-----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, F4rXChzBjxVYH4Vy2JMBCpM+QuLk+RkeV/CbILu0LHIZLb/0nI7+FanaomxDsvGu fjCDBgCQpArh0JgQbdRTTA== 0001012870-98-002896.txt : 19981116 0001012870-98-002896.hdr.sgml : 19981116 ACCESSION NUMBER: 0001012870-98-002896 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EBAY INC CENTRAL INDEX KEY: 0001065088 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 770430924 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24821 FILM NUMBER: 98749380 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 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number 0-28064 eBAY INC. (Exact name of Registrant as specified in its charter) DELAWARE 77-0430924 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2005 HAMILTON AVE, SUITE 350 SAN JOSE, CALIFORNIA 95125 (Address of principal executive offices) (Zip Code) (408) 369-4830 (Registrant's telephone number, including area code) ------------------------ Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO X --- --- As of November 11, 1998, there were 40,264,073 shares of the Registrant's Common Stock outstanding. ================================================================================ - -------------------------------------------------------------------------------- FORM 10-Q eBAY INC. INDEX - --------------------------------------------------------------------------------
PAGE PART I FINANCIAL INFORMATION NUMBER ITEM 1: Condensed Consolidated Financial Statements: Condensed Consolidated Balance Sheet as of September 30, 1998 and December 31, 1997........................................................ 2 Condensed Consolidated Statement of Income for the three and nine months ended September 30, 1998 and 1997....................................................... 3 Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 1998 and 1997....................................................... 4 Notes to Condensed Consolidated Financial Statements............................... 5 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................ 9 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk......................... 21 PART II OTHER INFORMATION ITEM 1: Legal Proceedings.................................................................. 21 ITEM 2: Changes in Securities and Use of Proceeds.......................................... 21 ITEM 3: Defaults Upon Senior Securities.................................................... 21 ITEM 4: Submission of Matters to a Vote of Security Holders................................ 21 ITEM 5: Other Information.................................................................. 21 ITEM 6: Exhibits and Reports on Form 8-K................................................... 22 Signatures................................................................................... 23
- -------------------------------------------------------------------------------- PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- eBAY INC. CONDENSED CONSOLIDATED BALANCE SHEET (in thousands, except per share amounts; unaudited)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents.................................................... $ 74,474 $ 3,723 Accounts receivable, net..................................................... 3,994 1,024 Other current assets......................................................... 3,663 220 --------- --------- Total current assets..................................................... 82,131 4,967 Property and equipment, net..................................................... 5,668 652 Intangible assets, net.......................................................... 1,701 -- --------- --------- $ 89,500 $ 5,619 ========= ========= LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Debt and leases, current portion............................................. $ 316 $ 258 Accounts payable............................................................. 3,376 252 Customer advances............................................................ 506 128 Income taxes payable......................................................... -- 169 Other current liabilities.................................................... 3,066 317 --------- --------- Total current liabilities................................................ 7,264 1,124 Debt and leases, long-term portion.............................................. 94 305 Deferred tax liabilities........................................................ 157 157 --------- --------- 7,515 1,586 --------- --------- Series B Mandatorily Redeemable Convertible Preferred Stock and Series B warrants (Note 2)......................................... -- 3,018 --------- --------- Stockholders' equity: Preferred Stock, $0.001 par value; 5,000 and no shares authorized, no shares issued or outstanding;............................................. -- -- Series A Convertible Preferred Stock, $0.001 par value; no shares and 1,676 shares authorized, no shares and 1,676 shares issued and outstanding;............................................... -- 4 Common Stock, $0.001 par value, 195,000 and 60,000 shares..................... authorized; 40,264 and 20,400 shares issued and outstanding;................ 40 20 Additional paid-in capital.................................................... 86,582 1,482 Notes receivable from stockholders............................................ (1,533) (68) Unearned compensation......................................................... (4,912) (1,399) Retained earnings............................................................. 1,808 976 --------- --------- Total stockholders' equity............................................... 81,985 1,015 --------- --------- $ 89,500 $ 5,619 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 eBAY INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share amounts; unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------ ------------------------------------- 1998 1997 1998 1997 --------------- ---------------- ---------------- ---------------- Net revenues.................................. $ 12,935 $ 1,459 $ 27,857 $ 3,117 Cost of net revenues.......................... 2,103 253 3,839 413 --------- --------- --------- --------- Gross profit........................... 10,832 1,206 24,018 2,704 --------- --------- --------- --------- Operating expenses: Sales and marketing...................... 5,476 369 10,086 581 Product development...................... 1,514 257 3,062 466 General and administrative............... 2,115 260 6,302 493 Acquired research and development and amortization of acquired intangibles... 327 -- 477 -- --------- --------- --------- --------- Total operating expenses............... 9,432 886 19,927 1,540 --------- --------- --------- --------- Income from operations........................ 1,400 320 4,091 1,164 Interest and other income, net................ 122 27 223 33 Interest expense.............................. (11) (1) (36) (3) --------- --------- --------- --------- Income before income taxes.................... 1,511 346 4,278 1,194 Provision for income taxes.................... (848) (147) (3,400) (509) --------- --------- --------- --------- Net income.................................... $ 663 $ 199 $ 878 $ 685 ========= ========= ========= ========= Net income per share: Basic.................................... $ 0.04 $ 0.02 $ 0.07 $ 0.10 ========= ========= ========= ========= Weighted average shares--basic........... 15,423 8,075 12,296 6,800 ========= ========= ========= ========= Diluted.................................. $ 0.02 $ 0.01 $ 0.02 $ 0.02 ========= ========= ========= ========= Weighted average shares--diluted......... 37,168 29,784 35,837 27,984 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 eBAY INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands; unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- 1998 1997 ---------------- ---------------- Cash flows from operating activities: Net income ................................................................... $ 878 $ 685 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts ............................................ 1,423 30 Depreciation and amortization .............................................. 892 3 Amortization of unearned compensation ...................................... 1,888 -- Compensation expense associated with purchases of Common Stock by outside directors ...................................... 429 -- Charitable contribution of Common Stock .................................... 1,215 -- Series B Preferred Stock issued for services ............................... 93 -- Acquired research and development .......................................... 150 -- Amortization of intangible assets .......................................... 515 -- Changes in current assets and liabilities: Accounts receivable ...................................................... (4,381) (534) Other current assets ..................................................... (3,443) (63) Accounts payable ......................................................... 