earnings of the Corporation in that prior year were sufficient to pay such dividends in whole or in part. No dividends shall be paid on the Common Stock or the Series A Preferred at a rate greater than the rate at which dividends are paid on the Series B Preferred and the Series B1 Preferred (based on the number of shares of Common Stock into which the Series B Preferred or the Series B1 Preferred, as the case may be, is convertible on the date the dividend is declared). In the event that the Corporation shall have declared but unpaid dividends outstanding immediately prior to, and in the event of, a conversion of Preferred Stock (as provided in Section 5 hereof), the Corporation shall, at the option of the holder, pay in cash to the holder(s) of Preferred Stock subject to conversion the full amount of any such dividends or allow such dividends to be converted into Common Stock in accordance with, and pursuant to the terms specified in, Section 5 hereof. (b) Dividends shall be paid by forwarding a check, postage prepaid, to the address of each holder (or, in the case of joint holders, to the address of any such holder) of Series B Preferred, Series B1 Preferred, and Series A Preferred as shown on the books of the Corporation, or to such other address as such holder specified for such purpose by written notice to the Corporation. The forwarding of such check shall satisfy all obligations of the Corporation with respect to such dividends, unless such check is not paid upon timely presentation. 2. Liquidation Preference. In the event of any liquidation, dissolution, ---------------------- or winding up of the Corporation (each a "Liquidation Event"), whether voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: (a) The holders of Series B Preferred and Series B1 Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock, by reason of their ownership of such stock, an amount per share equal to the sum of (i) $4.50 for each share of Series B Preferred and Series B1 Preferred then held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, and (ii) all declared but unpaid dividends on such shares of Series B Preferred and Series B1 Preferred (the "Series B Preference"). If the assets and funds thus distributed among the holders of the Series B Preferred and Series B1 Preferred shall be 2 insufficient to permit the payment to such holders of the full aforesaid Series B Preference, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred and Series B1 Preferred in proportion to the number of shares of Series B Preferred and Series B1 Preferred held by each holder. (b) After payment has been made to the holders of the Series B Preferred and Series B1 Preferred of the full Series B Preference pursuant to paragraph (a) above, each holder of Series A Preferred shall be entitled to receive prior and in preference to any distribution to the holders of Common Stock, an amount equal to $0.59650 (the "Original Series A Issue Price") for each share of Series A Preferred then held by such holder plus an amount equal to all declared but unpaid dividends on such shares of Series A Preferred (the "Series A Preference"). If upon the occurrence of a Liquidation Event the assets and funds available to be distributed among the holders of the Series A Preferred shall be insufficient to permit the payment to such holders of the full Series A Preference, then the entire assets and funds of the Corporation legally available for distribution to such holder shall be distributed ratably based on the number of shares of Series A Preferred held by each holder. (c) After payment has been made to the holders of the Series A Preferred, the Series B Preferred, and the Series B1 Preferred of the full amounts to which they are entitled pursuant to paragraphs (a) and (b) above, the remaining assets and funds of the Corporation available for distribution shall be distributed ratably among all holders of Series B Preferred, Series B1 Preferred, and Common Stock based on the number of shares of Common Stock held by each holder (assuming conversion of all Series B Preferred and Series B1 Preferred). Notwithstanding the foregoing sentence, the right to receive the remaining assets as so described shall cease as to the holders of Series B Preferred and Series B1 Preferred at such time as the holders of Series B Preferred and Series B1 Preferred receive an aggregate of $9.00 per share (including amounts previously paid as the Series B Preference). (d) For purposes of this Section 2, any transaction or series of transactions, including without limitation a merger, consolidation, or other corporate reorganization of the Corporation with or into any other corporation or corporations in which more than fifty percent (50%) of the outstanding voting power of this corporation is disposed of or transferred, a sale of all or substantially all of the assets of the Corporation or a liquidation or winding up, shall be treated as a Liquidation Event, irrespective of the form of payment made in such transaction or series of transactions. (e) Nothing in this Section 2 shall affect in any way the right of each holder of Series A Preferred, Series B Preferred, and Series B1 Preferred to convert such shares at any time and from time to time into Common Stock in accordance with Section 5 hereof. If any holder of Series A Preferred, Series B Preferred, or Series B1 Preferred would have received greater consideration as a result of the Liquidation Event if such holder had converted its shares of Series A Preferred, Series B Preferred, or Series B1 Preferred, as applicable, into Common Stock in accordance with Section 5 hereof immediately prior to the Liquidation Event, then for purposes of distributing the consideration received in connection with the Liquidation Event to the stockholder of the Corporation pursuant to this Section 2, such holder shall be treated as if 3 such holder had converted such shares of Series A Preferred, Series B Preferred, or Series B1 Preferred, as applicable, into Common Stock immediately prior to the Liquidation Event. (f) Each holder of Preferred Stock shall be deemed to have consented, so long as the Corporation is deemed a "foreign corporation" as defined under Section 2115 of the California Corporations Code, for purposes of Section 502,503, and 506 of the California Corporations Code, to distributions made by the Corporation in connection with the repurchase at the original issue price by the Corporation of shares of Common Stock issued to or held by employees, officers, directors, or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to an agreement (whether now existing or hereafter entered into) providing for the right of said repurchase. (g) The value of securities and property paid or distributed pursuant to this Section 2 shall be computed at fair market value at the time of payment as determined by the Board of Directors in the good faith exercise of its reasonable business judgment, provided that (i) if such securities are listed on any established stock exchange or a national market system, their fair market value shall be the closing sales price for such securities as quoted on such system or exchange (or the largest such exchange) for the date the value is to be determined (or if there are no sales for such date, then for the last preceding business day on which there were sales), as reported in the Wall Street Journal or similar publication, and (ii) if such securities are regularly quoted by a recognized securities dealer but selling prices are not reported, their fair market value shall be the mean between the high bid and low asked prices for such securities on the date the value is to be determined (or if there are not quoted prices for such date, then for the last preceding business day on which there were quoted prices); and provided, further, that if the securities described in (i) or (ii) are subject to restrictions on transfer, the Board of Directors shall apply an appropriate discount in determining the value thereof. 3. Redemption Rights. ----------------- (a) Series A Preferred. The Series A Preferred shall be ------------------ nonredeemable. (b) Series B Preferred. At the election in writing of the holders of ------------------ not less than sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of Series B Preferred and Series B1 Preferred, delivered to the Corporation at least sixty (60) days in advance by certified or registered mail, postage prepaid, the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the Series B Preferred and Series B1 Preferred in three (3) annual installments beginning not earlier than January 1, 2003 (such date to be referred to as the "Initial Redemption Date"), and continuing thereafter on the first and second anniversaries of the Initial Redemption Date (each a "Series B Redemption Date"), by paying in cash therefor a sum equal to $3.00 per share (the "Original Series B Issue Price") for each share of Series B Preferred and Series B1 Preferred, plus an amount equal to all accumulated but unpaid dividends from the date on which the first share of Series B Preferred was issued (the "Original Issue Date") to the applicable Series B Redemption Date (the "Series B Redemption Price"). The number of shares of Series B Preferred and Series B1 Preferred that the Corporation shall be required to redeem under this paragraph (b) on any one Series B Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of Series B Preferred and Series B1 Preferred outstanding immediately prior to that 4 Series B Redemption Date by (y) the number of remaining Series B Redemption Dates (including the Series B Redemption Date to which such calculation applies). (c) In the event that the Corporation is unable to redeem the full number of shares of Series B Preferred and Series B1 Preferred to be redeemed on any Series B Redemption Date, the shares not redeemed shall be redeemed by this Corporation as provided in this Section 3 as soon as practicable after funds are legally available therefor. Any redemption effected pursuant to this Section 3 shall be made ratably among the holders of the Series B Preferred and Series B1 Preferred in proportion to the aggregate Series B Redemption Price to which each holder is entitled under paragraph (b) of this Section 3. (d) If the holders of Series B Preferred and Series B1 Preferred have elected to have the shares of Series B Preferred and Series B1 Preferred that they hold redeemed as provided in paragraph (b) above, then at least thirty (30) but no more than sixty (60) days prior to each Redemption Date, the Corporation shall give written notice by certified or registered mail, postage prepaid, to all holders of outstanding Series B Preferred and Series B1 Preferred at the address last shown on the records of the Corporation for such holder, stating such Series B Redemption Date, the Series B Redemption Price, the then current conversion rate (as provided in Section 5(a)) for such shares, and the date of termination of the right to convert (which date shall not be earlier than twenty (20) days after the written notice by the Corporation has been given) and shall call upon such holder to surrender to the Corporation on such Series B Redemption Date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed. On or after the Series B Redemption Date stated in such notice, the holder of each share of Series B Preferred and Series B1 Preferred called for redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Series B Redemption Price for the shares surrendered. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on such Series B Redemption Date funds necessary for the redemption shall be available therefor, then, as to any certificates evidencing any Series B Preferred and Series B1 Preferred so called for redemption and not surrendered, all rights of the holders of such shares so called for redemption and not surrendered shall cease with respect to such shares, except only the right of the holders to receive the Series B Redemption Price for the Series B Preferred and Series B1 Preferred which they hold, without interest, upon surrender of their certificates therefor. (e) Notwithstanding anything herein to the contrary, if, on or prior to a Series B Redemption Rate (and after a redemption election has been made pursuant to this Section 3), the Corporation deposits, with any bank or trust company in the State of California having aggregate capital and surplus in excess of $100,000,000, as a trust fund, a sum sufficient to redeem on such Series B Redemption Date the shares called for redemption, with irrevocable instructions and authority to the bank or trust company to give the notice of redemption thereof (or to complete the giving of such notice if theretofore commenced) and to pay, on or after the Series B Redemption Date or prior thereto, the Series B Redemption Price of the shares to their respective holders upon the surrender of their share certificates, then from and after the date of the deposit (although prior to such Series B Redemption Date), the shares so called for 5 redemption on such Series B Redemption Date (but not any subsequent Series B Redemption Date) shall be redeemed. The deposit of such sum shall constitute full payment of such shares to their holders and from and after the date of the deposit such shares shall no longer be outstanding, and the holders thereof shall cease to be stockholders with respect to such shares, and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the Series B Redemption Price for the Series B Preferred and Series B1 Preferred called for redemption on such Series B Redemption Date without interest, upon the surrender of their certificates therefor and the right to convert said shares as provided herein at any time up to but not after the close of business on the fifth day prior to the Series B Redemption Date of such shares (which conversion date will not be earlier than twenty (20) days after the written notice of redemption has been given). Any monies so deposited on account of the Series B Redemption Price of the Series B Preferred and Series B1 Preferred converted into Common Stock subsequent to the making of such deposit shall be repaid to the Corporation forthwith upon the conversion of such Series B Preferred and Series B1 Preferred. Any interest accrued any funds so deposited shall be the property of, and paid to, the Corporation. If the holders of Series B Preferred and Series B1 Preferred so called for redemption shall not, at the end of two (2) years after the applicable Series B Redemption Date, have claimed any funds so deposited, such bank or trust company shall thereupon pay over to the Corporation such unclaimed funds, and such bank or trust company shall thereafter be relieved of all responsibility in respect thereof to such holders and such holders shall look only to the Corporation for payment of the Series B Redemption Price for the Series B Preferred and Series B1 Preferred which they hold. 4. Voting Rights. ------------- (a) Except as otherwise required by law or hereunder, the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, such votes to be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. Fractional votes by the holders of Preferred Stock shall not, however be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) be rounded to the nearest whole number (with one half being rounded upward). Holders of Common Stock and Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. (b) Notwithstanding the provisions of paragraph (a), at each annual or special meeting called for the purpose of electing directors, the holders of the Series B Preferred and Series B1 Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Board of Directors, and the holders of the Series A Preferred and Common Stock, voting together as a single class, shall be entitled to elect two (2) members of the Board of Directors. The remaining directors will be elected by the holders of Preferred Stock and the holders of Common Stock voting together as a single class on an as-converted into Common Stock basis. 6 In the case of any vacancy in the office of a director elected by a specified group of stockholders, a successor shall be elected to hold office for the unexpired term of such director by the affirmative vote of a majority of the shares of such specified group given at a special meeting of such stockholders duly called or by an action by written consent for that purpose. Subject to Section 303 of the California Corporations Code, but only so long as the Corporation is deemed a "foreign corporation" as defined under Section 2115 of the California Corporations Code, any director who shall have been elected by a specified group of stockholders may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the shares of such specified group, given at a special meeting of such stockholders duly called or by an action by written consent for that purpose, and any such vacancy thereby created may be filled by the vote of the holders of a majority of the shares of such specified group represented at such meeting or in such consent. 5. Conversion. The holders of the Preferred Stock shall have conversion ---------- rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be ---------------- convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such Preferred Stock into such number of fully-paid and non-assessable shares of Common Stock as (i) in the case of the Series A Preferred is determined by dividing the Original Series A Issue Price by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of conversion, (ii) in the case of the Series B Preferred as determined by dividing the Original Series B Issue Price by the Series B Conversion Price, determined as hereinafter provided, in effect at the time of conversion, and (iii) in the case of the Series B1 Preferred is determined by dividing the Original Series B Issue Price by the Series B1 Conversion Price. The Initial Series A Conversion Price shall be $0.59650 per share, the initial Series B Conversion Price shall be $3.00 per share, and the Initial Series B1 Preferred Conversion Price shall be $3.00 per share. Each of these Conversion Prices shall be subject to adjustment as provided in accordance with Section 5(d) of this Article B. (b) Automatic Conversion. Each share of Series A Preferred, Series B -------------------- Preferred, and Series B1 Preferred shall automatically be converted into shares of Common Stock at the then effective Conversion Price for such series of Preferred Stock upon the earlier of: (i) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public with aggregate proceeds to the Company in excess of Seven Million Five Hundred Thousand Dollars ($7,500,000) (before deduction for underwriters commissions and expenses) and a per share price not less than $12.00 (appropriately adjusted for any stock combination, stock split, stock dividend, recapitalization, or other similar transaction) and (ii) the date on which a total of two-thirds of the shares of such series of Preferred Stock originally issued have been converted into shares of Common Stock (each such event is an "Automatic Conversion"). In the event of an Automatic Conversion of the Preferred Stock upon a public offering as aforesaid, the person(s) entitled to receive the Common Stock issuable upon such conversion of Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. 7 (c) Mechanics of Conversion. No fractional shares of Common Stock ----------------------- shall be issued upon conversion of Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional shares to which the holder would otherwise be entitled, pay cash equal to such fraction multiplied by the then effective Conversion Price for such series of Preferred Stock. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that he or she elects to convert the same; provided, however, that in the event of an Automatic Conversion pursuant to Section 5(b), the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Automatic Conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or in the case of Automatic Conversion, on the date of closing of the offering or the date on which a total of two-thirds of the shares of such series of Preferred Stock originally issued have been converted into shares of Common Stock, as applicable, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Adjustments to Conversion Price. ------------------------------- (i) Adjustments for Dividends, Splits, Subdivisions, ------------------------------------------------ Combinations, or Consolidation of Common Stock. In the event the outstanding - ---------------------------------------------- shares of Common Stock shall be increased by stock dividend payable in Common Stock, stock split, subdivision, or other similar transaction occurring after the filing of this Certificate of Designation into a greater number of shares of Common Stock, the Conversion Price then in effect for each series of Preferred Stock shall, concurrently with the effectiveness of such event, be decreased in proportion to the percentage increase in the outstanding number of shares of Common Stock. In the event the outstanding shares of Common Stock shall be decreased by reverse stock split, 8 combination, consolidation, or other similar transaction occurring after the filing of this Certificate of Designation into a lesser number of shares of Common Stock, the Conversion Price then in effect for each series of Preferred Stock shall, concurrently with the effectiveness of such event, be increased in proportion to the percentage decrease in the outstanding number of shares of Common Stock. (ii) Adjustments for Other Distributions. In the event the ----------------------------------- Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, any distribution payable in securities of the Corporation other than shares of Common Stock and other than as otherwise adjusted in this Section 5, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation which they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the Preferred Stock. (iii) Adjustments for Reclassification, Exchange and ---------------------------------------------- Substitution. If the Common Stock issuable upon conversion of the Preferred - ------------ Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than subdivision or combination of shares provided for above), the Conversion Price then in effect for each series of Preferred Stock shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of such Preferred Stock immediately before that change. (iv) Adjustment of Series B Conversion Price Upon Issuance of -------------------------------------------------------- Additional Stock. If on or after the Original Issue Date the Corporation shall - ---------------- issue "Additional Stock" (as defined below) for a consideration per share less than the Series B Conversion Price then in effect on the date and immediately prior to such issue, then and in each such event, such Series B Conversion Price shall be reduced concurrently with such issue, to a price (calculated to three decimal places) determined by multiplying such Series B Conversion Price by a fraction (1) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares of Common Stock issuable upon conversion of the outstanding Preferred Stock and upon exercise of outstanding stock options) plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Stock so issued (or deemed to be issued) would purchase at such Series B Conversion Price; and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares of Common Stock issuable upon conversion of the outstanding Preferred Stock and upon exercise of outstanding stock options) plus the number of shares of Additional Stock so issued. 9 For purposes of this subsection (iv) "Additional Stock" shall mean all Common Stock issued by the Corporation after the Original Issue Date other than Common Stock issued or issuable at any time (1) upon conversion of the Preferred Stock, (2) to officers, directors, and employees of, and consultants to, the Corporation after the Original Issue Date as designated and approved by the Board of Directors but not to exceed 2,700,000 shares (net of repurchases and option expirations); (3) in connection with equipment leasing or commercial lending or financing transactions approved by the Corporation's Board of Directors so long as such transactions are not primarily for equity financing purposes; (4) as described in subparagraphs (i), (ii) and (iii) of this Section 5(d). For the purpose of making any adjustment in the Series B Conversion Price as provided above, the consideration received by the Corporation for any issue or sale of Common Stock will be computed: (1) to the extent it consists of cash, as the amount of cash received by the Corporation before deduction of any offering expenses payable by the Corporation and any underwriting or similar commissions, compensation, or concessions paid or allowed by the Corporation in connection with such issue or sale; (2) to the extent it consists of property other than cash, at the fair market value of that property as determined in good faith by the Corporation's Board of Directors in accordance with the provisions of Section 2(g); and (3) if Common Stock is issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Common Stock. If the Corporation (1) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (2) issues or sells any security convertible into shares of Common Stock, then, in each case, the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities will be determined by dividing the total amount, if any, received or receivable by the Corporation as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Corporation on exercise or conversion of the securities, by the maximum number of shares of Common Stock issuable on the exercise of conversion. Such granting or issue or sale will be considered to be an issue or sale for cash of the maximum number of shares of Common Stock issuable on exercise or conversion at the price per share determined under this subsection, and the Series B Conversion Price will be adjusted as above provided to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Series B Conversion Price will be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. Upon the redemption or repurchase of any such securities or the expiration or termination of the right to convert into, exchange for, or exercise with respect to, Common Stock, the Series B Conversion Price will be readjusted to such price as would have been 10 obtained had the adjustment made upon their issuance been made upon the basis of the issuance of only the number of such securities as were actually converted into, exchanged for, or exercised with respect to, Common Stock. If the purchase price or conversion or exchange rate provided for in any such security changes at any time, then, upon such change becoming effective, the Series B Conversion Price then in effect will be readjusted forthwith to such price as would have been obtained had the adjustment made upon the issuance of such securities been made upon the basis of (1) the issuance of only the number of shares of Common Stock theretofore actually delivered upon the conversion, exchange or exercise of such securities, and the total consideration received therefor, and (2) the granting or issuance, at the time of such change, of any such securities then still outstanding for the consideration, if any, received by the Company therefor and to be received on the basis of such changed price or rate. No adjustment to the Series A Conversion Price or the Series B1 Conversion Price shall be made in respect of the issuance, or deemed issuance, of Additional Stock. (e) No Impairment. Except as provided in Section 7, the Corporation ------------- will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price of each series of Preferred Stock pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Preferred Stock. (g) Notices of Record Date. In the event that this Corporation shall ---------------------- propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock, or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series of other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or 11 (iv) to merge or consolidate with or into any other corporation, or sell, lease, or convey all or substantially all its property or business, or to liquidate, dissolve, or wind up; then, in connection with each such event, this Corporation shall send to the holders of the Preferred Stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event or the record date for the determination of such holders if such record date is earlier). Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of the Preferred Stock at the address for each such holder as shown on the books of this Corporation. (h) Issue Taxes. The Corporation shall pay any and all issue and ----------- other taxes (other than income taxes) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (i) Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to its Certificate of Incorporation. (j) Status of Converted Stock. In case any series of Preferred Stock ------------------------- shall be converted pursuant to this Section 5, the shares so converted shall resume the status of authorized but unissued shares of Preferred Stock undesignated as to series. 6. Special Mandatory Conversion. ---------------------------- (a) At any time following the Original Issue Date, if (i) any holder of shares of Series B Preferred is entitled to exercise the right of first refusal as set forth in Section 5 of that certain Investor Rights Agreement dated as of June 20, 1997 (the "Right of First Refusal") 12 with respect to an equity financing of the Corporation at a price per share which is less than the then current Series B Conversion Price (the "Equity Financing"), (ii) the Corporation has complied with its obligations under the Right of First Refusal in respect thereof, and (iii) such holder (a "Non- Participating Holder") does not by exercise of such holder's Right of First Refusal acquire its Pro Rata Share (as defined in the Investor Rights Agreement) offered in such Equity Financing (a "Mandatory Offering"), then all of such holder's shares of Series B Preferred shall automatically and without further action on the part of such holder be converted into an equivalent number of shares of Series B1 Preferred, effective immediately prior to the consummation of the Mandatory Offering (the "Mandatory Offering Date"), provided, however, that no such conversion shall occur in connection with a particular Equity Financing if, pursuant to the written request of the Corporation, the Right of First Refusal with respect to such Equity Financing is waived; provided further, however, that no such conversion shall occur in connection with a particular Equity Financing with respect to a particular holder of shares of Series B Preferred if, pursuant to the written request of the Corporation, such holder agrees in writing to waive his or its Right of First Refusal with respect to such Equity Financing and pursuant to the written request of the Corporation, each other holder of shares of Series B Preferred agrees in writing that such particular holder of shares of Series B Preferred may waive his or its Right of First Refusal with respect to such Equity Financing. Upon conversion pursuant to this Section 6, the shares of Series B Preferred so converted shall be canceled and not subject to reissuance. (b) The holder of any shares of Series B Preferred converted pursuant to Section 6(a) hereof shall deliver to the Corporation during regular business hours at the office of any transfer agent of the Corporation for the Preferred Stock, or at such other place as may be designated by the Corporation, the certificate or certificates for the shares so converted, duly endorsed or assigned in blank or to the Corporation. As promptly as practicable thereafter, the Corporation shall issue and deliver to such holder, at the place designated by such holder, a certificate or certificates for the number of full shares of the Series Bl Preferred to which such holder is entitled. The person in whose name the certificate for such shares of Series B1 Preferred is to be issued shall be deemed to have become a stockholder of record on the Mandatory Offering Date unless the transfer books of the Corporation are closed on that date, in which event he or it shall be deemed to have become a stockholder of record on the next succeeding date on which the transfer books are open. (c) In the event that any shares of Series B1 Preferred are issued, concurrently with such issuance, the Corporation shall use its best efforts to take all such action as may be required, including amending the Certificate of Incorporation, (i) to cancel all authorized shares of Series B1 Preferred that remain unissued after such issuance, (ii) to create and reserve for issuance upon Special Mandatory Conversion of the Series B Preferred a new series of Preferred Stock equal in number to the number of shares of Series B1 Preferred so canceled and designated Series B2 Preferred, with the designations, powers, preferences, and rights and the qualifications, limitations and restrictions identical to those then applicable to the Series B Preferred, except that the Conversion Prices for such shares of Series B2 Preferred once initially issued shall be the Conversion Prices in effect for the Series B Preferred immediately prior to such issuance and shall no longer be subject to adjustment under Section 5(d)(iv) hereof, and (iii) to amend the provisions of this Section 6 to provide that any 13 subsequent Special Mandatory Conversion will be into shares of Series B2 Preferred rather than Series B1 Preferred. The Corporation shall take the same actions with respect to the Series B2 Preferred, and each subsequently issued series of Preferred Stock upon initial issuance of shares of the last such series to be authorized. 7. Covenants. In addition to any other rights provided by law, this --------- Corporation shall not without first obtaining the affirmative vote or written consent of the holders of not less than two-thirds of the outstanding shares of Series B Preferred and Series B1 Preferred: (a) amend or repeal any provision of, or add any provision to, this Corporation's Certificate of Incorporation, this Certificate of Designation or Bylaws if such action would adversely alter or change the preferences, rights, privileges, or powers of, or the restrictions provided for the benefit of or imposed upon, the Series B Preferred or the Series B1 Preferred; (b) increase the authorized number of shares of Preferred Stock, of the Series B Preferred, or of the Series B1 Preferred; (c) authorized or issue shares of any class or series of stock having any rights, preferences or privileges superior to or on a parity with any rights, preferences or privileges of the Series B Preferred or the Series B1 Preferred; (d) authorize or approve a Liquidation Event; (e) pay or declare any dividends on the Common Stock or Preferred Stock; (f) repurchase or acquire any shares of Common Stock other than pursuant to the terms of any equity incentive agreement with a service provider giving the Corporation the right to repurchase shares upon the termination of such services; or (g) increase the authorized number of directors. 14 IN WITNESS WHEREOF, said Corporation has caused this Certificate of Designation to be signed and attested by its duly authorized officers this 13 day of March, 1998. /s/ Gary Bengier ---------------- Gary Bengier, Vice President and Chief Financial Officer ATTEST: /s/ Matthew P. Quilter - ---------------------- Matthew P. Quilter, Secretary [SIGNATURE PAGE TO CERTIFICATE OF DESIGNATION OF PREFERRED STOCK] 15 EX-3.05 6 REGISTRANT'S BYLAWS EXHIBIT 3.05 BYLAWS OF eBAY INC. (a Delaware corporation) As Adopted March 13, 1998 BYLAWS OF eBAY INC. A Delaware Corporation TABLE OF CONTENTS
PAGE ---- ARTICLE I - STOCKHOLDERS.................................................................. Section 1.1: Annual Meetings...................................................... 1 Section 1.2: Special Meetings..................................................... 1 Section 1.3: Notice of Meetings................................................... 1 Section 1.4: Adjournments......................................................... 1 Section 1.5: Quorum............................................................... 2 Section 1.6: Organization......................................................... 2 Section 1.7: Voting; Proxies...................................................... 2 Section 1.8: Fixing Date for Determination of Stockholders of Record............................................................ 3 Section 1.9: List of Stockholders Entitled to Vote................................ 3 Section 1.10: Action by Written Consent of Stockholders............................ 3 Section 1.11: Inspectors of Elections.............................................. 4 ARTICLE II - BOARD OF DIRECTORS........................................................... Section 2.1: Number; Qualifications............................................... 5 Section 2.2: Election; Resignation; Removal; Vacancies............................ 5 Section 2.3: Regular Meetings..................................................... 6
i BYLAWS OF eBAY INC. A Delaware Corporation TABLE OF CONTENTS (cont'd)
PAGE ---- Section 2.4: Special Meetings..................................................... 6 Section 2.5: Telephonic Meetings Permitted........................................ 6 Section 2.6: Quorum; Vote Required for Action..................................... 6 Section 2.7: Organization......................................................... 6 Section 2.8: Written Action by Directors.......................................... 6 Section 2.9: Powers............................................................... 6 Section 2.10: Compensation of Directors............................................ 7 ARTICLE III - COMMITTEES................................................................. Section 3.1: Committees........................................................... 7 Section 3.2: Committee Rules...................................................... 7 ARTICLE IV - OFFICERS.................................................................... Section 4.1: Generally............................................................ 8 Section 4.2: Chief Executive Officer.............................................. 8 Section 4.3: Chairman of the Board................................................ 8 Section 4.4: President............................................................ 9 Section 4.5: Vice President....................................................... 9 Section 4.6: Chief Financial Officer.............................................. 9 Section 4.7: Treasurer............................................................ 9 Section 4.8: Secretary............................................................ 9
ii BYLAWS OF eBAY INC. A Delaware Corporation TABLE OF CONTENTS (cont'd)
PAGE ---- Section 4.9: Delegation of Authority.............................................. 9 Section 4.10: Removal.............................................................. 9 ARTICLE V - STOCK........................................................................ Section 5.1: Certificates......................................................... 10 Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificate.......................................... 10 Section 5.3: Other Regulations.................................................... 10 ARTICLE VI - INDEMNIFICATION............................................................. Section 6.1: Indemnification of Officers and Directors............................ 10 Section 6.2: Advance of Expenses.................................................. 11 Section 6.3: Non-Exclusivity of Rights............................................ 11 Section 6.4: Indemnification Contracts............................................ 11 Section 6.5: Effect of Amendment.................................................. ARTICLE VII - NOTICES ................................................................... Section 7.1: Notice............................................................... 11 Section 7.2: Waiver of Notice..................................................... 12 ARTICLE VIII - INTERESTED DIRECTORS...................................................... Section 8.1: Interested Directors; Quorum......................................... 12
iii BYLAWS OF eBAY INC. A Delaware Corporation TABLE OF CONTENTS (cont'd)
PAGE ---- ARTICLE IX - MISCELLANEOUS ............................................................. 13 Section 9.1: Fiscal Year.......................................................... 13 Section 9.2: Seal................................................................. 13 Section 9.3: Form of Records...................................................... 13 Section 9.4: Reliance Upon Books and Records...................................... 13 Section 9.5: Certificate of Incorporation Governs................................. 13 Section 9.6: Severability......................................................... 13 ARTICLE X - AMENDMENT.................................................................... Section 10.1: Amendments........................................................... 14
iv BYLAWS OF eBAY INC. (a Delaware corporation) As Adopted March 13, 1998 ARTICLE I STOCKHOLDERS Section 1.1: Annual Meetings. An annual meeting of stockholders shall be ----------- --------------- held for the election of directors at such date, time and place, either within or without the State of Delaware, as the Board of Directors shall each year fix. Any other proper business may be transacted at the annual meeting. Section 1.2: Special Meetings. Special meetings of stockholders for any ----------- ---------------- purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, the holders of shares of the Corporation that are entitled to cast not less than one-tenth of the votes at the meeting or by a majority of the members of the Board of Directors. Special meetings may not be called by any other person or persons. If a special meeting of stockholders is called by any person or persons other ----- than by a majority of the members of the Board of Directors, then such person or - ---- persons shall call such meeting by delivering a written request to call such meeting to each member of the Board of Directors, and the Board of Directors shall then determine the time, date and place of such special meeting, which shall be held not more than one hundred twenty (120) nor less than thirty-five (35) days after the written request to call such special meeting was delivered to each member of the Board of Directors. Section 1.3: Notice of Meetings. Written notice of all meetings of ----------- ------------------ stockholders shall be given stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 1.4: Adjournments. Any meeting of stockholders may adjourn from ----------- ------------ time to time to reconvene at the same or another place, and notice need not be given of any such adjourned meeting if the time, date and place thereof are announced at the meeting at which the adjournment is taken; provided, however, -------- ------- that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. Section 1.5: Quorum. At each meeting of stockholders the holders of a ----------- ------ majority of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except if otherwise required by applicable law. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporation's stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the -------- ------- foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation's stock held by it in a fiduciary capacity. Section 1.6: Organization. Meetings of stockholders shall be presided ----------- ------------ over by such person as the Board of Directors may designate, or, in the absence of such a person, the Chairman of the Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting. Such person shall be chairman of the meeting and, subject to Section 1.11 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7: Voting; Proxies. Unless otherwise provided by law or the ----------- --------------- Certificate of Incorporation, and subject to the provisions of Section 1.8 of these Bylaws, each stockholder shall be entitled to one (1) vote for each share of stock held by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Voting at meetings of stockholders need not be by written ballot unless such is demanded at the meeting before voting begins by a stockholder or stockholders holding shares representing at least one percent (1%) of the votes entitled to vote at such meeting, or by such stockholder's or stockholders' proxy; provided, however, -------- ------- that an election of directors shall be by written ballot if demand is so made by any stockholder at the meeting before voting begins. If a vote is to be taken by written ballot, then each such ballot shall state the name of the stockholder or proxy voting and such other information as the chairman of the meeting deems appropriate. Unless otherwise provided in the Certificate of Incorporation or a Certificate of Designation relating to a series of Preferred Stock, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by -2- applicable law, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the shares of stock entitled to vote thereon that are present in person or represented by proxy at the meeting and are voted for or against the matter. Section 1.8: Fixing Date for Determination of Stockholders of Record. ----------- -------------------------------- ---------------------- (a) Generally. In order that the Corporation may determine the --------- stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board of Directors, then the record date shall be as provided by applicable law. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, -------- however, that the Board of Directors may fix a new record date for the adjourned - ------- meeting. Section 1.9: List of Stockholders Entitled to Vote. A complete list of ----------- ------------------------------------- stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. Section 1.10: Action by Written Consent of Stockholders. ------------ ----------------------------------------- (a) Procedure. Unless otherwise provided by the Certificate of --------- Incorporation, and except as set forth in Section 1.8(b) above, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Written stockholder consents shall bear the date of signature of each stockholder who signs the consent and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, to its principal place of business or to any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. No written consent shall -3- be effective to take the action set forth therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner provided above, written consents signed by a sufficient number of stockholders to take the action set forth therein are delivered to the Corporation in the manner provided above. (b) Notice of Consent. Prompt notice of the taking of corporate action by ----------------- stockholders without a meeting by less than unanimous written consent of the stockholders shall be given to those stockholders who have not consented thereto in writing and, in the case of a Certificate Action (as defined below), if the Delaware General Corporation Law so requires, such notice shall be given prior to filing of the certificate in question. If the action which is consented to requires the filing of a certificate under the Delaware General Corporation Law (a "Certificate Action"), then if the Delaware General Corporation Law so ------------------ requires, the certificate so filed shall state that written stockholder consent has been given in accordance with Section 228 of the Delaware General Corporation Law and that written notice of the taking of corporate action by stockholders without a meeting as described herein has been given as provided in such section. Section 1.11: Inspectors of Elections. ------------ ----------------------- (a) Applicability. Unless otherwise provided in the Corporation's ------------- Certificate of Incorporation or required by the Delaware General Corporation Law, the following provisions of this Section 1.11 shall apply only if and when the Corporation has a class of voting stock that is: (i) listed on a national securities exchange; (ii) authorized for quotation on an interdealer quotation system of a registered national securities association; or (iii) held of record by more than 2,000 stockholders; in all other cases, observance of the provisions of this Section 1.11 shall be optional, and at the discretion of the Corporation. (b) Appointment. The Corporation shall, in advance of any meeting of ----------- stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. (c) Inspector's Oath. Each inspector of election, before entering upon the ---------------- discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (d) Duties of Inspectors. At a meeting of stockholders, the inspectors of -------------------- election shall (i) ascertain the number of shares outstanding and the voting power of each share, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. -4- (e) Opening and Closing of Polls. The date and time of the opening and the ---------------------------- closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the inspectors at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (f) Determinations. In determining the validity and counting of proxies -------------- and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.11 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. ARTICLE II BOARD OF DIRECTORS Section 2.1: Number; Qualifications. The Board of Directors shall consist ----------- ---------------------- of one or more members. The initial number of directors shall be five (5), and thereafter shall be fixed from time to time by resolution of the Board of Directors. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation. Section 2.2: Election; Resignation; Removal; Vacancies. The Board of ----------- ----------------------------------------- Directors shall initially consist of the person or persons elected by the incorporator or named in the Corporation's initial Certificate of Incorporation. Each director shall hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Subject to the rights of any holders of Preferred Stock then outstanding: (i) any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors and (ii) any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors to be elected by all stockholders having the right to vote as a single class, may be filled by the stockholders, by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. -5- Section 2.3: Regular Meetings. Regular meetings of the Board of Directors ----------- ---------------- may be held at such places, within or without the State of Delaware, and at such times as the Board of Directors may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board of Directors. Section 2.4: Special Meetings. Special meetings of the Board of Directors ----------- ---------------- may be called by the Chairman of the Board, the President or a majority of the members of the Board of Directors then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least forty-eight (48) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile or similar communication method. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. Section 2.5: Telephonic Meetings Permitted. Members of the Board of ----------- ----------------------------- Directors, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or similar communications equipment shall constitute presence in person at such meeting. Section 2.6: Quorum; Vote Required for Action. At all meetings of the ----------- -------------------------------- Board of Directors a majority of the total number of authorized directors shall constitute a quorum for the transaction of business. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7: Organization. Meetings of the Board of Directors shall be ----------- ------------ presided over by the Chairman of the Board, or in his or her absence by the President, or in his or her absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8: Written Action by Directors. Any action required or ----------- --------------------------- permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee, respectively. Section 2.9: Powers. The Board of Directors may, except as otherwise ------------ ------ required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. -6- Section 2.10: Compensation of Directors. Directors, as such, may receive, ------------ ------------------------- pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors. ARTICLE III COMMITTEES Section 3.1: Committees. The Board of Directors may, by resolution passed ----------- ---------- by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent ------ authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in subsection (a) of Section 151 of the Delaware General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation under Sections 251 or 252 of the Delaware General Corporation Law, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and unless the resolution of the Board of Directors expressly so provides, no such committee shall have the power or authority to declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger pursuant to section 253 of the Delaware General Corporation Law. Section 3.2: Committee Rules. Unless the Board of Directors otherwise ----------- --------------- provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws. -7- ARTICLE IV OFFICERS Section 4.1: Generally. The officers of the Corporation shall consist of ----------- --------- a Chief Executive Officer and/or a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers, including a Chairman of the Board of Directors and/or Chief Financial Officer, as may from time to time be appointed by the Board of Directors. All officers shall be elected by the Board of Directors; provided, however, that the Board of Directors may empower the -------- ------- Chief Executive Officer of the Corporation to appoint officers other than the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors. Section 4.2: Chief Executive Officer. Subject to the control of the Board ----------- ----------------------- of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Corporation are: (a) To act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation; (b) To preside at all meetings of the stockholders; (c) To call meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and (d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board of Directors has not designated any other officer to be the Chief Executive Officer, then the Chairman of the Board shall be the Chief Executive Officer. Section 4.3: Chairman of the Board. The Chairman of the Board shall have ----------- --------------------- the power to preside at all meetings of the Board of Directors and shall have such other powers and duties as provided in these bylaws and as the Board of Directors may from time to time prescribe. -8- Section 4.4: President. The President shall be the Chief Executive ----------- --------- Officer of the Corporation unless the Board of Directors shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board of Directors to the Chairman of the Board, and/or to any other officer, the President shall have the responsibility for the general management the control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board of Directors. Section 4.5: Vice President. Each Vice President shall have all such ----------- -------------- powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board of Directors or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officer's absence or disability. Section 4.6: Chief Financial Officer. Subject to the direction of the ----------- ----------------------- Board of Directors and the President, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of chief financial officer. Section 4.7: Treasurer. The Treasurer shall have custody of all monies ----------- --------- and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board of Directors or the President may from time to time prescribe. Section 4.8: Secretary. The Secretary shall issue or cause to be issued ----------- --------- all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board of Directors. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board of Directors or the President may from time to time prescribe. Section 4.9: Delegation of Authority. The Board of Directors may from ----------- ----------------------- time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.10: Removal. Any officer of the Corporation shall serve at the ------------ ------- pleasure of the Board of Directors and may be removed at any time, with or without cause, by the Board of Directors. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. -9- ARTICLE V STOCK Section 5.1: Certificates. Every holder of stock shall be entitled to ----------- ------------ have a certificate signed by or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New ----------- ------------------------------------------------------------- Certificates. The Corporation may issue a new certificate of stock in the place - ------------ of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 5.3: Other Regulations. The issue, transfer, conversion and ----------- ----------------- registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI INDEMNIFICATION Section 6.1 Indemnification of Officers and Directors. Each person who ----------- ----------------------------------------- was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he ---------- or she (or a person of whom he or she is the legal representative), is or was a director, officer or employee of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor (as defined below) as a director, officer or employee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking - -------- ------- indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. As used herein, the term "Reincorporated -------------- Predecessor" means a corporation that is merged with and into the Corporation - ----------- -10- in a statutory merger where (a) the Corporation is the surviving corporation of such merger; (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware. Section 6.2: Advance of Expenses. The Corporation shall pay all expenses ----------- ------------------- (including attorneys' fees) incurred by such a director or officer in defending any such proceeding as they are incurred in advance of its final disposition; provided, however, that if the Delaware General Corporation Law then so - -------- ------- requires, the payment of such expenses incurred by such a director or officer in advance of the final disposition of such proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall -------- ------- not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a proceeding, alleging that such person has breached his or her duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction. Section 6.3: Non-Exclusivity of Rights. The rights conferred on any ------------ ------------------------- person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI. Section 6.4: Indemnification Contracts. The Board of Directors is ----------- ------------------------- authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI. Section 6.5: Effect of Amendment. Any amendment, repeal or modification ----------- ------------------- of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification. ARTICLE VII NOTICES Section 7.1: Notice. Except as otherwise specifically provided herein or ----------- ------ required by law, all notices required to be given pursuant to these Bylaws shall be in writing and may in every instance be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid -11- telegram, telex, overnight express courier, mailgram or facsimile. Any such notice shall be addressed to the person to whom notice is to be given at such person's address as it appears on the records of the Corporation. The notice shall be deemed given (i) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in the case of delivery by overnight express courier, on the first business day after such notice is dispatched, and (iv) in the case of delivery via telegram, telex, mailgram, or facsimile, when dispatched. Section 7.2: Waiver of Notice. Whenever notice is required to be given ----------- ---------------- under any provision of these bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. ARTICLE VIII INTERESTED DIRECTORS Section 8.1: Interested Directors; Quorum. No contract or transaction ----------- ---------------------------- between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. -12- ARTICLE IX MISCELLANEOUS Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be ----------- ----------- determined by resolution of the Board of Directors. Section 9.2: Seal. The Board of Directors may provide for a corporate ----------- ---- seal, which shall have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board of Directors. Section 9.3: Form of Records. Any records maintained by the Corporation ----------- --------------- in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, magnetic tape, diskettes, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 9.4: Reliance Upon Books and Records. A member of the Board of ----------- ------------------------------- Directors, or a member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 9.5: Certificate of Incorporation Governs. In the event of any ----------- ------------------------------------ conflict between the provisions of the Corporation's Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern. Section 9.6: Severability. If any provision of these Bylaws shall be held ----------- ------------ to be invalid, illegal, unenforceable or in conflict with the provisions of the Corporation's Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect. -13- ARTICLE X AMENDMENT Section 10.1: Amendments. Stockholders of the Corporation holding a ------------ ---------- majority of the Corporation's outstanding voting stock shall have the power to adopt, amend or repeal Bylaws. To the extent provided in the Corporation's Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend or repeal Bylaws of the Corporation, except insofar as Bylaws adopted by the stockholders shall otherwise provide. -14- CERTIFICATION OF BYLAWS OF eBAY INC. (A DELAWARE CORPORATION) KNOW ALL BY THESE PRESENTS: I, Matthew P. Quilter, certify that I am Secretary of eBay Inc., a Delaware corporation (the "Company"), that I am duly authorized to make and deliver this certification, that the attached Bylaws are a true and correct copy of the Bylaws of the Company in effect as of the date of this certificate. Dated: March 13, 1998 /s/ Matthew P. Quilter ----------------------------- Matthew P. Quilter, Secretary EX-4.02 7 INVESTOR RIGHTS AGREEMENT DATED 6/20/97 EXHIBIT 4.02 EBAY, INC. INVESTOR RIGHTS AGREEMENT JUNE 20, 1997 TABLE OF CONTENTS
Page ---- 1. Certain Definitions....................................................................................1 2. Financial Statements And Reports To Investors..........................................................3 3. Additional Information.................................................................................3 4. Inspection.............................................................................................4 5. Right Of First Refusal.................................................................................4 6. Termination Of Covenants...............................................................................5 7. Demand Registration....................................................................................6 7.1 Request for Registration on Form Other Than Form S-3..........................................6 7.2 Right of Deferral of Registration on Form Other Than Form S-3.................................6 7.3 Request for Registration on Form S-3..........................................................6 7.4 Registration of Other Securities in Demand Registration.......................................7 7.5 Underwriting in Demand Registration...........................................................7 7.6 Blue Sky in Demand Registration...............................................................9 8. Piggyback Registration.................................................................................9 8.1 Notice of Piggyback Registration and Inclusion of Registrable Securities......................9 8.2 Underwriting in Piggyback Registration........................................................9 8.3 Blue Sky in Piggyback Registration...........................................................11 9. Expenses Of Registration..............................................................................11 10. Termination Of Registration Rights....................................................................11 11. Registration Procedures And Obligations...............................................................12 12. Information Furnished By Holder.......................................................................13
i 13. Indemnification.......................................................................................13 13.1 Company's Indemnification of Holders.........................................................13 13.2 Holder's Indemnification of Company..........................................................14 13.3 Indemnification Procedure....................................................................14 13.4 Contribution.................................................................................15 14. Limitations On Registration Rights Granted To Other Securities........................................15 15. Transfer Of Rights....................................................................................16 16. Market Stand-Off......................................................................................16 17. No-Action Letter Or Opinion Of Counsel In Lieu Of Registration; Conversion Of Preferred Stock...........................................................16 18. Conversion Of Preferred Stock.........................................................................17 19. Reports Under Exchange Act............................................................................17 20. Miscellaneous.........................................................................................18 20.1 Entire Agreement; Successors and Assigns.....................................................18 20.2 Governing Law................................................................................18 20.3 Counterparts.................................................................................18 20.4 Headings.....................................................................................18 20.5 Notices......................................................................................18 20.6 Amendment of Agreement.......................................................................29 20.7 Severability.................................................................................19 20.8 Aggregation of Stock.........................................................................19
ii INVESTOR RIGHTS AGREEMENT This INVESTOR RIGHTS AGREEMENT (the "Agreement") is made as of June 20, 1997, by and among eBay, Inc., a California corporation (the "Company"), Pierre Omidyar and Jeff Skoll (the "Founders") and the persons listed on the attached Schedule 1.1 who become signatories to this Agreement (collectively, the "Investors"). RECITALS -------- A. The Company and the Investors have entered into one or more agreements for sale by the Company and purchase by the Investors of the Company's Series B Preferred Stock. B. In connection with the purchase and sale of the Company's Series B Preferred Stock, the Company and the Investors desire to provide for the rights of the Investors with respect to information about the Company and registration of the Common Stock issued upon conversion or exercise of the Series B Preferred Stock according to the terms of this Agreement. THE PARTIES AGREE AS FOLLOWS: 1. Certain Definitions ------------------- As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Commission" shall mean the Securities and Exchange Commission or ---------- any other federal agency at the time administering the Securities Act. 1.2 "Convertible Securities" shall mean securities of the Company ---------------------- (including securities of the Company issuable upon exercise of options granted by a Founder to an Investor) convertible into or exchangeable for Common Stock of the Company or into other securities that are convertible into or exchangeable for Common Stock. 1.3 "Exchange Act" shall mean the Securities and Exchange Act of ------------ 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.4 "Form S-3" shall mean Form S-3 issued by the Commission or any -------- substantially similar form then in effect. 1.5 "Holder" shall mean any holder of outstanding Registrable ------ Securities which have not been sold to the public, but only if such holder is one of the Investors or an assignee or transferee of Registration rights as permitted by Section 15. 1.6 "Initiating Holders" shall mean Holders who in the aggregate hold ------------------ at least two-thirds of the Registrable Securities. 1.7 "Major Investor" shall mean an investor that, together with any -------------- affiliate, holds not less than 200,000 shares of the Convertible Securities indoor Registrable Securities (as equitably adjusted for stock splits, subdivisions, stock dividends, changes, combinations, or the like). 1.8 "Material Adverse Event" shall mean an occurrence having a ---------------------- consequence that either (a) is materially adverse as to the business, properties, prospects, or financial condition of the Company or (b) is reasonably foreseeable, has a reasonable likelihood of occurring, and if it were to occur might materially adversely affect the business, properties, prospects, or financial condition of the Company. 1.9 The Terms "Register", "Registered", and "Registration" refer to -------- ---------- ------------ a registration effected by preparing and filing a regulation statement in compliance with the Securities Act ("Registration Statement"), and the declaration or ordering of the effectiveness of such Registration Statement. 1.10 "Registrable Securities" shall mean all Common Stock issued or ---------------------- issuable upon conversion of the Company's Convertible Securities purchased by or issued to the Investors, including Common Stock issued pursuant to stools splits, stock dividends and similar distributions, and any securities of the Company granted registration rights pursuant to Section 14 of this Agreement unless such Common Stock has previously been sold to the public; provided, however, that for purposes of Section 8 of this Agreement, Registrable Securities shall also include shares of Common Stock or Convertible Securities held by a Founder. 1.11 "Registration Expenses" shall mean all expenses incurred by the --------------------- Company in complying with Sections 7 or 8 of this Agreement, including, without limitation, all federal and state registration, qualification, and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, fees of special counsel for the Holders if Company counsel does not males itself available for this purpose, and the expense of any special audits incident to or required by any such registration. 1.12 "Securities Act" shall mean the Securities Act of 1933, as -------------- amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.13 "Selling Expenses" shall mean all underwriting discounts, ---------------- selling commissions and stock transfer taxes applicable to the sale of Registrable Securities pursuant to this Agreement. 2. Financial Statements and Reports to Investors. --------------------------------------------- The Company shall deliver to each Investor: (i) As soon as practicable after the end of each fiscal year of the Company, and in any event within 90 days thereafter, an audited consolidated balance sheet of the Company as of the end of such year and audited consolidated statements of income, shareholders' equity and cash flow for such year, which year-end financial reports shall be in reasonable detail and shall be prepared in accordance with generally accepted accounting principles and accompanied by the opinion of independent public accountants of nationally recognized standing selected by the Company; (ii) After the end of each the first three fiscal quarters of each year, and in any event within 45 days of the end of each such fiscal quarter, unaudited quarterly financial statements of income, shareholders' equity, and cash flow for such quarter, which quarterly statements shall be in reasonable detail and shall be prepared in accordance with generally accepted accounting principles; (iii) Contemporaneously with delivery to holders of Common Stock, a copy of each report of the Company delivered to holders of Common Stock; and (iv) On or before January 31 of each year, an annual capitalization summary. 3. Additional Information. ---------------------- The Company shall deliver to each Major Investor: (i) As soon as practicable after the end of each fiscal month, and in any event within 30 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such month, and consolidated statements of income and cash flow for such month and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (other than for accompanying notes) and signed by the Chief Financial Officer or President of the Company certifying that they fairly and accurately present the financial condition and results of operation of the Company, subject to changes resulting from year-end audit adjustment; (ii) As soon as practicable following submission to and approval by the Board of Directors of the Company an operating budget and plan (the "Plan") respecting the next fiscal year and a summary of such Plan, together with any update of the Plan as such update is prepared and approved by the Board of Directors; and (iii) Such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as such Investor may from time to time request, provided, however, that the Company shall not be obligated under this subsection or any other subsection of Section 3 to provide information which it deems in good faith to be a trade secret or confidential information unless such Investor executes an appropriate non- disclosure agreement and is neither a competitor nor a potential competitor of the Company. 4 Inspection. ---------- The Company shall permit each Investor, at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances, and accounts with its officers, all at such reasonable times as may be requested by each such Investor, provided, however, that the Company shall not be obligated pursuant to this Section 4 to provide any information which it reasonably considers to be a trade secret or confidential information unless such Investor executes an appropriate non- disclosure agreement and is neither a competitor nor a potential competitor of the Company. The rights of an Investor under this Section 4 may not be assigned as part of such Investor's sale of any of the Registrable Securities or Convertible Securities except in accordance with the provisions of Section 15. 5. Right of First Refusal. ---------------------- 5.1 The Company hereby grants to each Major Investor the right of first refusal to purchase up to its Pro Rata Share of the New Securities (as defined below) which the Company may, Tom time to time, propose to sell and issue. The Major Investors may purchase said New Securities on the same terms and at the same price at which the Company proposes to sell the New Securities. The "Pro Rata Share" of each Major Investor, for purposes of this right of first refusal, is the ratio of (i) the total number of shares of Common Stock held by such Major Investor (including any shares of Common Stock into which shares of the Convertible Securities held by such Major Investor are convertible) to (ii) the total number of shares of Common Stock outstanding immediately prior to the issuance of the New Securities (including any shares of Common Stock into which outstanding shares of the Convertible Securities are convertible and treating as outstanding the maximum number of shares of Common Stock that can be issued under the Company's Stock Option Plan). 5.2 "New Securities" shall mean any capital stock of the Company, whether authorized or not, and any rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided that "New Securities" does not include (i) the Series B Preferred Stock issued pursuant to that certain Series B Preferred Stock Purchase Agreement Fox as of June 20, 1997 or the Common Stock issuable upon conversion of any Convertible Securities; (ii) securities offered pursuant to the registration statement filed under the Securities Act; (iii) securities issued by the Company pursuant to the acquisition of another corporation by merger, purchase of substantially all of the assets, or other reorganization; (iv) shares issued or issuable to employees, directors consultants, advisers and others performing services for the Company or its subsidiaries, pursuant to a plan or arrangement approved by the Company's Board of Directors; (v) shares issued without consideration pursuant to a stock dividend, stock split, or similar transaction; (vi) warrants, and shares issuable upon exercise of such warrants, issued in connection with equipment leasing or credit transactions with commercial lending institutions and approved by the Company's Board of Directors provided such transactions are not primarily for equity financing purposes; and (vii) Registrable Securities issued or issuable upon conversion, exercise, or exchange of New Securities. 5.3 In the event the Company proposes to undertake an issuance of New Securities, it shall give to each Major Investor written notice (the "Notice") of its intention, describing the type of New Securities, the price, the terms upon which the Company proposes to issue the same, the number of shares which Major Investor is entitled to purchase, and a statement that each Major Investor shall have twenty (20) days to respond to such Notice. Each Major Investor shall have twenty (20) days from the date of receipt of the Notice to agree to purchase any portion of or all of its Pro Rata Share of the New Securities for the price and upon the terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased and forwarding payment for such New Securities to the Company if immediate payment is Squired by such terms. 5.4 In the event a Major Investor fails to exercise in full the right of first refusal within said twenty (20) day period, the Company shall have sixty (60) days thereafter to sell or eater into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within thirty (30) days from date of said agreement) to sell the New Securities respecting which such Major Investor's rights were not exercised, at a price and upon general terms no more favorable to the purchaser thereof than specified in the Notice. In the event the Company has not sold the New Securities within said sixty (60) day period (or sold and issued New Securities in accordance with the foregoing within thirty (30) days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities without first offering such securities to such Major Investor in the manner provided above. 5.5 The right of first refusal granted under this Section 5 is assignable by the Major Investors to (i) any transferee of a minimum of 200,000 shares of Common Stock (including any shares of Common Stock into which shares of Convertible Securities then held by it are convertible), (ii) any wholly owned subsidiary or parent of, or any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any such Major Investor, or (iii) any Major Investor. 6. Termination of Covenants. ------------------------ The covenants of the Company set forth in Sections 2, 3, 4, and 5 shall be terminated and be of no further force or effect immediately prior to the closing of the first public offering office Common Stock of the Company that is effected pursuant to a Registration Statement filed with, and declared effective by, the Commission under the Securities Act (other than either a public offering limited solely to employees of the Company or an offering pursuit to Rule 145 under the Securities Act), and such covenants shall terminate as to any Investor as of the date such Investor no longer holds any shares of the capital stock of the Company. 7. Demand Registration. ------------------- 7.1 Request for Registration on Form Other Than Form S-3. Subject to ---------------------------------------------------- the terms of this Agreement, in the event that the Company shall receive from the Initiating Holders at any time after the earlier of (a) June 20, 2001 and (b) six months after the closing of the Company's initial public offering of shares of Common Stock under a Registration Statement, a written request that the Company effect any Registration with respect to all or a part of the Registrable Securities on a Form other than Form S-3 for an offering of at least 50% of the then outstanding Registrable Securities (or any lesser percent if the reasonably anticipated aggregate offering price to the public would exceed $7,500,000), the Company shall (i) promptly give written notice of the proposed Registration to all other Holders and shall (ii) use its best efforts to effect as soon as practicable, and in any event within 60 days of the receipt of such request, Registration of the Registrable Securities specified in such request, together with any Registrable Securities of any Holder joining in such request as are specified in a written request given within 20 days after written notice from the Company. The Company shall not be obligated to take any action to effect any such registration pursuant to this Section 7.1 (i) for the six (6) month period immediately following the effective date of a Registration pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan) provided that the Company is employing all reasonable efforts in good faith to cause such Registration to become effective or (ii) after the Company has effected two such Registrations pursuant to this Section 7.1 and such Registrations have been declared effective. The substantive provisions of Section 7.5 shall be applicable to each Registration initiated under this Section 7.1. 7.2 Right of Deferral of Registration on Form Other Than Form S-3. ------------------------------------------------------------- If the Company shall furnish to all such Holders who joined in the request a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for any Registration to be effected as requested under Section 7.1, the Company shall have the right, exercisable not more than once in any twelve-month period, to defer the filing of a Registration Statement with respect to such offering for a period of not more than 90 days from delivery of the request of the Initiating Holders. 7.3 Request for Registration on Form S-3. ------------------------------------ (a) If the Initiating Holders request that the Company file a Registration Statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of Registrable Securities the reasonably anticipated aggregate price to the public of which would not be less than $1,000,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall (i) promptly give written notice of the proposed registration to all other Holders, and (ii) use all reasonable efforts to cause such Registrable Securities to be Registered for the offering on such form and to cause such Registrable Securities to be qualified in such jurisdictions as the Holder or Holders may reasonably request; provided, however, that the Company shall not be required to effect more than one Registration pursuant to this Section 7.3 in any six (6) month period. The substantive provisions of Section 7.5 shall be applicable to each Registration initiated under this Section 7.3. (b) Notwithstanding the foregoing, the Company shall not be obligated to file a registration statement pursuant to this Section 7.3: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) if the Company, within ten (10) days of the receipt of the request of the Initiating Holders, gives notice of its bona fide intention to effect the filing of a Registration Statement with the Commission within sixty (60) days of receipt of such request (other the with respect to a Registration Statement relating to a Rule 145 transaction or an offering solely to employees), provided that the Company is actively employing in good faith all reasonable efforts to malice such Registration Statement to become effective; (iii) within six months immediately following the effective date of any Registration Statement pertaining to the securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan); or (iv) if the Company shall furnish to such Initiating Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a Registration Statement to be filed in the near future, then the Company's obligation to use its best efforts to file a Registration Statement shall be deferred for a period not to exceed 60 days from the receipt of the request to file such registration by such Holder provided that the Company shall not exercise the right contained in this paragraph (iv) more than once in any twelve (12) month period. 7.4 Registration of Other Securities in Demand Registration. ------------------------------------------------------- Any Registration Statement filed pursuant to the request of the Initiating Holders under this Section 7 may, subject to the provisions of Section 7.5, include securities of the Company other than Registrable Securities. 7.5 Underwriting in Demand Registration ----------------------------------- (a) Notice of Underwriting. If the Initiating Holders intend to ---------------------- distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 7, and the Company shall include such information in the written notice referred to in Section 7.1 or 7.3. The right of any Holder to Registration pursuant to Section 7 shall be conditioned upon such Holder's agreement to participate in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting. (b) Inclusion of Other Holders in Demand Registration. If the ------------------------------------------------- Company, officers, or directors of the Company holding Common Stock other than Registrable Securities, or holders of securities other than Registrable Securities, request inclusion in such Registration, the Initiating Holders, to the extent they deem advisable and consistent with the goals of such Registration and subject to Section 7.5(d), may, in their sole discretion, on behalf of all Holders, offer to any or all of the Company, such officers or directors, and such holders of securities other than Registrable Securities that such securities other than Registrable Securities be included in the underwriting and may condition such offer on the acceptance by such persons of the terms of this Section 7. In the event, however, that the number of shares so included exceeds the number of shares of Registrable Securities included by all Holders, such Registration shall be treated as governed by Section 8 hereof rather than Section 7, and it shall not count as a Registration for purposes of Section 7.1 hereof. (c) Selection of Underwriter in Demand Registration. The Company ----------------------------------------------- shall (together with all Holders and other security holders, if any, proposing to distribute their securities through such underwriting) enter into an underwriting agreement with the representative ("Underwriter's Representative") of the underwriter or underwriters selected for such underwriting by the Company and reasonably acceptable to the Holders of a majority of the Registrable Securities being registered by the Initiating Holders. (d) Marketing Limitation in Demand Registration. In the event ------------------------------------------- the Underwriter's Representative advises the Initiating Holders in writing that market factors (including, without limitation, the aggregate number of shares of Common Stock requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of shares to be underwritten, the underwriter and the Company may limit the number of Registrable Securities to be included in the Registration and underwriting; provided, however, that no Registrable Securities shall be so excluded unless (i) first, the Common Stock (other than Registrable Securities) held by officers or employees of the Company, (ii) second, the securities other than Registrable Securities, and (iii) third the securities requested to be registered by the Company, shall be excluded from such Registration to the extent required by such limitation. If a limitation of the number of shares is still required, the Company shall so advise all Holders and the number of shares of Registrable Securities that may be included in the Registration and underwriting shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities otherwise entitled to inclusion in such Registration held by such Holders at the time of filing the Registration Statement. No Registrable Securities or other securities excluded from the underwriting by reason of this Section 7.5(d) shall be included in such Registration Statement. (e) Right of Withdrawal in Demand Registration. If any Holder of ------------------------------------------ Registrable Securities, or a holder of other securities entitled (upon request) to be included in such Registration, disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the Underwriter's Representative and the Initiating Holders delivered at least seven days prior to the effective date of the Registration Statement. The securities so withdrawn shall also be withdrawn from the Registration Statement. If the remaining Holders are not Initiating Holders, then the Company may discontinue the Registration. 7.6 Blue Sky in Demand Registration. In the event of any ------------------------------- Registration pursuant to this Section 7, the Company will exercise its best efforts to Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of such securities; provided, however, that (i) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act, and (ii) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling shareholders, such expenses shall be payable pro rata by selling shareholders. 8. Piggyback Registration. ---------------------- 8.1 Notice of Piggyback Registration and Inclusion of Registrable ------------------------------------------------------------- Securities. Subject to the terms of this Agreement, in the event the Company - ---------- decides to Register any of its Common Stock (either for its own account or the account of a security holder or holders exercising their respective demand registration rights other than pursuant to Section 7 hereof) on a form that would be suitable for a registration involving Registrable Securities, the Company will: (i) promptly give each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable Blue Sky or other state securities laws) and (ii) include in such Registration (and any related qualification under Blue Sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request delivered to the Company by any Holder within 20 days after delivery of such written notice from the Company. 8.2 Underwriting in Piggyback Reparation. ------------------------------------ (a) Notice of Underwriting in Piggyback Registration. If the ------------------------------------------------ Registration of which the Company gives notice is for a Registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 8.1 In such event, the right of any Holder to Registration shall be conditioned upon such underwriting and the inclusion of such Holder's Registrable Securities in such underwriting to the extent provided in this Section 8. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement with the Underwriter's Representative for such offering. The Holders shall have no right to participate in the selection of the underwriters for an offering pursuant to this Section 8. (b) Marketing Limitation in Piggyback Registration. In the event ---------------------------------------------- the Underwriter's Representative advises the Company that market factors (including, without limitation, the aggregate number of shares of Common Stock requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of shares to be underwritten, the Underwriter's Representative and the Company (subject to the allocation priority set forth in Section 8.2(c)) may: (i) in the case of the Company's initial Registered public offering, exclude some or all Registrable Securities from such registration and underwriting; and (ii) in the case of any Registered public offering subsequent to the initial public offering, limit the number of shares of Registrable Securities to be included in such Registration and underwriting to not less than twenty percent (20%) of the securities included in such Registration (based on aggregate market values). (c) Allocation of Shares in Piggyback Registration. In the ---------------------------------------------- event that the Underwriter's Representative and the Company limit the number of shares to be included in a Registration pursuant to Section 8.2(b), the shares (other than Registrable Securities) held by officers or employees of the Company shall be excluded from such registration and underwriting to the extent required by such limitation. If a limitation of the number of shares is still required after such exclusion, the number of shares held by all other holders of securities (other than Registrable Securities) requesting and legally entitled to include such securities in such Registration shall be excluded from such registration and underwriting to the extent required by such limitation, in proportion, as nearly as practicable, to the respective amounts of securities which such other holders would otherwise be entitled to include in such Registration. If a limitation of the number of shares is still required after such exclusion, first Registrable Securities held by Founders shall be excluded from such registration and underwriting to the extent required by such limitation and, thereafter, the number of shares held by all other Holders thereof requesting and legally entitled to include such securities in such Registration of securities shall be excluded from such registration and underwriting to the extent required by such limitation, in proportion, as nearly as practicable, to the respective amounts of securities (including Registrable Securities) which such other holders would otherwise be entitled to include in such Registration; provided, however, that in the case of an offering to which Section 7.5(b) applies, the number of shares of Registrable Securities held by Initiating Holders to be included in such Registration and underwriting shall not be limited to less than twenty percent (20%) of the securities included in such Registration (based on aggregate market value). No Registrable Securities or other securities excluded from the underwriting by reason of this Section 8.2(c) shall be included In the Registration Statement. (d) Withdrawal in Piggyback Registration. If any Holder ------------------------------------ disapproves of the terms of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the Underwriter's Representative delivered at least seven days prior to the effective date of the Registration Statement. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such Registration. 8.3 Blue Sky in Piggyback Registration. ---------------------------------- In the event of any Registration of Registrable Securities pursuant to this Section 8, the Company will exercise its best efforts to Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of such securities; provided, however, that (i) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act, and (ii) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be qualified impose a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling shareholders, such expenses shall be payable pro rata by selling shareholders. 9. Expenses of Registration. ------------------------ All Registration Expenses incurred in connection with all Registrations pursuant to Section 7 and Section 8 shall be borne by the Company. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 7 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses unless the Holders of a majority of the Registrable Securities agree to forfeit their right to such registration), provided however, that if at the tine of such withdrawal, the Holders have learned of a Material Adverse Event with respect to the condition, business, or prospects of the Company not known to the Holders at the time of their request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 7. 10. Termination of Registration Rights. ---------------------------------- The rights to cause the Company to register securities granted under Sections 7 and 8 of this Agreement shall terminate, with respect to each Holder seven (7) years after the closing date of the Company's initial public offering; provided, however, that a Holder's rights provided for under Sections 7 and 8 shall terminate earlier when (i) such Holder owns less than one percent (1%) of the outstanding securities of the Company, (ii) such Holder may sell all its shares in a three (3) month period under Rule 144 of the Act, and (iii) the Company is then subject to the reporting requirements of Section 13(a) or 1 5(d) of the Exchange Act. 11. Registration Procedures and Obligations. --------------------------------------- Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (i) Prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such Registration Statement effective for up to one hundred twenty (120) days. (ii) Prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement. (iii) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (iv) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (vi) Notify each Holder of Registrable Securities covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vii) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such Registration Statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (viii) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered for sale in connection with a registration pursuant to this Agreement, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration in form and substance as is customarily given to underwriters in an underwritten public offering, and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters. 12. Information Furnished by Holder. ------------------------------- It shall be a condition precedent of the Company's obligations under this Agreement, with respect to each Holder, that such Holder of Registrable Securities included in any Registration furnish to the Company such information regarding such Holder and the distribution proposed by such Holder or Holders as the Company may reasonably request. 13. Indemnification. --------------- 13.1 Company's Indemnification of Holders. ------------------------------------ To the extent permitted by law, the Company will indemnify each Holder, each of its officers, directors, and constituent partners, legal counsel for the Holders, and each person controlling such Holder (within the meaning of the Securities Act), with respect to which Registration, qualification, or compliance of Registrable Securities has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter against all claims, losses, damages, or liabilities (or actions in respect thereof) to the extent such claims, losses, damages, or liabilities arise out of or are based upon any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or other document (including any related Registration Statement) incident to any such Registration, qualification, or compliance, or are based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or the Exchange Act applicable to the Company and relating to action or inaction required of the Company in connection with any such Registration, qualification, or compliance; and the Company will reimburse each such Holder, each such underwriter, and each person who controls any such Holder or underwriter, for any legal and any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating or defending any such claim, loss, damage, liability, or action; provided, however, that the indemnity contained in this Section 13.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability, or action if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); and provided, further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based upon any untrue statement or omission based upon written information furnished to the Company by such Holder, underwriter, or controlling person and stated to be for use in connection with the offering of securities of the Company. 