-----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, VIFSm/DiqCKP1e3AV42TfBElePnX15nNRt4Z+IjeOSh5R//5mLf6nQHNdF9HIcfn 5u0HsljXbryjdmJHk06dtg== 0000929624-00-000355.txt : 20000315 0000929624-00-000355.hdr.sgml : 20000315 ACCESSION NUMBER: 0000929624-00-000355 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 35 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRIVEWAY CORP CENTRAL INDEX KEY: 0001104027 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 911612873 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-32466 FILM NUMBER: 569350 BUSINESS ADDRESS: STREET 1: 380 BRANNAN STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94107 MAIL ADDRESS: STREET 1: 380 BRANNAH ST CITY: SAN FRANCISCO STATE: CA ZIP: 94107 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on March 14, 2000. Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------ Driveway Corporation (Exact name of Registrant as specified in its charter) Delaware 7379 91-1612873 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
380 Brannan Street San Francisco, California 94107 (415) 908-4200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------ Christopher S. Logan President and Chief Executive Officer Driveway Corporation 380 Brannan Street San Francisco, California 94107 (415) 908-4200 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------ Copies to: Mark Albert, Esq. Peter T. Healy, Esq. William M. Kushner, Esq. O'Melveny & Myers LLP Perkins Coie LLP 275 Battery Street, 26th Floor 135 Commonwealth Drive, Suite 250 San Francisco, California 94115 Menlo Park, California 94025 (415) 984-8833 (650) 752-6000
------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed Maximum Title of Each Class of Aggregate Amount of Securities to be Registered Offering Amount (2) Registration Fee - -------------------------------------------------------------------------------- Common stock, $0.001 par value............ $75,000,000 $19,800 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Includes shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. ------------ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this Prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This Prospectus is not an + +offer to sell these securities and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED March 14, 2000 [Driveway LOGO] Shares Common Stock Driveway Corporation is offering shares of its common stock. This is our initial public offering, and no public market currently exists for our shares. We have applied for approval for quotation of our common stock on the Nasdaq National Market under the symbol "DWAY". We anticipate that the initial public offering price will be between $ and $ per share. ----------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 6. -----------
Per Share Total --------- ----- Public Offering Price..................................... $ $ Underwriting Discounts and Commissions.................... $ $ Proceeds to Driveway Corporation.......................... $ $
The Securities and Exchange Commission and any state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Driveway has granted the underwriters a 30-day option to purchase up to an additional shares of common stock to cover over-allotments. ----------- Robertson Stephens CIBC World Markets Thomas Weisel Partners LLC E*OFFERING The date of this prospectus is , 2000 Inside front cover art: Three page views from Driveway Web site on violet background. Inside back cover art: Heading of "Strategic Partners" with thirteen partner logos on violet background. Back cover art: Green circle with Driveway logo on yellow background. [ARTWORK] You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized any person to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. Information contained on our Web site is not part of this prospectus. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operation and prospects may have changed since that date. Dealer Prospectus Delivery Obligation Until , 2000 (25 days after commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. ---------------- TABLE OF CONTENTS
Page ---- Summary.................................................................. 2 Risk Factors............................................................. 6 Forward-Looking Statements and Industry Data............................. 20 Use of Proceeds.......................................................... 21 Dividend Policy.......................................................... 21 Capitalization........................................................... 22 Dilution................................................................. 23 Selected Financial Data.................................................. 24 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 25 Business................................................................. 32 Management............................................................... 46 Certain Transactions..................................................... 59 Principal Stockholders................................................... 60 Description of Capital Stock............................................. 62 Shares Eligible for Future Sale.......................................... 65 Underwriting............................................................. 67 Legal Matters............................................................ 71 Experts.................................................................. 71 Where You Can Find Additional Information................................ 71 Index to Financial Statements............................................ F-1 Appendix: "Meet the Management" Presentation............................. A-1
---------------- "Driveway" is a common law trademark of Driveway. Driveway.com and the Driveway logo are service marks of Driveway. This prospectus also contains trademarks and service marks of other companies, which are the property of their respective owners. 1 SUMMARY You should read the following summary together with the more detailed information in this prospectus, including risk factors, regarding our company and the common stock being sold in this offering. Our Company Driveway is an easy to use online information management service that allows our members to store, manage and share their personal and business information from a single virtual location on the Web. We believe these functions are important to Internet users who seek new forms of communications to facilitate both the types of content and the ability to remotely access that content from multiple disparate devices. We believe our market has characteristics and benefits similar to the growth and adoption of the Web-based email market, which is indicative of the current potential market for online information management. Because we target Internet users who possess a high degree of integration between their personal and business Internet use and frequently participate in ecommerce, we attempt to aggregate an attractive member base to drive multiple streams of revenue for Driveway and our strategic partners. In the last twelve months, more than 3 million members have registered for our Driveway services. We have achieved this growth and begun to expand our online information management solutions across the Web primarily through our strategic partnerships with the following: Backup Buddy Lycos MSN Juno Online Services Lycos Europe Phoenix Technologies LookSmart McAfee.com USA.NET Microsoft
The Internet has moved beyond simple text-based files and formats and has expanded to incorporate rich audio and video content and applications. This expanding quantity of information, increasingly in rich text or media format, and the desire to access the Internet from different locations and devices are some of the factors driving the need for an online information management solution. In addition, to remain competitive, we believe Web sites are constantly seeking ways to add functionality to their current offerings, add new visitors, increase the frequency and duration of visits, and increase revenue opportunities. We also believe that users are increasingly seeking an online information management solution that allows them to privately and securely access both personal and business information at any time, from any location. Furthermore, we believe business-to-business web sites can also benefit from integrating online information management services into their offerings. Driveway allows any Internet user to securely and easily store, manage and share personal and business information from a single virtual location because it is designed to be completely device and platform agnostic. In addition, because members can specify a particular folder to which another individual has access, privacy concerns involving storing personal and business information in the same account are minimized. Our intuitive user interface and our integration into our strategic partners' Web sites and applications allows users to easily manage and organize activities from multiple Web sites through their Driveway account. For example, Driveway can be integrated into 2 our users' desktops through our recent strategic partnership with Microsoft, which provides for the inclusion of a Driveway icon on the Windows desktop. This integration will allow a member to easily drag and drop files between folders in Windows Explorer and their Driveway account and to save to their Driveway account from within a Microsoft application. In addition, we actively enter into partnerships with highly trafficked Web sites in an effort to increase their value to their users by adding functionality, increasing stickiness and aiding in the generation of incremental revenue opportunities and customer acquisition. We intend to be the leading provider of online information management services with the largest base of registered members and active users. We plan to achieve this membership growth, build our Driveway brand and grow our revenues through the following: . capitalize on our growing member base to drive multiple revenue streams; . target and expand strategic partnerships with highly trafficked Web sites with attractive user demographics; . enable our strategic partners to create and manage new and enhanced applications that utilize our Driveway services; . work in conjunction with strategic partners to enable multiple mobile devices to utilize our Driveway services; . private label our Driveway services to business-to-business Web sites; and . pursue international expansion through localized Driveway services. We incorporated in Washington on October 8, 1993 and changed our name to Driveway on November 2, 1999. We reincorporated in Delaware on February 17, 1998. Our executive office is located at 380 Brannan Street, San Francisco, California 94107. Our telephone number at that location is (415) 908-4200 and our Internet address is www.driveway.com. Information contained on our Web site does not constitute part of this prospectus. 3 The Offering Common stock offered by Driveway Corporation...... shares Common stock to be outstanding after this offering.......................................... shares Use of proceeds................................... We intend to use the net proceeds of this offering for general corporate purposes, including investments in marketing, promotion and technology. Proposed Nasdaq National Market symbol............ DWAY
The shares of our common stock to be outstanding after this offering is based on the number of shares outstanding as of March 13, 2000, and excludes: . options to purchase 3,729,601 shares outstanding; . 1,188,623 shares available for grant; and . 22,532 shares issuable upon the exercise of warrants, at a weighted average exercise price of $64.98 per share. Except as otherwise noted, all information in this prospectus: . assumes the exercise of warrants to purchase 835,030 shares at a weighted average exercise price of $1.36 per share; . reflects the conversion of all outstanding shares of our preferred stock into shares of our common stock at the completion of this offering; and . assumes no exercise of the underwriters' over-allotment option. 4 Summary Financial Data The following table presents our summary financial data. The pro forma net loss per share data below gives effect to the conversion of each outstanding share of preferred stock into one share of common stock upon the completion of this offering. The summary financial data below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements included elsewhere in this prospectus.
Year Ended December 31, ----------------------- 1997 1998 1999 ------ ------ ------- (dollars in thousands, except per share data) Statement of Operations Data: Revenue............................................. $ 7 $ 187 $ 264 Cost of revenue..................................... 276 1,179 2,155 Operating expenses.................................. 5,459 4,262 13,321 Loss from operations................................ (5,728) (5,254) (15,212) Net loss............................................ (5,627) (5,776) (17,219) Basic and diluted loss per common share............. (8.78) Pro forma basic and diluted net loss per common share (unaudited).................................. (1.00)
December 31, 1999 -------------------- Pro Forma Actual as Adjusted ------- ----------- (dollars in thousands) Balance Sheet Data: Cash and cash equivalents................................ $24,747 Working capital.......................................... 22,590 Total assets............................................. 29,558 Long-term obligations, less current portion.............. 406 Total stockholder's equity (deficit)..................... (4,433)
5 RISK FACTORS Any investment in our shares of our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before you decide to buy our common stock. If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock. All references to "partners" or "strategic partners" shall not necessarily imply equity ownership in us by such entities. Risks Related To Our Business Our limited operating history makes it difficult to evaluate our future prospects. We initiated our Internet-based information management solution services in February 1999. Prior to that time, we provided a windows-based data storage and backup service. Therefore, we have only a limited history of recognizing and addressing material risks in our current business. Moreover, like other early stage Internet-based companies, if we are not successful in growing our revenue, our business may fail. We have a history of losses and may not achieve profitability in the foreseeable future. We have never achieved profitability and, given the level of planned operating and capital expenditures, expect to continue to incur additional operating losses for the foreseeable future. In fact, we incurred net losses of $5.6 million for the year ended December 31, 1997, $5.8 million for the year ended December 31, 1998 and $17.2 million for the year ended December 31, 1999. Our accumulated deficit at December 31, 1999 was $38.2 million. The size of our future losses will depend, in part, on the rate of growth in our revenues and expenses. It is critical to our success that we continue to devote financial resources, including a portion of the net proceeds of this offering, to develop brand awareness and expand our strategic partnerships. In addition, we expect to make significant capital expenditures as we increase our growth in operations infrastructure and personnel, both domestically and internationally. As a result, we expect that our operating expenses will increase significantly during the next several years, especially in sales and marketing. As we increase spending, our losses may continue to increase for the foreseeable future. As a result, we may never achieve or sustain profitability, and if we do achieve profitability in any period, we may not be able to sustain or increase profitability on a quarterly or annual basis. The success of our business depends on our development of relationships with existing strategic partners and obtaining new strategic partners. Most of our registered members became members of Driveway while registering for the services of our strategic partners. We intend to pursue additional strategic partnerships in the future, and expect a significant percentage of our membership will continue to be acquired through our relations with strategic partners. We often pay significant fees to these strategic partners for the procurement of registered members and for converting these members to active users of our system. We may not experience increases in the number of new strategic partnerships or in the number of new member registrations or in user traffic from our strategic partner affiliations. Our strategic partnerships have terms of up to three years, with the majority of them having terms of one year. When these agreements expire, we may be unable to renew them or enter into 6 replacement agreements on viable commercial terms. If we fail to renew any of these agreements or enter into substantially similar agreements with other strategic partners, we could experience a decline in membership growth and activity on our Web site could decrease. As a result, our competitive position would be significantly weakened and our operating results would likely suffer. If our members do not become active users of our services or our users do not subscribe for premium services, our business will suffer. We depend on our members becoming active users of Driveway. To date, only a small percentage of our members have ever used our services. If members do not actively and regularly use our services, our business will suffer. Moreover, we may be unable to generate revenue from members who use our services. Only a small percentage of our current members have ever paid us for any of our services. Present and future members may be unwilling to pay for services they currently receive free of charge or may not subscribe for premium fee-based services. System failures could prevent access to, and result in the loss of information stored on, our Web site and harm our business and results of operations. We currently store all of the data stored on Driveway on equipment that is owned by us or operated on our behalf and manufactured by StorageTek Corporation and EMC/2/ Corporation. Each of these entities also provides professional and maintenance services related to their particular products. We also contract with Exodus and with Level (3) Communications for the hosting of our servers and for the provision of bandwidth. The malfunction, interruption or loss of any of these services or products could result in damage to or loss of our users' data and result in the interruption in the use of our services. Our revenues could decline and we could lose existing or potential members of our services if they are not able to access their stored data, or if their stored data on our Web site, transaction processing systems or network infrastructure do not perform to our users' satisfaction. Any network interruptions or problems with our Web site could: . prevent members from accessing data stored on Driveway; . reduce the number of new users we register; . cause member dissatisfaction; or . damage our reputation. We have experienced brief computer system interruptions in the past. In January 2000, a technical failure at one of our suppliers caused Driveway to be unavailable to Internet users over a period of approximately two days. This outage was the result of a failure of certain storage equipment and technical support provided by a third party supplier. Approximately 64,000 users may have been unable to access some of their files stored on Driveway for up to an additional six days, and approximately 3,400 users lost one or more of their files. We are unable to quantify the damage that such outage has caused to our business or to our users' information. We do not presently have a formal disaster recovery plan in effect and do not carry sufficient business interruption insurance to compensate us for losses that could occur due to any failures or interruptions in our systems and, accordingly, we cannot be certain that litigation and liabilities may not result from this interruption and from future interruptions. Such interruptions may recur. If the 7 number of users visiting our Web site and storing information on our services continues to increase, we will need to expand and upgrade our technology, transaction processing systems and network infrastructure significantly. We may not be able to make timely upgrades to our systems and infrastructure to accommodate increases in the number of users. Our systems and operations are also vulnerable to damage or interruption from a number of sources, including fire, flood, power loss, telecommunications failure, physical and electronic break-ins, earthquakes and other similar events. For example, our primary data center is currently located in Northern California, a seismically active region. Our servers are also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. Any substantial disruption could completely impair our ability to generate revenues from our Web site. Our operating results are likely to fluctuate from quarter to quarter, and if we fail to meet the expectations of securities analysts or investors, our stock price could decline significantly. Our results of operations have varied significantly from quarter to quarter in the past and we anticipate that they will continue to fluctuate in the future due to a variety of factors, some of which are outside of our control. Factors that may affect our future operating results include: . market acceptance of our services; . growth in the number of new strategic partnerships we enter into to increase the use of our services; . growth in payment and timing for our premium services; . the amount of advertising and commerce activity on our Web site and the rate we can charge for such activity; . the amount and timing of our other operating expenses and capital expenditures; . our ability to upgrade and develop our systems and infrastructure and attract new personnel in a timely and effective manner; . our ability to introduce new products or services in a timely and effective manner; and . new product and service introductions by our competitors. As a result, period to period comparisons of our operating results are not necessarily meaningful or indicative of future performance. Furthermore, it is likely that in some future quarters our operating results will fall below the expectations of public market analysts or investors. If this occurs, the trading price of our common stock could decline. If the online information management market fails to develop or develops more slowly than expected, or if the market segment of Internet users we target fails to adopt our services, our business may suffer. The development of the online information management service market is in its early stages, is rapidly evolving and likely will be characterized by an increasing number of market entrants. Therefore, there is significant uncertainty with respect to the viability and growth potential of this market and as to the