3,109 210 Customer advances ........................................................ 378 29 Income taxes payable ..................................................... (169) 51 Other current liabilities ................................................ 2,412 189 Deferred tax liabilities ................................................. -- 77 --------- -------- Net cash provided by operating activities ..................................... 5,389 677 --------- -------- Cash flows from investing activities: Purchases of property and equipment ........................................ (5,899) (310) --------- -------- Net cash used in investing activities ......................................... (5,899) (310) --------- -------- Cash flows from financing activities: Proceeds from Series B Preferred Stock and Series B warrants ................. 2,000 2,972 Proceeds from Common Stock, net .............................................. 69,446 -- Repayment of stockholder loans ............................................... 3 -- Principal payments on debt and leases ........................................ (188) (5) --------- -------- Net cash provided by financing activities ..................................... 71,261 2,967 --------- -------- Net increase in cash and cash equivalents ..................................... 70,751 3,334 Cash and cash equivalents at beginning of period .............................. 3,723 103 --------- -------- Cash and cash equivalents at end of period .................................... $ 74,474 $ 3,437 ========= ======== Non-cash investing and financing activities: Property and equipment leases .............................................. $ -- $ 23 Common Stock issued for notes receivable ................................... $ 1,468 $ -- Common Stock issued for acquisition ........................................ $ 2,000 $ --
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 eBAY INC. NOTES TO CONDENSED 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 reincorporated in Delaware in March 1998. 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. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements as of September 30, 1998 and December 31, 1997, and the three and nine months ended September 30, 1998 and 1997, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual condensed 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 September 30, 1998 and for the three and nine months ended September 30, 1998 and 1997. These condensed consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company's audited financial statements included in the Company's Prospectus, as amended, filed with the Securities and Exchange Commission on September 24, 1998. The results for the three and nine months ended September 30, 1998 are not necessarily indicative of the expected results for the year ending December 31, 1998. Certain prior period balances have been reclassified to conform to the current period presentation. PRINCIPLES OF CONSOLIDATION The condensed financial statements as of September 30, 1998 and for the three and nine 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. ADVERTISING The Company recognizes advertising expenses in accordance with Statement of Position ("SOP") No. 93-7, "Reporting on Advertising Costs." As such, the Company expenses the costs of producing advertisements at the time production occurs, and expenses the costs of communicating advertising in the period in which the advertising space or airtime is used. Internet advertising expenses are recognized based on specifics of the individual agreements, but generally using the greater of (i) the ratio of the number of impressions delivered over the total number of contracted impressions and (ii) the straight-line basis over the term of the contract. STOCK SPLIT In August 1998, the Company's Board of Directors effected a three-for-one stock split of the outstanding shares of Common Stock. All share and per share information included in these condensed consolidated financial statements have been retroactively adjusted to reflect this stock split. 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. The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF 96-18. 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 5 eBAY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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; unaudited):
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- ------------------------------------- 1998 1997 1998 1997 ---------------- ---------------- ---------------- ---------------- Numerator: Net income................................... $ 663 $ 199 $ 878 $ 685 Accretion of Series B Mandatorily Redeemable Convertible Preferred Stock to redemption value............................ -- (23) (46) (23) -------------- -------------- -------------- -------------- Net income available to common stockholders.. $ 663 $ 176 $ 832 $ 662 ============== ============== ============== ============== Denominator: Weighted average shares...................... 27,841 20,400 26,307 20,400 Weighted average unvested common shares subject to repurchase agreements............ (12,418) (12,325) (14,011) (13,600) -------------- -------------- -------------- -------------- Denominator for basic calculation............ 15,423 8,075 12,296 6,800 Weighted average effect of dilutive securities: Series A Preferred Stock.................... 4,701 5,029 4,919 5,029 Series B Preferred Stock.................... 3,969 3,000 3,562 1,682 Series B Preferred Stock warrants........... -- -- 452 -- Weighted average unvested common shares subject to repurchase agreements........... 12,418 12,325 14,011 13,600 Employee stock options...................... 657 1,355 597 873 -------------- -------------- -------------- -------------- Denominator for diluted calculation.......... 37,168 29,784 35,837 27,984 ============== ============== ============== ============== Net income per share: Basic........................................ $ 0.04 $ 0.02 $ 0.07 $ 0.10 ============== ============== ============== ============== Diluted...................................... $ 0.02 $ 0.01 $ 0.02 $ 0.02 ============== ============== ============== ==============
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. 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 September 30, 1998. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is, the type of hedge 6 eBAY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) transaction. The Company does not expect that the adoption of SFAS No. 133 will have a material impact on its condensed consolidated financial statements. In March 1998, the American Institute of Certified Public Accountants issued 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 condensed consolidated financial statements. NOTE 2--COMMON STOCK: INITIAL PUBLIC OFFERING, CONVERSION OF PREFERRED STOCK In September 1998, the Company completed its initial public offering and issued 4,014,275 shares of its Common Stock at a price of $18.00 per share. The Company received approximately $66.0 million in cash, net of underwriting discounts, commissions and other offering costs. Simultaneously with the closing of the initial public offering, each outstanding share of Series A Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock was automatically converted into three shares of Common Stock. UNEARNED STOCK-BASED COMPENSATION In connection with certain stock option grants during the nine months ended September 30, 1998 and the year ended December 31, 1997, the Company recognized unearned compensation totaling $5.4 million and $1.4 million, respectively, which is being amortized over the four year vesting periods of the related options. Amortization expense recognized during the nine months ended September 30, 1998 and the year ended December 31, 1997 totaled approximately $1.9 million and $25,000, respectively. STOCK OPTION GRANTS During the period from July 1, 1998 through September 30, 1998, the Company granted options to purchase 2,053,752 shares of Common Stock to new employees at exercise prices between $14 and $15 per share. No shares were granted between the date of the initial public offering, September 24, 1998, and the close of the period, September 30, 1998. NOTE 3--ACQUISITION: Effective June 30, 1998, the Company acquired all the outstanding shares of Jump Incorporated ("Jump"), 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 7 eBAY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 are being amortized over their estimated useful lives of 8 to 24 months. The following unaudited pro forma condensed consolidated financial information reflects the results of operations for the nine months ended September 30, 1998 and 1997, as if the acquisition had occurred on January 1, 1998 and 1997, 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, 1998 or 1997, and may not be indicative of future operating results, (in thousands, except per share amounts; unaudited).