13.2 Holder's Indemnification of Company. ----------------------------------- To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such Registration, qualification or, compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors and officers, each legal counsel and independent accountant of the Company, each underwriter, if any, of the Company's securities covered by such a Registration Statement, each person who controls the Company or such underwriter within the meaning of the Securities Act, and each other such Holder, each of its officers, directors, and constituent partners, and each person controlling such other Holder (within the meaning of the Securities Act), against all claims, losses, damages, and liabilities (or actions in respect thereof) arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of any rule or regulation promulgated under the Securities Act or the Exchange Act applicable to such Holder and relating to action or inaction required of such Holder in connection with any such Registration, qualification, or compliance, and will reimburse the Company, such Holders, such directors, officers, partners, persons, law and accounting firms, underwriters or control persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but in each case only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder ant states to be specifically for use in connection with the offering of securities of the Company, provided, however, that the indemnity contained in this Section 13.2 shall not apply to amounts paid in settlement of any such claim loss, damage, liability or action if settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld) and provided, further, that each Holder's liability under this Section 13.2 shall not exceed such Holder's proceeds from the offering of securities made in connection with such Registration. 13.3 Indemnification Procedure ------------------------- Promptly after receipt by an indemnified party under this Section 13 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 13, notify the indemnifying party in writing of the commencement thereof and genially summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such claim; provided, however, that the indemnifying party shall be entitled to select counsel for the defense of such claim with the approval of any parties entitled to indemnification, which approval shall not be unreasonably withheld; provided further, however, that if either party reasonably determines that there may be a conflict between the position of the Company and the Holders in conducting the defense of such action, suit, or proceeding (such conflict being related to claims for indemnity under this Section 13), then counsel for such party shall be entitled to conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interest of such party. The failure to notify an indemnifying party promptly of the commencement of any such action, if prejudicial to the ability of the indemnifying party to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this Section 13, but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise other than under this Section 13. 13.4 Contribution. ------------ If the indemnification provided for in this Section 13 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations, provided that each Holder's contribution under this Section 13.4 shall not exceed such Holder's proceeds from the offering of securities made in connection with such Registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 14. Limitations on Registration Rights Granted to Other Securities. -------------------------------------------------------------- From and after the date of this Agreement, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company providing for the granting to such holder of any Registration rights, except that, with the consent of the Holders of a majority of the Registrable Securities then outstanding, additional holders may be added as parties to this Agreement with regard to any or all securities of the Company held by them. Any such additional parties shall execute a counterpart of this Agreement, and upon execution by such additional parties and by the Company, shall be considered an Investor for all purposes of this Agreement. The additional parties and the additional Registrable Securities shall be identified in an amendment to Schedule A hereto. 15. Transfer of Rights. ------------------ 15.1 The right to cause the Company to Register Securities granted by the Company to the Investors under this Agreement may be assigned by any Holder to (i) any partner or retired partner of any Holder which is a partnership, (ii) any family member or trust for the benefit of any individual Holder, or (iii) any transferee or assignee of any Convertible Securities or Registrable Securities not sold to the public acquiring at least 250,000 shares of such Holder's Registrable Securities (equitably adjusted for any stock splits, subdivisions, stock dividends, changes, combinations or the like); provided, however, that the Company must receive written notice prior to the time of said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such information and Registration rights are being assigned, and the transferee or assignee of such rights must not be a person deemed by the Board of Directors of the Company, in its best judgment, to be a competitor or potential competitor of the Company. 15.2 Notwithstanding the limitation set forth in the foregoing subsection (a), any Holder which is a partnership or a limited liability company ("L.L.C.") may transfer such Holder's Registration rights to such Holder's constituent partners or the L.L.C. members without restriction as to the number or percentage of shares acquired by any such constituent partner or member and any Holder who is an individual may transfer such rights to a member of Holder's immediate family or to a trust for the benefit of Holder or of a member of Holder's immediate family without restriction as to the number or percentage of shares acquired by any such person or trust. 16. Market Stand-Off. ---------------- Each Holder hereby agrees that, if so requested by the Company and the Underwriter's Representative (if any) in connection with the Company's first public offering, such Holder shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise transfer or dispose of any Registrable Securities or other securities of the Company without the prior written consent of the Company and the Underwriter's Representative for such offerings for such period of time (not to exceed 180 days) following the effective date of a Registration Statement of the Company filed under the Securities Act as may be requested by such Underwriter's Representative. The obligations of Holders under this Section 16 shall be conditioned upon similar agreements being in effect with each other shareholder who is an employee, or 2% shareholder of the Company. 17. No-Action Letter or Opinion of Counsel in Lieu of Registration: --------------------------------------------------------------- Conversion of Preferred Stock. - ----------------------------- Notwithstanding anything else in this Agreement, if the Company shall have obtained from the Commission a "no-action" letter in which the Commission has indicated that it will take no action if, without Registration under the Securities Act, any Holder disposes of Registrable Securities covered by any request for Registration made under this Section in the specific manner in which such Holder proposes to dispose of the Registrable Securities included in such request (such as including, without limitation, inclusion of such Registrable Securities in an underwriting initiated by either the Company or the holders) and that such Registrable Securities may be sold to the public without Registration, or if in the opinion of counsel for the Company concurred in by counsel for such Holder, which concurrence shall not be unreasonably withheld, Registration under the Securities Act is required in connection with such disposition and that such Registrable Securities may be sold to the public without Registration, the Registrable Securities included in such request shall not be eligible for Registration under this Agreement; provided, however, that any Registrable Securities not so disposed of shall be eligible for Regulation in accordance with the terms of this Agreement with respect to other proposed dispositions to which this Section 17 does not apply. The Registration rights of the Holders of the Registrable Securities set forth in this Agreement are conditioned upon the conversion of the Registrable Securities with respect to which Registration is sought into Common Stock prior to the effective date of the Registration Statement. 18. Conversion of Preferred Stock. ----------------------------- The Registration rights of the Holders of the Shares set forth in this Agreement are conditioned upon the conversion of the Shares with respect to which Registration is sought into Common Stock prior to the effective date of the Registration Statement. 19. Reports Under Exchange Act. -------------------------- With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the Commission that may at any time permit a Holder to sell securities of the Company to the public without Registration or pursuant to a registration on Form S-3, the Company agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144 after the effective date of the first Registration Statement filed by the Company for the offering of its securities to the general public; (ii) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the first Registration Statement filed by the Company for the offering of its securities to the general public is declared effective; (iii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iv) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act, and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without Registration or pursuant to such form. 20. Miscellaneous. ------------- 20.1 Entire Agreement: Successors and Assigns. ---------------------------------------- This Agreement constitutes the entire contract between the Company and the Investors relative to the subject matter hereof. Any previous agreement between the Company and any Investor concerning Registration rights and rights to information is superseded by this Agreement. Subject to the exceptions specifically set forth in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successor, and assigns of the parties. 20.2 Governing Law. ------------- This Agreement shall be governed by, and construed in accordance with, the laws of the State of California excluding those laws that direct the application of the laws of another jurisdiction. 20.3 Counterparts. ------------ This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 20.4 Headings. -------- The headings of the Sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 20.5 Notices. ------- Any notice required or permitted hereunder shall be given in writing and shall be conclusively deemed effectively given upon personal delivery, or five days after deposit in the United States mail, by registered or certified mail, postage prepaid, addressed (i) if to the Company, as set forth below the Company's name on the signature page of this Agreement, and (ii) if to an Investor, at such Investor's address as set forth on Schedule 1.1, or at such other address as the Company or such Investor may designate by ten (10) days advance written notice to the Investors or the Company, respectively. 20.6 Amendment of Agreement. ---------------------- Any provision of this Agreement may be amended (and the rights of first refusal provided in Section 5 waived) only by a written instrument signed by the Company and by persons holding a majority of the Registrable Securities . 20.7 Severability. ------------ In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the rereading provisions shall not in any way be affected or impaired thereby. 20.8 Aggregation of Stock. -------------------- All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights Agreement as of the day and year first above written Company: EBAY, INC. a California corporation By: /s/ PIERRE OMIDYAR --------------------------------------- Pierre Omidyar, Chief Executive Officer Address: 2005 Hamilton Avenue Suite 270 San Jose, CA 95125 Investors: BENCHMARK CAPITAL PARTNERS, L.P. By: BENCHMARK CAPITAL MANAGEMENT CO., L.L.C. Its General Partner By: /s/ ROBERT C. KAGLE --------------------------------------- Robert Kagle, Member Address: 2480 Sand Hill Road Suite 200 Menlo Park, CA 94025 BENCHMARK FOUNDERS' FUND, L.P. By: BENCHMARK CAPITAL MANAGEMENT CO., L.L.C. Its General Partner By: /s/ ROBERT C. KAGLE --------------------------------------- Robert Kagle, Member Address: 2480 Sand Hill Road Suite 200 Menlo Park, CA 94025 SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT SCHEDULE 1.1 ------------ Name of Investor Number of Shares ---------------- ---------------- Benchmark Capital Partners, L.P. 877,374 Benchmark Founders Fund, L.P. 122,626 EX-10.01 8 FORM OF INDEMNITY AGREEMENT EXHIBIT 10.01 eBAY INC. INDEMNITY AGREEMENT This Indemnity Agreement (this "Agreement"), dated as of _____________, --------- 199_, is made by and between eBay Inc., a Delaware corporation (the "Company"), ------- and _________________, a director and/or officer of the Company (the "Indemnitee"). ---------- RECITALS A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers; B. Based upon their experience as business managers, the Board of Directors of the Company (the "Board") has concluded that, to retain and attract ----- talented and experienced individuals to serve as officers and directors of the Company, and to encourage such individuals to take the business risks necessary for the success of the Company, it is necessary for the Company contractually to indemnify officers and directors and to assume for itself maximum liability for expenses and damages in connection with claims against such officers and directors in connection with their service to the Company; C. Section 145 of the General Corporation Law of Delaware, under which the Company is organized ("Section 145"), empowers the Company to indemnify by ----------- agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive; and D. The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company free from undue concern for claims for damages arising out of or related to such services to the Company. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. ----------- 1.1 Agent. For the purposes of this Agreement, "agent" of the Company ----- ----- means any person who is or was a director or officer of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the Indemnity Agreement interest of the Company or a subsidiary of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or an affiliate of the Company; or was a director or officer of a foreign or domestic corporation which was a predecessor corporation of the Company, including, without limitation, eBay Inc., a California corporation, or was a director or officer of another enterprise or affiliate of the Company at the request of, for the convenience of, or to represent the interests of such predecessor corporation. The term "enterprise" includes any employee benefit ---------- plan of the Company, its subsidiaries, affiliates and predecessor corporations. 1.2 Expenses. For purposes of this Agreement, "expenses" includes all -------- -------- direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements and other out-of- pocket costs) actually and reasonably incurred by the Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement, Section 145 or otherwise; provided, however, that expenses shall not -------- ------- include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a proceeding. 1.3 Proceeding. For the purposes of this Agreement, "proceeding" means ---------- ---------- any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever. 1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means any ---------- ---------- corporation of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more of its subsidiaries or by one or more of the Company's subsidiaries. 2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to ------------------ serve as an agent of the Company, at the will of the Company (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an agent of the Company, faithfully and to the best of his ability, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the charter documents of the Company or any subsidiary of the Company; provided, however, that the Indemnitee may at any time and for -------- ------- any reason resign from such position (subject to any contractual obligation that the Indemnitee may have assumed apart from this Agreement), and the Company or any subsidiary shall have no obligation under this Agreement to continue the Indemnitee in any such position. 3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent ---------------------------------- that the Board determines it to be economically reasonable, maintain a policy of directors' and officers' liability insurance ("D&O Insurance"), on such terms ------------- and conditions as may be approved by the Board. 4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company ------------------------- shall indemnify the Indemnitee: 2 Indemnity Agreement 4.1 Third Party Actions. If the Indemnitee is a person who was or is a ------------------- party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and 4.2 Derivative Actions. If the Indemnitee is a person who was or is a ------------------ party or is threatened to be made a party to any proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any amounts paid in settlement of any such proceeding and all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company; except that no ------ indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his duty to the Company, unless and only to the extent that the Court of Chancery or the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the Court of Chancery or such other court shall deem proper; and 4.3 Exception for Amounts Covered by Insurance. Notwithstanding the ------------------------------------------ foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to the Indemnitee by D&O Insurance. 5. PARTIAL INDEMNIFICATION AND CONTRIBUTION. ---------------------------------------- 5.1 Partial Indemnification. If the Indemnitee is entitled under any ----------------------- provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a proceeding but is not entitled, however, to indemnification for all of the total amount thereof, then the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification. 3 Indemnity Agreement 5.2 Contribution. If the Indemnitee is not entitled to the ------------ indemnification provided in Section 4 for any reason other than the statutory limitations set forth in the Delaware General Corporation Law, then in respect of any threatened, pending or completed proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such proceeding), the Company shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 6. MANDATORY ADVANCEMENT OF EXPENSES. --------------------------------- 6.1 Advancement. Subject to Section 9 below, the Company shall advance ----------- all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company or by reason of anything done or not done by him in any such capacity. The Indemnitee hereby undertakes to promptly repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Certificate of Incorporation or Bylaws of the Company, the General Corporation Law of Delaware or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company. 6.2 Exception. Notwithstanding the foregoing provisions of this Section --------- 6, the Company shall not be obligated to advance any expenses to the Indemnitee arising from a lawsuit filed directly by the Company against the Indemnitee if an absolute majority of the members of the Board reasonably determines in good faith, within thirty (30) days of the Indemnitee's request to be advanced expenses, that the facts known to them at the time such determination is made demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If such a determination is made, the Indemnitee may have such decision reviewed by another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being deemed to refer to "advancement of expenses," and the burden of proof shall be on the Company to demonstrate clearly and convincingly that, based on the facts known at the time, the Indemnitee acted in bad faith. The Company may not avail itself of this Section 6.2 as to a given lawsuit if, at any time after the occurrence of the activities or 4 Indemnity Agreement omissions that are the primary focus of the lawsuit, the Company has undergone a change in control. For this purpose, a change in control shall mean a given person or group of affiliated persons or groups increasing their beneficial ownership interest in the Company by at least twenty (20) percentage points without advance Board approval. 7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES. ------------------------------------------- 7.1 Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. 7.2 If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such D&O Insurance policies. 7.3 In the event the Company shall be obligated to advance the expenses for any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that: -------- (a) the Indemnitee shall have the right to employ his own counsel in any such proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right to employ his own counsel in connection with any such proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; and (c) if (i) the employment of counsel by the Indemnitee has been previously authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitee's counsel shall be at the expense of the Company. 8. DETERMINATION OF RIGHT TO INDEMNIFICATION. ----------------------------------------- 8.1 To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or matter described therein, the Company shall indemnify the Indemnitee against expenses actually and reasonably incurred by him in connection with the 5 Indemnity Agreement investigation, defense or appeal of such proceeding, or such claim, issue or matter, as the case may be. 8.2 In the event that Section 8.1 is inapplicable, or does not apply to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee unless the Company shall prove by clear and convincing evidence to a forum listed in Section 8.3 below that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification. 8.3 The Indemnitee shall be entitled to select the forum in which the validity of the Company's claim under Section 8.2 hereof that the Indemnitee is not entitled to indemnification will be heard from among the following, except ------ that the Indemnitee can select a forum consisting of the stockholders of the Company only with the approval of the Company: (a) A quorum of the Board consisting of directors who are not parties to the proceeding for which indemnification is being sought; (b) The stockholders of the Company; (c) Legal counsel mutually agreed upon by the Indemnitee and the Board, which counsel shall make such determination in a written opinion; (d) A panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by the Indemnitee and the last of whom is selected by the first two arbitrators so selected; or (e) The Court of Chancery of Delaware or other court having jurisdiction of subject matter and the parties. 8.4 As soon as practicable, and in no event later than thirty (30) days after the forum has been selected pursuant to Section 8.3 above, the Company shall, at its own expense, submit to the selected forum its claim that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against such claim. 8.5 If the forum selected in accordance with Section 8.3 hereof is not a court, then after the final decision of such forum is rendered, the Company or the Indemnitee shall have the right to apply to the Court of Chancery of Delaware, the court in which the proceeding giving rise to the Indemnitee's claim for indemnification is or was pending or any other court of competent jurisdiction, for the purpose of appealing the decision of such forum, provided -------- that such right is executed within sixty (60) days after the final decision of such forum is rendered. If the forum selected in accordance with Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee to appeal any decision of such court shall be governed by the applicable laws and rules governing appeals of the decision of such court. 6 Indemnity Agreement 8.6 Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify the Indemnitee against all expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all expenses incurred by the Indemnitee in connection with any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of the Indemnitee in any such proceeding was frivolous or not made in good faith. 9. EXCEPTIONS. Any other provision herein to the contrary ---------- notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: 9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses ------------------------------ to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to ------ proceedings specifically authorized by the Board or brought to establish or enforce a right to indemnification and/or advancement of expenses arising under this Agreement, the charter documents of the Company or any subsidiary or any statute or law or otherwise, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or 9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder ------------------------ for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld; or 9.3 Securities Law Actions. To indemnify the Indemnitee on account of ---------------------- any suit in which judgment is rendered against the Indemnitee for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section l6(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or 9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final ------------------------ decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication. 10. NON-EXCLUSIVITY. The provisions for indemnification and advancement --------------- of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or Bylaws, the vote of the Company's stockholders or disinterested directors, other agreements or otherwise, both as to action in the Indemnitee's official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 7 Indemnity Agreement 11. GENERAL PROVISIONS ------------------ 11.1 Interpretation of Agreement. It is understood that the parties --------------------------- hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of expenses to the Indemnitee to the fullest extent now or hereafter permitted by law, except as expressly limited herein. 11.2 Severability. If any provision or provisions of this Agreement ------------ shall be held to be invalid, illegal or unenforceable for any reason whatsoever, then: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 11.1 hereof. 11.3 Modification and Waiver. No supplement, modification or amendment ----------------------- of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 11.4 Subrogation. In the event of full payment under this Agreement, ----------- the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 11.5 Counterparts. This Agreement may be executed in one or more ------------ counterparts, which shall together constitute one agreement. 11.6 Successors and Assigns. The terms of this Agreement shall bind, ---------------------- and shall inure to the benefit of, the successors and assigns of the parties hereto. 11.7 Notice. All notices, requests, demands and other communications ------ under this Agreement shall be in writing and shall be deemed duly given: (a) if delivered by hand and receipted for by the party addressee; or (b) if mailed by certified or registered mail, with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice. 8 Indemnity Agreement 11.8 Governing Law. This Agreement shall be governed exclusively by ------------- and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 11.9 Consent to Jurisdiction. The Company and the Indemnitee each ----------------------- hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement. 11.10 Attorneys' Fees. In the event Indemnitee is required to bring any --------------- action to enforce rights under this Agreement (including, without limitation, the expenses of any Proceeding described in Section 3), the Indemnitee shall be entitled to all reasonable fees and expenses in bringing and pursuing such action, unless a court of competent jurisdiction finds each of the material claims of the Indemnitee in any such action was frivolous and not made in good faith. IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity Agreement effective as of the date first written above. eBAY INC. INDEMNITEE: By:____________________________ By:_______________________________ Title:_________________________ Address:_______________________ Address:__________________________ _______________________________ __________________________________ 9 EX-10.02 9 REGISTRANT'S 1996 STOCK OPTION PLAN EXHIBIT 10.02 1996 STOCK OPTION PLAN OF eBAY, INC. (AS AMENDED DECEMBER 3, 1997) 1. PURPOSES OF THE PLAN -------------------- The purposes of the 1996 Stock Option Plan (the "Plan") of eBay, Inc., a California corporation (the "Company"), are to: (a) Encourage selected employees, directors and consultants to improve operations and increase profits of the Company; (b) Encourage selected employees, directors and consultants to accept or continue employment or association with the Company or its Affiliates; and (c) Increase the interest of selected employees, directors and consultants in the Company's welfare through participation in the growth in value of the common stock of the Company (the "Common Stock"). Options granted under this Plan ("Options") may be "incentive stock options" ("ISOs") intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified options" ("NQOs"). 2. ELIGIBLE PERSONS ---------------- Every person who at the date of grant of an Option is a full-time employee of the Company or of any Affiliate (as defined below) of the Company is eligible to receive NQOs or ISOs under this Plan. Every person who at the date of grant is a consultant to, or non-employee director of, the Company or any Affiliate (as defined below) of the Company is eligible to receive NQOs under this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary corporation as defined in the applicable provisions (currently Sections 424(e) and (f), respectively) of the Code. The term "employee" includes an officer or director who is an employee, of the Company. The term "consultant" includes persons employed by, or otherwise affiliated with, a consultant. 3. STOCK SUBJECT TO THIS PLAN -------------------------- Subject to the provisions of Section 6.1.1 of the Plan, the total number of shares of stock which may be issued under options granted pursuant to this Plan shall not exceed 502,000 shares of Common Stock. The shares covered by the portion of any grant under the Plan which expires unexercised shall become available again for grants under the Plan. 4. ADMINISTRATION -------------- (a) This Plan shall be administered by the Board of Directors of the Company (the "Board") or, either in its entirety or only insofar as required pursuant to Section 4(b) hereof, by a committee (the "Committee") of at least two Board members to which administration of the Plan, or of part of the Plan, is delegated (in either case, the "Administrator"). (b) From and after such time as the Company registers a class of equity securities under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), it is intended that this Plan shall be administered in accordance with the disinterested administration requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 61b-3"), or any successor rule thereto. (c) Subject to the other provisions of this Plan, the Administrator shall have the authority, in its discretion: (i) to grant Options; (ii) to determine the fair market value of the Common Stock subject to Options; (iii) to determine the exercise price of Options granted; (iv) to determine the persons to whom, and the time or times at which, Options shall be granted, and the number of shares subject to each Option; (v) to interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations relating to this Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical), including but not limited to, the time or times at which Options shall be exercisable; (viii) with the consent of the optionee, to modify or amend any Option; (ix) to defer (with the consent of the optionee) the exercise date of any Option; (x) to authorize any person to execute on behalf of the Company any instrument evidencing the grant of an Option; and (xi) to make all other determinations deemed necessary or advisable for the administration of this Plan. The Administrator may delegate nondiscretionary administrative duties to such employees of the Company as it deems proper. (d) All questions of interpretation, implementation, and application of this Plan shall be determined by the Administrator. Such determinations shall be final and binding on all persons. (e) With respect to persons subject to Section 16 of the Exchange Act, if any, transactions under this Plan are intended to comply with the applicable conditions of Rule 16b-3, or any successor rule thereto. To the extent any provision of this Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. Notwithstanding the above, it shall be the responsibility of such persons, not of the Company or the Administrator, to comply with the requirements of Section 16 of the Exchange Act; and neither the Company nor the Administrator shall be liable if this Plan or any transaction under this Plan fails to comply with the applicable conditions of Rule 16b-3 or any successor rule thereto, or if any such person incurs any liability under Section 16 of the Exchange Act. 5. GRANTING OF OPTIONS; OPTION AGREEMENT ------------------------------------- (a) No Options shall be granted under this Plan after ten years from the date of adoption of this Plan by the Board. -2- (b) Each Option shall be evidenced by a written stock option agreement, in form satisfactory to the Company, executed by the Company and the person to whom such Option is granted; provided, however, that the failure by the Company, the optionee, or both to execute such an agreement shall not invalidate the granting of an Option, although the exercise of each option shall be subject to Section 6.1.3. (c) The stock option agreement shall specify whether each Option it evidences is a NQO or an ISO. (d) Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant of Options under this Plan to persons who are expected to become employees, directors or consultants of the Company, but are not employees, directors or consultants at the date of approval. 6. TERMS AND CONDITIONS OF OPTIONS ------------------------------- Each Option granted under this Plan shall be subject to the terms and conditions set forth in Section 6.1. NQOs shall be also subject to the terms and conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section 6.2. 6.1 Terms and Conditions to Which All Options Are Subject. All ----------------------------------------------------- Options granted under this Plan shall be subject to the following terms and conditions: 6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if ---------------------------- the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, or recapitalization, combination or reclassification, appropriate adjustments shall be made by the Board in (a) the number and class of shares of stock subject to this Plan and each Option outstanding under this Plan, and (b) the exercise price of each outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustments. Each such adjustment shall be subject to approval by the Board in its sole discretion. 6.1.2 Corporate Transactions. ---------------------- (a) Dissolution or Liquidation. In the event of the -------------------------- proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least thirty (30) days prior to such proposed action. To the extent it has not been previously exercised, all Options will terminate immediately prior to the consummation of such proposed action. (b) Merger or Asset Sale. In the event of a merger of the -------------------- Company with or into another corporation, or the sale of substantially all of the assets of the Company: (i) Options. Each Option shall be assumed or an ------- equivalent option substituted by the successor corporation (including as a "successor" any -3- purchaser of substantially all of the assets of the Company) or a parent or subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall have the right to exercise the Option as to all of the shares of Common Stock covered by the Option, including Shares as to which it would not otherwise be exercisable. It an Option is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each share of Common Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its parent entity, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Common Stock subject to the Option, to be solely common stock of the successor corporation or its parent entity equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. (ii) Shares Subject to Right of Repurchase. Any Shares ------------------------------------- subject to a Right of Repurchase of the Company shall be exchanged for the consideration (whether stock, cash, or other securities or property) received in the merger or asset sale by the holders of Common Stock for each share held on the effective date of the transaction, as described in the preceding paragraph. If in such exchange the Optionee receives shares of stock of the successor corporation or a parent or subsidiary of such successor corporation, and if the successor corporation has agreed to assume or substitute for Options as provided in the preceding paragraph, such exchanged shares shall continue to be subject to a Right of Repurchase as provided in the Optionee's Stock Option Plan stock purchase agreement. If, as provided in the preceding paragraph, the Optionee shall have the right to exercise an Option as to all of the shares of Common Stock covered thereby, all Shares that are subject to a Right of Repurchase of the Company shall be released from such Right of Repurchase and shall be fully vested. 6.1.3 Time of Option Exercise. Subject to Section 5 and Section ----------------------- 6.3.4, Options granted under this Plan shall be exercisable (a) immediately as of the effective date of the stock option agreement granting the Option, or (b) in accordance with a schedule related to the date of the grant of the Option, the date of first employment, or such other date as may be set by the Administrator (in any case, the "Vesting Base Date") and specified in the written stock option agreement relating to such Option; provided, however, that the right to exercise an Option must vest at the rate of at least 20% per year over five years from the date the Option was granted. In any case, no Option shall be exercisable until a written stock option agreement in form satisfactory to the Company is executed by the Company and the optionee. -4- 6.1.4 Option Grant Date. Except in the case of advance approvals ----------------- described in Section 5(d), the date of grant of an Option under this Plan shall be the date as of which the Administrator approves the grant. -5- 6.1.5 Nonassignability of Option Rights. No Option granted under --------------------------------- this Plan shall be assignable or otherwise transferable by the optionee except by will or by the laws of descent and distribution. During the life of the optionee, an Option shall be exercisable only by the optionee. 6.1.6 Payment. Except as provided below, payment in full, in ------- cash, shall be made for all stock purchased at the time written notice of exercise of an Option is given to the Company, and proceeds of any payment shall constitute general funds of the Company. At the time an Option is granted or exercised, the Administrator, in the exercise of its absolute discretion after considering any tax or accounting consequences, may authorize any one or more of the following additional methods of payment: (a) Acceptance of the optionee's full recourse promissory note for all or part of the Option price, payable on such terms and bearing such interest rate as determined by the Administrator (but in no event less than the minimum interest rate specified under the Code at which no additional interest would be imputed), which promissory note may be either secured or unsecured in such manner as the Administrator shall approve (including, without limitation, by a security interest in the shares of the Company); and (b) Delivery by the optionee of Common Stock already owned by the optionee for all or part of the Option price, provided the value (determined as set forth in Section 6.1.11) of such Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by delivery of such stock; provided, however, that if an optionee has exercised any portion of any Option granted by the Company by delivery of Common Stock, the optionee may not, within six months following such exercise, exercise any Option granted under this Plan by delivery of Common Stock without the consent of the Administrator. 6.1.7 Termination of Employment. ------------------------- (a) If for any reason other than death or disability, an optionee ceases to be employed by the Company or any of its Affiliates (such event being called a "Termination"), Options held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months of the date of such Termination, or such other period of not less than thirty days after the date of such Termination as is specified in the Option Agreement (but in no event after the Expiration Date); provided, that if -------- such exercise of the Option would result in liability for the optionee under Section 16(b) of the Exchange Act, then such three-month period automatically shall be extended until the tenth day following the last date upon which optionee has any liability under Section 16(b) (but in no event after the Expiration Date). (b) If an optionee dies while employed by the Company or an Affiliate or within the period that the Option remains exercisable after Termination, Options then held (to the extent then exercisable) may be exercised, in whole or in part, by the optionee, by the optionee's personal representative, or by the person to whom the Option is transferred by devise -6- or the laws of descent and distribution, at any time within twelve months after the death of the optionee, or such other period of not less than six months from the date of Termination as is specified in the Option Agreement (but in no event after the Expiration Date). (c) If an optionee ceases to be employed by the Company as a result of his or her disability, the optionee may, but only within six (6) months from the date of Termination (and in no event after the Expiration Date), exercise the Option to the extent otherwise entitled to exercise it at the date of Termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an ISO such ISO shall automatically convert to an NQO on the day three months and one day following such Termination. To the extent that the optionee was not entitled to exercise the Option at the date of Termination or if the optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) For purposes of this Section 6.1.7, "employment" includes service as a director or as a consultant. For purposes of this Section 6.1.7, an optionee's employment shall not be deemed to terminate by reason of sick leave, military leave, or other leave of absence approved by the Administrator, if the period of any such leave does not exceed 90 days or, if longer, if the optionee's right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute. 6.1.8 Repurchase of Stock. At the option of the Administrator, ------------------- the stock to be delivered pursuant to the exercise of any Option granted to an employee, director or consultant under this Plan may be subject to a right of repurchase in favor of the Company with respect to any employee, or director or consultant whose employment, or director or consulting relationship with the Company is terminated. Such right of repurchase either: (a) shall be at the Option exercise price and (i) shall lapse at the rate of at least 20% per year over five years from the date the Option is granted (without regard to the date it becomes exercisable), and must be exercised for cash or cancellation of purchase money indebtedness within 90 days of such termination and (ii) if the right is assignable by the Company, the assignee must pay the Company upon assignment of the right (unless the assignee is a 100% owned subsidiary of the Company or is an Affiliated) cash equal to the difference between the Option exercise price and the value (determined as set forth in Section 6.1.11) of the stock to be purchased if the Option exercise price is less than such value; or (b) shall be at the higher of the Option exercise price or the value (determined as set forth in Section 6.1.11) of the stock being purchased on the date of termination, and must be exercised for cash or cancellation of purchase money indebtedness within 90 days of termination of employment, and such right shall terminate when the Company's securities become publicly traded. Determination of the number of shares subject to any such right of repurchase shall be made as of the date the employee's employment by, director's director relationship with, -7- or consultant's consulting relationship with, the Company terminates, not as of the date that any Option granted to such employee, director or consultant is thereafter exercised. 6.1.9 Withholding and Employment Taxes. At the time of exercise -------------------------------- of an Option or at such other time as the amount of such obligations becomes determinable (the "Tax Date"), the optionee shall remit to the Company in cash all applicable federal and state withholding and employment taxes. If authorized by the Administrator in its sole discretion after considering any tax or accounting consequences, an optionee may elect to (i) deliver a promissory note on such terms as the Administrator deems appropriate, (ii) tender to the Company previously owned shares of Stock or other securities of the Company, or (iii) have shares of Common Stock which are acquired upon exercise of the Option withheld by the Company to pay some or all of the amount of tax that is required by law to be withheld by the Company as a result of the exercise of such Option, subject to the following limitations: (a) Any election pursuant to clause (iii) above by an optionee subject to Section 16 of the Exchange Act shall either (x) be made at least six months before the Tax Date and shall be irrevocable; or (y) shall be made in (or made earlier to take effect in) any ten-day period beginning on the third business day following the date of release for publication of the Company's quarterly or annual summary statements of earnings and shall be subject to approval by the Administrator, which approval may be given at any time after such election has been made. In addition, in the case of (y), the Option shall be held at least six months prior to the Tax Date. (b) Any election pursuant to clause (ii) above, where the optionee is tendering Common Stock issued pursuant to the exercise of an Option, shall require that such shares be held at least six months prior to the Tax Date. Any of the foregoing limitations may be waived (or additional limitations may be imposed) by the Administrator, in its sole discretion, if the Administrator determines that such foregoing limitations are not required (or that such additional limitations are required) in order that the transaction shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 61b-3, or any successor rule thereto. In addition, any of the foregoing limitations may be waived by the Administrator, in its sole discretion, if the Administrator determines that Rule 16b-3, or any successor rule thereto, is not applicable to the exercise of the Option by the optionee or for any other reason. Any securities tendered or withheld in accordance with this Section 6.1.9 shall be valued by the Company as of the Tax Date. 6.1.10 Other Provisions. Each Option granted under this Plan may ---------------- contain such other terms, provisions, and conditions not inconsistent with this Plan as may be determined by the Administrator, and each ISO granted under this Plan shall include such provisions and conditions as are necessary to qualify the Option as an "incentive stock option" within the meaning of Section 422 of the Code. If Options provide for a right of first refusal in favor of the Company with respect to stock acquired by employees, directors or consultants, such Options shall provide that the right of first refusal shall terminate upon the earlier of (i) the -8- closing of the Company's initial registered public offering to the public generally, or (ii) the date ten years after the grant date as set forth in Section 6.1.4. 6.1.11 Determination of Value. For purposes of the Plan, the ---------------------- value of Common Stock or other securities of the Company shall be determined as follows: (a) If the stock of the Company is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System, its fair market value shall be the closing sales price for such stock or the closing bid if no sales were reported, as quoted on such system or exchange (or the largest such exchange) for the date the value is to be determined (or if there are no sales for such date, then for the last preceding business day on which there were sales), as reported in the Wall Street Journal or similar publication. - ------------------- (b) If the stock of the Company is regularly quoted by a recognized securities dealer but selling prices are not reported, its fair market value shall be the means between the high bid and low asked prices for the stock on the date the value is to be determined (or if there are no quoted prices for the date of grant, then for the last preceding business day on which there were quoted prices). (c) In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the Administrator, with reference to the Company's net worth, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in the Company's industry, the Company's position in the industry and its management, and the values of stock of other corporations in the same or a similar line of business. 6.1.12 Option Term. Subject to Section 6.3.5, no Option shall be ----------- exercisable more than ten years after the date of grant, or such lesser period of time as is set forth in the stock option agreement (the end of the maximum exercise period stated in the stock option agreement is referred to in this Plan as the "Expiration Date"). 6.1.13 Exercise Price. The exercise price of any Option granted -------------- to any person who owns, directly or by attribution under the Code currently Section 424(d), stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any Affiliate (a "Ten Percent Stockholder") shall in no event be less than 110% of the fair market value (determined in accordance with Section 6.1.11) of the stock covered by the Option at the time the Option is granted. 6.2 Terms and Conditions to Which Only NQOs Are Subject. Options --------------------------------------------------- granted under this Plan which are designated as NQOs shall be subject to the following terms and conditions: -9- 6.2.1 Exercise Price. Except as set forth in Section 6.1.13, the -------------- exercise price of a NQO shall be not less than 85% of the fair market value (determined in accordance with Section 6.1.11) of the stock subject to the Option on the date of grant. 6.3 Terms and Conditions to Which Only ISOs Are Subject. Options --------------------------------------------------- granted under this Plan which are designated as ISOs shall be subject to the following terms and conditions: 6.3.1 Exercise Price. Except as set forth in Section 6.1.13, the -------------- exercise price of an ISO shall be determined in accordance with the applicable provisions of the Code and shall in no event be less than the fair market value (determined in accordance with Section 6.1.11) of the stock covered by the Option at the time the Option is granted. 6.3.2 Disqualifying Dispositions. If stock acquired by exercise -------------------------- of an ISO granted pursuant to this Plan is disposed of in a "disqualifying disposition" within the meaning of Section 422 of the Code, the holder of the stock immediately before the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the Option as the Company may reasonably require. 6.3.3 Grant Date. If an ISO is granted in anticipation of ---------- employment as provided in Section 59d), the Option shall be deemed granted, without further approval, on the date the grantee assumes the employment relationship forming the basis for such grant, and, in addition, satisfies all requirements of this Plan for Options granted on that date. 6.3.4 Vesting. Notwithstanding any other provision of this Plan, ------- ISOs granted under all incentive stock option plans of the Company and its subsidiaries may not "vest" for more than $100,000 in fair market value of stock (measured on the grant date(s)) in any calendar year. For purposes of the preceding sentence, an option "vests" when it first becomes exercisable. If, by their terms, such ISOs taken together would vest to a greater extent in a calendar year, and unless otherwise provided by the Administrator, the vesting limitation described above shall be applied by deferring the exercisability of those ISOs or portions of ISOs which have the highest per share exercise prices; but in no event shall more than $100,000 in fair market value of stock (measures on the grant date(s)) vest in any calendar year. The ISOs or portions of ISOs whose exercisability is so deferred shall become exercisable on the first day of the first subsequent calendar year during which they may be exercised, as determined by applying these same principles and all other provisions of this Plan including those relating to the expiration and termination of ISOs. In no event, however, will the operation of this Section 6.3.4 cause an ISO to vest before its terms or, having vested, cease to be vested. 6.3.5 Term. Notwithstanding Section 6.1.12, no ISO granted to ---- any Ten Percent Stockholder shall be exercisable more than five years after the date of grant. 7. MANNER OF EXERCISE ------------------ (a) An optionee wishing to exercise an Option shall give written notice to the Company at its principal executive office, to the attention of the officer of the Company -10- designated by the Administrator, accompanied by payment of the exercise price as provided in Section 6.1.6. The date the Company receives written notice of an exercise hereunder accompanied by payment of the exercise price will be considered as the date such Option was exercised. (b) Promptly after receipt of written notice of exercise of an Option, the Company shall, without stock issue or transfer taxes to the optionee or other person entitled to exercise the Option deliver to the optionee or such other person a certificate or certificates for the requisite number of shares of stock. An optionee or permitted transferee of an optionee shall not have any privileges as a shareholder with respect to any shares of stock covered by the Option until the date of issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of such shares. 8. EMPLOYMENT OR CONSULTING RELATIONSHIP ------------------------------------- Nothing in this Plan or any Option granted thereunder shall interfere with or limit in any way the right of the Company or of any of its Affiliates to terminate any optionee's employment or consulting at any time, nor confer upon any optionee any right to continue in the employ of, or consult with, the Company or any of its Affiliates. 9. FINANCIAL INFORMATION --------------------- The Company shall provide to each optionee during the period such optionee holds an outstanding Option, and to each holder of Common Stock acquired upon exercise of Options granted under the Plan for so long as such person is a holder of such Common Stock, annual financial statements of the Company as prepared either by the Company or independent certified public accountants of the Company. Such financial statements shall include, at a minimum, a balance sheet and an income statement, and shall be delivered as soon as practicable following the end of the Company's fiscal year. 10. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock shall not ---------------------------------- be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended (the "Securities Act"). 11. NONEXCLUSIVITY OF THE PLAN. The adoption of the Plan shall not be -------------------------- construed as creating any limitations on the power of the Company to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options other than under the Plan. 12. MARKET STANDOFF. Each Optionee, if so requested by the Company or --------------- any representative of the underwriters in connection with any registration of the offering of any securities of the company under the Securities Act shall not sell or otherwise transfer any shares of Common Stock acquired upon exercise of Options during the 180-day period following the effective date of a registration statement of the company filed under the Securities Act; provided, however, that such restriction shall apply only to the first two registration statements of the -11- Company to become effective under the Securities Act which includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restriction until the end of such 180-day period. 13. AMENDMENTS TO PLAN. ------------------ The Board may at any time amend, alter, suspend or discontinue this Plan. Without the consent of an optionee, no amendment, alteration, suspension or discontinuance may adversely affect outstanding Options except to conform this Plan and ISOs granted under this Plan to the requirements of federal or other tax laws relating to incentive stock options. No amendment, alternation, suspension or discontinuance shall require shareholder approval unless (a) shareholder approval is required to preserve incentive stock option treatment for federal income tax purposes, or (b) the Board otherwise concludes that shareholder approval is advisable. 14. EFFECTIVE DATE OF PLAN ---------------------- This Plan shall become effective upon adoption by the Board provided, however, that no Option shall be exercisable unless and until written consent of the shareholders of the Company, or approval of shareholders of the Company voting at a validly called shareholders' meeting, is obtained within 12 months after adoption by the Board. If such shareholder approval is not obtained within such time, Options granted hereunder shall terminate and be of no force and effect from and after expiration of such 12-month period. Options may be granted and exercised under this Plan only after there has been compliance with all applicable federal and state securities laws. Plan adopted by the Board of Directors on____________________________. Plan approved by Shareholders on_____________________________________. -12- EXHIBIT D-3 1996 Stock Option Plan Form of Stock Option Grant eBAY, INC. STOCK OPTION PLAN INCENTIVE STOCK OPTION AGREEMENT (A) Name of Optionee: (B) Grant Date: (C) Number of Shares: (D) Exercise Price: (E) Vesting Base Date: (F) Effective Date: THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement"), is made and entered into as of the date set forth in Item F above (the "Effective Date") between eBay, Inc., a California corporation (the "Company") and the person named in Item A above ("Optionee"). THE PARTIES AGREE AS FOLLOWS: 1. Grant of Option: Vesting Base Date. ----------------------------------- 1.1 Grant. The Company hereby grants to Optionee pursuant to ----- the Company's Stock Option Plan (the "Plan"), a copy of which is attached to this Agreement as Exhibit 1, an incentive stock option (the "ISO") to purchase all or any part of an aggregate of the number of shares (the "ISO Shares") of the Company's Common Stock (as defined in the Plan) listed in Item C above on the terms and conditions set forth herein and in the Plan, the terms and conditions of the Plan being hereby incorporated into this Agreement by reference. 1.2 Vesting Base Date. The parties hereby establish the date set forth ----------------- in Item E above as the Vesting Base Date (as defined in Section 5.1 below). 2. Exercise Price. The exercise price for purchase of each share of -------------- Common Stock covered by this ISO shall be the price set forth in Item D above. 3. Term. Unless otherwise specified on Exhibit 3 attached hereto, if any ---- (the absence of such exhibit indicating that no such exhibit was intended), this ISO shall expire as provided in Section 6.1.12 of the Plan. 4. Adjustment of ISOs. The Company shall adjust the number and kind ------------------ of shares and the exercise price thereof in certain circumstances in accordance with the provisions of Section 6.1.1 of the Plan. 5. Exercise of Options. ------------------- 5.1 Vesting; Tune of Exercise. This ISO shall be exercisable ------------------------- according to the schedule set forth on Exhibit 5.1 attached hereto. Such schedule shall commence as of the date set forth in Item (E) above (the "Vesting Base Date"). -1- 5.2 Exercise After Termination of Status as an Employee, Director or ---------------------------------------------------------------- Consultant. In the event of termination of Optionee's continuous status as an - ---------- employee, director or consultant, this ISO may be exercised only in accordance with the provisions of Section 6.1.7 of the Plan. 5.3 Manner of Exercise. Optionee may exercise this ISO, or any ------------------ portion of this ISO, by giving written notice to the Company at its principal executive office, to the attention of the officer of the Company designated by the Plan Administrator, accompanied by a copy of the Stock Option Plan Stock Purchase Agreement in substantially the form attached hereto as Exhibit 5.3 executed by Optionee (or at the option of the Company such other form of stock purchase agreement as shall then be acceptable to the Company), payment of the exercise price and payment of any applicable withholding or employment taxes. The date the Company receives written notice of an exercise hereunder accompanied by payment will be considered as the date this ISO was exercised. 5.4 Payment. Except as provided in Exhibit 5.4 attached hereto, if ------- any (the absence of such exhibit indicating that no exhibit was intended), payment may be made for ISO Shares purchased at the time written notice of exercise of the ISO is given to the Company, by delivery of cash, check, previously owned shares of Common Stock (provided that delivery of previously owned shares may not be made more than once in any six-month period), or a full recourse promissory note equal to up to 90% of the exercise price and payable over no more than five years. The proceeds of any payment shall constitute general funds of the Company. 5.5 Delivery of Certificate. Promptly after receipt of written ----------------------- notice of exercise of the ISO, the Company shall, without stock issue or transfer taxes to the Optionee or other person entitled to exercise, deliver to the Optionee or other person a certificate or certificates for the requisite number of ISO Shares. An Optionee or Transferee of an Optionee shall not have any privileges as a shareholder with respect to any ISO Shares covered by the option until the date of issuance of a stock certificate. 6. Nonassignability ISO. This ISO is not assignable or transferable by -------------------- Optionee concept by will or by the laws of descent and distribution. During the life of Optionee, the ISO is exercisable only by the Optionee. Any attempt to assign, pledge, transfer, hypothecate or otherwise dispose of this ISO in a manner not herein permitted, and any levy of execution, attachment, similar process on this ISO, shall be null and void. 7. Company's Repurchase Rights. The ISO Shares arising from exercise of --------------------------- this ISO shall be subject to a right of repurchase in favor of the Company (the "Right of Repurchase") to the extent set forth on Exhibit 7 attached hereto (the absence of such exhibit indicating that no such exhibit was intended and that the ISO shall be subject to the limitations set forth on Exhibit 5.1). If the Optionee's employment with the Company terminates before the Right of Repurchase lapses in accordance with Exhibit 7, the Company may purchase ISO Shares subject to the Right of Repurchase (either by payment of cash or by cancellation of purchase money indebtedness) for an amount equal to the price the Optionee paid for such ISO Shares (exclusive of any taxes -2- paid upon acquisition of the stock) by giving notice at any time within the later of (a) 30 days after the acquisition of the ISO Shares upon option exercise, or (b) 90 days after such termination of employment that the Company is exercising its right of repurchase. The Company shall include with such notice payment in full in cash or by evidence of cancellation of purchase money indebtedness. The Optionee may not dispose of or transfer ISO Shares while such shares are subject to the Right of Repurchase and any such attempted transfer shall be null and void. 8. Company's Right of First Refusal. -------------------------------- 8.1 Right of First Refusal. In the event that the Optionee proposes ---------------------- to sell, pledge, or otherwise transfer any ISO Shares or any interest in such shares to any person or entity, the Company shall have a right of first refusal (the "Right of First Refusal") with respect to such ISO Shares. If Optionee desires to transfer ISO Shares, Optionee shall give a written notice (the "Transfer Notice") to the Company describing fully the proposed transfer, including the number of ISO Shares proposed to be transferred, the proposed transfer price, and the name and address of the proposed transferee. The Transfer Notice shall be signed both by Optionee and by the proposed transferee and must constitute a binding commitment of both such parties for the transfer of such ISO Shares. The Company may elect to purchase all but not less than all, of the ISO Shares subject to the Transfer Notice by delivery of a notice of exercise of the Company's Right of first Refusal within 30 days after the date the Transfer Notice is delivered to the Company. The purchase price paid by the Company shall be the price per share equal to the proposed per share transfer price, and shall be paid to the Optionee within 60 days after the date the Transfer Notice is received by the Company, unless a longer period for payment was offered by the proposed transferee, in which case the Company shall pay the purchase price within such longer period. The Company's rights under this Section 8.1 shall be freely assignable, in whole or in part. Notwithstanding the foregoing, the Right of First Refusal does not apply to a transfer of shares by gift or devise to the Optionee's immediate family (i.e., parents, spouse or children or to a trust for the benefit of the Optionee or any of the Optionee s immediate family members), but does apply to any subsequent transfer of such shares by such immediate family members. 8.2 Transfer of ISO Shares. If the Company fails to exercise the ---------------------- Right of First Refusal within 30 days after the date the Transfer Notice is delivered to the Company, the Optionee may, not later than 75 days following delivery to the Company of the Transfer Notice, conclude a transfer of the ISO Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance by the Optionee with the procedure described in Section 8.1 of this Agreement. If the Company exercises the Right of First Refusal, the parties shall consummate the sale of ISO Shares on the terms, other than price, as applicable under Section 8.1, set forth in the Transfer Notice; provided, however, in the event the Transfer Notice provides for payment for the ISO Shares other than in cash, the Company shall have the option of paying for the ISO Shares by paying in cash the present value of the consideration described in the Transfer Notice; and further provided that if the value of noncash consideration is to be paid and the Optionee disagrees with the value determined by the Company, the Optionee may request an independent appraisal by an appraiser -3- acceptable to the Optionee and the Company, the costs of such appraisal to be borne equally by the Optionee and the Company. 8.3 Binding Effect. The Right of First Refusal shall inure to the -------------- benefit of the successors and assigns of the Company and shall be binding upon any transferee of ISO Shares other than a transferee acquiring ISO Shares in a transaction where the Company failed to exercise the Right of First Refusal (a "Free Transferee") or a transferee of a Free Transferee. 8.4 Termination of Company's Right of first Refusal. Notwithstanding ----------------------------------------------- anything in this Section 8, the Company shall have no Right of First Refusal, and Optionee shall have no obligation to comply with the procedures in Sections 8.1 through 8.3 after the earlier of (i) the closing of the Company's initial public offering to the public generally, or (ii) the date ten (10) years after the Effective Date. 9. Marker Standoff. Optionee hereby agrees that if so requested by the --------------- Company or any representative of the underwriters in connection with any registration of the offering of the securities of the Company under the Securities Act of 1933, as amended (the "Securities Act"), Optionee shall not sell or otherwise transfer the ISO Shares for a period of 180 days following the effective date of a Registration Statement filed under the Securities Act; provided that such restrictions shall only apply to the first two registration statements of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to the ISO Shares subject to the foregoing restrictions until the end of each such 180-day period. 10. Restriction on Issuance of Shares. --------------------------------- 10.1 Legality of Issuance. The Company shall not be obligated to sell -------------------- or issue any ISO Shares pursuant to this Agreement if such sale or issuance, in the opinion of the Company and the Company's counsel, might constitute a violation by the Company of any provision of law, including without limitation the provisions of the Securities Act. 10.2 Registration or Qualification of Securities. The Company may, ------------------------------------------- but shall not be required to, register or qualify the sale of this ISO or any ISO Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the grant or exercise of this option or the issuance or sale of any ISO Shares pursuant thereto to comply with any law. 11. Restriction on Transfer. Regardless whether the sale of the ISO ----------------------- Shares has been registered under the Securities Act or has been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of ISO Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and the Company's counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Securities Act, the securities laws of any state, or any other law, or if the Company does not desire so have a trading market develop for its -4- securities. 12. Stock Certificate. Stock certificates evidencing ISO Shares may bear ----------------- such restrictive legends as the Company and the Company's counsel deem necessary or advisable under applicable law or pursuant to this Agreement. 13. Disqualifying Dispositions. If Stock acquired by exercise of this ISO -------------------------- is disposed of within two years after the Effective Date or within one year after date of such exercise (as determined under Section 5.3 of this Agreement), the Optionee immediately prior to the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the disposition as the Company may reasonably require. 14. Representations, Warranties, Covenants, and Acknowledgments of -------------------------------------------------------------- Optionee Upon Exercise of ISO. Optionee hereby agrees that in the event that - ----------------------------- the Company and the Company's counsel deem it necessary or advisable in the exercise of their discretion, the issuance of ISO Shares may be conditioned upon certain representations, warranties, and acknowledgments by the person exercising the ISO (the "Purchaser"), including, without limitation, those set forth in Sections 14.1 through 14.8 inclusive: 14.1 Investment. Purchaser is acquiring the ISO Shares for ---------- Purchaser's own account, and not for the account of any other person. Purchaser is acquiring the ISO Shares for investment and not with a view to distribution or resale thereof except in compliance with applicable laws regulating securities. 14.2 Business Experience. Purchaser is capable of evaluating the ------------------- merits and risks of Purchaser's investment in the Company evidenced by purchase of the ISO Shares. 14.3 Relation to Company. Purchaser is presently an officer, ------------------- director, or other employee of, or consultant to the Company, and in such capacity has become personally familiar with the business, affairs, financial condition, and results of operations of the Company. 14.4 Access to Information. Purchaser has had the opportunity to ask --------------------- questions of, and to receive answers from, appropriate executive officers of the Company with respect to the terms and conditions of the transaction contemplated hereby and with respect to the business, affairs, financial condition, and results of operations of the Company. Purchaser has had access to such financial and other information as is necessary in order for Purchaser to make a fully-informed decision as to investment in the Company by way of purchase of the ISO Shares, and has had the opportunity to obtain any additional information necessary to verify any of such information to which Purchaser has had access. 14.5 Speculative Investment. Purchaser's investment in the Company ---------------------- represented by the ISO Shares is highly speculative in nature and is subject to a high degree of risk of loss in whole or in part. The amount of such Investment is within Purchaser's risk capital means and is not so great in relation to Purchaser's total financial resources as would jeopardize -5- the personal financial needs of Purchaser or Purchaser's family in the event such investment were lost in whole or in part. 14.6 Registration. Purchaser must bear the economic risk of ------------ investment for an indefinite period of time because the sale to Purchaser of the ISO Shares has not been registered under the Securities Act and the ISO Shares cannot be transferred by Purchaser unless such transfer is registered under the Securities Act or an exemption from such registration available. The Company has made no agreements, covenants, or undertakings whatsoever to register the transfer of any of the ISO Shares under the Securities Act. The Company has made no representations, warranties, or covenants whatsoever as to whether any exemption from the Securities Act, including without limitation any exemption for limited sales in routine brokers' transactions pursuant to Rule 144, will be available; if the exemption under Rule 144 is available at all, it may not be available until at least two years after payment of cash for the ISO Shares and not then unless: (i) a public trading market then exists in the Company's common stock: (ii) adequate information as to the Company's financial and other affairs and operations is then available to the public; and (iii) all other terms and conditions of Rule 144 have been satisfied. Purchaser understands that the resale provisions of Rule 701 will not apply until 90 days after the Company becomes subject to the reporting obligations of the Securities Exchange Act of 1934 (typically 90 days after the effective date of an initial public offering). 14.7 Public Trading. None of the Company's securities is presently -------------- publicly traded, and the Company has made no representation, covenant, or agreement as to whether there will be a public market for any of its securities. 14.8 Tax Advice. The Company has made no warranties or ---------- representations to Purchaser with respect to the income tax consequences of the transactions contemplated by the agreement pursuant to which the ISO Shares will be purchased and Purchaser is in no manner relying on the Company or its representatives for an assessment of such tax consequences. 15. Assignment: Binding Effect. Subject to the limitations set forth in --------------------------- this Agreement, this Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, legal representatives, and successors of the parties hereto; provided, however, that Optionee may not assign any of Optionee's rights under this Agreement. 16. Damages. Optionee shall be liable to the Company for all costs and ------- damages, including incidental and consequential damages, resulting from a disposition of ISO Shares which is not in conformity with the provisions of this Agreement. 17. Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of California excluding those laws that direct the application of the laws of another jurisdiction. 18. Notices. All notices and other communications under this Agreement ------- shall be in writing. Unless and until the Optionee is notified in writing to the contrary, all notices, communications, and documents directed to the Company and related to the Agreement, if not -6- delivered by hand, shall be mailed, addressed as follows: eBay, Inc. 2005 Hamilton Ave., Suite 270 San Jose, CA 95125 Attention: President Unless and until the Company is notified in writing to the contrary, all notices, communications, and documents intended for the Optionee and related to this Agreement, if not delivered by hand, shall be mailed to Optionee's last known address as shown on the Company's books. Notices and communications shall be mailed by first class mail, postage prepaid; documents shall be mailed by registered mail, return receipt requested, postage prepaid. All mailings and deliveries related to this Agreement shall be deemed received when actually received, if by hand delivery, and two business days after mailing, if by mail. 19. Arbitration. ------------ Any and all disputes or controversies arising out of this Agreement shall be finally settled by arbitration conducted in Santa Clara County in accordance with the then existing rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any count having jurisdiction thereof; provided that nothing in this Section 19 shall prevent a party from applying to a court of competent jurisdiction to obtain temporary relief pending resolution of the dispute through arbitration. The parties hereby agree that service of any notices in the course of such arbitration at their respective addresses as provided for in Section 18 shall be valid and sufficient. 20. Entire Agreement. ---------------- Company and Optionee agree that this Agreement (including its attached Exhibits) is the complete and exclusive statement between Company and Optionee regarding its subject matter and supersedes all prior proposals, communications, and agreements of the parties (including Company's letter to Optionee setting forth the proposed terms of employment), whether oral or written, regarding the grant of stock options or issuances of shares to Optionee. IN WITNESS WHEREOF, the parties have executed this Incentive Stock Option Agreement as of the Effective Date. eBAY, INC. By: Title: The Optionee hereby accepts and agrees to be bound by all of the terms and conditions of this Agreement and the Plan. -7- Optionee ___________________ Dated: _____________________ Optionee's spouse indicates by the execution of this Incentive Stock Option Agreement his or her consent to be bound by the terms thereof as to his or her interests, whether as community property or otherwise, if any, in the option granted hereunder, and in any ISO Shares purchased pursuant to this Agreement. ____________________________ Optionee's Spouse -8- EXHIBITS - -------- Exhibit 1 Stock Option Plan Exhibit 3 Expiration of Incentive Stock Option (if applicable) Exhibit 5.1 (Standard Vesting) Time of Exercise Exhibit 5.3 Stock Option Plan Stock Purchase Agreement EXHIBIT 5.1 OF THE INCENTIVE STOCK OPTION AGREEMENT The ISO shall be exercisable with respect to all of the ISO Shares from and after the Effective Date subject to the Right of Repurchase set forth in Exhibit 7. Initialed by: eBay, Inc. By: ___________________________ Title: ________________________ Optionee: _____________________ EXHIBIT 7 OF THE INCENTIVE STOCK OPTION AGREEMENT All of the ISO Shares are subject to the Right of Repurchase. The Right of Repurchase shall expire with respect to twenty-five percent (25%) of the total number of ISO Shares twelve months after the Vesting Base Date, and thereafter, with respect to an additional 1/48 of the ISO Shares on the first day of each month after the twelve month anniversary of the Vesting Base Date, so that the Right of Repurchase shall have expired with respect to all of the ISO Shares on and after January 2, 2001. Executed by: eBay, Inc. By: _________________________ Title: ______________________ Optionee: ___________________ Exhibit D-4 1996 Stock Option Plan Form of Stock Option Exercise Agreement eBAY, INC. STOCK OPTION PLAN STOCK PURCHASE AGREEMENT ------------------------ (A) Name of Purchaser: _____________________ (B) Number of Plan Shares:__________________ (C) Exercise Price:_________________________ (D) Purchase Price:_________________________ (E) Date of Option Agreement:_______________ (F) Effective Date:_________________________ THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as of the date set forth in Item F above (the "Effective Date") between eBay, Inc., a California corporation (the "Company"), and the person named in Item A above (the "Purchaser"). THE PARTIES AGREE AS FOLLOWS: 1. Purchase of Shares. Pursuant to the Company's Stock Option Plan (the ------------------ "Plan") and to a stock option agreement ("Option Agreement") between the parties dated the date set forth in Item E above, the Company hereby sells to Purchaser, and Purchaser hereby buys from the Company, that number of shares (the "Plan Shares") of the Company's Common Stock (as defined in the Plan) set forth in Item B above on the terms and conditions set forth herein and in the Plan and the Option Agreement, the terms and conditions of the Plan and the Option Agreement being hereby incorporated into this Agreement by reference. 2. Purchase Price. Purchaser shall purchase the Plan Shares from the -------------- Company, and the Company shall sell the Plan Shares to Purchaser, at a price per share as set forth in Item C above (the "Exercise Price"), for a total purchase price as set forth in Item D above (the "Purchase Price"). 3. Manner of Payment. Purchase shall pay the Purchase Price of the Plan ----------------- Shares by delivery of cash, check, previously owned shares of Common Stock (provided that delivery of previously owned shares may not be made more than once in any six-month period), or a full recourse promissory note equal to up to 90% of the Purchase Price and payable over no more than five years (or in the manner set forth in Exhibit 5.4 to the Option Agreement evidencing the option, the absence of any Exhibit 5.4 indicating that no such exhibit was intended). EXHIBIT 5.3 to INCENTIVE STOCK OPTION AGREEMENT 4. Company's Right of Repurchase Upon Termination of Employment. The ------------------------------------------------------------ Plan Shares are subject to a right of repurchase in favor of the Company (the "Right of Repurchase") to the extent set forth on Exhibit 7 of the Option Agreement (the absence of Exhibit 7 in the Option Agreement indicating that no such exhibit was intended). If the Purchaser's employment, consulting or service as a director with the Company terminates before the Right of Repurchase lapses in accordance with Exhibit 7 of the Option Agreement, the Company may purchase stock subject to the Right of Repurchase (either by payment of cash or by cancellation of purchase money indebtedness) for an amount equal to the price the Optionee paid for such Plan Shares (exclusive of any taxes paid upon acquisition of the stock) by giving notice at any time within the later of (a) 30 days after the acquisition of the Plan Shares upon option exercise, or (b) 90 days after such termination of employment that the Company is exercising its right of repurchase. The Company shall include with such notice payment in full in cash or by evidence of cancellation of purchase money indebtedness. The Purchaser may not dispose of or transfer Plan Shares while such shares are subject to the Right of Repurchase and any such attempted transfer shall be null and void. 5. Company's Right of First Refusal Respecting Plan Shares. ------------------------------------------------------- 5.1 Right of First Refusal. In the event that Purchaser proposes to ---------------------- sell, pledge, or otherwise transfer any Plan Shares or any interest in such shares to a bona-fide third party offeror, the Company shall have a right of first refusal (the "Right of First Refusal") with respect to such Plan Shares. If Purchaser desires to transfer Plan Shares, Purchaser shall give a written notice (the "Transfer Notices") to the Company describing fully the proposed transfer, including the number of Plan Shares proposed to be transferred, the proposed transfer price, and the name and address of the bona-fide third party offeror. The Transfer Notice shall be signed both by Purchaser and by the bona- fide third party offeror and must constitute a binding commitment of both such parties for the transfer of such Plan Shares. The Company may elect to purchase the Plan Shares subject to the Transfer Notice by delivery of a notice of exercise of the Company's Right of First Refusal within 30 days after the date the Transfer Notice is delivered to the Company. The purchase price paid by the Company shall be the price per share equal to the proposed per share transfer price, and shall be paid to the Purchaser within 60 days after the date the Transfer Notice is received by the Company, unless a longer period for payment was offered by the bona-fide third party offeror, in which case the Company shall pay the purchase price within such longer period. The Company's rights under this Section 5.1 shall be freely assignable, in whole or in part. Notwithstanding the foregoing, the Right of First Refusal does not apply to a transfer of Plan Shares by gift or devise to the Purchaser's immediate family (i.e., parents, spouse or children or to a trust for the benefit of the Purchaser or any of the Purchaser's immediate family members), but does apply to any subsequent transfer of such Plan Shares by such immediate family members. 5.2 Transfer of Plan Shares. If the Company fails to exercise the ----------------------- Right of First Refusal within 30 days after the date the Transfer Notice is delivered to the Company, Purchaser may, not later than 75 days following delivery to the Company of the Transfer Notice, conclude a transfer of the Plan Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by Purchaser, shall again be subject to the Company's Right of First Refusal and shall require compliance by Purchaser with the procedure described in Section 5.1 of this Agreement. If the Company 2 exercises the Right of First Refusal, the parties shall consummate the sale of Plan Shares on the terms, other than price, as applicable under Section 5.1, set forth in the Transfer Notice, subject; provided, however, in the event the Transfer Notice provides for payment for the Plan Shares other than in cash, the Company shall have the option of paying for the Plan Shares by paying in cash the present value of the consideration described in the Transfer Notice; and further provided that if the value of noncash consideration is to be paid, and the Optionee disagrees with the value determined by the Company, the Optionee may request an independent appraisal by an appraiser acceptable to the Optionee and the Company, the costs of such appraisal to be borne equally by the Optionee and the Company. If, at the time of exercise of the right of first refusal, any notes are outstanding which represent any portion of the Purchase Price of the Plan Shares, the repurchase price shall be paid first by cancellation of any obligation for accrued but unpaid interest under such notes, next by cancellation of principal under such notes, and finally by payment of cash. 5.3 Binding Effect of Right of First Refusal. The Company's Right of ---------------------------------------- First Refusal shall inure to the benefit of the successors and assigns of the Company and shall be binding upon any transferee of Plan Shares other than a transferee acquiring Plan Shares in a transaction where the Company failed to exercise the Right of First Refusal (a "Free Transferee") or a transferee of a Free Transferee. 5.4 Termination of Company's Rift of First Refusal. Notwithstanding ---------------------------------------------- anything in this Section 5, the Company shall have no Right of First Refusal, and Purchaser shall have no obligation to comply with the procedures in Sections 5.1 through 5.3, after the earlier of (a) the closing of the Company's initial registered public offering to the public generally, or (b) the date ten (10) years after the Effective Date of the Option Agreement. 6. Stock Certificate Restrictive Legends. Stock certificates evidencing ------------------------------------- Plan Shares may bear such restrictive legends as the Company and the Company's counsel deem necessary or advisable under applicable law or pursuant to this Agreement. 7. Representations, Warranties, Covenants, and Acknowledgments of -------------------------------------------------------------- Purchaser. Purchaser hereby represents, warrants, covenants, acknowledges, and - --------- agrees that: 7.1 Investment. Purchaser is acquiring the Plan Shares for ---------- Purchaser's own account, and not for the account of any other person. Purchaser is acquiring the Plan Shares for investment and not with a view to distribution or resale thereof except in compliance with applicable laws regulating securities. 7.2 Business Experience. Purchaser is capable of evaluating the ------------------- merits and risks of Purchaser's investment in the Company evidenced by the purchase of the Plan Shares. 7.3 Relation of Company. Purchaser is presently an officer, ---------------------- director, or employee of, or consultant to, the Company and in such capacity has become personally familiar with the business, affairs, financial condition, and results of operations of the Company. 3 7.4 Access to Information. Purchaser has had the opportunity to ask --------------------- questions of, and to receive answers from, appropriate executive officers of the Company with respect to the terms and conditions of the transactions contemplated hereby and with respect to the business, affairs, financial condition, and results of operations of the Company. Purchaser has had access to such financial and other information as is necessary in order for Purchaser to make a fully-informed decision as to investment in the Company by way of purchase of the Plan Shares, and has had the opportunity to obtain any additional information necessary to verify any of such information to which Purchaser has had access. Purchaser acknowledges that all financial information concerning the Company that has been or will be provided to Purchaser is Confidential Information within the meaning of the Employee Confidential Information and Inventions Agreement between Purchaser and the Company and is subject to the obligation of confidentiality and other restrictions and limitations set forth therein. 7.5 Speculative Investment. Purchaser's investment in the Company ---------------------- represented by the Plan Shares is highly speculative in nature and is subject to a high degree of risk of loss in whole or in part. The amount of such investment is within Purchaser's risk capital means and is not so great in relation to Purchaser's total financial resources as would jeopardize the personal financial needs of Purchaser or Purchaser's family in the event such investment were lost in whole or in part. 7.6 Registration. Purchaser may bear the economic risk of investment ------------ for an indefinite period of time because the sale to Purchaser of the Plan Shares has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and the Plan Shares cannot be transferred by Purchaser unless such transfer is registered under the Securities Act or an exemption from such registration is available. The Company has made no agreements, covenants or undertakings whatsoever to register the transfer of any of the Shares under the Securities Act. The Company has made no representations, warranties, or covenants whatsoever as to whether any exemption from the Securities Act, including without limitation any exemption for limited sales in routine brokers' transactions pursuant to Rule 144, will be available; if the exemption under Rule 144 is available at all, it will not be available until at least two years after payment of cash for the Plan Shares and not then unless: (a) a public trading market then exists in the Company's common stock; (b) adequate information as to the Company's financial and other affairs and operations is then available to the public; and (c) all other terms and conditions of Rule 144 have been satisfied. Purchaser understands that the resale provisions of Rule 701 will not apply until 90 days after the Company becomes subject to the reporting obligations of the Securities Exchange Act of 1934 (typically upon the effective date of an initial public offering). 7.7 Public Trading. None of the Company's securities is presently --------------- publicly traded, and the Company has made no representation, covenant, or agreement as to whether there will be a public market for any of its securities. 7.8 Tax Advice. The Company has made no warranties or ---------- representations to Purchaser with respect to the income tax consequences of the transactions contemplated by this Agreement and Purchaser is in no manner relying on the Company or its representatives for an assessment of such tax consequences. If the Plan Shares are subject to a Right of Repurchase 4 favor of the Company or if Purchaser could be subject to suit under Section 16(b) of the Securities Exchange Act of 1934 with respect to the purchase and sale of Plan Shares, Purchaser shall execute and deliver to the Company a copy of the Acknowledgment and Statement of Decision Regarding Election Pursuant to Section 83(b) of the Internal Revenue Code (the "Acknowledgment") attached hereto as Exhibit 7A and a copy of the Election Pursuant to Section 83(b) of the Code, attached hereto as Exhibit 7B, if Purchaser has indicated in the Acknowledgment his or her decision to make such an election. Purchaser will consult with his or her tax advisor to determine if there is a comparable election to file in the state of his or her residence and whether such filing is desirable under the circumstances. 8. Binding Effect. Subject to the limitations set forth in this -------------- Agreement, this Agreement shall be binding upon, and inure to the benefit of, the executors, administrators, heirs, legal representatives, successors, and assigns of the parties hereto. 9. Damages. Purchaser shall be liable to the Company for all costs and ------- damages, including incidental and consequential damages, resulting from a disposition of Plan Shares which is not in conformity with the provisions of this Agreement. 10. Disqualifying Dispositions of ISO Stock. If stock acquired by --------------------------------------- exercise of an ISO (as defined in Section 1 of the Plan) is disposed of within two years after the Effective Date (as defined in the Option Agreement) or within one year after such exercise, Purchaser immediately prior to the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the disposition as the Company may reasonably require. 11. Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of California excluding those laws that direct the application of the laws of another jurisdiction. 12. Notices. All notices and other communications under this Agreement ------- shall be in writing. Unless and until Purchaser is notified in writing to the contrary, all notices, communications, and documents directed to the Company and related to the Agreement, if not delivered by hand, shall be mailed, addressed as follows: eBay, Inc. 2005 Hamilton Ave., Suite 270 San Jose, CA 95125 Attention: President Unless and until the Company is notified in writing to the contrary, all notices, communications, and documents intended for Purchaser and related to this Agreement, if not delivered by hand, shall be mailed to Purchaser's last known address as shown on the Company's books. Notices and communications shall be mailed by first class mail, postage prepaid; documents shall be mailed by registered mail, return receipt requested, postage prepaid. All mailings and deliveries related to this Agreement shall be deemed received when actually received, if by hand delivery, 5 and two business days after mailing, if by mail. 13. Arbitration. ------------ Any and all disputes or controversies arising out of this Agreement shall be finally settled by arbitration conducted in Santa Clara County in accordance with the then existing rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof; provided that nothing in this Section 13 shall prevent a party from applying to a court of competent jurisdiction to obtain temporary relief pending resolution of the dispute through arbitration. The parties hereby agree that service of any notices in the course of such arbitration at their respective addresses as provided for in Section 18 shall be valid and sufficient. IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase Agreement as of the day and year first above written. eBAY, INC. By:________________________________ Title:_____________________________ Purchaser hereby accepts and agrees to be bound by all of the terms and conditions of this Agreement and the Plan. Purchaser:_________________________ Purchaser's spouse indicates by the execution of this Agreement his or her consent to be bound by the terms herein as to his or her interests, whether as community property or otherwise, if any, in the Plan Shares hereby purchased. Purchaser's Spouse:________________ 6 Exhibits - -------- Exhibit 7A Acknowledgment Regarding Election Pursuant to Section 83(b) Exhibit 7B Section 83(b) Election 7 ACKNOWLEDGMENT AND STATEMENT OF DECISION REGARDING ELECTION PURSUANT TO Section 83(b) OF THE INTERNAL REVENUE CODE ------------------------- The undersigned (which term includes the undersigned's spouse), a purchaser of ________ shares of Common Stock of eBay, Inc., a California corporation (the "Company") and a party to a Stock Option Plan Stock Purchase Agreement with the Company (the "Agreement"), hereby states as follows: 1. The undersigned acknowledges receipt of a copy of the Agreement. The undersigned has carefully reviewed the Agreement. 2. The undersigned either [check as applicable]: __ (a) has consulted, and has been fully advised by, the undersigned's own tax advisor, ___________, whose business address is _________________, regarding the federal, state, and local tax consequences of purchasing shares under the Agreement, and particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, (the "Code"), and pursuant to the corresponding provisions, if any, of applicable state laws; or __ (b) has knowingly chosen not to consult such a tax advisor. 3. The undersigned hereby states that the undersigned has decided [check as applicable]: __ (a) to make an election pursuant to Section 83(b) of the Code (which in the case of shares acquired pursuant to the exercise of an incentive stock option, is effective for the purposes described therein) and is submitting to the Company, together with the undersigned's executed Agreement, an executed form which is attached as Exhibit_ to the Agreement; or __ (b) not to make an election pursuant to Section 83(b) of the Code. EXHIBIT 7A 4. Neither the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of the undersigned's purchase of shares and execution of the Agreement in connection therewith or of the making or failure to make an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law. 8 5. The undersigned is also submitting to the Company, together with the Agreement, an executed original of an election, if any is made, of the undersigned pursuant to provisions of state law corresponding to Section 83(b) of the Code, if any, which are applicable to the undersigned's purchase of shares under the Agreement. Date: ________________ _____________________ Date: ________________ _____________________ [Spouse] 9 ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED ----------------------------------------- (for use in connection with ISO exercise) The undersigned hereby elects pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code") to include in the undersigned's gross income, with the effect and under the circumstances described in paragraph 3 below, for the 199_ taxable year the excess (if any) of (a) the fair market value of the property described below, over (b) the amount the undersigned paid for such property. The undersigned supplies herewith the following information in accordance with the Treasury regulations promulgated under Section 83(b): 1. The undersigned's name, address, and taxpayer identification (social security) number are: Name: ____________________________________________________________ Address: _________________________________________________________ __________________________________________________________________ Social Security No.: _____________________________________________ 2. The property with respect to which the election is made consists of common shares of eBay, Inc., a California corporation (the "Company"). 