most likely users of these services. We do not know whether consumers or businesses will significantly increase their use of the Internet for information management services or 8 whether our services will be accepted by consumers or businesses. If the online information management market fails to develop, or develops more slowly than we expect, or if our services do not achieve widespread market acceptance, or acceptance in the demographic segment we target, our business may suffer. Acceptance of our services is highly uncertain and subject to a number of potential factors, including: . reluctance to change information management storage behavior in favor of services hosted on our servers; . concerns regarding the effectiveness of hosted PC services compared with information storage devices residing on a user's PC or network systems; . the unwillingness to incur ongoing subscription fees for hosted services previously offered free of charge; . concerns about whether the Internet is able to deliver critical PC security and management functions effectively; and . concerns about storing sensitive data and information at a location other than on a personal computer. Any failures of, or capacity constraints in, our systems could adversely affect our business, harm our reputation and slow the growth of our membership. Our Web site must accommodate a high volume of traffic and deliver frequently updated information, the accuracy and timeliness of which is critical to our business. Traffic on our Web site is growing rapidly. If we fail to increase capacity to accommodate increased use of our system, we may experience slower response times or system failures. Our Web site has in the past experienced slower response times, decreased traffic or loss of service for a variety of reasons. Any of these problems could adversely affect our business. We have a new and unproven business model which we may not successfully implement. We intend to compete in the online information management services market, which is in its infancy. We intend to derive revenue from fees for advertising, the purchase of additional storage space and from our strategic relationships. Although we are developing additional service offerings including private labeling, we believe that Driveway will continue to account for a significant portion of our revenue for the foreseeable future. The life cycle of Driveway is difficult to estimate because of, among other factors, the emerging nature of the online information management market and the possibility of future competition. As a result, our future operating results, particularly in the near term, are dependent upon the continued market acceptance and penetration of Driveway and its related services. There can be no assurance that Driveway will continue to meet with market acceptance or achieve market penetration or that we will be successful in generating revenue from our service offerings. We face intense competition, which could adversely affect our ability to maintain or increase sales of our services. The online information management market is intensely competitive. We currently face direct competition from several privately-held online information management companies. We also face indirect competition from other companies, including: . Internet portal and content companies, such as America Online and Yahoo!; 9 . online community sites, such as iVillage; . online personal homepage services, such as Yahoo! Geocities; . online music services that offer storage space for digital music files, such as MP3.com and Real Networks; and . Internet desktop companies, such as Visto and desktop.com. Because technological barriers to entry are extremely low, additional competitors may enter our market. As a result, we must educate prospective users as to the advantage of our services relative to those offered by our competitors. In order to remain competitive, we may have to continue to provide certain services free of charge and we may be unable to generate significant revenue with our premium service offerings. We will likely also face competition in the future from developers of Web directories, search engine providers, shareware archives, content sites, commercial online services, sites maintained by Internet service providers and other entities that establish or attempt to establish online information management solutions by developing their own offerings or by purchasing or entering into significant strategic partnerships with one of our competitors. We may also face competition from traditional storage solutions, including currently installed hard drives which can be modified to add substantially more storage space and from stand-alone equipment such as Iomega zip drives. Enhancements to hard drive capacity could increase current storage capacity of personal computers to such a level where our online information management solution might not be as compelling. Also, hand-held devices that are internet- connected could in the future be equipped with hard drives with sufficient storage for music and other rich data files. Certain of our competitors and potential competitors have substantially greater financial, marketing, sales and support resources, have longer operating histories, more "brand-name" recognition and a larger user base than we have. There can be no assurance that we will be able either to develop services comparable or superior to services offered by our current or future competitors or to adapt to new technologies, evolving industry standards and changes in customer requirements. Many of these competitors are able to respond more quickly to take advantage of new or changing opportunities, technologies and customer requirements, undertake more extensive marketing campaigns for their products and services, adopt more aggressive pricing policies and make more attractive offers to potential employees, strategic partners, ecommerce companies and third-party service providers. Accordingly, our competitors may experience greater growth than we do and our strategic partners may terminate their agreements with us and enter into arrangements with these competitors. We may not be able to compete successfully against our current or future competitors. To compete successfully, we must respond promptly and effectively to technological changes, evolving industry standards and our competitors' innovations and competitive marketing efforts by continuing to enhance and expand our products and services and our sales and marketing channels. Increased competition, particularly online competition, may result in price reductions, reduced margins and loss of market share, any or all of which could harm our business. Our services may not be accepted as a private label offering. One key component of our future revenue model involves making our services available on a private label basis to business-to-business Web sites and to other online and offline businesses. If we are unable to convince these businesses of the value of our services or our services do not gain wide-spread adoption, we will be unable to attain future revenue projections. 10 Factors beyond our control will dictate the amount of revenue we are able to generate from selling advertising on our Web site and sponsorship activities. We anticipate increased revenue in the future from advertising and sponsorship activities. Our business would suffer if the market for Web advertising fails to develop or develops more slowly than expected. Our ability to generate advertising revenues will depend on, among other factors, the development of the Internet as an advertising medium, the amount of traffic on our Web site and our ability to achieve and demonstrate user and member demographic characteristics that are attractive to advertisers. Most potential advertisers and their advertising agencies have only limited experience with the Internet as an advertising medium and have not devoted a significant portion of their advertising expenditures to Internet-based advertising. The widespread adoption of technologies that permit Internet users selectively to block-out unwanted graphics, including advertisements, attached to Web pages could also adversely affect the growth of the Internet as an advertising medium and therefore our revenue. We may not successfully promote our brand or achieve brand recognition. If we fail to promote our brand successfully, or if these efforts are excessively expensive, our business may not grow. There are a growing number of Web sites that offer services which are similar to and competitive with our services. Therefore, we believe that brand recognition will become an increasingly important competitive advantage in our industry. Establishing and maintaining our brand is critical to expanding our customer base, solidifying our business relationships and successfully implementing our business strategy. We cannot assure you that our brand will be viewed positively and be accepted by the market, or that we will have a strong and positive reputation. Additionally, expenses incurred toward building brand awareness do not have an immediate payback, and it may be a long time before the general public recognizes and makes positive connections with our brand. In order to attract and retain customers and strategic partners and to promote and maintain our brand in response to competitive pressures, we intend to increase our financial commitment to creating and maintaining prominent brand awareness. The value of our brand could be diluted if visitors to our Web site do not perceive our existing services to be of high quality or if we alter or modify our brand image, introduce new services or enter into new strategic ventures that are not favorably received, which may decrease the attractiveness of our services to potential customers. Moreover, promoting and enhancing our brand will also depend, in part, on our success in providing a high-quality member experience. We cannot assure you that we will be successful in achieving this goal. Our business will be adversely affected if we are unable to safeguard the security and privacy of our customers' information or network systems. The secure transmission of confidential information over public networks is critical to the acceptance of the online information management market and ecommerce. A significant barrier to electronic commerce and online communications has been the ability to transmit confidential information over the Internet in a secure manner. Internet usage and/or use of our services could decline if any well-publicized compromise of security occurs. We rely on certain encryption and authentication technology licensed from third parties to provide secure transmission of confidential information. 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 algorithms we use to protect customer data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause disruptions in our operations. We 11 may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Further, such breaches in security could adversely affect our reputation and expose us to a risk of loss or litigation and possible liability. Lastly, we can provide no assurances that our privacy policies will be deemed sufficient by our members or any federal or state laws governing privacy which may be adopted in the future. We have experienced significant growth in recent periods, and if we are unable to manage our growth effectively our business may suffer. We have rapidly and significantly expanded our operations recently and expect to continue to expand our operations for the foreseeable future in order to address market opportunities. If we fail to implement or improve systems or controls or to manage any future growth and expansion effectively, our business could suffer. This growth has placed, and will continue to place, a significant strain on our managerial, operational, financial and other resources. We have recently hired a number of executive officers, including Christopher S. Logan, Chief Executive Officer, Kent Jarvi, Chief Financial Officer, Michael Zukerman, Vice President--Business Development, Philip Constantinou, Vice President-- Engineering, Larry Jones, Vice President--Product Marketing and Michael Vanneman, Vice President--Sales. Because our senior management currently consists of individuals who have worked together for a relatively short period of time, our management may be unable to work together or to manage our employees effectively. We have grown to 61 employees as of March 13, 2000 from 28 employees on January 1, 1999. We expect to hire additional new employees to support our technology development, business development and operations departments. We have limited experience training large numbers of new staff members, and we could experience a significant amount of employee turnover. If we fail to manage the growth of our operations and staff effectively, the quality of our services will be impaired and our financial performance will suffer. Our success depends on retaining our key senior management team and attracting and retaining qualified individuals. We do not have long-term employment contracts with our senior management or key personnel. Our future success depends to a significant extent on the continued services of our senior management, particularly Christopher S. Logan, our President and Chief Executive Officer. The loss of the services of any person on our senior management team would likely have a significantly detrimental effect on our business. We have not obtained "key-person" life insurance for any officer. The loss of any key employee or the failure of any key employee to perform satisfactorily in his or her current position could have a significant negative impact on our operations. We may also be unable to retain our key employees or to attract, assimilate or retain other highly qualified employees in the future. We have from time to time experienced, and we expect in the future to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, there is significant competition for qualified employees in the Internet industry and, in particular, in northern California where we are located. If we do not succeed in attracting new personnel or retaining and motivating our current personnel, our business will suffer. 12 We may be unable to adequately protect our intellectual property and we may be subject to claims that we infringe the intellectual property of others. We rely on a combination of patents, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. We also believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and name recognition are essential to establishing and maintaining a technology leadership position. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. There can be no assurance that our intellectual property will be successfully protected, or if protected, that it will not be invalidated, circumvented or challenged, that the rights granted thereunder will provide competitive advantages to us or that any of our pending or future patent applications, whether or not being currently challenged by applicable governmental patent examiners, will be issued on substantially the same basis as the claims we seek, if at all. Furthermore, there can be no assurance that others will not develop technologies that are similar or superior to our technology or design around the intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not ensure that our means of protecting our proprietary rights in the United States or abroad will be adequate or that competition will not independently develop similar technology. There can be no assurance that third parties will not claim infringement by us of their intellectual property rights. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and resources or cause product release delays. In addition, such claims could require us to discontinue the use of certain software codes or processes, to cease the manufacture, use and sale of infringing products, to incur significant litigation costs and expenses and to develop non-infringing technology or to obtain licenses to the alleged infringing technology. There can be no assurance that we would be able to develop alternative technologies or to obtain such licenses or, if a license were obtainable, that the terms would be commercially acceptable to us. In the event of a successful claim of product infringement against us and our failure or inability to license the infringed or similar technology, our business, operating results and financial condition will suffer. Protection of our domain names is uncertain. We hold domain names that are important to our business. The regulation of domain names is subject to change. Some proposed changes include the creation of additional top-level domain names in addition to the current top-level domains, such as ".com," ".net" and ".org." It is also possible that the requirements for obtaining and holding a domain name could change. Therefore, we may not be able to obtain or maintain relevant domain names for all areas of our business. It may also be difficult for us to prevent third parties from acquiring domain names that are similar to ours, that infringe our trademarks or that otherwise decrease the value of our intellectual property. 13 Any acquisitions we make may disrupt our business and dilute our stockholders. While we have no current agreements or negotiations underway, we may acquire or make investments in complimentary businesses, products and technologies in the future. We may experience difficulties integrating an acquired company's operations into ours. In the event of any investments or purchases, we could: . issue stock that would dilute our current stockholders: . incur debt; . assume liabilties; . incur amortization expenses related to goodwill and other intangible assets; or . incur large and immediate write-offs. These acquisitions could also involve numerous operational risks, including: . problems combining the purchased operations, products or technologies; . unanticipated costs; . diversion of management's attention for our core business relationships with suppliers and customers; . risks associated with entering into markets in which we have no or limited prior experience; and . potential loss of key employees, particularly those of the purchased organizations. We cannot assure you that we will be able to successfully integrate any businesses, products or technologies that we might acquire in the future. We face risks associated with international operations. We intend to expand our business into international markets and to spend significant financial and managerial resources to do so. We have limited experience in international markets and may not be able to compete effectively in international markets. We also face certain risks inherent in conducting business internationally, such as: . legal and governmental regulatory requirements; . difficulties and costs of staffing and managing international operations; . differing technology standards; . language and cultural differences; . trade barriers; . difficulties in collecting accounts receivable and longer collection periods; . seasonal business activity in other parts of the world; . political and economic instability; . payment in foreign currency and fluctuations in currency exchange rates; . imposition of currency exchange controls; 14 . potentially adverse tax consequences; and . reduced protection for intellectual property rights in certain countries. Any of these factors could harm our international operations and, consequently, our business, operating results and financial condition. Certain existing investors experienced substantial dilution prior to the sale of our Series A Preferred Stock. On two occasions prior to the sale of the outstanding shares of our Series A Preferred Stock, and in order to further induce investments in Driveway and its predecessor, all holders of the then outstanding preferred stock were required to convert their shares into common stock. Additionally, on October 29, 1998, the then outstanding common stock was subject to a 1,000-to-1 reverse stock split. The interest of former holders of preferred stock in Driveway and its predecessor was significantly diluted by this stock split and the subsequent issuances of common stock and preferred stock. The holders of preferred stock and common stock outstanding as of the date of this stock split currently own less than 1% of the capital stock of Driveway on a fully diluted basis. Furthermore, certain holders of less than 1% of our capital stock outstanding at the time of such transactions did not consent to the 1,000-to-1 reverse stock split. It is possible that one or more of the holders of capital stock outstanding at the time of the reverse stock split could challenge the basis for the reverse stock split or that the holders of capital stock who did not consent to the reverse stock split could successfully claim they are entitled to the full value of the securities without giving effect to the reverse stock split. Risks Related To The Internet Industry Our success depends on the continued growth of the Internet. Our success depends on consumers and businesses increasing their use of the Internet. Consumers and businesses may not use the Internet for a number of reasons, including: . internet access costs; . perceived security risks; . legal issues; . inconsistent service quality; and . unavailability of cost-effective, high-speed service. If consumers and businesses do not increase their use of the Internet, our business and operating results would suffer. The regulation of the Internet is unsettled and future regulations could have an adverse effect on our business. Laws and regulations directly applicable to electronic commerce or relating to online content, user privacy, access charges, liability for third-party activities, jurisdiction and taxation may become more prevalent in the future. It is uncertain as to how existing laws will be applied toward the Internet. Such legislation could dampen the growth in Internet usage generally and decrease the acceptance of the Internet as a commercial medium. Although our business is based in California, the governments of other states or foreign countries might attempt to regulate our activities or levy sales or other taxes on us. 15 The tax treatment of the Internet and electronic commerce is currently unsettled. A number of proposals have been made at the federal, state and local level and by various foreign governments to impose taxes on the sale of goods and services and other Internet activities. Recently, the Internet Tax Information Act was signed into law placing a three-year moratorium on new state and local taxes on Internet commerce. However, future laws may impose taxes or other regulations on Internet commerce, which could substantially impair the growth of electronic commerce. Some local telephone carriers have asserted that the increasing popularity and use of the Internet have burdened the existing telecommunications infrastructure, and that many areas with high Internet use have begun to experience interruptions in telephone service. These carriers have petitioned the Federal Communications Commission to impose access fees on Internet