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ---------------- ---------------- Net revenues .................................................................. $ 27,869 $ 3,128 Income (loss) from operations ................................................. 2,588 (651) Net loss ...................................................................... (626) (1,061) Net loss per share: Basic and diluted .......................................................... $ (0.05) $ (0.16) Weighted average shares .................................................... 12,439 6,943
NOTE 4--DEBT: LINE OF CREDIT At September 30, 1998 and December 31, 1997, the Company had $363,000 and $545,000, 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 September 30, 1998 and December 31, 1997) and is repayable in 24 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 September 30, 1998 and December 31, 1997. During October 1998, the Company repaid the line of credit in full. LETTER OF CREDIT At September 30, 1998 and December 31, 1997, 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. NOTE 5--MARKETING AGREEMENT: In August 1998, the Company entered into a three-year marketing agreement with America Online, Inc. ("AOL"). Under the terms of the agreement the Company will be provided with a specific number of advertising impressions featuring it as the preferred provider of person-to-person auction services on AOL's service. In consideration for the impressions, the Company has committed to pay $12.0 million over the three-year term of the agreement. Of the $12.0 million total commitment, $1.5 million was paid during the three months ended September 30, 1998. The Company is recognizing these fees as sales and marketing expense over the term of the contract based on the greater of (i) the ratio of the number of impressions delivered over the total number of contracted impressions and (ii) the straight-line basis over the term of the contract. The Company recognized $667,000 of related expenses during the three and nine months ended September 30, 1998. 8 - -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- FORWARD LOOKING STATEMENTS This document 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 document, 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 document should be read as being applicable to all related forward- looking statements wherever they appear in this document. The Company's actual results could differ materially from those discussed in this document. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed in the Company's Prospectus dated September 24, 1998. OVERVIEW 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. eBay was formed as a sole proprietorship in September 1995 and operated its online auction service under the name of "Auction Web." 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. In September 1997, the Company renamed its auction service "eBay" and launched a second generation of this service with a substantially 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 131 by September 30, 1998. From December 31, 1997 to September 30, 1998, the number of registered eBay users grew from approximately 340,000 to approximately 1,265,000. 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 between $0.25 and $2.00 to list items for sale. By paying additional fees, sellers can have items featured in various ways. 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 between 1.25% and 5% based on the final purchase price. 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 are recorded as percentages of revenues and are provided for at the time of revenue recognition. In certain instances, customers will deposit funds with eBay in anticipation of future transactions; these prepayments appear on the Company's balance sheet as customer advances. 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 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 9 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 8 to 24 months. RESULTS OF OPERATIONS The following table sets forth, for the periods presented, certain data derived from the Company's unaudited condensed consolidated statement of income as a percentage of net revenues and certain unaudited supplemental operating data. The operating results for the three and nine months ended September 30, 1998 and 1997 are not necessarily indicative of the results that may be expected for any future period.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- --------------------------------------- 1998 1997 1998 1997 ----------------- ----------------- ----------------- ----------------- Net revenues.................................. 100.0% 100.0% 100.0% 100.0% Cost of net revenues.......................... 16.3 17.3 13.8 13.2 -------- ------- -------- ------- Gross profit.................................. 83.7 82.7 86.2 86.8 -------- ------- -------- ------- Operating expenses: Sales and marketing.......................... 42.3 25.3 36.2 18.7 Product development.......................... 11.7 17.6 11.0 15.0 General and administrative................... 16.4 17.9 22.6 15.8 Acquired research and development and amortization of acquired intangibles........ 2.5 -- 1.7 -- -------- ------- -------- ------- Total operating expenses................... 72.9 60.8 71.5 49.5 -------- ------- -------- ------- Income from operations........................ 10.8 21.9 14.7 37.3 Interest, net, and other income, net.......... 0.9 1.8 0.7 1.0 -------- ------- -------- ------- Income before income taxes.................... 11.7 23.7 15.4 38.3 Provision for income taxes.................... (6.6) (10.1) (12.2) (16.3) -------- ------- -------- ------- Net income.................................... 5.1% 13.6% 3.2% 22.0% ======== ======= ======== ======= SUPPLEMENTAL OPERATING DATA (IN THOUSANDS): Number of registered users at end of period... 1,265 223 1,265 223 Gross merchandise sales (1)................... $ 195,046 $ 24,281 $ 438,792 $ 51,248 Number of auctions listed..................... 9,236 1,178 20,029 2,415
________________________________ (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). NET REVENUES The Company's net revenues increased to $12.9 million and $27.9 million in the three and nine months ended September 30, 1998, respectively, from the $1.5 million and $3.1 million reported in the comparable periods of 1997. The strong growth was primarily the result of increased activity on the eBay Web site, as shown by increases in total items listed and gross merchandise sales. Neither increased fees for specific featured placements nor changes in average transaction size had a material impact on net revenue growth. COST OF NET REVENUES Cost of net revenues are primarily derived from costs associated with customer support and Web site operations. These include: 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, depreciation of the equipment required for the Company's Web site operations, and 10 amortization of acquired technology. Cost of net revenues increased in absolute dollars to $2.1 million or 16.3% of net revenues and $3.8 million or 13.8% of net revenues in the three and nine months ended September 30, 1998, respectively, from $253,000 or 17.3% of net revenues and $413,000 or 13.2% of net revenues in the comparable periods of 1997. The increase in absolute dollars resulted from the continued development and expansion of the Company's customer support organization, increases, in absolute dollars, in bank processing charges for customer fees paid by credit cards, depreciation of the equipment required for the Company's Web site operations, ISP connectivity charges and amortization of technology acquired in the Jump acquisition. 