3. The property described above was acquired by the undersigned on ______,199_, pursuant to the undersigned's exercise of an incentive stock option. This filing is therefore made for determing the amount of the undersigned's adjustment under Section 56(b)(3) of the Code with respect to the undersigned's purchase of the property. This filing will be effective for regular income tax purposes in the event that the undersigned makes a disposition (as defined in Section 424(c) of the Code) of the property within either period described in Section 422(a)(1) of the Code. The taxable year to which this election relates is 199_. 4. The above property is subject to a right of repurchase by the Company at the initial purchase price if the undersigned ceases to be an employee of, or a consultant to, the Company or an affiliate of the Company. EXHIBIT 7B 5. The fair market value of the above property at the time of transfer (determined without regard to any restrictions other than those which by their terms will never lapse) is $_____ per share. 6. The amount paid for the above property by the undersigned was $______ per share. 10 7. A copy of this election has been furnished to the Company, and a copy will be filed with the income tax return to the undersigned to which this election relates. Dated:______________, 199_ __________________________ (Signature of Purchaser) 11 ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE TO INCLUDE IN GROSS INCOME THE EXCESS OVER THE PURCHASE PRICE, IF ANY, OF THE VALUE OF PROPERTY TRANSFERRED IN CONNECTION WITH SERVICES --------------------------------- The undersigned hereby elects pursuant to Section 83(b) of the Internal, Revenue Code of 1986, as amended, to include in the undersigned's gross income for the 199_ taxable year the excess if any) of the fair market value of the property described below, over the amount the undersigned paid for such property, and supplies herewith the following information in accordance with the Treasury regulations promulgated under Section 83(b): 1. The undersigned's name, address and taxpayer identification (social security) number are: Name: ____________________________________ Address: ____________________________________ _____________________________________________ Social Security #: __________________________ 2. The property with respect to which the election is made consists of _______ common shares of eBay, Inc., a California corporation (the "Company"). 3. The date on which the above property was transferred to the undersigned was _________, 199_, and the taxable year to which this election relates is 199_. 4. The above property is subject to a right of repurchase by the Company at the initial purchase price, if the undersigned ceases to be an employee of, or a consultant to, the Company or an affiliate of the Company. 5. The fair market value of the above property at the time of transfer (determined without regard to any restrictions other than those which by their terms will never lapse) is $___ per share. 6. The amount paid for the above property by the undersigned was $___ per share. EXHIBIT 7B 12 7. A copy of this election has been furnished to the Company, and a copy will be filed with the income tax return of the undersigned to which this election relates. Dated:_______, 199_ _________________________ [NAME] 13 EX-10.03 10 REGISTRANT'S 1997 STOCK OPTION PLAN EXHIBIT 10.03 eBAY, INC. 1997 STOCK OPTION PLAN AS ADOPTED JUNE 20, 1997 (AS AMENDED DECEMBER 3, 1997) 1. PURPOSE. The purpose of this Plan is to provide incentives to ------- attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options. Capitalized terms not defined in the text are defined in Section 21 hereof. This Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act. 2. SHARES SUBJECT TO THE PLAN. -------------------------- 2.1 Number of Shares Available. Subject to Sections 2.2 and 16 -------------------------- hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be Two Million One Hundred Ninety-Eight Shares or such lesser number of Shares as permitted under Section 260.140.45 of Title 10 of the California Code of Regulations. Subject to Sections 2.2 and 16 hereof, Shares that are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option will be available for grant and issuance in connection with future Options under this Plan. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all outstanding Options granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of -------------------- outstanding shares of the Company's Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan and (b) the Exercise Prices of and number of Shares subject to outstanding Options, will be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee in its discretion. 3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted ----------- only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 hereof) may be granted to employees, officers, directors and consultants of the Company or of any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Option under this Plan. 4. ADMINISTRATION. -------------- 4.1 Committee Authority. This Plan will be administered by the ------------------- Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee has full power to implement and carry out this Plan. Without limitation, the Committee has the authority to: (a) construe and interpret this Plan, any Stock Option Agreement or Exercise Agreement (each as defined in Section 5 hereof) and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan; (c) select persons to receive Options; (d) determine the form and terms of Options; (e) determine the number of Shares or other consideration subject to Options; (f) determine whether Options will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, any Options granted under this Plan or any awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Option conditions; (h) determine the vesting and exercisability of Options; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Option or any Stock Option Agreement or Exercise Agreement (each as defined in Section 5 hereof); (j) determine whether an Option has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Any determination made by the Committee -------------------- with respect to any Option will be made in its sole discretion at the time of grant of the Option or, unless in contravention of any express term of this Plan or Option, and subject to Section 5.9 hereof, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Option under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant Options under this Plan. 5. OPTIONS. The Committee may grant Options to eligible persons and will ------- determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan will -------------------- be evidenced by an Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option will be the date ------------- on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable immediately (subject --------------- to repurchase pursuant to Section 10 hereof) or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. Subject to earlier termination of the Option as provided herein, each Participant who is not an officer, director or consultant of the 2 Company or of a Parent or Subsidiary of the Company shall have the right to exercise an Option granted hereunder at the rate of at least twenty percent (20%) per year over five (5) years from the date such Option is granted. 5.4 Exercise Price. The Exercise Price of an Option will be -------------- determined by the Committee when the Option is granted and may not be less than eighty five percent (85%) of the Fair Market Value of the Shares on the date of grant; provided that (a) the Exercise Price of an ISO will not be less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (b) the Exercise Price of any Option granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 6 hereof. 5.5 Method of Exercise. Options may be exercised only by delivery to ------------------ the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price, and any applicable taxes, for the number of Shares being purchased. 5.6 Termination. Subject to earlier termination pursuant to Sections ----------- 16 or 17 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death, Disability or Cause, then the Participant may exercise such Participant's Options, only to the extent that such Options are exercisable on the Termination Date and such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days after the Termination Date, or such longer time period not exceeding five (5) years after the Termination Date as may be determined by the Committee, with any exercise after three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after Participant's Termination other than for Cause), then Participant's Options may be exercised, only to the extent that such Options are exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months after the Termination Date, or such longer time period not exceeding five (5) years after the Termination Date as may be determined by the Committee, with any exercise after (i) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or disability, within the meaning of Code Section 22(e)(3), or (ii) twelve (12) months after the Termination Date when the Termination is because of Participant's disability, within the meaning of Code Section 22(e)(3), deemed to be an NQSO), but in any event no later than the expiration date of the Options. (c) If the Participant is terminated for Cause, then Participant's Options shall expire on such Participant's Termination Date, or at such later time and on such conditions as are determined by the Committee. 3 5.7 Limitations on Exercise. The Committee may specify a reasonable ----------------------- minimum number of Shares that may be purchased on exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value ------------------- (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 17 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, ---------------------------------- extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 5.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in ------------------- this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. PAYMENT FOR SHARE PURCHASES. --------------------------- 6.1 Payment. Payment for Shares purchased pursuant to this Plan may ------- be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that: (i) either (A) have been owned by the Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (B) were obtained by the Participant in the public market and (ii) are clear of all liens, claims, encumbrances or security interests; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares. (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) provided that a public market for the Company's stock exists: 4 (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 6.2 Loan Guarantees. The Committee may help the Participant pay for --------------- Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 7. WITHHOLDING TAXES. ----------------- 7.1 Withholding Generally. Whenever Shares are to be issued in --------------------- satisfaction of Options granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Options are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 7.2 Stock Withholding. When, under applicable tax laws, the ----------------- Participant incurs tax liability in connection with the exercise or vesting of any Option that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee. 8. PRIVILEGES OF STOCK OWNERSHIP. ----------------------------- 8.1 Voting and Dividends. No Participant will have any of the rights -------------------- of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that the Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased pursuant to Section 10 hereof. The Company will comply with Section 260.140.1 of Title 10 of the California Code of Regulations with respect to the voting rights of Common Stock. 8.2 Financial Statements. The Company will provide financial -------------------- statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Options outstanding, or as otherwise required under Section 260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding the foregoing, the Company will not be required to provide such financial statements to Participants when issuance is limited to key employees whose services in connection with the Company assure them access to equivalent information. 5 9. TRANSFERABILITY. Options granted under this Plan, and any interest --------------- therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution. During the lifetime of the Participant an Option will be exercisable only by the Participant or Participant's legal representative and any elections with respect to an Option may be made only by the Participant or Participant's legal representative. 10. RESTRICTIONS ON SHARES. ---------------------- 10.1 Right of First Refusal. At the discretion of the Committee, the ---------------------- Company may reserve to itself and/or its assignee(s) in the Stock Option Agreement a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, unless otherwise not permitted by Section 25102(o) of the California Corporations Code, provided, that such right of first refusal terminates upon the Company's initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act. 10.2 Right of Repurchase. At the discretion of the Committee, the ------------------- Company may reserve to itself and/or its assignee(s) in the Stock Option Agreement a right to repurchase Unvested Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after Participant's Termination Date (or in the case of securities issued upon exercise of an Option after the Participant's Termination Date, within ninety (90) days after the date of such exercise) for cash and/or cancellation of purchase money indebtedness, at the Participant's Exercise Price, provided, that to the extent the Participant is not an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company such right to repurchase Unvested Shares lapses at the rate of at least twenty percent (20%) per year over five (5) years from the date of grant of the Option. 10.2 Right of Repurchase. At the discretion of the Committee, the ------------------- Company may reserve to itself and/or its assignee(s) in the Stock Option Agreement a right to repurchase Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after Participant's Termination Date (or in the case of securities issued upon exercise of an Option after the Participant's Termination Date, within ninety (90) days after the date of such exercise) for cash and/or cancellation of purchase money indebtedness, at: (a) with respect to Vested Shares, the Fair Market Value of such Shares on Participant's Termination Date, provided, that such right to repurchase Vested Shares terminates when the Company's securities become publicly traded; or (b) with respect to Unvested Shares, the Participant's Exercise Price, provided, that to the extent the Participant is not an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company such right to repurchase Unvested Shares at the Exercise Price lapses at the rate of at least twenty percent (20%) per year over five (5) years from the date of grant of the Option. 11. CERTIFICATES. All certificates for Shares or other securities ------------ delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a ------------------------ Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the 6 Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or ------------------------------ from time to time, authorize the Company, with the consent of the respective Participants, to issue new Options in exchange for the surrender and cancellation of any or all outstanding Options. The Committee may at any time buy from a Participant an Option previously granted with payment in cash, shares of Common Stock of the Company (including restricted stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended ---------------------------------------------- to comply with Section 25102(o) of the California Corporations Code. Any provision of this Plan which is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o). An Option will not be effective unless such Option is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Option and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted ----------------------- under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 16. CORPORATE TRANSACTIONS. ---------------------- 16.1 Assumption or Replacement of Options by Successor or Acquiring -------------------------------------------------------------- Company. In the event of (a) a dissolution or liquidation of the Company, (b) a - ------- merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a ----- ---- reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company or their relative stock holdings and the Options granted under this Plan are assumed, converted or replaced by the successor or acquiring corporation, which assumption, conversion or replacement will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the shareholders of the Company immediately prior to such merger (other than any shareholder which merges with the Company in such merger, or which owns or controls another corporation which merges, with the Company in such merger) cease to own their shares or other equity interests in the Company, or (d) the sale of all or substantially all of the assets of the Company, any or all outstanding Options may be assumed, converted or replaced by the successor or acquiring corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Options or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Options). The successor or acquiring corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions and other provisions no less favorable to the Participant than those which applied to such outstanding Shares immediately prior to such transaction described in this Section 16.1. In the event such successor or acquiring corporation (if any) does not assume or substitute Options, as provided above, pursuant to a transaction described in this Section 16.1, then notwithstanding any other provision in this Plan to the contrary, the vesting of such Options 7 will accelerate and the Options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate in accordance with the provisions of this Plan. 16.2 Other Treatment of Options. Subject to any greater rights -------------------------- granted to Participants under the foregoing provisions of this Section 16, in the event of the occurrence of any transaction described in Section 16.1 hereof, any outstanding Options will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation or sale of assets. 16.3 Assumption of Options by the Company. The Company, from time to ------------------------------------ time, also may substitute or assume outstanding options granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Option under this Plan in substitution of such other company's option, or (b) assuming such option as if it had been granted under this Plan if the terms of such assumed option could be applied to an Option granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed option would have been eligible to be granted an Option under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an option granted by another company, the terms and conditions of such option will remain unchanged (except that the exercise price and the number and nature ------ of shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on --------------------------------- the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Options pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to initial shareholder approval of this Plan, and (b) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company. In the event that initial shareholder approval is not obtained within twelve (12) months before or after this Plan is adopted by the Board, all Options granted hereunder will be canceled. 18. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided -------------------------- herein, this Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of shareholder approval. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California. 19. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the -------------------------------- Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Stock Option Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the shareholders of the Company, amend this Plan in any manner that requires such shareholder approval pursuant to Section 25102(o) of the California Corporations Code or the Code or the regulations promulgated thereunder as such provisions apply to ISO plans. 20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the -------------------------- Board, the submission of this Plan to the shareholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options or any other equity awards outside of this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 21. DEFINITIONS. As used in this Plan, the following terms will have the ----------- following meanings: "BOARD" means the Board of Directors of the Company. "CAUSE" means Termination because of (i) any willful material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the 8 Participant's conviction for or guilty plea to, a felony or a crime involving moral turpitude or any willful perpetration by the Participant of a common law fraud, (ii) the Participant's commission of an act of personal dishonesty which involves a personal profit in connection with the Company or any other entity having a business relationship with the Company, (iii) any material breach by the Participant of any material provision of any agreement or understanding between the Company or a Parent or Subsidiary of the Company and the Participant regarding the terms of the Participant's service as an employee, director or consultant to the Company or a Parent or Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant, (iv) Participant's intentional disregard of the policies of the Company or a Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company, or (v) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee appointed by the Board to administer this Plan, or if no committee is appointed, the Board. "COMPANY" means eBay, Inc. or any successor or acquiring corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; ----------------------- (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; ----------------------- (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall -------- Street Journal (or, if not so reported, as otherwise reported by -------------- any newspaper or other source as the Board may determine); or (d) if none of the foregoing is applicable, by the Committee in good faith. "OPTION" means an award of an option to purchase Shares pursuant to Section 5 hereof. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing fifty percent 9 (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Option under this Plan. "PLAN" means this eBay, Inc. 1997 Stock Option Plan, as amended from time to time. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 16 hereof, and any successor security. "SUBSIDIARY" or "SUBSIDIARIES" means any corporation or corporations (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days, unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated in writing. In the case of any Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Option while the Participant is on leave from the Company or a Parent or Subsidiary of the Company as the Committee may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in Section 2.2 of the Stock Option Agreement. "VESTED SHARES" means "Vested Shares" as defined in Section 2.2 of the Stock Option Agreement. 10 NO. ((OPTION NO)) ------------- eBAY, INC. 1997 STOCK OPTION PLAN STOCK OPTION AGREEMENT This Stock Option Agreement (this "AGREEMENT") is made and entered into as of the Date of Grant set forth below (the "DATE OF GRANT") by and between ebay, inc., a California Corporation (the "COMPANY"), and the Participant named below ("PARTICIPANT"). Capitalized terms not defined herein shall have the meanings ascribed to them in the Company's 1997 Stock Option Plan (the "PLAN"). PARTICIPANT: ((NAME)) ------------------------------------- SOCIAL SECURITY NUMBER: _____________________________________ ADDRESS: _____________________________________ _____________________________________ TOTAL OPTION SHARES: ((No_of_Shares)) ------------------------------------- EXERCISE PRICE PER SHARE: ((Price_per_Share)) ------------------------------------- DATE OF GRANT: ((Date_of_Grant)) ------------------------------------- FIRST VESTING DATE: ((First_Vesting_Date)) ------------------------------------- DATE: ((Expiration_Date)) ------------------------------------- [UNLESS EARLIER TERMINATED UNDER SECTION 3 BELOW] TYPE OF STOCK OPTION (CHECK ONE): [X] INCENTIVE STOCK OPTION [_] NONQUALIFIED STOCK OPTION 1. GRANT OF OPTION. The Company hereby grants to Participant an --------------- option (this "OPTION") to purchase the total number of shares of Common Stock of the Company set forth above as TotaL Option Shares (the "SHARES") at the Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, this Option is intended to qualify as an "incentive stock option" ("ISO") within the meaning of Section 422 of the internal Revenue Code of 1986, as amended (the "CODE"). 2. EXERCISE PERIOD. --------------- 2.1 EXERCISE PERIOD OF OPTION. This Option is immediately ------------------------- exercisable although the Shares issued upon exercise of this Option will be subject to the restrictions on transfer and Repurchase Options set forth in Section 7, 8 and 9 below. Provided Participant continues to provide services to the Company or to any Parent Or subsidiary of the Company, the Shares issuable upon exercise of this Option will become vested with respect to twenty-five percent (25%) of the Shares on ((Spelled_Out_First_Vesting_Date)) (the "FIRST VESTING DATE") and thereafter at the end of each full succeeding month after the First Vesting Date an additional 2.08333% of the Shares will become vested until the shares are vested with respect to 100% of the Shares, provided that if application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share. Notwithstanding any provision in the Plan or this Agreement to the contrary, Options for Unvested 11 Shares (as defined in Section 2.2 of this Agreement) will not be exercisable on or after Participant's Termination Date. 2.2 Vesting of Options. Shares that are vested pursuant to the ------------------ schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are not vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED SHARES." Unvested Shares may not be sold or otherwise transferred by Participant without the Company's prior written consent. 2.3 Expiration. This Option shall expire on the Expiration Date ---------- set forth above and must be exercised, if at all, on or before the Expiration Date, unless earlier terminated under Section 3 below. 3. TERMINATION. ----------- 3.1 Termination for Any Reason Except Death, Disability or ----------------------------------------------------- Cause. If Participant is Terminated for any reason, except death, Disability or - ----- Cause, this Option, to the extent (and only to the extent) that it is exercisable by Participant on the Termination Date, may be exercised by Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date, no later than three (3) months after the Termination Date, but in any event no later than the Expiration Date. 3.2 Termination Because of Death or Disability. If Participant ------------------------------------------ is Terminated because of death or Disability of Participant (or the Participant dies within three (3) months after Termination other than for Cause) this Option, to the extent that it is exercisable by Participant on the Termination Date, may be exercised by Participant (or Participant's legal representative), if at all, as to all or some of the Vested Shares calculated as of the Termination Date, no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date. Any exercise beyond three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO. 3.3 Termination for Cause. If Participant is Terminated for --------------------- Cause, then this Option will expire on Participant's Termination Date, or at such later time and on such conditions as are determined by the Committee. 3.4 No Obligation to Employ. Nothing in the Plan or this ----------------------- Agreement shall confer on Participant any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without Cause. 4. MANNER OF EXERCISE. ------------------ 4.1 Stock Option Exercise Agreement. To exercise this Option, ------------------------------- Participant (or in the case of exercise after Participant's death or incapacity, Participant's executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the --------- Company from time to time (the "EXERCISE AGREEMENT"), which shall set forth, inter alia, Participant's election to exercise this Option, the number of Shares - ----- ---- being purchased, any restrictions imposed on the Shares and any representations, warranties and agreements regarding Participant's investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Participant exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option. 4.2 Limitations on Exercise. This Option may not be exercised ----------------------- unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. This Option may not be exercised as to fewer than one hundred (100) Shares, unless it is exercised as to all Shares as to which this Option is then exercisable. 12 4.3 Payment. The Exercise Agreement shall be accompanied by ------- full payment of the Exercise Price for the Shares being purchased in cash (by check), or where permitted by law: (a) by surrender of shares of the Company's Common Stock that: (1) either (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (B) were obtained by Participant in the open public market and (2) are clear of all liens, claims, encumbrances or security interests; (b) by tender of a full recourse promissory note (for not more than 90% of the aggregate Exercise Price) having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (c) provided that a public market for the Company's stock exists, (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby Participant irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company, or -- (2) through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise this Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (d) by any combination of the foregoing. 4.4 Tax Withholding. Prior to the issuance of the Shares upon --------------- exercise of this Option, Participant must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Participant may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld. In such case, the Company shall issue the net number of Shares to the Participant by deducting the Shares retained from the Shares issuable upon exercise. 4.5 Issuance of Shares. Provided that the Exercise Agreement ------------------ and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Participant, Participant's authorized assignee, or Participant's legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto. 5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this Option ------------------------------------------------- is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1) year after transfer of such Shares to Participant upon exercise of this Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation payable to Participant. 6. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this ------------------------------------ Agreement are intended to comply with Section 25102(o) of the California Corporations Code. Any provision of this Agreement which is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be 13 reformed to comply with the requirements of Section 25102(o). The exercise of this Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's Common Stock may be listed at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance. 7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred ---------------------------- in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of Participant only by Participant or in the event of Participant's incapacity, by Participant's legal representative. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of Participant. 8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or ----------------------------------------------- its assignee, shall have the option to repurchase Participant's Unvested Shares (as defined in Section 2.2 of this Agreement) on the terms and conditions set forth in the Exercise Agreement (the "REPURCHASE OPTION FOR UNVESTED SHARES") if Participant is Terminated (as defined in the Plan) for any reason, or no reason, including without limitation Participant's death, Disability (as defined in the Plan), voluntary resignation or termination by the Company with or without Cause. Notwithstanding the foregoing, the Company shall retain the Repurchase Option for Unvested Shares only as to that number of Unvested Shares (whether or not exercised) that exceeds the number of shares which remain exercisable. 9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be -------------------------------- sold or otherwise transferred by Participant without the Company's prior written consent. Before any Vested Shares held by Participant or any transferee of such Vested Shares may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) shall have an assignable right of first refusal to purchase the Vested Shares to be sold or transferred on the terms and conditions set forth in the Exercise Agreement (the "RIGHT OF FIRST REFUSAL"). The Company's Right of First Refusal will terminate when the Company's securities become publicly traded. 10. TAX CONSEQUENCES. Set forth below is a brief summary as of the ---------------- Effective Date of the Plan of some of the federal and California tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES. 10.1 Exercise of ISO. If this Option qualifies as an ISO, there --------------- will be no regular federal or California income tax liability upon the exercise of this Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject the Participant to the alternative minimum tax in the year of exercise. 10.2 Exercise of Nonqualified Stock Option. If this Option does ------------------------------------- not qualify as an ISO, there may be a regular federal and California income tax liability upon the exercise of this Option. Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Participant is a current or former employee of the Company, the Company may be required to withhold from Participant's compensation or collect from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 10.3 Disposition of Shares. The following tax consequences may --------------------- apply upon disposition of the Shares. a. Incentive Stock Options. If the Shares are held for ----------------------- more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an ISO and are disposed of more than 14 two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as capital gain for federal and California income tax purposes. The maximum federal capital gain tax rates are twenty eight percent (28%) for Shares held more than twelve (12) months, but not more than eighteen (18) months ("MID-TERM CAPITAL GAIN"), and twenty percent (20%) for Shares held for more than eighteen (18) months ("LONG-TERM CAPITAL GAIN"). If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. b. Nonqualified Stock Options. If the Shares are held -------------------------- for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as Mid-Term Capital Gain or Long-Term Capital Gain, as the case may be. c. Withholding. The Company may be required to ----------- withhold from Participant's compensation or collect from the Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. 10.4. Section 83(b) Election for Unvested Shares. With ------------------------------------------ respect to Unvested Shares, which are subject to the Repurchase Option for Unvested Shares, unless an election is filed by the Participant with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the Unvested Shares, electing -------------- pursuant to Code Section 83(b) (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Exercise Price of the Unvested Shares and their Fair Market Value on the date of exercise, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to the Participant, measured by the excess, if any, of the Fair Market Value of the Unvested Shares at the time they cease to be Unvested Shares, over the Exercise Price of the Unvested Shares. 11. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of ----------------------------- the rights of a shareholder with respect to any Shares until the Shares are issued to Participant. 12. INTERPRETATION. Any dispute regarding the interpretation of this -------------- Agreement shall be submitted by Participant or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Participant. 13. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. ---------------- This Agreement and the Plan constitute the complete and exclusive statement of the parties regarding its subject matter and supersedes all prior proposals, representations, communications, and agreements of the parties, whether oral or written regarding the grant of stock options or issuances of shares to Participant. 14. NOTICES. Any notice required to be given or delivered to the ------- Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated above or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile, rapifax or telecopier. 15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights ---------------------- under this Agreement, including its rights to repurchase Shares under the Repurchase Option and the Right of First Refusal. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Participant and Participant's heirs, executors, administrators, legal representatives, successors and assigns. 15 16. GOVERNING LAW. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 17. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of ---------- the Plan and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Participant acknowledges that there may be adverse tax consequences upon exercise of this Option or disposition of the Shares and that Participant should consult a tax adviser prior to such exercise or disposition. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Participant has executed this Agreement in duplicate as of the Date of Grant. EBAY, INC. PARTICIPANT By:___________________________ ________________________________ (Signature) ((Name)) ______________________________ ------------------------------- (Please print name) (Please print name) ______________________________ (Please print title) 16 EXHIBIT A --------- STOCK OPTION EXERCISE AGREEMENT No.___________ eBAY, INC. 1997 STOCK OPTION PLAN STOCK OPTION EXERCISE AGREEMENT This Exercise Agreement (this "EXERCISE AGREEMENT") is made and entered into as of ______________, 19___ (the "EFFECTIVE DATE") by and between eBay, Inc., a California corporation (the "COMPANY"), and the Purchaser named below (the "PURCHASER"). Capitalized terms not defined herein shall have the meanings ascribed to them in the Company's 1997 Stock Option Plan (the "PLAN"). PURCHASER: ((Name)) ----------------------------------------------------- SOCIAL SECURITY NUMBER: _____________________________________________________ ADDRESS: _____________________________________________________ _____________________________________________________ TOTAL NUMBER OF SHARES: ((No_of_Shares)) ----------------------------------------------------- EXERCISE PRICE PER SHARE: ((Price_per_Share)) ----------------------------------------------------- TOTAL EXERCISE PRICE: ((Total_Price)) ----------------------------------------------------- OPTION NO. ((OPTION_NO)) AND DATE OF GRANT: ((Date_of_Grant)) ----------------------------------------------------- TYPE OF OPTION: [X] INCENTIVE STOCK OPTION [_] NONQUALIFIED STOCK OPTION
1. EXERCISE OF OPTION. ------------------ 1.1 Exercise. Pursuant to exercise of that certain option -------- ("OPTION") granted to Purchaser under the Plan and subject to the terms and conditions of this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Total Number of Shares set forth above ("SHARES") of the Company's Common Stock at the Exercise Price Per Share set forth above ("EXERCISE PRICE"). As used in this Exercise Agreement, the term "SHARES" refers to the Shares purchased under this Exercise Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits with respect to the Shares, and (c) all securities received on account of the Shares in a merger, recapitalization, reorganization or similar corporate transaction. 1.2 Title to Shares. The exact spelling of the name(s) under --------------- which Purchaser will take title to the Shares is: _______________________________________________________ _______________________________________________________ Purchaser desires to take title to the Shares as follows: [_] Individual, as separate property [_] Husband and wife, as community property [_] Joint Tenants [_] Alone or with spouse as trustee(s) of the following trust (including date): ______________________________________________ ______________________________________________ [_] Other; please specify:______________________________ ______________________________________________ 1.3 Payment. Purchaser hereby delivers payment of the Exercise ------- Price in the manner permitted in the Stock Option Agreement as follows (check and complete as appropriate): [_] in cash (by check) in the amount of $((Cash_Amount)), receipt of which is acknowledged by the Company; [_] by tender of a Full Recourse Promissory Note in the principal amount of $((Note_Amount)), having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code and secured by a Pledge Agreement herewith; provided, however, that Participants who are not employees or directors of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares. 2. DELIVERY. -------- 2.1 Deliveries by Purchaser. Purchaser hereby delivers to the ----------------------- Company (i) this Exercise Agreement, (ii) three (3) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 --------- attached hereto (the "STOCK POWERS"), both executed by Purchaser (and Purchaser's spouse, if any), (iii) if Purchaser is married, a Consent of Spouse in the form of Exhibit 2 attached hereto (the "SPOUSE CONSENT") executed by --------- Purchaser's spouse, and (iv) the Exercise Price and payment or other provision for any applicable tax obligations by delivery of a Secured Full Recourse Promissory Note in the form of Exhibit 3 and (v) a Stock Pledge Agreement in the --------- form of Exhibit 5 executed by Purchaser (the "PLEDGE AGREEMENT"). --------- 2.2 Deliveries by the Company. Upon its receipt of the Exercise ------------------------- Price, payment or other provision for any applicable tax obligations and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, to be placed in escrow as provided in Section 11 to secure payment of Participant's obligation to the Company under the promissory note and until expiration or termination of the Company's Repurchase Option and Right of First Refusal described in Sections 8 and 9. 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents ------------------------------------------- and warrants to the Company that: 3.1 Agrees to Terms of the Plan. Purchaser has received a copy --------------------------- of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this 3 Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax adviser prior to such exercise or disposition. 3.2 Purchase for Own Account for Investment. Purchaser is --------------------------------------- purchasing the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. 3.3 Access to Information. Purchaser has had access to all --------------------- information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company's representatives concerning such matters and this investment. 3.4 Understanding of Risks. Purchaser is fully aware of: (i) ---------------------- the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be --- able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. 3.5 No General Solicitation. At no time was Purchaser presented ----------------------- with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. 4. COMPLIANCE WITH SECURITIES LAWS. ------------------------------- 4.1 Compliance with U.S. Federal Securities Laws. Purchaser -------------------------------------------- understands and acknowledges that the Shares have not been registered with the SEC under the Securities Act and that, notwithstanding any other provision of the Stock Option Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws. The Shares are being issued under the Securities Act pursuant to the exemption provided by SEC Rule 701. 4.2 Compliance with California Securities Laws. THE PLAN, ------------------------------------------ THE STOCK OPTION AGREEMENT, AND THIS EXERCISE AGREEMENT ARE INTENDED TO COMPLY WITH SECTION 25102(o) OF THE CALIFORNIA CORPORATIONS CODE. ANY PROVISION OF THIS EXERCISE AGREEMENT WHICH IS INCONSISTENT WITH SECTION 25102(o) SHALL, WITHOUT FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE BOARD, BE REFORMED TO COMPLY WITH THE REQUIREMENTS OF SECTION 25102(o). THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE. 5. RESTRICTED SECURITIES. --------------------- 5.1 No Transfer Unless Registered or Exempt. Purchaser --------------------------------------- understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act or qualified under applicable 4 state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. 5.2 SEC Rule 144. In addition, Purchaser has been advised that ------------ SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of one (1) year, and in certain cases two (2) years, after they have been purchased and --- paid for (within the meaning of Rule 144). Purchaser understands that Shares - -------- paid for with a Note may not be deemed to be fully "paid for" within the meaning of Rule 144 unless certain conditions are met and that, accordingly, the Rule 144 holding period of such Shares may not begin to run until such Shares are fully paid for within the meaning of Rule 144. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an "affiliate" of the Company or if "current public information" about the Company (as defined in Rule 144) is not publicly available. 5.3 SEC Rule 701. The Shares are issued pursuant to SEC Rule 701 ------------ promulgated under the Securities Act and may become freely tradable by non- affiliates (under limited conditions regarding the method of sale) ninety (90) days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to the lengthier market standoff agreement contained in Section 7 of this Exercise Agreement or any other agreement entered into by Purchaser. Affiliates must comply with the provisions (in addition to the holding period requirements) of Rule 144. 6. RESTRICTIONS ON TRANSFERS. ------------------------- 6.1 Disposition of Shares. Purchaser hereby agrees that --------------------- Purchaser shall make no disposition of the Shares (other than as permitted by this Exercise Agreement) unless and until: (a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition; (b) Purchaser shall have complied with all requirements of this Exercise Agreement applicable to the disposition of the Shares; (c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or (ii) all appropriate action necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) has been taken; and (d) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the Commissioner Rules identified in Section 4.2. 6.2 Restriction on Transfer. Purchaser shall not transfer, ----------------------- assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Company's Repurchase Option or the Company's Right of First Refusal, except as permitted by this Exercise Agreement. 6.3 Transferee Obligations. Each person (other than the Company) ---------------------- to whom the Shares are transferred by means of one of the permitted transfers specified in this Exercise Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is 5 bound by the provisions of this Exercise Agreement and that the transferred Shares are subject to (i) both the Company's Repurchase Option and the Company's Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 7, to the same extent such Shares would be so subject if retained by the Purchaser. 7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with ------------------------- any registration of the Company's securities that, upon the request of the Company or the underwriters managing any public offering of the Company's securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the underwriters may specify. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing. 8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or ----------------------------------------------- its assignee, shall have the option to repurchase Purchaser's Unvested Shares (as defined in Section 2.2 of the Stock Option Agreement) on the terms and conditions set forth in this Section (the "Repurchase Option for Unvested ------------------------------ Shares") if Purchaser is Terminated (as defined in the Plan) for any reason, or - ------ no reason, including without limitation Purchaser's death, Disability (as defined in the Plan), voluntary resignation or termination by the Company with or without Cause. Notwithstanding the foregoing, the Company shall retain the Repurchase Option for Unvested Shares only as to that number of Unvested Shares (whether or not exercised) that exceeds the number of shares which remain exercisable. 8.1 Termination and Termination Date. In case of any dispute as -------------------------------- to whether Purchaser is Terminated, the Committee shall have discretion to determine whether Purchaser has been Terminated and the effective date of such Termination (the "TERMINATION DATE"). 8.2 Exercise of Repurchase Option for Unvested Shares. At any ------------------------------------------------- time within ninety (90) days after the Purchaser's Termination Date, the Company, or its assignee, may elect to repurchase the Purchaser's Unvested Shares by giving Purchaser written notice of exercise of the Repurchase Option for Unvested Shares. 8.3 Calculation of Repurchase Price for Unvested Shares. The --------------------------------------------------- Company or its assignee shall have the option to repurchase from Purchaser (or from Purchaser's personal representative as the case may be) the Unvested Shares at the Purchaser's Exercise Price, proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan. 8.4 Payment of Repurchase Price. The repurchase price shall be --------------------------- payable, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company or such assignee, or by any combination thereof. The repurchase price shall be paid without interest within sixty (60) days after exercise of the Repurchase Option for Unvested Shares. 8.5 Right of Termination Unaffected. Nothing in this Exercise ------------------------------- Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any Parent or Subsidiary of the Company) to terminate Purchaser's employment or other relationship with Company (or the Parent or Subsidiary of the Company) at any time, for any reason or no reason, with or without Cause. 9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold -------------------------------- or otherwise transferred by Purchaser without the Company's prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Vested Shares (either being sometimes referred to herein as the "HOLDER") may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) shall have an assignable right of first refusal to purchase the Vested Shares to be sold or transferred (the "OFFERED SHARES") on the terms and conditions set forth in this Section (the "RIGHT OF FIRST REFUSAL"). 9.1 Notice of Proposed Transfer. The Holder of the Offered --------------------------- Shares shall deliver to the Company a written notice (the "NOTICE") stating: (i) the Holder's bona fide intention to sell or otherwise transfer 6 the Offered Shares; (ii) the name of each proposed bona fide purchaser or other transferee ("PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the "OFFERED PRICE"); and (v) that the Holder will offer to sell the Offered Shares to the Company and/or its assignee(s) at the Offered Price as provided in this Section. 9.2 Exercise of Right of First Refusal. At any time within ---------------------------------- thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined as specified below. 9.3 Purchase Price. The purchase price for the Offered Shares -------------- purchased under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, then the cash equivalent value of the non-cash consideration shall conclusively be deemed to be the value of such non- cash consideration as determined in good faith by the Board. 9.4 Payment. Payment of the Offered Price will be payable, at ------- the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The Offered Price will be paid without interest within sixty (60) days after the Company's receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. 9.5 Holder's Right to Transfer. If all of the Offered Shares -------------------------- proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that -------- such sale or other transfer is consummated within 120 days after the date of the Notice, and provided further, that (i) any such sale or other transfer is -------- ------- effected in compliance with all applicable securities laws and (ii) the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to the Proposed Transferee within such 120 day period, then a new Notice must be given to the Company, and the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. 9.6 Exempt Transfers. Notwithstanding anything to the contrary ---------------- in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Vested Shares during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's "immediate family" (as defined below) or to a trust for the benefit of Purchaser or Purchaser's immediate family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (ii) any transfer of Vested Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal and Repurchase Option will continue to apply thereafter to such Vested Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); or (iii) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term "IMMEDIATE FAMILY" will mean Purchaser's spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of the Purchaser or the Purchaser's spouse, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser or the Purchaser's spouse. 9.7 Termination of Right of First Refusal. The Company's Right ------------------------------------- of First Refusal will terminate when the Company's securities become publicly traded. 7 10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of --------------------- this Exercise Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an exercise of the Repurchase Option or the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Exercise Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 11. ESCROW. As security for Purchaser's faithful performance of this ------ Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company ("ESCROW HOLDER"), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Exercise Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Exercise Agreement. The Shares will be released from escrow upon termination of both the Repurchase Option and the Right of First Refusal provided, however, that the Shares will be -------- ------- retained in escrow so long as they are subject to the Pledge Agreement. 12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. -------------------------------------------- 12.1 Legends. Purchaser understands and agrees that the Company ------- will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Company's Articles of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, AND RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. 8 12.2 Stop-Transfer Instructions. Purchaser agrees that, to -------------------------- ensure compliance with the restrictions imposed by this Exercise Agreement, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. 12.3 Refusal to Transfer. The Company will not be required (i) ------------------- to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred. 13. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ---------------- ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. IN PARTICULAR, IF THE UNVESTED SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY, PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH PURCHASER'S TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE. Set forth below is a brief summary as of the date the Plan was adopted by the Board of some of the U.S. Federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION OR DISPOSING OF THE SHARES. 13.1 Exercise of Incentive Stock Option. If the Option ---------------------------------- qualifies as an ISO, there will be no regular U.S. Federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for U.S. Federal alternative minimum tax purposes and may subject Purchaser to the alternative minimum tax in the year of exercise. 13.2 Exercise of Nonqualified Stock Option. If the Option ------------------------------------- does not qualify as an ISO, there may be a regular U.S. Federal income tax liability and a California income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Purchaser is a current or former employee of the Company, the Company may be required to withhold from Purchaser's compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 13.3 Disposition of Shares. The following tax consequences may --------------------- apply upon disposition of the Shares. a. Incentive Stock Options. If the Shares are held for ----------------------- more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as capital gain for federal and California income tax purposes. The maximum federal capital gain tax rates are twenty eight percent (28%) for Shares held more than twelve (12) months, but not more than eighteen (18) months ("MID- TERM CAPITAL GAIN"), and twenty percent (20%) for Shares held for more than eighteen (18) months ("LONG-TERM CAPITAL GAIN"). If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. 9 b. Nonqualified Stock Options. If the Shares are held for -------------------------- more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as Mid-Term Capital Gain or Long-Term Capital Gain, as the case may be. c. Withholding. The Company may be required to withhold ----------- from the Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. 13.4. Section 83(b) Election for Unvested Shares. With respect to ------------------------------------------ Unvested Shares, which are subject to the Repurchase Option, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within 30 days of the purchase of the -------------- Unvested Shares, electing pursuant to Code Section 83(b) (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Exercise Price of the Unvested Shares and their Fair Market Value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to the Purchaser, measured by the excess, if any, of the Fair Market Value of the Unvested Shares at the time they cease to be Unvested Shares, over the Exercise Price of the Unvested Shares. 14. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer ------------------------------------ of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and U.S. Federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company's Common Stock may be listed or quoted at the time of such issuance or transfer. 15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights ---------------------- under this Exercise Agreement, including its rights to repurchase Shares under the Repurchase Option and the Right of First Refusal. This Exercise Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Agreement will be binding upon Purchaser and Purchaser's heirs, executors, administrators, legal representatives, successors and assigns. 16. GOVERNING LAW; SEVERABILITY. This Exercise Agreement shall be --------------------------- governed by and construed in accordance with the internal laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. If any provision of this Exercise Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 17. NOTICES. Any notice required to be given or delivered to the ------- Company shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Purchaser shall be in writing and addressed to Purchaser at the address indicated above or to such other address as Purchaser may designate in writing from time to time to the Company. All notices shall be deemed effectively given upon personal delivery, three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested), one (1) business day after its deposit with any return receipt express courier (prepaid), or one (1) business day after transmission by rapifax or telecopier. 18. FURTHER INSTRUMENTS. The parties agree to execute such further ------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Exercise Agreement. 19. HEADINGS. The captions and headings of this Exercise Agreement -------- are included for ease of reference only and will be disregarded in interpreting or construing this Exercise Agreement. All references herein to Sections will refer to Sections of this Exercise Agreement. 20. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this ---------------- Exercise Agreement, together with all of its Exhibits, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Exercise Agreement, and supersede all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. 10 IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to be executed in duplicate by its duly authorized representative and Purchaser has executed this Exercise Agreement in duplicate as of the Effective Date. EBAY, INC. PURCHASER By:____________________________ ______________________________ (Signature) [[Signature Name]] - ------------------------------- (Please print Name) [[Name]] ------------------------------ (Please print name) [[Title]] - ------------------------------- (Please print title) SIGNATURE PAGE TO eBAY, INC. STOCK OPTION EXERCISE AGREEMENT 11 LIST OF EXHIBITS ---------------- Exhibit 1: Stock Power and Assignment Separate From Stock Certificate Exhibit 2: Spouse Consent Exhibit 3: Copy of Purchaser's Check And/or Secured Full Recourse Promissory Note Exhibit 4: Section 83(b) Election Exhibit 5: Stock Pledge Agreement 12 EXHIBIT 1 --------- STOCK POWER AND ASSIGNMENT -------------------------- SEPARATE FROM STOCK CERTIFICATE ------------------------------- STOCK POWER AND ASSIGNMENT -------------------------- SEPARATE FROM STOCK CERTIFICATE ------------------------------- FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise Agreement No. ___ dated as of _______________, 19___, (the "EXERCISE AGREEMENT"), the undersigned hereby sells, assigns and transfers unto _______________________________, shares of the Common Stock of eBay, Inc., a California corporation (the "COMPANY"), standing in the undersigned's name on the books of the Company represented by Certificate No(s). ______ delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned's attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE EXERCISE AGREEMENT AND ANY EXHIBITS THERETO. Dated: _______________, 19____ PURCHASER _________________________________ (Signature) (Name) _________________________________ (Please Print Name) _________________________________ (Spouse's Signature, if any) _________________________________ (Please Print Spouse's Name) INSTRUCTIONS: Please do not fill in any blanks other than the signature line. - ------------ The purpose of this Stock Power and Assignment is to enable the Company to acquire the shares upon a default under Purchaser's Note and to exercise its "Repurchase Option" and/or "Right of First Refusal" set forth in the Exercise Agreement without requiring additional signatures on the part of the Purchaser or Purchaser's Spouse. EXHIBIT 2 --------- SPOUSE CONSENT -------------- SPOUSE CONSENT -------------- The undersigned spouse of Purchaser has read, understands, and hereby approves the Stock Option Exercise Agreement between Purchaser and the Company (the "EXERCISE AGREEMENT"). In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Exercise Agreement, the undersigned hereby agrees to be irrevocably bound by the Exercise Agreement and further agrees that any community property interest I may have in the Shares and any other property pursuant to the Exercise Agreement shall similarly be bound by the Exercise Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Exercise Agreement. Date:____________________ (Name) ------------------------------------- Name of Purchaser - Print ------------------------------------- Signature of Purchaser's Spouse Address: ------------------------------------ ------------------------------------ EXHIBIT 3 --------- COPY OF PURCHASER'S CHECK AND/OR -------------------------------- SECURED FULL RECOURSE PROMISSORY NOTE ------------------------------------- 2 EXHIBIT 3 FORM OF ------- SECURED FULL RECOURSE PROMISSORY NOTE ------------------------------------- San Jose, California $__________________ [Date] 1. OBLIGATION. In exchange for the issuance to the undersigned ---------- ("PURCHASER") of Eight Hundred Thousand shares (the "SHARES") of the Common Stock of eBay, Inc., a California corporation (the "COMPANY"), receipt of which is hereby acknowledged, Purchaser hereby promises to pay to the order of the Company on or before _____________________, at the Company's principal place of business at 2005 Hamilton Avenue, Suite 350, San Jose, California 95125, or at such other place as the Company may direct, the principal sum of ____________________ Dollars ($_______________) together with interest compounded semi-annually on the unpaid principal at the rate of _________ percent (__%), which rate is not less than the minimum rate established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended, on the earliest date on which there was a binding contract in writing for the purchase of the Shares; provided, however, that the rate at which interest will accrue on -------- ------- unpaid principal under this Note will not exceed the highest rate permitted by applicable law; and provided further that interest on the unpaid principal shall be due and payable on December 1 of each year. 2. SECURITY. Payment of this Note is secured by a security interest -------- in the Shares granted to the Company by Purchaser under a Stock Pledge Agreement dated of even date herewith between the Company and Purchaser (the "PLEDGE AGREEMENT"). This Note is being tendered by Purchaser to the Company as part of the Exercise Price of the Shares pursuant to that certain Stock Option Exercise Agreement between Purchaser and the Company dated of even date with this Note (the "PURCHASE AGREEMENT"). 3. DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be deemed to ----------------------------------- be in default under this Note and the principal sum of this Note, together with all interest accrued thereon, will immediately become due and payable in full: (a) upon Purchaser's failure to make any payment when due under this Note; (b) in the event Purchaser is Terminated (as defined in the Company's 1997 Stock Option Plan) for any reason; (c) upon any transfer of any of the Shares (except a transfer to the Company); (d) upon the filing by or against Purchaser of any voluntary or involuntary petition in bankruptcy or any petition for relief under the U.S. Federal bankruptcy code or any other state or U.S. Federal law for the relief of debtors; or (e) upon the execution by Purchaser of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Purchaser's assets or property. 4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this ------------------- Note, the Company will have, in addition to its rights and remedies under this Note and the Pledge Agreement, full recourse against any real, personal, tangible or intangible assets of Purchaser, and may pursue any legal or equitable remedies that are available to it. 5. PREPAYMENT. Prepayment of principal and/or interest due under ---------- this Note may be made at any time without penalty. Unless otherwise agreed in writing by the Company, all payments will be made in lawful tender of the United States and will be applied first to the payment of accrued interest, and the remaining balance of such payment, if any, will then be applied to the payment of principal. If Purchaser prepays all or a portion of the principal amount of this Note, the Shares paid for by the portion of principal so paid will continue to be held in pledge under the Pledge Agreement to serve as independent collateral for the outstanding portion of this Note and for that Secured Non- Recourse Promissory Note of even date. 6. GOVERNING LAW; WAIVER. The validity, construction and performance --------------------- of this Note will be governed by the internal laws of the State of California, excluding that body of law pertaining to conflicts of law. Purchaser hereby waives presentment, notice of non-payment, notice of dishonor, protest, demand and diligence. 7. ATTORNEYS' FEES. If suit is brought for collection of this Note, --------------- Purchaser agrees to pay all reasonable expenses, including attorneys' fees, incurred by the holder in connection therewith whether or not such suit is prosecuted to judgment. 8. RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE HOLDING ----------------------- PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL EITHER (A) THE EXERCISE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL, OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR, HAVING A FAIR MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED INTEREST). IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and year first above written. __________________________ __________________________ Purchaser's Name Purchaser's Signature SIGNATURE PAGE TO eBAY, INC. SECURED FULL RECOURSE PROMISSORY NOTE -2- EXHIBIT 4 --------- SECTION 83(B) ELECTION ---------------------- [FOR REGULAR INCOME TAX - NONQUALIFIED OPTIONS] [FOR AMT AND DISQUALIFYING DISPOSITION PURPOSES - INCENTIVE STOCK OPTION] ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services in the calculation of: (1) regular gross income; (2) alternative minimum taxable income or (3) disqualifying disposition gross income, as the case may be. 1. TAXPAYER'S NAME: (Name) ----------------------------------------- TAXPAYER'S ADDRESS: _________________________________________ _________________________________________ SOCIAL SECURITY NUMBER: _________________________________________ 2. The property with respect to which the election is made is described as follows: (No-of-Shares) shares of Common Stock of eBay, Inc., a California corporation which were transferred upon exercise of an option (the "COMPANY"), which is Taxpayer's employer or the corporation for whom the Taxpayer performs services. 3. The date on which the shares were transferred pursuant to the exercise of the option was ________, _______ and this election is made for calendar year ________. 4. The shares received upon exercise of the option are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $________ per share at the time of exercise of the option. 6. The amount paid for such shares upon exercise of the option was (Price-per-Share) per share. 7. The Taxpayer has submitted a copy of this statement to the Company. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER -------------- THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: ________________ ____________________________________ Taxpayer's Signature EXHIBIT 5 --------- STOCK PLEDGE AGREEMENT ---------------------- EXHIBIT 5 --------- FORM OF ------- STOCK PLEDGE AGREEMENT ---------------------- This Exercise Agreement is made and entered into as of _________________ between eBay, Inc., a California corporation (the "COMPANY"), and ___________________ ("PLEDGOR"). R E C I T A L S - - - - - - - - A. In exchange for Pledgor's Secured Full Recourse Promissory Note and Secured Non-Recourse Promissory Note to the Company of even date herewith (the "NOTE"), the Company has issued and sold to Pledgor ____________________ shares of its Common Stock (the "SHARES") pursuant to the terms and conditions of that Stock Option Exercise Agreement between the Company and Pledgor of even date herewith (the "PURCHASE AGREEMENT"). B. Pledgor has agreed that repayment of the Note will be secured by the pledge of the Shares pursuant to this Exercise Agreement. NOW, THEREFORE, the parties agree as follows: 1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the ----------------------------- California Commercial Code, Pledgor hereby grants to the Company, and the Company hereby accepts, a first and present security interest in the Shares as collateral to secure the payment of Pledgor's obligation to the Company under the Note. Pledgor herewith delivers to the Company Common Stock certificate(s) No(s). _________, representing all the Shares, together with one stock power for each certificate in the form attached as an Exhibit to the Purchase Agreement, duly executed (with the date and number of shares left blank) by Pledgor and Pledgor's spouse, if any. For purposes of this Exercise Agreement, the Shares pledged to the Company hereby, together with any additional collateral pledged pursuant to Sections 5 and 6 hereof, will hereinafter be collectively referred to as the "COLLATERAL." Pledgor agrees that the Collateral pledged to the Company will be deposited with and held by the Escrow Holder (as defined in the Purchase Agreement) and that, notwithstanding anything to the contrary in the Purchase Agreement, for purposes of carrying out the provisions of this Exercise Agreement, Escrow Holder will act solely for the Company as its agent. 2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and ------------------------------ warrants to the Company that Pledgor has good title (both record and beneficial) to the Collateral, free and clear of all claims, pledges, security interests, liens or encumbrances of every nature whatsoever, and that Pledgor has the right to pledge and grant the Company the security interest in the Collateral granted under this Exercise Agreement. Pledgor further agrees that, until the entire principal sum and all accrued interest due under the Note has been paid in full, Purchaser will not, without the Company's prior written consent, (i) sell, assign or transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii) grant or create, or attempt to grant or create, any security interest, lien, pledge, claim or other encumbrance with respect to any of the Collateral. 3. RIGHTS ON DEFAULT. In the event of default (as defined in the ----------------- Note) by Pledgor under the Note, the Company will have full power to sell, assign and deliver the whole or any part of the Collateral at any broker's exchange or elsewhere, at public or private sale, at the option of the Company, in order to satisfy any part of the obligations of Pledgor now existing or hereinafter arising under the Note. On any such sale, the Company or its assigns may purchase all or any part of the Collateral. In addition, at its sole option, the Company may elect to retain all the Collateral in full satisfaction of Pledgor's obligation under the Note, in accordance with the provisions and procedures set forth in the California Commercial Code. 4. ADDITIONAL REMEDIES. The rights and remedies granted to the ------------------- Company herein upon default under the Note will be in addition to all the rights, powers and remedies of the Company under the California Commercial Code and applicable law and such rights, powers and remedies will be exercisable by the Company with respect to all of the Collateral. Pledgor agrees that the Company's reasonable expenses of holding the Collateral, preparing it for resale or other disposition, and selling or otherwise disposing of the Collateral, including attorneys' fees and other legal expenses, will be deducted from the proceeds of any sale or other disposition and will be included in the amounts Pledgor must tender to redeem the Collateral. All rights, powers and remedies of the Company will be cumulative and not alternative. Any forbearance or failure or delay by the Company in exercising any right, power or remedy hereunder will not be deemed to be a waiver of any such right, power or remedy and any single or partial exercise of any such right, power or remedy hereunder will not preclude the further exercise thereof. 5. DIVIDENDS; VOTING. All dividends hereinafter declared on or ----------------- payable with respect to the Collateral during the term of this pledge (excluding only ordinary cash dividends, which will be payable to Pledgor so long as Pledgor is not in default under the Note) will be immediately delivered to the Company to be held in pledge under this Exercise Agreement. Notwithstanding this Exercise Agreement, so long as Pledgor owns the Shares and is not in default under the Note, Pledgor will be entitled to vote any shares comprising the Collateral, subject to any proxies granted by Pledgor. 6. ADJUSTMENTS. In the event that during the term of this pledge, ----------- any stock dividend, reclassification, readjustment, stock split or other change is declared or made with respect to the Collateral, or if warrants or any other rights, options or securities are issued in respect of the Collateral, then all new, substituted and/or additional shares or other securities issued by reason of such change or by reason of the exercise of such warrants, rights, options or securities, will be immediately pledged to the Company to be held under the terms of this Exercise Agreement in the same manner as the Collateral is held hereunder. 7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and agrees ------------------------------- that the Company's rights to repurchase the Collateral under the Purchase Agreement, if any, will continue for the periods and on the terms and conditions specified in the Purchase Agreement, whether or not the Note has been paid during such period of time, and that to the extent that the Note is not paid during such period of time, the repurchase by the Company of the Collateral may be made by way of cancellation of all or any part of Pledgor's indebtedness under the Note. 8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire ------------------------ principal sum and all accrued interest due under the Note, and subject to the terms and conditions of the Purchase Agreement, the Company will immediately redeliver the Collateral to Pledgor and this Exercise Agreement will terminate; provided, however, that all rights of the Company to retain possession of the - -------- ------- Shares pursuant to the Purchase Agreement will survive termination of this Exercise Agreement. 9. SUCCESSORS AND ASSIGNS. This Exercise Agreement will inure to the ---------------------- benefit of the respective heirs, personal representatives, successors and assigns of the parties hereto. 10. GOVERNING LAW; SEVERABILITY. This Exercise Agreement will be --------------------------- governed by and construed in accordance with the internal laws of the State of California, excluding that body of law relating to conflicts of law. Should one or more of the provisions of this Exercise Agreement be determined by a court of law to be illegal or unenforceable, the other provisions nevertheless will remain effective and will be enforceable. 11. MODIFICATION; ENTIRE AGREEMENT. This Exercise Agreement will not ------------------------------ be amended without the written consent of both parties hereto. This Exercise Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings related to such subject matter. IN WITNESS WHEREOF, the parties hereto have executed this Stock Pledge Agreement as of the date and year first above written. eBAY, INC. PLEDGOR By:_______________________ __________________________ (Signature) (Signature Name) ((Name)) __________________________ -------------------------- (Please print name) (Please print name) (Title) __________________________ (Please print title) SIGNATURE PAGE TO eBAY, INC. STOCK PLEDGE AGREEMENT EX-10.04 11 REGISTRANT'S 1998 EQUITY INCENTIVE PLAN EXHIBIT 10.04 eBAY, INC. 1998 EQUITY INCENTIVE PLAN As Adopted _____________, 1998 1. PURPOSE. The purpose of this Plan is to provide incentives to ------- attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. -------------------------- 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, -------------------------- the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 4,500,000 Shares plus Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued. In addition, any authorized shares not issued or subject to outstanding grants under the Company's 1996 Stock Option Plan or 1997 Stock Option Plan (the "PRIOR PLANS") on the Effective Date (as defined below) and any shares issued under the Prior Plans that are forfeited or repurchased by the Company or that are issuable upon exercise of options granted pursuant to the Prior Plans that expire or become unexercisable for any reason without having been exercised in full, will no longer be available for grant and issuance under the Prior Plans, but will be available for grant and issuance under this Plan. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of -------------------- outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that -------- ------- fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted ----------- only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, contractors and advisors render bona fide -------- services not in connection with the offer and sale of securities in a capital- raising transaction. No person will be eligible to receive more than 1,000,000* Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent or Subsidiary of the Company (including new employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company), who are eligible to receive up to a maximum of 2,000,000* Shares in the calendar year in which they commence their employment. A person may be granted more than one Award under this Plan. eBay, Inc. 1998 Equity Incentive Plan 4. ADMINISTRATION. -------------- 4.1 Committee Authority. This Plan will be administered by the ------------------- Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Any determination made by the -------------------- Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company. 5. OPTIONS. The Committee may grant Options to eligible persons and ------- will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan -------------------- will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. -2- eBay, Inc. 1998 Equity Incentive Plan 5.2 Date of Grant. The date of grant of an Option will be the ------------- date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable within the times --------------- or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be -------- ------- exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by -------- ------- attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. 5.4 Exercise Price. The Exercise Price of an Option will be -------------- determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan. 5.5 Method of Exercise. Options may be exercised only by ------------------ delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set forth ----------- in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant's Disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or Disability, or (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options. -3- eBay, Inc. 1998 Equity Incentive Plan (c) Notwithstanding the provisions in paragraph 5.6(a) above, if a Participant is terminated for Cause, neither the Participant, the Participant's estate nor such other person who may then hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after termination of service, whether or not after termination of service the Participant may receive payment from the Company or Subsidiary for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits. In making such determination, the Board shall give the Participant an opportunity to present to the Board evidence on his behalf. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is terminated. 5.7 Limitations on Exercise. The Committee may specify a ----------------------- reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISO. The aggregate Fair Market Value ------------------ (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may ---------------------------------- modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced -------- ------- below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in ------------------- this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the ---------------- Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "PURCHASE PRICE"), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a ------------------------------ Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agree- -4- eBay, Inc. 1998 Equity Incentive Plan ment and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant -------------- to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan. 6.3 Terms of Restricted Stock Awards. Restricted Stock Awards -------------------------------- shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant's individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria. 6.4 Termination During Performance Period. If a Participant is ------------------------------------- Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 7. STOCK BONUSES. ------------- 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares ----------------------- (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee will determine the ---------------------- number of Shares to be awarded to the Participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as -5- eBay, Inc. 1998 Equity Incentive Plan the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be --------------- paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine. 8. PAYMENT FOR SHARE PURCHASES. --------------------------- 8.1 Payment. Payment for Shares purchased pursuant to this Plan ------- may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who -------- ------- are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay --------------- for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. -6- eBay, Inc. 1998 Equity Incentive Plan 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- eBay, Inc. 1998 Equity Incentive Plan advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a ------------------------ Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may -------- ------- require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or ----------------------------- from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not ---------------------------------------------- be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award ----------------------- granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. ---------------------- 18.1 Assumption or Replacement of Awards by Successor. In the ------------------------------------------------ event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to -8- eBay, Inc. 1998 Equity Incentive Plan such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a transaction described in this Subsection 18.1, such Awards will expire on such transaction at such time and on such conditions as the Committee will determine. Notwithstanding anything in this Plan to the contrary, the Committee may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a transaction described in this Section 18. If the Committee exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate at such time as determined by the Committee. 18.2 Other Treatment of Awards. Subject to any greater rights ------------------------- granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets. 18.3 Assumption of Awards by the Company. The Company, from time ----------------------------------- to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable ------ upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become --------------------------------- effective on the date on which the registration statement filed by the Company with the SEC under the Securities Act registering the initial public offering of the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE"). This Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to -------- ------- initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled and any purchase of Shares issued hereunder shall be rescinded; and (d) in the event that stockholder approval of such increase is not obtained within the time period provided herein, all Awards granted pursuant to such increase will be cancelled, any Shares issued pursuant to any Award granted pursuant to such increase will be cancelled, and any purchase of Shares pursuant to such increase will be rescinded. -9- eBay, Inc. 1998 Equity Incentive Plan 20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided -------------------------- herein, this Plan will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date of stockholder approval. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time -------------------------------- terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval -------- ------- of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by -------------------------- the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in this Plan, the following terms will have ----------- the following meanings: "AWARD" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CAUSE" means the commission of an act of theft, embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the Compensation Committee of the Board. "COMPANY" means eBay, Inc. or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; ----------------------- (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities -10- eBay, Inc. 1998 Equity Incentive Plan exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; ----------------------- (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall -------- Street Journal; -------------- (d) in the case of an Award made on the Effective Date, the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (d) if none of the foregoing is applicable, by the Committee in good faith. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an award of an option to purchase Shares pursuant to Section 5. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Plan. "PERFORMANCE FACTORS" means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied: (a) Net revenue and/or net revenue growth; (b) Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; (c) Operating income and/or operating income growth; (d) Net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) Total stockholder return and/or total stockholder return growth; (g) Return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; and (k) Individual confidential business objectives. -11- eBay, Inc. 1998 Equity Incentive Plan "PERFORMANCE PERIOD" means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Bonuses. "PLAN" means this eBay, Inc. 1998 Equity Incentive Plan, as amended from time to time. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security. "STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. -12- EX-10.05 12 REGISTRANT'S 1998 DIRECTORS STOCK OPTION PLAN EXHIBIT 10.05 eBAY, INC. 1998 DIRECTORS STOCK OPTION PLAN As Adopted __________, 1998 1. PURPOSE. This 1998 Directors Stock Option Plan (this "PLAN") is established to provide equity incentives for certain nonemployee members of the Board of Directors of eBay, Inc. (the "COMPANY"), who are described in Section 6.1 below, by granting such persons options to purchase shares of stock of the Company. 2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the Board of Directors of the Company (the "BOARD"), this Plan will become effective on the time and date (the "EFFECTIVE DATE") on which the registration statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the initial public offering of the Company's Common Stock is declared effective by the SEC. This Plan shall be approved by the stockholders of the Company, consistent with applicable laws, within twelve (12) months after the date this Plan is adopted by the Board. 3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall be non-qualified stock options ("NQSOS"). The shares of stock that may be purchased upon exercise of Options granted under this Plan (the "SHARES") are shares of the Common Stock of the Company. 4. NUMBER OF SHARES. The maximum number of Shares that may be issued pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 200,000 Shares, subject to adjustment as provided in this Plan. If any Option is terminated for any reason without being exercised in whole or in part, the Shares thereby released from such Option shall be available for purchase under other Options subsequently granted under this Plan. At all times during the term of this Plan, the Company shall reserve and keep available such number of Shares as shall be required to satisfy the requirements of outstanding Options granted under this Plan; provided, however that if the aggregate number of Shares subject to outstanding Options granted under this Plan plus the aggregate number of Shares previously issued by the Company pursuant to the exercise of Options granted under this Plan equals or exceeds the Maximum Number, then notwithstanding anything herein to the contrary, no further Options may be granted under this Plan until the Maximum Number is increased or the aggregate number of Shares subject to outstanding Options granted under this Plan plus the aggregate number of Shares previously issued by the Company pursuant to the exercise of Options granted under this Plan is less than the Maximum Number. 5. ADMINISTRATION. This Plan shall be administered by the Board or by a committee of not less than two members of the Board appointed to administer this Plan (the "COMMITTEE"). As used in this Plan, references to the Committee shall mean either such Committee or the Board if no Committee has been established. The interpretation by the Committee of any of the provisions of this Plan or any Option granted under this Plan shall be final and binding upon the Company and all persons having an interest in any Option or any Shares purchased pursuant to an Option. 6. ELIGIBILITY AND AWARD FORMULA. 6.1 Eligibility. Options shall be granted only to directors of the ----------- Company who are not employees of the Company or any Parent, Subsidiary or Affiliate of the Company, as those terms are defined in Section 17 below (each such person referred to as an "OPTIONEE"). eBay, Inc. 1998 Directors Stock Option Plan 6.2 Initial Grant. Each Optionee who first becomes a member of the ------------- Board on or after the Effective Date will automatically be granted an Option for 30,000* Shares (an "INITIAL GRANT") on the later of the Effective Date or on the date such Optionee first becomes a member of the Board. 6.3 Succeeding Grants. At each Annual Meeting of the Company, each ----------------- Optionee will automatically be granted an Option for 5,000 Shares (a "SUCCEEDING GRANT"), provided the Optionee is a member of the Board on such date and has served continuously as a member of the Board since the date of such Optionee's Initial Grant or, if such Optionee was ineligible to receive an Initial Grant, since the Effective Date. 7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to Section 6 above: 7.1 Form of Option Grant. Each Option granted under this Plan shall -------------------- be evidenced by a written Stock Option Grant ("GRANT") in such form (which need not be the same for each Optionee) as the Committee shall from time to time approve, which Grant shall comply with and be subject to the terms and conditions of this Plan. 7.2 Vesting. The date an Optionee receives an Initial Grant or a ------- Succeeding Grant is referred to in this Plan as the "START DATE" for such Option. (a) Initial Grants. Each Initial Grant will vest as to twenty- -------------- five percent (25%) of the Shares on the first anniversary of the Start Date for such Initial Grant, and as to 2.08333% of the Shares on each subsequent monthly anniversary of the Start Date, so long as the Optionee continuously remains a director or a consultant of the Company. (b) Succeeding Grants. Each Succeeding Grant will vest as to ----------------- twenty-five percent (25%) of the Shares on the first anniversary of the Start Date for such Succeeding Grant, and as to 2.08333% of the Shares on each subsequent monthly anniversary of the Start Date, so long as the Optionee continuously remains a director or a consultant of the Company. 7.3 Exercise Price. The exercise price of an Option shall be the -------------- Fair Market Value (as defined in Section 17.4) of the Shares, at the time that the Option is granted. 7.4 Termination of Option. Except as provided below in this Section, --------------------- each Option shall expire ten (10) years after its Start Date (the "EXPIRATION DATE"). The Option shall cease to vest when the Optionee ceases to be a member of the Board or a consultant of the Company. The date on which the Optionee ceases to be a member of the Board or a consultant of the Company shall be referred to as the "TERMINATION DATE". An Option may be exercised after the Termination Date only as set forth below: (a) Termination Generally. If the Optionee ceases to be a member --------------------- of the Board or a consultant of the Company for any reason except death of the Optionee or disability of the Optionee (whether temporary or permanent, partial or total, as determined by the Committee), then each Option then held by such Optionee, to the extent (and only to the extent) that it would have been exercisable by the Optionee on the Termination Date, may be exercised by the Optionee no later than seven (7) months after the Termination Date, but in no event later than the Expiration Date. (b) Death or Disability. If the Optionee ceases to be a member ------------------- of the Board or a consultant of the Company because of the death of the Optionee or the disability of the Optionee (whether temporary or permanent, partial or total, as determined by the Committee), then each Option then held by such Optionee to the extent (and only to the extent) that it would have been exercisable by the Optionee on the Termination Date, may be exercised by the Optionee (or the Optionee's legal representative) no later than twelve (12) months after the Termination Date, but in no event later than the Expiration Date. -2- eBay, Inc. 1998 Directors Stock Option Plan 8. EXERCISE OF OPTIONS. 8.1 Exercise Period. Subject to the provisions of Section 8.5 below, --------------- Options shall be exercisable as they vest; provided that the Committee may provide that such Options shall be immediately exercisable subject to repurchase in accordance with the vesting schedule set forth in Section 7. 8.2 Notice. Options may be exercised only by delivery to the Company ------ of an exercise agreement in a form approved by the Committee stating the number of Shares being purchased, the restrictions imposed on the Shares and such representations and agreements regarding the Optionee's investment intent and access to information as may be required by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased. 8.3 Payment. Payment for the Shares purchased upon exercise of an ------- Option may be made (a) in cash or by check; (b) by surrender of shares of Common Stock of the Company that have been owned by the Optionee for more than six (6) months (and which have been paid for within the meaning of SEC Rule 144 and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or were obtained by the Optionee in the open public market, having a Fair Market Value equal to the exercise price of the Option; (c) by waiver of compensation due or accrued to the Optionee for services rendered; (d) provided that a public market for the Company's stock exists, through a "same day sale" commitment from the Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; (e) provided that a public market for the Company's stock exists, through a "margin" commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (f) by any combination of the foregoing. 