service providers and online service providers. If access fees are imposed, the costs of communicating on the Internet could increase substantially, potentially slowing the increasing use of the Internet. This slowing could in turn decrease demand for our services or increase our cost of doing business. The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, telecommunications, privacy and taxation apply to the Internet. In addition, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. In the event the Federal Trade Commission, Federal Communications Commission, local authorities or other governmental authorities adopt or modify laws or regulations relating to the Internet, our business could suffer. The Internet industry is experiencing consolidation that may intensify competition. The Internet industry has recently experienced substantial consolidation and a proliferation of strategic transactions. We expect this consolidation and strategic partnering to continue. Acquisitions or strategic partnerships could harm us in a number of ways, including: . competitors could acquire or partner with companies with which we have strategic partnerships and discontinue our strategic partnerships, resulting in the loss of distribution opportunities for our services; . our competitors could merge with each other or third-parties with significant resources and experience, thereby increasing their ability to compete with our services; and . a competitor could acquire or partner with one of our key suppliers. Any of these factors could materially adversely affect our operations and, consequently, our business, operating results and financial condition. The success of our business depends on the continued growth of the Internet as a viable commercial marketplace. Our future revenues substantially depends upon the widespread acceptance of the Internet as an effective medium of commerce by consumers. We cannot predict the extent to which Internet users will shift their habits from traditional to online information management tools. If customers or manufacturers are unwilling to use the Internet to conduct business and exchange information, our business will fail. It is possible that the Internet may not become a viable long-term commercial marketplace due to the potentially inadequate development of the necessary network infrastructure, 16 the delayed development of enabling technologies and performance improvements and the high cost of shipping products. The commercial acceptance and use of the Internet may not continue to develop at historical rates, or may not develop as quickly as we expect. In addition, concerns over security and privacy may inhibit the growth of the Internet. Our internal and hosted network infrastructure could be disrupted by a number of different occurrences which can affect specific companies' Web sites. We expect that experienced computer programmers, or hackers, may attempt to penetrate our network security from time to time. Because a hacker who penetrates our network security could misappropriate proprietary information or cause interruptions in our services, we might be required to expend significant capital and resources to protect against or to alleviate problems caused by hackers. We could face liability for unauthorized access to, or destruction of, our users' stored information or for information retrieved from or transmitted over the Internet. We could face liability for information retrieved from or transmitted over the Internet. We provide third party content on our Web site. We could be exposed to liability with respect to this third-party information. Our users might assert, among other things, that, by directly or indirectly providing links to Web sites operated by third parties, or by being provided access to third parties' files, we should be liable for copyright or trademark infringement or other wrongful actions by third parties. Our customers could also assert that our third-party information contains errors or omissions, and they could seek damages for losses incurred if they rely upon that information. It is possible that claims may be made against us on the basis of defamation, negligence, copyright or trademark infringement or other theories based on the nature and content of materials that have been or may be stored on Driveway and made available to others. We could be held liable for information stored using Driveway which we have not generated or compiled. These claims could be based on us providing access to obscene, lascivious, inaccurate, or indecent information or based on asserted infringements of copyrighted or trademarked data. In addition, our provision of access to Internet content or advertisements on Driveway that users may find objectionable could harm our reputation and reduce the value of our brand. Although we carry general liability insurance, our insurance does not cover potential claims of this type, or may not be adequate to indemnify us for all types of liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could impair our business. Even if claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims. Risks Related To This Offering There has been no prior market for our common stock and an active trading market may not develop following this offering. Before this offering, there has not been a public market for our common stock and the trading market price for our common stock may decline below the initial public offering price. We cannot predict the extent to which a market will develop or how liquid that market might become. The initial public offering price for our common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the 17 trading market. Investors may not be able to resell their common stock at or above the initial public offering price due to a number of factors, including: . actual or anticipated fluctuations in operating results; . changes in expectations as to future financial performance or changes in financial estimates or buy/sell recommendations of securities analysts; . technical innovations by us or our competitors; and . the operating and stock price performance of other comparable companies. Our stock price could be volatile and could decline following this offering. The stock markets, particularly the Nasdaq National Market on which we have applied to have our common stock listed, have experienced significant price and volume fluctuations, and the market prices of technology companies, particularly Internet-related companies, have been highly volatile. The trading prices of many technology companies' stocks are at or near historical highs. These high trading prices may not be sustained. Investors may not be able to resell their common stock at or above the initial public offering price. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of their securities, regardless of actual operating performance. Such litigation could result in substantial costs and a diversion of management's attention and resources. Certain existing stockholders own a large percentage of our voting stock, which they could exercise against your best interests. Upon completion of this offering, we anticipate that our executive officers, directors and greater than five percent stockholders, along with their affiliates, will, in the aggregate, own approximately % of our outstanding common stock. As a result, such persons, acting together, will have the ability to substantially influence all matters submitted to the stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. These persons will also have the ability to control our management and affairs. Accordingly, such concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving us or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would be beneficial to other stockholders. Matters that could require stockholder approval include: . election and removal of directors; . merger or consolidation of our company; and . sale of all or substantially all of our assets. Future sales of our common stock may cause our stock price to decline. Sales of significant amounts of our common stock in the public market after this offering or the perception that such sales will occur could adversely affect the market price of our common stock or our future ability to raise capital through an offering of our equity securities. After the completion of this offering, we will have shares of common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants after 18 Of these shares, all of the common stock sold in this offering will be freely tradable without restriction under the Securities Act, unless purchased by our officers, directors and some of our significant security holders. The sale of a large number of shares held by affiliates could have an adverse effect on the market price for our common stock. Those shares of common stock that constitute restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 under the Act. 95.0% of the holders of these restricted securities, including our officers and directors, have entered into lock-up agreements providing that, subject to certain limited exceptions, they will not sell, directly or indirectly, any shares of our common stock without the prior written consent of FleetBoston Roberston Stephens Inc. for a period of 180 days from the date of this prospectus. Upon expiration of this 180-day period and subject to the provisions of Rules 144, 144(k) and 701, shares of common stock will be available for sale in the public market, subject to compliance with certain volume restrictions in the case of shares held by affiliates. In addition, as of March 13, 2000, there were outstanding options to purchase 3,729,601 shares of common stock that will be eligible for sale in the public market from time to time, subject to vesting and the expiration of lock- up agreements. After the completion of this offering, certain stockholders representing approximately 36,146,055 shares of common stock, including shares issuable upon the exercise of certain warrants to purchase common stock, are entitled to certain demand and piggy-back registration rights. We are uncertain of our ability to obtain additional financing for our future capital needs. We may need to raise additional funds in order to fund more rapid expansion, to expand marketing activities, to develop new or enhance existing services or products, to respond to competitive pressures or to acquire complementary services, businesses or technologies. Additional financing may not be available on terms favorable to us, if at all. You will experience immediate and substantial dilution in the net tangible book value of the stock you purchase. The initial public offering price of our common stock will be substantially higher than the book value per share of the outstanding common stock immediately after this offering. Therefore, based on an assumed initial public offering price of $ per share of common stock, if you purchase our common stock in this offering, you will suffer immediate dilution of approximately $ per share. If additional shares are sold by the underwriters following exercise of their over-allotment option, or if outstanding options and warrants to purchase our common stock are exercised, you will experience additional dilution. Accordingly, if you purchase common stock in this offering, you will: . pay a price per share that substantially exceeds the value of our assets after subtracting liabilities; and . contribute % of our capital but will only own % of the shares outstanding. Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover, even if the transaction would benefit our stockholders. Other companies may seek to acquire or merge with us. An acquisition or merger of our company could result in benefits to our stockholders, including an increase in the value of our common stock. Some provisions of our Certificate of Incorporation and Bylaws, as well as provisions 19 of Delaware law, may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable. These provisions include: . authorizing the Board of Directors to issue additional preferred stock; . prohibiting cumulative voting in the election of directors; . limiting the persons who may call special meetings of stockholders; . prohibiting stockholder action by written consent; . creating a classified Board of Directors, to which our directors are elected for staggered three year terms; and . establishing advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be acted on by stockholders at stockholder meetings. Our management may not use the net proceeds of this offering effectively. Our management has broad discretion over the use of the net proceeds of this offering. In addition, our management has not designated a specific use for a substantial portion of the net proceeds of this offering. Accordingly, it is possible that our management may allocate the net proceeds differently than investors in this offering would have preferred, or that we fail to maximize our return on the net proceeds from this offering. FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA This prospectus and the documents incorporated in it by reference contain forward-looking statements about our plans, objectives, expectations and inventions. You can identify these statements by words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," "may," "will" and "continue" or similar words. You should read statements that contain these words carefully. They discuss our future expectations, contain projections of our future results of operations or our financial condition or state other forward-looking information, and may involve known and unknown risks over which we have no control. You should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of activity, performance or achievements. Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements. The factors discussed in the sections captioned "Risk Factors," "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and "Business" identify important factors that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. This prospectus contains data related to the electronic commerce and Internet market. This market data has been included in studies published by International Data Corporation, the Forrester Group, the Gartner Group, Jupiter Communications and Messaging Online. These data include projections that are based on a number of assumptions. We did not independently verify this market data projections or assumptions. If any of these assumptions is incorrect, actual results may differ from the projections based on those assumptions. 20 USE OF PROCEEDS We estimate that the net proceeds from the sale of the shares of common stock will be approximately $ million, based upon the public offering price of $ per share and after deducting the underwriting discounts and commissions and estimated offering expenses that we will pay. We estimate that our net proceeds will be approximately $ million if the underwriters exercise their over-allotment option in full. We intend to use the net proceeds of this offering for general corporate purposes, including investments in marketing, promotion and technology. We have not yet determined the expected expenditures and thus cannot estimate the amount to be used for each specified purpose. The amounts actually expended for such working capital purposes may vary significantly and will depend on a number of factors, including the amount of our future revenues and the other factors described under "Risk Factors." The principal purposes of this offering are: . to obtain additional capital; . to create a public market for our common stock; . to increase our visibility and credibility; and . to facilitate future access to the public equity markets. In addition, we may use a portion of the net proceeds to acquire complementary technologies or businesses and enter into additional strategic partnerships. We have no current plans, agreements or commitments with respect to any such acquisitions or additional strategic partnerships. Accordingly, we will retain broad discretion in the allocation of the net proceeds of this offering. Pending these uses, we intend to invest our net proceeds in short- term, investment-grade, interest-bearing instruments, repurchase agreements or high-grade corporate notes. Because our management has not designated a specific use for a substantial portion of the net proceeds of this offering, it is possible that they may allocate the net proceeds differently than investors in this offering would have preferred. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock, and we do not anticipate paying cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and growth of our business. Payment of future dividends, if any, will be at the discretion of our Board of Directors, after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion. 21 CAPITALIZATION The following table sets forth our capitalization as of December 31, 1999: . on an actual basis; . on a pro forma basis after giving effect to the following upon the completion of this offering: --the conversion of all outstanding shares of non-redeemable and mandatorily redeemable convertible preferred stock; and --the exercise of warrants to purchase 835,030 shares at a weighted average exercise price of $1.36 per share; and . our pro forma as adjusted capitalization after giving effect to the sale of shares of common stock in this offering at an anticipated initial public offering price of $ per share, less underwriting discounts and commissions and estimated offering expenses payable by us.
December 31, 1999 -------------------------------- Pro Forma Actual Pro Forma as Adjusted -------- --------- ----------- (dollars in thousands) Long-term obligations, less current portion.... $ 406 $ 406 $ -------- -------- --- Redeemable convertible preferred stock, $0.001 par value, Series C, 11,000,000 shares authorized; 7,477,562 shares issued and outstanding actual; none pro forma and none pro forma as adjusted......................... 28,383 -- -- Stockholders' equity (deficit): Convertible Preferred Stock, $0.001 par value, 18,200,000 shares authorized: Series A, 10,100,000 shares designated, 10,000,000 shares issued and outstanding actual; none pro forma and pro forma as adjusted.................................... 1,980 -- -- Series B, 8,100,000 shares designated, 7,444,770 shares issued and outstanding actual; none pro forma and pro forma as adjusted.................................... 9,352 -- -- Common Stock, $0.001 par value, 70,800,000 shares authorized; 5,298,547 shares issued and outstanding actual; 31,055,909 shares issued and outstanding pro forma; shares issued and outstanding pro forma as adjusted..................................... 5 31 Additional paid-in capital.................... 27,078 67,902 Deferred compensation......................... (4,139) (4,139) Notes receivable from stockholders............ (537) (537) Accumulated deficit........................... (38,172) (38,172) -------- -------- --- Total stockholders' equity (deficit)........ (4,433) 25,085 -------- -------- --- Total capitalization........................ $ 24,356 $ 25,491 $ ======== ======== ===
The above table excludes: . 3,729,601 shares issuable upon exercise of options outstanding as of March 31, 2000, with a weighted average exercise price of $1.45 per share; . 1,188,623 shares available for future grants as of March 13, 2000; . warrants to purchase 22,532 shares at a weighted average exercise price of $64.98 per share; . 3,322,945 shares of Series C Preferred Stock sold on January 8, 2000; and . 1,666,666 shares of Series D Preferred Stock sold on March 10, 2000. 22 DILUTION Our pro forma net tangible book value as of December 31, 1999 was approximately $25.1 million, or $0.81 per share of common stock. Our pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the shares of common stock outstanding as of December 31, 1999, assuming the conversion of all outstanding shares of preferred stock and the exercise of warrants to purchase 835,030 shares at a weighted average exercise price of $1.36 per share. Our pro forma net tangible book value as of December 31, 1999, after giving effect to the issuance and sale of the shares of common stock offered hereby after deducting underwriting discounts and commissions and estimated offering expenses would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value per share of $ to existing stockholders and an immediate dilution per share of $ to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share.................. Pro forma net tangible book value per share at December 31, 1999............................................................ $0.81 Increase in pro forma net tangible book value per share attributable to new investors................................. Pro forma net tangible book value per share after offering....... Pro forma dilution per share to new investors....................
The following table summarizes, on a pro forma basis, as of March 13, 2000, the number of shares of common stock purchased in this offering, the aggregate cash consideration paid and the average price per share paid by existing stockholders for common stock and by new investors purchasing shares of common stock in this offering:
Shares Purchased Total Consideration ------------------ ------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ----------- ------- ------------- Existing stockholders.. 36,587,542 % $73,259,824 % $2.00 New investors.......... ---------- --- ----------- --- ----- Total................ 100% $ 100% ========== === =========== === =====
The foregoing discussion and tables assume no exercise of any stock options. To the extent that any of these options are exercised, there may be further dilution to new investors. As of March 13, 2000, the foregoing discussion excludes: . 3,729,601 shares issuable upon exercise of options outstanding with a weighted average exercise price of $1.45 per share and 1,188,623 shares available for future grant; and . 22,532 shares issuable upon the exercise of warrants at a weighted average exercise price of $64.98 per share. 23 SELECTED FINANCIAL DATA The following selected financial data is derived from and should be read in conjunction with our financial statements, the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The balance sheet data set forth below as of December 31, 1998 and 1999 and the statement of operations data for each of the three years in the period ended December 31, 1999 are derived from, and are qualified by reference to our audited financial statements included elsewhere in this prospectus. The balance sheet data set forth below as of December 31, 1997, 1996 and 1995 and the statement of operations data for the year ended December 31, 1996 are derived from, and qualified by, reference to our audited financial statements not included in this prospectus. The statement of operations data for the year ended December 31, 1995 is derived from unaudited financial statements. We transitioned our business focus from developing and selling software products to data warehousing and backup services in 1997. Therefore, we believe our 1995 and 1996 financial data is not necessarily meaningful when reading or comparing our results of operations.