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 overhead. Sales and marketing expenses increased to $5.5 million or 42.3% of net revenues and $10.1 million or 36.2% of net revenues in the three and nine months ended September 30, 1998, respectively, from $369,000 or 25.3% of net revenues and $581,000 or 18.7% of net revenues in the comparable periods of 1997. The increases resulted primarily from continued growth in the number of personnel, increases in advertising and promotional expenses and expenses related to the Company's agreement with AOL. See Note 5 of Notes to Condensed Consolidated Financial Statements. As of September 30, 1998 the Company had advanced payments to certain third parties to reserve space for advertisements and promotions commencing in the fourth quarter of 1998. Sales and marketing expenses are expected to increase in the fourth quarter, due in part to the commencement of the Company's radio and print advertising campaign following the end of the "quiet period" associated with the Company's initial public offering. PRODUCT DEVELOPMENT The Company's product development expenses consist primarily of compensation for the Company's product development staff, payments to outside contractors and, to a lesser extent, of depreciation on equipment used for development and an allocation of overhead. The Company's product development expenses increased in absolute dollars to $1.5 million or 11.7% of net revenues and $3.1 million or 11.0% of net revenues in the three and nine months ended September 30, 1998, respectively, as compared to $257,000 or 17.6% of net revenues and $466,000 or 15.0% of net revenues in the comparable periods of 1997. The increases in absolute dollars resulted primarily from the increased size of the product development staff and payments to outside contractors. GENERAL AND ADMINISTRATIVE The Company's general and administrative expenses consist primarily of compensation for personnel and, to a lesser extent, provisions for doubtful accounts, fees for outside professional advisors and an allocation of overhead. The Company's general and administrative expenses increased in absolute dollars to $2.1 million or 16.4% of net revenues and $6.3 million or 22.6% of net revenues in the three and nine months ended September 30, 1998, respectively, from $260,000 or 17.9% of net revenues and $493,000 or 15.8% of net revenues in the comparable periods of 1997. The increases in absolute dollars resulted primarily from additional personnel-related expenses, the provision for doubtful accounts (based upon a percentage of revenues reflecting the Company's historical experience), fees for professional services and allocations of overhead. Additionally, the increase during the nine months ended September 30, 1998 includes June 1998 charges for the Company's contribution of 107,250 shares of the Company's Common Stock with an estimated fair value of $1.2 million to a charitable foundation and compensation expense associated with purchases of restricted shares of Common Stock by its outside directors of $429,000. There were no such expenses in the comparable periods of 1997. ACQUIRED RESEARCH AND DEVELOPMENT AND AMORTIZATION OF ACQUIRED INTANGIBLES During the nine months ended September 30, 1998, the Company recorded a $150,000 expense for in-process technology acquired in the acquisition of Jump. The cost was charged to operations because the acquired in-process technology had not reached the stage of technological feasibility at the acquisition date and had no alternative future use. During the three and nine months ended September 30, 1998 the Company recorded amortization expense of $327,000 and $477,000 (which includes the $150,000 previously discussed), respectively, associated with other intangible assets acquired in the acquisition of Jump. See Note 3 of the Condensed Consolidated Financial Statements. There were no such expenses in the comparable periods of 1997. 11 INTEREST, NET, AND OTHER INCOME, NET The Company's interest, net, and other income, net, increased to $111,000 and $187,000 in the three and nine months ended September 30, 1998, respectively, from $26,000 and $30,000 in comparable periods of 1997. Substantially all of the increase was the result of interest earned on cash and cash equivalents, particularly the interest earned on the net proceeds from the Company's sales of Series B Preferred Stock and Series B Warrants in June 1997, the exercise of those warrants in May 1998 and the exercise of employee stock options. The Company expects that interest income will increase during the fourth quarter of 1998 following the successful completion of its initial public offering in September 1998. PROVISION FOR INCOME TAXES The Company's effective federal and state income tax rate was 79.5% in the first nine months of 1998 as compared to 42.6% in the comparable period of 1997. The increase in the effective tax rate in 1998, when compared to 1997, is largely the result of certain non-deductible costs, including charges for stock- based compensation and expenses related to the acquisition of Jump. STOCK-BASED COMPENSATION In 1998 and 1997, the Company recorded aggregate unearned compensation totaling $6.8 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 $818,000 and $1.9 million was amortized in the three and nine months ended September 30, 1998, respectively. These amortization amounts were allocated among the operating expense categories based upon the primary activity of the related employee, resulting in charges in the three and nine months ended September 30, 1998 of approxiamtely $34,000 and $61,000 to cost of net revenues, $196,000 and $383,000 to product development expenses, $97,000 and $259,000 to sales and marketing expenses, and $491,000 and $1.2 million to general and administrative expenses, respectively. Such expenses in the comparable periods of 1997 were insignificant. 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. In September 1998, the Company completed its initial public offering and issued 4,014,275 shares of its Common Stock at a price of $18.00 per share. The Company received approximately $66.0 million in cash, net of underwriting discounts, commissions and other offering costs. Simultaneously with the closing of the initial public offering, each outstanding share of Series A Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock was automatically converted into three shares of Common Stock. Net cash provided by operating activities was $5.4 million for the nine months ended September 30, 1998, compared to $677,000 during the same period of 1997. Net cash provided by operating activities resulted primarily from the Company's net income before non-cash charges for amortization of unearned compensation, a charitable contribution of the Company's Common Stock, depreciation and amortization, and increases in various liability categories, offset in part by increases in other current assets and accounts receivable, net of provisions for doubtful accounts. Net cash used in investing activities was $5.9 million for the nine months ended September 30, 1998, compared to $310,000 during the same period of 1997. Net cash used in investing activities was entirely the result of purchases of property and equipment, primarily computer equipment, software and furniture and fixtures. Net cash provided by financing activities was $71.3 million for the nine months ended September 30, 1998, compared to $3.0 million during the same period of 1997. Net cash provided by financing activities resulted primarily from proceeds from the Company's initial public offering of 4,014,275 shares of its Common Stock for which the Company received approximately $66.0 million in cash, net of underwriting discounts, commissions and other offering costs and, to a lesser extent, 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. 12 At September 30, 1998, the principal source of liquidity for the Company was $74.5 million of cash and cash equivalents. As of that date, the Company also had a line of credit in the amount of $750,000. 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 accrued interest through January 5, 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 September 30, 1998. The Company repaid all amounts outstanding under the line in October 1998. During the three and nine months ended September 30, 1998, the Company incurred significant non-cash expenses related to the amortization of stock compensation, a charitable contribution of the Company's Common Stock, and the acquisition of Jump, as noted previously. Such items do not have an impact on the Company's liquidity, but may be interpreted as such to readers of the financial statements. The table below sets forth supplemental information concerning the impact of certain non-cash items on income from operations. The Statement of Income data has been derived from the Company's unaudited condensed consolidated financial statements, which, in Management's opinion, have been prepared on substantially the same basis as the audited annual consolidated financial statements necessary for a fair presentation of the periods presented. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.
THREE MONTHS ENDED ------------------------------------------------------- SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, 1998 1998 1998 1997 1997 ---- ---- ---- ---- ---- (IN THOUSANDS; UNAUDITED) HISTORICAL Net revenues................................................... $ 12,935 $ 8,941 $ 5,981 $ 2,627 $ 1,459 --------- -------- -------- -------- -------- Gross profit................................................... 10,832 7,835 5,351 2,294 1,206 Operating expenses............................................. 9,432 6,843 3,652 1,971 886 --------- -------- -------- -------- -------- Income from operations......................................... $ 1,400 $ 992 $1,699 $ 323 $ 320 ========= ======== ======== ======== ======== SUPPLEMENTAL INFORMATION (1) Historical income from operations.............................. $ 1,400 $ 992 $1,699 $ 323 $ 320 Add back certain non-cash charges: Amortization of stock compensation.......................... 818 1,078 421 25 -- Amortization of acquisition related charges (2)............. 515 150 -- -- -- Charitable contribution of Common Stock..................... -- 1,215 -- -- -- --------- -------- -------- -------- -------- Total add back........................................... 1,333 2,443 421 25 -- --------- -------- -------- -------- -------- Supplemental income from operations excluding certain non-cash charges.................................... $ 2,733 $3,435 $2,120 $ 348 $ 320 ========= ======== ======== ======== ========