8.4 Withholding Taxes. Prior to issuance of the Shares upon exercise ----------------- of an Option, the Optionee shall pay or make adequate provision for any federal or state withholding obligations of the Company, if applicable. 8.5 Limitations on Exercise. Notwithstanding the exercise periods ----------------------- set forth in the Grant, exercise of an Option shall always be subject to the following limitations: (a) An Option shall not be exercisable unless such exercise is in compliance with the Securities Act and all applicable state securities laws, as they are in effect on the date of exercise. (b) The Committee may specify a reasonable minimum number of Shares that may be purchased upon any exercise of an Option, provided that such minimum number will not prevent the Optionee from exercising the full number of Shares as to which the Option is then exercisable. 9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or by the Optionee's guardian or legal representative, unless otherwise determined by the Committee. No Option may be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution, unless otherwise determined by the Committee. 10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the rights of a stockholder with respect to any Shares subject to an Option until the Option has been validly exercised. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date of exercise, except as provided in this Plan. The Company shall provide to each Optionee a copy of the annual financial statements of the -3- eBay, Inc. 1998 Directors Stock Option Plan Company at such time after the close of each fiscal year of the Company as they are released by the Company to its stockholders. 11. ADJUSTMENT OF OPTION SHARES. In the event that the number of outstanding shares of Common Stock of the Company is changed by a stock dividend, stock split, reverse stock split, combination, reclassification or similar change in the capital structure of the Company without consideration, the number of Shares available under this Plan and the number of Shares subject to outstanding Options and the exercise price per share of such outstanding Options shall be proportionately adjusted, subject to any required action by the Board or stockholders of the Company and compliance with applicable securities laws; provided, however, that no fractional shares shall be issued upon exercise of any Option and any resulting fractions of a Share shall be rounded up to the nearest whole Share. 12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any Option granted under this Plan shall confer on any Optionee any right to continue as a director of the Company. 13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares upon exercise of any Options shall be subject to and conditioned upon compliance with all applicable requirements of law, including without limitation compliance with the Securities Act, compliance with all other applicable state securities laws and compliance with the requirements of any stock exchange or national market system on which the Shares may be listed. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration or qualification requirement of any state securities laws, stock exchange or national market system. 14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Options granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption, conversion or replacement will be binding on all Optionees), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company (other than any stockholder which merges (or which owns or controls another corporation which merges) with the Company in such merger) cease to own their shares or other equity interests in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the vesting of all options granted pursuant to this Plan will accelerate and the options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and must be exercised, if at all, within seven months of the consummation of said event. Any options not exercised within such seven-month period shall expire. 15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this Plan or any outstanding option, provided that the Board may not terminate or amend the terms of any outstanding option without the consent of the Optionee. In any case, no amendment of this Plan may adversely affect any then outstanding Options or any unexercised portions thereof without the written consent of the Optionee. 16. TERM OF PLAN. Options may be granted pursuant to this Plan from time to time within a period of ten (10) years from the Effective Date. 17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall have the following meanings: 17.1 "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. -4- eBay, Inc. 1998 Directors Stock Option Plan 17.2 "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 17.3 "AFFILIATE" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another corporation, where "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise. 17.4 "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; ----------------------- (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; ----------------------- (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The --- Wall Street Journal; ------------------- (d) in the case of an Option granted on the Effective Date, the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (e) if none of the foregoing is applicable, by the Committee in good faith. -5- EX-10.06 13 REGISTRANT'S 1998 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.06 eBAY, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN As Adopted __________, 1998 1. ESTABLISHMENT OF PLAN. eBay, Inc. (the "COMPANY") proposes to grant options for purchase of the Company's Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the "BOARD") designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of 300,000 shares of the Company's Common Stock is reserved for issuance under this Plan. In addition, on each January 1, the aggregate number of shares of the Company's Common Stock reserved for issuance under the Plan shall be increased automatically by the number of shares purchased under this Plan in the preceding calendar year; provided that the aggregate shares reserved -------- under this Plan shall not exceed 1,500,000 shares. Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan. 2. PURPOSE. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. 3. ADMINISTRATION. This Plan shall be administered by the Compensation Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. 4. Eligibility. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following: (a) employees who are not employed by the Company or a Participating Subsidiary (10) days before the beginning of such Offering Period, except that employees who are employed on the Effective Date of the Registration Statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the initial public offering of the Company's Common Stock shall be eligible to participate in the first Offering Period under the Plan; (b) employees who are customarily employed for twenty (20) hours or less per week; (c) employees who are customarily employed for five (5) months or less in a calendar year; (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating -1- eBay, Inc. 1998 Employee Stock Purchase Plan Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax ------ --- purposes. 5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on May 1 and November 1 of each year and ending on April 30 and October 31 of each year; provided, however, that notwithstanding the foregoing, the first such Offering - -------- ------- Period shall commence on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE") and shall end on October 31, 2000. Except for the first Offering Period, each Offering Period shall consist of four (4) six month purchase periods (individually, a "PURCHASE PERIOD") during which payroll deductions of the participants are accumulated under this Plan. The first Offering Period shall consist of no more than five and no fewer than three Purchase Periods, any of which may be greater or less than six months as determined by the Committee. The first business day of each Offering Period is referred to as the "OFFERING DATE". The last business day of each Purchase Period is referred to as the "PURCHASE DATE". The Committee shall have the power to change the duration of Offering Periods with respect to offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. 6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company's treasury department (the "TREASURY DEPARTMENT") not later than five (5) days before such Offering Date. Notwithstanding the foregoing, the Committee may set a later time for filing the subscription agreement authorizing payroll deductions for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Treasury Department by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Treasury Department not later than five (5) days preceding a subsequent Offering Date. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan. 7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing (a) the amount accumulated in such employee's payroll deduction account during such Purchase Period by (b) the lower of (i) eighty- five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date (but in no event less than the par value of a share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company's Common Stock), provided, however, that the number of shares of the Company's Common Stock - -------- ------- subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 8 below. 8. PURCHASE PRICE. The purchase price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of: (a) The fair market value on the Offering Date; or -2- eBay, Inc. 1998 Employee Stock Purchase Plan (b) The fair market value on the Purchase Date. For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; ----------------------- (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; ----------------------- (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall -------- Street Journal; or -------------- (d) if none of the foregoing is applicable, by the Board in good faith, which in the case of the First Offering Date will be the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act. 9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES. (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant's compensation in one percent (1%) increments not less than two percent (2%), nor greater than ten percent (10%) or such lower limit set by the Committee. Compensation shall mean all W-2 cash compensation, including, but not limited to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions, provided, however, that -------- ------- for purposes of determining a participant's compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. (b) A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with the Treasury Department a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing more than fifteen (15) days after the Treasury Department's receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Treasury Department a new authorization for payroll deductions not later than fifteen (15) days before the beginning of such Offering Period. (c) A participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Treasury Department a request for cessation of payroll deductions. Such reduction shall be effective beginning with the next payroll period commencing more than fifteen (15) days after the Treasury Department's receipt of the request and no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the participant's account prior to the effective date of the request shall be used to purchase shares of Common Stock of the Company in accordance with Section (e) below. A participant -3- eBay, Inc. 1998 Employee Stock Purchase Plan may not resume making payroll deductions during the Offering Period in which he or she reduced his or her payroll deductions to zero. (d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. (e) On each Purchase Date, so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the funds then in the participant's account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date. (f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant's benefit representing the shares purchased upon exercise of his or her option. (g) During a participant's lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. 10. LIMITATIONS ON SHARES TO BE PURCHASED. (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension. (b) No more than two hundred percent (200%) of the number of shares determined by using eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date. (c) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. Not less than thirty (30) days prior to the commencement of any Offering Period, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no Maximum Share Amount. In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. The Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above. -4- eBay, Inc. 1998 Employee Stock Purchase Plan (d) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected. (e) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest. 11. WITHDRAWAL. (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Treasury Department a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time at least fifteen (15) days prior to the end of an Offering Period. (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan. (c) If the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant's account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period. Notwithstanding the foregoing, if the first Offering Date occurs prior to November 1, 1998 and the Fair Market Value on the First Offering Date is higher than the Fair Market Value on the first day of the second Offering Period, any funds accumulated in a participant's account prior to the first day of the second Offering Period will be applied to the purchase of shares on the Purchase Date next following the first day of such second Offering Period. A participant does not need to file any forms with the Company to automatically be enrolled in the subsequent Offering Period 12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or - -------- reemployment upon the expiration of such leave is guaranteed by contract or statute. 13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the participant all payroll deductions credited to such participant's account. No interest shall accrue on the payroll deductions of a participant in this Plan. 14. CAPITAL CHANGES. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the "RESERVES"), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from a stock split or the -5- eBay, Inc. 1998 Employee Stock Purchase Plan payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, -------- ------- that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each participant the right to purchase shares under this Plan prior to such termination. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan will continue with regard to Offering Periods that commenced prior to the closing of the proposed transaction and shares will be purchased based on the Fair Market Value of the surviving corporation's stock on each Purchase Date, unless otherwise provided by the Committee consistent with pooling of interests accounting treatment. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. NONASSIGNABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect. 16. REPORTS. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be. 17. NOTICE OF DISPOSITION. Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee's employment. -6- eBay, Inc. 1998 Employee Stock Purchase Plan 19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan. 20. NOTICES. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board, this Plan will become effective on the First Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur prior to such stockholder approval. This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board. 22. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under this Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company obtained in accordance with Section 21 above within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or -7- eBay, Inc. 1998 Employee Stock Purchase Plan (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan is adopted by the Board. -8- EX-10.07 14 LEASE BETWEEN CONNECTICUT GEN. LIFE & REGISTRANT EXHIBIT 10.07 CONNECTICUT GENERAL LIFE INSURANCE COMPANY AND eBAY, INC. LEASE SUMMARY OF LEASE 1. Date of Lease: 2. Landlord: Connecticut General Life Insurance Company, on behalf of its Separate Account R 3. Tenant: eBay, Inc., a California corporation 4. Premises: 2005 Hamilton Avenue, Suite 270 San Jose, California 5. Square Feet: 1,270 sq. ft. 6. Permitted Use: General Office 7. Term: Three (3) years (a) Scheduled Commencement Date: October 4, 1996 (b) Scheduled Expiration Date: October 3, 1999 8. Rent: (a) Basic Rent: $2,171.70 per month (Lease months 1-36) (b) Tenant's Estimated Share of Common Area Charges: $685.80 per month 9. Security Deposit: $5,715.00 10. Parking Spaces Provided: Four (4) 11. Other Important Provisions
THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL GOVERN. Paragraph Page - --------- ---- 1. USE 2. TERM 3. POSSESSION 4. MONTHLY RENT 5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES 6. RESTRICTION ON USE 7. COMPLIANCE WITH LAWS 8. ALTERATIONS 9. REPAIR AND MAINTENANCE 10. LIENS 11. INSURANCE 12. UTILITIES AND SERVICE 13. TAXES AND OTHER CHARGES 14. ENTRY BY LANDLORD 15. COMMON AREA; PARKING 16. DAMAGE BY FIRE; CASUALTY 17. INDEMNIFICATION 18. ASSIGNMENT AND SUBLETTING 19. DEFAULT 20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT 21. EMINENT DOMAIN 22. NOTICE TO SURRENDER 23. TENANT'S QUITCLAIM 24. HOLDING OVER 25. SUBORDINATION 26. CERTIFICATE OF ESTOPPEL 27. SALE BY LANDLORD 28. ATTORNMENT TO LENDER OR THIRD PARTY 29. DEFAULT BY LANDLORD 30. CONSTRUCTION CHANGES 31. MEASUREMENT OF PREMISES 32. ATTORNEY FEES 33. SURRENDER 34. WAIVER 35. EASEMENTS; AIRSPACE RIGHTS 36. RULES AND REGULATIONS 37. NOTICES 38. NAME 39. GOVERNING LAW; SEVERABILITY 40. DEFINITIONS 41. TIME 42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE 43. ENTIRE AGREEMENT 44. CORPORATE AUTHORITY 45. RECORDING 46. REAL ESTATE BROKERS 47. EXHIBITS AND ATTACHMENTS 48. ERISA REQUIREMENTS 49. ENVIRONMENTAL MATTERS 50. SIGNAGE 51. SUBMISSION OF LEASE 52. PREMISES LEASED "AS IS" 53. ADDITIONAL RENT 54. LANDLORD'S OPTION TO RELOCATE PREMISES OFFICE LEASE THIS LEASE is made this 30/th/ day of September, 1996, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R ("Landlord"), and EBAY, INC., a California corporation ("Tenant"). WITNESSETH Landlord leases to Tenant and Tenant leases from Landlord those certain premises outlined in red on Exhibit A (the "Premises") which Premises are commonly known as 2005 Hamilton Avenue, Suite 270, San Jose, California, which Landlord and Tenant hereby agree consists of approximately one thousand two hundred seventy (1,270) square feet. As used herein the term "Project" shall mean and include all of the land described in Exhibit B and all the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Tenant covenants, as a material part of the consideration of this lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this lease is made upon the condition of such performance and observance. 1. USE. Subject to the restrictions contained in paragraph 6, Tenant --- shall use the Premises for general office use and shall not use or permit the Premises to be used for any other purpose. 2. TERM. The term shall be for three (3) years (unless sooner terminated ---- as hereinafter provided) and, subject to paragraph 3, shall commence on October 4, 1996 and end on October 3, 1999. 3. POSSESSION. (a) If Landlord for any reason cannot deliver possession of the Premises to Tenant by the scheduled commencement date set forth in paragraph 2, this lease shall not be void or voidable, Landlord shall not be liable to Tenant for any loss or damage on account thereof and Tenant shall not be liable for rent until Landlord delivers possession of the Premises to Tenant. If the term commences on a date other than the date specified in paragraph 2 above, then the parties shall immediately execute an amendment to this lease stating the actual date of commencement. The expiration date of the term shall be extended by the same number of days that Tenant's possession of the Premises was delayed from that set forth in paragraph 2. (b) Tenant's inability or failure to take possession of the Premises when delivery is tendered by Landlord shall not delay the commencement of the term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that Landlord shall incur significant expenses upon the execution of this lease, even if Tenant never takes possession of the Premises, including without limitation brokerage commissions and fees, legal fees and other professional fees. Tenant acknowledges that all of said expenses shall be included in measuring Landlord's damages should Tenant breach the terms of this lease. 4. MONTHLY RENT ------------ (a) Basic Rent. Tenant shall pay to Landlord as basic rent for the ---------- Premises, in advance and subject to adjustment as provided in paragraph 5, the sum of Two Thousand One Hundred Seventy-One and 70/100 Dollars ($2,171.70) on or before the first day of the first full calendar month of the term and on or before the first day of each and every successive calendar month. Basic rent for any partial month shall be payable in advance and shall be prorated based on the actual number of days during the lease term occurring in such month divided by the total number of days in such month. (b) Direct Expenses. In addition to the above basic rent and as --------------- additional rent, Tenant shall pay to Landlord, subject to adjustment and reconciliation as provided in paragraph 5(b) of this lease, the sum of Six Hundred Eighty-Five and 80/100 Dollars ($685.80) on or before the first day of the first full calendar month of the term and on the first day of each and every successive calendar month, said sum representing Tenant's estimated payment of its proportionate share of direct expenses as provided for in paragraph 5(b) to this lease. Payment for direct expenses for any partial month shall be payable in advance and shall be prorated based on the actual number of days during the lease term occurring in such month divided by the total number of days in such month. (c) Manner and Place of Payment. All payments of basic rent and --------------------------- direct expenses shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America, c/o McCandless Management Corporation at 3945 Freedom Circle, Suite 640, Santa Clara, California, 95054, or to such other person or place as Landlord may from time to time designate in writing. (d) Advance Rent. Concurrently with Tenant's execution of this lease, ------------ Tenant shall deposit with Landlord the sum of Fourteen Thousand Two Hundred Eighty-Seven and 50/100 Dollars ($14,287.50) to be applied against the basic rent and direct expenses for the first five months of the term. (e) Security Deposit. Concurrently with Tenant's execution of this ---------------- lease, Tenant shall deposit with Landlord the sum of Five Thousand Seven Hundred Fifteen Dollars ($5,715,000), which sum shall be held by Landlord as a security deposit for the faithful 5 performance by Tenant of all of the terms, covenants and conditions of this lease to be kept and performed by Tenant. If Tenant defaults with respect to any provision of this lease, including but not limited to the provisions relating to the payment of basic rent and direct expenses, Landlord may (but shall not be required to) use, apply or retain all or any part of this security deposit for the payment of any amount which Landlord may spend by reason of Tenant's default. If any portion of said deposit is so used, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the security deposit to its original amount; Tenant's failure to do so shall be a material breach of this lease. Landlord shall not be required to keep this security deposit separate from its general funds and Tenant shall not be entitled to interest on such deposit. If Tenant is not in default on the first day of the last lease month of the term of this lease, the sum of Two Thousand Eight Hundred Fifty-Seven and 50/100 Dollars ($2,857.50), if not previously applied by Landlord in accordance with the provisions of this paragraph 4(e), shall be applied to the basic rent and direct expenses for the last lease month of the term of this lease. If Tenant is not in default at the expiration or termination of this lease, the security deposit or any balance thereof shall be returned to Tenant after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this lease, Landlord shall transfer said deposit to Landlord's successor in interest, and Tenant agrees that Landlord shall thereupon be released from liability for the return of such deposit or any accounting therefor. 5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES. -------------------------------------------- (a) Adjustments in Basic Rent. The basic rent provided for in ------------------------- paragraph 4(a) shall not be adjusted during the initial three year term of this lease. (b) Adjustments to Direct Expenses. Tenant's proportionate share of ------------------------------ direct expenses of the Project shall be fifty-five one-hundredths percent (.55%) and Tenant's proportionate share of direct expenses of the building in which the Premises are located shall be one and ninety-eight one-hundredths percent (1.98%). Tenant shall be required to pay to Landlord, as additional rent in accordance with paragraph 4(b) of this lease, Tenant's proportionate share of direct expenses for each calendar year (or portion thereof) during the term of this lease. Tenant's estimated share of the monthly direct expenses payable by Tenant during the calendar year in which the term commences is set forth in paragraph 4(b) of this lease. A written estimate of Tenant's monthly share of direct expenses for each succeeding calendar year shall be delivered to Tenant prior to the commencement of each such succeeding calendar year (or as soon as practicable thereafter). Tenant shall pay to Landlord in accordance with paragraph 4(b) of this lease its monthly share of direct expenses as estimated by Landlord. Landlord reserves the right to revise such written estimate during a calendar year if Landlord's actual or projected direct expenses shows an increase or decrease in excess of ten percent (10%) from that of an earlier written estimate delivered to Tenant, and if Landlord elects to revise the earlier estimate, Landlord shall deliver the revised estimate to Tenant, together with an explanation of the reasons therefor, and Tenant shall revise its payments accordingly. Statements of the actual direct expenses for the calendar year in which the term commences and for each succeeding calendar year (herein called 6 "statement of actual direct expenses") shall be delivered to Tenant within one hundred twenty (120) days following the expiration of each such calendar year (or as soon as practicable thereafter). If the statement of actual direct expenses for any such calendar year shows that Tenant's proportionate share of actual direct expenses for the year is in excess of the aggregate amount Tenant has paid as direct expenses for that calendar year, Tenant shall pay such excess to Landlord within ten (10) days after receipt of the statement of actual direct expenses. If Tenant fails to pay such excess amount due within said ten (10) day period, Tenant shall pay an additional ten percent (10%) of the amount due as a penalty. In the event that any statement of actual direct expenses shall show that Tenant has paid Landlord an aggregate amount in excess of the actual direct expenses for the preceding calendar year and Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this lease at the time such statement of actual direct expenses is delivered, Landlord shall, at its option, promptly either refund such excess to Tenant or credit the amount thereof to the monthly direct expenses next becoming due from Tenant. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of this lease. As used in this lease, "direct expenses" shall include, but not be limited to, (i) real property taxes, assessments, and other costs identified as direct expenses in paragraph 13; (ii) insurance premiums and other costs identified as direct expenses in paragraph 11; (iii) the cost of all utilities and services including water, gas, and sewer charges, electricity, heat, air conditioning, refuse collection, and janitorial services identified as direct expenses in paragraph 12; (iv) the costs of operating and maintaining the Common Area identified as direct expenses in paragraph 15, including, but not limited to, the landscaping, elevators, parking lots, paving, sidewalks, showers, the Greylands Mansion, and security and exterminator services; (v) the costs and expenses of maintaining and repairing the Project identified as direct expenses in paragraph 9, including but not limited to, mechanical, electrical, plumbing and sewage systems, windows, glazing, gutters, down-spouts, heating and ventilating and air conditioning systems, walls, floor coverings, roofs, structural elements, exterior walls, and the cost of maintenance contracts and supplies, materials, equipment and tools used in connection therewith; (vi) the cost of certain alterations identified as direct expenses in paragraph 8; (vii) amortization of such capital improvements having a useful life greater than one year as Landlord may have installed for the purpose of reducing operating costs and/or to comply with all laws, rules and regulations of federal, state, county, municipal and other governmental authorities now or hereafter in effect (Tenant's share of such capital improvement shall equal Tenant's proportionate share of the fraction of the cost of such capital improvement equal to the remaining term of the lease over the useful life of such capital improvement); (viii) wages, salaries, employee benefits (including union benefits) and related expenses of all on-site and off-site personnel engaged in the operation, management and maintenance of the Project (or the building in which the Premises are located) and payroll taxes applicable thereto and all costs incurred to maintain a management office in or near the Project (including, without limitation, rental payments therefor or the reasonable rental value of the space so occupied); (ix) supplies, materials, equipment and tools used or required in connection with the operation and maintenance of the Project; (x) licenses, permits and inspection fees; (xi) a reasonable reserve for repairs and replacement of equipment used in the maintenance and operation of the Project; and (xii) all other operating costs incurred by Landlord in maintaining and operating the Project. 7 6. RESTRICTION ON USE. Tenant shall not do or permit to be done in or ------------------ about the Premises or the Project, nor bring or keep or permit to be brought or kept in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any other insurance covering the Project or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or which will in any way obstruct or interfere with the rights of other tenants or occupants of the Project or injure or annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises for sleeping, washing clothes, cooking or in any manner that will cause or emit any objectionable odor, noise or light into the adjoining premises or Common Area. Tenant shall not do anything on the Premises that will cause damage to the Project or the building in which the Premises are located and Tenant shall not overload the floor capacity of the Project. No machinery, apparatus or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate or shake the Premises. Landlord shall be the sole judge of whether such odor noise, light or vibration is such as to violate the provisions of this paragraph. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building proper except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or inside of the building proper where designated; and no toxic or hazardous material shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper. No retail sales shall be made on the Premises. 7. COMPLIANCE WITH LAWS. Tenant shall, in connection with its use and -------------------- occupation of the Premises, at its sole cost and expense, promptly observe and comply with (i) all laws, statutes, ordinances and governmental rules, regulations and requirements of federal, state, county, municipal and other governmental authorities, now or hereafter in effect, which shall impose any duty upon Landlord or Tenant with respect to the use, occupancy or alteration of the Premises, (ii) with the requirements of any board of fire underwriters or other similar body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that no such failure shall be deemed a breach of these provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant (whether or not Landlord is a party thereto) that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This lease shall remain in full force and effect notwithstanding any loss of use of other effect on Tenant's enjoyment of the Premises by reason of any governmental laws, statutes, ordinances, rules, regulations and requirements now or hereafter in effect. 8 8. ALTERATIONS. Tenant shall not make or suffer to be made any ----------- alteration, addition or improvement to or of the Premises or any part thereof (collectively referred to herein as "alterations") without (i) the prior written consent of Landlord, (ii) a valid building permit issued by the appropriate governmental authority and (iii) otherwise complying with all applicable laws, regulations and requirements of governmental agencies having jurisdiction and with the rules, regulations and requirements of any board of fire underwriters or similar body. Landlord's consent to any requested alteration shall not create on the part of Landlord or cause Landlord to incur any responsibility or liability for such alteration's compliance with all laws, rules and regulations of federal, state, municipal, county and other governmental authorities. Any alteration made by Tenant (excluding moveable furniture and trade fixtures not attached to the Premises) shall at once become a part of the Premises and belong to Landlord. Without limiting the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning, drapery, window covering and carpet installations made by Tenant, regardless of how attached to the Premises, together with all other alterations that have become an integral part of the building in which the Premises are a part, shall be and become part of the Premises and belong to Landlord upon installation and shall not be deemed trade fixtures and, subject to Landlord's right to require removal and restoration as specified herein, shall remain upon and be surrendered with the Premises at the termination of the lease. If Landlord consents to the making of any alteration by Tenant, the same shall be made by Tenant at its sole risk, cost and expense and only after Landlord's written approval of any contractor or person selected by Tenant for that purpose, and the same shall be made at such time and in such manner as Landlord may from time to time designate. Tenant shall, if required by Landlord, secure at Tenant's cost a completion and lien indemnity bond for such work. Upon the expiration or sooner termination of the term, Landlord may, at its sole option, require Tenant, at Tenant's sole cost and expense, to promptly remove any such alteration made by Tenant and designated by Landlord to be removed, repair any damage to the Premises caused by such removal and restore the Premises to their condition prior to Tenant's alteration. Any moveable furniture and equipment or trade fixtures remaining on the Premises at the expiration or other termination of the term shall become the property of the Landlord; provided, however, in addition to all other remedies available to Landlord at law or in equity, Landlord may (i) require Tenant to remove same or (ii) remove same at Tenant's cost, and Tenant shall be liable to Landlord for all damages incurred by Landlord related thereto. If during the term any alteration, addition or change of the Premises is required by law, regulation, ordinance or order of any public authority, Tenant, at its sole cost and expense, shall promptly make the same. If during the term any alterations, additions or changes to the Common Area or to the Project or building in which the Premises is located is required by law, regulation, ordinance or order of any public or quasi-public authority, and it is impractical, in Landlord's judgment, for the affected tenants to individually make such alterations, additions or changes, Landlord shall make such alterations, additions or changes and the cost thereof shall be a direct expense and Tenant shall pay its percentage share of said cost to Landlord as provided in paragraphs 4 and 5. 9 9. REPAIR AND MAINTENANCE. Subject to paragraph 16, Landlord shall ---------------------- maintain and keep in good repair the Common Area (including, without limitation, the Greylands Mansion) and the mechanical, electrical, plumbing and sewage systems, windows, window frames, plate glass, glazing, elevators, gutters and down-spouts, the roof, exterior walls, structural elements and the heating, ventilating and air conditioning systems (except special air conditioning of Tenant's computer room(s) as set forth below) of the Premises and the Project; provided, however, that Landlord shall not be required to perform repairs made necessary by the negligence or abuse of such improvements or property by Tenant or its employees agents, subtenants or permitees. The cost of all maintenance and repairs made by Landlord pursuant to this paragraph 9, including without limitation maintenance contracts and supplies, materials, equipment and tools used in such repairs and maintenance, shall be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. By entry hereunder Tenant accepts the Premises as being in good and sanitary order, condition and repair. Subject to paragraphs 16 and 21, and excepting repairs and maintenance required by this paragraph 9 to be made by Landlord, Tenant at its cost shall keep the Premises and every part thereof in good and sanitary order, condition and repair and Tenant shall be solely responsible for the cost and maintenance of, and electricity supplied to, any special air conditioning for Tenant's computer facilities. Further, Tenant shall repair (or, at the option of Landlord, reimburse Landlord if Landlord elects to repair) damage to improvements or other property located on or about the Project where such repairs are made necessary by the negligence of or abuse of such improvements or other property by Tenant or its employees, agents, subtenants or permitees. Tenant waives all rights under and benefit of California Civil Code Sections 1932(1), 1941, and 1942 and under any similar law, statute or ordinance now or hereafter in effect. 10. LIENS. Tenant shall keep the Premises and the Project free from any ----- liens arising out of any work performed, materials furnished or obligations incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt of a preliminary twenty (20) day notice filed by a claimant pursuant to California Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy of such notice. Should any lien be recorded against the Project, Tenant shall give immediate notice of such lien to Landlord. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses (including attorneys' fees) incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Project and any other party having an interest therein, from mechanics' and materialmen's liens and like liens. Tenant shall give Landlord at least fifteen (15) days' prior notice of the date of commencement of any construction on the Premises in order to permit the posting of such notices. In the event Tenant is required to post an improvement bond with a public agency in connection with any 10 work performed by Tenant on or to the Premises, Tenant shall include Landlord as an additional obligee. 11. INSURANCE. Tenant, at its sole cost and expense, shall keep in force --------- during the term (i) commercial general liability and property damage insurance with a combined single limit of at least $2,000,000 per occurrence insuring against personal or bodily injury to or death of persons occurring in, on or about the Premises or Project and any and all liability of the insureds with respect to the Premises or arising out of Tenant's maintenance, use or occupancy of the Premises and all areas appurtenant thereto, (ii) direct physical loss- special insurance covering the leasehold improvements in the Premises and all of Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and personal property from time to time located in, on or about the Premises, with coverage in the amount of the full replacement cost thereof, and (iii) Workers' Compensation Insurance as required by law, together with employer's liability coverage with a limit of not less than $1,000,000 for bodily injury for each accident and for bodily injury by disease for each employee. Tenant's commercial general liability and property damage insurance and Tenant's Workers' Compensation Insurance shall be endorsed to provide that said insurance shall not be cancelled or reduced except upon at least thirty (30) days prior written notice to Landlord. Further, Tenant's commercial general liability and property damage insurance shall be primary and shall be endorsed to provide that Landlord and McCandless Management Corporation, and their respective partners, officers, directors and employees and such other persons or entities as directed from time to time by Landlord shall be named as additional insureds for all liability using ISO Bureau Form CG20111185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; shall contain a severability of interest clause and a cross-liability endorsement; shall be endorsed to provide that the limits and aggregates apply per location using ISO Bureau Form CG25041185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; and shall be issued by an insurance company admitted to transact business in the State of California and rated A+VIII or better in Best's Insurance Reports (or successor report). The deductibles for all insurance required to be maintained by Tenant hereunder shall be satisfactory to Landlord. The commercial general liability insurance carried by Tenant shall specifically insure the performance by Tenant of the indemnification provisions set forth in paragraph 17 of this lease provided, however, nothing contained in this paragraph 11 shall be construed to limit the liability of Tenant under the indemnification provisions set forth in said paragraph 17. If Landlord or any of the additional insureds named on any of Tenant's insurance, have other insurance which is applicable to the covered loss on a contributing, excess or contingent basis, the amount of the Tenant's insurance company's liability under the policy of insurance maintained by Tenant shall not be reduced by the existence of such other insurance. Any insurance carried by Landlord or any of the additional insureds named on Tenant's insurance policies shall be excess and non- contributing with the insurance so provided by Tenant. Tenant shall, prior to the commencement of the term and at least thirty (30) days prior to any renewal date on any insurance policy required to be maintained by Tenant pursuant to this paragraph, provide Landlord with a completed Certificate of Insurance, using a form acceptable in Landlord's reasonable judgment, attaching thereto copies of all endorsements required to be provided by Tenant under this lease. Tenant agrees to increase the coverage or 11 otherwise comply with changes in connection with said commercial general liability, property damage, direct physical loss and Workers' Compensation Insurance as Landlord or Landlord's lender may from time to time require. Landlord shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises and Project, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risk" insurance, with increased cost of reconstruction and contingent liability (including demolition), plus a policy of rental income insurance in the amount of one hundred percent (100%) of twelve (12) months' rent (including sums paid as additional rent) and such other insurance as Landlord or Landlord's lender may from time to time require. Landlord may but shall not be obligated to obtain flood and/or earthquake insurance. Landlord shall have no liability to Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The cost of all such insurance purchased by Landlord, plus any charges for deferred payment of premiums and the amount of any deductible incurred upon any covered loss within the Project, shall be direct expenses and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraphs 4(b) and 5(b). If the cost of insurance is increased due to Tenant's use of the Premises, then Tenant shall pay to Landlord upon demand the full cost of such increase. Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises or the Project, or any part thereof, or to any personal property therein, from perils insured against under fire and extended insurance and any other property insurance policies existing for the benefit of the respective parties so long as such insurance permits waiver of liability and contains a waiver of subrogation without additional premiums. If Tenant does not take out and maintain insurance as required pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefor, and Tenant shall repay to Landlord promptly on demand, as additional rent, the amount so paid. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as additional rent, any and all reasonable expenses (including attorneys' fees) and damages which Landlord may sustain by reason of the failure of Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon. 12. UTILITIES AND SERVICE. Landlord shall furnish to the Premises and to --------------------- the building in which the Premises are located, during reasonable hours of generally recognized business days, to be determined by Landlord, and subject to the rules and regulations of the Project, reasonable quantities of water and electricity suitable for the intended use of the Premises and the building in which the Premises are located, heat and air conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises, refuse collection and janitorial services. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the heating, ventilating and air conditioning systems. The cost of all utilities and services furnished by Landlord to the Premises and to the building in which the Premises are 12 located pursuant to this paragraph 12 shall be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of rent by reason of, Landlord's failure to furnish any of the foregoing services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, governmental moratoriums, regulations, or other governmental actions or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. In addition, Tenant shall not be relieved from the performance of any covenant or agreement in this lease because or any such failure, and no eviction of Tenant shall result from such failure. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises (including, without limitation, electronic data processing machines, punch card machines or machines using current in excess of 110 volts) which will in any way increase the amount of electricity, water or air conditioning usually furnished or supplied to premises in the Project being used as general office space or connect with electric current (except through existing electrical outlets in the Premises) or with water pipes any apparatus or device for the purpose of using electric current or water. If Tenant shall require water or electric current in excess of that usually furnished or supplied to premises in the Project being used as general office space then Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld, and Tenant shall pay to Landlord promptly on demand, as additional rent, the full cost of such excess use. Landlord may cause an electric current or water meter to be installed in the Premises in order to measure the amount of electric current or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, and all charges for such excess water and electric current consumed (as shown by meters and at the rates then charged by the furnishing public utility) plus any additional expense incurred by Landlord in keeping account of electric current or water so consumed, shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. Whenever heat generating machines or equipment are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. 13. TAXES AND OTHER CHARGES. All real estate taxes and assessments and ----------------------- other taxes, fees and charges of every kind or nature, foreseen or unforeseen, which are levied, assessed or imposed upon Landlord and/or against the Premises, building, Common Area or Project or any part thereof by any federal, state, county, regional, municipal or other governmental or quasi-governmental authority or special district authority, together with any increases therein whether resulting from increased rate and/or valuation shall be a direct expense and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. By way of illustration and not limitation, "other taxes, fees and charges" as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured by the net income of Landlord from all sources, and premium taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, 13 allocable to, or measured by the rent payable hereunder, including, without limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any part thereof, (iii) upon or measured by the value of Tenant's personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to vehicles, parking or the number of persons employed on or about the Project, and (vi) any tax, license, franchise fee or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord (including, but not limited to, costs of attorneys and experts) thereby shall also be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. In the event the Premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher than those of other tenants in the building or Project or in the event alterations or improvements are made to the Premises, Tenant's percentage share of such taxes, assessments, fees and/or charges shall be readjusted upward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessor's work sheet or such other information as may be reasonably available and Landlord's determination thereof shall be conclusive. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term hereof upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant notwithstanding that such carpeting or other property has become a part of the Premises. If any of Tenant's personal property shall be assessed with the Project, Tenant shall pay to Landlord, as additional rent, the amounts attributable to Tenant's personal property within ten (10) days after receipt of a written statement from Landlord setting forth the amount of such taxes, assessments and public charges attributable to Tenant's personal property. 14. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable ----------------- times have, the right to enter the Premises (i) to inspect the Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to show the Premises to prospective purchasers, lenders or tenants and to put, `for sale' or `for lease' signs thereon, (iv) to post notices required or allowed by this lease or by law, (v) to alter, improve or repair the Premises and any portion of the Project, and (vi) to erect scaffolding and other necessary structures in or through the Premises or the Project where reasonably required by the character of the work to be performed. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord's entry and acts pursuant to this paragraph and Tenant shall not be entitled to an abatement or reduction of rent if Landlord exercises any rights reserved in this paragraph. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, on, and about the Premises (excluding Tenant's vaults, safes and similar areas designated in writing by Tenant in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry by Landlord to the Premises 14 pursuant to this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. 15. COMMON AREA; PARKING. Subject to the terms and conditions of this -------------------- lease and such rules and regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees and invitees shall, in common with other occupants of the Project, and their respective employees, invitees and customers and others entitled to the use thereof, have the nonexclusive right to use the access roads, parking areas and facilities within the Project provided and designated by Landlord for the general use and convenience of the occupants of the Project (which areas and facilities shall include, but not be limited to, common lobbies, corridors, restrooms and showers, part or all of the Greylands Mansion and the .37 acre parcel upon which it is located, telephone, electrical, janitorial and mechanical rooms, elevators, stairwells, vertical duct shafts, sidewalks, parking, refuse, landscape and plaza areas, roofs, building exteriors, electrical, mechanical, plumbing and HVAC systems and storage areas) which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord shall also have the right at any time to change the name, number or designation by which the Project is commonly known. Landlord further reserves the right to promulgate such rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice. Tenant acknowledges that Landlord (as tenant) has leased the Greylands Mansion on a month-to-month basis and that such Lease can be terminated on thirty (30) days notice. Upon termination of the lease for the Greylands Mansion the Common Area shall thereafter include no part of the Greylands Mansion and the .37 acre parcel upon which it is located. Tenant shall have the nonexclusive use of four (4) parking spaces in the Common Area as designated from time to time by Landlord. Landlord reserves the right at its sole option to assign and label parking spaces, but it is specifically agreed that Landlord is not responsible for policing any such parking spaces. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. 15 Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole discretion of Landlord. The cost of such maintenance, operation and management, including but not limited to landscaping, repair of paving, parking lots and sidewalks, the Greylands Mansion (including interior repair and maintenance; janitorial services; furniture rental or depreciation charges; and lease payments charged to the Project by the owner of the Greylands Mansion), security and exterminator services and salaries and employee benefits (including union benefits) of on-site and accounting personnel engaged in such maintenance and operations management, shall be a direct expense and Tenant shall pay to Landlord its percentage share of such cost as provided in paragraphs 4 and 5. 16. DAMAGE BY FIRE; CASUALTY. In the event the Premises are damaged by ------------------------ any casualty which is covered under an insurance policy required to be maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to the use of all insurance proceeds and shall repair such damage as soon as reasonably possible and this lease shall continue in full force and effect. In the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to paragraph 11, Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's expense, as soon as reasonably possible, in which event this lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord's intention to cancel and terminate this lease as of the date of the occurrence of the damage; provided, however, that if such damage is caused by an act or omission of Tenant or its agent, servants or employees, then Tenant shall repair such damage promptly at its sole cost and expense. In the event Landlord elects to terminate this lease pursuant hereto, Tenant shall have the right within ten (10) days after receipt of the required notice to notify Landlord in writing of Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event this lease shall continue in full force and effect and Tenant shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within the ten (10) day period, this lease shall be cancelled and terminated as of the date of the occurrence of such damage. Under no circumstances shall Landlord be required to repair any injury or damage to (by fire or other cause), or to make any restoration or replacement of, any of Tenant's personal property, trade fixtures or property leased from third parties, whether or not the same is attached to the Premises. If the Premises are totally destroyed during the term from any cause (including any destruction required by any authorized public authority), whether or not covered by the insurance required under paragraph 11, this lease shall automatically terminate as of the date of such total destruction; provided, however, that if the Premises can reasonably and lawfully be repaired or restored within twelve (12) months of the date of destruction to substantially the condition existing prior to such destruction and if the proceeds of the insurance payable to the Landlord by reason of such destruction are sufficient to pay the cost of such repair or restoration, then said insurance proceeds shall be so applied, Landlord shall promptly repair and restore the 16 Premises and this lease shall continue, without interruption, in full force and effect. If the Premises are totally destroyed during the last twelve (12) months of the term, Landlord may at Landlord's option cancel and terminate this lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within thirty (30) days after the occurrence of such damage. If the Premises are partially or totally destroyed or damaged and Landlord or Tenant repair them pursuant to this lease, the rent payable hereunder for the period during which such damage and repair continues shall be abated only in proportion to the square footage of the Premises rendered untenantable to Tenant by such damage or destruction. Tenant shall have no claim against Landlord for any damage, loss or expense suffered by reason of any such damage, destruction, repair or restoration. The parties waive the provisions of California Civil Code Sections 1932(2) and 1933(4) (which provisions permit the termination of a lease upon destruction of the leased premises), and hereby agree that the provisions of this paragraph 16 shall govern in the event of the destruction of the Premises. 17. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant --------------- hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project by or from any cause whatsoever except the failure of Landlord to perform its obligations under this lease where such failure has persisted for an unreasonable period of time after notice of such failure. Without limiting the foregoing, Landlord shall not be liable to Tenant for any injury to or death of any person or damages to or destruction of property by reason of, or arising from, any latent defect in the Premises or Project or the act or negligence of any other tenant of the Project. Tenant shall immediately notify Landlord of any defect in the Premises or Project. Except as to injury to persons or damage to property the principal cause of which is the failure by Landlord to observe any of the terms and conditions of this lease, Tenant shall hold Landlord harmless from and indemnify and defend Landlord against any claim, liability, loss, damage or expense (including attorneys' fees) arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises from any cause whatsoever or on account of the use, condition, occupational safety or occupancy of the Premises. Tenant shall further hold Landlord harmless from and indemnify and defend Landlord against any claim, liability, loss, damage or expense (including attorneys' fees) arising (i) from Tenant's use of the Premises or from the conduct of its business or from any activity or work done, permitted or suffered by Tenant or its agents or employee, in or about the Premises or Project, (ii) out of the failure of Tenant to observe or comply with Tenant's obligation to observe and comply with laws or other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use, handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by reason of any labor or service performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises, or (v) from any other act, neglect, fault or omission of Tenant or its agents or employees. The provisions of this paragraph 17 shall survive the expiration or earlier termination of this lease. 17 18. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily assign, ------------------------- encumber or otherwise transfer its interest in this lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord's written consent, which consent shall not be unreasonably withheld, and otherwise complying with the requirements of this paragraph 18. Any assignment, encumbrance or sublease without Landlord's consent, shall constitute a default. If Tenant desires to sublet or assign all or any portion of the Premises, Tenant shall give Landlord written notice thereof, specifying the projected commencement date of the proposed sublet or assignment (which date shall be not less than thirty (30) days or more than ninety (90) days after the date of Landlord's receipt of such notice), the portions of the Premises proposed to be sublet or assigned, the terms and conditions of the proposed assignment or sublease (including the rent to be paid by the proposed assignee or subtenant) and the name, address and telephone number of the proposed assignee or subtenant. Tenant shall further provide Landlord with such other information concerning the proposed assignee or subtenant as requested by Landlord. For a period of thirty (30) days after Landlord's receipt of Tenant's written notice, Landlord shall have the option, exercisable by delivering written notice to Tenant, to terminate this lease as of the date specified in Landlord's written notice to Tenant, which date shall not be less than thirty (30) days nor more than ninety (90) days after the date of Landlord's written notice to Tenant. If Landlord exercises its option to terminate this lease as provided in the foregoing sentence, Landlord may, if it so elects, enter into a new lease for the Premises or any portion thereof with the proposed assignee or subtenant or any other third party on such terms as Landlord and such proposed assignee or subtenant or other third party may agree; in such event, Tenant shall not be entitled to any portion of the profit, if any, which Landlord may realize on account of such termination and reletting. If Landlord does not elect to terminate this lease as provided hereinabove in this paragraph 18 and if Landlord consents in writing to the proposed assignment or sublet, Tenant shall be free to assign or sublet all or a portion of the Premises subject to the following conditions: (i) any sublease shall be on the same terms set forth in the notice given to Landlord; (ii) no sublease shall be valid and no subtenant shall take possession of the sublet premises until an executed counterpart of such sublease has been delivered to Landlord; (iii) no subtenant shall have a further right to sublet; (iv) any sums or other economic consideration received by Tenant as a result of such assignment or sublet (except rental or other payments received which are attributable to the amortization over the term of this lease of the cost of leasehold improvements constructed for such assignees or subtenant, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease), shall be payable to Landlord as additional rent under this lease without affecting or reducing any other obligation of Tenant hereunder; (v) no sublet or assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder; and (vi) any assignee or subtenant must expressly agree to assume and perform all of the covenants and conditions of Tenant under this lease. Tenant shall pay to Landlord promptly upon demand as additional rent, Landlord's actual attorneys' fees and other costs incurred for reviewing, processing or 18 documenting any requested assignment or sublease, whether or not Landlord's consent is granted. Tenant shall not be entitled to assign this lease or sublease all or any part of the Premises (and any attempt to do so shall be voidable by Landlord) during any period in which Tenant is in default under this lease. If Tenant is a partnership, a withdrawal or change, voluntary or involuntary or by operation of law, of any general partner or the dissolution of the partnership shall be deemed an assignment of this lease subject to all the conditions of this paragraph 18. If Tenant is a corporation any dissolution, merger, consolidation or other reorganization of Tenant or the sale or other transfer of a controlling percentage of the capital stock of Tenant or the sale of more than fifty percent (50%) of the value of Tenant's assets shall be an assignment of this lease subject to all the conditions of this paragraph 18. The term "controlling percentage" means the ownership of, and the right to vote, stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote. This paragraph shall not apply if Tenant is a corporation the stock of which is traded through an exchange. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or sublets of this lease or amendments or modifications to this lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this lease. No interest of Tenant in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors or institutes a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ of attachment or execution is levied on this lease; or (iii) if, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this lease, in which case this lease shall not be treated as an asset of Tenant. Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this lease, all rent from any subletting of all or a part of the Premises as permitted by this lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver of Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this lease; except that, until the occurrence of an act or default by 19 Tenant, Tenant shall have the right to collect such rent, subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 18. 19. DEFAULT. The occurrence of any of the following shall constitute a ------- default by Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder within three (3) days after the date that such payment becomes due; (ii) abandonment of the Premises (Tenant's failure to occupy and conduct business in the Premises for fourteen (14) consecutive days shall be deemed an abandonment); (iii) failure of Tenant to deliver to Landlord any instrument, assurance, financial statement, subordination agreement or certificate of estoppel required under this Lease within the time period specified for such performance if the failure continues for five (5) days after written notice of the failure from Landlord to Tenant; or (iv) failure of Tenant to perform any other obligation under this lease if the failure to perform is not cured within thirty (30) days after written notice thereof has been given to Tenant (provided that if such default cannot reasonably be cured within thirty (30) days, Tenant shall not be in default if Tenant commences to cure such failure to perform within the thirty (30) day period and diligently and in good faith continues to cure the failure to perform), except in the case of an emergency or dangerous condition, in which case Tenant's time to perform shall be that time period which is reasonable under the circumstances. The notice referred to in clauses (iii) and (iv) above shall specify the failure to perform and the applicable lease provision and shall demand that Tenant perform the provisions of this lease within the applicable period of time. No notice shall be deemed a forfeiture or termination of this lease unless Landlord so elects in the notice. No notice shall be required in the event of abandonment or vacation of the Premises. In addition to the above, the occurrence of any of the following events shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as they become due or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors (for purposes of determining whether Tenant is not paying its debts as they become due, a debt shall be deemed overdue upon the earliest to occur of the following: thirty (30) days from the date a statement therefor has been rendered; the date on which any action or proceeding therefor is commenced; or the date on which a formal notice of default or demand has been sent); (ii) Tenant fails to furnish to Landlord a schedule of Tenant's aged accounts payable within ten (10) days after Landlord's written request; (iii) any financial statements given to Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any guarantor of Tenant, or successor in interest of Tenant (including, without limitation, any schedule of Tenant's aged accounts payable) are materially false; or (iv) any financial statement or other financial information furnished by Tenant pursuant to the provisions of this lease or at the request of Landlord evidences that either Tenant's net worth or its net assets are at least twenty-five percent (25%) less than the net worth or net assets shown in either the immediately prior financial statement or the financial statement of Tenant furnished at the time of execution of this lease, and Tenant fails to furnish promptly to Landlord, after notice from Landlord to Tenant, an additional security deposit in cash equivalent to the aggregate of the basic rent and common area charges (without regard to any rent abatement) payable hereunder for the twelve (12) full calendar months immediately preceding such notice. At any time during the term of this lease Landlord, at Landlord's option, shall have the right to receive from Tenant, upon Landlord's request, a current 20 annual balance sheet for Landlord's review. If the balance sheet shows a negative net worth, Landlord may terminate this lease by giving Tenant sixty (60) days prior written notice. In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies of Landlord at law or in equity, shall have the right either to terminate Tenant's right to possession of the Premises (and thereby terminate this lease) or, from time to time and without termination of this lease, to relet the Premises or any part thereof for the account and in the name of Tenant for such term and on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Should Landlord elect to keep this lease in full force and effect, Landlord shall have the right to enforce all of Landlord's rights and remedies under this lease, including but not limited to the right to recover and to relet the Premises and such other rights and remedies as Landlord may have under California Civil Code Section 1951.4 (or successor Code section) or any other California statute. If Landlord relets the Premises, then Tenant shall pay to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in such reletting and in making alterations and repairs. Rentals received by Landlord from such reletting shall be applied (i) to the payment of any indebtedness due hereunder, other than basic rent and direct expenses, from Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to return the Premises to good condition normal wear and tear excepted, including the cost of alterations and the cost of storing any of Tenant's property left on the Premises at the time of reletting; and (iii) to the payment of basic rent or direct expenses due and unpaid hereunder. The residue, if any, shall be held by Landlord and applied in payment of future rent or damages in the event of termination as the same may become due and payable hereunder and the balance, if any at the end of the term of this lease shall be paid to Tenant. Should the basic rent and direct expenses received from time to time from such reletting during any month be less than that agreed to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such reletting of the Premises by Landlord shall be construed as an election on its part to terminate this lease unless a notice of such intention is given to Tenant or unless the termination hereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this lease for such previous breach, provided it has not been cured. Should Landlord at any time terminate this lease for any breach, in addition to any other remedy it may have, it shall have the immediate right of entry and may remove all persons and property from the Premises and shall have all the rights and remedies of a landlord provided by California Civil Code Section 1951.2 or any successor code section. Upon such termination, in addition to all its other rights and remedies, Landlord shall be entitled to recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and including (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably 21 avoided; (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this lease or which in the ordinary course of events would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of twelve percent (12%) per annum. The "worth at the time of award" of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the federal reserve bank of San Francisco at the time of award plus one percent (1%). Tenant waives the provisions of Section 1179 of the California Code of Civil Procedure (which Section allows Tenant to petition a court of competent jurisdiction for relief against forfeiture of this lease). Property removed from the Premises may be stored in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such manner and at such times and places that Landlord, in its sole discretion, may deem proper, without notice to or demand upon Tenant. 20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. Landlord, at any time ----------------------------------------- after Tenant commits a default, may, but shall not be obligated to, cure the default at Tenant's cost. If Landlord at any time, by reason of Tenant's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord and shall bear interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be additional rent. 21. EMINENT DOMAIN. If all or any part of the Premises shall be taken by -------------- any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any payments, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance. Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this lease. Notwithstanding the foregoing, Tenant shall be entitled to any compensation for depreciation to and cost of removal of Tenant's equipment and fixtures and any compensation for its relocation expenses necessitated by such taking, but in each case only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award as being therefor. Each party waives the provisions of Section 1265.130 of the California Code of Civil Procedure (which section allows either party to petition the Superior Court to terminate this lease in the event of a partial taking of the Premises). If any action or proceeding is commenced for such taking of the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by any entity or body having the right of power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, then Landlord shall have the right to terminate this lease by giving Tenant written notice 22 thereof within sixty (60) days of the earlier of the date of Landlord's receipt of such notice of intention to condemn or the commencement of said action or proceeding. Such termination shall be effective as of the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. In the event of a partial taking, or conveyance in lieu thereof, of the Premises and fifty percent (50%) or more of the number of square feet in the Premises are taken then Tenant may terminate this lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty (60) days from the date of such taking or conveyance and shall be effective on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. If a portion of the Premises is taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease as provided above, then this lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rent shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking. 22. NOTICE AND COVENANT TO SURRENDER. On the last day of the term or on -------------------------------- the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises in its condition existing as of the commencement of the term and, except as otherwise provided by Landlord pursuant to the terms of paragraph 8 of this lease, all of the improvements and alterations made to the Premises in their condition existing as of the date of completion of construction and/or installation (normal wear and tear excepted), with all originally painted interior walls washed or repainted if marked or damaged, interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, and all floors cleaned and waxed; all to the reasonable satisfaction of Landlord. On or prior to the last day of the term or the effective date of any earlier termination, Tenant shall remove all of Tenant's personal property and trade fixtures, together with improvements or alterations that Tenant is obligated to remove pursuant to the provisions of paragraph 8 of this lease, from the Premises, and all such property not removed shall be deemed abandoned. In addition, on or prior to the expiration or earlier termination of this lease, Tenant shall remove, at Tenant's sole cost and expense, all telephone, other communication, computer and any other cabling and wiring of any sort installed in the space above the suspended ceiling of the Premises or anywhere else in the Premises and shall promptly repair any damage to the suspended ceiling, lights, light fixtures, walls and any other part of the Premises resulting from such removal. If the Premises are not surrendered as required in this paragraph, Tenant shall indemnify Landlord against all loss, liability and expense (including, but not limited to, attorneys' fees) resulting from the failure by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenants. It is agreed between Landlord and Tenant that the provisions of this paragraph 22 shall survive the termination of this lease. 23 23. TENANT'S QUITCLAIM. At the expiration or earlier termination of this ------------------ lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required to remove the cloud or encumbrance created by this lease from the real property or which the Premises are a part. This obligation shall survive said expiration or termination. 24. HOLDING OVER. Any holding over after the expiration or termination of ------------ this lease (with the written consent of Landlord delivered to Tenant) shall be construed to be a tenancy from month to month at the monthly rent, as adjusted, in effect on the date of such expiration or termination. All provisions of this lease, except those pertaining to the term and any option to extend, shall apply to the month to month tenancy. The provisions of this paragraph are in addition to, and do not affect, Landlord's right of re-entry or other rights hereunder or provided by law. If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration or sooner termination of this lease for any reason, then Tenant shall pay to Landlord for each day of such retention double the amount of the daily rental in effect during the last month prior to the date or such expiration or termination. Tenant shall also indemnify and hold Landlord harmless from any loss or liability resulting from delay by Tenant in surrendering the Premises including without limitation, any claims made by any succeeding tenant founded on such delay. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this lease, and nothing contained in this paragraph shall waive Landlord's right of re-entry or any other right. Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord's written consent. 25. SUBORDINATION. In the event Landlord's title or leasehold interest is ------------- now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the request of Landlord or the lender, execute in writing an agreement subordinating its rights under this lease to the lien of such encumbrance, or, if so requested, agreeing that the lien of lender's encumbrance shall be or remain subject and subordinate to the rights of Tenant under this lease. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute, deliver and record any such instrument or instruments for and in the name and on behalf of Tenant. Notwithstanding any such subordination, Tenant's possession under this lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all amounts due hereunder and otherwise observe and perform all provisions of this lease. In addition, if in connection with any such loan the lender shall request reasonable modifications in this lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereof, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 26. CERTIFICATE OF ESTOPPEL. Each party shall, within five (5) calendar ----------------------- days after request therefor, execute and deliver to the other party, in recordable form, a certificate stating that the lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly 24 rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord shall include such other items as Landlord or Landlord's lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgment by the party failing to deliver the certificate that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. Any such certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or Project. Further, within five (5) calendar days following written request made from time to time by Landlord, Tenant shall furnish to Landlord current financial statements of Tenant. 27. SALE BY LANDLORD. In the event the original Landlord hereunder, or ---------------- any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations. 28. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of ----------------------------------- Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by a lender or any other third party through judicial foreclosure or by exercise of a power of sale at a private trustee's foreclosure sale, Tenant hereby agrees to release Landlord of any obligation arising on or after any such foreclosure sale and to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this lease. 29. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord ------------------- fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. If Landlord is in default of this lease, Tenant's sole remedy shall be to institute suit against Landlord in a court of competent jurisdiction, and Tenant shall have no right to offset any sums expended by Tenant as a result of Landlord's default against future rent and other sums due and payable pursuant to this lease. If Landlord is in default of this lease, and as a consequence Tenant recovers a money judgment against Landlord, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the 25 partners comprising the partnership designated as Landlord shall be personally liable for any deficiency. 30. CONSTRUCTION CHANGES. It is understood that the description of the -------------------- Premises and the location of ductwork, plumbing and other facilities therein are subject to such changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises and/or the improvements constructed or being constructed therein, and no such changes or any changes in plans for any other portions of the Project, shall affect this lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 31. MEASUREMENT OF PREMISES. Tenant understands and agrees that any ----------------------- reference to square footage of the Premises is approximate only and includes all interior partitions and columns, one-half of exterior walls, and one-half of the partitions separating the Premises from the rest of the Project, and any outside entry overhang, if applicable. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in basic rent or direct expenses or other amounts payable hereunder by reason of inaccuracies in such measurement. 32. ATTORNEY FEES. If either party commences an action against the other ------------- party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, attorneys' fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. If either party becomes a party to any litigation concerning this lease or concerning the Premises or the Project, by reason of any act or omission of the other party or its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to the other party for all expenses of litigation, including, without limitation, travel expenses, attorneys' fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. 33. SURRENDER. The voluntary or other surrender of this lease or the --------- Premises by Tenant, or a mutual cancellation of this lease, shall not work a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord or all or any such subleases or subtenancies. 34. WAIVER. No delay or omission in the exercise of any right or remedy ------ of Landlord on any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's 26 consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this lease. 35. EASEMENTS; AIRSPACE RIGHTS. Landlord reserves the right to alter the -------------------------- boundaries of the Project and grant easements and dedicate for public use portions of the Project without Tenant's consent, provided that no such grant or dedication shall interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge and deliver to Landlord, and in accordance with Landlord's instructions, any and all documents, instruments, maps or plats necessary to effectuate Tenant's covenants hereunder. This lease confers no rights either with regard to the subsurface of the land on which the Premises are located or with regard to airspace above the ceiling of the Premises. Tenant agrees that no diminution or shutting off of light or view by a structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises are a part or to property adjacent thereto, shall in any way affect this lease, or entitle Tenant to any reduction of rent, or result in any liability of Landlord to Tenant. 36. RULES AND REGULATIONS. Landlord shall have the right from time to --------------------- time to promulgate rules and regulations for the safety, care and cleanliness of the Premises, the Project and the Common Area, or for the preservation of good order. On delivery of a copy of such rules and regulations to Tenant, Tenant shall comply with the rules and regulations, and a violation of any of them shall constitute a default by Tenant under this lease. If there is a conflict between the rules and regulations and any of the provisions of this lease, the provisions of this lease shall prevail. Such rules and regulations may be amended by Landlord from time to time with or without advance notice. 37. NOTICES. Except for legal process which may also be served as ------- provided by law or as provided herein, all notices, demands, requests, consents and other communications ("Notices") which may be given or are required to be given by either party to the other shall be in writing and shall be deemed given to and received by the party intended to receive such Notice (i) when hand delivered, (ii) three (3) days after such Notice shall have been deposited, postage prepaid, to the United States Mail, certified return receipt requested, properly addressed to the address specified herein, or (iii) date or delivery if sent to the address specified herein by reputable overnight courier (e.g. Federal Express or other comparable service), as evidenced by such courier's records. Prior to the commencement date, all such Notices from Landlord to Tenant shall be served or addressed to Tenant at 1608 W. Campbell Avenue, Suite 300, Campbell, California 95008. On or after the commencement date all such Notices from Landlord to Tenant shall be addressed to Tenant at the Premises. All such Notices by Tenant to Landlord shall be sent to Landlord, c/o CIGNA Investments, Inc., Real Estate Asset Management, Routing Code S-311, 900 Cottage Grove 27 Road, Hartford, CT 06152-2311, with a copy to McCandless Management Corporation, 3945 Freedom Circle, Suite 640, Santa Clara, California 95054. Either party may change its address to notifying the other of such change. 38. NAME. Tenant shall not use the name of the Project for any purpose ---- other than as the address of the business conducted by Tenant in the Premises without the prior written consent of Landlord. 39. GOVERNING LAW; SEVERABILITY. This lease shall in all respects be --------------------------- governed by and construed in accordance with the laws of the State of California. If any provision of this lease shall be held or rendered invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 40. DEFINITIONS. As used in this lease, the following words and phrases ----------- shall have the following meanings: Authorized representative: any officer, agent, employee or ------------------------- independent contractor retained or employed by either party, acting within authority given him by that party. Encumbrance: any deed of trust, mortgage or other written security ----------- device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement. Lease Month: the period of time determined by reference to the day of ----------- the month in which the term commences and continuing to one day short of the same numbered day in the next succeeding month; e.g., the tenth day of one month to and including the ninth day in the next succeeding month. Lender: the beneficiary, mortgagee or other holder of an encumbrance, ------ as defined above. Lien: a charge imposed on the Premises by someone other than ---- Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanic's liens. Maintenance: repairs, replacement, repainting and cleaning. ----------- Monthly Rent: the sum of the monthly payments of basic rent and ------------ direct expenses. Person: one or more human beings, or legal entities or other ------ artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations and any combination of human being and legal entities. 28 Provisions: any term, agreement, covenant, condition, clause, ---------- qualification, restriction, reservation or other stipulation in the lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party. Rent: basic rent, direct expenses, additional rent, and all other ---- amounts payable by Tenant to Landlord required by this lease or arising by subsequent actions of the parties made pursuant to this lease. Words used in any gender include other genders. If there be more than one Tenant, the obligation of Tenant hereunder are joint and several. All provisions whether covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. The paragraph headings are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. 41. TIME. Time is of the essence of this lease and of each and all of its ---- provisions. 42. INTEREST OF PAST DUE OBLIGATIONS; LATE CHARGE. Any amount due from --------------------------------------------- Tenant to Landlord hereunder which is not paid when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In addition, Tenant acknowledges that late payment by Tenant to Landlord of basic rent, or of Tenant's monthly direct expenses, or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs and Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. No notice to Tenant of failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 19 shall not affect the imposition of such interest and/or late charge. Any interest and late charge imposed pursuant to this paragraph shall be and constitute additional rent payable Tenant to Landlord. 43. ENTIRE AGREEMENT. This lease, including any exhibits and attachments, ---------------- constitutes the entire agreement between Landlord and Tenant relative to the Premises and this lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this lease. 44. CORPORATE AUTHORITY. If Tenant is a corporation, each individual ------------------- executing this lease on behalf of the corporation represents and warrants that he is duly 29 authorized to execute and deliver this lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord, within ten (10) days of the execution of this lease, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this lease and naming the officers that are authorized to execute this lease on behalf of Tenant, which copy shall be certified by Tenant's secretary as correct and in full force and effect. 45. RECORDING. Neither Landlord nor Tenant shall record this lease or a --------- short form memorandum hereof without the consent of the other. 46. REAL ESTATE BROKERS. Each party represents and warrants to the other ------------------- party that it has not had dealings in any manner with any real estate broker, finder or other person with respect to the Premises and the negotiation and execution of this lease except McCandless Management and Contempo Realty. Except for the commissions and fees to be paid to McCandless Management Corporation and Contempo Realty as provided in this paragraph, each party shall indemnify and hold harmless the other party from all damage, loss, liability and expense (including attorneys' fees and related costs) arising out of or resulting from any claims for commissions or fees that have been or may be asserted against the other party by any broker, finder or other person with whom Tenant or Landlord, respectively, has dealt, or purportedly has dealt, in connection with the Premises and the negotiation and execution of this lease. Landlord shall pay broker leasing commission to McCandless Management Corporation and Contempo Realty in connection with the Premises and the negotiation and execution of this lease, to the extent agreed to between Landlord and McCandless Management Corporation and Contempo Realty. Landlord and Tenant agree that Landlord shall not be obligated to pay any broker leasing commissions, consulting fees, finder fees or any other fees or commissions arising out of or relating to any extended term of this lease or to any expansion or relocation of the Premises at any time. 47. EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this lease ------------------------ are a part hereof. 48. ERISA REQUIREMENTS. It is understood that Landlord is subject to the ------------------ Employee Retirement Income Security Act ("ERISA") and has furnished to Tenant a list of individuals and entities, transactions with which might result in a prohibited transaction under ERISA or would otherwise cause a breach of an ERISA related requirement. Tenant hereby warrants and represents that Tenant is not related to or affiliated with any person or entity shown on the list attached hereto as Exhibit D such that Tenant is a "party in interest" to such person or entity as that term is defined in ERISA Section 3 (14), a copy of which Section is attached hereto as Exhibit E, as that Section may be interpreted or amended. Tenant agrees that each time that Landlord makes additions to such list that Tenant will either make the warranty requested above or shall disclose to Landlord the relationship with such party on the list that would cause Tenant to be unable to make such warranty and representation. Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or damages which may result from a breach of the warranty and representations made by Tenant. 30 49. ENVIRONMENTAL MATTERS. --------------------- A. Tenant's Covenants Regarding Hazardous Materials. ------------------------------------------------ (1) Hazardous Materials Handling. Tenant, its agents, invitees, ---------------------------- employees, contractors, sublessees, assigns and/or successors shall not use, store, dispose, release or otherwise cause to be present or permit the use, storage, disposal, release or presence of Hazardous Materials (as defined below) on or about the Premises or Project. As used herein "Hazardous Materials" shall mean any petroleum or petroleum by-products, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous substance", "hazardous waste", "hazardous materials", "toxic substance" or "toxic waste" as those terms are defined under the provisions of the California Health and Safety Code and/or the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or any agency thereof, or the United States Government or any agency thereof. (2) Notices. Tenant shall immediately notify Landlord in ------- writing of: (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any law, regulation or ordinance relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials (collectively "Hazardous Materials Laws"); (ii) any claim made or threatened by any person against Tenant, the Premises, Project or buildings within the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises, Project or buildings within the Project, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, Project or buildings within the Project or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. B. Indemnification of Landlord. Tenant shall indemnify, defend (by --------------------------- counsel acceptable to Landlord), protect, and hold Landlord, and each of Landlord's partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) for death of or injury to any person or damage to any property whatsoever (including water tables and atmosphere), arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under or about the Premises, Project or buildings within the Project or discharge in or from the Premises, Project or buildings within the Project of any Hazardous Materials or Tenant's use, analysis, storage, transportation, disposal, release, threatened release, discharge or 31 generation of Hazardous Materials to, in, on, under, about or from the Premises, Project or buildings within the Project, or (ii) Tenant's failure to comply with any Hazardous Materials Laws whether knowingly, unknowingly, intentionally or unintentionally. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, Project or buildings within the Project, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. In addition, Tenant shall reimburse Landlord for (i) losses in or reductions to rental income resulting from Tenant's use, storage or disposal of Hazardous Materials, (ii) all costs of refitting or other alterations to the Premises, Project or buildings within the Project required as a result of Tenant's use, storage, or disposal of Hazardous Materials including, without limitation, alterations required to accommodate an alternate use of the Premises, Project or buildings within the Project, and (iii) any diminution in the fair market value of the Premises, Project or buildings within the Project caused by Tenant's use, storage, or disposal of Hazardous Materials. For purposes of this paragraph 49, any acts or omissions of Tenant, or by employees, agents, assignees, contractors or subcontractors of Tenant or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant. C. Survival. The provisions of this paragraph 49 shall survive the -------- expiration or earlier termination of the term of this lease. 50. SIGNAGE. Tenant shall not, without obtaining the prior written ------- consent of Landlord, install or attach any sign or advertising material on any part of the outside of the Premises, or on any part of the inside of the Premises which is visible from the outside of the Premises, or in the halls, lobbies, windows or elevators of the building in which the Premises are located or on or about any other portion of the Common Area or Project. If Landlord consents to the installation of any sign or other advertising material, the location, size, design, color and other physical aspects thereof shall be subject to Landlord's prior written approval and shall be in accordance with any sign program applicable to the Project. In addition to any other requirements of this paragraph 50, the installation of any sign or other advertising material by or for Tenant must comply with all applicable laws, statutes, requirements, rules, ordinances and any C.C. & R.'s or other similar requirements. With respect to any permitted sign installed by or for Tenant, Tenant shall maintain such sign or other advertising material in good condition and repair and shall remove such sign or other advertising material on the expiration or earlier termination of the term of this lease. The cost of any permitted sign or advertising material and all costs associated with the installation, maintenance and removal thereof shall be paid for solely by Tenant. If Tenant fails to properly maintain or remove any permitted sign or other advertising material, Landlord may do so at Tenant's expense. Any cost incurred by Landlord in connection with such maintenance or removal shall be deemed additional rent and shall be paid by Tenant to Landlord within ten (10) days following notice from Landlord. Landlord may remove any unpermitted sign or advertising material without notice to Tenant and the cost of such removal shall be additional rent and shall be paid by Tenant within ten (10) days following notice from Landlord. Landlord shall not be liable to Tenant for any damage, loss or expense resulting from Landlord's removal of any sign or advertising material in accordance with this paragraph 50. 32 The provisions of this paragraph 50 shall survive the expiration or earlier termination of this lease. 