Year Ended December 31, ----------------------------------------------- 1995 (unaudited) 1996 1997 1998 1999 ----------- ------- ------- ------- -------- Statement of Operations Data: (in thousands, except per share data) Revenue....................... $ 27 $ -- $ 7 $ 187 $ 264 Cost of revenue............... 41 118 276 1,179 2,155 Operating expenses: Sales and marketing.......... 475 670 1,752 1,787 4,147 Technology development....... 1,170 3,805 2,457 1,434 2,136 General and administrative... 1,514 1,633 1,212 1,023 2,387 Stock-based compensation..... -- -- 38 18 4,651 ------- ------- ------- ------- -------- Total operating expenses.... 3,159 6,108 5,459 4,262 13,321 ------- ------- ------- ------- -------- Loss from operations......... (3,173) (6,226) (5,728) (5,254) (15,212) Other income (expense)....... (93) 550 101 (522) (2,007) ------- ------- ------- ------- -------- Net loss.................... $(3,266) $(5,676) $(5,627) $(5,776) $(17,219) ======= ======= ======= ======= ======== Basic and diluted loss per common share................. $(3,266) $(5,676) $(1,125) $ (152) $ (8.78) ======= ======= ======= ======= ======== Shares used to compute basic and diluted net loss per common share(1).............. -- -- 5 38 1,962 ======= ======= ======= ======= ======== Pro forma basic and diluted net loss per common share (unaudited)(1)............... $ (1.00) ======== Shares used to compute pro forma basic and diluted net loss per common share (unaudited)(1)............... 17,162 ======== December 31, ----------------------------------------------- 1995 1996 1997 1998 1999 ----------- ------- ------- ------- -------- Balance Sheet Data: (in thousands) Cash and cash equivalents..... $ 516 $ 5,214 $ 2,068 $ 406 $ 24,747 Working capital............... 4,279 4,555 1,333 (1,809) 22,590 Total assets.................. 6,506 6,645 2,944 1,374 29,558 Long-term obligations, less current portion.............. 334 229 312 176 406 Redeemable convertible preferred stock.............. 5,948 5,944 7,719 1,911 28,383 Total stockholders' deficit... (1,112) (374) (5,960) (3,267) (4,433)
- -------- (1) See Note 5 of notes to our financial statements included elsewhere in this prospectus for an explanation of the method used to determine the number of shares used to compute pro forma net loss per share. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains forward-looking statements, the accuracy of which involves risks and uncertainties. We use words such as "anticipates," "believes," "plans," "expects," "future" and "intends" and similar expressions to identify forward-looking statements. This prospectus also contains forward- looking statements attributed to certain third parties relating to their estimates regarding the growth of certain electronic commerce, and spending. You should not place undue reliance on these forward-looking statements which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in our forward-looking statements for many reasons, including the risks described in "Risk Factors" and elsewhere in this prospectus. Overview Driveway is an online information management service that allows our members to securely and easily store, manage and share their personal and business information from a single virtual location on the Web. Our Driveway services offer free online file storage, access, retrieval and sharing to anyone with Internet access. Driveway was originally incorporated in Washington on October 8, 1993 under the name XactData Services, Inc. In 1997, we changed our name to Atrieva Corporation to reflect our shift in business focus to data warehousing and backup services. We reincorporated in Delaware on February 17, 1998, and in 1999 renamed the company to Driveway with the release of our online information management service. We launched our online information management service in February 1999. Comparison of our financial results from year to year prior to 1999 may therefore not be indicative of our future performance due to the adoption of our new business model in February 1999. Revenue We have derived substantially all our revenue to date from subscribers who pay a monthly fee for online storage services. Billings in advance of services being performed are recorded in deferred revenue, which consist primarily of payments received from customers for prepaid storage services. We have recently transitioned our business model whereby registered members of our Driveway services receive an initial allocation of storage, free of charge, with the potential to purchase additional storage. Our revenue in the future will consist of service fees paid by users for additional information storage space and for other premium services. In addition, we expect to derive a substantial part of our services revenue from fees we generate from private label service offerings. Revenue is recognized over the period in which the related service is provided. We also expect to derive a significant amount of our revenue from the sale of advertisements delivered to users of our Web site. Advertising revenue will be recognized in the period in which the advertisements are delivered. Advertising programs are generally delivered on either an impression based program or a performance based program. An impression based program earns revenue when an advertisement is delivered to a user of our Web site. A performance based program earns revenue when a user of our Web site responds to an advertisement by linking to an advertiser's Web site. We began to generate advertising revenue in the first quarter of 2000. Our ability to generate revenue for Internet advertising will depend on numerous factors, including our ability to increase our inventory of delivered Internet pages on which advertisements can be displayed and our ability to maintain or increase advertising rates. We also expect to derive revenue from sponsorships in which fees are paid for selective positioning and promotion of our sponsor's logo, marketing messages and site links. 25 Cost of Revenue Our cost of revenue consists primarily of compensation and benefits for personnel, Web site operations and customer service activities. Web site operation expenses include bandwidth, storage and co-location costs, Web site content, system maintenance and communication expenses, and depreciation on equipment required to run our Web site. Co-location costs include bandwidth, communications and maintenance services by third parties related to hosting of our servers at multiple locations within the United States. We are making significant investments in systems technology and have established technology centers in San Francisco, California and Seattle, Washington. We currently have data centers only in the United States, and we expect to open additional data centers in the United States and internationally. These facilities support systems, network services, customer service, storage redundancy and backup between the locations, thereby providing operational systems in the event of a service interruption at any facility when the Web sites are fully operational. Sales and Marketing Our sales and marketing expenses are comprised primarily of compensation and benefits for personnel, advertising, business development, promotional activities and consulting expenses. We have entered into various marketing and co-marketing agreements with our strategic partners and affiliate Web sites that provide for certain advertising, reciprocal advertising, promotional and customer acquisition activities. These agreements generally have terms of up to three years and provide for payments for services based on the first time a customer clicks on one of our links and registers for the Driveway service and/or becomes an active user of our services. Some agreements include minimum monthly and quarterly payments and in some cases, an up-front Web site placement fee. Placement fees are deferred and expensed throughout the term of the contract. As of December 31, 1999, future minimum payments under these obligations were approximately $4.3 million in 2000 and $425,000 in 2001. Advertising costs are expensed as incurred. The aggregate of commitments at December 31, 1999 was approximately $5.4 million. We intend to develop worldwide sales offices. We currently have sales offices only in the United States, although we expect to open additional sales offices in the United States and internationally. We have commitments for expenditures on media advertising in 2000. We intend to expand our sales and marketing force to increase the breadth of our customer base and generate additional revenue. We also intend to expand our sales and marketing efforts globally through leveraging our existing relationship with Lycos Europe, a joint venture between Lycos and Bertelsmann, and by establishing a larger international strategic partner base. We also intend to further develop new and existing strategic relationships to expand our distribution channels and to undertake joint product development and marketing efforts. Technology Development Technology development expenses consist of expenses for the development and production of new Internet services and for research and development of new or improved technologies to enhance the features and functionality of our Driveway services. Technology development expenses include employee compensation relating to developing and enhancing the features and functionality of our Web site. Our technology expenses also include product development and information services personnel, data telecommunications expense and consultants. Because we believe our Web site is subject to continual and substantial change, technology development expenditures are expensed as 26 incurred. We believe a significant investment in technology is required to remain competitive in the online information management market. Future investments in technology may involve the development, acquisition or licensing of technologies that complement or augment our existing services and technologies. Accordingly, we expect to incur increased product development expenditures in absolute dollars in future periods. General and Administrative General and administrative expenses consist primarily of salaries and related costs for executive, finance and human resource personnel, professional fees, and other general corporate expenses. We expect that general and administrative expenses will increase in absolute dollars as we add personnel to support expanding operations, incur additional costs related to the growth of our business and assume the reporting requirements of a public company. Stock-Based Compensation In connection with the issuance of stock and stock options to employees and consultants, we recorded non-cash stock-based compensation charges of $8.8 million for the year ended December 31, 1999. This amount represents the difference between the purchase price or the exercise price of these stock and option grants, as the case may be, and the deemed fair value of the common stock at the time of grant or purchase. Of this amount, we expensed approximately $4.7 million through December 31, 1999. We expect to record additional stock-based compensation in connection with options granted during the first quarter of 2000. The remaining $4.1 million and the additional amount of stock-based compensation from recent grants will be amortized over the remaining vesting period of the options, generally four years or less. Deferred compensation at December 31, 1999 will be amortized as follows: $2.2 million in 2000; $1.0 million in 2001; $569,000 in 2002 and $290,000 in 2003. As a result, the amortization of stock-based compensation will impact our reported results of operations through 2003. Income Taxes We have recorded no provision for Federal or state income taxes for any period since our inception as we have incurred losses in each period. As of December 31, 1999, we had approximately $35.0 million of Federal and $11.9 million state net operating loss carryforwards for income tax purposes, available to reduce future taxable income, which expire between 2008 and 2019 for Federal and 2019 for state, respectively. Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of the net operating loss and tax credit carryforwards before utilization. Operating History We have a limited operating history upon which investors may evaluate our business and prospects. We incurred net losses of $17.2 million, $5.8 million and $5.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. Our accumulated deficit at December 31, 1999 was $38.2 million. We expect to expand our operations and employee base, including our sales, marketing, technical, operational and customer support resources, and as a result, we expect to 27 continue to incur net losses for the foreseeable future. In view of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as an indication of our future performance. Results of Operations Years Ended December 31, 1999, 1998 and 1997 Revenue Revenue increased 41% to $264,000 in 1999 as compared to $187,000 in 1998. Revenue increased 2,571% in 1998 from $7,000 in 1997. The increase in total revenue in 1999 was primarily the result of the launch of our initial online information management service and the increase in registered users of this platform. The increase in revenue in 1998 was primarily due to revenue derived from our data warehousing and backup services launched in January 1998. Cost of Revenue Cost of revenue increased 83% to $2.2 million in 1999 as compared to $1.2 million in 1998. Cost of revenue increased 335% in 1998 from $276,000 in 1997. The increase in cost of revenue in 1999 was primarily attributable to the costs associated with the launch of our initial online information management service and additional costs related to increased personnel, facilities and other costs associated with growing our Web site infrastructure. The increase in 1998 was primarily due to the launch of our data warehousing and backup services. Sales and Marketing Sales and marketing expenses increased 132% to $4.1 million in 1999, as compared to $1.8 million in 1998. Sales and marketing expenses were relatively unchanged in 1998, with expenses of $1.8 million in 1997. The increases in these periods in absolute dollars are primarily attributable to an increase in advertising and distribution costs associated with our aggressive brand- building strategy and increases in personnel associated with growth in marketing and business development. We anticipate that sales and marketing expenses in absolute dollars will increase in future periods as we continue to pursue an aggressive brand-building strategy through advertising and distribution, continue to expand our international operations, and continue to build our global direct sales organization. Technology Development Technology development expenses increased 49% to $2.1 million in 1999, as compared to $1.4 million in 1998. Technology and development expenses decreased 42% from $2.5 million in 1997. The increase in 1999 was primarily attributable to increases in the number of engineers and consultants that develop and enhance our services. The decrease in 1998 was primarily attributable to a decrease in personnel primarily due to a refocusing of our business. We believe a significant investment in technology is required to remain competitive in the online information management market. Accordingly, we expect to incur increased product development expenditures in absolute dollars in future periods. 28 General and Administrative General and administrative expenses increased 133% to $2.4 million in 1999 as compared to $1.0 million in 1998. General and administrative expenses decreased 16% in 1998 from $1.2 million in 1997. The increase in 1999 was primarily attributable to additional finance, administrative and human resource personnel and higher occupancy costs related to the move of our corporate headquarters to San Francisco, California in the fourth quarter of 1999. The decrease in 1998 was primarily attributable to a decrease in personnel primarily due to a refocusing of our business. We believe that the absolute dollar level of general and administrative expenses will increase in future periods, as a result of an increase in personnel to support expanding operations, incur additional costs related to the growth of our business and assume the reporting requirements of a public company. Other Income (Expense), Net Other expense increased 283% to $2.0 million in 1999 as compared to $522,000 in 1998. Other expense increased 617% in 1998 from other income of $101,000 in 1997. The increase in other expense in 1999 was primarily the result of interest charges from warrants issued in exchange for guarantees in connection with our bridge financing in the fourth quarter of 1999. The increase in other expense in 1998 was primarily due to additional bank and equipment lease financings. Liquidity and Capital Resources Since our inception, we have funded our operations primarily through private sales of equity securities. On March 13, 2000, we had $38.1 million in cash and cash equivalents. In January 2000, we sold an aggregate of 3,322,945 shares of our Series C Preferred Stock for gross proceeds of $13.2 million. In March 2000, we sold an aggregate of 1,666,666 shares of our Series D Preferred Stock for gross proceeds of $10.0 million. Net cash provided by financing activities totaled $33.5 million in 1999, $3.0 million in 1998 and $1.4 million in 1997, generated primarily from the sale of our equity securities. Net cash provided by financing activities primarily consisted of the proceeds of issuances of preferred stock and payments on promissory notes in each of these periods. Net cash used in operating activities in 1999 reflected a net loss of $17.2 million offset principally by non-cash stock-based compensation charges totaling $4.7 million and non-cash interest expenses of $2.0 million, an increase of accounts payable and accrued liabilities totaling $2.1 million and depreciation and amortization of $423,000. Net cash used in operating activities in 1998 reflected a net loss of $5.8 million offset by depreciation and amortization of $502,000, non-cash interest expenses of $469,000, and an increase in accrued expenses of $645,000. Net cash used in operating activities in 1997 reflected a net loss of $5.6 million offset by depreciation and amortization of $845,000. Since our inception, our investing activities have consisted primarily of purchases of property and equipment, principally computer hardware and software for our growing number of employees. Capital expenditures totaled $1.2 million in 1999, $454,000 in 1998 and $295,000 in 1997. We had $2.9 million in capital expenditure commitments as of December 31, 1999, and we expect that capital expenditures will increase with our anticipated growth in operations, infrastructure and personnel both domestically and internationally. 29 We currently anticipate that the net proceeds from this offering, together with our current cash, cash equivalents, short-term investments and credit facility, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, we may need to raise additional funds in order to support more rapid expansion, develop new or enhanced services and products, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. Our future liquidity and capital requirements will depend upon numerous factors, including costs and timing of expansion of research and development efforts and the success of such efforts, the success of our existing and new service offerings and competing technological and market developments. The factors described earlier in this paragraph will impact our future capital requirements and the adequacy of its available funds. There can be no assurance that additional financing will be available when needed on terms favorable to us, if at all. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires all derivative instruments to 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 so, the type of hedge transaction. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," which amends SFAS No. 133 to be effective for all fiscal quarters or all fiscal years beginning after June 15, 2000, or January 1, 2001 for us. We do not expect that the adoption of this statement will have a material impact on our reported results of operations. Market Risk The following discussion analyzes our exposure to market risk related to changes in interest rates and foreign currency exchange rates. Foreign Exchange Rate Risk To date, substantially all of our recognized revenue has been denominated in U.S. dollars and generated primarily from customers in the United States, and our exposure to foreign currency exchange rates has been immaterial. We expect, however, that future product and service revenue may also be derived from international markets and may be denominated in the currency of the applicable market. As a result, our operating results may become subject to significant fluctuations based upon changes in exchange rates of certain currencies in relation to the U.S. dollar. Furthermore, to the extent that we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products and services less competitive in international markets. Although we will continue to monitor our exposure to currency fluctuations, and, when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we cannot assure you that exchange rate fluctuations will not adversely affect our financial results in the future. 30 Interest Rate Risk As of December 31, 1999, we had cash and cash equivalents of $24.7 million consisting of cash and highly liquid, short-term investments. Our short-term investments will decline by an immaterial amount if market interest rates increase, and therefore, our exposure to interest rate changes is minimal. Declines of interest rates over time will, however, reduce our interest income from our short-term investments. Our outstanding notes payable and capital lease obligations are all at fixed interest rates and therefore have minimal exposure to interest rate fluctuations. 