(1) The accompanying supplemental financial information is presented for informational purposes only and should not be considered as a substitute for the historical financial information presented in accordance with generally accepted accounting principles. (2) Expenses associated with the amortization of acquisition related charges are included within cost of net revenues as well as operating expenses under the heading "acquired research and development and amortization of acquired intangibles." At September 30, 1998, the Company had committed itself to certain capital equipment additions aggregating approximately $1.0 million, and, as a result of its August 1998 marketing agreement with AOL, the Company had obligated itself to make aggregate payments of $12.0 million over the three-year term of the agreement. 13 See Note 5 of Notes to Condensed Consolidated Financial Statements. The Company believes that its existing cash and cash equivalents, which include the net proceeds from its recently completed initial public offering, and any cash generated from operations will be sufficient to fund its operating activities, capital expenditures and other obligations for at least the next 15 months. 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 September 30, 1998. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is, the type of hedge transaction. The Company does not expect that the adoption of SFAS No. 133 will have a material impact on its condensed consolidated financial statements. In March 1998, the American Institute of Certified Public Accountants issued 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 condensed consolidated 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. 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. The Company is currently completing modifications to its internal systems to ensure Year 2000 compliance. Costs associated with such modifications have not been material and have involved a reallocation of internal resources rather than incremental expenditures. However, the Company utilizes third-party equipment and software that may not be Year 2000 compliant. The Company believes that the third-party systems that are material to its business are Year 2000 compliant based on information provided by these suppliers. 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. The Company continues to monitor and evaluate its ability to confront Year 2000 issues and allocate resources accordingly. In addition, the Company's business is dependent on the continued successful operation of the Internet and any interruption or significant degradation of Internet operations, whether due to Year 2000 problems or otherwise, could have a material adverse effect on the Company's business, results of operations and financial position. 14 RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIMITED OPERATING HISTORY 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. 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 support, 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. POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS 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) competition; (vi) the level of use of the Internet and online services; (vii) 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) technical difficulties or service interruptions; (xii) governmental regulation by Federal or local governments; and (xiii) 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 most 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. 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. SEASONAL FLUCTUATIONS IN RESULTS OF OPERATIONS 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. 15 MANAGEMENT OF POTENTIAL GROWTH 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. Certain members of the Company's management, including the Company's President and Chief Executive Officer and Senior Vice President of Marketing have joined the Company in 1998. 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. 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 Company 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. DEPENDENCE ON CONTINUED GROWTH OF DEVELOPING THE ONLINE PERSON-TO-PERSON COMMERCE MARKET 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. In addition, the disruption or degradation to the Internet for any reason, including inadequate growth in computer or telecommunications infrastructure, Year 2000 or other software problems, or other technological or regulatory problems would 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 are disrupted or degraded for any reason, the Company's business, results of operations and financial condition would be materially adversely affected. RISK OF SYSTEM FAILURES The Company's success, and in particular its ability to facilitate trades successfully and provide high quality customer support, depends on the efficient and uninterrupted operation of its computer and communications hardware systems. 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 support levels. Any failures in the day-to-day operations of the Company's site and any failure to expand or upgrade its systems sufficiently to accommodate growth could have a material adverse effect on the Company's business, results of operations and financial condition. 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, such as viruses, 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. 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. 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 Yahoo! Inc. ("Yahoo"), using technology 16 provided by Onsale Exchange, a division of Onsale, Inc. ("Onsale"); Auction Universe, a Times-Mirror Company; Excite, Inc. ("Excite"); and a number of other services, including those that serve specialty markets. The Company also competes indirectly with business-to-consumer online auction services such as Onsale, First Auction, 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, Inc., America Online, Inc. ("AOL") and Microsoft Corporation ("Microsoft") currently offer a variety of business-to-consumer trading services and classified ad services. 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. Certain of the Company's current and many of the Company's potential competitors have longer operating histories, larger customer bases, greater brand recognition in other business and Internet markets 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 or devote substantially more resources to Web site and systems development than the Company or may try to attract traffic by offering services for free. In addition, certain online services and search engine companies may channel users to trading services that compete with the Company. There can be no assurance that the Company will be able to compete successfully against current and future competitors. RAPID TECHNOLOGICAL CHANGE 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. RISKS RELATED TO FRAUD, ILLEGAL ITEMS, AND INFORMATION DISSEMINATED THROUGH THE COMPANY'S SERVICE 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. The Company, beyond suspending the accounts of users who fail to fulfill their delivery obligations and 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. 