51. SUBMISSION OF LEASE. The submission of this lease to Tenant for ------------------- examination or signature by Tenant is not an offer to lease the Premises to Tenant, nor an agreement by Landlord to reserve the Premises for Tenant. Landlord will not be bound to Tenant until this lease has been duly executed and delivered by both Landlord and Tenant. 52. PREMISES TAKEN "AS IS". Tenant is leasing the Premises from Landlord ---------------------- "As Is" in their condition existing as of the date hereof. Landlord shall have no obligation to alter or improve the Premises except Landlord shall, at Landlord's expense, clean the carpets, touch-up paint where needed using building standard finishes, replace two door handles and add one sidelight (four [4] feet wide) on one office pursuant to the plans attached hereto as Exhibit C. 53. ADDITIONAL RENT. All costs, charges, fees, penalties, interest, and --------------- any other payments (including Tenant's reimbursement to Landlord of costs incurred by Landlord) which Tenant is required to make to Landlord pursuant to the terms and conditions of this lease and any amendments to this lease shall be and constitute additional rent payable by Tenant to Landlord when due as specified in this lease and any amendments to this lease. 54. LANDLORD'S OPTION TO RELOCATE PREMISES. At any time during the -------------------------------------- initial term and any extended term of this lease, Landlord shall have the option to relocate Tenant to alternate space within the Project which is reasonably comparable to the Premises in size and type of space ("Relocation Space"). Landlord shall exercise this option to relocate by giving Tenant written notice of Landlord's election to relocate at least ninety (90) calendar days prior to the date of relocation and said written notice shall specify the date of relocation ("Relocation Date"). Upon Tenant's receipt of Landlord's written notice of election to exercise this option, Landlord and Tenant shall cooperate with each other to identify acceptable space within the Project which shall be the Relocation Space. If Landlord and Tenant are unable to agree on acceptable space within sixty (60) days after Tenant's receipt of Landlord's written notice, Landlord shall have the right to unilaterally designate as the Relocation Space any space within the Project which is reasonably comparable to the Premises in size and type of space. If Landlord and Tenant are unable to agree on acceptable space within sixty (60) days after Tenant's receipt of Landlord's written notice and Landlord unilaterally designates the Relocation Space as provided for in the foregoing sentence, Tenant shall have the option to terminate this lease effective as of the Relocation Date by delivering to Landlord, within five (5) business days after receipt of Landlord's notice designating the Relocation Space, Tenant's irrevocable written notice of its election to terminate this lease. In the event Tenant relocates into the Relocation Space as provided in this paragraph 54, commencing on the Relocation Date this lease shall be deemed amended by deleting the description of the Premises as presently constituted and adding the description of the Relocation Space and Tenant's lease of the Relocation Space from Landlord shall be subject to all of the terms and conditions of this lease (as amended, if applicable) including the payment of basic rent and direct expenses, which shall be adjusted to reflect any increase or decrease in the square footage between the Premises as presently 33 constituted and the Relocation Space. Landlord shall pay all reasonable costs incurred in connection with moving Tenant's business from the Premises into the Relocation Space. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this lease on the date first above written. LANDLORD: TENANT: - -------- ------ CONNECTICUT GENERAL LIFE EBAY, INC., INSURANCE COMPANY, on behalf of a California corporation its Separate Account R By: CIGNA Investments, Inc. By: /s/ JAMES H. ROGERS By: /s/ J. SKOLL ------------------------ ------------------------ Name: JAMES H. ROGERS Name: JEFF SKOLL ----------------------- ---------------------- Its: MANAGING DIRECTOR Its: President ----------------------- ----------------------- Date: 10/15/96 By: /s/ PIERRE OMIDYAR ---------------------- ------------------------ Name: PIERRE OMIDYAR ----------------------- Its: : Secretary --------------------- Date: SEPT 30/96 ---------------------- 34 FIRST AMENDMENT TO LEASE ------------------------ THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made this 13th day of February, 1997, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R ("Landlord") and EBAY, INC., a California corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord approximately one thousand two hundred seventy (1,270) square feet of space located at 2005 Hamilton Avenue, Suite 270, San Jose, California (the "Current Premises"), pursuant to that certain Lease dated September 30, 1996 (the "Lease"). The Current Premises are shown on Exhibit A attached hereto. B. Tenant desires to lease additional space from Landlord located at 2005 Hamilton Avenue, Suite 255, San Jose, California, (the "Expansion Space"), consisting of approximately one thousand four hundred seventy-one (1,471) square feet of space. The Expansion Space is shown on Exhibit A attached hereto. C. Landlord is willing to lease the Expansion Space to Tenant in consideration of Tenant's agreement to the terms and conditions set forth below. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein, Landlord and Tenant hereby amend the Lease as follows: 1. PREMISES. The definition of "Premises" is Modified as follows: -------- From and after the Effective Date, as defined in paragraph 2 below, the Expansion Space shall be added to the Current Premises and, thereafter, the total area leased shall be increased to two thousand seven hundred forty-one (2,741) square feet and the term "Premises" as used in this Lease shall refer to the Current Premises and the Expansion Space collectively. 2. EFFECTIVE DATE. As used herein, the "Effective Date" shall be the -------------- date upon which Landlord tenders possession of the Expansion Space to Tenant, provided that Landlord shall use reasonable efforts to deliver the Expansion Space to Tenant on March 4, 1997. Notwithstanding the above, Tenant acknowledges that the Expansion Space is currently occupied by a third party and if Landlord cannot deliver possession of the Expansion Space to Tenant by March 4, 1997, this Amendment shall not be void or voidable, Landlord shall not be liable to Tenant for any loss or damage sustained by Tenant on account thereof and the Effective Date shall not be deemed to occur until Landlord is able to deliver possession of the Expansion Space to Tenant. 3. BASIC RENT. Paragraphs 4(a) and 5(a) of the Lease are modified as ---------- follows: Commencing on the Effective Date, the basic rent payable by Tenant shall be Four Thousand Seven Hundred Seventy-Five and 37/100 Dollars ($4,775.37). 4. DIRECT EXPENSES. Paragraphs 4(b) and 5(b) of the Lease are modified --------------- as follows: Commencing on the Effective Date, Tenant's proportionate share of direct expenses of the Project as set forth in paragraph 5(b) of the Lease shall be increased to one and eighteen one-hundredths percent (1.18%) and Tenant's proportionate share of direct expenses of the building in which the Premises are located shall be increased to four and twenty-eight one-hundredths percent (4.28%). Commencing on the Effective Date, Tenant's payment of its estimated share of direct expenses shall be increased to One Thousand Six Hundred Sixty and 76/100 ($1,660.76) per month and shall be reconciled and adjusted thereafter in accordance with paragraph 5(b) of the Lease. 5. SECURITY DEPOSIT. Paragraph 4(e) of the Lease is modified as follows: ---------------- Upon execution of this Amendment, Tenant shall deposit with Landlord the additional sum of Three Thousand Five Hundred and 98/100 Dollars ($3,500.98) which shall be held by Landlord as a portion of Tenant's security deposit pursuant to paragraph 4(e) of the Lease. The total amount of the security deposit held by Landlord shall be increased thereby to a total of Nine Thousand Two Hundred Fifteen and 98/l00 Dollars ($9,215.98). 6. PARKING. Paragraph 15 of the Lease is modified as follows: ------- Commencing on the Effective Date, the number of nonexclusive parking spaces which Tenant shall be entitled to use shall be increased to ten (10) spaces. 7. EXPANSION SPACE LEASED "AS IS." Tenant is leasing the Expansion Space ------------------------------ "as is" in its current condition and Landlord shall have no obligation to alter, modify or improve the Expansion Space in any way, except Landlord shall, at Landlord's cost, prior to the Effective Date clean the carpet and touch-up paint the interior walls in the Expansion Space as reasonably necessary using building standard materials. 8. CORPORATE AUTHORITY. Each individual executing this Amendment on ------------------- behalf of a corporation represents and warrants that he/she is duly authorized to execute and deliver this Amendment on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this Amendment is binding upon said corporation in accordance with its terms. Tenant shall deliver to Landlord, within ten (10) days of the execution and delivery of this Amendment, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this Amendment and naming the officers that are authorized to execute this Amendment on behalf of Tenant, which copy shall be certified by Tenant's President or Secretary as correct and in full force and effect. 2 9. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified -------------------------------- herein, all other terms, covenants and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the date first set forth above. Landlord: Tenant: - -------- ------ CONNECTICUT GENERAL LIFE EBAY, INC., INSURANCE COMPANY, a California corporation a Connecticut corporation, on behalf of its Separate Account R By: CIGNA Investments, Inc. Its Authorized Agent By: /s/ James H. Rogers By: /s/ J Skoll --------------------------- -------------------------- Name: James H. Rogers Name: Jeffrey Skoll --------------------------- -------------------------- Managing Director President Title: --------------------------- Title: -------------------------- Date: 3/24/97 Date: Feb. 13/97 --------------------------- -------------------------- 3 EXHIBIT A Floor Plan SECOND AMENDMENT TO LEASE ------------------------- THIS SECOND AMENDMENT TO LEASE (this "Amendment") is made this _____ day of _________________, 1998, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R ("Landlord") and eBAY, INC., a California corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord approximately two thousand seven hundred forty-one (2,741) square feet of space located at 2005 Hamilton Avenue, Suites 255 and 270, San Jose, California (the "Current Premises"), pursuant to that certain Lease dated September 30, 1996 as amended by that certain First Amendment to Lease dated February 13, 1997 (together, the "Lease"). The Current Premises are shown on Exhibit A attached hereto. B. Tenant desires to lease additional space from Landlord located at 2005 Hamilton Avenue, Suite 250, San Jose, California, (the "Expansion Space"), consisting of approximately one thousand five hundred seven (1,507) square feet of space. The Expansion Space is shown on Exhibit A attached hereto. C. Tenant also desires to reduce the size of the Premises, for purposes of the Lease, by subtracting that certain space located at 2005 Hamilton Avenue, Suite 270, consisting of approximately one thousand two hundred seventy (1,270) square feet (the "Reduction Space") as shown on Exhibit A attached hereto. D. Landlord is willing to add the Expansion Space to the Lease and subtract the Reduction Space from the Lease on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein, Landlord and Tenant hereby amend the Lease as follows: 1. PREMISES. The definition of "Premises" is modified as follows: -------- From and after the Effective Date, as defined in paragraph 2 below, the Expansion Space shall be added to the Current Premises and the Reduction Space shall be subtracted from the Current Premises and, thereafter, the total area leased shall be two thousand nine hundred seventy- eight (2,978) square feet and the term "Premises" as used in this Amendment shall refer to the Current Premises minus the Reduction Space plus the Expansion Space. 2. EFFECTIVE DATE. As used herein, the "Effective Date" shall be the ------------- date upon which Landlord tenders possession of the Expansion Space to Tenant, provided that Landlord shall use reasonable efforts to deliver the Expansion Space to Tenant on April 1, 1998. Notwithstanding the above, Tenant acknowledges that the Expansion Space is currently occupied by a third party and if Landlord cannot deliver possession of the Expansion Space to Tenant by April 1, 1998, this Amendment shall not be void or voidable by Tenant, Landlord shall not be liable to Tenant for any loss or damage sustained by Tenant on account thereof and the Effective Date shall not be deemed to occur until Landlord is able to deliver possession of the Expansion Space to Tenant. 3. BASIC RENT. Paragraphs 4(a) and 5(a) of the Lease are modified as ---------- follows: Commencing on the Effective Date, the basic rent payable by Tenant shall be Seven Thousand Three Hundred Eight-Five and 44/100 Dollars ($7,385.44) per month for the first twelve (12) lease months thereafter. Commencing on the first day of the thirteenth (13th) lease month (the "Adjustment Date"), the monthly basic rent shall be adjusted as follows: The Consumer Price Index for All Urban Consumers (base year 1984 = 100) for San Francisco-Oakland, Metropolitan Area published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the date immediately preceding the applicable Adjustment Date (the "Extension Index"), shall be compared with the Index published for the date immediately preceding the lease commencement date (the "Beginning Index"). The monthly basic rent payable during the period following the Adjustment Date shall be equal to the greater of (i) $7,680.86 per month or (ii) the amount obtained by multiplying $7,385.44 by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. As soon as the monthly basic rent for each such period is set, Landlord shall give Tenant notice of the amount and the parties shall immediately execute an amendment to the lease stating the new basic rent or otherwise acknowledge in writing such adjustment in form reasonably acceptable to Landlord. If the Index is changed so that the base year differs from that used for the Beginning Index, the Index shall be converted in 2 accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 4. DIRECT EXPENSES. Paragraphs 4(b) and 5(b) of the Lease are modified --------------- as follows: Commencing on the Effective Date, Tenant's proportionate share of direct expenses of the Project as set forth in paragraph 5(b) of the Lease shall be increased to one and twenty-nine one-hundredths percent (1.29%) and Tenant's proportionate share of direct expenses of the building in which the Premises are located shall be increased to four and sixty-five one-hundredths percent (4.65%). Commencing on the Effective Date, Tenant's payment of its estimated share of direct expenses shall be increased to One Thousand Eight Hundred Forty- Six and 36/100 Dollars ($1,846.36) per month and shall be reconciled and adjusted thereafter in accordance with paragraph 5(b) of the Lease. 5. PARKING. Paragraph 15 of the Lease is modified as follows: ------- Commencing on the Effective Date, the number of non-exclusive parking spaces which Tenant shall be entitled to use shall be increased to eleven (11) spaces. 6. EXPANSION SPACE LEASED "AS IS". Tenant is leasing the Expansion Space ------------------------------ "as is" in its current condition and Landlord shall have no obligation to alter, modify or improve the Expansion Space in any way. 7. TENANT IMPROVEMENTS. Tenant shall construct certain tenant ------------------- improvements (the "Tenant Improvements") in the Premises as shown and described in Exhibit B attached hereto, subject to the following terms and conditions: (a) The Tenant Improvements shall be deemed alterations to the Premises subject to Landlord's prior written consent and shall be subject to all the terms and conditions of paragraph 8 of the Lease, except that Tenant shall not be obligated to remove the Tenant Improvements shown in Exhibit B nor restore the Premises to its condition prior to construction of the Tenant Improvement to the extent specified in Exhibit B. Tenant shall submit preliminary space plans and final space plans to Landlord for Landlord's prior written consent. Upon Landlord's approval of the final space plan, Tenant shall thereafter cause to be prepared by licensed architects and engineers a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings (the "Final Construction Drawings") for the Tenant Improvements, if 3 applicable, and shall submit copies of the Final Construction Drawings to Landlord for Landlord's approval. After Landlord's approval of the Final Construction Drawings, Tenant shall submit the Final Construction Drawings as approved by Landlord to the City to obtain all requisite building permits. No changes, modifications or alterations to the Final Construction Drawings shall be made without Landlord's prior written consent. (b) A general contractor shall be retained by Tenant to construct the Tenant Improvements. The general contractor shall be subject to Landlord's approval. Tenant shall only use contractors and subcontractors reasonably approved by Landlord. All of Tenant's contractors and subcontractors shall carry workers compensation insurance covering all of their respective employees and shall also carry commercial general liability and property damage insurance, all with limits, in form and with companies as are required to be carried by Tenant in paragraph 11 of the Lease. Tenant shall also carry "Builder's All Risk" insurance in an amount approved by Landlord covering construction of the Tenant Improvements and such other insurance as Landlord may reasonably require. Certificates for all insurances required hereunder shall be provided to Landlord prior to commencement of construction of the Tenant Improvements. (c) Landlord will be notified at least ten (10) days prior to the commencement of any construction in order to post a Notice of Non- Responsibility. Tenant agrees to conform with Landlord's rules and regulations associated with construction to minimize the disruption to the other tenants in the building. Any construction which causes significant noise or other disturbance to the tenants shall be done during non-business hours (evenings after 6:30 p.m. or weekends). Tenant will require its general contractor to clean the exterior of the Premises daily and shall keep the common areas clean and debris-free at all times and shall park construction vehicles and store materials in areas designated by Landlord. Mechanical systems shall be designed so as to not affect the systems of the adjoining suites or otherwise alter the airflow to the other tenants in the building. (d) The Tenant Improvements shall be constructed in accordance with all applicable local, state and federal laws, statutes, codes, ordinances, rules and regulations. (e) Landlord shall have the right to enter the Premises at all times during construction of the Tenant Improvements to inspect and monitor such construction, but shall have no obligation to do so and assumes no liability or responsibility for such construction and/or compliance with laws applicable thereto, which is and shall be Tenant's sole responsibility. 8. EARLY ACCESS. Landlord shall provide Tenant with limited access to the ------------ Premises (including the Expansion Space) when such space becomes available, but only for purposes of commencing construction of the Tenant Improvements in accordance 4 with paragraph 7 above. Tenant's access shall be coordinated with Landlord. Except as specifically provided below, Tenant's access to the Premises pursuant to this paragraph shall be subject to all the terms and conditions of the Lease, including the insurance obligations specified in paragraph 11 of the Lease and paragraph 7 of this Amendment. As a condition precedent to Tenant's right to such access to the Premises, Tenant shall provide Landlord with proof that Tenant has satisfied said insurance requirements. Such limited access to the Premises shall not accelerate the Effective Date of this Amendment and Tenant shall not be obligated to pay basic rent or direct expenses until the Effective Date. 9. CORPORATE AUTHORITY. Each individual executing this Amendment on ------------------- behalf of a corporation represents and warrants that he/she is duly authorized to execute and deliver this Amendment on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this Amendment is binding upon said corporation in accordance with its terms. Tenant shall deliver to Landlord, within ten (10) days of the execution and delivery of this Amendment, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this Amendment and naming the officers that are authorized to execute this Amendment on behalf of Tenant, which copy shall be certified by Tenant's President or Secretary as correct and in full force and effect. 10. BROKERS. Each party represents that it has not had dealings with any ------- real estate broker, finder or other person with respect to this Amendment or expanding the Premises. There are no leasing commissions to be paid by Landlord or Tenant in connection with this transaction. Each party hereto shall hold harmless the other party from all damages, loss or liability resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom such party has dealt, or purportedly has dealt, in connection with this transaction. 11. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified -------------------------------- herein, all other terms, covenants and conditions of the Lease shall remain in full force and effect. [SIGNATURES ON NEXT PAGE] 5 IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the date first set forth above. Landlord: Tenant: - --------- ------- CONNECTICUT GENERAL LIFE INSURANCE COMPANY, eBAY, INC., a Connecticut corporation, a California corporation on behalf of its Separate Account R By: CIGNA Investments, Inc., By:/s/ Margaret C. Whitman a Delaware corporation ----------------------- Its Authorized Agent Name: Margaret C. Whitman -------------------- By:______________________ Title: President --------------------- Date:______________________ Name:____________________ By: /s/ Matthew P. Quilter Title:___________________ ------------------------ Name: Matthew P. Quilter Date:____________________ ---------------------- Title: Secretary --------------------- Date:_______________________ 6 EX-10.08 15 SUBLEASE BETWEEN INFORMATION STORAGE & REGISTRANT EXHIBIT 10.08 SUBLEASE -------- This Sublease ("Sublease") is made this 4th day of August, 1997 by and between Information Storage Devices, Inc., a California corporation ("Sublandlord") and eBay, Inc., a California corporation (''Subtenant"). RECITALS A. Sublandlord, as Tenant, is leasing from Connecticut General Life Insurance Company, a Connecticut corporation ("Landlord") those certain premises located at 2005 Hamilton Avenue, Suite 350, San Jose, California ("Premises") pursuant to a lease dated August 24, 1994 ("Original Lease"), as amended by the documents entitled "First Amendment to Lease" dated November 15, 1994, the "Second Amendment to Lease" dated July 25, 1995 ("Second Amendment") and the letter dated December 4, 1995 referencing the Second Amendment (all of the foregoing documents are collectively referred to as the "Master Lease"). Subtenant acknowledges having received and reviewed a copy of the Master Lease. B. Sublandlord desires to lease to Subtenant and Subtenant desires to lease from Sublandlord a portion of the Premises consisting of approximately twelve thousand seven hundred thirty three (12,733) square feet (the "Sublease Premises") as shown on Exhibit A attached hereto, on the terms and conditions set forth in this Sublease. NOW, THEREFORE, the parties hereto agree as follows: 1. PREMISES Sublandlord leases to Subtenant and Subtenant hires from Sublandlord the Sublease Premises, together with the appurtenances thereto. 2. INCORPORATION OF MASTER LEASE This Sublease is subject to all of the terms and conditions of the Master Lease and Subtenant hereby accepts, assumes and agrees to perform all the obligations of Sublandlord as Tenant under the Master Lease which are applicable to the Sublease Premises (except those provisions of the Master Lease which are inconsistent with or are modified by this Sublease), and all of the terms and conditions of this. Sublease (with each reference therein to Landlord and Tenant to be deemed to refer to Sublandlord and Subtenant, respectively), excepting only the following paragraphs of the Original Lease: 1-5 and 13 (only to the extent those paragraphs are specifically modified by this Sublease) and items (ii) and (iii) of the second subparagraph of paragraph 19, and excepting only the following paragraphs of the Second Amendment: 6, 8 11 and 12. Subtenant shall not commit or permit to be committed on the Sublease Premises any act or omission which shall violate any term or condition of the Master Lease. In the event of the termination for any reason of Sublandlord's interest as Tenant under the Master Lease, then this Sublease shall terminate therewith without any liability of Sublandlord to Subtenant; except that if this Sublease terminates as a result of a default of one of the parties hereto, whether under this Sublease, the Master Lease, or both, the defaulting party shall be liable to the non-defaulting party for all damages suffered by the non-defaulting party resulting from such termination. Sublandlord represents and warrants to Subtenant that: (i) Sublandlord has delivered to Subtenant a true, correct and complete copy of the Master Lease, and all exhibits, amendments and addenda thereto; (ii) neither Landlord or Sublandlord is, to the best of Sublandlord's knowledge and belief, in default under the Master Lease; (iii) Sublessor shall promptly provide Subtenant with a copy of any notice of default under the Master Lease, or any other notices or other communications received by Sublandlord from, or given by Sublandlord to, Landlord pursuant to the Master Lease with respect to the Sublease Premises; and (iv) Sublandlord shall not modify, amend or terminate the Master Lease with respect to the Sublease Premises without the prior written consent of Subtenant, which consent shall not be unreasonably withheld by Subtenant, and Sublandlord shall comply with and perform its obligations under the Master Lease. 3. TERM The term of this Sublease shall commence on the date first set forth above, and end on December 1, 1999, without renewal rights by Subtenant. In the event Sublandlord is unable to deliver possession of the Sublease Premises at the anticipated commencement of the term, Sublandlord shall not be liable for any damage caused thereby, nor shall this Sublease be void or voidable nor shall the term hereof be extended by such delay; provided, however, that Subtenant shall not be liable for rent until such time as Sublandlord offers to deliver possession of the Sublease Premises to Subtenant: and provided further that if Sublandlord fails to deliver possession of the Sublease Premises to Subtenant within sixty (60) days following the date first set forth above, Subtenant may terminate this Sublease at any time thereafter by written notice to Sublandlord. 4. USE Subtenant shall use the Sublease Premises for general office use, research and development and light manufacturing (including testing and assembly) and for no other purpose. 5. RENTAL (a) Subtenant shall pay to Sublandlord as full service rent for the Sublease Premises, in advance, on the first day of each calendar month of the term of this Sublease ("Rent Due Date''), without deduction, offset, prior written notice or demand; in lawful money of the United States, the sum of Thirty Three Thousand Seven Hundred Forty Two Dollars and Forty Five Cents ($33,742.45). If the commencement and/or termination date is not the first day of the month, a prorated monthly installment shall be paid at the then current rate for the fractional month during which the Sublease commences and/or terminates. Notwithstanding the foregoing, Subtenant shall pay, as additional rent, any increase in Sublandlord's amount of "direct expenses" assessed by Landlord against Sublandlord for calendar years 1998 and 1999 applicable to the Sublease Premises, to the extent Sublandlord's direct expenses for 1998 or 1999 exceed the amount paid by Sublandlord for direct expenses for calendar year 1997. Subtenant shall pay these sums to Sublandlord within thirty (30) days after receiving an invoice for them. 2 (b) Sublandlord acknowledges receipt from Subtenant, on the execution hereof, of the sum of Thirty Three Thousand Seven Hundred Forty Two Dollars and Forty Five Cents ($33,742.45) to be applied against rent for the first full month of the term. (c) Concurrently with Subtenant's execution of this Sublease, Subtenant shall deposit with Sublandlord an irrevocable standby letter of credit as a security deposit for the faithful performance of Subtenant's obligations under this Sublease, according to the provisions of the Addendum attached hereto and made a part hereof. 6. SURRENDER AT END OF TERM Subtenant agrees to surrender the Sublease Premises on expiration or earlier termination of the term hereof, in good condition and repair, reasonable wear and tear excepted. 7. LANDLORD'S WRITTEN CONSENT This Sublease is conditioned upon and effective only upon obtaining the written consent of Landlord. If Landlord fails to consent to this Sublease in writing within sixty (60) days after the date Subtenant executes this Sublease, Subtenant may terminate this Sublease at any time thereafter by written notice to Sublandlord. 8. NOTICES All notices and demands of any kind required to be given by Sublandlord or Subtenant hereunder shall be in writing and effective twenty-four (24) hours after depositing same in the United States mail, postage prepaid, and addressed to Sublandlord or Subtenant, as the case may be, at the address set forth below their respective signature or at such other address as they may designate from time to time. 3 9. INSURANCE Insurance requirements pertaining to Sublandlord as Tenant under paragraph 11 of the Original Lease shall also apply to Subtenant. SUBLANDLORD: SUBTENANT: By: /s/ FELIX J. ROSENGARTEN By: /s/ J. SKOLL ---------------------------------- --------------------------------- By: FELIX J. ROSENGARTEN Name: JEFFREY SKOLL --------------------------------- ------------------------------- Title: VP AND CFO Title: PRESIDENT ------------------------------- ------------------------------ Date: 8/4/97 Date: Aug 4/97 -------------------------------- ------------------------------- Address: 2045 HAMILTON AVE. Address: 2005 HAMILTON AVE, Ste. 270 San Jose, CA 95125 San Jose, CA 95125 - ------------------------------------- ------------------------------------ SEE ATTACHED ADDENDUM TO SUBLEASE 4 ADDENDUM TO SUBLEASE THIS ADDENDUM is made to, and shall become part of, the preceding Sublease dated August 4, 1997 between Information Storage Devices, Inc. ("Sublandlord") and e Bay, Inc. ("Subtenant") with respect to a sublease of 2005 Hamilton Avenue, Suite 350, San Jose, California by Sublandlord to Subtenant. 1. Defined Terms: Terms used in this Addendum which are not specifically ------------- defined herein shall have the same meaning as they have in the Master Lease and the Sublease. 2. Security Deposit: (A) Upon execution of the Sublease, Subtenant shall ---------------- provide Sublandlord with a irrevocable standby letter of credit, issued by a bank and in a form acceptable to Sublandlord in its sole reasonable discretion, which letter of credit shall be held by Sublandlord as a security deposit for the faithful performance by Subtenant of all the terms, covenants and conditions of this Sublease applicable to Subtenant. Sublandlord may immediately, and without notice to Subtenant, draw against the letter of credit in the event Subtenant defaults in the performance of any provision of the Sublease, including, without limitation, payment of rent within five (5) business days after the Rent Due Date. The amount of each draw by Sublandlord shall be limited to the amount needed to cure Subtenant's applicable default, as determined by Sublandlord in good faith, but in its sole reasonable discretion. Resort by Sublandlord to the letter of credit (and/or use of the funds drawn) shall not constitute a waiver of Subtenant's default or of any other claims or remedies Sublandlord may have against Subtenant arising from the Sublease. (B) The parties' rights and responsibilities with respect to the letter of credit as security deposit shall be the same as, and shall be governed by, the provisions of Paragraph 4(e) of the Original Lease. Any conflicts or inconsistencies between the provisions of this Addendum and Paragraph 4(e) of the Original Lease shall be governed by this Addendum. (C) The letter of credit shall at all times be in the amount of Two Hundred Two Thousand Four Hundred Fifty Four Dollars and Seventy Cents ($202,454.70), which represents a security deposit of six (6) months rent. In the event of a draw by Sublandlord against the letter of credit, Subtenant, at Sublandlord's option, shall incur additional undertakings to restore the letter of credit at the full amount within ten (10) days after notice from Sublandlord. Failure to timely restore the letter of credit to its full amount upon notice from Sublandlord shall constitute a default under the Sublease. (D) The letter of credit shall be available by draft at sight, subject only to receipt by the issuing bank of a notarized statement from a duly authorized officer of Sublandlord stating that Subtenant is in default under the Sublease, and stating the amount due and owing to Sublandlord under the Sublease. The letter of credit shall, by its terms, expire not less than one (1) year from the date issued, provided that unless Subtenant deposits with Sublandlord a cash security deposit of the same amount, the letter of credit shall be renewed for successive periods of not less than one (1) year each, to and including the date which is thirty (30) days after the expiration of the term of the Sublease. The issuing bank's written notice of renewal shall be 5 delivered to Sublandlord at least sixty (60) days prior to the expiration of the letter of credit. Non-renewal by the issuing bank for any reason or failure by Sublandlord to receive timely notice of renewal shall entitle Sublandlord to make demand for the full amount of the letter of credit, and to hold such funds as a cash deposit according to the terms of Paragraph 4(e) of the Original Lease. Subtenant's failure to renew the letter of credit, or obtain a suitable replacement letter of credit (in Sublandlord's sole reasonable discretion) or provide timely written notice of renewal to Sublandlord shall be a default under the Sublease. 3. Condition of the Sublease Premises: Subtenant represents and warrants that ---------------------------------- it has reviewed the condition of the Sublease Premises, and has independently determined that the Sublease Premises are suitable for its intended uses. SUBTENANT ACCEPTS THE SUBLEASE PREMISES "AS IS, WHERE IS", WITHOUT REPRESENTATION OR WARRANTY BY SUBLANDLORD EXCEPT AS SPECIFICALLY SET FORTH IN THIS SECTION 3. ALL OTHER REPRESENTATIONS AND WARRANTIES OF SUBLANDLORD, EXPRESS OR IMPLIED, ARE EXCLUDED. Sublandlord represents and warrants, to the best of its knowledge and belief, without independent investigation, that the Sublease Premises, including the roof, parking areas, and all electrical, mechanical, plumbing and HVAC systems, will be in good condition and repair when the Sublease term commences. Sublandlord also represents and warrants that the Sublease Premises will be delivered to Subtenant clean and in broom swept condition. Sublandlord further represents and warrants, without independent investigation, that it has no knowledge of the presence or existence or hazardous or toxic materials or hazardous or toxic waste in or about the building or Sublease Premises. Sublandlord represents and warrants, to the best of its knowledge and belief, without independent investigation, that the Sublease Premises and those portions of the building necessary to use and enjoy the Sublease Premises comply with the Americans with Disabilities Act (ADA). Subtenant assumes all responsibility for ADA compliance with respect to any authorized tenant improvements it may make to the Sublease Premises. 4. Conditions Precedent: The Sublease, and the parties' rights and obligations -------------------- under the Sublease, are subject to the following conditions precedent, or the written waiver thereof by the beneficiary of such conditions: (i) delivery to Sublandlord, on or before the date the term of the Sublease commences, of a irrevocable standby letter of credit, as provided for in Section 2 of this Addendum, and (ii) Subtenants review and approval of the terms and conditions of the Master Lease, the Sublease and this Addendum, which shall be evidenced by Subtenants execution of the Sublease and this Addendum. 6 5. Real Estate Brokers: Sublandlord is represented in this transaction by ------------------- Cooper/Brady Corporate Real Estate Services and Subtenant is represented in this transaction by Professional Real Estate Services Company. Sublandlord shall pay the brokers' fees in connection with the Sublease, and Subtenant shall have no obligation to pay the brokers' fees. SUBLANDLORD: SUBTENANT: By: /s/ FELIX J. ROSENGARTEN By: /s/ J. SKOLL ---------------------------------- ---------------------------- By: FELIX J. ROSENGARTEN Name: JEFFREY SKOLL -------------------------------- -------------------------- Title: VP AND CFO Title: PRESIDENT ------------------------------- ------------------------- Date: 8/4/97 Date: Aug 4/97 -------------------------------- -------------------------- 7 LANDLORD'S CONSENT TO SUBLEASE ------------------------------ THIS CONSENT ("Consent'') is given by CONNECTICUT GENERAL LIFE INSURANCE ---------------------------------- COMPANY, a Connecticut corporation ("Landlord") to that certain Sublease dated - ------- August 4, 1997 (the "Sublease") by and between INFORMATION STORAGE DEVICES. ---------------------------- INC., a California corporation ("Sublandlord") and eBAY, INC., a California --------- corporation ("Subtenant"), subject to the following terms and conditions: 1. All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Sublease. 2. Landlord is not a party to the Sublease and has no obligations or duties to Subtenant or Sublandlord under the Sublease and any provisions therein purporting to obligate and/or bind Landlord or limit Landlord's rights under the Master Lease in any way are deemed null and void. Notwithstanding any provision to the contrary in the Sublease, Subtenant shall have no greater rights than Sublandlord has as Tenant under the Master Lease. 3. This Consent shall only apply to this Sublease and shall not be deemed to be a consent to any other or further sublease or a waiver of any of the provisions of the Master Lease. 4. By consenting to the Sublease, Landlord waives none of its rights against the Sublandlord as Tenant under the Master Lease. The Sublease is and shall remain at all times subject to and subordinate in all respects to the Lease. 5. This Consent shall not modify or amend or be deemed to modify or amend the Lease in any way, or to impose on Landlord any obligation to provide notice to, or obtain consent from, Subtenant with respect to amendments, defaults, waivers or any other matters pertaining to the Master Lease or to the Premises covered by the Master Lease. Any waiver by Landlord of its rights shall be made only in writing and signed by Landlord. 6. Upon the expiration or earlier termination of the Master Lease, the Sublease shall automatically and without notice or demand, terminate and Subtenant agrees promptly to surrender the Sublease Premises to Landlord upon such termination without compensation from Landlord 7. This Consent shall not be effective until receipt by Landlord of a counterpart or counterparts of this Consent duly executed by Sublandlord and Subtenant, each acknowledging its agreement to the terms and conditions specified in this Consent. Landlord: -------- CONNECTICUT GENERAL LIFE INSURANCE COMPANY a Connecticut corporation ,on behalf of its Separate Account R By: CIGNA Investments, Inc. -------------------------------------------- By: /s/ John G. Eisele -------------------------------------------- By: John G. Eisele -------------------------------------------- Title: Managing Director ----------------------------------------- Date: 8/12/97 ------------------------------------------ EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGE THAT IT HAS READ AND UNDERSTANDS THE TERMS AND CONDITIONS SPECIFIED IN THE FOREGOING CONSENT AND AGREES TO ALL SUCH TERMS AND CONDITIONS. SUBLANDLORD: SUBTENANT: - ----------- --------- INFORMATION STORAGE DEVICES, INC. EBAY, INC. a California corporation a California corporation By: /s/ Al Woodhull By: /s/ J. Skoll ------------------------------ ------------------------------ By: Al Woodhull Name: Jeff Skoll ----------------------------- ---------------------------- Title: VP Mfg Title: President --------------------------- ---------------------------- Date: 8/15/97 Date: Aug 15/97 ---------------------------- ----------------------------- EXHIBIT A --------- SUITE 350 FLOOR PLAN GREYLANDS BUSINESS PARK, PHASE I AND INFORMATION STORAGE DEVICES, INC. LEASE THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL GOVERN. SUMMARY OF LEASE GREYLANDS BUSINESS PARK, PHASE I 1. DATE OF LEASE: 2. LANDLORD: Greylands Business Park, Phase I 3945 Freedom Circle, Suite 640 Santa Clara, California 95054 3. TENANT: Information Storage Devices, Inc. 4. PREMISES: 2045 Hamilton Avenue, Suite 100 San Jose, California 5. SQUARE FEET 28,037 square feet 6. PERMITTED USE: General office and light manufacturing (including testing & assembly) & research & development 7. TERM: Five (5) years (a) SCHEDULED COMMENCEMENT DATE: November 20, 1994 (b) SCHEDULED EXPIRATION DATE: November 19, 1999 8. RENT: (a) BASIC RENT: Lease months 1-9: $7,009.25 per month Lease months 10-12: $29,438.85 per month Lease months 13-21: $30,840.70 per month Lease months 22-36: $32,242.55 per month Lease months 37-60: $33,364.03 per month (a) TENANT'S ESTIMATED SHARE OF DIRECT EXPENSES: $ 12,499.07 9. SECURITY DEPOSIT: $200,689.00 10. PARKING SPACES PROVIDED: One hundred six (106) 11. OTHER IMPORTANT PROVISIONS: Option to Extend Term Right of First Refusal 12 TABLE OF CONTENTS
PARAGRAPH PAGE - ------------------------------------------------------------------------------ 1. USE 2. TERM 3. POSSESSION 4. MONTHLY RENT 5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES 6. RESTRICTION ON USE 7. COMPLIANCE WITH LAWS 8. ALTERATIONS 9. REPAIR AND MAINTENANCE 10. LIENS 11. INSURANCE 12. UTILITIES AND SERVICE 13. TAXES AND OTHER CHARGES 14. ENTRY BY LANDLORD 15. COMMON AREA; PARKING 16. DAMAGE BY FIRE; CASUALTY 17. INDEMNIFICATION 18. ASSIGNMENT AND SUBLETTING 19. DEFAULT 20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT 21. EMINENT DOMAIN 22. NOTICE TO SURRENDER 23. TENANT'S QUITCLAIM 24. HOLDING OVER 25. SUBORDINATION 26. CERTIFICATE OF ESTOPPEL 27. SALE BY LANDLORD 28. ATTORNMENT TO LENDER OR THIRD PARTY 29. DEFAULT BY LANDLORD 30. CONSTRUCTION CHANGES 31. MEASUREMENT OF PREMISES 32. ATTORNEY FEES 33. SURRENDER 34. WAIVER 35. EASEMENTS; AIRSPACE RIGHTS 36. RULES AND REGULATIONS 37. NOTICES 38. NAME 39. GOVERNING LAW; SEVERABILITY 40. DEFINITIONS 41. TIME 42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
43. ENTIRE AGREEMENT 44. CORPORATE AUTHORITY 45. RECORDING 46. REAL ESTATE BROKERS 47. EXHIBITS AND ATTACHMENTS 48. ERISA REQUIREMENTS 49. ENVIRONMENTAL MATTERS 50. SIGNAGE 51. SUBMISSION OF LEASE 52. TENANT IMPROVEMENTS 53. ADDITIONAL RENT 54. (INTENTIONALLY OMITTED) 55. OPTION TO EXTEND TERM 56. RIGHT OF FIRST REFUSAL
14 GREYLANDS BUSINESS PARK, PHASE I OFFICE LEASE ------------ THIS LEASE is made this 24th day of August, 1994, by and between GREYLANDS BUSINESS PARK, PHASE I, a California general partnership ("Landlord"), and -------- INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"). ------ W I T N E S S E T H ------------------- Landlord leases to Tenant and Tenant leases from Landlord those certain premises outlined in red on Exhibit A (the "Premises") which Premises -------- are commonly known as 2045 Hamilton Avenue, Suite 100, San Jose, California, which Landlord and Tenant hereby agree consists of approximately twenty-eight thousand thirty-seven (28,037) square feet in Greylands Business Park, Phase I (the "Project"). As used herein the term project shall mean and include all of ------- the land described in Exhibit B and all the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Tenant covenants, as a material part of the consideration of this lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this lease is made upon the condition of such performance and observance. 1. USE. Subject to the restrictions contained in paragraph 6, --- Tenant shall use the Premises for general office use, research and development and light manufacturing (including testing and assembly) and shall not use or permit the Premises to be used for any other purpose. 2. TERM. ---- (a) The term shall be for five (5) years (unless sooner terminated as hereinafter provided) and, subject to paragraphs 2(b) and 3, shall commence on November 20, 1994 and end on November 19, 1999. (b) Possession of the Premises shall not be deemed tendered and the term shall not commence until Landlord notifies Tenant of substantial completion of all work to be done by Landlord pursuant to Exhibit C to this lease (exclusive of telephone or other communication systems and punch list items) and Landlord has obtained the final building permit for such work, except that (i) if Landlord is prevented from or delayed in completing its work under Exhibit C to this lease due to the acts or omissions of Tenant, then the Premises shall be deemed tendered and the term shall commence upon the date by which such work would have been completed but for such acts or omissions by Tenant and (ii) if Tenant occupies or otherwise enters into possession of all or any part of the Premises prior to the scheduled commencement date, unless otherwise agreed in writing by Landlord, the term shall commence upon the date of such entry and Tenant shall thereupon be obligated to perform all its obligations under this lease, including the obligation to pay basic rent and direct expenses. 3. POSSESSION. ---------- (a) If Landlord for any reason cannot deliver possession of the Premises to Tenant by the scheduled commencement date set forth in paragraph 2(a), this lease shall not be void or voidable, Landlord shall not be liable to Tenant for any loss or damage on account thereof and, unless Landlord's failure to deliver possession of the Premises to Tenant by the scheduled commencement date set forth in paragraph 2(a) is caused by Tenant caused delays as defined in Exhibit C to this lease, Tenant shall not be liable for rent until the commencement of the term is determined in accordance with paragraph 2(b). If the term commences on a date other than the date specified in paragraph 2(a) above, then the parties shall immediately execute an amendment to this lease stating the actual date of commencement. The expiration date of the term shall be extended by the same number of days that Tenant's possession of the Premises was delayed from that set forth in paragraph 2(a). (b) Tenant's inability or failure to take possession of the Premises when delivery is tendered by Landlord (with the improvements to be done pursuant to Exhibit C to this lease substantially completed) shall not deal the commencement of the term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that Landlord shall incur significant expenses upon the execution of this lease, even if Tenant never takes possession of the Premises, including without limitation brokerage commission and fees, legal and other professional fees, the costs of space planning and the costs of construction of improvements in the Premises. Tenant acknowledges that all of said expenses shall be included in measuring Landlord's damages should Tenant breach the terms of this lease. 4. MONTHLY RENT. ------------ (a) Basic Rent. Tenant shall pay to Landlord as basic rent for ---------- the Premises, in advance, on or before the first day of the first full calendar month of the term and on or before the first day of each and every successive calendar month the monthly amounts set forth below: Lease Months 1 - 9 $7,009.25 per month Lease Months 10 - 12 $29,438.85 per month Lease Months 13 - 21 $30,840.70 per month Lease Months 22 - 36 $32,242.55 per month Lease Months 37 - 60 $33,364.03 per month Basic rent for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly basic rent per day. (b) Direct Expenses. In addition to the above basic rent and as --------------- additional rent, Tenant shall pay to Landlord, subject to adjustment and reconciliation as provided in paragraph 5(b) of this lease, the sum of Twelve Thousand Four Hundred Ninety-Nine and 07/100 Dollars ($12,499.07) on or before the first day of the first full calendar month of the term and on the first day of each and every successive calendar month, said sum representing Tenant's estimated payment of its proportionate share of direct expenses as provided for in paragraph 5(b) to this lease. Payment for direct expenses for any -partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly payment for direct expenses per day. (c) Manner and Place of Payment. All payments of basic rent and --------------------------- direct expenses shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America, as the office of Landlord at 3945 Freedom Circle, Suite 640, Santa Clara, California, 95054, or to such other person or place as Landlord may from time to time designate in writing. (d) First Month's Rent. Concurrently with Tenant's execution ------------------ of this lease, Tenant shall deposit with Landlord the sum of Nineteen Thousand Five Hundred Eight and 32/100 Dollars ($19,508.32) to be applied against the basic rent and direct expenses for the first month of the term. (e) Security Deposit. Tenant shall provide Landlord with a ---------------- letter of credit as specified below, which letter of credit shall be held by Landlord as a security deposit for the faithful performance by Tenant of all of the terms, covenants and conditions of this lease to be kept and performed by Tenant. If Tenant defaults with respect to any provision of this lease, including but not limited to the provisions relating to the 2 payment of basic rent and direct expenses, Landlord may (but shall not be required to) use, apply or retain all or pay part of this security deposit for the payment of any amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said deposit is so used, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the security deposit to its original amount; Tenant's failure to do so shall be a material breach of this lease. Landlord shall not be required to keep this security deposit separate from its general funds and Tenant shall not be entitled to interest on such deposit. If Tenant is not in default as the expiration or termination of this lease, the security deposit or any balance thereof shall be returned to Tenant after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this lease, Landlord shall transfer said deposit to Landlord's successor in interest, and Tenant agrees that Landlord shall thereupon be released from liability for the return of such deposit or any accounting therefor. Tenant shall deliver to Landlord concurrent with Tenant's execution of this lease an unconditional irrevocable letter of credit in the amount of Two Hundred Thousand Six Hundred Eighty-Nine and 00/100 Dollars ($200,689.00) in favor of Landlord to secure the faithful performance by Tenant of al of the terms, covenants and conditions of this lease to be kept and performed by Tenant. Provided Tenant is not then in default and the Lease is then in full force and effect, the amount of the letter of credit shall be reduced in accordance with the following schedule:
Reduction Date Letter of Credit Amount Reduced To: -------------- ---------------------------------- On the first day of the 13th lease month $160,551.20 of the Base Security Deposit Amount On the first day of the 25th lease month $120,413.40 of the Base Security Deposit Amount On the first day of the 37th lease month $80,275.60 of the Base Security Deposit Amount On the first day of the 49th lease month $40,137.80 of the Base Security Deposit Amount
Said letter of credit shall be available by draft at sight, subject only to receipt by the bank of a notarized statement from Birk S. McCandless or Steven E. Sund stating the amount demanded as due and owing to Landlord, and shall otherwise be in a form reasonably satisfactory to Landlord and Landlord's attorney and drawn upon such bank as Landlord may approve. Said letter of credit shall by its terms expire not less than one (1) year from the date issued, provided that unless Tenant deposits with Landlord a cash security deposit of like amount, the letter of credit shall be renewed for successive periods of not less than one (1) year each to and including the date which is 10 days after the expiration of the term of this lease. The bank's written renewal of the letter of credit shall be delivered to Landlord not less than sixty (60) days prior to the expiration of such letter of credit. If Landlord does not receive such written renewal at least sixty (60) days prior to the expiration date of the letter of credit, then Landlord shall be entitled to make demand for the principal amount of said letter of credit and, thereafter, hold or apply such funds in accordance with the first paragraph of this paragraph 4(e). Tenant's failure to so deliver, renew (including specifically but not limited to the delivery to Landlord of such renewal not less than sixty (60) days prior to expiration of the letter of credit) and maintain such letter of credit shall be a material breach of this lease. If Tenant defaults in the performance of any provision of this lease to be performed by Tenant, including without limitation the timely payment of basic rent and direct expenses and other amounts due Landlord, Landlord may immediately and without further notice resort to said letter of credit (or the funds received therefrom) and use or apply all or any part of same to compensate Landlord for any loss or expense occasioned thereby and for the payment of any amount due Landlord under the terms o this lease. If any portion of said letter of credit (or the funds received therefrom) is so used as specified above, Tenant shall, within ten (10) days after written demand therefor, restore the letter of credit (or the funds received therefrom) to its original amount, and Tenant's failure to do so shall be a material breach of this lease. Landlord's resort to said letter of credit (or use of the funds received therefrom) shall in no way or manner constitute an acceptance of or waiver of such default by Tenant; nor shall such resort or use terminate, or permit Tenant to terminate, or constitute a forfeiture of, or be construed as an election by Landlord to terminate, this lease; nor shall such resort or use affect Landlord's remedies otherwise available under this lease or at law. If there is a substantial change in Tenant's financial condition, after the first lease year Tenant may request that Landlord review Tenant's financial condition (but not more than two requests per year) and upon such request Landlord will review the requirement of a letter of credit and Landlord may, at Landlord's sole discretion and without any obligation to do so, agree to reduce or eliminate the requirement of a letter of credit. 5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES. -------------------------------------------- (a) Adjustments in Basic Rent. Except as set forth in paragraph ------------------------- 4(a) there shall be no adjustments to the monthly basic rent. (b) Adjustments to Direct Expenses. Tenant's proportionate share ------------------------------ of direct expenses of the Project shall be twelve and eight one hundredths percent (12.08%) (28,037 + 232,089) and Tenant's proportionate share of direct expenses (excluding electricity) of the building in which the Premises are located shall be fifty-four and thirty one hundredths percent (54.30%) (28,037 + 51,630). Since a portion of the Premises consisting of approximately thirteen thousand eight hundred thirteen (13,813) square feet is to be separately metered for electricity (as provided in paragraph 12 below), Tenant's proportionate share of direct expenses for building related electricity bills shall be thirty- seven and sixty-one one-hundredths percent (37.61%) (14,224 + 37,817), which excludes the separately metered space. Subject to reconciliation as provided below, the initial estimated amount of Tenant's proportionate share of direct expenses of the Project and of the building in which the Premises are located is Twelve Thousand Four Hundred Ninety-Nine and 07/100 Dollars ($12,499.07). Tenant shall be required to pay to Landlord, as additional rent in accordance with paragraph 4(b) of this lease, Tenant's proportionate share of direct expenses for each calendar year (or portion thereof) during the term of this lease. Tenant's estimated share of the monthly direct expenses payable by Tenant during the calendar year in which the term commences is set forth in paragraph 4(b) of this lease. A written estimate of Tenant's monthly share of direct expenses for each succeeding calendar year shall be delivered to Tenant prior to be commencement of each such succeeding calendar year (or a s soon as practicable thereafter). Tenant shall pay to Landlord in accordance with paragraph 4(b) of this lease its monthly share of direct expenses as estimated by Landlord. Landlord reserves the right to revise such written estimate during a calendar year if Landlord's actual or projected direct expenses shows an increase or decrease in excess of ten percent (10%) from that of an earlier written estimate delivered to Tenant, and if Landlord elects to revise the earlier estimate, Landlord shall deliver the revised estimate to Tenant, together with an explanation of the reasons therefor, and Tenant shall revise its payments accordingly. Statements of the actual direct expenses for the calendar year in which the term commences and for each succeeding calendar year (herein called "statement of actual direct expenses") shall be delivered to Tenant within one hundred twenty (120) days following the expiration of each such calendar year (or as soon as practicable thereafter). If the statement of actual direct expenses for any such calendar year shows that Tenant's proportionate share of actual direct expenses for the year is in excess of the aggregate amount Tenant has paid as direct expenses for that calendar year, Tenant shall pay such excess to Landlord within ten 910) days after receipt of the statement of actual direct expenses. If Tenant fails to pay such excess amount due within said ten (10) day period, Tenant shall pay an additional ten percent (10%) of the amount due as a penalty. In the event that any statement of actual direct expense shall show that Tenant has paid Landlord an aggregate amount in excess of the actual direct expenses for the preceding calendar year and Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this lease at the time such statement of actual direct expenses is delivered, Landlord shall, at its option, promptly either refund such excess to Tenant or credit the amount thereof to 4 the monthly direct expenses next becoming due from Tenant. The respective obligations of Landlord and Tenant under this paragraph still survive the expiration or other termination of this lease. As used in this lease, "direct expenses" shall include, but not be limited to, (i) real property taxes, assessments, and other costs identified as direct expenses in paragraph 13; (ii) insurance premiums and other costs identified as direct expenses in paragraph 11; (iii) the cost of all utilities and services including water, gas, and sewer charges, electricity, heat, air conditioning, refuse collection, and janitorial services identified as direct expenses in paragraph 12; (iv) the costs of operating and maintaining the Common Area identified as direct expenses in paragraph 15, including but not limited to, the landscaping, elevator, parking lots, paving, sidewalks, showers, the Greylands Mansion, and security and exterminator services; (v) the costs and expenses of maintaining and repairing the Project identified as direct expenses in paragraph 9, including but not limited to, mechanical, electrical, plumbing and sewage systems, windows, glazing, gutters, down-spouts, heating and ventilating and air conditioning systems, walls, floor coverings, roofs, structural elements, exterior walls, and the cost of maintenance contracts and supplies, materials, equipment and tools used in connection therewith; (vi) the cost of certain alterations identified as direct expenses in paragraph 8; (vii) amortization of such capital improvements having a useful life greater than one year as Landlord may have installed for the purpose of reducing operating costs and/or to comply with all laws, rules and regulations of federal, state, county, municipal and other governmental authorities now or hereinafter in effect (Tenant's share of such capital improvement shall equal Tenant's proportionate share of the fraction of the cost of such capital improvement equal to the remaining term of the lease over the useful life of such capital improvement); (viii) wages, salaries, employee benefits (including union benefits) and related expenses of all on-site and off-site personnel engaged in the operation, management and maintenance of the Project (or the building in which the Premises are located) and payroll taxes applicable thereto and all costs incurred to maintain a management office in or near the Project (including, without limitation, rental payments therefor or the reasonable rental value of the space so occupied); (ix) supplies, materials, equipment and tools used or required in connection with the operation and maintenance of the Project; (x) licenses, permits and inspection fees; (xi) a reasonable reserve for repairs and replacement of equipment used in the maintenance and operation of the Project; (xii) all other operating costs incurred by Landlord in maintaining and operating the Project; and (xiii) an amount equal to five percent (5%) of the actual expenditures for the aggregate of all other direct expenses as compensation for Landlord's accounting and processing services. 6. RESTRICTION ON USE. Tenant shall not do or permit to be done in ------------------ or about the Premises or the Project, nor bring or keep or permit to be brought or kept in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any other insurance covering the Project or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or which will in any way obstruct or interfere with the rights of other tenants or occupants of the Project or injure or annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be sued or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises for sleeping, washing clothes, cooking, except for customary lunch break/kitchenette functions involving a microwave oven, or in any manner that will cause or emit any objectionable odor, noise or light into the adjoining premises or Common Area. Tenant shall not do anything on the Premises that will cause damage to the Project or the building in which the Premises are located and Tenant shall not overload the floor capacity of the Project. No machinery, apparatus or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate or shake the Premises. Landlord shall be the sole judge of whether such odor, noise, light or vibration is such as to violate the provisions of this paragraph. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building proper except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or inside of the building proper where designated; and no toxic or hazardous material shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper. No retail sales shall be made on the Premises. 7. COMPLIANCE WITH LAWS. Tenant shall, in connection with its use -------------------- and occupation of the Premises, at its sole cost and expense, promptly observe and comply with (i) all laws, statutes, ordinances and governmental rules, regulations and requirements of federal, state, county, municipal and other governmental authorities, now or hereafter in effect, which shall impose any duty upon Landlord or Tenant with respect to the use, occupancy or alteration of the Premises, (ii) with the requirements of any board of fire underwriters or other similar body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that so such failure shall be deemed a breach of these provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant (whether or not Landlord is a party thereto) that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This lease shall remain in full force and effect notwithstanding any loss of use of other effect on Tenant's enjoyment of the Premises by reason of any governmental laws, statutes, ordinances, rules, regulations and requirements now or hereafter in effect. 8. ALTERATIONS. Tenant shall not make or suffer to be made any ----------- alteration, addition or improvement to or of the Premises or any part thereof (collectively referred to herein as "alterations") without (i) the prior written consent of Landlord, which consent shall not be unreasonably withheld, (ii) a valid building permit issued by the appropriate governmental authority and (iii) otherwise complying with all applicable laws, regulations and requirements of governmental agencies having jurisdiction and with the rules, regulations and requirements of any board of fire underwriters or similar body. Landlord's consent to any requested alteration shall not create on the part of Landlord or cause Landlord to incur any responsibility or liability for such alteration's compliance with all laws, rules and regulations of federal, .state, municipal, county and other governmental authorities. Any alteration made by Tenant (excluding moveable furniture and trade fixtures not attached to the Premises) shall at once become a part of the Premises and belong to Landlord. Without limiting the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning, drapery, window covering and carpet installations made by Tenant, regardless of how attached to the Premises, together with all other alterations that have become an integral part of the building in which the Premises are a part, shall upon installation be and become part of the Premises and belong to Landlord and shall not be deemed trade fixtures. All such alterations shall remain upon and be surrendered with the Premises at the termination of the lease. If Landlord consents to the making of any alteration by Tenant, the same shall be made by Tenant at its sole risk, cost and expense and only after Landlord's written approval of any contractor or person selected by Tenant for that purpose. Tenant shall, if required by Landlord, secure at Tenant's cost a completion and lien indemnity bond for such work. Upon the expiration or sooner termination of the term, Landlord may, at its sole option, require Tenant, at Tenant's sole cost and expense, to promptly remove any such alteration made by Tenant and designated by Landlord to be removed, repair any damage to the Premises caused by such removal and restore the Premises to its condition existing prior to such alteration. Any moveable furniture and equipment or trade fixtures remaining on the Premises at the expiration or other termination of the term shall become the property of Landlord unless promptly removed by Tenant. If during the term any alteration, addition or change of the Premises is required by law, regulation, ordinance or order of any public authority, Tenant, at its sole cost and expense, shall promptly make the same. If during the term any alterations, additions or changes to the Common Area or to the Project or building in which the Premises is located is required by law, regulation, ordinance or order of any public or quasi-public authority, and it is impractical, in Landlord's judgment, for the affected tenants to individually make such alterations, additions or changes, Landlord shall make such alterations, additions or changes and the cost thereof shall be a direct expense and Tenant shall pay its percentage share of said cost to Landlord as provided in paragraphs 4 and 5. 9. REPAIR AND MAINTENANCE. Subject to paragraph 16, Landlord shall ---------------------- maintain and keep in good repair the Common Area (including, without limitation, the Greylands Mansion) and the mechanical, electrical,, plumbing and sewage systems, windows, window frames, plate glass, glazing, elevators, gutters and 6 down-spouts, the roof, exterior walls, structural elements and the heating, ventilating and air conditioning systems (except special air conditioning of Tenant's computer room(s) as set forth below) of the Premises and the Project; provided, however, that Landlord shall not be required to perform repairs made necessary by the negligence or abuse of such improvements or property by Tenant or its employees, agents, subtenants or permitees. The cost of all maintenance and repairs made by Landlord pursuant to this paragraph 9, including without maintenance contracts and supplies, materials, equipment and tools used in such repairs and maintenance, shall be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. By entry hereunder Tenant accepts the Premises as being in good land sanitary order, condition and repair (excepting only "punch list items"). Subject to paragraphs 16 and 21, and excepting repairs and maintenance required by this paragraph 9 to be made by Landlord, Tenant at its cost shall keep the Premises and every part thereof in good and sanitary order, condition and repair and Tenant shall be solely responsible for the cost and maintenance of, and electricity supplied to, any special air conditioning for Tenant's computer facilities. Further, Tenant shall repair (or, at the option of Landlord, reimburse Landlord if Landlord elects to repair) damage to improvements or other property located on or about the Project where such repairs are made necessary by the negligence of or abuse of such improvements or other property by Tenant or its employees, agents, subtenants or permitees. Tenant waives all rights under and benefit of California Civil Code Sections 1932(1), 1941, and 1942 and under any similar law, statute or ordinance now or hereafter in effect. 10. LIENS. Tenant shall keep the Premises and the Project free from ----- any liens arising out of any work performed, materials furnished or obligations incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt of a preliminary twenty (20) day notice filed by a claimant pursuant to California Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy of such notice. Should any lien be recorded against the Project, Tenant shall give immediate notice of such lien to Landlord. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses (including attorneys' fees) incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Project and any other party having an interest therein, from mechanics' and materialmen's liens and like liens. Tenant shall give Landlord at lease fifteen (15) days' prior notice of the date of commencement of any construction on the Premises in order to permit the posting of such notices. In the event Tenant is required to post an improvement bond with a public agency in connection with any work performed by Tenant on or to the Premises, Tenant shall include Landlord as an additional obligee. 11. INSURANCE. Tenant, at its sole cost and expense, shall keep in --------- force during the term (i) commercial general liability and property damage insurance with a combined single limit of at least $2,000,000 per occurrence insuring against personal or bodily injury to or death of persons occurring in, on or about the Premises or Project and any and all liability of the insureds with respect to the Premises or arising out of Tenant's maintenance, use or occupancy of the Premises and all areas appurtenant thereto, (ii) direct physical loss-special insurance covering the leasehold improvements in the Premises and all of Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and personal property from time to time located in, on or about the Premises, with coverage in the amount of the full replacement cost thereof, and (iii) Workers' Compensation Insurance as required by law, together with employers' liability coverage with a limit of not less than $1,000,000 for bodily injury for each accident and for bodily injury by disease for each employee. Tenant's commercial general liability and property damage insurance and Tenant's Workers' Compensation Insurance shall be endorsed to provide that said insurance shall not be canceled or reduced except upon at least thirty (30) days prior written notice to Landlord. Further, Tenant's commercial general liability and property damage insurance shall be primary and shall be endorsed to provide that Landlord and McCandless Management Corporation, and their respective partners, officers, directors and employees and such other persons or entities as directed from time to time by Landlord shall be named as additional insureds for all liability using ISO Bureau Form CG20111185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; shall contain a severability of interest clause and a cross- liability endorsement; shall be endorsed to provide that the limits and aggregates apply per location using ISO Bureau Form CG25041185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; and shall be issued by an insurance company admitted to transact business in the State of California and rated A+VIII or better in Best's Insurance Reports (or successor report). The deductibles for all insurance required to be maintained by Tenant hereunder shall be satisfactory to Landlord. The commercial general liability insurance carried by Tenant shall specifically insure the performance by Tenant of the indemnification provisions set forth in paragraph 17 of this lease provided, however, nothing contained in this paragraph 11 shall be construed to limit the liability of Tenant under the indemnification provisions set forth in said paragraph 17. If Landlord or any of the additional insureds named on any of Tenant's insurance, have other insurance which is applicable to the covered loss on a contributing, excess or contingent basis, the amount of the Tenant's insurance company's liability under the policy of insurance maintained by Tenant shall not be reduced by the existence of such other insurance. Any insurance carried by Landlord or any of the additional insureds named on Tenant's insurance policies shall be excess and non-contributing with the insurance so provided by Tenant. Tenant shall, prior to the commencement of the term and at least thirty (30) days prior to any renewal date on any insurance policy required to be maintained by Tenant pursuant to this paragraph, provide Landlord with a completed Certificate of Insurance, using a form acceptable in Landlord's reasonable judgment, attaching thereto copies of all endorsements required to be provided by Tenant under this lease. Tenant agrees to increase the coverage or otherwise comply with changes in connection with said commercial general liability, property damage, direct physical loss and Workers' Compensation Insurance as Landlord or Landlord's lender may from time to time require. Landlord shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises and Project, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risk" insurance, with increased cost of reconstruction and contingent liability (including demolition), plus a policy of rental income insurance in the amount of one hundred percent (100%) of twelve (12) months' rent (including sums paid as additional rent) and such other insurance as Landlord or Landlord's lender may from time to time require. Landlord may but shall not be obligated to obtain flood and/or earthquake insurance. Landlord shall have no liability to Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The cost of all such insurance purchased by Landlord, plus any charges for deferred payment of premiums and the amount of any deductible incurred upon any covered loss within the Project, shall be direct expenses and Tenant shall pay to Landlord its percentage share of such costs as provided paragraphs 4(b) and 5(b). Landlord, upon Tenant's request from time to time, shall provide Tenant with a statement of the deductible amounts. If the cost of insurance is increased due to Tenant's use of the Premises, then Tenant shall pay to Landlord upon demand the full cost of such increase. Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises or the Project, or any part thereof, or to any personal property therein, from perils insured against under fire and extended insurance and any other property insurance policies existing for the benefit of the respective parties so long a such insurance permits waiver of liability and contains a waiver of subrogation without additional premiums. If Tenant does not take out and maintain insurance as required pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefor, and Tenant shall repay to Landlord promptly on demand, as additional rent, the amount so paid. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as additional rent, any and all reasonable expenses (including attorney fees) and damages which Landlord may sustain by reason of the failure of Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon. 12. UTILITIES AND SERVICE. Landlord shall furnish to the Premises --------------------- and to the building in which the Premises are located, during reasonable hours of generally recognized business days, to be determined by Landlord, and subject to the rules and regulations of the Project, reasonable quantities of water and electricity suitable for the intended use of the Premises and the building in which the Premises are located, heat and air 8 conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises, refuse collection and janitorial services. Tenant agrees that at all time it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the heating, ventilating and air conditioning systems. The cost of all utilities and services furnished by Landlord to the Premises and to the building in which the Premise are located pursuant to this paragraph 12 shall be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. Notwithstanding any provision to the contrary, a portion of the Premises consisting of approximately thirteen thousand eight hundred thirteen (13,813) square feet, as specified in Exhibit C hereto, shall be separately metered for electricity and Tenant shall contract directly with the utility provider for electricity and directly pay all electric bills to the provider for electricity provided to the separately metered space. Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of rent by reason of, Landlord's failure to furnish any of the foregoing services when such failure is caused by accident, breakage or repairs (provided Landlord acts in a commercially reasonably manner to correct or repair the same, and provided such repair is Landlord's responsibility and within Landlord's control), strikes, lockouts or other labor disturbances or labor disputes of any character, governmental moratoriums, regulations, or other governmental actions or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. In addition, Tenant shall not be relieved from the performance of any covenant or agreement in this lease because of any such failure, and no eviction of Tenant shall result from such failure. Tenant will not, without the written consent of Landlord, which consent shall not be unreasonably withheld, use any apparatus or device in the Premises (including, without limitation, electronic data processing machines, punch card machines or machines using current in excess of 200 volts) which will in any way increase the amount of electricity (excluding those areas of the Premises that are separately metered for electricity and paid by Tenant directly), water or air conditioning usually furnished or supplied to Premises in the Project being used as general office space and other permitted uses as specified in paragraph 1 of this lease or connect with electric current (except through existing electrical outlets in the Premises) or with water pipes any apparatus or device for the purpose of using electric current or water. If Tenant shall require water or electric current in excess of that usually furnished or supplied to premises in the Project being used as general office space then Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld, and Tenant shall pay to Landlord promptly on demand, as additional rent, the full cost of such excess use. Landlord may cause an electric current or water meter to be installed in the Premises in order to measure the amount of electric current or water meter to be installed in the Premises in order to measure the amount of electric current or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, and all charges for such excess water and electric current consumed (as shown by meters and at the rates then charged by the furnishing public utility) plus any additional expense incurred by Landlord in keeping account of electric current or water so consumed, shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. Whenever heat generating machines or equipment are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. 13. TAXES AND OTHER CHARGES. All real estate taxes and assessments ----------------------- and other taxes, fees and charges of every kind or nature, foreseen or unforeseen, which are levied, assessed or imposed upon Landlord and/or against the Premises, building, Common Area or Project or any part thereof by any federal, state, county, regional, municipal or other governmental or quasi- governmental authority or special district authority, together with any increases therein whether resulting from increased rate and/or valuation shall be a direct expense and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. By way of illustration and not limitation, "other taxes, fees and charges" as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured b the net income of Landlord from all sources, and premium taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, allocable to, or measured by the rent payable hereunder,including, without limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any part thereof, (iii) upon or measured by the value of Tenant's personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to vehicles, parking or the number of persons employed on or about the Project, and (vi) any tax, license, franchise fee or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord (including, but not limited to, costs of attorneys and experts) thereby shall also be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. In the event the Premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher than those of other tenants in the building or Project or in the event alterations or improvements are made to the Premises, Tenant's percentage share of such taxes, assessments, fees and/or charges shall be readjusted upward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessor's work sheet or such other information as may be reasonably available and Landlord's determination thereof shall be conclusive. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term hereof upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant notwithstanding that such carpeting or other property has become a part of the Premises. If any of Tenant's personal property shall be assessed with the Project, Tenant shall pay to Landlord, as additional rent, the amounts attributable to Tenant's personal property within ten (10) days after receipt of a written statement from Landlord setting forth the amount of such taxes, assessments and public charges attributable to Tenant's personal property. 14. ENTRY BY LANDLORD. Landlord reserves, and shall at all ----------------- reasonable times have, the right to enter the Premises (i) to inspect the Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to show the Premises to prospective purchasers, lenders or tenants and to put, `for sale' or `for lease' signs thereon, (iv) to post notices required or allowed by this lease or by law, (v) to alter, improve or repair the Premise and any portion of the Project, and (vi) to erect scaffolding and other necessary structures in or through the Premises or the Project where reasonably required by the character of the work to be performed. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord's entry and acts pursuant to this paragraph and Tenant shall not be entitled to an abatement or reduction of rent if Landlord exercises any rights reserved in this paragraph. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, on, and about the Premises (excluding Tenant's vaults, safes and similar areas designated in writing by Tenant in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry by Landlord to the Premises pursuant to this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Notwithstanding the foregoing, and except in the case of emergency, Landlord shall give Tenant at least twenty-four (24) hours prior notice of its intent to enter the Premises, and such entry shall be subject to the reasonable security requirements of Tenant, including the reasonable designation of certain areas of the Premises as security areas which are required to maintain confidentiality of Tenant's business matters and reasonable limitations on Landlord's access thereto as mutually agreed. Tenant shall not unreasonably deny Landlord access to any area of the Premises. In the course of such entry, Landlord shall not unreasonably interfere with Tenant's use of the Premises unless reasonably required in order for Landlord to fulfill its obligations under the lease. 15. COMMON AREA; PARKING. Subject to the terms and conditions of -------------------- this lease and such rules and regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees and invitees shall, in common with other occupants of the Project, and their respective employees, invitees and customers and others entitled to the use thereof, have the nonexclusive right to use the access roads, parking areas and facilities within the Project provided and designated by Landlord for the general use and convenience of the occupants of the Project (which areas and facilities shall include, but not be limited to, common lobbies, corridors, 10 restrooms and showers, part or all of the Greylands Mansion and the .37 acre parcel upon which it is located, telephone, electrical, janitorial and mechanical rooms, elevators, stairwells, vertical duct shafts, sidewalks, parking, refuse, landscape and plaza areas, roofs, building exteriors, electrical, mechanical, plumbing and HVAC systems and storage areas) which areas and facilities are referred to herein as "Common Area." This right shall terminate upon the termination of this lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord shall also have the right at any time to change the name, number or designation by which the Project is commonly known. Landlord further reserves the right to promulgate such non-discriminatory rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice. Tenant acknowledges that Landlord (as tenant) has leased the Greylands Mansion for a term which will expire on February 1, 1995 and that Landlord has no right to extend the term of such lease. Unless Landlord and the owner of the Greylands Mansion enter into an agreement to extend the term of such lease for the Greylands Mansion, Tenant acknowledges that, subsequent to February 1, 1995, the Common Area shall include no part of the Greylands Mansion and the .37 acre parcel upon which it is located. Tenant shall have the nonexclusive use of one hundred six (106) parking spaces in the Common Area as designated from time to time by Landlord. Landlord reserves the right at its sole option to assign and label parking spaces, but it is specifically agreed that Landlord is not responsible for policing any such parking spaces. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole discretion of Landlord. The cost of such maintenance, operation and management, including but not limited to landscaping, repair of paving, parking lots and sidewalks, the Greylands Mansion (including interior repair and maintenance; janitorial services; furniture rental or depreciation charges; and lease payments charged to the Project by the owner of the Greylands Mansion), security and exterminator services and salaries and employee benefits (including union benefits) of on-site and accounting personnel engaged in such maintenance and operations management, shall be a direct expense and Tenant shall pay to Landlord its percentage share of such cost as provided in paragraphs 4 and 5. 16. DAMAGE BY FIRE; CASUALTY. In the event the Premises are damaged ------------------------ by any casualty which is covered under an insurance policy required to be maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to the use of all insurance proceeds and shall repair such damage as soon as reasonably possible and this lease shall continue in full force and effect. In the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to paragraph 11, Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's expense, as soon as reasonably possible, in which event this lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord's intention to cancel and terminate this lease as of the date of the occurrence of the damage; provided, however, that if such damage is caused by an act or omission of Tenant or its agent, servants or employees, then Tenant shall repair such damage promptly at its sole cost and expense. In the event Landlord elects to terminate this lease pursuant hereto, Tenant shall have the right within ten (10) days after receipt of the required notice to notify Landlord in writing of Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event this lease shall continue in full force and effect and Tenant shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within the ten (10) day period, this lease shall be canceled and terminated as of the date of the occurrence of such damage. Under no circumstances shall Landlord be required to repair any injury or damage to (by fire or other cause), or to make any restoration or replacement of, any of Tenant's personal property, trade fixtures or property leased from third parties, whether or not the same is attached to the Premises. If the Premises are totally destroyed during the term from any cause (including any destruction required by any authorized public authority), whether or not covered by the insurance required under paragraph 11, this lease shall automatically terminate as of the date of such total destruction; provided, however, that if the Premises can reasonably and lawfully be repaired or restored within twelve (12) months of the date of destruction to substantially the condition existing prior to such destruction and if the proceeds of the insurance payable to the Landlord by reason of such destruction are sufficient to pay the cost of such repair or restoration, then said insurance proceeds shall be so applied, Landlord shall promptly repair and restore the Premises and this lease shall continue, without interruption, in full force and effect. If the Premises are totally destroyed during the last twelve (12) months of the term, Landlord may at Landlord's option cancel and terminate this lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within thirty (30) days after the occurrence of such damage. If the Premises are partially or totally destroyed or damaged and Landlord or Tenant repair the pursuant to this lease, the rent payable hereunder for the period during which such damage and repair continues shall be abated only in proportion to the square footage of the Premises rendered untenantable to Tenant by such damage or destruction. Tenant shall have no claim against Landlord for any damage, loss or expense suffered by reason of any such damage, destruction, repair or restoration. The parties waive the provisions of California Civil Code Sections 1932(2) AND 1933(4) (which provisions permit the termination of a lease upon destruction of the leased premises), and hereby agree that the provisions of this paragraph 16 shall govern in the event of the destruction of the Premises. 17. INDEMNIFICATION. Landlord shall not be liable to Tenant and --------------- Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project by or from any cause whatsoever except the failure of Landlord to perform its obligations under this lease where such failure has persisted for an unreasonable period of time after notice of such failure. Without limiting the foregoing, Landlord shall not be liable to Tenant for any injury to or death of any person or damages to or destruction of property by reason of, or arising from, any latent defect in the Premises or Project or the act or negligence of any other tenant of the Project. Tenant shall immediately notify Landlord of any defect in the Premises or Project. Except as to injury to persons or damage to property the principal cause of which is the failure by Landlord to observe any of the terms and conditions of this lease, Tenant shall hold Landlord harmless from and indemnify and defend Landlord against any claim, liability, loss, damage or expense (including attorney fees) arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises from any cause whatsoever or on account of the use, condition, occupational safety or occupancy of the Premises. Tenant shall further hold Landlord harmless from and indemnify and defend Landlord against any claim, liability, loss, damage or expense (including attorney fees) arising (i) from Tenant's use of the Premises or from the conduct of its business or from any activity or work done, permitted or suffered by Tenant or its agents or employee, in or about the Premises or Project, (ii) out of the failure of Tenant to observe or comply with Tenant's obligation to observe and comply with laws or other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use, handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by reason of any labor or service performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises, or (v) from any other act, neglect, fault or omission of Tenant or its agents or employee. The provisions of this paragraph 17 shall survive the expiration or earlier termination of this lease. 12 18. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily assign, ------------------------- encumber or otherwise transfer its interest in this lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord's written consent and otherwise complying with the requirements of this paragraph 18. Any assignment, encumbrance or sublease without Landlord's consent, shall constitute a default. If Tenant desires to sublet or assign all or any portion of the Premises, Tenant shall give Landlord written notice thereof, specifying the projected commencement date of the proposed sublet or assignment (which date shall be not less than thirty (30) days or more than ninety (90) days after the date of Landlord's receipt of such notice), the portions of the Premises proposed to be sublet or assigned, the terms and conditions of the proposed assignment or sublease (including the rent to be paid by the proposed assignee or subtenant) and the name, address and telephone number of the proposed assignee or subtenant. Tenant shall further provide Landlord with such other information concerning the proposed assignee or subtenant as requested by Landlord. For a period of thirty (30) days after Landlord's receipt of Tenant's written notice, Landlord shall have the option, exercisable by delivering written notice to Tenant to terminate this lease as of the date specified in Landlord's written notice to Tenant, which shall not be less than thirty (30) days nor more than ninety (90) days after the date of Landlord's written notice to Tenant. If Landlord exercises its option to terminate this lease as provided in the foregoing sentence, Landlord may, if it so elects, enter into al new lease for the Premises or any portion thereof with the proposed assignee or subtenant or any other third party on such terms as Landlord and such proposed assignee or subtenant or other third arty may agree; in such event, Tenant shall not be entitled to any portion of the profit, if any, which Landlord may realize on account of such termination and reletting. If Landlord does not elect to terminate this lease as provided hereinabove in this paragraph 18 and if Landlord consents in writing to the proposed assignment or sublet, Tenant shall be free to assign or sublet all or a portion of the Premises subject to the following conditions: (i) any sublease shall be on the same terms set forth in the notice given to Landlord; (ii) no sublease shall be valid and no subtenant shall take possession of the sublet Premises until an executed counterpart of such sublease has been delivered to Landlord; (iii) no subtenant shall have a further right to sublet without Landlord's prior written consent (which consent shall not be unreasonably withheld) and on the terms and conditions specified herein for subleases and, in any event such sub-sublease shall not extend beyond the initial term of this lease; (iv) fifty percent (50%) of any sums or other economic consideration received by Tenant as a result of such assignment or sublet (except rental or other payments received which are attributable to the amortization over the term of this lease of the coat of leasehold improvements constructed for such assignees or subtenant, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this lease (prorated to reflect obligations additional rent under this lease without affecting or reducing any other obligation of Tenant hereunder; (v) no sublet or assignment shall release Tenant or Tenant's obligation or alter the primary liability or Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder; and (vi) any assignee subtenant must expressly agree to assume and perform all of the covenants and conditions of Tenant under this lease. Tenant shall pay to Landlord promptly upon demand, as additional rent, Landlord's actual attorneys' fees and other coats incurred for reviewing, processing or documenting any requested assignment or sublease, whether or not Landlord's consent is granted. Tenant shall not be entitled to assign this lease or sublease all or any part of the Premises ( and any attempt to do so shall be voidable by Landlord) during any period in which Tenant is in default under this lease. If Tenant is a partnership, a withdrawal or change, voluntary or involuntary or by operation of law, of any general partner or the dissolution of the partnership shall be deemed an assignment of this merger, consolidation or other reorganization of Tenant, or the sale or other transfer of a controlling percentage of the capital stock of Tenant, or the sale of more than fifty percent (50%) of the value of Tenant's assets, shall be an assignment of this lease subject to all the conditions of this paragraph 18. The term "controlling percentage" means the ownership of, and the right to vote, stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote. This paragraph shall not apply if Tenant is a corporation the stock of which is traded through an exchange. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or sublets of this lease or amendments or modifications to this lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this lease. No interest of Tenant in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors or institutes a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ of attachment of execution is levied on this lease; or (iii) if, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this lease, in which case this lease shall not be treated as an asset of Tenant. Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this lease, all rent from any subletting of all or part of the Premises as permitted by this lease, and Landlord, as assigns and as attorney-in-fact for Tenant, or a receiver of Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this lease; except that, until the occurrence of an act of default by Tenant, Tenant shall have the right to collect such rent subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 18. 