31 BUSINESS Overview Driveway is an easy to use online information management service that allows our members to store, manage and share their personal and business information from a single virtual location on the Web. We believe these functions are important to Internet users who seek new forms of communications to facilitate both the types of content and the ability to remotely access that content from multiple disparate devices. We believe our market has characteristics and benefits similar to the growth and adoption of the Web-based email market, which is indicative of the current potential market for online information management. Because we target Internet users who possess a high degree of integration between their personal and business Internet use and frequently participate in ecommerce, we attempt to aggregate an attractive member base to drive multiple streams of revenue for Driveway and our strategic partners. In the last twelve months, more than 3 million members have registered for our Driveway services. We have achieved this growth and have begun to expand our online information management solutions primarily through our strategic partnerships, including Lycos, McAfee.com and Microsoft. Industry Background Expanding Uses of the Internet Driving the Need for Online Storage The Internet has emerged as a significant global communications medium, enabling millions of people to share information and conduct business electronically. The explosive growth of the Internet and its increasing influence on communication and commerce continues unabated. According to the International Data Corporation in June 1999, the number of Web users worldwide will grow from an estimated 196 million in 1999 to 502 million by 2003. Furthermore, the International Data Corporation estimates that the total value of goods and services purchased over the Web will increase from approximately $111 billion in 1999 to approximately $1.3 trillion in 2003. Some of the many contributors to this growth have been the rapid technological improvements to Internet infrastructure and bandwidth capacity, which have allowed users to quickly download and upload information in multiple formats, run Web-based applications and complete commerce transactions. These uses represent a significant shift in usage patterns, as traditionally the Internet was used primarily to acquire information most often stored in simple text-based format. As the Internet continues to expand and evolve, we believe users will increasingly move towards online management and storage solutions to accommodate this shift. We further believe that dependence on traditional desktop or private network solutions for information and storage management limits or hampers an individual's ability to fully take advantage of the capabilities of the Internet for their personal and business information needs. Some of the drivers of the demand for online information management include: . Multiple Web Access Points. Many users frequently use more than one personal computer for Internet access. We believe they are looking for ways to remotely access all their files from a single virtual location that is not limited by multiple computers located both at home, in the office or elsewhere. For example, we believe many users are frustrated with emailing files to themselves to have access to their information from different computers in disparate locations. 32 . Web-enabled Devices. Internet access has expanded beyond personal computers to personal digital assistants, cellular phones and other thin client devices, which have limited storage capability. This expansion has created new challenges for users who are looking for ways to access information from these devices. . Voluminous Data. The Internet is a virtual marketplace, providing vast quantities of information from different sources. Users can shop insurance rates, compare automobile options, and collect relevant information about their favorite stocks, all through the Internet. . Rich Media. The introduction onto the Web of rich media, including music, video and picture downloads, has created new possibilities for ecommerce and user interactivity. Web sites are moving beyond simple presentation of data and providing new functionality through applications such as MP3 music file downloads, online video games and picture downloads made possible by the recent proliferation of digital cameras. We anticipate that storage needs will substantially increase as Web users will increasingly look to store data within Web sites. According to Forrester in February 2000, Web sites should be prepared to provide users with up to 200 megabyte of storage by 2002 and 1 gigabyte by 2005. These drivers, combined with the improved technological advancements to the Internet infrastructure, should create a significant opportunity for online information management. We believe that the Web-based email market has characteristics and benefits similar to online information management. According to Messaging Online, as of October 26, 1999, there were an estimated 431 million electronic mailboxes worldwide over 138 million, or 32% of which were Web-based email accounts. According to the Gartner Group, approximately 300 billion email messages were sent in 1998. We believe this adoption rate and market size is indicative of our current potential market. Requirements for Online Applications To remain competitive, Web sites are constantly looking for ways to increase the utility of their Web sites. To accomplish this objective, many Web sites have layered applications onto their existing service offerings in an effort to decrease the static, one-way nature of the traditional Internet and to increase the ability of users to communicate with each other and share information. As Web sites attempt to provide more value added applications, we believe they are demanding several requirements of those applications, including: . differentiating functionality; . aiding in customer acquisition and retention; . increasing revenue opportunities; and . encouraging return visits. As an example, email has emerged as a basic application that many Web sites have integrated into their offerings in order to fulfill these requirements. As Web sites build out their application offerings, we believe that online information management will add immediate value to Web sites because it not only satisfies the demand of users to share information, it also integrates seamlessly with many other existing and emerging applications. 33 The Emergence and Demand for Online Information Management In an environment of increasingly ubiquitous Internet access and complex and rich multi-media content, we believe Internet users will demand tools that help them store, manage and share information central to their personal and business lives. We believe the following represent the primary user requirements for online information management: . Ubiquitous access. Remote access to files from any Web-enabled computer or device anywhere in the world. . Single account. Storage of work files and personal and business information, including documents and digital photos, and music downloads from Web sites or desktop applications into one convenient account. . Organize information. Manage and organize myriad files and a growing volume of information. . Ease of use. Access to information from any Web browser through an intuitive interface without requiring downloads or additional configuration. . Integration with leading Internet sites and applications. Access to online data from within Web sites and a single online storage desktop application. . Sharing of information. Selectively sharing information with anyone with an Internet connection. . Privacy. Control of access to user information and selectively share files without allowing access to other information stored in a user account. . Security. Assurance that data is secured for only specified uses. . Scalability. Availability of additional space on demand and assurance that data availability will not vary as demands on the system increase. . Reliability. Available 24 hours a day, 7 days a week. As a result of these factors, we believe that Web sites seeking value added and differentiating applications and Internet users seeking to store, manage and share information are increasingly requiring an effective online information management solution. The Driveway Solution Driveway is an easy to use online information management service that allows members to store, manage and share their personal and business information. Our solution is available to any Internet user and for nearly all types of electronic data, including URL's, desktop files and rich multimedia content. We have designed our architecture to be scalable and to meet high standards of reliability as our member base expands rapidly. Our system is designed to be completely device and platform agnostic, a feature that offers our members the greatest freedom and flexibility to manage their online personal and business information. In addition, we actively partner with highly trafficked Web sites to help them increase their value to their users. We believe our solution provides significant benefits to both our members and our strategic partners. 34 Benefits to our members: Ubiquitous access to information from multiple devices. We allow members to store and access information at any time from any standard Web-enabled device, which we define as any device that supports hyper-text transfer protocol (HTTP) and hyper-text mark-up language (HTML). The Driveway online information management service permits members to use a company computer, a personal computer or any other standard Web-enabled device to access information. In addition, Driveway provides a single virtual location for all personal and business files. As a result, Driveway makes using Internet-based information easier. For example, Driveway obviates the need to email large rich-media files across disparate platforms, systems or multiple computers. Furthermore, Driveway works with Unix, Mac and PC platforms and is not affected by most standard firewall applications. Ability to securely share private information. We enable information-sharing by allowing our members to provide secure password-protected, highly customizable access to other Internet users. Members can grant access to one or more folders within their Driveway account to any number of Internet users. Business files can be stored in a secure manner and accessed by colleagues from any standard Web-enabled device without the need to dial into a private network. In addition, by specifying a particular folder to which another individual has access, users can minimize privacy concerns raised by storing personal and business information in the same account. Ease of use. Our solution is compatible with all browsers, version 2.1 and above, and does not require users to download client software. Driveway requires no configuration or administrative set-up. Our intuitive user interface makes it easy for users to aggregate information from disparate sources and logically organize it into manageable folders within their account. Integration with existing Web sites and applications. Our online information management solution is accessible from all of our strategic partners and more than 4,000 affiliates. We integrate into the existing applications of some of our strategic partners' Web sites, making it even easier for users to manage and organize activities from multiple sites into their Driveway account. In addition, Driveway can be integrated into our users' desktops through our recent strategic partnership with Microsoft, which provides Driveway access into the Windows environment and Office 2000 applications. Benefits to our strategic partners: Adds functionality. Our online information management services provide an additional service to our strategic partners' Web site offerings. Additionally, our online information management application can be seamlessly integrated into existing and emerging Web site applications. For example, Web portals may integrate our information management solution with email, local directories, maps and scheduling services to immediately enhance the value of these applications to their users. Aids in customer acquisition and retention. By providing a more complete set of services to users, our strategic partners can differentiate themselves from their competitors, attract new users and retain existing users. We believe that integrating the Driveway services into strategic partner Web sites may attract current Driveway members to the service offerings of our other strategic partners. We also believe that as users store more information from the strategic partner's site onto their Driveway account, they will have an increased loyalty to that Web site. 35 Enhances stickiness. Because we can integrate our online information management solution with a strategic partner's Web site applications, users have all relevant information centrally located, potentially increasing the time a user is active on our strategic partner's Web site. Our services allow a user to save large files obtained on the strategic partner site in a minimal amount of the time without downloads and without substantially interrupting the user's experience on the strategic partner's Web site. Facilitates new revenue opportunities. Our strategic partners can share in revenues generated from paid services from members we receive through that strategic partner. We provide our strategic partners access to our extensive member base for opt-in marketing programs and other advertising opportunities. In addition, our strategic partners can offer value added applications to our members. Strategy We intend to be the leading provider of online information management services. We plan to achieve market leadership by rapidly growing our membership base through strategic partnerships that can drive new members with attractive demographics to our services. We also intend to grow our membership base through marketing activities that will drive new members directly to our site and through registrations that result when a member shares Driveway files with an Internet user who subsequently becomes a member. We believe that enhancing the profile and utility of our services will result in greater activity and higher rates of user retention increasing the revenue opportunities from each member. We also plan to increase revenue opportunities by offering the Driveway services to business-to-business Web sites. The following are the primary elements of our strategy for achieving these objectives: Capitalize on Growing Member Base to Drive Multiple Revenue Streams We intend to expand and capitalize on our large and growing membership base. We believe continued enhancements of our services and continued integration of Driveway into our member's Internet activities will allow us to grow and retain an increasingly active user base. As we expand the number of members and increase the amount and duration of activity on our site, we intend to utilize this customer engagement to drive multiple streams of revenue. User activity on our Web site will drive advertising and promotional revenue. In addition, because we collect demographic information from our members as part of our registration process and in other solicitations, we plan to utilize this information to achieve higher advertising rates. We plan to promote the purchase of additional storage capacity and promote our own and our strategic partners' services. We also expect to develop new functionality and create strategic partnerships where we can recognize revenue by exposing our user base to additional offerings. Leverage Existing Strategic Partnerships and Develop New Relationships We intend to reach new prospective members through our strategic partnerships and leverage our growing membership base to develop new strategic relationships. Partner-driven growth is an important element of our strategy and has accounted for approximately 80% of our membership base. Because our strategic partners provide us with information on their users, we are able to focus our marketing efforts on Internet users who we believe are more likely to be active users of our services and result in higher revenue per member. Furthermore, as our membership base grows, we believe that a strategic partner's access to our members combined with the value in an integrated Driveway service may cause a decrease in our member acquisition costs. 36 Build Driveway Brand We intend to establish Driveway as the leading brand for online information management. Our branding efforts are designed to foster new strategic partnerships and increase direct membership recruitment and retention. In addition, we intend to educate the press, Internet users and potential strategic partners about the advantages of our online information management services. We believe that as Web sites and users begin to encounter our solution more frequently and understand the value of online information management, we will experience a dramatic increase in the number of strategic partnerships as well as continued growth in our membership base. Enable Additional Applications and Services We intend to further enable our strategic partners to create and manage new applications that utilize our Driveway services. We plan to integrate our online information management platform into online application providers' Web sites to provide a central location to store, manage and share the activities of these applications. For example, we plan to release enhanced product features, including site-to-site file transfers, folder messaging and sophisticated user profiling, designed to further enhance and facilitate our integration into our strategic partners' sites and applications. Enable Functionality to Mobile Devices We intend to add features to our solution that will allow our members to access their information through a variety of wireless devices, such as mobile telephones, personal digital assistants or personal computers that are connected to the Internet by wireless service. We intend to enter into strategic relationships with key providers of content and applications delivered by wireless service companies. We plan to enter into relationships to enable access to a Driveway account from a wireless device. Capitalize on Web-Based Business-to-Business Opportunity We intend to private label our Driveway service offerings for Web sites that are focused on business-to-business opportunities. By private labeling our services, we intend to further spread our solution across the Web and generate revenue directly from business-to-business Web sites. Using our private label offerings, sites can outsource their online information storage requirements, enhancing the functionality of their Web sites, reducing the costs associated with these services and reducing the time involved in deploying these services. We also believe by establishing our services on popular Web sites, users will demand our services outside of those sites as well. Pursue International Market Opportunity We intend to form international strategic partnerships because we believe that worldwide demand for online information management presents a significant opportunity for us to acquire new members. To facilitate this effort, we developed our interface to easily allow translation into different languages. In December 1999, we formed an exclusive strategic partnership with Lycos Europe, a joint venture of Lycos and Bertelsmann and one of the most highly trafficked Web sites in Europe, to expand our online information management platform. We intend to invest resources and capital to further expand our sales and marketing efforts internationally to address the needs of online information management worldwide. 37 Our Services Driveway provides personal online information management to its members and allows them to remotely and securely access files anytime from a standard Web- enabled device. Users must register to become a Driveway member, and each member receives an initial allocation of storage space free of charge. Users may also purchase additional space from our Web site or through some of our strategic partners' Web sites. Using our real time registration technology, members who register at some of our strategic partner's sites are automatically registered for the Driveway services. Each Driveway account is customizable, enabling members to create personalized folders using their own organization structures. They can also choose to selectively share folders with other Internet users. The following table summarizes the features and benefits of Driveway: STORE
- ------------------------------------------------------------------------------------------------------------------------------------ Feature Description Benefit - ------------------------------------------------------------------------------------------------------------------------------------ Web Folders Full integration with . Drag and drop files from hard Microsoft's Web Folders drive to Driveway technology .Save files directly to Driveway from within the Windows environment and Office 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Park It Save Web-based data directly to . One step file save from a a Driveway account without strategic partner site to a downloading it to a hard drive Driveway account and then uploading it to .Significantly decreases file Driveway account save time - ------------------------------------------------------------------------------------------------------------------------------------ Additional Storage Purchase additional storage . Virtually no limit to the Capacity space through an easy online amount of space a user may transaction buy - ------------------------------------------------------------------------------------------------------------------------------------ Upload Multiple Files Upload a number of files at the . One step multiple file same time uploads .Speed and efficiency - ------------------------------------------------------------------------------------------------------------------------------------