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 or are illegal. While the Company's user policy prohibits the sale of goods which may infringe third-party intellectual property rights or are illegal, and the Company is empowered to suspend the account of any user who infringes third-party intellectual property rights or lists illegal items, 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 the Company 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 its services. There can be no 17 assurance that an allegation of infringement or the presence of an illegal item 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. DEPENDENCE ON KEY PERSONNEL 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 does not have long-term employment agreements with any of its key personnel and maintains no "key person" life insurance policies. 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's future success also depends on its ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer support 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. 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. 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 business, results of operations and financial condition. 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. 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 will be realized. GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES The Company is generally not subject to direct federal, state or local regulation regarding access to or commerce on the Internet, other than regulations applicable to Internet businesses generally. 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. 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. 18 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 recently settled a proceeding with 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 could 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. 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. 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. 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 pursues the registration of its trademarks and service marks in the U.S. and internationally. 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 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 which could materially adversely affect the Company's business, results of operations and financial condition. 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. 19 POSSIBLE VOLATILITY OF STOCK PRICE The trading price of the Common Stock has been and 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. 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. 20 - -------------------------------------------------------------------------------- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------------------- Not applicable. - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS From time to time the Company is involved in legal proceedings in the ordinary course of business. None of such proceedings are expected to have a material impact on the Company's business, results of operations or financial condition. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The effective date of the Company's first registration statement, filed on Form S-1 under the Securities Act of 1933 (No. 333-59097) relating to the Company's initial public offering of its Common Stock, was September 23, 1998. A total of 4,014,275 shares of Company's Common Stock were sold to an underwriting syndicate. The managing underwriters were Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette, BancBoston Robertson Stephens and BT Alex. Brown. The offering commenced and was completed on September 24, 1998, at a price of $18.00 per share. An additional 10,725 shares of Common stock were sold on behalf of a selling stockholder as part of the same offering. The initial public offering resulted in gross proceeds of $72.5 million, $5.1 million of which was applied toward the underwriting discount. Expenses related to the offering totaled approximately $1.2 million, paid to affiliated parties. Gross proceeds to the Company and selling stockholder were $66.0 million and $180,000, respectively. From the time of receipt through September 30, 1998, the proceeds were all applied toward working capital. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Pursuant to the Company's bylaws, stockholders who wish to bring matters or propose nominees for director at the Company's 1999 annual meeting of stockholders must provide specified information to the Company not earlier than the close of business on the 90th day preceding the annual meeting date and not later than the close of business on the 60th day preceding the annual meeting date or the 10th day after the Company's public announcement of the annual meeting date (unless such matters are included in the Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended). 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as part of this report: 3.07 Amended and Restated Certificate of Incorporation as currently in effect. 3.08 Bylaws as currently in effect. 27.01 Financial Data Schedule (EDGAR version only) (b) There were no reports on Form 8-K filed during the quarter ended September 30, 1998. 22 - -------------------------------------------------------------------------------- SIGNATURES - -------------------------------------------------------------------------------- In accordance with the requirements of the Securities Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. eBAY INC. Date: November 13, 1998 By: /s/ Margaret C. Whitman ----------------------------- Margaret C. Whitman President and Chief Executive Officer By: /s/ Gary F. Bengier ----------------------------- Gary F. Bengier Chief Financial Officer and Vice President of Operations 23 EX-3.07 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.07 AMENDED AND RESTATED 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 the authority to issue is Two Hundred Million (200,000,000) shares, consisting of two classes: One Hundred Ninety-Five Million (195,000,000) shares of Common Stock, $0.001 par value per share, and Five Million (5,000,000) 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 A. Election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. B. The directors, other than those who may be elected by the holders of Preferred Stock under specified circumstances, shall be divided into three classes with the term of office of the first class (Class I) to expire at the annual meeting of the stockholders held in 1999; the term of office of the second class (Class II) to expire at the annual meeting of stockholders held in 2000; the term of office of the third class (Class III) to expire at the annual meeting of stockholders held in 2001; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. All directors shall hold office until the expiration of the term for which elected, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. C. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation or other cause may be filled (a) by the stockholders at any meeting, (b) by a majority of the directors, although less than a quorum, or (c) by a sole remaining director, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. D. Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders. E. Special meetings of stockholders of the corporation may be called only by either the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption), the Chairman of the Board or the Chief Executive Officer. 2 ARTICLE VII A. 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. B. To the fullest extent permitted by applicable law, this corporation is also authorized to provide indemnification of (and advancement of expenses to) agents (and any other persons to which Delaware law permits this corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the corporation, its stockholders, and others. C. Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this Amended and Restated 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. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation of eBay, Inc. has been signed and attested as of this 28th day of September, 1998. /s/ Margaret C. Whitman _______________________________________ Margaret C. Whitman, President and Chief Executive Officer ATTEST: /s/ Michael R. Jacobson _________________________________ Michael R. Jacobson, Secretary 3 EX-3.08 3 AMENDED AND RESTATED BYLAWS OF EBAY EXHIBIT 3.08 AMENDED AND RESTATED BYLAWS OF eBAY INC. (A DELAWARE CORPORATION) 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 the stockholders, for ----------- ---------------- any purpose or purposes described in the notice of the meeting, may be called only by (i) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), (ii) the Chairman of the Board or (iii) the Chief Executive Officer and shall be held at such place, on such date, and at such time as they shall fix. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. 