19. DEFAULT. The occurrence of any of the following shall constitute ------- a default by Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder within five (5) days after such sum(s) becomes due; (ii) abandonment of the Premises (Tenant's failure to occupy and conduct business in the Premises for fourteen (14) consecutive days shall constitute an abandonment of the Premises); or (iii) failure of Tenant to perform any other term, covenant or condition of this lease if the failure to perform is not cured within thirty (30) days after notice thereof has been given to Tenant (provided that if such default cannot reasonably be cured within thirty (30) days, Tenant shall not be in default if Tenant commences to cure such failure to perform within the thirty (30) day period and diligently and in good faith continues to cure the failure to perform). The notice referred to in clause (iii) above shall specify the failure to perform and the applicable lease provision and shall demand that Tenant perform the provisions of this lease within the applicable period of time and no such notice shall be deemed a forfeiture or termination of this lease unless Landlord so elects in the notice. No notice shall be required in the event of abandonment or vacation of the Premises. In addition to the above, the occurrence of any of the following events shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as they become due or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors (for purposes of determining whether Tenant is not paying its debts as they become due, a debt shall be deemed overdue upon the earliest to occur of the following: the earlier of the date on which any action or proceeding therefor is commenced; or the date on which a formal notice of default or demand has been sent); (ii) Tenant fails to furnish to Landlord a schedule of Tenant's aged accounts payable within ten (10) days after Landlord's written request; (iii) any financial statements given to Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any guarantor of Tenant, or successor in interest of Tenant (including, without limitation, any schedule of Tenant's aged accounts payable) are materially false; or (iv) any financial statement or other financial information furnished by Tenant pursuant to the provisions of this lease or at the request of Landlord evidences that either Tenant's net worth or its net assets are at least twenty- five percent (25%) less than the net worth or net assets shown in either the immediately prior financial statement or the financial statement of Tenant furnished at the time of execution of this lease, and Tenant fails to furnish promptly to Landlord, after notice from Landlord to Tenant, an additional security deposit in cash equivalent to the aggregate of 14 the basic rent and common area charges (without regard to any rent abatement) payable hereunder for the twelve (12) full calendar months immediately preceding such notice. At any time during the term of this lease Landlord, at Landlord's option, shall have the right to receive from Tenant, upon Landlord's request, a current annual balance sheet for Landlord's review. If the balance sheet shows a negative net worth, Landlord may terminate this lease by giving Tenant sixty (60) days prior written notice. In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies of Landlord at law or in equity, shall have the right either to terminate Tenant's right to possession of the Premises (and thereby terminate this lease) or, from time to time and without termination this lease, to relet the Premises or any party thereof for the account and in the name of Tenant for such term an on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Should Landlord elect to keep this lease in full force and effect, Landlord shall have the right to enforce all of Landlord's rights and remedies under this lease, including but not limited to the right to recover and to relet the Premises and such other rights and remedies as Landlord may have under California Civil Code Section 1951.4 (or successor Code section) or any other California statute. If Landlord relets the Premises, then Tenant shall pay to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in such reletting and in making alterations and repairs. Rentals received by Landlord from such reletting shall be applied (i) to the payment of any indebtedness due hereunder, other than basic rent and direct expenses, from Tenant to Landlord; (ii) the payment of the cost of any repairs necessary to return the Premises to good condition normal wear and tear excepted, including the cost of alterations and the cost of storing any of Tenant's property left on the Premises at the time of reletting; and (iii) to the payment of basic rent or direct expenses due and unpaid hereunder. The residue, if any shall be held by Landlord and applied in payment of future rent or damages in the event of termination as the same may become due and payable hereunder and the balance, if any at the end of the term of this lease shall be paid to Tenant. Should the basic rent and direct expenses received from time to time from such reletting during any month be less than that agreed to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such reletting of the Premises by Landlord shall be construed as an election on its part to terminate this lease unless a notice of such intention is given to Tenant or unless the termination hereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this lease for such previous breach, provided it has not been cured. Should Landlord at any time terminate this lease for any breach, in addition to any other remedy it may have, it shall have the immediate right of entry and may remove all persons and property from the Premises and shall have all the rights and remedies of a Landlord provided by California Civil Code Section 1951.2 or any successor code section. Upon such termination, in addition to all its other rights and remedies, Landlord shall be entitled to recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and including (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this lease or which in the ordinary course of events would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of twelve percent (12%) per annum. The "worth at the time of award" of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the federal reserve bank of San Francisco at the time of award plus one percent (1%). Tenant waives the provisions of Section 1179 of the California Code of Civil Procedure (which Section allows Tenant to petition a court of competent jurisdiction for relief against forfeiture of this lease). Property removed from the Premises may be stored in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored by a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such manner and at such times and places that Landlord, in its sole discretion, may deem proper, without notice to or demand upon Tenant. 20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. Landlord, at any time ----------------------------------------- after Tenant commits a default, may, but shall not be obligated to, cure the default at Tenant's cost. If Landlord at any time, by reason of Tenant's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord and shall bear interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be additional rent. 21. EMINENT DOMAIN. If all or any part of the Premises shall be -------------- taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any payments, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance. Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this lease. Notwithstanding the foregoing, Tenant shall be entitled to any compensation for depreciation to and cost of removal of Tenant's equipment and fixtures and any compensation for its relocation expenses necessitated by such taking, but in each case only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award as being therefor. Each party waives the provisions of Section 1265.130 of the California Code of Civil procedure (which section allows either party to petition the Superior Court to terminate this lease in the event of a partial taking of the Premises). If any action or proceeding is commenced for such taking of the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by any entity or body having the right of power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, then Landlord shall have the right to terminate this lease by giving Tenant written notice thereof within sixty (60) days of the earlier of the date of Landlord's receipt of such notice of intention to condemn or the commencement of said action or proceeding. Such termination shall be effective as of the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. In the event of a partial taking, or conveyance in lieu thereof, of the Premises and fifty percent (50%) or more of the number of square feet in the Premises are taken then Tenant may terminate this lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty (60) days from the date of such taking or conveyance and shall be effective on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. If a portion of the Premises is taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease as provided above, then this lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rent shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking. 22. NOTICE AND COVENANT TO SURRENDER. On the last day of the term or -------------------------------- on the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises in its condition existing as of the commencement of the term and, except as otherwise provided by Landlord pursuant to the terms of paragraph 8 of this lease, all of the improvements and alterations made to the Premises in their condition existing as of the date of completion of construction and/or installation (normal wear and tear excepted), with all originally painted interior walls washed or repainted if marked or damaged, interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, and all floors cleaned and waxed), all to the reasonable satisfaction of Landlord. On or prior to the last day of the term or the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises in its condition existing as of the commencement of the term and, except as otherwise provided by Landlord pursuant to the terms of paragraph 8 of this lease, all of the improvements 16 and alternations made to the Premises in their condition existing as of the date of completion of construction and/or installation (normal wear and tear excepted), with all originally painted interior walls washed or repainted if marked or damaged, interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, and all floors cleaned and waxed; all to the reasonable satisfaction of Landlord. On or prior to the last day of the term or the effective date of any earlier termination, Tenant shall remove all of Tenant's personal property and trade fixtures, together with improvements or alternations that Tenant is obligated to remove pursuant to the provisions of paragraph 8 of this lease, from the Premises, and all such property not removed shall be deemed abandoned. In addition, on or prior top the expiration or earlier termination of this lease, Tenant shall remove, at Tenant's sole cost and expense, all telephone, other communication, computer and any other cabling and wiring of any sort installed in the space above the suspend ceiling of the Premises or anywhere else in the Premises and shall promptly repair any damage to the suspend ceiling, lights, light fixtures, walls and any other part of the Premises resulting form such removal. If the Premises are not surrendered as required in this paragraph, Tenant shall indemnify Landlord against all loss, liability and expense (including, but not limited to, attorney fees) resulting from the failure by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenants. It is agreed between Landlord and Tenant that the provisions of this paragraph 22 shall survive the termination of this lease. 23. TENANT'S QUITCLAIM. At the expiration or earlier termination of ------------------- this lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required to remove the cloud or encumbrance created by this lease from the real property or which the Premises are a part. This obligation shall survive said expiration to termination. 24. HOLDING OVER. Any holding over after the expiration or ------------ termination of this lease (with the written consent of Landlord delivered to Tenant) shall be construed to be a tenancy from month to month at the monthly rent, as adjusted, in effect on the date of such expiration or termination. All provisions of this lease, except those pertaining to the term and any option to extend, shall apply to the month to month tenancy. The provisions of this paragraph are in addition to, and do not affect, Landlord's right of re-entry or other rights hereunder or provided by law. If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration or sooner termination of this lease for any reason, then Tenant shall pay to Landlord for each day of such retention one hundred fifty percent (150%) of the amount of the daily rental in effect during the last month prior to the date or such expiration or termination. Tenant shall also indemnify and hold Landlord harmless from any loss or liability resulting from delay by Tenant in surrendering the Premises including without limitation, any claims made by any succeeding tenant founded on such delay. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this lease, and nothing contained in this paragraph shall waive Landlord's right of re-entry or any other right. Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord's written consent. 25. SUBORDINATION. Concurrently herewith Tenant shall execute a ------------- Subordination, Non-Disturbance and Attornment Agreement, in the form attached hereto as Exhibit F. In the event Landlord's title or leasehold interest is now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the request of Landlord or the lender, execute in writing an agreement subordinating its rights under this lease to the lien of such encumbrance, or, if so requested, agreeing that the lien of lender's encumbrance shall be or remain subject and subordinate to the rights of Tenant under this lease. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute, deliver and record any such instrument or instruments for and in the name and on behalf of Tenant. Notwithstanding any such subordination, Tenant's possession under this lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all amounts due hereunder and otherwise observe and perform all provisions of this lease. In addition, if in connection with any such loan the lender shall request reasonable modifications in this lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereof, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 26. CERTIFICATE OF ESTOPPEL. Each party shall, within five (5) ----------------------- calendar days after request therefor, execute and deliver to the other party, in recordable form, a certificate stating that the lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord shall include such other items as Landlord or Landlord's lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgement by the party failing to deliver the certificate that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. Any such certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or Project. Further, within five (5) calendar days following written request made from time to time by Landlord, Tenant shall furnish to Landlord current financial statement of Tenant. 27. SALE BY LANDLORD. In the event the original Landlord hereunder, ---------------- or any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations. 28. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest ----------------------------------- of Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by a lender or any other third party through judicial foreclosure or by exercise of a power of sale at a private trustee's foreclosure sale, Tenant hereby agrees to release Landlord of any obligation arising on or after any such foreclosure sale and to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this lease. 29. DEFAULT BY LANDLORD. Landlord shall not be in default unless ------------------- Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. If Landlord is in default of this lease, Tenant's sole remedy shall be to institute suit against Landlord in a court of competent jurisdiction, and Tenant shall have no right to offset any sums expended by Tenant as a result of Landlord's default against future rent and other sums due and payable pursuant to this lease. If Landlord is in default of this lease, and as a consequence Tenant recovers a money judgment against Landlord, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the partners comprising the partnership designated as Landlord shall be personally liable for any deficiency. 30. CONSTRUCTION CHANGES. It is understood that the description of -------------------- the Premises and the location of ductwork, plumbing and other facilities therein are subject to such changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises and/or the improvements constructed or being constructed therein, and no such changes or any changes in plans for any other portions of the Project, shall affect this lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 18 31. MEASUREMENT OF PREMISES. Tenant understands and agrees that any ----------------------- reference to square footage of the Premises is approximate only and includes all interior partitions and columns, one-half of exterior walls, and one-half of the partitions separating the Premises from the rest of the Project, and any outside entry overhand, if applicable. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in basic rent or direct expenses or other amounts payable hereunder by reason of inaccuracies in such measurement. 32. ATTORNEY FEES. If either party commences an action against the ------------- other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. If either party becomes a party to any litigation concerning this lease or concerning the Premises or the Project, by reason of any act or omission of the other party or its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to the other party for all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. 33. SURRENDER. The voluntary or other surrender of this lease or the --------- Premises by Tenant, or a mutual cancellation of this lease, shall not work a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord or all or any such subleases or subtenancies. 34. WAIVER. No delay or omission in the exercise of any right or ------ remedy of Landlord on any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this lease. 35. EASEMENTS; AIRSPACE RIGHTS. Landlord reserves the right to alter -------------------------- the boundaries of the Project and grant easements and dedicate for public use portions of the Project without Tenant's consent, provided that no such grant or dedication shall interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge and deliver to Landlord, and in accordance with Landlord's instructions, any and all documents, instruments, maps or plate necessary to effectuate Tenant's covenants hereunder. This lease confers no rights either with regard to the subsurface of the land on which the Premises are located or with regard to airspace above the ceiling of the Premises. Tenant agrees that no diminution or shutting off of light or view by a structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises are a part or to property adjacent thereto, shall in any way affect this lease, or entitle Tenant to any reduction of rent, or result in any liability of Landlord to Tenant. 36. RULES AND REGULATIONS. Landlord shall have the right from time --------------------- to time to promulgate rules and regulations for the safety, care and cleanliness of the Premises, the Project and the Common Area, or for the preservation of good order. On delivery of a copy of such rules and regulations to Tenant, Tenant shall comply with the rules and regulations, and a violation of any of them shall constitute a default by Tenant under this lease. If there is a conflict between the rules and regulations and any of the provisions of this lease, the provisions of this lease shall prevail. Such rules and regulations may be amended by Landlord from time to time with or without advance notice. 37. NOTICES. All notices, demands, requests, consents and other ------- communications which may be given or are required to be given by either party to the other shall be in writing and shall be sufficiently made and delivered if personally served or if sent by United States first class mail, postage prepaid. Prior to the commencement date, all such notices from Landlord to Tenant shall be served or sent to Tenant at 2841 Junction Avenue, Suite 204, San Jose, California 95134; on or after the commencement date, all such communications from Landlord to Tenant shall be addressed to Tenant at the Premises. All such communications by Tenant to Landlord shall be sent to Landlord at its offices at 3945 Freedom Circle, Suite 640, Santa Clara, California, 95054, with a copy to CIGNA Investment Management, Attn: Asset Management, Dept. S-311, 900 Cottage Grove Road, Bloomfield, Connecticut, 06002. Either party may change its address by notifying the other of such change. Each such communication shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be. 38. NAME. Tenant shall not use the name of the Project for any ---- purpose other than as the address of the business conducted by Tenant in the Premises without the prior written consent of Landlord. 39. GOVERNING LAW; SEVERABILITY. This lease shall in all respects be --------------------------- governed by and construed in accordance with the laws of the State of California. If any provision of this lease shall be held or rendered invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 40. DEFINITIONS. As used in this lease, the following words and ----------- phrases shall have the following meanings: Authorized Representative: any officer, agent, employee or ------------------------- independent contractor retained or employed by either party, acting within authority given him by that party. Encumbrance: any deed of trust, mortgage or other written ----------- security device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement. Lease Month: the period of time determined by reference to the ----------- day of the month in which the term commences and continuing to one day short of the same numbered day in the next succeeding month; e.g., the tenth day of one month to and including the ninth day in the next succeeding month. Lender: the beneficiary, mortgagee or other holder of an ------ encumbrance, as defined above. Lien: a charge imposed on the Premises by someone other than ---- Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanic's liens. Maintenance: repairs, replacement, repainting and cleaning. ----------- Monthly Rent: the sum of the monthly payments of basic rent and ------------ direct expenses. Person: one or more human beings, or legal entities or other ------ artificial persons, including, without limitation, partnerships, corporations, trusts, states, associations and any combination of human being and legal entities. Provision: any term, agreement, covenant, condition, clause, --------- qualification, restriction, reservation or other stipulation in the lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party. 20 Rent: basic rent, direct expenses, additional rent, and all ---- other amounts payable by Tenant to Landlord required by this lease or arising by subsequent actions of the parties made pursuant to this lease. Words used in any gender include other genders. If there be more than one Tenant, the obligations of Tenant hereunder are joint and several. All provisions whether covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. The paragraph headings are for convenience of reference only and shall have not effect upon the construction or interpretation of an provision hereof. 41. TIME. Time is of the essence of this lease and of each and all ---- of its provisions. 42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE. Any amount due --------------------------------------------- from Tenant to Landlord hereunder which is not paid when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In addition, Tenant acknowledges that late payment by Tenant to Landlord or basic rent, or of Tenant's monthly direct expenses, or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. No notice to Tenant failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 19 shall not affect the imposition of such interest and/or late charge. Any interest and late charge imposed pursuant to this paragraph shall be and constitute additional rent payable by Tenant to Landlord. 43. ENTIRE AGREEMENT. This lease, including any exhibits and ---------------- attachments, constitutes the entire agreement between Landlord and Tenant relative to the Premises and this lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this lease. 44. CORPORATE AUTHORITY. If Tenant is a corporation, each individual ------------------- executing this lease on behalf of the corporation represents and warrants that he is duly authorized to execute and deliver this lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord, within ten (10) days of the execution of this lease, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this lease and naming of the officers that are authorized to execute this lease on behalf of Tenant, which copy shall be certified by Tenant's president or secretary as correct and in full force and effect. 45. RECORDING. Neither Landlord nor Tenant shall record this lease --------- or a short form memorandum hereof without the consent of the other. 46. REAL ESTATE BROKERS. Each party represents and warrants to the ------------------- other party that it has not had dealings in any manner with any real estate broker, finder or other person with respect to the Premises and the negotiation and execution of this lease except Cooper Brady and CPS. Except as to commissions and fees to be paid as provided in this paragraph, each party shall indemnify and hold harmless the other party from all damage, loss, liability and expense (including attorneys' fees and related costs) arising out of or resulting from any claims for commissions or fees that may or have been asserted against the other party by any broker, finder or other person with whom Tenant or Landlord has or purportedly has dealt with in connection with the Premises and the negotiation and execution of this lease. To the extent agreed to between Landlord and Cooper Brady and CPS, Landlord shall pay all broker leasing commissions to Cooper Brady and CPS incurred in connection with the Premises and the negotiation and execution to this lease; Landlord and Tenant agree that Landlord shall not be obligated to pay any broker leasing commissions, consulting fees, finder fees or any other fees or commissions arising out of or relating to any extended term of this lease or to any expansion or relocation of the Premises at any time. 47. EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this ------------------------ lease are a part hereof. 48. ERISA REQUIREMENTS. It is understood that Landlord is subject to ------------------ the Employee Retirement Income Security Act ("ERISA") and has furnished to Tenant a list of individuals and entities, transactions with which might result in a prohibited transaction under ERISA or would otherwise cause a breach of an ERISA related requirement. Tenant hereby warrants and represents that Tenant is not related to or affiliated with any person or entity shown on the list attached hereto as Exhibit D such that Tenant is a "party in interest" to such person or entity as that term is defined in ERISA Section 3 (14), a copy of which Section is attached hereto as Exhibit E, as that Section may be interpreted or amended. Tenant agrees that each time that Landlord makes additions to such list that Tenant will either make the warranty requested above or shall disclose to Landlord the relationship with such party on the list that would cause Tenant to be unable to make such warranty and representation. Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or damages which may result from a breach of the warranty and representation made by Tenant. 49. ENVIRONMENTAL MATTERS. --------------------- A. Tenant's Covenants Regarding Hazardous Materials. ------------------------------------------------ (1) Hazardous Materials Handling. Tenant, its agents, ---------------------------- invitees, employees, contractors, sublessees, assigns and/or successors shall not use, store, dispose, release or otherwise cause to be present or permit the use, storage, disposal, release or presence of Hazardous Materials (as defined below) on or about the Premises or Project. As used herein "Hazardous Materials" shall mean any petroleum or petroleum by-products, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous substance", "hazardous waste", "hazardous materials", "toxic substance" or "toxic waste" as those terms are defined under the provisions of the California Health and Safety Code and/or the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or any agency thereof, or the United States Government or any agency thereof. (2) Notices. Tenant shall immediately notify Landlord in ------- writing of: (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any law, regulation or ordinance relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials (collectively "Hazardous Materials Laws"); (ii) any claim made or threatened by any person against Tenant, the Premises, Project or buildings within the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises, Project or building within the Project, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, Project or buildings within the Project or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. 22 B. Indemnification of Landlord. Tenant shall indemnify, defend --------------------------- (by counsel acceptable to Landlord), protect, and hold Landlord, and each of Landlord's partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) for death of or injury to any person or damage to any property whatsoever (including water tables and atmosphere), arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under or about the Premises, Project or buildings within the Project or discharge in or from the Premises, Project or buildings within the Project of any Hazardous Materials or Tenant's use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, Project or buildings within the Project, or (ii) Tenant's failure to comply with any Hazardous Materials Laws whether knowingly, unknowingly, intentionally or unintentionally. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, Project or buildings within the Project, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. In addition, Tenant shall reimburse Landlord for (i) losses in or reductions to rental income resulting from tenant's use, storage or disposal of Hazardous Materials, (ii) all costs of refitting or other alterations to the Premises, Project or buildings within the Project required as a result of Tenant's use, storage, or disposal of Hazardous Materials including, without limitation, alterations required to accommodate an alternate use of the Premises, Project or buildings within the Project, and (iii) any diminution in the fair market value of the Premises, Project or buildings within the Project caused by Tenant's use, storage, or disposal of Hazardous Materials. For purposes of this paragraph 49, any acts or omissions of Tenant, or by employee, agents, assignees, contractors or subcontractors of Tenant or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant. C. Landlord's Representation. Landlord represents to Tenant ------------------------- that (i) Landlord has no actual knowledge of the existence of any Hazardous Materials, in, on or under the Project in violation of any Hazardous Materials laws and (ii) Landlord has no actual knowledge of any governmental actions against or notices of violation of any Hazardous Materials laws to any previous tenant of the Premises. D. Survival. The provisions of this paragraph 49 shall survive -------- the expiration or earlier termination of the term of this lease. 50. SIGNAGE. Tenant shall not, without obtaining the prior written ------- consent of Landlord, install or attach any sign or advertising material on any part of the outside of the Premises, or on any part of the inside of the Premises which is visible from the outside of the Premises, or in the halls, lobbies, windows or elevators of the building in which the Premises are located or on or about any other portion of the Common Area or Project. If Landlord consents to the installation of any sign or other advertising material, the location, size, design, color and other physical aspects thereof shall be subject to Landlord's prior written approval and shall be in accordance with any sign program applicable to the Project. In addition to any other requirements of this paragraph 50, the installation of any sign or other advertising material by or for Tenant must comply with all applicable laws, statutes, requirements, rules, ordinances and any C.C. & R.'s or other similar requirements. With respect to any permitted sign installed by or for Tenant, Tenant shall maintain such sign or other advertising material in good condition and repair and shall remove such sign or other advertising material on the expiration or earlier termination of the term of this lease. The cost of any permitted sign or advertising material and all costs associated with the installation, maintenance and removal thereof shall be paid for solely by Tenant. If Tenant fails to properly maintain or remove any permitted sign or other advertising material, Landlord may do so at Tenant's expense. Any cost incurred by Landlord in connection with such maintenance or removal shall be deemed additional rent and shall be paid by Tenant to Landlord within ten (10) days following notice from Landlord. Landlord may remove any unpermitted sign or advertising material without notice to Tenant and the cost of such removal shall be additional rent and shall be paid by Tenant within ten (10) days following notice from Landlord. Landlord shall not be liable to Tenant for any damage, loss or expense resulting from Landlord's removal of any sign or advertising material in accordance with this paragraph 50. The provisions of this paragraph 50 shall survive the expiration or earlier termination of this lease. 51. SUBMISSION OF LEASE. The submission of this lease to Tenant for ------------------- examination or signature by Tenant is not an offer to lease the Premises to Tenant, nor an agreement by Landlord to reserve the Premises for Tenant. Landlord will not be bound to Tenant until this lease has been duly executed and delivered by both Landlord and Tenant. 52. TENANT IMPROVEMENTS. Improvements to the Premises shall be ------------------- constructed and installed in accordance with the plans and specifications, and other terms and conditions, set forth in Exhibit C to this lease, the contents of which is incorporated herein and made a part hereof by this reference. The improvements shall be constructed and installed at the expense of Landlord and/or Tenant as set forth in Exhibit C to this lease and in each case shall be performed in a diligent and workmanlike manner. 53. ADDITIONAL RENT. All costs, charges, fees, penalties, interest, --------------- and any other payments (including Tenant's reimbursement to Landlord of costs incurred by Landlord) which Tenant is required to make to Landlord pursuant to the terms and conditions of this lease and any amendments to this lease shall be and constitute additional rent payable by Tenant to Landlord when due as specified in this lease and any amendments to this lease. 54. INTENTIONALLY OMITTED. --------------------- 55. OPTION TO EXTEND TERM. Landlord grants to Tenant the option to --------------------- extend the term for one period of five (5) years (the "Extended Term") following the expiration of the initial term set forth in paragraph 2 ("Initial Term") under all the provisions of this lease except for the amount of the basic rent. The basic rent for the Extended Term shall be adjusted to ninety-five percent (95%) of the market rate (as defined in paragraph (c) below); provided that in no event shall the basic rent for the Extended Term be less than One and 02/100 Dollars ($1.02) per square foot per month. This option is further subject to the following terms and conditions: (a) Tenant must deliver its irrevocable written notice of Tenant's exercise of this option to Landlord not less than six (6) lease months, nor more than twelve (12) lease months, prior to the expiration of the Initial Term. Time is of the essence with respect to the time period during which Tenant must deliver to Landlord its written notice of exercise and, therefore, if Tenant fails to give Landlord its irrevocable written notice of its exercise of this option within the time period provided above then this option shall expire and be of no further force or effect. (b) The parties shall have thirty (30) days from the date Landlord receive Tenant's notice of exercise in which to agree on the amount constituting the market rate. If Landlord and Tenant agree on the amount of the market rate, they shall immediately execute an amendment to this lease setting forth the expiration date of the Extended Term and the amount of the basic rent to be paid by Tenant during the Extended Term. If Landlord and Tenant are unable to agree on the amount of the market rate within such time period, then this option shall be of no further effect and this lease shall expire at the end of the Initial Term. (c) As used herein, the "market rate" shall be the monthly rent then obtained for five (5) year fixed rate leases of comparable terms for Premises in the Project and in building and/or Projects within the same geographical area of similar types and identity, quality and location as the Project. (d) Direct expenses shall continue to be determined and payable as provided in paragraphs 4 and 5 of this lease. (e) Neither party shall have the right to have any court or other third party determine the market rate or the basic rent. Tenant shall not assign or otherwise transfer this option or any interest therein and any attempt to do so shall render this option null and void. Tenant shall have no right to extend the term beyond the Extended Term. If Tenant is in default under this lease at the date of delivery of Tenant's notice of exercise to Landlord, then such notice shall be of no effect and this lease shall expire at the end of the Initial Term; if Tenant is in default under this lease on the last day of the Initial Term, then Landlord may in its sole discretion 24 elect to have Tenant's exercise of this option be of no effect, in which case this lease shall expire at the end of the Initial Term. 56. RIGHT OF FIRST REFUSAL. Landlord hereby grants to Tenant a right ---------------------- of first refusal to lease the remaining space in the building located at 2045 Hamilton Avenue, San Jose, California consisting of approximately twenty three thousand five hundred ninety-three (23,593) square feet, as shown on Exhibit G (the "Expansion Space"), subject to the following terms and conditions: (a) This right of first refusal shall only be effective from and after the date of execution of this lease during the initial term and the extended term per paragraph 55 of this lease to Tenant. Upon Landlord's receipt of any lease proposal/offer to lease the Expansion Space from any third party, excluding any such offers which Landlord has received or negotiations entered into prior to the date of execution of this lease and any subsequent negotiations related thereto, ("Third Party Offer") which is acceptable to Landlord, Landlord, prior to entering into a lease with such third party, shall provide Tenant with written notice ("Landlord's Notice") of the terms and conditions of the Third Party Offer (the "Offer"). Landlord's written notice ("Landlord's Notice") pursuant to this paragraph to be sent to Tenant as follows: Copy to: Facilities Manager Information Storage Devices 2045 Hamilton Avenue, Suite 100 San Jose, CA 95125 Copy to: Chief Financial Officer Information Storage Devices 2045 Hamilton Avenue, Suite 100 San Jose, CA 95125 Copy to: Fletcher Baker Cooper Brady 550 S. Winchester Boulevard Suite 600 San Jose, CA 95128 (b) Tenant shall have five (5) business days from receipt of Landlord's Notice to deliver to Landlord its written unconditional and irrevocable acceptance of the Offer. if Tenant accepts the Offer, an amendment to this lease or a new lease covering the Expansion Space and incorporating said terms and conditions shall promptly be executed. If a new lease is executed with Tenant covering the Expansion Space such new lease shall provide that any default under this lease will also constitute a default under such new lease and Tenant agrees that any default by it under such new lease will also constitute a default under this lease. In the event Tenant rejects the Offer, or does not answer within the specified time, or fails for any reason (unless such failure is due to the fault or delay of Landlord) to execute such amendment or new lease within thirty (30) days of Tenant's acceptance of the Offer, Landlord shall thereafter be released from any further obligation with respect to the Offer and be free to lease the Expansion Space to any third party on any terms (whether more or less favorable). (c) This right of first refusal shall be subordinate to any existing rights of refusal, rights of expansion, options to extend or renew, and other rights contained in leases (or amendments to leases) executed prior to the date of this lease. In addition, this right of first refusal shall not apply and Tenant shall have no rights hereunder in the event any tenant (or its successors or assigns) that now or hereafter occupies all or any portion of the Expansion Space desires to extend, renew or otherwise modify its lease or desires to expand its Premises to include any portion of the Expansion Space, and Landlord shall be free to extend, renew or modify such lease or amend such lease to add any portion of the Expansion Space without notice to Tenant. (d) This right of first refusal shall be void and of no force and effect and shall confer no rights on Tenant during any period in which Tenant is in default under this lease. (e) Notwithstanding anything in this paragraph to the contrary, Tenant's exercise of this right of first refusal shall be subject to Landlord's review and approval of Tenant's financial condition (including, without limitation, Tenant's net worth, current ratio and working capital reserves) at the time Tenant exercises this right of first refusal and notwithstanding Tenant's rights hereunder Landlord shall have no obligation to lease the Expansion Space to Tenant unless Tenant's financial condition at the time of acceptance of the Offer is acceptable to Landlord, in Landlord's sole discretion. (f) All rights granted to Tenant pursuant to this paragraph are personal to Tenant and may not be transferred or assigned. 26 IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this lease on the date first above written. Landlord: Tenant: - -------- ------ GREYLANDS BUSINESS PARK, PHASE 1, INFORMATION STORAGE DEVICES, INC., a California general partnership a California corporation By: McCANDLESS GROUP (GR-1), a California general partnership, a General Partner By: /s/ BIRK S. MCCANDLESS By: /s/ FELIX J. ROSENGARTEN ------------------------------------ -------------------------------- Birk S. McCandless, as Trustee (Signature) under the Birk S. McCandless and Mary McCandless Inter Vivos Trust FELIX J. ROSENGARTEN ----------------------------------- Agreement dated February 17, 1982, (Printed Name) a General partner VP and CFO ----------------------------------- (Title) 8/26/94 8/24/94 ------------------------------------ ----------------------------------- (Date) (Date) LEGAL DESCRIPTION EXHIBIT A - -------------------------------------------------------------------------------- All that certain real property situated in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL I: - -------- ALL OF PARCEL I, as shown on that certain Parcel Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on October 1, 1984 in Book 534 of Maps, at page 44. PARCEL II: - --------- A Parking Easement being 16.50 feet in width, being more particularly described as follows: BEGINNING at the Southwesterly corner of Parcel 2, as shown on that certain Parcel Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on October 1, 1984 in Book 534 of Maps, at page 44; then N. 0(degrees) 20(feet) 00(inches) W., 34.00 feet along the Westerly line of said Parcel 2 to the TRUE POINT OF BEGINNING; thence continuing along said line, N. 0(degrees) 20(feet) 00(inches) W. 81.00 feet; thence leaving said line N. 89(degrees) 40(feet) 00(inches) E. 16.50 feet; thence S. 0(degrees) 20(feet) 00(inches) E. 81.00 feet; thence S. 89(degrees) 40(feet) 00(inches) W., 15.60 feet to the TRUE POINT OF BEGINNING. EXHIBIT A 2045 HAMILTON AVENUE FIRST FLOOR FLOOR PLAN 2 EXHIBIT A 2045 HAMILTON AVENUE SECOND FLOOR FLOOR PLAN EXHIBIT B GREYLANDS BUSINESS PARK DEVELOPMENT PLAN 2085 Three Story 2065 Two Story 2045 Two Story 2005 Three Story 4 WORK LETTER AGREEMENT EXISTING SPACE - MAXIMUM ALLOWANCE CONSTRUCTION EXHIBIT C - -------------------------------------------------------------------------------- THIS WORK LETTER AGREEMENT (hereinafter "Exhibit C") is attached to and forms a part of that certain lease ("Lease") by and between GREYLANDS BUSINESS PARK, PHASE I, a California general partnership ("Landlord"), and INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"), pursuant to which Landlord leases to Tenant those certain premises located at 2045 Hamilton Avenue, Suite 100, San Jose, California and consisting of approximately twenty eight thousand thirty-seven (28,037) square feet ("Premises"). All capitalized terms used herein shall have the meaning ascribed to them in the Lease unless otherwise defined below. The Premises shall be improved in accordance with the following: 1. Existing Improvements: --------------------- Tenant accepts the Premises in their existing condition and the improvements constructed therewith, and Tenant hereby approves the same as installed, subject only to such changes as may subsequently be agreed upon by Landlord and Tenant. Such improvements are hereafter called "Existing Improvements". 2. Tenant Improvements: ------------------- As used herein, "Tenant Improvements" shall include those items and specifications shown on the Final Construction Drawings prepared in accordance with paragraph 3 below, including those specifications (as appropriate) set forth and described in Exhibit C-1, attached hereto, exclusive of Existing Improvements. Landlord shall construct Tenant Improvements in accordance with the Final Construction Drawings, Exhibit C-1 and the provisions of this Exhibit C. Unless otherwise specifically agreed to by Landlord in writing, the installation, wiring, maintenance and removal of furniture partition systems, telephone and other communication systems, data cabling, alarm and/or security systems and any other systems not specifically set forth in the Final Construction Drawings or Exhibit C-1, and all cost and expense associated therewith, shall be the sole responsibility of Tenant. In connection with the construction and installation of the Tenant Improvements, Landlord or Landlord's general contractor shall have no obligation to move any of Tenant's property located in or about the Premises including, but not limited to, furniture, inventory and trade fixtures, at the time of such construction and installation. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the Premises that inhibits or prevents in any way the construction and installation of the Tenant Improvements, Tenant shall immediately, upon receipt of notification therefore from Landlord or Landlord's general contractor, at Tenant's sole cost and expense, move such property to another location within the Premises or, upon receipt of Landlord's prior approval, to another location within the Project designated by Landlord in Landlord's sole discretion; Tenant's failure to immediately move such property upon receipt of notification therefore from Landlord or Landlord's general contractor shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit C. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the Premises, Landlord and Landlord's general contractor shall incur no liability to Tenant or any other party in the event such property is damaged, destroyed or stolen during the construction and installation of the Tenant Improvements. 3. Tenant Improvement Design Schedule: ---------------------------------- The plans and specifications for the Tenant Improvements shall be completed in accordance with the following: (a) Tenant shall approve preliminary floor plan layouts ("Preliminary Floor Plans") prepared by Landlord by August 26, 1994. The Preliminary Floor Plans shall show all walls, doors, and other Tenant Improvements desired by Tenant in sufficient detail for Landlord's architect to prepare architectural construction drawings and related documents ("Architectural Construction Documents"). (b) Between August 11 and August 26, 1994, Landlord's architect and Tenant's representative shall meet as needed to review and complete the final details related to the Preliminary Floor Plans, so that on August 26, 1994 the Architectural Construction Documents are subject only to minor changes. (c) No later than August 26, 1994, Tenant shall have made the decisions required and supplied to Landlord the information necessary for Landlord's architect to complete the Architectural Construction Documents in enough detail for Landlord's general contractor to bid the work, select subcontractors and to proceed toward the design of electrical, mechanical and any other requirements not included on the Architectural Construction Documents. Upon Landlord's general contractor's selection of subcontractors, Landlord's general contractor and subcontractors shall prepare design specifications outlining in reasonable detail electrical, mechanical and any other requirements not included on the Architectural Construction Documents ("Electrical and Mechanical Drawings"). (d) Upon completion of the Architectural Construction Documents, Tenant shall approve the same subject to changes, deletions or additions as provided for in paragraphs 6 and 7 of this Exhibit C. (e) Upon completion of the Electrical and Mechanical Drawings, Landlord or Landlord's general contractor shall submit the Architectural Construction Documents and Electrical and Mechanical Drawings (collectively the "City Ready Plans") to the City to obtain a building permit. (f) Tenant shall have decided upon carpet selection and all other color and material specifications by August 26, 1994. (g) As used herein, "Final Construction Drawings" shall include the City Ready Plans, as approved by the City, and any subsequent additions, deletions or changes to the Tenant Improvements permitted or required pursuant to paragraphs 6 and 7 of this Exhibit C. 4. Tenant Improvement Cost Estimates: --------------------------------- Within fourteen (14) days of completion of the Electrical and Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement cost budget ("Improvement Cost Budget") setting forth the Total Cost of Tenant's Improvements (as defined in paragraph 5(b) below). Within three (3) days after Tenant's receipt of the Improvement Cost Budget, Tenant shall, in writing, approve or disapprove the Improvement Cost Budget. If Tenant does not deliver to Landlord its written approval or disapproval within the three (3) day period, Tenant will be deemed to have approved of the Improvement Cost Budget. If Tenant disapproves the Improvement Cost Budget, Landlord and Tenant shall, within three (3) days of Tenant's disapproval, attempt to agree on mutually acceptable modifications to the Improvement Cost Budget. If Tenant disapproves of the Improvement Cost Budget and Landlord and Tenant are unable, within the three (3) day period, to agree on mutually acceptable changes to the Improvement Cost Budget, or if Tenant approves of the Improvement Cost Budget but does not deliver to Landlord, within three (3) days of its approval, signed copies of the Improvement Cost Budget and Architectural Construction Documents, then Landlord may terminate the Lease upon written notice to Tenant. Upon Tenant's written approval of the Improvement Cost Budget (or in the event Tenant is deemed to have approved the Improvement Cost Budget as provided hereinabove), the Total Cost of Tenant's Improvements set forth therein shall be deemed a fixed price for the Tenant Improvements (said fixed price shall be referred to herein as the "Tenant Improvement Fixed Cost"). The Tenant Improvement Fixed Cost shall be subject to adjustment for increases in costs resulting from changes to the Tenant Improvements requested or required pursuant to paragraphs 6 and 7 below. Landlord shall not be obligated to commence construction of the Tenant Improvements until the following has occurred: the Architectural Construction Documents and Tenant Improvement Fixed Cost have been agreed to by Landlord and Tenant; Tenant has indicated its approval of the Architectural Construction Documents and Improvement Cost Budget by signing copies thereof; and Landlord has executed a written authorization to proceed with construction with Landlord's general contractor based on the agreed Architectural Construction Documents and Tenant Improvement Fixed Cost. 2 5. Tenant Improvement Allowance: ---------------------------- (a) Landlord agrees to grant to Tenant a Tenant Improvement Allowance ("Allowance") of $168,222 ($6.00/SF X 28,037 SF) to be applied toward the "Total Cost of Tenant's Improvements" (as defined below) to be installed in accordance with this Exhibit C. (b) As used herein, "Total Cost of Tenant's Improvements" shall include: (i) the cost of Tenant Improvements and increases therein pursuant to paragraphs 6 and 7 below, if any, and all demolition costs incurred in connection with preparing the Premises for the installation of the Tenant Improvements; (ii) the cost of overtime or special expenditures required to obtain and install the Tenant Improvements by the proposed commencement date; (iii) all costs related to change orders; (iv) all costs related to changes required or requested by governmental authority; (v) permit fees and other fees not previously paid by Landlord as part of shell costs; (vi) the cost of consultants and engineers; (vii) an amount equal to the actual cost of supervision, administration and on-site facilities and equipment necessary to perform the work; (viii) an amount equal to 9% of the sum of items (i) through (vii) above as and for the general contractor's overhead and profit; and (ix) the cost of architects hired by Landlord. (c) In the event that the Tenant Improvement Fixed Cost exceeds the Allowance of $168,222 then Landlord shall provide Tenant with an additional allowance up to $140,185 ("Additional Allowance"). The Allowance ($168,222) plus the maximum Additional Allowance ($140,185), totaling $308,407 is referred to herein as the "Maximum Allowance." Over the initial five (5) year term of the Lease Tenant shall pay to Landlord as additional rent an amount equal to two and one tenth percent (2.1%) of the Additional Allowance per month (e.g., if the total Additional Allowance is $100,000 then the additional rent payment shall be $2,100 per month). In the event the Tenant Improvement Fixed Cost exceeds the Maximum Allowance (the amount by which the Tenant Improvement Fixed Cost exceeds the Maximum Allowance shall be referred to herein as the "Excess Cost"), Tenant shall pay fifty percent (50%) of the Excess Cost to Landlord within five (5) days of Tenant's approval of the Improvement Cost Budget and the remaining fifty percent (50%) of the Excess Cost within five (5) days of when Landlord notifies Tenant that the Tenant Improvements are fifty percent (50%) completed. Tenant's failure to make any payment of the Excess Cost when due, or to make any payment with respect to change orders as set forth in paragraphs 6 and 7 of this Exhibit C, shall be deemed a default under the Lease and the amount so delinquent shall be deemed additional rent and Landlord may exercise all rights and remedies set forth in the Lease; and in addition, Landlord may delay construction until such payment is made and such delay shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit C. (d) In the event Tenant causes delays, or requests changes which cause delays in construction of more than ninety (90) calendar days, then Landlord shall not be obligated to grant to Tenant the Allowance (or the Maximum Allowance), or any balance remaining unused therein. In such case, Landlord shall thereafter have no obligation to construct any Tenant Improvements for Tenant. Furthermore, the cessation of Landlord's obligation to construct the Tenant Improvements as permitted herein shall not affect Tenant's obligation to commence payments of basic rent and direct expenses or any other payments due Landlord under the Lease. Tenant shall be entitled to no rent reduction or credit at any time in the event that the Allowance (or Maximum Allowance) or any portion thereof remains unused for any reason whatsoever. 6. Changes by Tenant: ----------------- Tenant may request changes, deletions or additions to the Tenant Improvements; provided, however, that the effectiveness of any such requested change, deletion or addition shall be subject to written approval by an authorized representative of Landlord and to obtaining any required governmental permits or other approvals. If any such change, deletion or addition increases the Tenant Improvement Fixed Cost above the Allowance, Tenant shall immediately pay to Landlord the full amount of such increase in excess of the Allowance. In no event shall work on any change, deletion or addition requested pursuant to this paragraph 6 commence prior to (i) Landlord and Tenant approving, in writing, such change, deletion or addition, and (ii) Landlord's receipt from Tenant of payment of the full amount of the increase of the Tenant Improvement Fixed Cost in excess of the Allowance. -3- 7. Chances By Authority: -------------------- Tenant agrees that if any change, deletion or addition to any of the improvements proposed to be constructed or installed is required by any governmental authority in connection with obtaining any governmental permit or approval, or otherwise, then such change, deletion or addition shall promptly be made and the Tenant Improvement Fixed Cost shall be adjusted to reflect any increase in cost resulting from such required change. To the extent any change, deletion or addition required by any governmental authority in connection with obtaining any governmental permit or approval increases the Tenant Improvement Fixed Cost above the Allowance, Tenant shall pay to Landlord such increase above the Allowance in accordance with the provisions of paragraph 5(c) of this Exhibit C. Failure to obtain any required governmental approval or permit for the Tenant Improvements desired by Tenant shall in no way be cause for Tenant to terminate the Lease or any amendment to the Lease. 8. Delays Caused by Tenant: ----------------------- If the commencement of the term is delayed due in any respect to Tenant's failure to meet the schedule set forth in paragraph 3 of this Exhibit C, or due to construction delays related to any changes required by Tenant, or due to any other failures by Tenant to perform its obligations under this Exhibit C or otherwise under the Lease, then any such delays shall be deemed Tenant caused delays for purposes of determining the commencement date of the Lease pursuant to paragraph 2(b) of the Lease. 9. Punch List: ---------- Within ten (10) business days after commencement of the term, Tenant shall deliver to Landlord a list of items ("Punch List") that Tenant believes Landlord should complete or correct in order for the Premises to be acceptable. Landlord shall commence to complete or correct the items as soon as possible, except those items that Landlord contends are not justified. If Tenant does not deliver the Punch List to Landlord within the ten (10) day period, Tenant shall be deemed to have accepted the Premises and approved the construction. Nothing in this paragraph 9 shall delay the commencement of the term or Tenant's obligation to pay rent or to make other payments due Landlord under the Lease. 10. Attachments: All references in the Lease to Exhibit C shall be ----------- deemed to also include Exhibit C-1 and C-____. 4 EXHIBIT D --------- ERISA Parties in Interest List ------------------------------ Separate Account R ------------------ 1. The United Nations Joint Staff Pension Fund or any affiliate or related party of the United Nations Joint Staff Pension Fund. 2. The Ford Motor Company Pension Plan or any affiliate or related party of the Ford Motor Company Pension Plan. 3. Maryland State Retirement and Pension System. AS OF JUNE, 1993 -1- EXHIBIT E --------- EMPLOYEE RETIREMENT INCOME SECURITY ACT Section 3(14) and (15) (14) The term "party in interest" means, as to an employee benefit plan - (A) any fiduciary (including, but not limited to, any administrator, officer, trustee, or custodian), counsel, or employee of such employee benefit plan; (B) a person providing services to such plan; (C) an employer any of whose employees are covered by such plan; (D) an employee organization any of whose members are covered by such plan; (E) an owner, direct or indirect, of 50 percent or more of (i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation, (ii) the capital interest or the profits interest of a partnership, or (iii) the beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described in subparagraph (C) or (D); (F) a relative (as defined in paragraph (15) of any individual described in subparagraph (A), (B), (C), or (E); (G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of (i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation, (ii) the capital interest or profits interest of such partnership, or (iii) the beneficial interest of such trust or estate, is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E); (H) an employee, officer, director (or an individual having powers or responsibilities similar to those of officers or directors), or a 10 percent or more shareholder directly or indirectly, of a person described in subparagraph (B), (C), (D), (E), or (G), or of the employee benefit plan; or (I) a 10 percent or more (directly or indirectly in capital or profits) partner or joint venturer of a person described in subparagraph (B), (C), (D), (E), or (G). The Secretary, after consultation and coordination with the Secretary of the Treasury, may by regulation prescribe a percentage lower than 50 percent for the subparagraphs (E) and (G) and lower than 10 percent for subparagraphs (H) or (I). The Secretary may prescribe regulations for determining the ownership (direct or indirect) of profits and beneficial interests, and the manner in which indirect stockholdings are taken into account. (15) The term "relative" means a spouse, ancestor, lineal Descendant, or spouse of a lineal descendant. -1- EXHIBIT F --------- Recording Requested By And When Recorded Mail to: Morrison & Foerster 345 California Street, 31st Floor San Francisco, California 94101-2675 Attn: Caryl B. Welborn, Esq. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Space above this line for Recorder's Use) SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ------------------------------------------------------- NOTICE: THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT RESULTS IN YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT. THIS AGREEMENT, made as of the _____ day of _______________, 1994, between INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"), CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R, a separate account as defined in Section 3(17) of the Employee Retirement Income Security Act of 1974 (commonly known as "ERISA"), having its principal office and place of business at 900 Cottage Grove Road, Bloomfield, Connecticut 06002 ("Lender"), and GREYLANDS BUSINESS PARK, PHASE I, a California general partnership ("Landlord"). WITNESSETH ---------- WHEREAS, Tenant has entered into a certain lease with Landlord (said lease, together with any extensions, renewals, replacements or modification thereof, referred to hereinafter as the "Lease") dated ____________________, 1994, covering premises (the "Premises") located at 2045 Hamilton Avenue, Suite 100, San Jose, California and situated on land more particularly described in Exhibit A attached hereto and incorporated herein (the "Property"); and - --------- WHEREAS, Lender has made a loan to Landlord secured by a certain Construction and Permanent Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing encumbering the Property dated September 27, 1983 and recorded on September 28, 1983 in Book H934, Page 487, Official Records of the County of Santa Clara, California (the "First Deed of Trust") and has further agreed to make a loan to Landlord secured by a certain Second Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing also encumbering the Property (collectively, such First Deed of Trust and Second Deed of Trust are referred to as the "Deed of Trust" and the loans secured thereby are collectively referred to as the "Loan"); and WHEREAS, it is to the mutual benefit of the parties hereto that Lender make the Loan to Landlord; and WHEREAS, it is a condition to obtaining and keeping in full force and effect the Loan that the parties enter into this Agreement; -1- NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties hereto mutually covenant and agree as follows: 1. The Lease and all of the right, title and interest of Tenant in and to the Premises are and shall be subject and subordinate to the Deed of Trust and to all of the terms and conditions contained therein, and to any renewals, modifications, replacements, consolidations and extensions thereof. Tenant agrees that, in making disbursements pursuant to the Loan, Lender is under no obligation to see to the application of such proceeds. 2. Lender consents to the Lease and, in the event of foreclosure of the Deed of Trust, or in the event Lender comes into possession or acquires title to the Premises as a result of the enforcement or foreclosure of the Deed of Trust or the note secured thereby, or as a result of any other means, Lender agrees to recognize Tenant and further agrees that Tenant shall not be disturbed in its possession of the Premises for any reason other than one which would entitle Landlord to terminate the Lease under its terms or would cause, without any further action by Landlord, the termination of the Lease or would entitle Landlord to dispossess Tenant from the Premises. 3. Tenant agrees with Lender that if the interests of Landlord in the Premises shall be transferred to and owned by Lender by reason of foreclosure or otherwise, or shall be conveyed thereafter by Lender, Tenant shall be bound to Lender under all of the terms, covenants and conditions of the Lease for the balance of the term (and any extensions or renewals thereof which may be effected in accordance with any option therefor in the Lease), with the same force and effect as if Lender were the landlord under the Lease, and Tenant does hereby attorn to Lender as its landlord, said attornment to be effective and self-operative without the execution of any further instruments on the part of any of the parties hereto immediately upon Lender succeeding to the interest of the Landlord in the Premises. Tenant agrees, however, upon the election of and written demand by Lender within twenty (20) days after Lender receives title to the Premises, to execute an instrument in confirmation of the foregoing provisions, satisfactory to Lender. Tenant further agrees with Lender that Tenant will not voluntarily subordinate the Lease to any lien or encumbrance without Lender's consent. 4. This Agreement shall bind and inure to the benefit of the parties hereto and their successors and assigns. The terms "foreclosure" and "foreclosure sale" shall be deemed to include the acquisition of Landlord's estate in the Premises by voluntary deed (or assignment) in lieu of foreclosure, and the word "Lender" shall include the Lender herein specifically named, any of its successors and assigns, and any person or entity who shall have succeeded to Landlord's interest in the Premises through foreclosure of the Deed of Trust. 5. This Agreement shall be the only agreement between the parties with regard to the subordination of the Lease and leasehold interest of Tenant to the lien or charge of the Deed of Trust, and, in the event of a conflict between the provisions hereof and the provisions of any prior agreement including the Lease, shall supersede any prior agreements, including, but not limited to, any provisions contained in the Lease, and shall not be modified except in writing signed by all parties hereto. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. NOTICE: THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE PERSON OBLIGATED ON THE LEASE TO OBTAIN A LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE PROPERTY. TENANT: INFORMATION STORAGE DEVICES, INC., ------ a California corporation By:________________________________________ Its:_______________________________________ 2 LANDLORD: GREYLANDS BUSINESS PARK, PHASE I, -------- a California general partnership By: McCandless Group (GR-1), a California general partnership, a general partner By:_____________________________________ Birk S. McCandless, Trustee under The Birk S. McCandles and Mary McCandless Inter Vivos Trust Agreement dated February 17, 1982, a general partner By: Connecticut General Life Insurance Company, a Connecticut corporation, on behalf of its Separate Account R a general partner By: CIGNA Investments, Inc., a Delaware corporation By: ____________________________ Name:___________________________ Title:__________________________ LENDER: CONNECTICUT GENERAL LIFE ------ INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R By: CIGNA Investments, Inc., a Delaware corporation By:_____________________________ Its:____________________________ -3- McCandless Group, (GR-1), a California general partnership (a general partner of Greylands Business Park, Phase I) STATE OF CALIFORNIA ) ) ss. COUNTY OF _____________________ ) On _______________, 1994 before me, ____________________, personally appeared ____________________, personally known to be (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS by hand and official seal. _____________________________ Notary Public (Official seal here) Connecticut General Life Insurance Company, a Connecticut corporation, on behalf of its Separate Account R (a general partner of Greylands Business Park, Phase I) STATE OF CALIFORNIA ) ) ss. COUNTY OF _____________________ ) On _______________, 1994 before me, ____________________, personally appeared ____________________, personally known to be (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS by hand and official seal. ___________________________ Notary Public (Official seal here) 2 Connecticut General Life Insurance Company, a Connecticut corporation, on behalf of its Separate Account R (Lender) STATE OF CALIFORNIA ) ) ss. COUNTY OF _____________________ ) On _______________, 1994 before me, ____________________, personally appeared ____________________, personally known to be (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS by hand and official seal. ______________________________ Notary Public (Official seal here) Information Storage Devices, Inc., a California corporation STATE OF CALIFORNIA ) ) ss. COUNTY OF _______________________ ) On _______________, 1994 before me, ____________________, personally appeared ____________________, personally known to be (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS by hand and official seal. ______________________________________ Notary Public (Official seal here) 4 EXHIBIT G --------- 2044 Hamilton Avenue First Floor Expansion Space FLOOR PLAN EXHIBIT G --------- 2044 Hamilton Avenue Second Floor Expansion Space FLOOR PLAN 6 EXHIBIT H --------- 1. EXTERIOR DIRECTORY SIGNS ------------------------ Four (4) exterior directory signs are located [DRAWING OF SIGN] throughout the project. Landlord will, at Landlord's expense, provide one (1) listing per tenant on each directory. 2. TENANT SUITE SIGN ----------------- Tenant will, at Tenant's expense, be provided [DRAWING OF SIGN] a tenant suite sign to be installed next to their suite door. The sign will consist o the suite number and company name/logo. The sign will be fabricated and installed by Landlord's sign company using the standard color and print style for consistency. Cost is approximately $3.00/each for Upper Case letters and $1.00/each for Lower Case letters. Sign frame is $120.00 if needed. 3. INTERIOR ILLUMINATED DIRECTORY SIGN ----------------------------------- The interior illuminated directory sign is [DRAWING OF SIGN] located in the lobby of the first floor. An illuminated directory strip will be fabricated and installed by Landlord's sign company, at Tenant's expense, in the appropriate location within the directory. Cost is approximately $23.00. Landlord is responsible for ordering and arranging the installation of the signs. Tenant acknowledges and agrees to pay the costs associated with the fabrication and installation of their tenant sign and interior illuminated directory sign. Please contact the Greylands Business Park office at (408) 377-9068 to provide specific sign verbage. FIRST AMENDMENT TO LEASE ------------------------ THIS FIRST AMENDMENT TO LEASE ("Amendment") is made this _____ day of _________________, 1994, by and between GREYLANDS BUSINESS PARK, PHASE 1, a California general partnership ("Landlord") and INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord that certain Premises located at 2045 Hamilton Avenue, Suite 100, San Jose, California, pursuant to and as defined in that certain Office Lease dated August 24, 1994 (the "Lease"). B. Pursuant to the Work Letter Agreement attached to the Lease as Exhibit C, Tenant agreed to pay to Landlord as additional rent an amount equal to two and one tenth percent (2.1%) of the Additional Allowance (as defined in the Work Letter Agreement) per month over the initial five (5) year term of the Lease. The amount of the Additional Allowance has been determined to be One Hundred Forty Thousand One Hundred Eighty-Five and 00/100 Dollars ($140,185.00). C. The purpose of this Amendment is to acknowledge and agree upon the amount of the additional rent due pursuant to paragraph 5(c) of the Work Letter Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1. ADDITIONAL RENT. Pursuant to paragraph 5(c) of the Lease, the amount --------------- of additional rent which Tenant is obligated to pay to Landlord during the five (5) year term of the Lease is Two Thousand Nine Hundred Forty-Three and 89/100 Dollars ($2,943.89) per month ($140,185.00 x .021 = $2,943.89). The foregoing amount shall be due and payable in addition to the amount of basic rent set forth in paragraph 4(a) of the Lease and the direct expenses as specified in paragraph 4(b) of the Lease. 2. RESTATEMENT OF OTHER LEASE TERMS. All terms, covenants and conditions -------------------------------- of the Lease remain in full force and effect. The provisions in paragraph 1 of this Amendment only clarify the specific obligation of Tenant for payment of additional rent pursuant to paragraph 5(c) of the Work Letter Agreement, which is in addition to and not in lieu of the other lease obligations of Tenant under the Lease. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. 8 Landlord: Tenant: - -------- ------ GREYLANDS BUSINESS PARK, PHASE 1, INFORMATION STORAGE DEVICES, a California general partnership INC., a California corporation By: McCandless Group (GR-1), a By:__________________________ California general partner- (Signature) ship, a General Partner _____________________________ (Printed Name) By:_____________________________ Birk S. McCandless, as _____________________________ Trustee under Trust (Title) Agreement dated 2/17/82 a general partner _____________________________ (Date) _____________________________ (Date) 9 SECOND AMENDMENT TO LEASE ------------------------- THIS SECOND AMENDMENT TO LEASE ("Amendment") is made this 25th day of July, 1995, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R ("Landlord') and INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord that contain premises located at 2045 Hamilton Avenue, Suite 100, San Jose, California (`the "Current Premises"), pursuant to that curtain Office Lease dated August 24, 1994 (the "Original Lease"), as amended by that certain First Amendment to lease dated November 15, 1994 (collectively, the "Lease "). Pursuant to that certain Assignment of Leases by and between Greylands Business Park, Phase 1, a California general partnership ("Greylands") and Connecticut General Life Insurance Company, Greylands assigned its interest in the lease as landlord to Connecticut General Life Insurance Company. The Current Premises are shown on Exhibit A attached hereto. B. Tenant desires to expand the Current Premises by adding that certain space located at 20005 Hamilton Avenue, Suite 350, San Jose, California (the "Expansion Space"), consisting of approximately twelve thousand seven hundred thirty-three (12,733) square feet. The Expansion Space is shown on Exhibit B attached hereto. C. Landlord is willing to expand the Current Premises in consideration of Tenant's agreement to the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. PREMISES. Commencing on the Effective Date, as defined in paragraph 2 -------- below, the Expansion Space shall be added to the Current Premises and, thereafter, the term "Premises" for purposes of the Lease shall be deemed to include both the Current Premises and the Expansion Space, totaling approximately forty thousand seven hundred seventy (40,770) square feet of space. 2. EFFECTIVE DATE. As used herein, the "Effective Date" shall be the date -------------- upon which the earliest of the following occurs: (a) Substantial completion of all work to be done by Landlord to the Expansion Space pursuant to Exhibit C attached hereto (exclusive of communication systems and punchlist items); (b) Occupancy of the Expansion Space by any of Tenant's operating personnel; or (c) If Landlord is prevented from or delayed in completing its work under Exhibit C due to the acts or omissions of Tenant, it's agents, employees or contractors, then upon the date that such work would have been substantially completed but for such acts or omissions. 10 3. BASIC RENT. Commencing on the Effective Date and continuing through ---------- the end of the term of the Lease, the basic rent as set forth in paragraphs 4(a) and 5(a) of the Lease shall be modified as follows: From the Effective Date through $47,280.35 per month December 1, 1995 From December 2, 1995 through $48,682.20 per month September 1, 1996 From September 2, 1996 through $50,084.05 per month December 1, 1997 From December 2, 1997 through $51,205.53 per month December 1, 1999 The above scheduled basic rent includes the amount of additional rent payable pursuant to paragraph 1 of the First Amendment to Lease in the amount of Two Thousand Nine Hundred Forty-Three and 89/100 Dollars ($2,943.89) per month. 4. DIRECT EXPENSES. Commencing on the Effective Date, paragraph 5(b) of --------------- the Original Lease shall be amended and restated as follows: "(b) Adjustments to Direct Expenses. Tenant's proportionate share of ------------------------------ Direct Expenses of the Project shall be seventeen and sixty-five one-hundredths percent (17.65%) (40,770 divided by 230,977). Tenant's proportionate share of direct expenses (excluding electricity) of the 2045 Building shall be fifty-four and thirty one-hundredths percent (54.30%) (28,037 divided by 51,630). Tenant's proportionate share of direct expenses for electricity bills related to the 2045 Building shall be thirty-seven and sixty-one one-hundredths percent (37.16%) (14,224 divided by 37,187), which excludes the separately metered space in the 2045 Building for which Tenant is responsible (as provided in paragraph 12 of the Original Lease). Tenant's proportionate share of direct expenses for the 2005 Building shall be nineteen and ninety-nine one-hundredths percent (19.99%) (12,733 divided by 63,703). Subject to adjustment and reconciliation as provided in paragraph 5(b) of the Original Lease, commencing on the Effective Date the estimated Amount of Tenant's proportionate share of direct expenses of the Project, Building 2005 and Building 2045, as of the Effective Date shall be Nineteen Thousand Two Hundred Forty-Seven and 56/100 Dollars ($19,247.56) per month.' 5. ADVANCE RENT DEPOSIT. Concurrent with Tenant's execution and delivery -------------------- of this Amendment, Tenant shall deposit with Landlord the sum of Twenty-One Thousand Six Hundred Forty-Six and 10/100 Dollars ($21,646.10) to be applied against the basic rent and direct expenses for this first least month commencing as of the Effective Date. 6. SECURITY DEPOSIT. Concurrently with Tenant's execution and delivery of ---------------- this Amendment, Tenant shall deposit with Landlord the sum of Twenty-One Thousand Six Hundred Forty-Six and 10/100 Dollars ($21,646.10) which sum shall be held by Landlord as an additional security deposit (along with the Letter of Credit currently held by Landlord) on the terms specified in paragraph 4(e) of the Original Lease. 11 7. PARKING. Commencing on the Effective Date, the total parking spaces ------- which Tenant will be entitled to sue pursuant to paragraph 15 of the Original Lease shall be increased from one hundred six (106) parking spaces to one hundred fifty-one (151) parking spaces. 8. TENANT IMPROVEMENTS. Tenant improvements for Tenant pertaining to the ------------------- Expansion Space shall be constructed by Landlord in accordance with the terms and provisions of the Work Letter Agreement attached hereto as Exhibit C. Said work shall be at the expense of Landlord and/or Tenant as set forth therein. 9. BROKERS. Each party represents that it has not had dealings with any ------- real estate broker, finder or other person with respect to this Amendment or expanding the Premises, except for Cooper Brady. Except for the broker commissions to be paid by the Landlord to Cooper Brady pursuant to a separate written agreement between Landlord and Cooper Brady (based on the Expansion space only), there are no leasing commissions to be paid by Landlord or Tenant in connection with this transaction. Each party hereto shall hold harmless the other party from all damages, loss or liability resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom such party has dealt, or purportedly has dealt, in connection with this transaction. 10. CORPORATE AUTHORITY. Each individual executing this Amendment on ------------------- behalf of a corporation represents and warrants that he/she is duly authorized to execute and deliver this Amendment on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this Amendment is binding upon said corporation in accordance with its terms. Tenant shall deliver to Landlord, within ten (10) days of the execution and delivery of this Amendment, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this Amendment and naming the officers that are authorized to execute this Amendment on behalf of Tenant, which copy shall be certified by Tenant's President or Secretary as correct and in full force and effect. 11. OPTION TO EXTENT TERM. The option to extend the term of the Lease --------------------- granted to Tenant pursuant to paragraph 55 of the Original Lease shall be deemed to apply to the Premises as modified by this Amendment and any exercise thereof by Tenant shall apply to the entire Premises, including both the Current Premises and the Expansion Space, consisting of approximately forth thousand seven hundred seventy (40,770) square feet, on the same terms and conditions as specified therein, except that the second sentence of the first subparagraph of paragraph 55 regarding the calculation of basic rent shall be modified and restated as follows: "The basic rent for the Extended Term shall be adjusted to ninety-five percent (95%) of the market rate (as defined in paragraph (c) below; provided that in no event shall the basic rent for the Extended Term be less than Forty- Three Thousand Four Hundred Ninety-Five and 35/100 Dollars ($43,495.35) per month with respect to the Premises as defined in paragraph 1 above. In the event that the Premises are further expanded to include any of the RFR Space (pursuant to paragraph 12 below) or any other space that is not part of the Premises as specified in paragraph 1 above, the basic rent amount applicable to such additional space shall not be less than $1.17 per square foot per month during the Extended Term." 12 12. RIGHT OF FIRST REFUSAL. Landlord hereby grants to Tenant a right of ---------------------- first refusal to lease that space commonly known as 2005 Hamilton Avenue, Suites 100, 120, 200 and 220, San Jose, California, consisting of approximately fifteen thousand ninety-three (15,093) square feet, as shown on Exhibit D (the "RFR Space"), subject to the following terms and conditions: (a) Prior to entering into a lease for all or a portion of the RFR Space, Landlord shall notify Tenant in writing of Landlord's intention to lease all or a portion of the RFR Space, which notice shall set forth the terms and conditions, including, but not limited to, basic rent, under which Landlord intends to lease the RFR Space. Such notice shall constitute an offer to lease the RFR Space to Tenant on the same terms and conditions as set forth in the notice. (b) Tenant shall have five (5) business days from the date of the notice to deliver to Landlord its written unconditional and irrevocable acceptance of such offer. If Tenant accepts the offer, an amendment to this lease or a new lease covering the RFR Space and incorporating said terms and conditions shall promptly be executed. If a new lease is executed with Tenant covering the RFR Space such new lease shall provide that any default under this lease will also constitute a default under such new lease and Tenant agrees that any default by it under such new lease will also constitute a default under this lease. In the event Tenant rejects the offer, or does not answer within the specified time, or fails for any reason (unless such failure is due to the fault or delay of Landlord) to execute such amendment or new lease within fifteen (15) days of Tenant's acceptance of such offer, Landlord shall thereafter be released from any further obligation to Tenant hereunder with respect to the RFR Space and be free to negotiate with any number of third parties and to lease (without further obligation to Tenant) the RFR Space upon any terms and conditions (whether more or less favorable) that Landlord and such third party may agree and this right of first refusal shall be of no further force or effect. (c) This right of first refusal shall be subordinate to any existing rights of refusal, rights of expansion, options to extend or renew, and other rights contained in leases (or amendments to leases) executed prior to the date of this lease. In addition, this right of refusal shall not apply and Tenant shall have no rights hereunder in the event any tenant (or its successors or assigns) that now or hereafter occupies all or any portion of the RFR Space desires to extend, renew or otherwise modify its lease or desires to expand its premises to include any portion of the RFR Space, and Landlord shall be free to extend, renew or modify such lease or amend such lease to add any portion of the RFR Space without notice to Tenant. (d) This right of first refusal shall be void and of no force and effect and shall confer no rights on Tenant during any period in which Tenant is in default under this lease. (e) Notwithstanding anything in this paragraph to the contrary, Tenant's exercise of this right of first refusal shall be subject to Landlord's review and approval of Tenant's financial condition (including, without limitation, Tenant's net worth, current ratio and working capital reserves) at the time Tenant exercises this right of first refusal and notwithstanding Tenant's right hereunder Landlord shall have no obligation to lease the RFR Space, or any portion thereof, to Tenant unless Tenant's financial condition at the time of exercise is acceptable to Landlord. 13 (f) All rights granted to Tenant pursuant to this paragraph are personal to Tenant and may not be transferred or assigned. 13. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified, -------------------------------- herein, all terms, covenants and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the date first set forth above. Landlord: Tenant: CONNECTICUT GENERAL LIFE INSURANCE INFORMATION STORAGE DEVICES, COMPANY, a Connecticut corporation, INC., a California corporation on behalf of its Separate Account R By: CIGNA Investments, Inc. Its Authorized Agent By: /s/ FELIX J. ROSENGARTEN ---------------------------------- (Signature) By: /s/ MARK E. BENOIT FELIX J. ROSENGARTEN ------------------------------ -------------------------------------- (Signature) (Printed Name) MARK E. BENOIT V.P. AND CFO - ---------------------------------- -------------------------------------- (Printed Name) (Title) VICE PRESIDENT 7/25/95 - ---------------------------------- -------------------------------------- (Title) (Date) AUGUST 1, 1995 - ---------------------------------- (Date) 14 EXHIBIT A --------- PREMISES FIRST FLOOR PLAN EXHIBIT B --------- EXPANSION SPACE THIRD FLOOR PLAN EXHIBIT C --------- CONSTRUCTION EXPANSION SPACE WORK LETTER AGREEMENT EXISTING SPACE - MAXIMUM ALLOWANCE THIS WORK LETTER AGREEMENT (hereinafter "Exhibit C") is attached to and forms a part of that certain Third Amendment to Lease ("Amendment") amending that certain lease ("Lease") by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation ("Landlord"), and INFORMATION STORAGE DEVICES, INC., A California corporation ("Tenant"), pursuant to which Landlord leases to Tenant those certain premises located at 2045 Hamilton Avenue, Suite 100, San Jose, California and consisting of approximately twenty-eight thousand thirty-seven (28,037) square feet ("Current Premises"). The Amendment provides for, among other things, the expansion of the Current Premises by adding thereto approximately twelve thousand three hundred forty-one (12,341) square feet ("Expansion Space"). All capitalized terms used herein shall have the meaning ascribed to them in the Amendment to which this Exhibit C is made a part unless otherwise defined herein. The Expansion Space shall be improved in accordance with the following: 1. EXISTING IMPROVEMENTS: --------------------- Tenant accepts the Expansion Space in its existing condition and the improvements constructed therein (the "Existing Improvements"), and Tenant hereby approves the same as installed, subject only to construction of the Tenant Improvements specified below and such changes as may subsequently be agreed upon by Landlord and Tenant. 2. TENANT IMPROVEMENTS: ------------------- As used herein, "Tenant Improvements" shall include those items and specifications shown on the Final Construction Drawings prepared in accordance with paragraph 3 below, including those specifications (as appropriate) set forth and described in Exhibit C-1, attached hereto, exclusive of Existing Improvements. Landlord shall construct Tenant Improvements in accordance with the Final Construction Drawings, Exhibit C-1 and the provisions of this Exhibit C. Unless otherwise specifically agreed to by Landlord in writing, the installation, wiring, maintenance and removal of furniture partition systems, telephone and other communication systems, data cabling, alarm and/or security systems and any other systems not specifically set forth in the Final Construction Documents or Exhibit C-1, and all cost and expense associated therewith, shall be the sole responsibility of Tenant. In connection with the construction and installation of the Tenant Improvements, Landlord or Landlord's general 1 contractor shall have no obligation to move any of Tenant's property located in or about the Expansion Space including, but not limited to, furniture, inventory and trade fixtures, at the time of such construction and installation. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the Expansion Space that inhibits or prevents in any way the construction and installation of the Tenant Improvements, Tenant shall immediately, upon receipt of notification therefore from Landlord or Landlord's general contractor, at Tenant's sole cost and expense, move such property to another location within the Current Premises or Expansion Space or, upon receipt of Landlord's Current prior approval, to another location within the Project designated by Landlord in Landlord's sole discretion; Tenant's failure to immediately move such property upon receipt of notification therefore from Landlord or Landlord's general contractor shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit C. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the Expansion Space, Landlord and Landlord's general contractor shall incur no liability to Tenant or any other party in the event such property is damaged, destroyed or stolen during the construction and installation of the Tenant Improvements. 3. TENANT IMPROVEMENT DESIGN SCHEDULE: ---------------------------------- The plans and specifications for the Tenant Improvements shall be completed in accordance with the following: (a) Tenant shall approve preliminary floor plan layouts ("Preliminary Floor Plans") prepared by Landlord by July 28, 1995. The Preliminary Floor Plans shall show all walls, doors, and other Tenant Improvements desired by Tenant in sufficient detail for Landlord's architect to prepare architectural construction drawings and related documents ("Architectural Construction Documents"). (b) Between July 28, 1995 and August 4, 1995, Landlord's architect and Tenant's representative shall meet as needed to review and complete the final details related to the Architectural Construction Documents, so that on August 4, 1995 the Architectural Construction Documents are subject only to minor changes. (c) No later than August 4, 1995, Tenant shall have made the decisions required and supplied to Landlord the information necessary for Landlord's architect to complete the Architectural Construction Documents in enough detail for Landlord's general contractor to bid the work, select subcontractors and to proceed toward the design of electrical, mechanical and any other requirements not included on the Architectural Construction Documents. Upon Landlord's general Contractor's selection of subcontractors, Landlord's general contractor and subcontractors shall prepare design specifications outlining in reasonable detail electrical, mechanical and any other requirements not included on the Architectural Construction Documents ("Electrical and Mechanical Drawings"). (d) Upon completion of the Architectural Construction Documents, Tenant shall approve the same subject to changes, deletions or additions as provided in paragraphs 6 and 7 of this Exhibit C. 2 (e) Upon completion of the Electrical and Mechanical Drawings, Landlord or Landlord's general contractor shall submit the Architectural Construction Documents and Electrical and Mechanical Drawings (collectively the "City Ready Plans") to the City to obtain a building permit. (f) Tenant shall have decided upon carpet selection and all other color and material specifications by August 4, 1995. (g) As used herein, "Final Construction Documents" shall include the City Ready Plans, as approved by the City, and any subsequent additions, deletions or changes to the Tenant Improvements permitted or required pursuant to paragraphs 6 and 7 of this Exhibit C. 4. TENANT IMPROVEMENT COST ESTIMATES: --------------------------------- Within fourteen (14) days of completion of the Electrical and Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement cost budget ("Improvement Cost Budget") setting forth the Total Cost of Tenant's Improvements (as defined in paragraph 5(b) below). Within three (3) days after Tenant's receipt of the Improvement Cost Budget, Tenant shall, in writing, approve or disapprove the Improvement Cost Budget. If Tenant does not deliver to Landlord its written approval or disapproval within the three (3) day period, Tenant will be deemed to have approved of the Improvement Cost Budget. If Tenant disapproves the Improvement Cost Budget, Landlord and Tenant shall, within three (3) days of Tenant's disapproval, attempt to agree on mutually acceptable modifications to the Improvement Cost Budget. If Tenant disapproves of the Improvement Cost Budget and Landlord and Tenant are unable, within the three (3) day period, to agree on mutually acceptable changes to the Improvement Cost Budget, or if Tenant approves of the Improvement Cost Budget but does not deliver to Landlord, within three (3) days of its approval, signed copies of the Improvement Cost Budget and Architectural Construction Documents, then Landlord may terminate the Amendment upon written notice to Tenant. The Improvement Cost Budget shall be subject to adjustment for increases in costs resulting from changes to the Tenant Improvements requested or required pursuant to paragraphs 6 and 7 below. Landlord shall not be obligated to commence construction of the Tenant Improvements until the following has occurred: (i) the Architectural Construction Documents and Improvement Cost Budget have been agreed to by Landlord and Tenant; (ii) Tenant has indicated its approval of the Architectural Construction Documents and the Improvement Cost Budget by signing copies thereof; and (iii) Landlord has given written authorization to proceed with construction to Landlord's general contractor based on the agreed Architectural Construction Documents and the Improvement Cost Budget. 5. TENANT IMPROVEMENT ALLOWANCE: ---------------------------- (a) Landlord agrees to grant to Tenant a Tenant Improvement Allowance ("Allowance") in an amount up to Eighty-Five Thousand Two Hundred Sixty-Seven and 50/100 dollars ($85,267.50) to be applied toward the "Total Cost of Tenant's Improvements" (as defined below) to be installed in accordance with this Exhibit C. 3 (b) As used herein, "Total Cost of Tenant Improvements" shall mean all costs to construct and install the Tenant Improvements, including without limitation, (i) all demolition costs incurred in connection with preparing the Premises for the installation of the Tenant Improvements and the actual costs incurred for labor, materials and contractors' fees; (ii) the cost of overtime or special expenditures required to obtain and install the Tenant Improvements by the proposed Effective Date; (iii) all costs related to change orders; (iv) all costs related to changes required or requested by governmental authority; (v) permit fees and other fees not previously paid by Landlord as part of shell costs; (vi) the cost of consultants and engineers; (vii) an amount equal to the actual cost of supervision, administration and on-site facilities and equipment necessary to perform the work; (viii) an amount equal to 7% of the sum of items (i) through (vii) above as and for the general contractor's overhead and profit' and (ix) the cost of architects hired by Landlord. (c) In the event that the Improvement Cost Budget exceeds the Allowance of $85,267.50, then Landlord shall provide Tenant with an additional allowance ("Additional Allowance") in an amount up to $28,422.50 and the amount of the Additional Allowance shall be amortized in full (including interest at 10% per annum) ratably over the remaining term of the Lease (from the Effective Date through December 1, 1999), with such amount to be added to and paid as additional basic rent along with the basic rent provided for in paragraph 4(a) and 5(a) of the Lease, as amended; provided, however, in the event of default by Tenant under the Lease the entire unpaid balance of the Additional Allowance shall be immediately due and payable and Landlord may exercise any or all of its rights or remedies under the Lease. The sum of the Allowance and the Additional Allowance is referred to herein as the "Maximum Allowance". In the event the Improvement Cost Budget exceeds the Maximum Allowance (the amount by which the Improvement Cost Budget exceeds the Maximum Allowance shall be referred to herein as the "Excess Cost"), Tenant shall pay fifty percent (50%) of such Excess Cost to Landlord within five (5) days of Tenant's approval of the Improvement Cost Budget and the remaining fifty percent (50%) of the Excess Cost within five (5) days of when Landlord notifies Tenant that the Tenant Improvements are fifty percent (50%) completed. Tenant's failure to make any payment of the Excess Cost when due, or to make any payment with respect to change orders as set forth in paragraph 6 of this Exhibit C, shall be deemed a default under the Lease and the amount so delinquent shall be deemed additional rent and Landlord may exercise all rights and remedies set forth in the Lease; and in addition, Landlord may delay construction until such payment is made and such delay shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit C. (d) In the event Tenant causes delays, or requests changes which cause delays in construction of more than ninety (90) calendar days, then Landlord shall not be obligated to grant to Tenant the Allowance (or the Additional Allowance), or any balance remaining unused therein. In such case, Landlord shall thereafter have no obligation to construct any Tenant Improvements for Tenant. Furthermore, the cessation of Landlord's obligation to construct the Tenant Improvements as permitted herein shall not affect Tenant's obligation to make payments of basic rent and direct expenses or any other payments due landlord under the Lease or the Amendment. Tenant shall be entitled to no rent reduction or credit at any time in the event that 4 the Allowance (or Additional Allowance) or any portion thereof remains unused for any reason whatsoever. 