38 MANAGE - -------------------------------------------------------------------------------------------
Feature Description Benefit - ------------------------------------------------------------------------------------------- Real Time Registration Register at a strategic partner . One step, seamless Web site and simultaneously registration register for a Driveway account .Member does not need to enter information twice - ------------------------------------------------------------------------------------------- Auto Login When a Driveway user logs onto . Saving files from a strategic a strategic partner Web site, partner site to Driveway is a that user is automatically one step process logged into Driveway .Single sign-on for both Driveway and a strategic partner site - ------------------------------------------------------------------------------------------- Security User accounts are secure at all . Secure file storage times and must be accessed with a user name and password - ------------------------------------------------------------------------------------------- Query Service View in real time the folders . Instant view into Driveway in a Driveway account from a account from a strategic strategic partner Web site partner site .One click access to Driveway - ------------------------------------------------------------------------------------------- Sorting Sort folders and files by any . Easy organization of files current category (i.e., file and folders name, file type, date, etc.) - ------------------------------------------------------------------------------------------- File Information Summary Add summary information . Search for files according to regarding any file in a personalized criteria Driveway account (i.e., .Quick summaries of files authors, subject, key words, without opening a file etc.) - ------------------------------------------------------------------------------------------- SHARE - ------------------------------------------------------------------------------------------------------------------------------------ Feature Description Benefit - ------------------------------------------------------------------------------------------------------------------------------------ Flexible Sharing Share files with anyone on the . Users do not need to be Internet with an email address Driveway members to access shared files - ------------------------------------------------------------------------------------------------------------------------------------ Secure Private Sharing Share specified password . Share folders and files with protected Driveway folders with anyone others and create personalized .Allows members to store emails notifying others of private personal and business folders they are allowed to information in the same access account - ------------------------------------------------------------------------------------------------------------------------------------
Consumer Target Market We target a large number of Internet users that have a need to store, manage and share information from multiple locations. We believe that busy professionals needing to access the Internet to manage multiple aspects of their lives are the most active users of the Internet and account for a disproportionate amount of money being spent on online purchases. We believe that this group of users represents a highly attractive demographic to advertisers and sponsors. We believe that many of these busy professionals need to access information both at home and at work. The Internet has helped these professionals balance their work requirements and their home 39 needs, but we believe that they are requiring a solution to remotely access all of their information from any location. We also target a large group of users that access the Internet to make online purchases. Jupiter Communications stated that in 1999, 20.5 million adults 19-50 years old, made a purchase online. This group represents 71% of all purchasers online. The same study stated that this group of adults spent $11.7 billion dollars online in 1999, 79% of all money spent online in the same year. As individuals become increasingly busier, they are depending on the Internet to provide solutions that simplify their lives. We believe that busy, adult professionals represents the key market for the Driveway service because we offer these users the easiest and most convenient way to control information and balance their lives. Affiliates and Strategic Partnerships We have entered into strategic relationships with ten partners, and over 4,000 Web sites have opted into our affiliate program. Our affiliates provide their visitors with a link to our Web site and we pay these affiliates a fee for member conversions. Our strategic partner relationships meet one or more of the following five criteria: . our registration process is integrated with the strategic partner's registration process; . access is integrated into the strategic partner's software product; . we are deeply integrated into the strategic partner's online service; . our services are highlighted in multiple specified ways throughout the strategic partner's site; or . our relationship with the strategic partner is exclusive. We have entered into strategic partner relationships with the following: Backup Buddy Lycos MSN Juno Online Services Lycos Europe Phoenix Technologies LookSmart McAfee.com USA.NET Microsoft
We believe that these relationships aid us in customer acquisition, development of new applications and services and also increase our revenues. To date, we have acquired more than 80% of our members through our strategic partnerships and affiliates. The following case studies illustrate how our strategic partners enable us to expand market acceptance of our services and enhance our applications: Microsoft Microsoft's Web Folders feature enables save-to-the-web functionality from within the Office environment, as well as web-to-desktop drag and drop capability from within Windows Explorer, the Windows desktop and Internet Explorer Favorites. With the rapid growth in usage of Microsoft Office Products among small business and individual users, Microsoft wanted to promote this Web Folders feature to these users via an Internet File Storage partner who could provide ready and reliable service. In February 2000, we began distributing software which automates the process of 40 creating a Driveway Web Folder enabling a user to save a Microsoft document directly to their Driveway account from within the desktop. We will also shortly distribute an application that will automate the processes of both registering for Driveway and creating a Driveway Web Folder for Microsoft Office customers. We also provide our online data management services within the eServices offering on the Microsoft Office Web sites. In addition, because the Web Folders technology is enabled at the operating system level, many other Microsoft applications, including Microsoft Money financial software and TaxSaver software, are capable of seamlessly interoperating through Web Folders with Driveway. Lycos.com As one of the largest Internet portals, Lycos constantly seeks to enhance its functionality and services in an attempt to keep its users coming back to the Lycos network and extend the time spent using Lycos network properties. In November 1999, we signed a two year agreement with Lycos to provide the Driveway services to users of the various Lycos network sites. The agreement calls for integration and promotion within Lycos' Tripod and Angelfire, two of Lycos' most heavily trafficked web-page building sites, and also contemplates further integration with the popular MyLycos personal page service. In February 2000, we launched the Driveway services on the Tripod.com site, offering Driveway as a service option to Tripod users at the time of registration. Users of the Tripod service can use Driveway services to store Web-page building assets and to back up their Web sites. We are currently working with Lycos to implement similar integrations with the popular Angelfire and MyLycos services. We believe that Lycos users gain immediate benefit from the integration of the Driveway service into the Lycos properties. McAfee.com McAfee.com is one of the fastest growing subscription-based Application Service Providers that provides a full suite of Internet-based PC maintenance and support solutions, such as virus scanning, troubleshooting, drive optimization, repair and updating services. Since December 1999, our online information management services have been offered to McAfee.com visitors and subscribers through a variety of banners, tiles, text links and registration options. McAfee.com recently decided to incorporate certain of its own and third party PC support services within an intuitive, readily accessible interface. McAfee chose Driveway to provide it with a reliable, scalable file storage offering for users of this interface. In February 2000, we amended our agreement with McAfee.com to provide the exclusive online information management option within this McAfee.com interface. As part of the amended agreement, all trial and paid subscribers of McAfee Clinic will have immediate access to the Driveway services from within this McAfee.com interface. By choosing Driveway as its file management offering, McAfee is able to provide its users with a robust online information management offering, without the expense and distraction of deploying a storage infrastructure. Infrastructure and Operations We have deployed a highly secure, robust and scalable infrastructure designed to support Internet-based content management. This infrastructure is capable of processing millions of concurrent transactions and managing millions of customer accounts. Our architecture enables us to provide highly integrated features through our strategic partner sites and to exchange backend data for applications such as real-time joint registration and auto login. Furthermore, our platform is 41 designed to enable users to access their data independent of type of access device. Key features of our infrastructure include: Physical Infrastructure In order to maintain a high level of Web site availability and security, we co-locate our Web servers and our high volume file storage systems at fault tolerant data centers operated by Level (3) in San Francisco, California and Exodus Communications, Seattle, Washington. These data centers are monitored 24 hours a day, 7 days a week and are equipped with redundant fiber links, back-up cooling and power. We are currently implementing separate redundant servers and file storage systems. Three-Tier Architecture We utilize industry standard systems to create our robust and scalable three-tier architecture. At the first tier, we operate a Sun Web server cluster to present our user interface and manage file transfer transactions. Our load balancing and clustering software, running off of Cisco equipment, enables us to add servers to the cluster to increase session capacity and to swap faulty servers out of the cluster with minimal user disruption. At the second tier, we utilize sophisticated middleware tools to provide robust modeling of user data, business logic and robust transaction processing. The flexibility of our second tier enables us to perform highly functional integration with our strategic partners and to develop new functionality such as our Park It service. Our third tier is divided between two key sub-categories, account data and file meta data that resides on standard database servers running Oracle relational database software, and user-stored data that resides on a highly stable and scalable EMC/2/ file system. Security and Availability of Data We currently utilize third party firewall applications to control access to our backend systems. In addition, we have implemented systems and procedures to protect the availability and integrity of users' stored data in the event of catastrophic events, equipment failure and human error or sabotage. We monitor our systems and telecommunications links 24 hours a day, 7 days a week, and perform daily tape backups, which are remotely archived. We have, in the past, experienced periodic system interruptions, which we believe will occur from time to time based upon software errors, hardware failure, human error, sabotage or catastrophic events beyond our control. We are currently in the process of switching file storage equipment to EMC/2/ equipment in an attempt to mitigate these outages. 42 Marketing Our marketing promotional activities are focused on serving our current member base, building our brand and attracting large numbers of members. These activities will include the use of public relations, broadcast, online advertising, print advertisements and email marketing. The key elements of our marketing efforts include the following: Serving Our Current Members We target our current members with a significant marketing effort through three primary ways. We have a quarterly newsletter giving promotional offers and keeping our members informed about product and service developments. Our members can also view information regarding promotional offerings and Driveway service updates from the Driveway site and the sites of our strategic partners. Finally, we engage in opt-in email marketing campaigns to our current members targeting their specific needs based on demographic information that we have solicited from them. Branding Our branding efforts are designed to both support our strategic partnership activity and drive direct user recruitment and retention activity. Educating consumers and strategic partners about the advantages of personal storage space on the Web is key to our strategy. Our current marketing efforts are focused on the most basic benefits of our services and establishing Driveway as the premier solution for online information management. However, we believe that as online storage becomes more pervasive, we must articulate the incremental value and vision of our services to our members and other Web sites to continue our growth. Viral Marketing Our Driveway services, like email, is viral in its application. We focus our marketing messages and activities on stimulating this growth. For example, most Driveway members take advantage of our file-sharing capabilities with their friends and associates. As the recipients of shared files are increasingly exposed to the value of Driveway as a collaboration tool and as an easy way to share information, we market to them to both open their own Driveway account and to continue sharing with other non-Driveway members. Competition The market for online information management is emerging and rapidly evolving. Competition in this area is intense and is expected to increase significantly in the future as there are no substantial barriers to entry. Competition may also increase as a result of industry consolidation. Our ability to compete depends on many factors, some of which are outside of our control. These factors include: . the level of our brand recognition; . the quality and functionality of our services as compared with services offered by our competitors; . user affinity and loyalty; . our demographic focus; 43 . the reliability of our services; and . our sales and marketing efforts. There are several companies that offer online information management solutions. None of these companies is currently dominant in our space. In addition, many companies may develop in-house solutions to provide online information management, which may compete with us for users and strategic partnerships and offer similar services as the following: . Internet portal and content companies, such as America Online and Yahoo!; . online community sites, such as iVillage; . online personal homepage services, such as Yahoo! Geocities; . online music services that offer storage space for digital music files, such as MP3.com and Real Networks; and . Internet desktop companies, such as Visto and desktop.com. We will likely also face competition in the future from developers of Web directories, search engine providers, shareware archives, content sites, commercial online services, sites maintained by Internet service providers and other entities that establish or attempt to establish online information management solutions by developing their own offerings or by purchasing or entering into significant strategic partnerships with one of our competitors. We may also face competition from traditional storage solutions, including currently installed hard drives which can be modified to add substantially more storage space and from stand-alone equipment such as Iomega zip drives. Enhancements to hard drive capacity could increase current storage capacity of personal computers to such a level where our online information management solution might not be as compelling. Also, hand-held devices that are internet- connected could in the future be equipped with hard drives with sufficient storage for music and other rich data files. Further, our competitors and potential competitors may develop online information management solutions or other online services that are equal or superior to ours, or that achieve greater market acceptance than our services. Proprietary Rights We regard substantial elements of our Web site and underlying technology as proprietary and attempt to protect them by relying on trademark, service mark, copyright and trade secret laws, restrictions on disclosure and transferring title and other methods. We also generally enter into confidentiality agreements with our employees and consultants and with third parties in connection with our license agreements. Such confidentiality agreements generally seek to control access to, and distribution of, our technology, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently. Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related businesses are uncertain and still evolving, and we can give no assurance regarding the future viability or value of any of our proprietary rights. We also cannot assure you that the steps that we have taken will prevent misappropriation or infringement of our proprietary information, which could have a material adverse effect on our business, results of operations and financial condition. 44 Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or trademarks or to determine the validity and scope of the proprietary rights of others. Such litigation might result in substantial costs and diversion of resources and management attention. Furthermore, our business activities may infringe upon the proprietary rights of others and other parties may assert infringement claims against us, including claims that arise from directly or indirectly providing hyperlink text links to Web sites operated by third parties. Such claims and any resultant litigation, should it occur, might subject us to significant liability for damages, might result in invalidation of our proprietary rights and, even if not meritorious, could result in substantial costs and diversion of resources and management attention and have a material adverse effect on our business, results of operations and financial condition. We currently license from third parties certain technologies and information incorporated into our Web site. As we continue to introduce new services that incorporate new technologies and information, we may be required to license additional technology and information from others. We cannot assure you that these third-party technology and information licenses will continue to be available to us on commercially reasonable terms, if at all. Additionally, we cannot assure you that the third parties from which we currently license our technology and information will be able to defend their proprietary rights successfully against claims of infringement. Any failure to obtain any of these technology and information licenses could result in delays or reductions in the introduction of new features, functions or services. It could also adversely affect the performance of our existing services until equivalent technology or information can be identified, obtained and integrated. Employees As of March 13, 2000, we had 61 employees, of which 17 work in operations, 16 work in sales and marketing, 18 work in technology development and 10 work in general and administrative capacities. We have never experienced a work stoppage and no personnel are represented under collective bargaining agreements. We consider our relations with our employees to be good. Facilities The location of our corporate headquarters is 380 Brannan Street, San Francisco, CA 94107 and is approximately 2,000 square feet in size. In addition, we maintain facilities of approximately 10,000 square feet at 460A Bryant Street, San Francisco, CA 94107 and approximately 7,200 square feet at 600 Union Street, Suite 911, Seattle, WA 98101. Legal Proceedings We are not involved in any material legal proceedings. 45 MANAGEMENT Executive Officers and Directors The names, ages and positions of our executive officers and directors as of March 13, 2000 are as follows:
Name Age Position - ---- --- -------- Larry Barels............... 51 Chairman of the Board of Directors Christopher S. Logan....... 38 President, Chief Executive Officer and Director Kent Jarvi................. 44 Chief Financial Officer and Secretary Philip S. Constantinou..... 28 Vice President--Engineering Larry Jones................ 43 Vice President--Product Marketing Michael Vanneman........... 43 Vice President--Sales Michael Zukerman........... 40 Vice President--Business Development George Garrick............. 48 Director Gary E. Gigot.............. 49 Director John A. Hawkins(1)(2)...... 39 Director Kenneth P. Lawler(1)....... 40 Director Alan E. Salzman(2)......... 46 Director Shahan D. Soghikian(1)..... 41 Director
- -------- (1) Member of Audit Committee. (2) Member of Compensation Committee. Larry Barels has served as a member of the Board of Directors since May 1999 and has acted as Chairman of the Board of Directors since June 1999. From November 1998 to June 1999, Mr. Barels served as our President and Chief Executive Officer. From January 1995 to September 1997, Mr. Barels was Chairman of Software.com, Inc. From January 1985 to July 1993, Mr. Barels was Chairman and Chief Executive Officer of Wavefront Technologies, and from July 1993 to September 1995, acted as Chairman of Wavefront Technologies. Since 1996, Mr. Barels has been a Principal of Pacific Capital Resources, an investment company. Mr. Barels is a director of Miramar Systems, Inc., MSC Software Corporation and Miravant Medical Technologies. Mr. Barels received his B.A. degree in Communications from Brigham Young University. Christopher S. Logan has served as our President, Chief Executive Officer and a Director since June 1999. Mr. Logan was a Founder and Director of Fabrik Communications, Inc. and served as Chief Executive Officer from February 1994 to September 1998, and continues to be a director of the company. From July 1992 to September 1993, Mr. Logan was Vice President of Operations and Development for Trade Reporting and Data Exchange. From December 1990 to July 1992, Mr. Logan held senior marketing and engineer positions at Netopia, Inc. (formerly Farallon Computing, Inc.) Mr. Logan received his B.S. degree in Engineering with an emphasis in Control Systems from the University of California, Davis. Kent Jarvi has served as our Chief Financial Officer and Secretary since September 1999. From September 1998 to May 1999, Mr. Jarvi was Vice President and Chief Financial Officer of Fabrik Communications, Inc. From February 1997 to May 1998, Mr. Jarvi was Chief Financial Officer and Vice President of Finance & Administration for Optimal Networks Corporation. From January 1995 to August 1996, Mr. Jarvi was Chief Financial Officer for Airsoft Inc. From September 1982 to August 1991, Mr. Jarvi co-founded and was the Chief Financial Officer of XA Systems, Inc. Mr. Jarvi received a B.A. degree in Business and a M.B.A. degree in Finance from Michigan State University. 46 Philip S. Constantinou has served as our Vice President--Engineering since November 1999. From March 1995 to May 1999, Mr. Constantinou was a consultant, senior engineer and director of engineering at Caresoft, Inc. Mr. Constantinou received a B.S. degree in Computer Science from Stanford University. Larry Jones has served as our Vice President--Product Marketing since February 2000. From January 1999 to January 2000, Mr. Jones was the Director of Marketing of E*Trade Securities, Inc.'s Business Solutions Group. From May 1994 to January 1999, Mr. Jones held various marketing management roles at Lotus Development Corporation, a subsidiary of IBM Corporation for Lotus Notes and cc:Mail. From January 1989 to May 1994, Mr. Jones held various product management positions at Netopia Inc. (formerly Farallon Computing, Inc.). From September 1978 to January 1989, Mr. Jones held various product management positions at Nortel Networks Corporation (Northern Telecom). Mr. Jones obtained a B.A. degree in History from the University of Michigan. Michael Vanneman has served as our Vice President--Sales since February 2000. From October 1997 to October 1999, Mr. Vanneman was Vice President of Sales of ReleaseNow.com Corporation. From July 1993 to August 1997, Mr. Vanneman was the Vice President of Worldwide Sales of RayDream, Inc. From June 1990 to June 1995, Mr. Vanneman was the Director of North American Sales of Radius, Inc. From November 1988 to July 1990, Mr. Vanneman was the Director of Sales of Super Mac Technology. During the period from August 1982 to November 1988, Mr. Vanneman worked at Softsel Computer Products and Micro America. Mr. Vanneman received a B.S. degree in Sociology from University of California, Los Angeles. Michael Zukerman has served as our Vice President--Business Development since July 1999. From October 1996 to July 1999, Mr. Zukerman was the Vice President of Business Development and General Counsel for SegaSoft Networks, Inc. From September 1989 to October 1996, Mr. Zukerman was Vice President and General Counsel of Netopia, Inc. (formerly Farallon Computing, Inc.). From June 1986 to September 1989, Mr. Zukerman was an attorney with the law firm of Brobeck, Phleger & Harrison LLP. Mr. Zukerman received a B.A. degree in Social Welfare from the University of California, Berkeley and a J.D. degree from the American University. George R. Garrick has served as a member of our Board of Directors since March 2000. From May 1998 to the present, Mr. Garrick has been the Chief Executive Officer, President and a Director of Flycast Communications Corporation. From September 1997 until May 1998, Mr. Garrick owned and operated his own private venture and consulting company, G2 Ventures, Inc. From April 1997 until September 1997, Mr. Garrick served as Chief Marketing Officer for PowerAgent, Inc., an Internet media and marketing company. From March 1996 until April 1997, Mr. Garrick founded and operated NetROI LLC, an audience measurement software company. From November 1993 until March 1996, Mr. Garrick served as the President and Chief Executive Officer of Information Resources, Inc.-North America, a marketing measurement company. Other than the period from July through October 1993, when Mr. Garrick served as President and Chief Executive Officer of Nielsen Marketing Research U.S.A, a unit of A.C. Nielsen Co., Mr. Garrick served Information Resources, Inc., a market measurement company, in various capacities from 1981 until his departure in March 1996. Mr. Garrick holds B.S. degrees in Mathematics and Engineering and an M.S. degree in Management from Purdue University. Gary E. Gigot has served as a member of our Board of Directors since March 1997. From March 1994 to April 1999, Mr. Gigot was Vice President of Worldwide Marketing of Visio Corporation. From 1990 to 1994, Mr. Gigot was Vice President of Marketing at Microsoft Corporation. Mr. Gigot received a B.B.A. degree in Marketing from the University of Notre Dame and a M.A. degree in Advertising from Michigan State University. 47 John A. Hawkins has served as a member of our Board of Directors since January 2000. Since 1995, Mr. Hawkins has been a co-founder and a Managing Partner of Generation Partners. From 1987 to 1995, Mr. Hawkins was a General Partner of Burr, Egan, Deleage & Co. From 1986 to 1987, Mr. Hawkins worked in the Corporate Finance Department of Alex Brown & Sons, Inc. Mr. Hawkins currently serves on the Boards of Hotjobs.com, Ltd., P-COM, Inc., PixTech Inc., DiscoverMusic.com, High End Systems, Inc., LinguaTech and OrderFusion, Inc. Mr. Hawkins obtained a B.A. degree in English from Harvard College and M.B.A. degree from Harvard Graduate School of Business. Kenneth P. Lawler has served as a member of our Board of Directors since November 1995. Since 1995, Mr. Lawler has been a General Partner of Battery Ventures. From 1990 to January 1995, Mr. Lawler was a Vice President at Patricof & Co. Ventures, Inc. From 1985 to 1990, Mr. Lawler worked at Berkeley International Capital Corporation. From 1982 to 1985, Mr. Lawler worked in product management at Advanced Micro Devices, Inc. and engineering management at Teradyne, Inc. and Fairchild Semiconductor Corporation. Mr. Lawler received a B.S. degree and M.S. degree in Industrial Engineering from Stanford University and an M.B.A. degree from University of California, Los Angeles. Alan E. Salzman has been a member of our Board of Directors since June 1999. Since March 1995, Mr. Salzman has served as a Managing Partner of VantagePoint Venture Partners, Inc. From May 1987 through May 1995, Mr. Salzman was a Senior General Partner of Canaan Partners. From 1983 to 1987, Mr. Salzman was an attorney with the law firm of with Brobeck, Phleger & Harrison, LLP. Mr. Salzman received B.A. degrees in Economics/Business from the London School of Economics and the University of Toronto, an L.L.M. degree in International Business from the University of Brussels, Belgium and a J.D. degree from Stanford Law School. Shahan D. Soghikian has been a member of our Board of Directors since January 2000. Since 1990, Mr. Soghikian has been employed by Chase Capital Partners, the private equity investment arm of The Chase Manhattan Corporation, and currently is a General Partner. Mr. Soghikian currently serves as a Director of American Floral Services, Inc., Digital Island, Inc., Nextec Applications, Inc., Ninth House, Inc., Metro-Optix, DJ Orthopedics, LLC, Halo Data Devices, Coactive Networks, Kinko's, Inc. and County Line. Mr. Soghikian received a B.A. degree in Biology from Pitzer College and an M.B.A. degree from the Anderson Graduate School of Management at University of California, Los Angeles. Board Composition In accordance with the terms of our amended and restated bylaws, effective upon the closing of this offering, the Board of Directors will be elected at each annual meeting of the stockholders and will serve until the next annual meeting. Our bylaws provide that the authorized number of directors may be changed by resolution of the Board of Directors or by the stockholders at the annual meeting of stockholders. Pursuant to an amended and restated voting agreement dated as of March 13, 2000 between certain holders of shares of common stock and preferred stock, such holders agreed to vote or act with respect to their shares so as to elect certain persons to our Board of Directors. Pursuant to this agreement, the board consisted of one member designated by the holders of a majority of the then outstanding shares of Series A preferred stock (then Ken Lawler), one member designated by the holders of a majority of the then outstanding shares of Series B preferred stock (then Alan Salzman), 48 two members designated by the holders of a majority of the then outstanding shares of Series C preferred stock (then John Hawkins and Shahan Soghikian), two members designated by the holders of a majority of the then outstanding shares of common stock (then Larry Barels and Christopher Logan), and three independent members mutually acceptable to the holders of a majority of the outstanding shares of common stock and preferred stock (then Gary Gigot and George Garrick, with one vacancy). The voting agreement will terminate upon consummation of this offering. Each officer is elected by, and serves at the discretion of, the Board of Directors. Each of our officers and directors, other than non-employee directors, devotes full time to our affairs. Our non-employee directors devote such time to our affairs as is necessary to discharge their duties. There are no family relationships among any of our directors, officers or key employees. Board Committees The Board of Directors has an Audit Committee and a Compensation Committee. Audit Committee. The Audit Committee reviews and monitors our corporate financial reporting and internal accounting procedures, including, among other things, reviewing the scope and results of audits with the independent auditor and management, reporting to the Board of Directors on the results of the audit; reviewing the adequacy of internal accounting, financial and operation controls; and reviewing reporting requirements of government agencies. In addition, the Audit Committee has the responsibility to consider and recommend the selection and retention of our auditors. The current members of the Audit Committee are John A. Hawkins, Kenneth P. Lawler and Shahan D. Soghikian. Compensation Committee. The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of all of our executive officers, administers our stock option plans and establishes and reviews general policies relating to compensation and benefits of our employees. The current members of the Compensation Committee are John A. Hawkins and Alan E. Salzman. Compensation Committee Interlocks and Insider Participation The members of the compensation committee of our Board of Directors are currently John A. Hawkins and Alan E. Salzman. During the last fiscal year, the compensation committee consisted of Gary E. Gigot, Alan Higginson and Christopher S. Logan. Mr. Logan has been our President and Chief Executive Officer since June 1999. We have issued and sold shares of our common stock to Mr. Logan and to members of his family. We have also issued and sold shares of our common stock and our preferred stock to Messrs. Higginson and Gigot. No interlocking relationships exist between our Board of Directors or compensation committee and the Board of Directors or compensation committee of any other company, nor has any such other interlocking relationship existed in the past. Director Compensation Our directors do not currently receive cash compensation from us for their service as members of the Board of Directors, although non-employee directors are reimbursed for certain expenses in connection with attendance at board and committee meetings. We do not provide additional compensation for committee participation or special assignments of the Board of Directors. From time to time, certain of our non-employee directors have received grants of options to purchase shares of our common stock pursuant to the 1997 Stock Option Plan. 49 In March 2000, our Board of Directors adopted our stock option grant program for non-employee directors. The program will be administered under our 2000 Stock Incentive Compensation Plan. Under this program, each non-employee director will receive a nonqualified stock option to purchase 100,000 shares of common stock upon initial election or appointment to the board following this offering, which will fully vest and become exercisable in 48 equal monthly installments beginning one month after the grant date. Thereafter, beginning with the next annual meeting of our stockholders, each non-employee director that was a director with us prior to this offering will automatically receive an additional option to purchase 10,000 shares of common stock immediately following each year's annual meeting of stockholders. These options will be fully vested upon the grant date. The exercise price for all options granted under the program will be the fair market value of our common stock on the date of grant. In the event of the sale of all or substantially all of our assets, or a merger or consolidation of us with or into another corporation, all options granted under this program will automatically accelerate and become 100% vested and exercisable. Options will have a ten-year term, except that options will expire one year after a non-employee director ceases services as a director, or in the case of death, one year after the date of death. See "Certain Transactions" and "--Stock Plans." Executive Compensation The following table sets forth the total compensation received for services rendered to us during the fiscal year ended December 31, 1999 by our Chief Executive Officer, certain other executive officers who received salary and bonus for such period in excess of $100,000 on an annualized basis, and certain other executive officers. None of our executive officers received any salary prior to January 1, 1999. The executive officers listed in the table below are referred to hereinafter as the "Named Executive Officers." Summary Compensation Table
Long-Term Annual Compensation Compensation Awards -------------------- ----------------------- Securities Restricted Underlying All Other Name and Principal Stock Options/ Compensation Position Year Salary ($) Bonus ($) Award(s) ($) SARs (#) ($) - ------------------ ---- ---------- --------- ------------ ---------- ------------ Christopher S. Logan(1)............... 1999 89,375 35,000 -- -- 158,157(2) President and Chief Executive Officer Larry Barels(3)......... 1999 92,115 450,000 -- -- -- Former President and Chief Executive Officer Philip S. Constantinou(4)........ 1999 62,500 20,000 25,900(5) -- 17,671(6) Vice President-- Engineering Kent Jarvi(7)........... 1999 46,833 11,667 -- -- -- Chief Financial Officer Michael Vanneman(8)..... 1999 -- -- -- -- -- Vice President--Sales Michael Zukerman(9)..... 1999 70,481 20,000 -- -- 70,051 Vice President-- Business Development
- -------- (1) Mr. Logan was hired as our President and Chief Executive Officer in June 1999. On an annualized basis, Mr. Logan's salary would have been $165,000. Mr. Logan is also entitled to receive an annual bonus of up to $35,000 upon the achievement of certain objectives. (2) Consists of compensation received as a result of stock awards made below fair market value. 50 (3) Mr. Barels served as our President and Chief Executive Officer from November 1998 to June 1999. Mr. Barels received compensation from January 1, 1999 through July 1, 1999 and his salary is based on an annualized salary of $150,000. (4) Mr. Constantinou was employed by us in May 1999 and became our Vice President--Engineering in October 1999. On an annualized basis, Mr. Constantinou's salary would have been $100,000. Mr. Constantinou's salary increased to $150,000 in January 2000. Mr. Constantinou is also entitled to receive an annual bonus of $20,000 upon achievement of certain objectives. (5) In May 1999, Mr. Constantinou purchased 185,000 shares of our common stock pursuant to a Restricted Stock Purchase Agreement at a purchase price of $0.14 per share. (6) Consists of loan forgiveness related to the purchase of stock. (7) Mr. Jarvi was hired as our Chief Financial Officer in August 1999. On an annualized basis, Mr. Jarvi's salary would have been $130,000. Mr. Jarvi's annual salary increased to $165,000 in March 2000. Mr. Jarvi is also entitled to receive a quarterly bonus of up to $5,000 upon the achievement of certain objectives. (8) Mr. Vanneman was hired as our Vice President--Sales in February 2000. On an annualized basis, Mr. Vanneman's salary is $180,000 plus a total possible bonus on sales commission equal to $120,000. (9) Mr. Zukerman was hired as our Vice President--Business Development in July 1999. On an annualized basis, Mr. Zukerman's salary would have been $150,000. Mr. Zukerman is also entitled to receive a quarterly bonus of $10,000 upon the achievement of certain objectives. Option Grants in Last Fiscal Year The following table sets forth certain summary information concerning grants of stock options to each of our Named Executive Officers for the year ended December 31, 1999. We have never granted any stock appreciation rights.
Individual Grant ------------------------------------------ Potential Realizable Value Number of % of Total at Assumed Annual Rates Securities Options of Stock Price Appreciation Underlying Granted to Exercise for Option Term(3) Options Employees Price Expiration ---------------------------- Name Granted in 1999(1) ($/Sh)(2) Date 5% ($) 10% ($) - ---- ---------- ---------- --------- ---------- ------------- -------------- Christopher S. Logan.... 1,172,714 28.1% $0.14 07/29/2009 $ 103,252 $ 261,661 Larry Barels............ -- -- -- -- -- -- Kent Jarvi.............. -- -- -- -- -- -- Philip Constantinou(4).. -- -- -- -- -- -- Michael Vanneman(5)..... -- -- -- -- -- -- Michael Zukerman........ -- -- -- -- -- --
- -------- (1) Based on an aggregate of 4,174,680 shares underlying options granted by us during the fiscal year ended December 31, 1999. (2) Options to purchase shares of our common stock were granted at an exercise price equal to the fair market value of our common stock on the date of grant, as determined by our Board of Directors. (3) Potential gains are net of the exercise price but before taxes associated with the exercise. The 5% and 10% assumed annual rates of compounded stock appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of the future common stock price. Actual gains, if any, on stock option exercises are dependent on our future performance, overall market conditions and the option holder's continued employment through the vesting period. (4) On March 13, 2000, Mr. Constantinou received an option to purchase 100,000 shares of common stock at an exercise price of $3.75 per share. 12.5% of the option shares will vest quarterly beginning June 30, 2001. (5) On February 2, 2000, Mr. Vanneman received an option to purchase 220,000 shares of our common stock at an exercise price of $2.50 per share. 1/48 of this option vests each month. On February 2, 2000, Mr. Vanneman also received an option to purchase 100,000 shares of common stock at an exercise price of $2.50 per share. 100% of the option shares vest after five years of service; however, 50% of this option shall vest on December 31, 2000 and 50% of this option shall vest on December 31, 2001 upon the achievement of certain performance milestones. 51 Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table provides certain summary information concerning stock options held as of December 31, 1999 by each of our Named Executive Officers. No options were exercised by any Named Executive Officer during such year, and no stock appreciation rights have ever been granted.