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 as currently in effect (the "Certificate of Incorporation"), 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, by leaving such notice with him or her or at his or her residence or usual place of business, or by depositing it postage prepaid in the United States mail, directed to each stockholder at his or her address as it appears on the records of the corporation. An affidavit of the Secretary, Assistant Secretary, or transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. No notice need be given to any person with whom communication is unlawful or to any person who has waived such notice either (a) in writing (which writing need not specify the business to be transacted at, or the purpose of, the meeting) signed by such person before or after the time of the meeting or (b) by attending the meeting except 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. 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. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes then outstanding and entitled to vote present in person or by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. 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 of record according to the records of the corporation. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote unless the pledgor in a transfer on the books of the corporation has expressly empowered the pledgee to vote the pledged shares, in which case only the pledgee or his or her proxy shall be entitled to vote. Each stockholder entitled to vote at a meeting of stockholders 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 -2- 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 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 Action at Meeting. When a quorum is present at any meeting, ----------- ----------------- action of the stockholders on any matter properly brought before such meeting, other than the election of directors, shall require, and may be effected by, the affirmative vote of the holders of a majority in interest of the stock present or represented by proxy and entitled to vote on the subject matter, except where a different vote is expressly required by law, the Certificate of Incorporation or these Bylaws, in which case such express provision shall govern and control. The election of directors shall be determined by a plurality of votes cast. If the Certificate of Incorporation so provides, no ballot shall be required for the election of directors unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. Section 1.9: 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 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 1.10: 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. -3- Section 1.11: Inspectors of Elections. ------------ ----------------------- (a) Applicability. Unless otherwise provided in the Corporation's ------------- Certificate of Incorporation or required by the Delaware General Corporation Law, the following provisions of this Section 1.11 shall apply only if and when the Corporation has a class of voting stock that is: (i) listed on a national securities exchange; (ii) authorized for quotation on an interdealer quotation system of a registered national securities association; or (iii) held of record by more than 2,000 stockholders; in all other cases, observance of the provisions of this Section 1.11 shall be optional, and at the discretion of the Corporation. (b) Appointment. The Corporation shall, in advance of any meeting of ----------- stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. (c) Inspector's Oath. Each inspector of election, before entering upon the ---------------- discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (d) Duties of Inspectors. At a meeting of stockholders, the inspectors of -------------------- election shall (i) ascertain the number of shares outstanding and the voting power of each share, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (e) Opening and Closing of Polls. The date and time of the opening and the ---------------------------- closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the inspectors at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (f) Determinations. In determining the validity and counting of proxies -------------- and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized 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 -4- specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 1.12: Notice of Stockholder Business; Nominations. ------- ---- -------------------------------------------- (a) Annual Meeting of Stockholders. ------------------------------ (i) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders (A) pursuant to the corporation's notice of such meeting, (B) by or at the direction of the Board of Directors or (C) by any stockholder of the corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.12, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.12. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i) of this Section 1.12, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice must be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. Such stockholder's notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, and (2) the class and number of shares of the corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. (iii) Notwithstanding anything in the second sentence of subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased board of directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy (70) days prior to such annual meeting), a stockholder's notice required by this Section 1.12 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the corporation at the principal executive office of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation. (b) Special Meetings of Stockholders. Only such business shall be -------------------------------- conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of such meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of such meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.12. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall be delivered to the Secretary of the corporation at the principal executive offices of the corporation not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (c) General. ------- (i) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.12 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.12. Except as otherwise provided by law or these bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.12 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. (ii) For purposes of this Section 1.12, the term "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 1.12, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE II BOARD OF DIRECTORS Section 2.1: Number; Qualifications. The Board of Directors shall consist ----------- ---------------------- of 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 directors ----------- ----------------------------------------- shall be divided into three classes, with the term of office of the first class, which class initially consists of two directors, to expire at the annual meeting of stockholders held in 1999; the term of office of the second class, which class initially consists of two directors, to expire at the annual meeting of stockholders held in 2000, the term of office of the third class, which class initially consists of one director, to expire at the annual meeting of stockholders held in 2001; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. Subject to the provisions of the Corporation's Amended and Restated Certificate of Incorporation, each Director shall serve until his or her successor is elected and qualified, or until his or her earlier 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 and the Company's Certificate of Incorporation as then in effect: (i) any director or the entire Board of Directors may be removed, with 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, shall, unless the Board of Directors determines by resolution that such vacancy or newly created directorship shall be filled by the stockholders, be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. No director nor the entire Board of Directors may be removed without cause. 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, -5- telegram, telex, mailgram, facsimile or similar communication method. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. Section 2.5: Telephonic Meetings Permitted. Members of the Board of ----------- ----------------------------- Directors, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or similar communications equipment shall constitute presence in person at such meeting. Section 2.6: Quorum; Vote Required for Action. At all meetings of the ----------- -------------------------------- Board of Directors a majority of the total number of authorized directors shall constitute a quorum for the transaction of business. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7: Organization. Meetings of the Board of Directors shall be ----------- ------------ presided over by the Chairman of the Board, or in his or her absence by the President, or in his or her absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8: Written Action by Directors. Any action required or ----------- --------------------------- permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee, respectively. Section 2.9: Powers. The Board of Directors may, except as otherwise ------------ ------ required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Section 2.10: Compensation of Directors. Directors, as such, may receive, ------------ ------------------------- pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors. 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 -6- disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent ------ authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in subsection (a) of Section 151 of the Delaware General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation under Sections 251 or 252 of the Delaware General Corporation Law, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and unless the resolution of the Board of Directors expressly so provides, no such committee shall have the power or authority to declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger pursuant to section 253 of the Delaware General Corporation Law. Section 3.2: Committee Rules. Unless the Board of Directors otherwise ----------- --------------- provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws. ARTICLE IV OFFICERS Section 4.1: Generally. The officers of the Corporation shall consist of ----------- --------- a Chief Executive Officer and/or a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers, including a Chairman of the Board of Directors and/or Chief Financial Officer, as may from time to time be appointed by the Board of Directors. All officers shall be elected by the Board of Directors; 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. -7- Section 4.2: Chief Executive Officer. Subject to the control of the Board ----------- ----------------------- of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Corporation are: (a) To act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation; (b) To preside at all meetings of the stockholders; (c) To call meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and (d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board of Directors has not designated any other officer to be the Chief Executive Officer, then the Chairman of the Board shall be the Chief Executive Officer. Section 4.3: Chairman of the Board. The Chairman of the Board shall have ----------- --------------------- the power to preside at all meetings of the Board of Directors and shall have such other powers and duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe. Section 4.4: President. The President shall be the Chief Executive ----------- --------- Officer of the Corporation unless the Board of Directors shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board of Directors to the Chairman of the Board, and/or to any other officer, the President shall have the responsibility for the general management the control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall 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 -8- the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officer's absence or disability. Section 4.6: Chief Financial Officer. Subject to the direction of the ----------- ----------------------- Board of Directors and the President, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of chief financial officer. Section 4.7: Treasurer. The Treasurer shall have custody of all monies ----------- --------- and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board of Directors or the President may from time to time prescribe. Section 4.8: Secretary. The Secretary shall issue or cause to be issued ----------- --------- all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board of Directors. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board of Directors or the President may from time to time prescribe. Section 4.9: Delegation of Authority. The Board of Directors may from ----------- ----------------------- time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.10: Removal. Any officer of the Corporation shall serve at the ------------ ------- pleasure of the Board of Directors and may be removed at any time, with or without cause, by the Board of Directors. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. ARTICLE V STOCK Section 5.1: Certificates. Every holder of stock shall be entitled to ----------- ------------ have a certificate signed by or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. 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, -9- against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 5.3: Other Regulations. The issue, transfer, conversion and ----------- ----------------- registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI INDEMNIFICATION Section 6.1 Indemnification of Officers and Directors. Each person who ----------- ----------------------------------------- was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he ---------- or she (or a person of whom he or she is the legal representative), is or was a director or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor (as defined below) as a director, 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 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 -10- 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. The Board of Directors of the Corporation shall have the power to delegate to such officer or other person as the Board of Directors shall specify the determination of whether indemnification shall be given to any person pursuant to this Section 6.3. Section 6.4: Indemnification Contracts. The Board of Directors is ----------- ------------------------- authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI. Section 6.5: Effect of Amendment. Any amendment, repeal or modification ----------- ------------------- of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification. ARTICLE VII NOTICES Section 7.1: Notice. Except as otherwise specifically provided herein or ----------- ------ required by law, all notices required to be given pursuant to these Bylaws shall be in writing and may in every instance be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, telex, overnight express courier, mailgram or facsimile. Any such notice shall be addressed to the person to whom notice is to be given at such person's address as it appears on the records of the Corporation. The notice shall be deemed given (i) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in the case of delivery by overnight express courier, on the first business day after such notice is dispatched, and (iv) in the case of delivery via telegram, telex, mailgram, or facsimile, when dispatched. Section 7.2: Waiver of Notice. Whenever notice is required to be given ----------- ---------------- under any provision of these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither -11- 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. 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. -12- 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. ARTICLE X AMENDMENT Section 10.1: Amendments. Subject to Section 6.5 of these Bylaws ------------ ---------- Stockholders of the Corporation holding at least sixty-six and two-thirds percent 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. -13- CERTIFICATION OF BYLAWS OF EBAY INC. (A DELAWARE CORPORATION) KNOW ALL BY THESE PRESENTS: I, Michael R. Jacobson, 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: _____________, 1998 ______________________________ Michael R. Jacobson, Secretary EX-27.01 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM eBAY INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001065088 EBAY INC. 1,000 9-MOS 9-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 SEP-30-1998 SEP-30-1997 74,474 3,437 0 0 6,683 845 (2,689) (175) 0 0 82,131 4,186 6,636 385 (968) (32) 89,500 4,539 7,264 588 0 0 0 2,995 0 4 40 20 81,945 800 89,500 4,539 0 0 27,857 3,117 0 0 3,839 413 19,927 1,540 0 0 36 3 4,278 1,194 3,400 509 878 685 0 0 0 0 0 0 878 685 0.07 0.10 0.02 0.02
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