6. CHANGES BY TENANT: ----------------- Tenant may request changes, deletions or additions to the Tenant Improvements; provided, however, that the effectiveness of any such requested change, deletion or addition shall be subject to written approval by an authorized representative of Landlord and to obtaining any required governmental permits or other approvals. If any such change, deletion or addition increases the Improvement Cost Budget above the Allowance, Tenant shall immediately pay to Landlord the full amount of such increase in excess of the Allowance. In no event shall work on any change, deletion or addition requested pursuant to this paragraph 6 commence prior to (i) Landlord and Tenant approving, in writing, such change, deletion or addition, and (ii) Landlord's receipt from Tenant of payment of the full amount of the increase of the Improvement Cost Budget in excess of the Allowance. 7. CHANGES BY AUTHORITY: -------------------- Tenant agrees that if any change, deletion or addition to any of the improvements proposed to be constructed or installed is required by any governmental authority in connection with obtaining any governmental permit or approval, or otherwise, then such change, deletion or addition shall promptly be made and the Improvement Cost Budget shall be adjusted to reflect any increase in cost resulting from such required change. To the extent any change, deletion or addition required by any governmental authority in connection with obtaining any governmental permit or approval increases the Improvement Cost Budget above the Allowance, Tenant shall pay to Landlord such increase above the Allowance in accordance with the provisions of paragraph 5(c) of this Exhibit C. Failure to obtain any required governmental approval or permit for the Tenant Improvement desired by Tenant shall in no way be cause for Tenant to terminate the Lease or any amendment to the Lease. 8. DELAYS CAUSED BY TENANT: ----------------------- If the Effective Date is delayed due in any respect to Tenant's failure to meet the schedule set forth in paragraph 3 of this Exhibit C, or due to construction delays related to any changes required by Tenant, or due to any other failures by Tenant to perform its obligations under this Exhibit C or otherwise under the Lease or the Amendment, then any such delays shall be deemed Tenant caused delays for purposes of determining the Effective Date pursuant to paragraph 2 of the Amendment. 9. PUNCH LIST: ---------- Within ten (10) business days after the Effective Date, Tenant shall deliver to Landlord a list of items ("Punch List") that Tenant believes Landlord should complete or correct in order for the Expansion Space to be acceptable. Landlord shall commence to complete or correct the items as soon as possible, except those items that Landlord contends are not justified. If Tenant does not deliver the Punch List to Landlord within the ten (10) day period, Tenant shall 5 be deemed to have accepted the Expansion Space and approved the construction. Nothing in this paragraph 9 shall delay the Effective Date or Tenant's obligation to pay rent or to make other payments due Landlord under the Lease or the Amendment. 10. ATTACHMENTS: ----------- All references in the Amendment to Exhibit C shall be deemed to also include Exhibit C-1 and C-___. 6 EXHIBIT D --------- RFR SPACE FIRST FLOOR PLAN EXHIBIT D --------- RFR SPACE FIRST FLOOR PLAN EXHIBIT D --------- RFR SPACE SECOND FLOOR PLAN THIRD AMENDMENT TO LEASE ------------------------ THIS THIRD AMENDMENT TO LEASE ("Amendment") is made this _____ day of _________________, 1997, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R ("Landlord") and INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord those certain premises located at 2045 Hamilton Avenue, Suite 100, San Jose, California ("Building 2045") and 2005 Hamilton Avenue, Suite 350, San Jose, California ("Suite 350"), together referred to herein as the "Premises", pursuant to that certain Office Lease dated August 24, 1994 as amended by that certain First Amendment to Lease dated November 15, 1994 and that certain Second Amendment to Lease dated July 25, 1995 (collectively, the "Lease"). B. Paragraph 12 of the Lease provides that Landlord shall provide janitorial services to the Premises. Tenant has requested that paragraph 12 be modified to allow Tenant to contract directly for janitorial services to Building 2045. C. Landlord is willing to modify paragraph 12 of the Lease in consideration of Tenant's agreement to the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. JANITORIAL SERVICE. Paragraph 12 of the Lease is hereby modified and ------------------ amended with respect to the obligation to provide janitorial services as follows: "Commencing on March 1, 1997, Tenant shall be responsible for obtaining janitorial service for Building 2045 and Tenant shall contract directly with the provider of such services and pay for all costs and expenses related thereto and Landlord shall be relieved of its obligation to provide janitorial services to Building 2045 (but Landlord shall continue to provide janitorial service to Suite 350 as provided in paragraph 12 of the Lease). The provider of janitorial services and the level of services shall be subject to Landlord's approval. Tenant shall provide Landlord with a copy of any and all contracts or agreements of any kind related to such services. All such contracts or agreements must terminate on or before the end of the lease term and must be cancelable by either Landlord or Tenant immediately upon notice to such provider at any time. Notwithstanding the preceding sentence, if Landlord determines in its sole and absolute discretion that the janitorial services being provided to Building 2045 are not adequate, then Landlord shall have the right, but not the obligation, to terminate such contract and to terminate Tenant's rights under this paragraph 1 and thereafter reassume the obligation to provide janitorial services to Building 2045 as provided in the Lease and, in that event, the costs for such services shall again be a direct expense and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5 of the Lease." 2. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified -------------------------------- herein, all terms, covenants and conditions of the Lease shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. Landlord: Tenant: - -------- ------ CONNECTICUT GENERAL LIFE INSURANCE INFORMATION STORAGE DEVICES, COMPANY, a Connecticut corporation, INC., a California corporation on behalf of its Separate Account R By: CIGNA Investments, Inc. Its Authorized Agent By:__________________________ By:__________________________ Name:________________________ Name:________________________ Title:_______________________ Title:_______________________ Date:________________________ Date:________________________ EXPANSION SPACE WORK LETTER AGREEMENT EXISTING SPACE - MAXIMUM ALLOWANCE CONSTRUCTION EXHIBIT C - -------------------------------------------------------------------------------- THIS WORK LETTER AGREEMENT (hereinafter "Exhibit C") is attached to and forms a part of that certain Third Amendment to Lease ("Amendment") amending that certain lease ("Lease") by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation ("Landlord"), and INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"), pursuant to which Landlord leases to Tenant those certain premises located at 2045 Hamilton Avenue, Suite 100, San Jose, California and consisting of approximately twenty-eight thousand thirty-seven (28,037) square feet ("Current Premises"). The Amendment provides for, among other things, the expansion of the Current Premises by adding thereto approximately twelve thousand three hundred forty-one (12,341) square feet ("Expansion Space"). All capitalized terms used herein shall have the meaning ascribed to them in the Amendment to which this Exhibit C is made a part unless otherwise defined herein. The Expansion Space shall be improved in accordance with the following: 1. EXISTING IMPROVEMENTS: --------------------- Tenant accepts the Expansion Space in its existing condition and the improvements constructed therein (the "Existing Improvements"), and Tenant hereby approves the same as installed, subject only to construction of the Tenant Improvements specified below and such changes as may subsequently be agreed upon by Landlord and Tenant. 2. TENANT IMPROVEMENTS: ------------------- As used herein, "Tenant Improvements" shall include those items and specifications shown on the Final Construction Drawings prepared in accordance with paragraph 3 below, including those specifications (as appropriate) set forth and described in Exhibit C-1, attached hereto, exclusive of Existing Improvements. Landlord shall construct Tenant Improvements in accordance with the Final Construction Drawings, Exhibit C-1 and the provisions of this Exhibit C. Unless otherwise specifically agreed to by Landlord in writing, the installation, wiring, maintenance and removal of furniture partition systems, telephone and other communication systems, data cabling, alarm and/or security systems and any other systems not specifically set forth in the Final Construction Documents or Exhibit C-1, and all cost and expense associated therewith, shall be the sole responsibility of Tenant. In connection with the construction and installation of the Tenant Improvements, Landlord or Landlord's general contractor shall have no obligation to move any of Tenant's property located in or about the Expansion Space including, but not limited to, furniture, inventory and trade fixtures, at the time of such construction and installation. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the Expansion Space that inhibits or prevents in any way the construction and installation of the Tenant Improvements, Tenant shall immediately, upon receipt of notification therefore from Landlord or Landlord's general contractor, at Tenant's sole cost and expense, move such property to another location within the Current Premises or Expansion Space or, upon receipt of Landlord's prior approval, to another location within the Project designated by Landlord in Landlord's sole discretion; Tenant's failure to immediately move such property upon receipt of notification therefore from Landlord or Landlord's general contractor shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit C. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the Expansion Space, Landlord and Landlord's general contractor shall incur no liability to Tenant or any other party in the event such property is damaged, destroyed or stolen during the construction and installation of the Tenant Improvements. 3. TENANT IMPROVEMENT DESIGN SCHEDULE: ---------------------------------- The plans and specifications for the Tenant Improvements shall be completed in accordance with the following: (a) Tenant shall approve preliminary floor plan layouts ("Preliminary Floor Plans") prepared by Landlord by ______________________. The Preliminary Floor Plans shall show all walls, doors, and other Tenant Improvements desired by Tenant in sufficient detail for Landlord's architect to prepare architectural construction drawings and related documents ("Architectural Construction Documents"). (b) Between ________________ and _______________, Landlord's architect and Tenant's representative shall meet as needed to review and complete the final details related to the Architectural Construction Documents, so that on __________________ the Architectural Construction Documents are subject only to minor changes. (c) No later than _____________________, Tenant shall have made the decisions required and supplied to Landlord the information necessary for Landlord's architect to complete the Architectural Construction Documents in enough detail for Landlord's general contractor to bid the work, select subcontractors and to proceed toward the design of electrical, mechanical and any other requirements not included on the Architectural Construction Documents. Upon Landlord's general contractor's selection of subcontractors, Landlord's general contractor and subcontractors shall prepare design specifications outlining in reasonable detail electrical, mechanical and any other requirements not included on the Architectural Construction Documents ("Electrical and Mechanical Drawings"). (d) Upon completion of the Architectural Construction Documents, Tenant shall approve the same subject to changes, deletions or additions as provided in paragraphs 6 and 7 of this Exhibit C. (e) Upon completion of the Electrical and Mechanical Drawings, Landlord or Landlord's general contractor shall submit the Architectural Construction Documents and Electrical and Mechanical Drawings (collectively the "City Ready Plans") to the City to obtain a building permit. (f) Tenant shall have decided upon carpet selection and all other color and material specifications by ___________________. (g) As used herein, "Final Construction Documents" shall include the City Ready Plans, as approved by the City, and any subsequent additions, deletions or changes to the Tenant Improvements permitted or required pursuant to paragraphs 6 and 7 of this Exhibit C. 4. TENANT IMPROVEMENT COST ESTIMATES: --------------------------------- Within fourteen (14) days of completion of the Electrical and Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement cost budget ("Improvement Cost Budget") setting forth the Total Cost of Tenant's Improvements (as defined in paragraph 5(b) below). Within three (3) days after Tenant's receipt of the Improvement Cost Budget, Tenant shall, in writing, approve or disapprove the Improvement Cost Budget. If Tenant does not deliver to Landlord its written approval or disapproval within the three (3) day period, Tenant will be deemed to have approved of the Improvement Cost Budget. If Tenant disapproves the Improvement Cost Budget, Landlord and Tenant shall, within three (3) days of Tenant's disapproval, attempt to agree on mutually acceptable modifications to the Improvement Cost Budget. If Tenant disapproves of the Improvement Cost Budget and Landlord and Tenant are unable, within the three (3) day period, to agree on mutually acceptable changes to the Improvement Cost Budget, or if Tenant approves of the Improvement Cost Budget but does not deliver to Landlord, within three (3) days of its approval, signed copies of the Improvement Cost Budget and Architectural Construction Documents, then Landlord may terminate the Amendment upon written notice to Tenant. The Improvement Cost Budget shall be subject to adjustment for increases in costs resulting from changes to the Tenant Improvements requested or required pursuant to paragraphs 6 and 7 below. Landlord shall not be obligated to commence construction of the Tenant Improvements until the following has occurred: (i) the Architectural Construction Documents and Improvement Cost Budget have been agreed to by Landlord and Tenant; (ii) Tenant has indicated its approval of the Architectural Construction Documents and the Improvement Cost Budget by signing copies thereof; and (iii) Landlord has given written authorization to proceed with construction to Landlord's general contractor based on the agreed Architectural Construction Documents and the Improvement Cost Budget. 5. TENANT IMPROVEMENT ALLOWANCE: ---------------------------- (a) Landlord agrees to grant to Tenant a Tenant Improvement Allowance ("Allowance") in an amount up to Eighty-Two Thousand Six Hundred Forty-Two and 50/100 Dollars ($82,642.50) to be applied toward the "Total Cost of Tenant's Improvements" (as defined below) to be installed in accordance with this Exhibit C. (b) As used herein, "Total Cost of Tenant's Improvements" shall mean all costs to construct and install the Tenant Improvements, including without limitation, (i) all demolition costs incurred in connection with preparing the Premises for the installation of the Tenant Improvements and the actual costs incurred for labor, materials and contractors' fees; (ii) the cost of overtime or special expenditures required to obtain and install the Tenant Improvements by the proposed Effective Date; (iii) all costs related to change orders; (iv) all costs related to changes required or requested by governmental authority; (v) permit fees and other fees not previously paid by Landlord as part of shell costs; (vi) the cost of consultants and engineers; (vii) an amount equal to the actual cost of supervision, administration and on-site facilities and equipment necessary to perform the work; (viii) an amount equal to 7% of the sum of items (i) through (vii) above as and for the general contractor's overhead and profit; and (ix) the cost of architects hired by Landlord. (c) In the event that the Improvement Cost Budget exceeds the Allowance of $82,642.50, then Landlord shall provide Tenant with an additional allowance ("Additional Allowance") in an amount up to $27,547.50 and the amount of the Additional Allowance shall be amortized in full (including interest at 10% per annum) ratably over the remaining term of the Lease (from the Effective Date through December 1, 1999), with such amount to be added to and paid as additional basic rent along with the basic rent provided for in paragraphs 4(a) and 5(a) of the Lease, as amended; provided, however, in the event of a default by Tenant under the Lease the entire unpaid balance of the Additional Allowance shall be immediately due and payable and Landlord may exercise any or all of its rights or remedies under the Lease. The sum of the Allowance and the Additional Allowance is referred to herein as the "Maximum Allowance". In the event the Improvement Cost Budget exceeds the Maximum Allowance (the amount by which the Improvement Cost Budget exceeds the Maximum Allowance shall be referred to herein as the "Excess Cost"), Tenant shall pay fifty percent (50%) of such Excess Cost to Landlord within five (5) days of Tenant's approval of the Improvement Cost Budget and the remaining fifty percent (50%) of the Excess Cost within five (5) days of when Landlord notifies Tenant that the Tenant Improvements are fifty percent (50%) completed. Tenant's failure to make any payment of the Excess Cost when due, or to make any payment with respect to change orders as set forth in paragraph 6 of this Exhibit C, shall be deemed a default under the Lease and the amount so delinquent shall be deemed additional rent and Landlord may exercise all rights and remedies set forth in the Lease; and in addition, Landlord may delay construction until such payment is made and such delay shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit C. (d) In the event Tenant causes delays, or requests changes which cause delays in construction of more than ninety (90) calendar days, then Landlord shall not be obligated to grant to Tenant the Allowance (or the Additional Allowance), or any balance remaining unused therein. In such case, Landlord shall thereafter have no obligation to construct any Tenant Improvements for Tenant. Furthermore, the cessation of Landlord's obligation to construct the Tenant Improvements as permitted herein shall not affect Tenant's obligation to make payments of basic rent and direct expenses or any other payments due Landlord under the Lease or the Amendment. Tenant shall be entitled to no rent reduction or credit at any time in the event that the Allowance (or Additional Allowance) or any portion thereof remains unused for any reason whatsoever. 6. CHANGES BY TENANT: ----------------- Tenant may request changes, deletions or additions to the Tenant Improvements; provided, however, that the effectiveness of any such requested change, deletion or addition shall be subject to written approval by an authorized representative of Landlord and to obtaining any required governmental permits or other approvals. If any such change, deletion or addition increases the Improvement Cost Budget above the Allowance, Tenant shall immediately pay to Landlord the full amount of such increase in excess of the Allowance. In no event shall work on any change, deletion or addition requested pursuant to this paragraph 6 commence prior to (i) Landlord and Tenant approving, in writing, such change, deletion or addition, and (ii) Landlord's receipt from Tenant of payment of the full amount of the increase of the Improvement Cost Budget in excess of the Allowance. 7. CHANGES BY AUTHORITY: -------------------- Tenant agrees that if any change, deletion or addition to any of the improvements proposed to be constructed or installed is required by any governmental authority in connection with obtaining any governmental permit or approval, or otherwise, then such change, deletion or addition shall promptly be made and the Improvement Cost Budget shall be adjusted to reflect any increase in cost resulting from such required change. To the extent any change, deletion or addition required by any governmental authority in connection with obtaining any governmental permit or approval increases the Improvement Cost Budget above the Allowance, Tenant shall pay to Landlord such increase above the Allowance in accordance with the provisions of paragraph 5(c) of this Exhibit C. Failure to obtain any required governmental approval or permit for the Tenant Improvements desired by Tenant shall in no way be cause for Tenant to terminate the Lease or any amendment to the Lease. 8. DELAYS CAUSED BY TENANT: ----------------------- If the Effective Date is delayed due in any respect to Tenant's failure to meet the schedule set forth in paragraph 3 of this Exhibit C, or due to construction delays related to any changes required by Tenant, or due to any other failures by Tenant to perform its obligations under this Exhibit C or otherwise under the Lease or the Amendment, then any such delays shall be deemed Tenant caused delays for purposes of determining the Effective Date pursuant to paragraph 2 of the Amendment. 9. PUNCH LIST: ---------- Within ten (10) business days after the Effective Date, Tenant shall deliver to Landlord a list of items ("Punch List") that Tenant believes Landlord should complete or correct in order for the Expansion Space to be acceptable. Landlord shall commence to complete or correct the items as soon as possible, except those items that Landlord contends are not justified. If Tenant does not deliver the Punch List to Landlord within the ten (10) day period, Tenant shall be deemed to have accepted the Expansion Space and approved the construction. Nothing in this paragraph 9 shall delay the Effective Date or Tenant's obligation to pay rent or to make other payments due Landlord under the Lease or the Amendment. 10. ATTACHMENTS: ----------- All references in the Amendment to Exhibit C shall be deemed to also include Exhibit C-1 and C-_____. EX-10.09 16 LEASE BETWEEN CONNECTICUT GEN. LIFE & REGISTRANT EXHIBIT 10.09 CONNECTICUT GENERAL LIFE INSURANCE COMPANY AND EBAY, INC. LEASE SUMMARY OF LEASE 1. DATE OF LEASE: 2. LANDLORD: Connecticut General Life Insurance Company, on behalf of its Separate Account R 3. TENANT: eBay, Inc., a California corporation 4. PREMISES: 2005 Hamilton Avenue, Suites 235 and 240 San Jose, California 5. SQUARE FEET: 2,215 sq. ft. 6. PERMITTED USE: General office 7. TERM: Three (3) years (a) SCHEDULED COMMENCEMENT DATE: April 1, 1998 (b) SCHEDULED EXPIRATION DATE: March 31, 2001 8. RENT: (a) BASIC RENT: $ 5,493.20 per month (Lease months 1-36) (b) TENANT'S ESTIMATED SHARE OF DIRECT EXPENSES: $ 1,373.30 per month 9. SECURITY DEPOSIT: $7,000.00 10. PARKING SPACES PROVIDED: Eight (8) 11. OTHER IMPORTANT PROVISIONS: THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL GOVERN. TABLE OF CONTENTS PARAGRAPH - ----------------------------------------------------------------- PAGE - ---- 1. USE 2. TERM 3. POSSESSION 4. MONTHLY RENT 5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES 6. RESTRICTION ON USE 7. COMPLIANCE WITH LAWS 8. ALTERATIONS 9. REPAIR AND MAINTENANCE 10. LIENS 11. INSURANCE 12. UTILITIES AND SERVICE 13. TAXES AND OTHER CHARGES 14. ENTRY BY LANDLORD 15. COMMON AREA; PARKING 16. DAMAGE BY FIRE; CASUALTY 17. INDEMNIFICATION 18. ASSIGNMENT AND SUBLETTING 19. DEFAULT 20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT 21. EMINENT DOMAIN 22. NOTICE TO SURRENDER 23. TENANT'S QUITCLAIM 24. HOLDING OVER 25. SUBORDINATION 26. CERTIFICATE OF ESTOPPEL 27. SALE BY LANDLORD 28. ATTORNMENT TO LENDER OR THIRD PARTY 29. DEFAULT BY LANDLORD 30. CONSTRUCTION CHANGES 31. MEASUREMENT OF PREMISES 32. ATTORNEY FEES 33. SURRENDER 34. WAIVER 35. EASEMENTS; AIRSPACE RIGHTS 36. RULES AND REGULATIONS 37. NOTICES 38. NAME 39. GOVERNING LAW; SEVERABILITY 40. DEFINITIONS 41. TIME 42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE 43. ENTIRE AGREEMENT 44. CORPORATE AUTHORITY 45. RECORDING 46. REAL ESTATE BROKERS 47. EXHIBITS AND ATTACHMENTS 48. ERISA REQUIREMENTS 49. ENVIRONMENTAL MATTERS 50. SIGNAGE 51. SUBMISSION OF LEASE 52. PREMISES LEASED "AS IS" 53. ADDITIONAL RENT 54. LANDLORD'S OPTION TO RELOCATE PREMISES OFFICE LEASE ------------ THIS LEASE is made this __________ day of _______________________, 1998, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R ("Landlord"), and EBAY, INC., a California corporation ("Tenant). W I T N E S S E T H: Landlord leases to Tenant and Tenant leases from Landlord those certain premises outlined in red on Exhibit A (the "Premises") which Premises are commonly known as 2005 Hamilton Avenue, Suites 235 and 240, San Jose, California, which Landlord and Tenant hereby agree consists of approximately two thousand two hundred fifteen (2,215) square feet. As used herein the term "Project" shall mean and include all of the land described in Exhibit B and all the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Tenant covenants, as a material part of the consideration of this lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this lease is made upon the condition of such performance and observance. 1. USE. Subject to the restrictions contained in paragraph 6, Tenant shall --- use the Premises for general office use and shall not use or permit the Premises to be used for any other purpose. 2. TERM. The term shall be for three (3) years (unless sooner terminated ---- as hereinafter provided) and, subject to paragraph 3, shall commence on April 1, 1998 and end on March 31, 2001. 3. POSSESSION. ---------- (a) If Landlord for any reason cannot deliver possession of the Premises to Tenant by the scheduled commencement date set forth in paragraph 2, this lease shall not be void or voidable, Landlord shall not be liable to Tenant for any loss or damage on account thereof and Tenant shall not be liable for rent until Landlord delivers possession of the Premises to Tenant. If the term commences on a date other than the date specified in paragraph 2 above, then the parties shall immediately execute an amendment to this lease stating the actual date of commencement. The expiration date of the term shall be extended by the same number of days that Tenant's possession of the Premises was delayed from that set forth in paragraph 2. (b) Tenant's inability or failure to take possession of the Premises when delivery is tendered by Landlord shall not delay the commencement of the term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that Landlord shall incur significant expenses upon the execution of this lease, even if Tenant never takes possession of the Premises, including without limitation brokerage commissions and fees, legal fees and other professional fees. Tenant acknowledges that all of said expenses shall be included in measuring Landlord's damages should Tenant breach the terms of this lease. 4. MONTHLY RENT. ------------ (a) Basic Rent. Tenant shall pay to Landlord as basic rent for the ---------- Premises, in advance and subject to adjustment as provided in paragraph 5, the sum of Five Thousand Four Hundred Ninety-Three and 20/100 Dollars ($5,493.20) on or before the first day of the first full calendar month of the term and on or before the first day of each and every successive calendar month. Basic rent for any partial month shall be payable in advance and shall be prorated based on the actual number of days during the lease term occurring in such month divided by the total number of days in such month. (b) Direct Expenses. In addition to the above basic rent and as --------------- additional rent, Tenant shall pay to Landlord, subject to adjustment and reconciliation as provided in paragraph 5(b) of this lease, the sum of One Thousand Three Hundred Seventy-Three and 30/100 Dollars ($1,373.30) on or before the first day of the first full calendar month of the term and on the first day of each and every successive calendar month, said sum representing Tenant's estimated payment of its proportionate share of direct expenses as provided for in paragraph 5(b) to this lease. Payment for direct expenses for any partial month shall be payable in advance and shall be prorated based on the actual number of days during the lease term occurring in such month divided by the total number of days in such month. (c) Manner and Place of Payment. All payments of basic rent and direct --------------------------- expenses shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America, c/o McCandless Management Corporation at 3945 Freedom Circle, Suite 640, Santa Clara, California, 95054, or to such other person or place as Landlord may from time to time designate in writing. (d) Advance Rent. Concurrently with Tenant's execution of this lease, ------------ Tenant shall deposit with Landlord the sum of Six Thousand Eight Hundred Sixty- Six and 50/100 Dollars ($6,866.50) to be applied 1 against the basic rent and direct expenses for the first month of the term. (e) Security Deposit. Concurrently with Tenant's execution of this ---------------- lease, Tenant shall deposit with Landlord the sum of Seven Thousand Dollars ($7,000.00), which sum shall be held by Landlord as a security deposit for the faithful performance by Tenant of all of the terms, covenants and conditions of this lease to be kept and performed by Tenant. If Tenant defaults with respect to any provision of this lease, including but not limited to the provisions relating to the payment of basic rent and direct expenses, Landlord may (but shall not be required to) use, apply or retain all or any part of this security deposit for the payment of any amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said deposit is so used, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the security deposit to its original amount; Tenant's failure to do so shall be a material breach of this lease. Landlord shall not be required to keep this security deposit separate from its general funds and Tenant shall not be entitled to interest on such deposit. If Tenant is not in default at the expiration or termination of this lease, the security deposit or any balance thereof shall be returned to Tenant after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this lease, Landlord shall transfer said deposit to Landlord's successor in interest, and Tenant agrees that Landlord shall thereupon be released from liability for the return of such deposit or any accounting therefor. 5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES. -------------------------------------------- (a) Adjustments in Basic Rent. The basic rent provided for in paragraph ------------------------- 4(a) shall be adjusted annually on each anniversary of the commencement date as follows: Commencing on the first day of the thirteenth (13th) lease month and on each anniversary date thereafter (the "Adjustment Date"), the basic rent shall be adjusted as follows: The Consumer Price Index for All Urban Consumers (base year 1984 = 100) for San Francisco-Oakland, Metropolitan Area published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the date immediately preceding the applicable Adjustment Date (the "Extension Index"), shall be compared with the Index published for the date immediately preceding the lease commencement date (the "Beginning Index"). If the Extension Index has increased over the Beginning Index, the basic monthly rent payable during the following period shall be set by multiplying the basic rent as of the lease commencement date by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index; provided, however, that in no event shall the increase in monthly basic rent payable during each adjusted one year period be less than four percent (4%) per year over the monthly basic rent payable for the lease month prior to the Adjustment Date. As soon as the monthly basic rent for each such period is set, Landlord shall give Tenant notice of the amount. On each Adjustment Date the parties shall immediately execute an amendment to the lease stating the new monthly basic rent or otherwise acknowledge in writing such adjustment in form reasonably acceptable to Landlord. If the Index is changed so that the base year differs from that used for the Beginning Index, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. (b) Adjustments to Direct Expenses. Tenant's proportionate share of ------------------------------ direct expenses of the Project shall be ninety-six one-hundredths percent (.96%) and Tenant's proportionate share of direct expenses of the building in which the Premises are located shall be three and forty-six one-hundredths percent (3.46%). Tenant shall be required to pay to Landlord, as additional rent in accordance with paragraph 4(b) of this lease, Tenant's proportionate share of direct expenses for each calendar year (or portion thereof) during the term of this lease. Tenant's estimated share of the monthly direct expenses payable by Tenant during the calendar year in which the term commences is set forth in paragraph 4(b) of this lease. A written estimate of Tenant's monthly share of direct expenses for each succeeding calendar year shall be delivered to Tenant prior to the commencement of each such succeeding calendar year (or as soon as practicable thereafter). Tenant shall pay to Landlord in accordance with paragraph 4(b) of this lease its monthly share of direct expenses as estimated by Landlord. Landlord reserves the right to revise such written estimate during a calendar year if Landlord's actual or projected direct expenses shows an increase or decrease in excess of ten percent (10%) from that of an earlier written estimate delivered to Tenant, and if Landlord elects to revise the earlier estimate, Landlord shall deliver the revised estimate to Tenant, together with an explanation of the reasons therefor, and Tenant shall revise its payments accordingly. Statements of the actual direct expenses for the calendar year in which the term commences and for each succeeding calendar year (herein called "statement of actual direct expenses") shall be delivered to Tenant within one hundred twenty (120) days following the expiration of each such calendar year (or as soon as practicable thereafter). If the statement of actual direct expenses for any such calendar year shows that Tenant's proportionate share of actual direct expenses for the year is in excess of the aggregate amount Tenant has paid as direct expenses for that calendar year, Tenant shall pay such excess to Landlord within ten (10) days after receipt of the statement of actual direct expenses. If Tenant fails to pay such excess amount due within said ten (10) day period, Tenant shall pay an additional ten percent (10%) of the amount due as a penalty. In the event that any statement of actual direct expenses shall show that Tenant has paid 2 Landlord an aggregate amount in excess of the actual direct expenses for the preceding calendar year and Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this lease at the time such statement of actual direct expenses is delivered, Landlord shall, at its option, promptly either refund such excess to Tenant or credit the amount thereof to the monthly direct expenses next becoming due from Tenant. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of this lease. As used in this lease, "direct expenses" shall include, but not be limited to, (i) real property taxes, assessments, and other costs identified as direct expenses in paragraph 13; (ii) insurance premiums and other costs identified as direct expenses in paragraph 11; (iii) the cost of all utilities and services including water, gas, and sewer charges, electricity, heat, air conditioning, refuse collection, and janitorial services identified as direct expenses in paragraph 12; (iv) the costs of operating and maintaining the Common Area identified as direct expenses in paragraph 15, including, but not limited to, the landscaping, elevators, parking lots, paving, sidewalks, showers, the Greylands Mansion, and security and exterminator services; (v) the costs and expenses of maintaining and repairing the Project identified as direct expenses in paragraph 9, including but not limited to, mechanical, electrical, plumbing and sewage systems, windows, glazing, gutters, down-spouts, heating and ventilating and air conditioning systems, walls, floor coverings, roofs, structural elements, exterior walls, and the cost of maintenance contracts and supplies, materials, equipment and tools used in connection therewith; (vi) the cost of certain alterations identified as direct expenses in paragraph 8; (vii) amortization of such capital improvements having a useful life greater than one year as Landlord may have installed for the purpose of reducing operating costs and/or to comply with all laws, rules and regulations of federal, state, county, municipal and other governmental authorities now or hereafter in effect (Tenant's share of such capital improvement shall equal Tenant's proportionate share of the fraction of the cost of such capital improvement equal to the remaining term of the lease over the useful life of such capital improvement); (viii) wages, salaries, employee benefits (including union benefits) and related expenses of all on-site and off-site personnel engaged in the operation, management and maintenance of the Project (or the building in which the Premises are located) and payroll taxes applicable thereto and all costs incurred to maintain a management office in or near the Project (including, without limitation, rental payments therefor or the reasonable rental value of the space so occupied); (ix) supplies, materials, equipment and tools used or required in connection with the operation and maintenance of the Project; (x) licenses, permits and inspection fees; (xi) a reasonable reserve for repairs and replacement of equipment used in the maintenance and operation of the Project; and (xii) all other operating costs incurred by Landlord in maintaining and operating the Project. 6. RESTRICTION ON USE. Tenant shall not do or permit to be done in or ------------------ about the Premises or the Project, nor bring or keep or permit to be brought or kept in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any other insurance covering the Project or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or which will in any way obstruct or interfere with the rights of other tenants or occupants of the Project or injure or annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises for sleeping, washing clothes, cooking or in any manner that will cause or emit any objectionable odor, noise or light into the adjoining premises or Common Area. Tenant shall not do anything on the Premises that will cause damage to the Project or the building in which the Premises are located and Tenant shall not overload the floor capacity of the Project. No machinery, apparatus or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate or shake the Premises. Landlord shall be the sole judge of whether such odor noise, light or vibration is such as to violate the provisions of this paragraph. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building proper except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or inside of the building proper where designated; and no toxic or hazardous material shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper. No retail sales shall be made on the Premises. 7. COMPLIANCE WITH LAWS. Tenant shall, in connection with its use and -------------------- occupation of the Premises, at its sole cost and expense, promptly observe and comply with (i) all laws, statutes, ordinances and governmental rules, regulations and requirements of federal, state, county, municipal and other governmental authorities, now or hereafter in effect, which shall impose any duty upon Landlord or Tenant with respect to the use, occupancy or alteration of the Premises, (ii) with the requirements of any board of fire underwriters or other similar body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that no such failure shall be deemed a breach of these provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant (whether or not Landlord is a party thereto) that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This lease shall remain in full force and effect notwithstanding any loss of use of other effect on Tenant's enjoyment of the Premises by reason of any governmental laws, statutes, ordinances, rules, regulations and requirements now or hereafter in effect. 8. ALTERATIONS. Tenant shall not make or suffer to be made any alteration, ----------- addition or 3 improvement to or of the Premises or any part thereof (collectively referred to herein as "alterations") without (i) the prior written consent of Landlord, (ii) a valid building permit issued by the appropriate governmental authority and (iii) otherwise complying with all applicable laws, regulations and requirements of governmental agencies having jurisdiction and with the rules, regulations and requirements of any board of fire underwriters or similar body. Landlord's consent to any requested alteration shall not create on the part of Landlord or cause Landlord to incur any responsibility or liability for such alteration's compliance with all laws, rules and regulations of federal, state, municipal, county and other governmental authorities. Any alteration made by Tenant (excluding moveable furniture and trade fixtures not attached to the Premises) shall at once become a part of the Premises and belong to Landlord. Without limiting the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning, drapery, window covering and carpet installations made by Tenant, regardless of how attached to the Premises, together with all other alterations that have become an integral part of the building in which the Premises are a part, shall be and become part of the Premises and belong to Landlord upon installation and shall not be deemed trade fixtures and, subject to Landlord's right to require removal and restoration as specified herein, shall remain upon and be surrendered with the Premises at the termination of the lease. If Landlord consents to the making of any alteration by Tenant, the same shall be made by Tenant at its sole risk, cost and expense and only after Landlord's written approval of any contractor or person selected by Tenant for that purpose, and the same shall be made at such time and in such manner as Landlord may from time to time designate. Tenant shall, if required by Landlord, secure at Tenant's cost a completion and lien indemnity bond for such work. Upon the expiration or sooner termination of the term, Landlord may, at its sole option, require Tenant, at Tenant's sole cost and expense, to promptly remove any such alteration made by Tenant and designated by Landlord to be removed, repair any damage to the Premises caused by such removal and restore the Premises to their condition prior to Tenant's alteration. Any moveable furniture and equipment or trade fixtures remaining on the Premises at the expiration or other termination of the term shall become the property of the Landlord; provided, however, in addition to all other remedies available to Landlord at law or in equity, Landlord may (i) require Tenant to remove same or (ii) remove same at Tenant's cost, and Tenant shall be liable to Landlord for all damages incurred by Landlord related thereto. If during the term any alteration, addition or change of the Premises is required by law, regulation, ordinance or order of any public authority, Tenant, at its sole cost and expense, shall promptly make the same. If during the term any alterations, additions or changes to the Common Area or to the Project or building in which the Premises is located is required by law, regulation, ordinance or order of any public or quasi-public authority, and it is impractical, in Landlord's judgment, for the affected tenants to individually make such alterations, additions or changes, Landlord shall make such alterations, additions or changes and the cost thereof shall be a direct expense and Tenant shall pay its percentage share of said cost to Landlord as provided in paragraphs 4 and 5. 9. REPAIR AND MAINTENANCE. Subject to paragraph 16, Landlord shall ---------------------- maintain and keep in good repair the Common Area (including, without limitation, the Greylands Mansion) and the mechanical, electrical, plumbing and sewage systems, windows, window frames, plate glass, glazing, elevators, gutters and down-spouts, the roof, exterior walls, structural elements and the heating, ventilating and air conditioning systems (except special air conditioning of Tenant's computer room(s) as set forth below) of the Premises and the Project; provided, however, that Landlord shall not be required to perform repairs made necessary by the negligence or abuse of such improvements or property by Tenant or its employees agents, subtenants or permitees. The cost of all maintenance and repairs made by Landlord pursuant to this paragraph 9, including without limitation maintenance contracts and supplies, materials, equipment and tools used in such repairs and maintenance, shall be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. By entry hereunder Tenant accepts the Premises as being in good and sanitary order, condition and repair. Subject to paragraphs 16 and 21, and excepting repairs and maintenance required by this paragraph 9 to be made by Landlord, Tenant at its cost shall keep the Premises and every part thereof in good and sanitary order, condition and repair and Tenant shall be solely responsible for the cost and maintenance of, and electricity supplied to, any special air conditioning for Tenant's computer facilities. Further, Tenant shall repair (or, at the option of Landlord, reimburse Landlord if Landlord elects to repair) damage to improvements or other property located on or about the Project where such repairs are made necessary by the negligence of or abuse of such improvements or other property by Tenant or its employees, agents, subtenants or permitees. Tenant waives all rights under and benefit of California Civil Code Sections 1932(1), 1941, and 1942 and under any similar law, statute or ordinance now or hereafter in effect. 10. LIENS. Tenant shall keep the Premises and the Project free from any ----- liens arising out of any work performed, materials furnished or obligations incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt of a preliminary twenty (20) day notice filed by a claimant pursuant to California Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy of such notice. Should any lien be recorded against the Project, Tenant shall give immediate notice of such lien to Landlord. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses (including attorneys' fees) incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of twelve percent (12%) per annum or the maximum rate 4 permitted by law, whichever is less. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Project and any other party having an interest therein, from mechanics' and materialmen's liens and like liens. Tenant shall give Landlord at least fifteen (15) days' prior notice of the date of commencement of any construction on the Premises in order to permit the posting of such notices. In the event Tenant is required to post an improvement bond with a public agency in connection with any work performed by Tenant on or to the Premises, Tenant shall include Landlord as an additional obligee. 11. INSURANCE. Tenant, at its sole cost and expense, shall keep in force --------- during the term (i) commercial general liability and property damage insurance with a combined single limit of at least $2,000,000 per occurrence insuring against personal or bodily injury to or death of persons occurring in, on or about the Premises or Project and any and all liability of the insureds with respect to the Premises or arising out of Tenant's maintenance, use or occupancy of the Premises and all areas appurtenant thereto, (ii) direct physical loss- special insurance covering the leasehold improvements in the Premises and all of Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and personal property from time to time located in, on or about the Premises, with coverage in the amount of the full replacement cost thereof, and (iii) Worker's Compensation Insurance as required by law, together with employer's liability coverage with a limit of not less than $1,000,000 for bodily injury for each accident and for bodily injury by disease for each employee. Tenant's commercial general liability and property damage insurance and Tenant's Workers Compensation Insurance shall be endorsed to provide that said insurance shall not be cancelled or reduced except upon at least thirty (30) days prior written notice to Landlord. Further, Tenant's commercial general liability and property damage insurance shall be primary and shall be endorsed to provide that Landlord and McCandless Management Corporation, and their respective partners, officers, directors and employees and such other persons or entities as directed from time to time by Landlord shall be named as additional insureds for all liability using ISO Bureau Form CG20111185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; shall contain a severability of interest clause and a cross-liability endorsement; shall be endorsed to provide that the limits and aggregates apply per location using ISO Bureau Form CG25041185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; and shall be issued by an insurance company admitted to transact business in the State of California and rated A+VIII or better in Best's Insurance Reports (or successor report). The deductibles for all insurance required to be maintained by Tenant hereunder shall be satisfactory to Landlord. The commercial general liability insurance carried by Tenant shall specifically insure the performance by Tenant of the indemnification provisions set forth in paragraph 17 of this lease provided, however, nothing contained in this paragraph 11 shall be construed to limit the liability of Tenant under the indemnification provisions set forth in said paragraph 17. If Landlord or any of the additional insureds named on any of Tenant's insurance, have other insurance which is applicable to the covered loss on a contributing, excess or contingent basis, the amount of the Tenant's insurance company's liability under the policy of insurance maintained by Tenant shall not be reduced by the existence of such other insurance. Any insurance carried by Landlord or any of the additional insureds named on Tenant's insurance policies shall be excess and non-contributing with the insurance so provided by Tenant. Tenant shall, prior to the commencement of the term and at least thirty (30) days prior to any renewal date on any insurance policy required to be maintained by Tenant pursuant to this paragraph, provide Landlord with a completed Certificate of Insurance, using a form acceptable in Landlord's reasonable judgement, attaching thereto copies of all endorsements required to be provided by Tenant under this lease. Tenant agrees to increase the coverage or otherwise comply with changes in connection with said commercial general liability, property damage, direct physical loss and Worker's Compensation Insurance as Landlord or Landlord's lender may from time to time require. Landlord shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises and Project, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risk" insurance, with increased cost of reconstruction and contingent liability (including demolition), plus a policy of rental income insurance in the amount of one hundred percent (100%) of twelve (12) months' rent (including sums paid as additional rent) and such other insurance as Landlord or Landlord's lender may from time to time require. Landlord may but shall not be obligated to obtain flood and/or earthquake insurance. Landlord shall have no liability to Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The cost of all such insurance purchased by Landlord, plus any charges for deferred payment of premiums and the amount of any deductible incurred upon any covered loss within the Project, shall be direct expenses and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraphs 4(b) and 5(b). If the cost of insurance is increased due to Tenant's use of the Premises, then Tenant shall pay to Landlord upon demand the full cost of such increase. Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises or the Project, or any part thereof, or to any personal property therein, from perils insured against under fire and extended insurance and any other property insurance policies existing for the benefit of the respective parties so long as such insurance permits waiver of liability and contains a waiver of subrogation without additional premiums. If Tenant does not take out and maintain insurance as required pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefor, and Tenant shall repay to Landlord promptly on demand, as additional rent, the amount so paid. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as additional rent, any and all reasonable expenses (including attorney fees) and damages which Landlord may sustain by reason of the failure of Tenant 5 to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon. 12. UTILITIES AND SERVICE. Landlord shall furnish to the Premises and to --------------------- the building in which the Premises are located, during reasonable hours of generally recognized business days, to be determined by Landlord, and subject to the rules and regulations of the Project, reasonable quantities of water and electricity suitable for the intended use of the Premises and the building in which the Premises are located, heat and air conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises, refuse collection and janitorial services. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the heating, ventilating and air conditioning systems. The cost of all utilities and services furnished by Landlord to the Premises and to the building in which the Premises are located pursuant to this paragraph 12 shall be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of rent by reason of, Landlord's failure to furnish any of the foregoing services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, governmental moratoriums, regulations, or other governmental actions or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. In addition, Tenant shall not be relieved from the performance of any covenant or agreement in this lease because or any such failure, and no eviction of Tenant shall result from such failure. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises (including, without limitation, electronic data processing machines, punch card machines or machines using current in excess of 110 volts) which will in any way increase the amount of electricity, water or air conditioning usually furnished or supplied to premises in the Project being used as general office space or connect with electric current (except through existing electrical outlets in the Premises) or with water pipes any apparatus or device for the purpose of using electric current or water. If Tenant shall require water or electric current in excess of that usually furnished or supplied to premises in the Project being used as general office space then Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld, and Tenant shall pay to Landlord promptly on demand, as additional rent, the full cost of such excess use. Landlord may cause an electric current or water meter to be installed in the Premises in order to measure the amount of electric current or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, and all charges for such excess water and electric current consumed (as shown by meters and at the rates then charged by the furnishing public utility) plus any additional expense incurred by Landlord in keeping account of electric current or water so consumed, shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. Whenever heat generating machines or equipment are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. 13. TAXES AND OTHER CHARGES. All real estate taxes and assessments and ----------------------- other taxes, fees and charges of every kind or nature, foreseen or unforeseen, which are levied, assessed or imposed upon Landlord and/or against the Premises, building, Common Area or Project or any part thereof by any federal, state, county, regional, municipal or other governmental or quasi-governmental authority or special district authority, together with any increases therein whether resulting from increased rate and/or valuation shall be a direct expense and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. By way of illustration and not limitation, "other taxes, fees and charges" as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured by the net income of Landlord from all sources, and premium taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, allocable to, or measured by the rent payable hereunder, including, without limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any part thereof, (iii) upon or measured by the value of Tenant's personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to vehicles, parking or the number of persons employed on or about the Project, and (vi) any tax, license, franchise fee or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord (including, but not limited to, costs of attorneys and experts) thereby shall also be direct expenses and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraphs 4 and 5. In the event the Premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher than those of other tenants in the building or Project or in the event alterations or improvements are made to the Premises, Tenant's percentage share of such taxes, assessments, fees and/or charges shall be readjusted upward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessor's work sheet or such other information as may be reasonably available and Landlord's determination thereof shall be conclusive. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term 6 hereof upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant notwithstanding that such carpeting or other property has become a part of the Premises. If any of Tenant's personal property shall be assessed with the Project, Tenant shall pay to Landlord, as additional rent, the amounts attributable to Tenant's personal property within ten (10) days after receipt of a written statement from Landlord setting forth the amount of such taxes, assessments and public charges attributable to Tenant's personal property. 14. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable ----------------- times have, the right to enter the Premises (i) to inspect the Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to show the Premises to prospective purchasers, lenders or tenants and to put, 'for sale' or 'for lease' signs thereon, (iv) to post notices required or allowed by this lease or by law, (v) to alter, improve or repair the Premises and any portion of the Project, and (vi) to erect scaffolding and other necessary structures in or through the Premises or the Project where reasonably required by the character of the work to be performed. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord's entry and acts pursuant to this paragraph and Tenant shall not be entitled to an abatement or reduction of rent if Landlord exercises any rights reserved in this paragraph. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, on, and about the Premises (excluding Tenant's vaults, safes and similar areas designated in writing by Tenant in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry by Landlord to the Premises pursuant to this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. 15. COMMON AREA; PARKING. Subject to the terms and conditions of this -------------------- lease and such rules and regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees and invitees shall, in common with other occupants of the Project, and their respective employees, invitees and customers and others entitled to the use thereof, have the nonexclusive right to use the access roads, parking areas and facilities within the Project provided and designated by Landlord for the general use and convenience of the occupants of the Project (which areas and facilities shall include, but not be limited to, common lobbies, corridors, restrooms and showers, part or all of the Greylands Mansion and the .37 acre parcel upon which it is located, telephone, electrical, janitorial and mechanical rooms, elevators, stairwells, vertical duct shafts, sidewalks, parking, refuse, landscape and plaza areas, roofs, building exteriors, electrical, mechanical, plumbing and HVAC systems and storage areas) which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord shall also have the right at any time to change the name, number or designation by which the Project is commonly known. Landlord further reserves the right to promulgate such rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice. Tenant acknowledges that Landlord (as tenant) has leased the Greylands Mansion on a month-to-month basis and that such Lease can be terminated on thirty (30) days notice. Upon termination of the lease for the Greylands Mansion the Common Area shall thereafter include no part of the Greylands Mansion and the .37 acre parcel upon which it is located. Tenant shall have the nonexclusive use of eight (8) parking spaces in the Common Area as designated from time to time by Landlord. Landlord reserves the right at its sole option to assign and label parking spaces, but it is specifically agreed that Landlord is not responsible for policing any such parking spaces. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole discretion of Landlord. The cost of such maintenance, operation and management, including but not limited to landscaping, repair of paving, parking lots and sidewalks, the Greylands Mansion (including interior repair and maintenance; janitorial services; furniture rental or depreciation charges; and lease payments charged to the Project by the owner of the Greylands Mansion), security and exterminator services and salaries and employee benefits (including union benefits) of on-site and accounting personnel engaged in such maintenance and operations management, shall be a direct expense and Tenant shall pay to Landlord its percentage share of such cost as provided in paragraphs 4 and 5. 16. DAMAGE BY FIRE; CASUALTY. In the event the Premises are damaged by any ------------------------ casualty which is covered under an insurance policy required to be maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to the use of all insurance proceeds and shall repair such damage as soon as reasonably possible and this lease shall continue in full force and effect. 7 In the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to paragraph 11, Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's expense, as soon as reasonably possible, in which event this lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord's intention to cancel and terminate this lease as of the date of the occurrence of the damage; provided, however, that if such damage is caused by an act or omission of Tenant or its agent, servants or employees, then Tenant shall repair such damage promptly at its sole cost and expense. In the event Landlord elects to terminate this lease pursuant hereto, Tenant shall have the right within ten (10) days after receipt of the required notice to notify Landlord in writing of Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event this lease shall continue in full force and effect and Tenant shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within the ten (10) day period, this lease shall be cancelled and terminated as of the date of the occurrence of such damage. Under no circumstances shall Landlord be required to repair any injury or damage to (by fire or other cause), or to make any restoration or replacement of, any of Tenant's personal property, trade fixtures or property leased from third parties, whether or not the same is attached to the Premises. If the Premises are totally destroyed during the term from any cause (including any destruction required by any authorized public authority), whether or not covered by the insurance required under paragraph 11, this lease shall automatically terminate as of the date of such total destruction; provided, however, that if the Premises can reasonably and lawfully be repaired or restored within twelve (12) months of the date of destruction to substantially the condition existing prior to such destruction and if the proceeds of the insurance payable to the Landlord by reason of such destruction are sufficient to pay the cost of such repair or restoration, then said insurance proceeds shall be so applied, Landlord shall promptly repair and restore the Premises and this lease shall continue, without interruption, in full force and effect. If the Premises are totally destroyed during the last twelve (12) months of the term, Landlord may at Landlord's option cancel and terminate this lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within thirty (30) days after the occurrence of such damage. If the Premises are partially or totally destroyed or damaged and Landlord or Tenant repair them pursuant to this lease, the rent payable hereunder for the period during which such damage and repair continues shall be abated only in proportion to the square footage of the Premises rendered untenantable to Tenant by such damage or destruction. Tenant shall have no claim against Landlord for any damage, loss or expense suffered by reason of any such damage, destruction, repair or restoration. The parties waive the provisions of California Civil Code Sections 1932(2) and 1933(4) (which provisions permit the termination of a lease upon destruction of the leased premises), and hereby agree that the provisions of this paragraph 16 shall govern in the event of the destruction of the Premises. 17. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant --------------- hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project by or from any cause whatsoever except the failure of Landlord to perform its obligations under this lease where such failure has persisted for an unreasonable period of time after notice of such failure. Without limiting the foregoing, Landlord shall not be liable to Tenant for any injury to or death of any person or damages to or destruction of property by reason of, or arising from, any latent defect in the Premises or Project or the act or negligence of any other tenant of the Project. Tenant shall immediately notify Landlord of any defect in the Premises or Project. Except as to injury to persons or damage to property the principal cause of which is the failure by Landlord to observe any of the terms and conditions of this lease, Tenant shall hold Landlord harmless from and indemnify and defend Landlord against any claim, liability, loss damage or expense (including attorney fees) arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises from any cause whatsoever or on account of the use, condition, occupational safety or occupancy of the Premises. Tenant shall further hold Landlord harmless from and indemnify and defend Landlord against any claim, liability, loss, damage or expense (including attorney fees) arising (i) from Tenant's use of the Premises or from the conduct of its business or from any activity or work done, permitted or suffered by Tenant or its agents or employee, in or about the Premises or Project, (ii) out of the failure of Tenant to observe or comply with Tenant's obligation to observe and comply with laws or other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use, handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by reason of any labor or service performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises, or (v) from any other act, neglect, fault or omission of Tenant or its agents or employees. The provisions of this paragraph 17 shall survive the expiration or earlier termination of this lease. 18. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily assign, ------------------------- encumber or otherwise transfer its interest in this lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord's written consent, which consent shall not be unreasonably withheld, and otherwise complying with the requirements of this paragraph 18. Any assignment, encumbrance or sublease without Landlord's consent, shall constitute a default. 8 If Tenant desires to sublet or assign all or any portion of the Premises, Tenant shall give Landlord written notice thereof, specifying the projected commencement date of the proposed sublet or assignment (which date shall be not less than thirty (30) days or more than ninety (90) days after the date of Landlord's receipt of such notice), the portions of the Premises proposed to be sublet or assigned, the terms and conditions of the proposed assignment or sublease (including the rent to be paid by the proposed assignee or subtenant) and the name, address and telephone number of the proposed assignee or subtenant. Tenant shall further provide Landlord with such other information concerning the proposed assignee or subtenant as requested by Landlord. For a period of thirty (30) days after Landlord's receipt of Tenant's written notice, Landlord shall have the option, exercisable by delivering written notice to Tenant, to terminate this lease as of the date specified in Landlord's written notice to Tenant, which date shall not be less than thirty (30) days nor more than ninety (90) days after the date of Landlord's written notice to Tenant; provided, however, if Tenant has entered into a new lease with Landlord for other space in the Project (not presently leased by Tenant), which space exceeds 20,000 square feet, then the termination date specified in Landlord's notice shall not be less than fifteen (15) days nor more than thirty (30) days after the date of Landlord's written notice to Tenant. If Landlord exercises its option to terminate this lease as provided in the foregoing sentence, Landlord may, if it so elects, enter into a new lease for the Premises or any portion thereof with the proposed assignee or subtenant or any other third party on such terms as Landlord and such proposed assignee or subtenant or other third party may agree; in such event, Tenant shall not be entitled to any portion of the profit, if any, which Landlord may realize on account of such termination and reletting. If Landlord does not elect to terminate this lease as provided hereinabove in this paragraph 18 and if Landlord consents in writing to the proposed assignment or sublet, Tenant shall be free to assign or sublet all or a portion of the Premises subject to the following conditions: (i) any sublease shall be on the same terms set forth in the notice given to Landlord; (ii) no sublease shall be valid and no subtenant shall take possession of the sublet premises until an executed counterpart of such sublease has been delivered to Landlord; (iii) no subtenant shall have a further right to sublet; (iv) any sums or other economic consideration received by Tenant as a result of such assignment or sublet (except rental or other payments received which are attributable to the amortization over the term of this lease of the cost of leasehold improvements constructed for such assignees or subtenant, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease), shall be payable to Landlord as additional rent under this lease without affecting or reducing any other obligation of Tenant hereunder; (v) no sublet or assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder; and (vi) any assignee or subtenant must expressly agree to assume and perform all of the covenants and conditions of Tenant under this lease. Tenant shall pay to Landlord promptly upon demand as additional rent, Landlord's actual attorneys' fees and other costs incurred for reviewing, processing or documenting any requested assignment or sublease, whether or not Landlord's consent is granted. Tenant shall not be entitled to assign this lease or sublease all or any part of the Premises (and any attempt to do so shall be voidable by Landlord) during any period in which Tenant is in default under this lease. If Tenant is a partnership, a withdrawal or change, voluntary or involuntary or by operation of law, of any general partner or the dissolution of the partnership shall be deemed an assignment of this lease subject to all the conditions of this paragraph 18. If Tenant is a corporation any dissolution, merger, consolidation or other reorganization of Tenant or the sale or other transfer of a controlling percentage of the capital stock of Tenant or the sale of more than fifty percent (50%) of the value of Tenant's assets shall be an assignment of this lease subject to all the conditions of this paragraph 18. The term "controlling percentage" means the ownership of, and the right to vote, stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote. This paragraph shall not apply if Tenant is a corporation the stock of which is traded through an exchange. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or sublets of this lease or amendments or modifications to this lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this lease. No interest of Tenant in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors or institutes a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ of attachment or execution is levied on this lease; or (iii) if, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this lease, in which case this lease shall not be treated as an asset of Tenant. 9 Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this lease, all rent from any subletting of all or a part of the Premises as permitted by this lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver of Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this lease; except that, until the occurrence of an act or default by Tenant, Tenant shall have the right to collect such rent, subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 18. 19. DEFAULT. The occurrence of any of the following shall constitute a ------- default by Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder within three (3) days after the date that such payment becomes due; (ii) abandonment of the Premises (Tenant's failure to occupy and conduct business in the Premises for fourteen (14) consecutive days shall be deemed an abandonment); (iii) failure of Tenant to deliver to Landlord any instrument, assurance, financial statement, subordination agreement or certificate of estoppel required under this Lease within the time period specified for such performance if the failure continues for five (5) days after written notice of the failure from Landlord to Tenant; or (iv) failure of Tenant to perform any other obligation under this lease if the failure to perform is not cured within thirty (30) days after written notice thereof has been given to Tenant (provided that if such default cannot reasonably be cured within thirty (30) days, Tenant shall not be in default if Tenant commences to cure such failure to perform within the thirty (30) day period and diligently and in good faith continues to cure the failure to perform), except in the case of an emergency or dangerous condition, in which case Tenant's time to perform shall be that time period which is reasonable under the circumstances. The notice referred to in clauses (iii) and (iv) above shall specify the failure to perform and the applicable lease provision and shall demand that Tenant perform the provisions of this lease within the applicable period of time. No notice shall be deemed a forfeiture or termination of this lease unless Landlord so elects in the notice. No notice shall be required in the event of abandonment or vacation of the Premises. In addition to the above, the occurrence of any of the following events shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as they become due or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors (for purposes of determining whether Tenant is not paying its debts as they become due, a debt shall be deemed overdue upon the earliest to occur of the following: thirty (30) days from the date a statement therefor has been rendered; the date on which any action or proceeding therefor is commenced; or the date on which a formal notice of default or demand has been sent); (ii) Tenant fails to furnish to Landlord a schedule of Tenant's aged accounts payable within ten (10) days after Landlord's written request; (iii) any financial statements given to Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any guarantor of Tenant, or successor in interest of Tenant (including, without limitation, any schedule of Tenant's aged accounts payable) are materially false; or (iv) any financial statement or other financial information furnished by Tenant pursuant to the provisions of this lease or at the request of Landlord evidences that either Tenant's net worth or its net assets are at least twenty-five percent (25%) less than the net worth or net assets shown in either the immediately prior financial statement or the financial statement of Tenant furnished at the time of execution of this lease, and Tenant fails to furnish promptly to Landlord, after notice from Landlord to Tenant, an additional security deposit in cash equivalent to the aggregate of the basic rent and common area charges (without regard to any rent abatement) payable hereunder for the twelve (12) full calendar months immediately preceding such notice. At any time during the term of this lease Landlord, at Landlord's option, shall have the right to receive from Tenant, upon Landlord's request, a current annual balance sheet for Landlord's review. If the balance sheet shows a negative net worth, Landlord may terminate this lease by giving Tenant sixty (60) days prior written notice. In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies of Landlord at law or in equity, shall have the right either to terminate Tenant's right to possession of the Premises (and thereby terminate this lease) or, from time to time and without termination this lease, to relet the Premises or any part thereof for the account and in the name of Tenant for such term and on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Should Landlord elect to keep this lease in full force and effect, Landlord shall have the right to enforce all of Landlord's rights and remedies under this lease, including but not limited to the right to recover and to relet the Premises and such other rights and remedies as Landlord may have under California Civil Code Section 1951.4 (or successor Code section) or any other California statute. If Landlord relets the Premises, then Tenant shall pay to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in such reletting and in making alterations and repairs. Rentals received by Landlord from such reletting shall be applied (i) to the payment of any indebtedness due hereunder, other than basic rent and direct expenses, from Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to return the Premises to good condition normal wear and tear excepted, including the cost of alterations and the cost of storing any of Tenant's property left on the Premises at the time of reletting; and (iii) to the payment of basic rent or direct expenses due and unpaid hereunder. The residue, if any, shall be held by Landlord and applied in payment of future rent or damages in the event of termination as the same may become due and payable hereunder and the balance, if any at the end of the term of this lease shall be paid to Tenant. Should the basic rent and direct expenses received from time to time from such reletting during any month be less than that agreed to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such reletting of the Premises by Landlord shall be construed as an election on its part to terminate this lease unless a notice of such intention is given to Tenant or unless the termination hereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time 10 thereafter elect to terminate this lease for such previous breach, provided it has not been cured. Should Landlord at any time terminate this lease for any breach, in addition to any other remedy it may have, it shall have the immediate right of entry and may remove all persons and property from the Premises and shall have all the rights and remedies of a landlord provided by California Civil Code Section 1951.2 or any successor code section. Upon such termination, in addition to all its other rights and remedies, Landlord shall be entitled to recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and including (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this lease or which in the ordinary course of events would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of twelve percent (12%) per annum. The "worth at the time of award" of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the federal reserve bank of San Francisco at the time of award plus one percent (1%). Tenant waives the provisions of Section 1179 of the California Code of Civil Procedure (which Section allows Tenant to petition a court of competent jurisdiction for relief against forfeiture of this lease). Property removed from the Premises may be stored in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such manner and at such times and places that Landlord, in its sole discretion, may deem proper, without notice to or demand upon Tenant. 20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. Landlord, at any time after ----------------------------------------- Tenant commits a default, may, but shall not be obligated to, cure the default at Tenant's cost. If Landlord at any time, by reason of Tenant's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord and shall bear interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be additional rent. 21. EMINENT DOMAIN. If all or any part of the Premises shall be taken by -------------- any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any payments, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance. Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this lease. Notwithstanding the foregoing, Tenant shall be entitled to any compensation for depreciation to and cost of removal of Tenant's equipment and fixtures and any compensation for its relocation expenses necessitated by such taking, but in each case only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award as being therefor. Each party waives the provisions of Section 1265.130 of the California Code of Civil Procedure (which section allows either party to petition the Superior Court to terminate this lease in the event of a partial taking of the Premises). If any action or proceeding is commenced for such taking of the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by any entity or body having the right of power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, then Landlord shall have the right to terminate this lease by giving Tenant written notice thereof within sixty (60) days of the earlier of the date of Landlord's receipt of such notice of intention to condemn or the commencement of said action or proceeding. Such termination shall be effective as of the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. In the event of a partial taking, or conveyance in lieu thereof, of the Premises and fifty percent (50%) or more of the number of square feet in the Premises are taken then Tenant may terminate this lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty (60) days from the date of such taking or conveyance and shall be effective on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. If a portion of the Premises is taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease as provided above, then this lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rent shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking. 22. NOTICE AND COVENANT TO SURRENDER. On the last day of the term or on -------------------------------- the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises in its condition existing as of the 11 commencement of the term and, except as otherwise provided by Landlord pursuant to the terms of paragraph 8 of this lease, all of the improvements and alterations made to the Premises in their condition existing as of the date of completion of construction and/or installation (normal wear and tear excepted), with all originally painted interior walls washed or repainted if marked or damaged, interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, and all floors cleaned and waxed; all to the reasonable satisfaction of Landlord. On or prior to the last day of the term or the effective date of any earlier termination, Tenant shall remove all of Tenant's personal property and trade fixtures, together with improvements or alterations that Tenant is obligated to remove pursuant to the provisions of paragraph 8 of this lease, from the Premises, and all such property not removed shall be deemed abandoned. In addition, on or prior to the expiration or earlier termination of this lease, Tenant shall remove, at Tenant's sole cost and expense, all telephone, other communication, computer and any other cabling and wiring of any sort installed in the space above the suspended ceiling of the Premises or anywhere else in the Premises and shall promptly repair any damage to the suspended ceiling, lights, light fixtures, walls and any other part of the Premises resulting from such removal. If the Premises are not surrendered as required in this paragraph, Tenant shall indemnify Landlord against all loss, liability and expense (including, but not limited to, attorney fees) resulting from the failure by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenants. It is agreed between Landlord and Tenant that the provisions of this paragraph 22 shall survive the termination of this lease. 23. TENANT'S QUITCLAIM. At the expiration or earlier termination of this ------------------ lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required to remove the cloud or encumbrance created by this lease from the real property or which the Premises are a part. This obligation shall survive said expiration or termination. 24. HOLDING OVER. Any holding over after the expiration or termination of ------------ this lease (with the written consent of Landlord delivered to Tenant) shall be construed to be a tenancy from month to month at the monthly rent, as adjusted, in effect on the date of such expiration or termination. All provisions of this lease, except those pertaining to the term and any option to extend, shall apply to the month to month tenancy. The provisions of this paragraph are in addition to, and do not affect, Landlord's right of re-entry or other rights hereunder or provided by law. If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration or sooner termination of this lease for any reason, then Tenant shall pay to Landlord for each day of such retention double the amount of the daily rental in effect during the last month prior to the date or such expiration or termination. Tenant shall also indemnify and hold Landlord harmless from any loss or liability resulting from delay by Tenant in surrendering the Premises including without limitation, any claims made by any succeeding tenant founded on such delay. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this lease, and nothing contained in this paragraph shall waive Landlord's right of re-entry or any other right. Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord's written consent. 25. SUBORDINATION. In the event Landlord's title or leasehold interest is ------------- now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the request of Landlord or the lender, execute in writing an agreement subordinating its rights under this lease to the lien of such encumbrance, or, if so requested, agreeing that the lien of lender's encumbrance shall be or remain subject and subordinate to the rights of Tenant under this lease. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute, deliver and record any such instrument or instruments for and in the name and on behalf of Tenant. Notwithstanding any such subordination, Tenant's possession under this lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all amounts due hereunder and otherwise observe and perform all provisions of this lease. In addition, if in connection with any such loan the lender shall request reasonable modifications in this lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereof, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 26. CERTIFICATE OF ESTOPPEL. Each party shall, within five (5) calendar ----------------------- days after request therefor, execute and deliver to the other party, in recordable form, a certificate stating that the lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord shall include such other items as Landlord or Landlord's lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgement by the party failing to deliver the certificate that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. Any such certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or Project. Further, within five (5) calendar days following written request made from time to time by Landlord, Tenant shall furnish to Landlord current financial statements of Tenant. 27. SALE BY LANDLORD. In the event the original Landlord hereunder, or ---------------- any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the 12 part of the original Landlord, or such successor owner, under this lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations. 28. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of ----------------------------------- Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by a lender or any other third party through judicial foreclosure or by exercise of a power of sale at a private trustee's foreclosure sale, Tenant hereby agrees to release Landlord of any obligation arising on or after any such foreclosure sale and to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this lease. 29. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord ------------------- fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. If Landlord is in default of this lease, Tenant's sole remedy shall be to institute suit against Landlord in a court of competent jurisdiction, and Tenant shall have no right to offset any sums expended by Tenant as a result of Landlord's default against future rent and other sums due and payable pursuant to this lease. If Landlord is in default of this lease, and as a consequence Tenant recovers a money judgment against Landlord, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the partners comprising the partnership designated as Landlord shall be personally liable for any deficiency. 30. CONSTRUCTION CHANGES. It is understood that the description of the -------------------- Premises and the location of ductwork, plumbing and other facilities therein are subject to such changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises and/or the improvements constructed or being constructed therein, and no such changes or any changes in plans for any other portions of the Project, shall affect this lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 31. MEASUREMENT OF PREMISES. Tenant understands and agrees that any ----------------------- reference to square footage of the Premises is approximate only and includes all interior partitions and columns, one-half of exterior walls, and one-half of the partitions separating the Premises from the rest of the Project, and any outside entry overhang, if applicable. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in basic rent or direct expenses or other amounts payable hereunder by reason of inaccuracies in such measurement. 32. ATTORNEY FEES. If either party commences an action against the other ------------- party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. If either party becomes a party to any litigation concerning this lease or concerning the Premises or the Project, by reason of any act or omission of the other party or its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to the other party for all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. 33. SURRENDER. The voluntary or other surrender of this lease or the --------- Premises by Tenant, or a mutual cancellation of this lease, shall not work a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord or all or any such subleases or subtenancies. 34. WAIVER. No delay or omission in the exercise of any right or remedy ------ of Landlord on any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this lease. 35. EASEMENTS; AIRSPACE RIGHTS. Landlord reserves the right to alter the -------------------------- boundaries of the 13 Project and grant easements and dedicate for public use portions of the Project without Tenant's consent, provided that no such grant or dedication shall interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge and deliver to Landlord, and in accordance with Landlord's instructions, any and all documents, instruments, maps or plats necessary to effectuate Tenant's covenants hereunder. This lease confers no rights either with regard to the subsurface of the land on which the Premises are located or with regard to airspace above the ceiling of the Premises. Tenant agrees that no diminution or shutting off of light or view by a structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises are a part or to property adjacent thereto, shall in any way affect this lease, or entitle Tenant to any reduction of rent, or result in any liability of Landlord to Tenant. 36. RULES AND REGULATIONS. Landlord shall have the right from time to --------------------- time to promulgate rules and regulations for the safety, care and cleanliness of the Premises, the Project and the Common Area, or for the preservation of good order. On delivery of a copy of such rules and regulations to Tenant, Tenant shall comply with the rules and regulations, and a violation of any of them shall constitute a default by Tenant under this lease. If there is a conflict between the rules and regulations and any of the provisions of this lease, the provisions of this lease shall prevail. Such rules and regulations may be amended by Landlord from time to time with or without advance notice. 37. NOTICES. Except for legal process which may also be served as ------- provided by law or as provided herein, all notices, demands, requests, consents and other communications ("Notices") which may be given or are required to be given by either party to the other shall be in writing and shall be deemed given to and received by the party intended to receive such Notice (i) when hand delivered, (ii) three (3) days after such Notice shall have been deposited, postage prepaid, to the United States Mail, certified return receipt requested, properly addressed to the address specified herein, or (iii) date of delivery if sent to the address specified herein by reputable overnight courier (e.g. Federal Express or other comparable service), as evidenced by such courier's records. Prior to the commencement date, all such Notices from Landlord to Tenant shall be served or addressed to Tenant at 2005 Hamilton Avenue, Suite 255, San Jose, California. On or after the commencement date all such Notices from Landlord to Tenant shall be addressed to Tenant at the Premises. All such Notices by Tenant to Landlord shall be sent to Landlord, c/o CIGNA Investments, Inc., Real Estate Asset Management, Routing Code S-311, 900 Cottage Grove Road, Hartford, CT 06152-2311, with a copy to McCandless Management Corporation, 3945 Freedom Circle, Suite 640, Santa Clara, California 95054. Either party may change its address by notifying the other of such change. 38. NAME. Tenant shall not use the name of the Project for any purpose ---- other than as the address of the business conducted by Tenant in the Premises without the prior written consent of Landlord. 39. GOVERNING LAW; SEVERABILITY. This lease shall in all respects be --------------------------- governed by and construed in accordance with the laws of the State of California. If any provision of this lease shall be held or rendered invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 40. DEFINITIONS. As used in this lease, the following words and phrases ----------- shall have the following meanings: AUTHORIZED REPRESENTATIVE: any officer, agent, employee or ------------------------- independent contractor retained or employed by either party, acting within authority given him by that party. ENCUMBRANCE: any deed of trust, mortgage or other written security ----------- device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement. LEASE MONTH: the period of time determined by reference to the day of ----------- the month in which the term commences and continuing to one day short of the same numbered day in the next succeeding month; e.g., the tenth day of one month to and including the ninth day in the next succeeding month. LENDER: the beneficiary, mortgagee or other holder of an encumbrance, ------ as defined above. LIEN: a charge imposed on the Premises by someone other than ---- Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanic's liens. MAINTENANCE: repairs, replacement, repainting and cleaning. ----------- MONTHLY RENT: the sum of the monthly payments of basic rent and ------------ direct expenses. PERSON: one or more human beings, or legal entities or other ------ artificial persons, including, 14 without limitation, partnerships, corporations, trusts, estates, associations and any combination of human being and legal entities. PROVISION: any term, agreement, covenant, condition, clause, --------- qualification, restriction, reservation or other stipulation in the lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party. RENT: basic rent, direct expenses, additional rent, and all other ---- amounts payable by Tenant to Landlord required by this lease or arising by subsequent actions of the parties made pursuant to this lease. Words used in any gender include other genders. If there be more than one Tenant, the obligations of Tenant hereunder are joint and several. All provisions whether covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. The paragraph headings are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. 41. TIME. Time is of the essence of this lease and of each and all of its ---- provisions. 42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE. Any amount due from --------------------------------------------- Tenant to Landlord hereunder which is not paid when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In addition, Tenant acknowledges that late payment by Tenant to Landlord of basic rent, or of Tenant's monthly direct expenses, or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. No notice to Tenant of failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 19 shall not affect the imposition of such interest and/or late charge. Any interest and late charge imposed pursuant to this paragraph shall be and constitute additional rent payable by Tenant to Landlord. 43. ENTIRE AGREEMENT. This lease, including any exhibits and attachments, ---------------- constitutes the entire agreement between Landlord and Tenant relative to the Premises and this lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this lease. 44. CORPORATE AUTHORITY. If Tenant is a corporation, each individual ------------------- executing this lease on behalf of the corporation represents and warrants that he is duly authorized to execute and deliver this lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord, within ten (10) days of the execution of this lease, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this lease and naming the officers that are authorized to execute this lease on behalf of Tenant, which copy shall be certified by Tenant's secretary as correct and in full force and effect. 45. RECORDING. Neither Landlord nor Tenant shall record this lease or a --------- short form memorandum hereof without the consent of the other. 46. REAL ESTATE BROKERS. Each party represents and warrants to the other ------------------- party that it has not had dealings in any manner with any real estate broker, finder or other person with respect to the Premises and the negotiation and execution of this lease. Each party shall indemnify and hold harmless the other party from all damage, loss, liability and expense (including attorneys' fees and related costs) arising out of or resulting from any claims for commissions or fees that have been or may be asserted against the other party by any broker, finder or other person with whom Tenant or Landlord, respectively, has dealt, or purportedly has dealt, in connection with the Premises and the negotiation and execution of this lease. Landlord and Tenant agree that Landlord shall not be obligated to pay any broker leasing commissions, consulting fees, finder fees or any other fees or commissions arising out of or relating to any extended term of this lease or to any expansion or relocation of the Premises at any time. 47. EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this lease ------------------------ are a part hereof. 48. ERISA REQUIREMENTS. It is understood that Landlord is subject to the ------------------ Employee Retirement Income Security Act ("ERISA") and has furnished to Tenant a list of individuals and entities, transactions with which might result in a prohibited transaction under ERISA or would otherwise cause a breach of an ERISA related requirement. Tenant hereby warrants and represents that Tenant is not related to or 15 affiliated with any person or entity shown on the list attached hereto as Exhibit D such that Tenant is a "party in interest" to such person or entity as that term is defined in ERISA Section 3 (14), a copy of which Section is attached hereto as Exhibit E, as that Section may be interpreted or amended. Tenant agrees that each time that Landlord makes additions to such list that Tenant will either make the warranty requested above or shall disclose to Landlord the relationship with such party on the list that would cause Tenant to be unable to make such warranty and representation. Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or damages which may result from a breach of the warranty and representation made by Tenant. 49. ENVIRONMENTAL MATTERS. --------------------- A. TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS. ------------------------------------------------ (1) HAZARDOUS MATERIALS HANDLING. Tenant, its agents, invitees, ---------------------------- employees, contractors, sublessees, assigns and/or successors shall not use, store, dispose, release or otherwise cause to be present or permit the use, storage, disposal, release or presence of Hazardous Materials (as defined below) on or about the Premises or Project. As used herein "Hazardous Materials" shall mean any petroleum or petroleum by-products, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous substance", "hazardous waste", "hazardous materials", "toxic substance" or "toxic waste" as those terms are defined under the provisions of the California Health and Safety Code and/or the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or any agency thereof, or the United States Government or any agency thereof. (2) NOTICES. Tenant shall immediately notify Landlord in writing ------- of: (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any law, regulation or ordinance relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials (collectively "Hazardous Materials Laws"); (ii) any claim made or threatened by any person against Tenant, the Premises, Project or buildings within the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises, Project or buildings within the Project, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, Project or buildings within the Project or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. B. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify, defend (by --------------------------- counsel acceptable to Landlord), protect, and hold Landlord, and each of Landlord's partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) for death of or injury to any person or damage to any property whatsoever (including water tables and atmosphere), arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under or about the Premises, Project or buildings within the Project or discharge in or from the Premises, Project or buildings within the Project of any Hazardous Materials or Tenant's use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, Project or buildings within the Project, or (ii) Tenant's failure to comply with any Hazardous Materials Laws whether knowingly, unknowingly, intentionally or unintentionally. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, Project or buildings within the Project, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. In addition, Tenant shall reimburse Landlord for (i) losses in or reductions to rental income resulting from Tenant's use, storage or disposal of Hazardous Materials, (ii) all costs of refitting or other alterations to the Premises, Project or buildings within the Project required as a result of Tenant's use, storage, or disposal of Hazardous Materials including, without limitation, alterations required to accommodate an alternate use of the Premises, Project or buildings within the Project, and (iii) any diminution in the fair market value of the Premises, Project or buildings within the Project caused by Tenant's use, storage, or disposal of Hazardous Materials. For purposes of this paragraph 49, any acts or omissions of Tenant, or by employees, agents, assignees, contractors or subcontractors of Tenant or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant. C. SURVIVAL. The provisions of this paragraph 49 shall survive the -------- expiration or earlier termination of the term of this lease. 50. SIGNAGE. Tenant shall not, without obtaining the prior written consent ------- of Landlord, install or attach any sign or advertising material on any part of the outside of the Premises, or on any part of the inside of the Premises which is visible from the outside of the Premises, or in the halls, lobbies, windows or elevators of the building in which the Premises are located or on or about any other portion of the Common Area or Project. If Landlord consents to the installation of any sign or other advertising material, 16 the location, size, design, color and other physical aspects thereof shall be subject to Landlord's prior written approval and shall be in accordance with any sign program applicable to the Project. In addition to any other requirements of this paragraph 50, the installation of any sign or other advertising material by or for Tenant must comply with all applicable laws, statutes, requirements, rules, ordinances and any C.C. & R.'s or other similar requirements. With respect to any permitted sign installed by or for Tenant, Tenant shall maintain such sign or other advertising material in good condition and repair and shall remove such sign or other advertising material on the expiration or earlier termination of the term of this lease. The cost of any permitted sign or advertising material and all costs associated with the installation, maintenance and removal thereof shall be paid for solely by Tenant. If Tenant fails to properly maintain or remove any permitted sign or other advertising material, Landlord may do so at Tenant's expense. Any cost incurred by Landlord in connection with such maintenance or removal shall be deemed additional rent and shall be paid by Tenant to Landlord within ten (10) days following notice from Landlord. Landlord may remove any unpermitted sign or advertising material without notice to Tenant and the cost of such removal shall be additional rent and shall be paid by Tenant within ten (10) days following notice from Landlord. Landlord shall not be liable to Tenant for any damage, loss or expense resulting from Landlord's removal of any sign or advertising material in accordance with this paragraph 50. The provisions of this paragraph 50 shall survive the expiration or earlier termination of this lease. 51. SUBMISSION OF LEASE. The submission of this lease to Tenant for ------------------- examination or signature by Tenant is not an offer to lease the Premises to Tenant, nor an agreement by Landlord to reserve the Premises for Tenant. Landlord will not be bound to Tenant until this lease has been duly executed and delivered by both Landlord and Tenant. 52. PREMISES TAKEN "AS IS". Tenant is leasing the Premises from Landlord ---------------------- "As Is" in their condition existing as of the date hereof. Landlord shall have no obligation to alter or improve the Premises. 53. ADDITIONAL RENT. All costs, charges, fees, penalties, interest, and --------------- any other payments (including Tenant's reimbursement to Landlord of costs incurred by Landlord) which Tenant is required to make to Landlord pursuant to the terms and conditions of this lease and any amendments to this lease shall be and constitute additional rent payable by Tenant to Landlord when due as specified in this lease and any amendments to this lease. 54. LANDLORD'S OPTION TO RELOCATE PREMISES. At any time during the initial -------------------------------------- term and any extended term of this lease, Landlord shall have the option to relocate Tenant to alternate space within the Project which is reasonably comparable to the Premises in size and type of space ("Relocation Space"). Landlord shall exercise this option to relocate by giving Tenant written notice of Landlord's election to relocate at least ninety (90) calendar days prior to the date of relocation and said written notice shall specify the date of relocation ("Relocation Date"). Upon Tenant's receipt of Landlord's written notice of election to exercise this option, Landlord and Tenant shall cooperate with each other to identify acceptable space within the Project which shall be the Relocation Space. If Landlord and Tenant are unable to agree on acceptable space within sixty (60) days after Tenant's receipt of Landlord's written notice, Landlord shall have the right to unilaterally designate as the Relocation Space any space within the Project which is reasonably comparable to the Premises in size and type of space. If Landlord and Tenant are unable to agree on acceptable space within sixty (60) days after Tenant's receipt of Landlord's written notice and Landlord unilaterally designates the Relocation Space as provided for in the foregoing sentence, Tenant shall have the option to terminate this lease effective as of the Relocation Date by delivering to Landlord, within five (5) business days after receipt of Landlord's notice designating the Relocation Space, Tenant's irrevocable written notice of its election to terminate this lease. In the event Tenant relocates into the Relocation Space as provided in this paragraph 54, commencing on the Relocation Date this lease shall be deemed amended by deleting the description of the Premises as presently constituted and adding the description of the Relocation Space and Tenant's lease of the Relocation Space from Landlord shall be subject to all of the terms and conditions of this lease (as amended, if applicable) including the payment of basic rent and direct expenses, which shall be adjusted to reflect any increase or decrease in the square footage between the Premises as presently constituted and the Relocation Space. Landlord shall pay all reasonable costs incurred in connection with moving Tenant's business from the Premises into the Relocation Space. 55. TENANT IMPROVEMENTS. Tenant shall construct certain tenant ------------------- improvements (the "Tenant Improvements") in the Premises as shown and described in Exhibit C attached hereto, subject to the following terms and conditions: (a) The Tenant Improvements shall be deemed alterations to the Premises subject to Landlord's prior written consent and shall be subject to all the terms and conditions of paragraph 8 of this lease, except that Tenant shall not be obligated to remove the Tenant Improvements shown in Exhibit C nor restore the Premises to its condition prior to construction of the Tenant Improvement to the extent specified in Exhibit C. Tenant shall submit preliminary space plans and final space plans to Landlord for Landlord's prior written consent. Upon Landlord's approval of the final space plan, Tenant shall thereafter cause to be prepared by licensed architects and engineers a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings (the "Final Construction Drawings") for the Tenant Improvements, if applicable, and shall submit copies of the Final Construction Drawings to Landlord for Landlord's approval. After Landlord's approval of the Final Construction Drawings, Tenant shall submit the Final Construction Drawings as approved by Landlord to the City to obtain all requisite building permits. No changes, modifications or alterations to the Final Construction Drawings shall be made without 17 Landlord's prior written consent. (b) A general contractor shall be retained by Tenant to construct the Tenant Improvements. The general contractor shall be subject to Landlord's approval. Tenant shall only use contractors and subcontractors reasonably approved by Landlord. All of Tenant's contractors and subcontractors shall carry workers compensation insurance covering all of their respective employees and shall also carry commercial general liability and property damage insurance, all with limits, in form and with companies as are required to be carried by Tenant in paragraph 11 of this lease. Tenant shall also carry "Builder's All Risk" insurance in an amount approved by Landlord covering construction of the Tenant Improvements and such other insurance as Landlord may reasonably require. Certificates for all insurances required hereunder shall be provided to Landlord prior to commencement of construction of the Tenant Improvements. (c) Landlord will be notified at least ten (10) days prior to the commencement of any construction in order to post a Notice of Non- Responsibility. Tenant agrees to conform with Landlord's rules and regulations associated with construction to minimize the disruption to the other tenants in the building. Any construction which causes significant noise or other disturbance to the tenants shall be done during non-business hours (evenings after 6:30 p.m. or weekends). Tenant will require its general contractor to clean the exterior of the Premises daily and shall keep the common areas clean and debris-free at all times and shall park construction vehicles and store materials in areas designated by Landlord. Mechanical systems shall be designed so as to not affect the systems of the adjoining suites or otherwise alter the airflow to the other tenants in the building. (d) The Tenant Improvements shall be constructed in accordance with all applicable local, state and federal laws, statutes, codes, ordinances, rules and regulations. (e) Landlord shall have the right to enter the Premises at all times during construction of the Tenant Improvements to inspect and monitor such construction, but shall have no obligation to do so and assumes no liability or responsibility for such construction and/or compliance with laws applicable thereto, which is and shall be Tenant's sole responsibility. 56. EARLY ACCESS. Landlord shall provide Tenant with limited access to the ------------ Premises prior to the commencement of the term, but only for purposes of construction of the Tenant Improvements. Tenant's access shall be coordinated with Landlord. Except as specifically provided below, Tenant's access to the Premises pursuant to this paragraph shall be subject to all the terms and conditions of this lease, including the insurance obligations specified in paragraph 11 and paragraph 55. As a condition precedent to Tenant's right to such access to the Premises, Tenant shall provide Landlord with proof that Tenant has satisfied said insurance requirements. Such limited access to the Premises shall not accelerate the commencement or termination dates of this lease specified in paragraph 2(a) hereof and Tenant shall not be obligated to pay basic rent or direct expenses until the commencement of the term. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this lease as of the date first above written. Landlord: Tenant: - -------- ------- CONNECTICUT GENERAL LIFE INSURANCE eBAY, INC., COMPANY, on behalf of its Separate a California corporation Account R By: CIGNA Investments, Inc. By:____________________________ By: /s/ Margaret C. Whitman --------------------------------- Name:__________________________ Name: Margaret C. Whitman ------------------------------- Its:___________________________ Its: President Date:______________________________ By: /s/ Matthew P. Quilter --------------------------------- Name:________________________ Its: Secretary Date:_______________________________ 18 FIRST AMENDMENT TO LEASE ------------------------ THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made this 9th day of June, 1998, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf of its Separate Account R ("Landlord") and EBAY, INC., a California corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord approximately two thousand two hundred fifteen (2,215) square feet of space located at 2005 Hamilton Avenue, Suites 235 and 240, San Jose, California (the "Current Premises"), pursuant to that certain Lease dated April 10, 1998 (the "Lease"). The Current Premises are shown on Exhibit A attached hereto. B. Tenant desires to lease additional space from Landlord located at 2005 Hamilton Avenue, Suite 130, San Jose, California, (the "Expansion Space"), consisting of approximately four thousand two hundred twenty-two (4,222) square feet of space. The Expansion Space is shown on Exhibit B attached hereto. C. Tenant also desires to extend the term of the Lease on the terms and conditions set forth below. D. Landlord is willing to lease the Expansion Space to Tenant and to extend the term of the Lease in consideration of Tenant's agreement to the terms and conditions set forth below. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein, Landlord and Tenant agree as follows: 1. TERM. Paragraph 2 of the Lease is modified as follows: ---- The term of the Lease is hereby extended such that the termination date shall be June 7, 2001. 2. PREMISES. The definition of "Premises" is modified as follows: -------- From and after June 8, 1998, the Expansion Space shall be added to the Current Premises and, thereafter, the total area leased shall be increased to six thousand four hundred thirty-seven (6,437) square feet and the term "Premises" as used in this Lease shall refer to the Current Premises and the Expansion Space combined. 3. BASIC RENT. Paragraphs 4(a) and 5(a) of the Lease are modified as ---------- follows: Commencing on the June 8, 1998, the basic rent payable by Tenant as set forth in paragraphs 4(a) and 5(a) of the Lease shall be as follows: From June 8, 1998 through June 7, 1999 $16,607.46 per month 19 Commencing on June 8, 1999 and on each anniversary date thereafter (each such date is referred to herein as the "Adjustment Date"), the basic rent shall be adjusted as follows: The Consumer Price Index for All Urban Consumers (base year 1984 = 100) for San Francisco-Oakland, Metropolitan Area published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the nearest date preceding the applicable Adjustment Date (the "Extension Index"), shall be compared with the Index published for the nearest date preceding June 8, 1998 (the "Beginning Index"). If the Extension Index has increased over the Beginning Index, the monthly basic rent payable during the following period shall be set by multiplying $16,607.46 by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index; provided, however, that in no event shall the increase in monthly basic rent on each Adjustment Date be less than four percent (4%) over the monthly basic rent payable for the lease month prior to such Adjustment Date. As soon as the monthly basic rent for each such period is set, Landlord shall give Tenant notice of the amount. On each Adjustment Date the parties shall immediately execute an amendment to the lease stating the new monthly basic rent or otherwise acknowledge in writing such adjustment in form reasonably acceptable to Landlord. If the Index is changed so that the base year differs from that used for the Beginning Index, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 4. DIRECT EXPENSES. Paragraphs 4(b) and 5(b) of the Lease are modified as --------------- follows: Commencing on the June 8, 1998, Tenant's proportionate share of direct expenses of the Project as set forth in paragraph 5(b) of the Lease shall be increased to two and seventy-eight one-hundredths percent (2.78%) and Tenant's proportionate share of direct expenses of the building in which the Premises are located shall be increased to ten and four one-hundredths percent (10.04%). Commencing on the June 8, 1998, Tenant's payment of its estimated share of direct expenses shall be Three Thousand Nine Hundred Ninety and 94/100 Dollars ($3,990.94) and shall be reconciled and adjusted thereafter in accordance with paragraph 5(b) of the Lease. 5. ADVANCE RENT DEPOSIT. Concurrent with Tenant's execution of this -------------------- Amendment Tenant shall deliver to Landlord the sum of Thirteen Thousand Five Hundred Ten and 40/100 Dollars ($13,510.40) as advance payment of basic rent and direct expenses applicable to the Expansion Space for the first lease month commencing on June 8, 1998. 6. SECURITY DEPOSIT. Paragraph 4(e) of the Lease is modified as follows: ---------------- Upon execution of this Amendment, Tenant shall deposit with Landlord the additional sum of Fifteen Thousand Dollars ($15,000) which shall be held by Landlord as a portion of Tenant's security deposit pursuant to paragraph 4(e) of the Lease. The total amount of the security deposit held by 20 Landlord shall be increased thereby to a total of Twenty-Two Thousand Dollars ($22,000). 7. PARKING. Paragraph 15 of the Lease is modified as follows: ------- Commencing on June 8, 1998, the number of non-exclusive parking spaces which Tenant shall be entitled to use shall be increased to twenty-three (23) spaces. 8. EXPANSION SPACE LEASED "AS IS". Tenant is leasing the Expansion Space ------------------------------ in its current condition and Landlord shall have no obligation to alter, modify or improve the Expansion Space in any way. 9. CONDITION TO EFFECTIVENESS. The effectiveness of this Amendment is -------------------------- conditioned and contingent upon Landlord receiving a duly executed Lease Termination Agreement from Hall Kinion terminating its lease with respect to the Expansion Space in form and substance acceptable to Landlord in Landlord's sole and absolute discretion. If Landlord does not receive such agreement from Hall Kinion on or before June 7, 1998, then Landlord, at its sole option, may cancel this Amendment, but the Lease shall continue in full force and effect as to the Current Space. 10. CORPORATE AUTHORITY. Each individual executing this Amendment on ------------------- behalf of a corporation represents and warrants that he/she is duly authorized to execute and deliver this Amendment on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this Amendment is binding upon said corporation in accordance with its terms. Tenant shall deliver to Landlord, within ten (10) days of the execution and delivery of this Amendment, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this Amendment and naming the officers that are authorized to execute this Amendment on behalf of Tenant, which copy shall be certified by Tenant's President or Secretary as correct and in full force and effect. 11. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified -------------------------------- herein, all other terms, covenants and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the date first set forth above. 21 Landlord: Tenant: - -------- ------ CONNECTICUT GENERAL LIFE eBAY, INC., INSURANCE COMPANY, a California corporation a Connecticut corporation, on behalf of its Separate Account R By: CIGNA Investments, Inc., By: /s/ Margaret C. Whitman ------------------------------------ a Delaware corporation Its Authorized Agent Name: Margaret C. Whitman ---------------------------------- By:______________________ Title: President --------------------------------- Name:____________________ Date: 7/8/98 ---------------------------------- Title:___________________ Date:____________________ By: /s/ Matthew P. Quilter ------------------------------------ Name: Matthew P. Quilter ---------------------------------- Title: Secretary --------------------------------- Date: 7/8/98 ---------------------------------- 22 EX-10.10 17 IMPERIAL BANK STARTER KIT LOAN & SECURITY AGMT. EXHIBIT 10.10 ------------- IMPERIAL BANK ------------- INNOVATIVE BUSINESS BANKING STARTER KIT LOAN AND SECURITY AGREEMENT Borrower: eBay, Inc. Address: 2005 Hamilton Ave., Suite 270 ----------- -------------------------------- Date: July 20, 1997 San Jose, CA 95125 ----------------- ------------------ THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made and entered into on the above date between IMPERIAL BANK ("Bank"), whose address is 226 Airport Parkway, -------------------- San Jose, CA 95110 and the party(ies) named above (jointly and severally, - ------------------- "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). 1. LOANS. Bank will make loans to Borrower (the "Loans") in amounts determined by Bank in its reasonable business judgment up to the amount (the "Credit Limit") shown on the Schedule to this Agreement (the "Schedule"), provided no Event of Default and no event which, with notice or passage of time or both, would constitute an Event of Default is occurring or has occurred. All Loans and other monetary Obligations will bear interest at the rate shown on the Schedule. Interest will be payable monthly, on the date shown on the monthly billing from Bank. Bank may, in its discretion, charge Borrower's deposit accounts maintained with Bank for any amounts coming due under this Agreement. 2. SECURITY INTEREST. As security for all present and future indebtedness, guarantees, liabilities, and other obligations, of Borrower to Bank (collectively, the "Obligations"), Borrower hereby grants Bank a continuing security interest in all of Borrower's right title and interest in and to any property now or hereafter described in a security agreement executed by Borrower to Bank as well as the following types of property, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): All "accounts", "general intangibles," "chattel paper," "documents," "letters of credit," "instruments," "deposit accounts," "inventory," "farm products," "fixtures" and "equipment," as such terms are defined in Division 9 of the California Uniform Commercial Code in effect on the date hereof, and all products, proceeds and insurance proceeds of the foregoing. 3. REPRESENTATIONS AND AGREEMENTS OF BORROWER. Borrower represents to Bank as follows, and Borrower agrees that the following representations will continue to be true, and that Borrower will comply with all of the following agreements throughout the term of this Agreement. 3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will continue to be, duly authorized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby have been duly and validly authorized, and do not violate any law or any provision of and are not grounds for acceleration under, any agreement or instrument which is binding upon Borrower. 3.2 NAME: PLACE OF BUSINESS. The name of Borrower set forth in this Agreement is its correct name. Borrower shall give Bank 15 days prior written notice before changing its name. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give Bank at least 15 days prior written notice before changing its chief executive office or locating the Collateral at any other location. 3.3 COLLATERAL. Bank has and will at all times continue to have a first- priority perfected security interest in all of the Collateral (including intellectual property) other than specific equipment identified in existing filed or to be filed Financing Statements. Borrower will immediately advise Bank in writing of any material loss or damage to the Collateral. 3.4 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in the future delivered to Bank have been, and will be prepared in conformity with generally accepted accounting principles. Since the last date covered by any such statement, there has been no material adverse change in the financial condition or business of Borrower. Borrower will provide Bank: (i) within 30 days after the end of each month, a monthly financial statement prepared by Borrower, and such other information as Bank shall reasonably request: (ii) within 90 days following the end of Borrower's fiscal year, complete annual financial statements, certified by independent certified public accountants acceptable to Bank and accompanied by the unqualified report thereon by said independent certified public accountants; and (iii) other financial information reasonably requested by Bank from time to time. 3.5 TAXES: COMPLIANCE WITH LAW. Borrower has filed, and will file, when due, all tax returns and reports required by applicable law, and Borrower has paid, and will pay, when due, all taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower has complied, and will comply, in all material respects, with all applicable laws, rules and regulations. 3.6 INSURANCE. Borrower will at all times adequately insure all of the tangible personal property Collateral and carry such other business insurance as is customary in Borrower's industry, with Bank named as Loss Payee. 3.7 ACCESS TO COLLATERAL AND BOOKS AND RECORDS. At reasonable times, on one business day's notice, Bank or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. 3.8 BANKING RELATIONSHIP AND OPERATING ACCOUNTS. Borrower shall maintain its primary operating deposit accounts with Bank. Borrower shall at all times maintain its primary banking relationship with Bank. 3.9 ADDITIONAL AGREEMENTS. Borrower shall not, without Bank's prior written consent, such consent not to be unreasonably withheld, do any of the following: (i) enter into any transaction outside the ordinary course of business except for the sale of capital stock to venture investors, provided that Borrower promptly delivers written notification to Bank of any such stock sale; (ii) sell or transfer any Collateral, except in the ordinary course of business; (iii) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); (iv) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock other than the repurchase of up to five percent (5%) of Borrower's then issued stock in any fiscal year from Borrower's employees or directors pursuant to written agreements with Borrower; (v) incur additional borrowed moneys other than indebtedness fully subordinated to the debt due to Bank, and equipment leases; (vi) merge, liquidate a substantial portion of its assets, or acquire other assets other than in the normal course of business; or (vi) merge, liquidate a substantial portion of its assets, or acquire other assets other than in the normal course of business; or (vii) make loans, investments, or advances to outside parties other than in the normal course of business except in connection with Board-approved employee stock purchase plans. 3.10 NOTICE OF LEGAL PROCEEDINGS. Borrower will notify Bank in writing of any legal action commenced against it which may result in damages over $50,000. 4. TERM. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"). This Agreement may be terminated, without penalty, prior to the Maturity Date as follows: (i) by Borrower, effective three business days after written notice of termination is given to Bank; or (ii) by Bank at any time after the occurrence of an Event of Default, without notice, effective immediately. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay all Obligations in full, whether or not such Obligations are otherwise then due and payable. No termination shall in any way affect or impair any security interest or other right or remedy of Bank, nor shall any such termination relieve Borrower of any Obligation to Bank, until all of the Obligations have been paid and performed in full. 5. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement: (a) Any representation, statement, report or certificate given to Bank by Borrower or any of its officers, employees or agents, now or in the future, is untrue or misleading in a material respect; or (b) Borrower fails to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Obligations outstanding at any time exceed the Credit Limit or (d) Borrower fails to perform any other non-monetary Obligation, which failure is not cured within 10 business days after the date due; or (e) Dissolution, termination of existence, insolvency or business failure of Borrower or appointment of a receiver, trustee or custodian, for all or any part of the property of assignment for the benefit of creditors by, or the commencement of any proceeding by or against Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (f) a material adverse change in the business, operations, or financial or other condition of Borrower. If an Event of Default occurs, Bank, shall have the right to accelerate and declare all of the Obligations to be immediately due and payable, increase the interest rate by an additional five percent per annum, and exercise all rights and remedies recorded by applicable law. If any interest payment, principal payment or principal balance payment due from Borrower is delinquent ten or more days, Borrower agrees to pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment, but nothing in this provision is to be construed as any obligation on the part of Bank to accept payment of any payment past due or less than the total unpaid principal balance after maturity. All payments shall be applied first to any late charges owing, then to interest and the remainder, if any, to principal. 6. GENERAL. If any provision of this Agreement is held to be unenforceable, the remainder of this Agreement shall still continue in full force and effect. This Agreement and any other written agreements, documents and instruments executed in connection herewith are the complete agreement between Borrower and Bank and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not in this Agreement or in other written agreements signed by the parties in connection this Agreement. The failure of Bank at any time to require Borrower to comply strictly with any of the provisions of this Agreement. The failure of Bank at any time to require Borrower to comply strictly with any of the provisions of this Agreement shall not waive Bank's right later to demand and receive strict compliance. Any waiver of a default shall not waive any other default. None of the provisions of this Agreement may be waived except by a specific written waiver signed by an officer of Bank and delivered to Borrower. The provisions of this Agreement may not be amended, except in a writing signed by Borrower and Bank. Borrower shall reimburse Bank for all reasonable attorney's fees and all other reasonable costs incurred by Bank, in connection with this Agreement (whether or not a lawsuit is filed) including any post petition bankruptcy activities. If Bank or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorney's fees from the non-prevailing party. Borrower may not assign any rights under this Agreement without Bank's prior written consent. This Agreement shall be governed by the laws of the State of California to the jurisdiction of whose courts Borrower hereby agrees to submit. 7. MUTUAL WAIVER OF JURY TRAIL. BORROWER AND BANK EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF BANK OR BORROWER OR ANY OR THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR AFFILIATES. 8. REFERENCE PROCEEDINGS. a. Each controversy, dispute or claim ("Claim") between the parties arising out of or relating to this Agreement, which is not settled in writing within ten days after the "Claim Date" (defined as the date on which a party gives written notice to all other parties that a controversy, dispute or claim exists), will be settled by a reference proceeding in Los Angeles, California in accordance with the provisions of Section 63B et seq. of -- --- the California Code of Civil Procedure, or their successor section ("CCP"), which shall constitute the exclusive remedy for the settlement of any Claim, including whether such Claim is subject to the reference proceeding and the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than the Superior Court of Los Angeles (the "Court"). The referee shall be a retired Judge selected by mutual agreement of the parties, and if they cannot so agree within thirty days after the Claim Date, the referee shall be selected by the Presiding Judge of the Court. The referee shall be appointed to sit as a temporary judge, as authorized by law. The referee shall (a) be requested to set the matter for hearing within sixty (60) days after the Claim Date and (b) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive and judgment shall entered pursuant to CCP 644 in the Court. All discovery permitted by this Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Depositions may be taken by either party upon seven (7) days written notice, and, request for production or inspection of documents shall be responded to within ten (10) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding upon the parties. b. The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding which shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to contest or appeal from the final judgment or any appealable order or appealable judgment entered by the referee. The parties expressly reserve the right to findings of fact, conclusions of law, a written statement of decision, and the right to move for a new trail or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision. Borrower: Bank: eBay, Inc. IMPERIAL BANK - ------------------------------ By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA ------------------------- --------------------------- CEO By: /s/ J. SKOLL Title: AVP ------------------------- ------------------------ President IMPERIAL BANK ------------- INNOVATIVE BUSINESS BANKING Master Schedule to Starter Kit Loan and Security Agreement BORROWER: eBay, Inc. ----------------- DATE: July 20, 1997 --------------------- This Schedule is incorporated into and an integral part of the Starter Kit Loan and Security Agreement between Imperial Bank ("Bank") and the above-named Borrower of even date. CREDIT LIMIT (AGGREGATE) $750,000 (includes, without limitation, Equipment Advances (Section 1): and the Letter of Credit Reserve, if any). INTEREST RATE (Section 1): The rate equal to Bank's Prime Rate in effect from time to time, plus 1.25% per year. Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. The Prime Rate shall be the rate announced from time to time by Bank as its "Prime Rate;" as a base rate upon which other rates charged by Bank are based, and it is not necessarily the best rate available at Bank. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. MATURITY DATE (Section 4): January 5, 1999. OTHER LOCATIONS AND ________________________________________________ ADDRESSES ________________________________________________ (Section 3.2): ________________________________________________ ________________________________________________ OTHER AGREEMENTS: 1. LOAN FEE. Borrower shall concurrently pay Bank a non-refundable Loan Fee in the amount of $3,000. 2. RECEIPT OF EQUITY. As a condition to any advances and prior to funding, Borrower shall provide Bank with evidence of receipt of not less than $3,000,000 in new equity from investor(s) acceptable to Bank.
Borrower: Bank: eBay, Inc. IMPERIAL BANK - ----------------------------- By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA ------------------ ------------------------ CEO By: /s/ J. SKOLL Title: AVP ------------------ --------------------- President IMPERIAL BANK ------------- INNOVATIVE BUSINESS BANKING SCHEDULE TO STARTER KIT LOAN AND SECURITY AGREEMENT (EQUIPMENT ADVANCES) BORROWER: eBay, Inc. ------------------------- DATE: July 20, 1997 ------------------------- This Schedule is an integral part of the Loan and Security Agreement between Imperial Bank ("Bank") and the above-named Borrower of even date. CREDIT LIMIT $750,000 (such amount to be funded under the aggregate (EQUIPMENT) Credit Limit). Equipment Advances will be made only on or (Section 1): prior to January 5, 1998 (the "Last Advance Date") and only for the purpose of purchasing equipment reasonably acceptable to Bank. Borrower must provide invoices for the equipment to Bank on or before the Last Advance Date. INTEREST RATE The rate equal to Bank's Prime Rate in effect from time (Section 1): to time, plus 1.25% per annum. Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. The Prime Rate shall be the rate announced from time to time by Bank as its "Prime Rate;" as a base rate upon which other rates charged by Bank are based, and it is not necessarily the best rate available at Bank. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. MATURITY DATE After the Last Advance Date, the unpaid principal balance (Section 4): of the Equipment Advances shall be repaid in 24 equal monthly installments of principal, plus interest, commencing on February 5, 1998 and continuing on the same day of each month thereafter until the entire unpaid principal balance of the Equipment Advances and all accrued unpaid interest have been paid (subject to Bank's right to accelerate the Equipment Advances on an Event of Default). Borrower: Bank: eBay, Inc. IMPERIAL BANK - ------------------------- By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA -------------------- ________________________ CEO By: /s/ J. SKOLL Title: AVP -------------------- --------------------- President IMPERIAL BANK ------------- INNOVATIVE BUSINESS BANKING SCHEDULE TO STARTER KIT LOAN AND SECURITY AGREEMENT (LETTERS OF CREDIT SUBLIMIT) BORROWER: eBay, Inc. ---------------- DATE: July 20, 1997 ------------------- This Schedule is an integral part of the Loan and Security Agreement between Imperial Bank ("Bank") and the above-named Borrower of even date. LETTERS OF CREDIT The aggregate Credit Limit Shall be reduced by an amount equal Sublimit (Section to $205,000 (the "Letter of Credit Reserve"). Bank may, in its 1): sole discretion, advance as Loans, any amounts that may become due or owing to Bank in connection with letter of credit services furnished to Borrower by or through Bank (the "Letter of Credit Services"). Borrower shall execute all standard form applications and agreements of Bank in connection with the Letter of Credit Services and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Bank in connection with the Letter of Credit Services and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Bank in connection with the Letter of Credit Services. MATURITY DATE January 5, 1999. (Section 4):
Borrower: Bank: eBay, Inc. IMPERIAL BANK - ---------------------- By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA ------------------ -------------------- CEO By: /s/ J. SKOLL Title: AVP ------------ -------------------- President EX-10.11 18 INTELLECTUAL PROPERTY SECURITY AGREEMENT EXHIBIT 10.11 ------------- INTELLECTUAL PROPERTY SECURITY AGREEMENT ---------------------------------------- This Intellectual Property Security Agreement (the "Agreement") is made as of July 20, 1997, by and between EBAY, INC., a California corporation ("Grantor"), and IMPERIAL BANK, a California chartered bank ("Secured Party"). RECITALS -------- A. Secured Party has agreed to lend to Grantor certain funds (the "Loan"), and Grantor desires to borrow such funds from Secured Party pursuant to the terms of a Commitment Letter dated July 16, 1997 and the Starter Kit Loan and Security Agreement dated July 20, 1997 (the "Loan Agreement;", all capitalized terms used herein without definition shall have the meanings ascribed to them in the Loan Agreement). B. In order to induce Secured Party to enter into the Loan Agreement, Grantor has agreed to grant a security interest in certain intangible property to Secured Party for purposes of securing the obligations of Grantor to Secured Party. NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS: 1. Grant of Security Interest. As collateral security for the prompt and -------------------------- complete payment and performance of all of Grantor's present or future indebtedness, obligations and liabilities to Secured Party, Grantor hereby grants a security interest and mortgage to Secured Party, as security, in and to Grantor's entire right, title and interest in, to and under the following (all of which shall collectively be called the "Collateral"): (a) Any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held, including without limitation those set forth on Exhibit A attached hereto --------- (collectively, the "Copyrights"); (b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; (c) Any and all design rights which may be available to Grantor now or hereafter existing, created, acquired or held; (d) All patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, including without limitation the patents and patent applications set forth on Exhibit B attached hereto (collectively, the --------- "Patents"); (e) Any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Grantor connected with and symbolized by such trademarks, including without limitation those set forth on Exhibit C --------- attached hereto (collectively, the "Trademarks"); (f) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (g) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (h) All amendment, renewals and extensions of any of the Copyrights, Trademarks or Patents; and (i) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. 2. Authorization and Request. Grantor authorizes and requests that the ------------------------- Register of Copyrights and the Commissioner of Patents and Trademarks record this security agreement. 3. Covenants and Warranties. Grantor represents, warrants, covenants and ------------------------ agrees as follows: (a) Grantor is now the sole owner of the Collateral, except for non- exclusive licenses granted by Grantor to its customers in the ordinary course of business; (b) Performance of this Agreement does not conflict with or result in a breach of any agreement to which Grantor is party or by which Grantor is bound, except to the extent that certain intellectual property agreements prohibit the assignment of the rights thereunder to a third party without the licenser's or other party's consent and this Agreement constitutes an assignment; (c) During the term of this Agreement, Grantor will not transfer or otherwise encumber any interest in the Collateral, except for non-exclusive licenses granted by Grantor in the ordinary course of business or as set forth in this Agreement; (d) To its knowledge, each of the Patents is valid and enforceable, and no part of the Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that nay party of the Collateral violates the rights of any third party; 2 (e) Grantor shall promptly advise Secured Party of any material change in the composition of the Collateral, including but not limited to any subsequent ownership right of the Grantor in or to any Trademark, Patent or Copyright not specified in this Agreement; (f) Grantor shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents and Copyrights (ii) use its best efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Secured Party in writing to material infringements detected and (iii) not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Secured Party, which shall not be unreasonably withheld unless Grantor determines that reasonable business practices suggest that abandonment is appropriate; (g) Grantor shall register or cause to be registered (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those intellectual property rights listed on Exhibit A, B and C hereto within thirty (30) days of the date of this Agreement. Grantor shall register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those addiitonal intellectual property rights developed or acquired by Grantor from time to time in connection with any product prior to the sale or licensing of such product to any third party (including without limitation revisions or additions to the intellectual property rights listed on such Exhibits A, B and C). Grantor shall, from time to time, execute and file such other instruments, and take such further actions as Secured Party may reasonably request from time to time to perfect or continue the perfection of Secured Party's interest in the Collateral; (h) This Agreement creates, and in the case of after acquired Collateral, this Agreement will create at the time Grantor first has rights in such after acquired Collateral, in favor of Secured Party a valid and perfected first priority security interest in the Collateral in the United States securing the payment and performance of the obligations evidenced by the Loan Agreement upon making the filings referred to in clause (i) below; (i) To its knowledge, except for, and upon, the filing with the United States Patent and Trademark office with respect to the Patents and Trademarks and the Register of Copyrights with respect to the Copyrights necessary to perfect the security interests created hereunder, and except as has been already made or obtained, no authorization, approval or other action by, and no notice to or filing with, any U.S. governmental authority or U.S. regulatory body is required either (i) for the grant by Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by Grantor in the U.S. or (ii) for the perfection in the United States or the exercise by Secured Party of its rights and remedies hereunder; (j) All information heretofore, herein or hereafter supplied to Secured Party by or on behalf of Grantor with respect to the Collateral is accurate and complete in all material respects; (k) Grantor shall not enter into any agreement that would materially impair or conflict with Grantor's obligations hereunder without Secured Party's prior written consent, 3 which consent shall not be unreasonably withheld. Grantor shall not permit the inclusion in any material contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in Grantor's rights and interests in any property included within the definition of the Collateral acquired under such contracts, except that certain contracts may contain anti-assignment provisions that could in effect prohibit the creation of a security interest in such contracts if Grantor is required, in its commercially reasonable judgment, to accept such provisions; and (l) Upon any executive officer of Grantor obtaining actual knowledge thereof, Grantor will promptly notify Secured Party in writing of any event that materially adversely affects the value of any Collateral, the ability of Grantor to dispose of any Collateral or the rights and remedies of Secured party in relation thereto, including the levy of any legal process against any of the Collateral. 4. Secured Party's Rights. Secured Party shall have the right, but not ---------------------- the obligation, to take, at Grantors sole expense, any actions that Grantor is required under this Agreement to take but which Grantor fails to take, after fifteen (15) days' notice to Grantor. Grantor shall reimburse and indemnify Secured Party for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this section 4. 5. Inspection rights. Grantor hereby grants to Secured Party and its ----------------- employees, representatives and agents the right to visit, during reasonable hours upon prior reasonable written notice to Grantor, any of Grantor's plants and facilities that manufacture, install or store products (or that have done so during the prior six-month period) that are sold utilizing any of the Collateral, and to inspect the products and quality control records relating thereto upon reasonable written notice to Grantor and as often as may be reasonably requested. 6. Further Assurances; Attorney in Fact. ------------------------------------ (a) On a continuing basis, Grantor will make, execute, acknowledge and deliver, and file and record in the proper filing and recording places in the United States, all such instruments, including appropriate financing and continuation statements and collateral agreements and filings with the United States Patent and Trademark Office and the Register of Copyrights, and take all such action as may reasonably be deemed necessary or advisable, or as requested by Secured Party, to perfect Secured Party's security interest in all Copyrights, Patents and Trademarks and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to Secured Party the grant or perfection of a security interest in all Collateral. (b) Grantor hereby irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor, from time to time in Secured Party's discretion, to take any action and to execute any instrument which Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including (i) to modify, in its sole discretion, this Agreement without first obtaining Grantor's approval of or signature to such modification by amending Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include reference to any right, title or interest in any 4 Copyrights, Patents or Trademarks acquired by Grantor after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Grantor no longer has or claims any right, title or interest, (ii) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Grantor where permitted by law and (iii) after the occurrence of an Event of Default, to transfer the Collateral into the name of Bank or a third party to the extent permitted under the California Uniform Commercial Code. 7. Events of Default. The occurrence of any of the following shall ----------------- constitute an Event of Default under the Agreement. (a) An Event of Default occurs under the Loan Documents; or (b) Grantor breaches any warranty or agreement made by Grantor in this Agreement and, as to any breach that is capable of cure, Grantor fails to cure such breach within ten (10) days of the occurrence of such breach. 8. Remedies. Upon the occurrence and continuance of an Event of Default, -------- Secured Party shall have the right to exercise all the remedies of a secured party under the California Uniform Commercial Code, including without limitation the right to require Grantor to assemble the Collateral and any tangible property in which Secured Party has a security interest and to make it available to Secured Party at a place designated by Secured Party. Secured Party shall have nonexclusive, royalty free license to use the Copyrights, Patents and Trademarks to the extent reasonably necessary to permit Secured Party to exercise its rights and remedies upon the occurrence of an Event of Default. Grantor will pay any expenses (including reasonable attorneys' fees) incurred by Secured Party in connection with the exercise of any of Secured Party's rights hereunder, including without limitation any expense incurred in disposing of the Collateral. All of Secured Party's rights and remedies with respect to the Collateral shall be cumulative. 9. Indemnity. Grantor agrees to defend, indemnify and hold harmless --------- Secured Party and its officers, employees, and agent against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement, and (b) all losses or expenses in any way suffered, incurred, or paid by Secured Party as a result of or in any way arising out of, following or consequential to transactions between Secured Party and Grantor, whether under this Agreement or otherwise (including without limitation reasonable attorneys' fees and reasonable expenses), except for losses arising from or out of Secured Party's gross negligence or willful misconduct. 10. Course of Dealing. No course of dealing, nor any failure to exercise, ----------------- nor any delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof. 11. Attorneys' Fees. If any action relating to this Agreement is brought --------------- by either party hereto against the other party, the prevailing party shall be entitled to recover reasonable attorneys' fees, costs and disbursements. 5 12. Amendments. This Agreement may be amended only by a written ---------- instrument signed by both parties hereto. 13. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute the same instrument. 14. California Law and Jurisdiction; Jury Waiver. This Agreement shall be -------------------------------------------- governed by the laws of the State of California, without regard for choice of law provisions. Grantor and Secured Party consent to the exclusive jurisdiction of any state or federal court located in Santa Clara County, California. GRANTOR AND SECURED PARTY EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE LOAN AGREEMENT THIS ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. Address of Grantor: GRANTOR EBAY, INC. 2005 Hamilton Avenue, Suite 270 By: /s/ PIERRE OMIDYAR -------------------------- San Jose, CA 95125 Title: CEO ----------------------- Attn: Mr. Jeff Skoll Address of Secured Party: SECURED PARTY: IMPERIAL BANK 2460 Sand Hill Road, Suite 102 By: /s/ D. SOUSA ------------------------- Menlo Park, CA 94025 Title: AVP ---------------------- Attn: Mr. David Sousa S-1 EXHIBIT A --------- Copyrights Registration/ Registration/ Description Application/ Application/ - ----------- Number Date ----------- ------------ EXHIBIT B --------- Patents Registration/ Registration/ Description Application/ Application/ - ----------- Number Date ------------ ------------ EXHIBIT C --------- Trademarks Registration/ Registration/ Description Application/ Application/ - ----------- Number Date ------------ ------------ EX-10.13 19 LICENSE AGMT. BETWEEN THUNDERSTONE & REGISTRANT EXHIBIT 10.13 LICENSE AGREEMENT THUNDERSTONE SOFTWARE EXPANSION PROGRAMS INTERNATIONAL, INC. (EPI) LICENSING AGREEMENT FOR TEXIS, VORTEX WEBSCRIPT BRIDGE, METAMORPH, 3DB, METAMORPH API, 3DB API, NETWORK API, BROWSER API, ITS-WRITER, METABOOK, NETWORK CODE GENERATOR, AND POSTSCRIPT VIEWER SOFTWARE UNDER ALL PLATFORMS Carefully read all the terms and conditions of this agreement. If you do not agree to these terms and conditions, return through registered mail or other secured route the unused media and accompanying documentation to the place of purchase. The software and accompanying documentation is protected by United States Copyright Law (Title 17 U.S. Code) and applicable International Codes and Covenants. Installation of this software constitutes acceptance of the Licensing Agreement terms. SECTION 1: DEFINITIONS For the purpose of this Software Program License Agreement the following are defined terms: 1. The term "Licensed Program" shall mean a licensed information processing program or programs consisting of a series of instructions or statements which is machine readable. 2. The term "Licensed Materials" shall mean any materials related to the Licensed Program and provided for use in connection with the Licensed Program. 3. The term "Licensed Program and Materials" shall mean both the Licensed Program and Licensed Materials as defined above. 4. The term "enhancements" shall mean any program, any part thereof, or any materials not included in the Licensed Program and Materials at the time of execution of this agreement that is related to the Licensed Program and Materials. 5. The term "use" shall include copying any portion of the Licensed Program or Licensed Materials into a computer or transmitting them to a computer for processing of the instructions or statements contained in the Licensed Program or Materials. 6. The terms "you", "your", and "client" shall mean Buyer and/or Licensee; "EPI" shall mean the Licensor; i.e., Expansion Programs International, Inc., also known as Thunderstone, an Ohio software company. 7. The term "media" shall mean any tape, disk, diskette, CD-rom or electronic delivery method used to install the Licensed Programs(s). SECTION 2: LICENSE GRANT Subject to the terms and conditions of this Agreement, EPI agrees to grant to you a non-exclusive license to use the Licensed Program(s) at your location or at any other location which may replace it. You shall have the right to use the Licensed Program and materials solely for your own internal operation in the location designated in this Agreement, or in such other location as you may from time to time designate, provided that the intent of this Agreement is not in violation. You do have the right to individually access the Program from anywhere resident within the designated location. Your rights under this Agreement to the Licensed Program and Materials shall not be assigned, licensed or otherwise transferred voluntarily, by operation of law, or otherwise, except to a purchaser of substantially all of your outstanding capital stock or assets, without the prior written approval of EPI. Upon payment of the License Fee for the Licensed Program, EPI shall make available to you one (or more if specified) copy(ies) of the Licensed Program and Materials. Additional copies of Licensed Materials shall be made available by EPI if specified separately, and as determined under EPI's standard business policies covering defective media replacement and technology version updates. In the case of licensing the Licensed programs for a Unix or Unix derivative operating system or Windows-NT or other platform, the software is licensed by number of simultaneous users per CPU over a 1-minute period. In the case of licensing the Licensed Programs for a DOS or DOS derivative operating system, the software is licensed by workstation. The following rights apply: 1. You do have the right to make a back-up copy of the executable portions of the program as provided on the install media, for archive purposes. 2. You do not have the right to make a copy of the executable portions of the program as provided on the install media and move them to an additional system (CPU) which increases the total number of simultaneous users for Unix or other platforms, or increases the total number of workstations for DOS or DOS derivatives, unless this right was specifically contracted for by purchase order or other designated written agreement. 3. You do have the right to put the program onto a multi-user local area network if desired. However, the number of users who may access the program at the same time is governed by the number of simultaneous users for Unix or other platforms, or total number of workstations for which the program was licensed for DOS or DOS derivatives. A 5-user license allows 5 terminals or workstations to run the Licensed 2 Programs at the same time, including the CPU in which the Licensed Programs reside for networking purposes. 4. In the event that source code is included on your installation media solely for the purpose of recompilation to your specific operating system, such source code, unless otherwise specified, is on loan to you for the period of recompilation (or "porting") only. In this case, you do not have the right to make copies of the source code for back- up or any other purpose, and when the recompilation work is complete, this media, along with the newly created executable version of the program, is to be returned to the company (EPI). You may make back-up copies of the newly created executable portions of the program, as covered in item #1 above. Only EPI personnel, unless otherwise specified, have the right to view, copy, or modify source code. 5. You do not have any rights concerning source code unless specifically stated in writing as part of a separate agreement. SECTION 3: PROGRAM SUPPORT SERVICES EPI, at its discretion, will provide to Client sufficient training and support services to enable Client to commence use of the Licensed Program and Materials. EPI will correct errors or malfunctions, of which Client notifies it in writing, in the Licensed Program as supplied for a period of ninety days from the date of the delivery of the Licensed Program. Client will be advised of enhancements made to the Licensed Program by EPI during the term of this license. Client may accept or reject such enhancements to the Licensed Program on terms proposed by EPI at the time the enhancement is offered to Client. If such enhancement is accepted by Client the enhancement shall become part of the Licensed Program and Materials. Upon written request, EPI will provide consulting services or special conversions to Client at its then prevailing rates. SECTION 4: TERM The term of this Agreement shall commence upon delivery of the Licensed Program and shall remain in force in perpetuity unless terminated earlier as provided in this Agreement. This Agreement may be terminated by Client within 30 days after delivery of the Licensed Program and Materials, provided that: (1) Client returns the Licensed Program and Materials to EPI in the same condition as received, normal wear and tear expected; and (2) Client provides written certification by a duly authorized officer stating that all copies of the Licensed Program 3 and Materials have been returned to EPI or destroyed; and (3) that no violation of this Agreement has occurred. It is understood that Client respects the integrity of the intellectual property provided herein said Software Programs, and that Client acknowledges EPI as source of the technology and the program. Any intellectual property theft would not be lessened by compliance to the conditions set forth in (1), (2), and (3) in the paragraph above. In the event that Client exercises its right to terminate this Agreement, any payment made by Client to EPI will be refunded less charges at EPI's current rate for time expended by EPI after execution of this Agreement. Refund will be made only after receipt by EPI of the Licensed Program and receipt of Client's certification that the Licensed Program and Materials have been returned or destroyed, and provided that EPI has been notified in writing of the intent to return such Licensed Program and Materials within 30 days of its delivery. SECTION 5: PAYMENT In consideration of the License granted by EPI to Client hereunder, Client will pay to EPI the amount agreed, as confirmed by invoice. Payment will be due prior to delivery of the Licensed Program and Materials unless otherwise stipulated. The License Fee shall not be construed to include local, state, or federal sales, use, excise, personal property or other similar taxes or duties or shipping charges, and any such taxes or shipping charges shall be assumed and paid for by Client. The License Fee does not include in excess of 1 set of Licensed Program (media) and Materials, unless otherwise specified. EPI will license the Licensed Program and Materials for additional use by Client or its Affiliate provided that prior to such use, EPI receives written notification of the intended use, the name of the Affiliate, its location and relationship to Client; and (2) the parties in good faith arrive at a mutually agreed upon amount to be paid to EPI for the use of the Licensed Program and Materials and (3) that the Affiliate agrees to be bound by the stipulations of this Licensing Agreement. SECTION 6: DELIVERY Upon delivery of the Licensed Program and Materials to Client, Client shall assume risk of loss and damage to the Licensed Program and Materials, and shall replace any loss or damaged portion at Client's expense. Installation of the Licensed Program shall be the responsibility of the Client. 4 SECTION 7: WARRANTY OF PERFORMANCE EPI represents and warrants that the Licensed program will perform substantially in the manner specified in the Licensed Materials. This performance warranty by EPI shall immediately cease if Client or any third party enhances the Licensed Program. DISCLAIMER: THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE CONCERNING MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EPI does not warrant that the functions contained in the Licensed Program will meet Client's requirements or will operate in the combination which Client select for use, or that the operation of the Licensed Program will be uninterrupted or error free or that all Program defects will be corrected by EPI. No employee, agent or representative of EPI has the authority to bind EPI to any oral representation or warranty concerning the Licensed Program and Materials. Any written representation or warranty not expressly contained in this Agreement shall not be enforceable by Client. SECTION 8: PROPERTY RIGHTS EPI warrants that it has the right to grant a license to the Licensed Programs and Materials. EPI warrants that the Licensed program and Materials to the best of its knowledge do not infringe upon any copyright or patent, nor violate the proprietary information rights of any third party. In the event of a copyright or patent infringement claim, EPI may, at its own expense, defend such claim or may procure the right to continue using all or part of the Licensed Program or may discontinue the Licensed Program. This shall constitute the entire liability of EPI with respect to a copyright or patent infringement claim. Client shall maintain EPI's copyright notice on the Licensed Program and Materials and shall reproduce such notice on any copies in whole or in part of the Licensed Program and Materials. The Licensed Program and Materials are, and shall at all times remain, the property of EPI, and Client shall have no right, title or interest therein, except as expressly set forth in this Agreement. Client may make no enhancements to the Licensed Program unless expressly authorized in writing by EPI. 5 SECTION 9: PROPRIETARY AND TRADE SECRET INFORMATION Client will use all reasonable precautions and take all necessary steps to prevent the Licensed Program and Materials in whole or in part from being acquired by unauthorized persons. Client will not create, or attempt to create, or permit or help others to create, the source code from the Licensed Program and Materials furnished pursuant to this Agreement. Client further agrees to not attempt alteration, disassembly, reverse-assembly, or unassembly of the program. Client will not lend, sell, lease or otherwise dispose of the Licensed Program and Materials without the prior written approval of EPI. Client warrants that it will not use Licensed Program and Materials for the purpose of developing any similar or competitive product or aiding another Third Party in developing any similar or competitive product. SECTION 10: LIABILITY AND DEFAULT EPI shall in no event be liable for loss of profit, goodwill, or other special or consequential damages suffered by Client or others as a result of the use by Client of the Licensed Program. Client shall indemnify and hold EPI harmless from any demands, claims, or suits by a third party, for loss, damages, or expenses including attorney's fees arising out of use of the Licensed Program and Materials by Client or any other person. In the event any proceeding or lawsuit is brought by EPI, Client or third party in connection with this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorney's fees. Failure by Client to comply with any term or condition under this Agreement shall entitle the other party to give the party in default written notice requiring it to make good such default. Upon the termination of this Agreement, Client shall return the Licensed Program and Materials and any copies thereof to EPI and shall certify by a duly authorized officer of Client that it no longer has any rights to use the Licensed Program and Materials and that the original and all copies of the Licensed Program and Materials have been returned to EPI. SECTION 11: GENERAL PROVISIONS Neither party shall be responsible for delay or failure in performance resulting from acts beyond the control of such party. Such acts shall include but not be limited to: an act of God; an act of war; riot; an epidemic; fire; flood or other disaster; an act of government; a strike or lockout; a communication line failure; power failure; or failure of the computer equipment or non-EPI developed software. EPI is not responsible for failure to fulfill its obligations under this Agreement due to causes beyond its control. 6 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, U.S.A. In the event of any dispute under this Agreement, a suit may be brought only in a court of competent jurisdiction in the State of Ohio, U.S.A. Any action against EPI under this Agreement must be commenced within one year after such cause of action accrues. Any dispute arising under this Agreement shall be submitted to binding arbitration in the city of Cleveland under the rules then prevailing of the American Arbitration Association and judgment upon the reward rendered may be entered and enforced in any court of competent jurisdiction. This Agreement contains the entire understanding of the parties with respect to the matter contained herein. There are no promises, covenants or undertakings other than those expressly set forth herein. This Agreement may not be modified except by writing, signed by authorized representatives of EPI and Client. A term or condition of this Agreement can be waived only by written consent of both parties. Forbearance or indulgence by either party in any regard shall not constitute a waiver of the term or Condition to be performed and, until performance of the term or condition is complete, the other party may invoke any remedy available under this Agreement or by law, despite such forbearance or indulgence. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Any notice required or permitted to be sent under this Agreement shall be delivered by hand or mailed by registered mail return receipt requested, to the addresses of the parties first set forth in this Agreement. Notice so sent will be deemed effective when delivered in the mail with postage prepaid. 7 EX-10.14 20 EMPLOYMENT LETTER AGR. WITH JEFFREY SKOLL EXHIBIT 10.14 Mr. Jeffrey Skoll 11499 Summit Wood Rd. Los Altos, CA 94022 Dear Jeff:: eBay, Inc. (the "Company" or "eBay") is pleased to confirm its offer to you of a position as President at a salary, payable every other week, which is equivalent to a monthly salary of $2,500.00. You win also be entitled to the benefits that eBay customarily makes available to employees in positions comparable to yours. In addition you will have the right for the next thirty (30) days to purchase that number of shares (the "Shares') of the Company's Common Stock that is equivalent to 425/1000 of the total number of shares (on an as-converted-into Common Stock basis) that I own. These Shares will be subject to a right of repurchase in favor of the Company through June 30, 2000. The right of repurchase will expire in the event of continued employment, with respect to 7/48 of the shares on February 1, 1997, and with respect to an additional 1/48 of the Shares on the first day of each month, thereafter. In the event of an acquisition of eBay, or similar transaction, on or before June 30, 1997, the right of repurchase will expire with respect to an additional 1/4 of the total number of Shares (i.e. the equivalent of an additional twelve months "vesting"), if such transaction occurs on or after July 1, 1997, the right of repurchase shall expire with respect to all of the Shares. The Company asks that you complete the enclosed "Employee Information and Inventions Agreement" prior to commencing employment. In part, this Agreement requests that a departing employee refrain from using or disclosing eBay's Confidential Information (as defined in the Agreement) in any manner which might be detrimental to or conflict with the business interests of eBay or its employees. This Agreement does not prevent a former employee from using his or -------- her general knowledge and experience - no matter when or how gained -- in any new field or position. If you should have any questions about the "Employee Confidential Information and Inventions Agreement," please call me. Under federal immigration laws, the Company is required to verify each new employee's identity and legal authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying those requirements; this offer of employment is conditioned on submission of satisfactory documentation. We hope that you and eBay will find mutual satisfaction with your employment. All of us at eBay are very excited about your joining our team and look forward to a beneficial and fruitful relationship. Nevertheless, employees have the right to terminate their employment at any time with or without cause or notice, and the Company reserves for itself an equal right. We both agree that any dispute arising with respect to your employment, the termination of that employment, or a breach of any covenant of good faith and fair dealing related to your employment, shall be conclusively settled by final and binding arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) at the AAA office in San Jose. This letter and the "Employee Confidential Information and Inventions Agreement" contain the entire agreement with respect to your employment. The terms of this offer may only be changed by written agreement, although the Company may from time to time, in its sole discretion, adjust the salaries and benefits paid to you and its other employees. Should you have any questions with regard to any of the items indicated above, please call me. Kindly indicate your consent to this employment agreement by signing and returning a copy of this letter and a completed "Employee Confidential Information and Inventions Agreement" to me by October 31, 1996. Very truly yours, /s/ PIERRE OMIDYAR Pierre Omidyar Chief Executive Officer ACCEPTED: /s/ J SKOLL OCT 24/96 - ----------- --------- Jeffrey Skoll (Date) 2 EX-10.15 21 EMPLOYMENT LETTER AGR. WITH MICHAEL WILSON EXHIBIT 10.15 eBAY INC. 2005 HAMILTON AVENUE, SUITE 270 SAN JOSE, CA 95125 December 9, 1996 Mr. Michael Wilson 24325 Glenwood Dr. Los Gatos, CA 95030 Dear Michael: eBay, Inc. (the "Company" or "eBay") is pleased to offer you a position as Vice President, Engineering, at a salary, payable every other week, which is equivalent to a monthly salary of $6,500.00. You will also be entitled to the benefits that eBay customarily makes available to employees in positions comparable to yours and it will be recommended to the Board of Directors that you be granted an option for the purchase of 200,000 shares of the Company's Common Stock. The option will be granted under the Company's 1996 Stock Option Plan and, assuming you remain an employee, will vest with respect to 25% of the shares subject to the option one year after the commencement of your employment and, at the end of each month thereafter, with respect to an additional 1/48 of the shares subject to the option. In addition, if certain mutually agreed upon objectives have been achieved by you during your employ, it will be recommended to the Board of Directors that you be granted an additional option for the purchase of 100,000 shares of the Company's Common Stock, under the then-current Stock Option Plan. These objectives will be mutually reviewed and agreed upon during your first month of employ. The Company asks that you complete the enclosed "Employee Information and Inventions Agreement" prior to commencing employment. In part, this Agreement requests that a departing employee refrain from using or disclosing eBay's Confidential Information (as defined in the Agreement) in any manner which might be detrimental to or conflict with the business interests of eBay or its employees. This Agreement does not prevent a former employee from using his or -------- her general knowledge and experience - no matter when or how gained - in any new field or position. If you should have any questions about the "Employee Confidential Information and Inventions Agreement," please call me. Under federal immigration laws, the Company is required to verify each new employee's identity and legal authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying those requirements; this offer of employment is conditioned on submission of satisfactory documentation. We hope that you and eBay will find mutual satisfaction with your employment. All of us at eBay are very excited about your joining our team and look forward to a beneficial and fruitful relationship. Nevertheless, employees have the right to terminate their employment at any time with or without cause or notice, and the Company reserves for itself an equal right. We both agree that any dispute arising with respect to your employment, the termination of that employment, or a breach of any covenant of good faith and fair dealing related to your employment, shall be conclusively settled by final and binding arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) at the AAA office in San Jose. This letter and the "Employee Confidential Information and Inventions Agreement" contain the entire agreement with respect to your employment. The terms of this offer may only be changed by written agreement, although the Company may from time to time, in its sole discretion, adjust the salaries and benefits paid to you and its other employees. Should you have any questions with regard to any of the items indicated above, please call me. Kindly indicate your consent to this employment agreement by signing and returning a copy of this letter and a completed "Employee Confidential Information and Inventions Agreement" to me by December 12, 1996. Very truly yours, /s/ Pierre Omidyar ----------------------- Pierre Omidyar Chief Executive Officer ACCEPTED: /s/ Michael K. Wilson 12/8/96 - --------------------- ------- Michael Wilson Date EX-10.16 22 EMPLOYMENT LETTER AGR. WITH STEVEN WESTLY EXHIBIT 10.16 EBAY INC. 2005 Hamilton Avenue, Suite 270 San Jose, CA 95125 August 8, 1997 Steve Westly 2120 Camino de los Robles Menlo Park, CA 94025 Dear Steve: eBay, Inc. (the "Company" or "eBay") is pleased to offer you the position "Vice-President of Sales and Business Development", at a salary, payable every other week, which is equivalent to a yearly salary of $120,000.00. In addition, you will be paid a $25,000 one-time signing bonus upon the commencement of your employment. eBay, Inc. is also pleased to inform you that you will be entitled to the benefits that eBay customarily makes available to employees in positions comparable to yours and it will be recommended to the Board of Directors that you will be granted an option for the purchase of 264,000 shares of the Company's Common Stock. The option will be granted under the Company's Stock Option Plan and, assuming you remain an employee, will vest with respect to 25% of the shares subject to the option one year after the commencement of your employment and, at the end of each month thereafter, with respect to an additional 1/48 of the shares subject to the option; provided, however, that if your employment is terminated by the company without "Cause" during your first year of employment, shares will vest, at the end of each month, with respect to 1/48 of the shares subject to the option. Furthermore, during your first year of employment, you will be eligible for an additional $30,000.00 and an option for the purchase of 12,000 additional shares based on your achievement of mutually agreed-upon objectives. These objectives are outlined in Attachment A. The Company asks that you complete the "Employee Information and Inventions Agreement" prior to commencing employment. In part, this Agreement requests that a departing employee refrain from using or disclosing eBay's Confidential Information (as defined in the Agreement) in any manner which might be detrimental to or conflict with the business interests of eBay or its employees. This Agreement does not prevent a former employee from using his or her general -------- knowledge and experience no matter when or how gained in any new field or position. If you should have any questions about the "Employee Confidential Information and Inventions Agreement," please call me. - -------------------------------------- /1/ Definition included in this letter Under federal immigration laws, the Company is required to verify each new employee's identity and legal authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying those requirements; this offer of employment is conditioned on submission of satisfactory documentation. We hope that you and eBay will find mutual satisfaction with your employment. All of us at eBay are very excited about your joining our team and look forward to a beneficial and fruitful relationship. Nevertheless, employees have the right to terminate their employment at any time with or without cause or notice, and the Company reserves for itself an equal right. We both agree that any dispute arising with respect to your employment, the termination of that employment, or a breach of any covenant of good faith and fair dealing related to your employment, shall be conclusively settled by final and binding arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) at the AAA office in San Jose. This letter and the "Employee Confidential Information and Inventions Agreement" contain the entire agreement with respect to your employment. The terms of this offer may only be changed by written agreement, although the Company may from time to time, in its sole discretion, adjust the salaries and benefits paid to you and its other employees. Should you have any questions with regard to any of the items indicated above, please call me. Kindly indicate your consent to this employment agreement by signing and returning a copy of this letter to me. This offer, if not endorsed will expire at 7:00 p.m. on August 10, 1997. Very truly yours, ACCEPTED: /s/ Jeffrey Skoll /s/ Steve Westly 8/8/97 - ----------------- ---------------- ------ Jeffrey Skoll Steve Westly Date President "CAUSE" For the purposes of this offer, the term "Cause" means (i) the conviction of any felony or any crime involving moral terpitude or dishonesty; (ii) participation in a fraud or act of dishonesty against the Company which adversely affects the Company in a material way; (iii) willful breach of the Company's policies which adversely affects the Company in a material way; (iv) causing intentional damage to the Company's property or business; (v) conduct which constitutes gross insubordination or incompetence; (vi) habitual neglect of duties; or (vii) conduct which demonstrates gross unfitness to serve; provided that the action or conduct described in clauses (iii), (v) and (vii) above will constitute "Cause" only if such action or conduct continues after the Company has provided Employee with written notice thereof and a reasonable opportunity (to be not less than 30 days nor more than 90 days) to cure the same. For the above purposes, a termination by the Company without Cause includes a termination of employment by the Employee within 30 days following any of the following events: (x) the assignment of any duties to Employee inconsistent with, or reflecting a materially adverse change in, Employee's position, duties, responsibilities or status with the Company, or the removal of Employee from, or failure to reelect Employee to, any of such positions; or (y) the relocation of the Company's principal executive offices, or relocating Employee's principal place of business, in excess of fifty (50) miles from the Company's current executive offices. EX-10.17 23 EMPLOYMENT LETTER AGR. WITH GARY BENGIER EXHIBIT 10.17 eBAY INC. 2005 HAMILTON AVENUE, SUITE 270 SAN JOSE, CA 95125 September 15, 1997 Gary Bengier 1128 Wawona St. San Francisco, CA 94116 Dear Gary: eBay, Inc. (the "Company" or "eBay") is pleased to offer you the position "CFO, Vice President of Finance, at a salary, payable every other week, which is equivalent to a yearly salary of $125,000.00. eBay, Inc. is also pleased to inform you that you will be entitled to the benefits that eBay customarily makes available to employees in positions comparable to yours and it will be recommended to the Board of Directors that you will be granted an option for the purchase of 175,000 shares of the Company's Common Stock. The option will be granted under the Company's Stock Option Plan and, assuming you remain an employee, will vest with respect to 25% of the shares subject to the option one year after the commencement of your employment and, at the end of each month thereafter, with respect to an additional 1/48 of the shares subject to the option; provided, however, that if a "Liquidation Event" occurs during your first year of employment, options will vest, at the end of each month, with respect to 1/48 of the shares subject to the option. For the purpose of this offer letter, a "Liquidation Event" is defined as a sale of all or substantially all of the assets of the Corporation or any transaction, or series of transactions, including without limitation a merger, consolidation, or other corporate reorganization of the Corporation with or into any other corporation or corporations in which more than fifty percent (50%) of the outstanding voting power of this Corporation is disposed of or transferred, irrespective of the form of payment made in such transaction or series of transactions. The Company asks that you complete the "Employee Information and Inventions Agreement" prior to commencing employment. In part, this Agreement requests that a departing employee refrain from using or disclosing eBay's Confidential Information (as defined in the Agreement) in any manner which might be detrimental to or conflict with the business interests of eBay or its employees. This Agreement does not prevent a former employee from using his or her general -------- knowledge and experience-no matter when or how gained-in any new field or position. If you should have any questions about the "Employee Confidential Information and Inventions Agreement," please call me. Under federal immigration laws, the Company is required to verify each new employee's identity and legal authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying those requirements; this offer of employment is conditioned on submission of satisfactory documentation. We hope that you and eBay will find mutual satisfaction with your employment. All of us at eBay are very excited about your joining our team and look forward to a beneficial and fruitful relationship. Nevertheless, employees have the right to terminate their employment at any time with or without cause or notice, and the Company reserves for itself an equal right. We both agree that any dispute arising with respect to your employment, the termination of that employment, or a breach of any covenant of good faith and fair dealing related to your employment, shall be conclusively settled by final and binding arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) at the AAA office in San Jose. This letter and the "Employee Confidential Information and Inventions Agreement" contain the entire agreement with respect to your employment. The terms of this offer may only be changed by written agreement, although the Company may from time to time, in its sole discretion, adjust the salaries and benefits paid to you and its other employees. Should you have any questions with regard to any of the items indicated above, please call me. Kindly indicate your consent to this employment agreement by signing and returning a copy of this letter to me. Your starting date for commencement of employment will be November 3, 1997, unless otherwise mutually agreed in writing. This officer, if not endorsed will expire at 7:00 p.m. on Sept. 15, 1997. Very truly yours, ACCEPTED: /s/ Jeffrey Skoll /s/ Gary Bengier September 15, 1997 - ----------------- ---------------- ------------------ Jeffrey Skoll Gary Bengier Date President /s/ Pierre Omidyar - ------------------ Pierre Omidyar CEO EX-10.18 24 EMPLOYMENT LETTER AGR. WITH MARGARET C. WHITMAN EXHIBIT 10.18 eBay 2005 HAMILTON AVENUE, SUITE 350 San Jose, CA 95125 PHONE 408 369-4830 FAX 408 369-4839 WWW.eBAY.COM January 16, 1998 Ms. Margaret C. Whitman 204 Warren Street Brookline, MA 02146 Dear Meg: eBay, Inc. (the "Company" or "eBay") is pleased to offer you a position as Chief Executive Officer, at a salary, payable twice per month, which is equivalent to a monthly salary of $175,000.00. In addition, you will be eligible for an annual bonus up to $100,000.00, solely at the discretion of the Board of Directors. eBay will also compensate you for reasonable out-of-pocket expenses incurred for the relocation of your family and your belongings. You will also be entitled to the benefits that eBay customarily makes available to employees in positions comparable to yours and it will be recommended to the Board of Directors that you be granted an option for the purchase of 800,000 shares of the Company's Common Stock. The option will be granted under the Company's 1996 Stock Option Plan and, assuming you remain an employee, will vest with respect to 25% of the shares subject to the option one year after the commencement of your employment and, at the end of each month thereafter, with respect to an additional 1/48 of the shares subject to the option; provided, however, that if your employment is terminated by the Company other than for "Cause"'. during your first year of employment, the option will vest, at the end of each month, with respect to 1/48 of the shares subject to the option. No other acceleration of vesting will occur in connection with any termination of your employment or any acquisition of eBay. At least 100,000 of the shares underlying the stock option must be purchased for cash at the option exercise price, as soon as possible after the grant is approved; these shares will be subject to a repurchase option in favor of the Company to the extent they are "Unvested". If your employment is terminated by the Company other than for "Cause" at any time during your employment, you will continue to receive salary compensation for an additional six months and, if at the end of such period you remain unemployed, you will be eligible for additional salary compensation for the lesser of (i) six months, or (ii) until you find other employment. The Company asks that you complete the enclosed "Employee Information and Inventions Agreement" prior to commencing employment. In part, this Agreement requests that a departing _______________ /1/ Definition included in this letter. eBay 2005 HAMILTON AVENUE, SUITE 350 San Jose, CA 95125 PHONE 408 369-4830 FAX 408 369-4839 WWW.eBAY.COM employee refrain from using or disclosing eBay's Confidential Information (as defined in the Agreement) in any manner which might be detrimental to or conflict with the business interests of eBay or its employees. This Agreement does not prevent a former employee from using his or her general knowledge and - -------- experience no matter when or how gained in any new field or position. If you should have any questions about the "Employee Confidential Information and Inventions Agreement," please call me. Under federal immigration laws, the Company is required to verify each new employee's identity and legal authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying those requirements; this offer of employment is conditioned on submission of satisfactory documentation. We hope that you and eBay will find mutual satisfaction with your employment. All of us at eBay are very excited about your joining our team and look forward to a beneficial and fruitful relationship. Nevertheless, employees have the right to terminate their employment at any time with or without cause or notice, and the Company reserves for itself an equal right. We both agree that any dispute arising with respect to your employment, the termination of that employment, or a breach of any covenant of good faith and fair dealing related to your employment, shall be conclusively settled by final and binding arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA) at the AAA office in San Jose. This letter and the "Employee Confidential Information and Inventions Agreement" contain the entire agreement with respect to your employment. The terms of this offer may only be changed by written agreement, although the Company may from time to time, in its sole discretion, adjust the salaries and benefits paid to you and its other employees. Should you have any questions with regard to any of the items indicated above, please call me. Kindly indicate your consent to this employment agreement by signing and returning a copy of this letter and a completed "Employee Confidential Information and Inventions Agreement" to me by the close of business January 16, 1998. Upon your signature below, this will become our binding agreement with respect to your employment and its terms merging and superseding in their entirety all other or prior agreements and communications by you and eBay as to the specific subjects of this letter. Very truly yours, /s/ Pierre Omidyar - ----------------------- Pierre Omidyar Chief Executive Officer ACCEPTED: /s/ Margaret C. Whitman 1/16/98 - ----------------------- ------- Margaret Whitman Date eBay 2005 HAMILTON AVENUE, SUITE 350 San Jose, CA 95125 PHONE 408 369-4830 FAX 408 369-4839 WWW.eBAY.COM "CAUSE" For the purposes of this offer, the term "Cause" means (i) the conviction of any felony or any crime involving moral terpitude or dishonesty; (ii) participation in a fraud or act of dishonesty against the Company which adversely affects the Company in a material way; (iii) willful breach of the Company's policies which adversely affects the Company in a material way; (iv) causing intentional damage to the Company's property or business; (v) conduct which constitutes gross insubordination or incompetence; (vi) habitual neglect of duties; or (vii) conduct which demonstrates gross unfitness to serve; provided that the action or conduct described in clauses (iii), (v) and (vii) above will constitute "Cause" only if such action or conduct continues after the Company has provided Employee with written notice thereof and a reasonable opportunity (to be not less than 30 days nor more than 90 days) to cure the same. For the above purposes, a termination by the Company without Cause includes a termination of employment by the Employee within 30 days following any of the following events: (x) the assignment of any duties to Employee inconsistent with, or reflecting a materially adverse change in, Employee's position, duties, responsibilities or status with the Company, or the removal of Employee from, or failure to reelect Employee to, any of such positions; or (y) the relocation of the Company's principal executive offices, or relocating Employee's principal place of business, in excess of fifty (50) miles from the Company's current executive offices. EX-21.01 25 LIST OF SUBSIDIARIES ________________________________________________________________________________ eBAY INC. EXHIBIT 21.01 LIST OF SUBSIDIARIES ________________________________________________________________________________ NAME JURISDICTION OF INCORPORATION PERCENT OWNED - ---- ----------------------------- ------------- Jump Incorporated Ohio, USA 100% EX-23.02 26 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.02 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our reports dated March 31, 1998, relating to the financial statements of eBay Inc. and July 10, 1998, relating to the financial statements of Jump Incorporated, which appear in such Prospectus. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Prospectus. However, it should be noted that PricewaterhouseCoopers LLP has not prepared or certified such "Selected Consolidated Financial Data." PricewaterhouseCoopers LLP San Jose, California July 14, 1998 EX-27.01 27 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from eBay Inc.'s consolidated financial statements for the years ended December 31, 1996 and 1997, and for the six months ended June 30, 1997 and 1998 included in its Prospectus, and is qualified in its entirety by reference to such financial statements. 1,000 US DOLLARS YEAR YEAR 6-MOS 6-MOS DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1998 JAN-01-1996 JAN-01-1997 JAN-01-1997 JAN-01-1998 DEC-31-1996 DEC-31-1997 JUN-30-1997 JUN-30-1998 1 1 1 1 103 3,723 3,724 10,716 0 0 0 0 184 1,385 539 4,482 (18) (361) (102) (1,636) 0 0 0 0 285 4,967 4,186 14,015 25 728 128 4,048 (2) (76) (13) (464) 308 5,619 4,301 19,815 91 1,124 571 5,212 0 0 0 0 0 3,018 2,972 5,157 4 4 4 4 20 20 20 27 138 991 624 9,091 308 5,619 4,301 19,815 0 0 0 0 372 5,744 1,658 14,922 0 0 0 0 14 746 160 1,736 105 3,511 654 10,362 0 0 0 0 0 3 2 25 254 1,543 848 2,900 106 669 362 2,552 148 874 486 348 0 0 0 0 0 0 0 0 0 0 0 0 148 874 486 348 0.07 0.11 0.08 0.03 0.01 0.03 0.02 0.01
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