Number of Securities Value of Unexercised Underlying Unexercised in-the-Money Options Options at FY-End (#) At FY-End ($)(1) --------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Christopher S. Logan..... 1,172,714(2) -- -- -- Larry Barels............. -- -- -- -- Philip Constantinou(3)... -- -- -- -- Kent Jarvi............... -- -- -- -- Michael Vanneman(4)...... -- -- -- -- Michael Zukerman......... -- -- -- --
- -------- (1) There was no public trading market for our common stock as of December 31,1999. Accordingly, the value of unexercised in-the-money options as of that date was calculated on the basis of an assumed initial public offering price of $ per share. (2) Immediately exercisable shares issued upon exercise of Mr. Logan's option are subject to a lapsing right of repurchase by us at the original exercise price. As of March 13, 2000, our right to repurchase has expired as to 166,664 shares. (3) On March 13, 2000, Mr. Constantinou received an option to purchase 100,000 shares of our common stock at an exercise price of $3.75 per share. 12.5% of the option shares vest quarterly beginning June 30, 2001. (4) On February 2, 2000, Mr. Vanneman received an option to purchase 220,000 shares of our common stock at an exercise price of $2.50 per share. 1/48 of this option vests each month. On February 2, 2000, Mr. Vanneman also received an option to purchase 100,000 shares of common stock at an exercise price of $2.50 per share. 100% of the option shares vest after five years of service, however, 50% of this option shall vest on December 31, 2000 and 50% of this option shall vest on December 31, 2001 if we achieve certain revenue performance milestones. Stock Plans 1997 Stock Option Plan. Our 1997 Plan was adopted by our Board of Directors and approved by our stockholders on February 5, 1997 and was amended and restated by the Board of Directors on October 26, 1999 and on March 2, 2000. A total of 5,700,000 shares of common stock have been reserved for issuance under the 1997 Plan. As of March 13, 2000, options to purchase 3,729,601 shares of common stock at a weighted average exercise price of $1.45 per share were outstanding, 781,776 options have been exercised and are included in the number of outstanding shares of common stock, and 1,188,623 shares remained available for future option grants. Simultaneous with the effectiveness of this offering, our Board of Directors has suspended our 1997 Plan and determined that no further grants will be made pursuant to it. Any shares remaining for future option grants and any future cancellations of options from our 1997 Plan will become available for future grant under our 2000 Incentive Plan. The purpose of our 1997 Plan is to attract and retain the best available personnel, to provide additional incentives to our officers, employees, directors and persons rendering consulting or advisory services to us, and to promote the success of our business. The 1997 Plan provides for the granting of incentive and nonqualified options and stock purchase rights. Our 1997 Plan is 52 administered by our Board of Directors or a committee of the Board of Directors. Currently, the 1997 Plan is administered by the Board of Directors. The plan administrator determines the terms of options granted under the 1997 Plan, including the number of shares subject to an option and its exercise price, term, vesting and exercisability. The terms and conditions for options granted under our 1997 Plan are substantially similar to those for options granted under our 2000 Incentive Plan, except as follows: options granted under the 1997 Plan vest at the rate of 1/4th of the total number of shares subject to the options twelve months after the date of the grant and 1/16th of the total number of shares subject to the option each three month period thereafter. In certain instances, the plan administrator may accelerate vesting or waive forfeiture or other restrictions regarding an option or stock purchase right. We retain a right to repurchase any unvested shares obtained pursuant to the restricted stock purchase agreement at the time of the optionee's termination of employment by paying an amount equal to the original price paid by the purchaser. No option may be transferred by the optionee other than by will or the laws of descent or distribution. Nonstatutory stock options granted under our 1997 Plan must be granted with an exercise price equal to at least 85% of the fair market value of the common stock on the date of grant, unless granted to a 10% stockholder, in which case the exercise price must be at least 110% of the fair market value on the date of grant. 2000 Stock Incentive Plan. Our Incentive Plan was adopted by our Board of Directors and approved by our stockholders on March 2, 2000, to be effective upon completion of this offering. The purpose of our Incentive Plan is to enhance long-term shareholder value by offering opportunities to our officers, directors, employees, consultants, agents and independent contractors to participate in our growth and success, and to encourage them to remain in our service and to own our stock. Our Incentive Plan provides for awards of stock options and stock. Our Board of Directors has reserved a total of 8,100,000 shares of common stock, plus: . any shares reserved but not granted under our 1997 Plan or returned to the 1997 Plan upon termination of options up to a maximum of 3,000,000 shares; and . an automatic annual increase, to be added on the first day of our fiscal year beginning in 2001, equal to the lesser of (1) 1,500,000 shares or (2) 3% of the average common shares outstanding as used to calculate fully diluted basis (assuming exercise of all outstanding options and warrants and conversion of all outstanding convertible preferred stock). As of March 13, 2000, no options or restricted stock were outstanding under our Incentive Plan. Stock Options. Our Incentive Plan provides for the granting to employees, including officers and directors, of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and for the granting to our employees and consultants, agents and independent contractors, including non-employee directors, of nonqualified stock options. To the extent an optionee would have the right in any calendar year to exercise for the first time one or more incentive stock options for shares having an aggregate fair market value (determined for each share as of the date the option to purchase the shares was granted) in excess of $100,000, any such excess options shall be treated as nonqualified stock options. Unless terminated earlier, our Incentive Plan will terminate ten years after the earlier of the plan's adoption by our Board of Directors and its approval by our stockholders. Our Incentive Plan shall be administered by our Board of Directors or a committee or committees of the Board of Directors. Currently, our Incentive Plan is administered by the 53 compensation committee of our Board of Directors. The plan administrator has exclusive authority to determine the terms of options granted under the Incentive Plan, including the number of shares subject to an option, as well as the term, exercisability, vesting, and exercise price of the option. For incentive stock options the exercise price must be at least equal to the fair market value of the common stock on the date of grant and the exercise price must be 110% of fair market value for an individual owing more than 10% of the total voting power of all classes of our stock. The plan administrator determines the term of options, which may not exceed ten years or five years in the case of an incentive stock option granted to a 10% stockholder. Optionees may not transfer options other than by will or the laws of descent or distribution, with the provision that the plan administrator may grant limited transferability rights in certain circumstances to the extent permitted by Section 422 of the Internal Revenue Code. We expect that options granted under the Incentive Plan generally will vest at the rate of 1/4th of the total number of shares subject to the options twelve months after the date of grant, and 1/48th of the total number of shares subject to the options each month thereafter. Stock Awards. The plan administrator is authorized under our Incentive Plan to issue shares of our common stock to eligible participants with terms, conditions and restrictions established by the plan administrator in its sole discretion. Restrictions may be based on continuous service with us or the achievement of performance goals. Holders of restricted stock are our stockholders and have, subject to certain restrictions, all the rights of stockholders with respect to such shares. Adjustments. The plan administrator will make proportional adjustments to the aggregate number of shares subject to and issuable under our Incentive Plan and to outstanding awards in the event of stock splits or other capital adjustments. Corporate Transactions. In the event of the sale of all or substantially all of our outstanding securities or assets, or a merger or consolidation of Driveway with or into another corporation, outstanding options outstanding under the Incentive Plan will terminate and cease to remain outstanding, except to the extent assumed by the surviving corporation, the successor corporation or its parent corporation, as applicable pursuant to the terms of the agreement of merger or consolidation entered into between Driveway and the purchaser or successor. In the event that an optionee's employment or services should subsequently terminate within one year following a corporate transaction in which options are assumed or replaced and do not otherwise accelerate at that time, the optionee shall be entitled to exercise, in addition to any vested portion of the option, that portion of the unvested option that would otherwise be vested and exercisable if the option vested on a pro rata basis after each full month of employment or service, unless such employment or services are terminated by the purchaser or successor for cause or by the optionee voluntarily without good reason. 2000 Employee Stock Purchase Plan. Our Stock Purchase Plan was adopted by our Board of Directors on March 2, 2000 and will be submitted to our stockholders for approval in April 2000. We will implement the Stock Purchase Plan upon the completion of this offering. A total of 600,000 shares of common stock have been reserved for issuance under the Stock Purchase Plan. The number of shares reserved will be increased automatically each year on the first day of our fiscal year beginning in 2001 by an amount equal to the lesser of (1) 800,000 shares, (2) 1.5% of the average common shares outstanding as used to calculate fully diluted earnings per share as reported in our annual financial statements for the preceding year and (3) a lesser amount determined by our Board of Directors. Any shares from increases in previous years that are not actually issued shall be added to the aggregate number of shares available for issuance under the Stock Purchase Plan. 54 We intend the Stock Purchase Plan to qualify under Section 423 of the Internal Revenue Code. We will implement the Stock Purchase Plan by an offering period commencing upon the completion of this offering and ending on July 31, 2002. Each subsequent offering period will have a duration of twenty-four months. Each offering period after the first offering period will commence on February 1st of each year. Each offering period will consist of four consecutive purchase periods of six months duration, with the last day of each period being designated a purchase date. The first purchase period under the Stock Purchase Plan will occur in February 2001, with subsequent purchase dates to occur every six months thereafter. The Stock Purchase Plan will be administered by the Compensation Committee of our Board of Directors. Our employees (including our officers and employee directors) or of any of our majority-owned subsidiaries designated by our Board of Directors, are eligible to participate in the Stock Purchase Plan if they are employed by us or any such subsidiary for at least 20 hours per week and more than five months per year. The Stock Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 15% of an employee's compensation. Under the Stock Purchase Plan, no employee may purchase common stock worth more than $25,000 in any calendar year, valued as of the first day of each offering period, or more than 5,000 shares in any purchase period. In addition, owners of 5% or more of our common stock may not participate in the Stock Purchase Plan. The price of the common stock purchased under the Stock Purchase Plan will be the lesser of 85% of the fair market value of our common stock at the beginning of the offering period or the purchase date, except that the purchase price for the first offering period will be equal to the lesser of 100% of the initial public offering price of the common stock and 85% of the fair market value on January 31, 2001. If the fair market value of our common stock on a purchase date is less than the fair market value at the beginning of the offering period, a new twenty-four month offering period will automatically begin on the first business day following the purchase date with a new fair market value. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with us or a participating subsidiary. If not terminated earlier, the Stock Purchase Plan will have a term of ten years. The Stock Purchase Plan provides that in the event of a merger of us with or into another corporation or a sale of all or substantially all of our assets, each right to purchase stock under the Stock Purchase Plan will be assumed or an equivalent right substituted by the successor corporation. If the successor corporation refuses to assume or substitute for the purchase right, the offering period during which a participant may purchase stock will be shortened to a specified date before the proposed merger or sale. Our Board of Directors has the power to amend or terminate the Stock Purchase Plan as long as such action does not diminish any outstanding rights to purchase stock under the Stock Purchase Plan. 401(k) Plan We maintain our 401(k) Plan, a defined contribution 401(k) salary reduction plan, which is intended to qualify under Section 401 of the Internal Revenue Code. Our employees are eligible to participate in such plan on the first day of each month coinciding with or immediately following the date of their employment. A participating employee, by electing to defer a portion of his or her compensation, may make pre-tax contributions to this Plan, subject to certain limitations, of a percentage (not to exceed 25%) of his or her total compensation. Employee contributions and the investment earnings thereon will be fully vested at all times. We are not required to contribute to this Plan and have made no contributions since the inception of this Plan. 55 Employment Contracts and Change of Control Arrangements Except as set forth below, all of our Named Executive Officers' employment is "at-will" and may be terminated at any time. Under the terms of our employment agreement with Christopher S. Logan dated May 28, 1999, we agreed to pay Mr. Logan an annual salary of $165,000. Mr. Logan is also eligible for an annual bonus of up to $35,000 based on the achievement of objectives determined by our Board of Directors. As long as Mr. Logan remains our Chief Executive Officer, he will be entitled to a seat on our Board of Directors. Under a stock subscription and repurchase agreement executed in connection with this employment agreement, Mr. Logan purchased 714,286 shares of our common stock at a price of $0.14 per share. These shares are subject to our repurchase option, which lapses over a four year period at a rate of 2.0833% per month; provided, that if in connection with a change of control (i) we or our stockholders receive proceeds in excess of $75 million, 25% of the shares remaining subject to our repurchase option shall be released from this right; and (ii) we or our stockholders receive proceeds in excess of $250 million, 50% of the shares remaining subject to our repurchase option shall be released from this right. The purchase price for these shares was paid by the delivery to us of a full recourse promissory note in the amount of $100,000.04, due and payable on the earlier of January 1, 2006 or the date upon which Mr. Logan sells shares of his common stock with net proceeds at least equal to the amount outstanding under this note. In addition, Mr. Logan was granted options to purchase 1,172,714 shares of our common stock at an exercise price of $0.14 per share. This option vests over a four year period at a rate of 2.0833% per month; provided, that if in connection with a change of control (i) we or our stockholders receive proceeds in excess of $75 million, 25% of the unvested portion of these options shall vest; and (ii) we or our stockholders receive proceeds in excess of $250 million, 50% of the unvested portion of these options shall vest. If Mr. Logan is terminated without cause, he will continue to receive his salary for the shorter of twelve months or for the period he remains unemployed. Under the terms of our employment agreement with Kent Jarvi dated August 13, 1999, we agreed to pay Mr. Jarvi an annual salary of $130,000, and in March 2000, we increased his annual salary to $165,000. Mr. Jarvi is also eligible for a quarterly bonus of up to $5,000 for each calendar quarter based upon the achievement of objectives established by our Chief Executive Officer. Under a stock subscription and repurchase agreement executed in connection with this employment agreement, Mr. Jarvi purchased 318,718 shares of our common stock at a price of $0.25 per share. These shares are subject to our repurchase option, which lapses over a four year period at a rate 25% after one year of continuous service and an additional 6.25% per calendar quarter thereafter. Upon termination of Mr. Jarvi's employment in connection with a change of control, we have agreed to release 50% of the shares still subject to our repurchase option. The purchase price for these shares was paid by the delivery of a full recourse promissory note in the amount of $79,679.50. This note bears interest at a rate equal to 6% per annum and is due and payable on the earlier of January 1, 2006 or the date Mr. Jarvi sells shares of his common stock at least equal to the amount outstanding under this note. If Mr. Jarvi's employment is terminated without cause, he will continue to receive up to six months of his salary so long as he remains unemployed, and our repurchase right will lapse with respect to time served plus six months. Under the terms of our employment agreement with Michael Zukerman dated June 14, 1999, we agreed to pay Mr. Zukerman an annual salary of $150,000. Mr. Zukerman is also eligible for a quarterly bonus of up to $10,000 for each calendar quarter based upon the achievement of objectives established by our Chief Executive Officer. Under a stock subscription and repurchase agreement 56 executed in connection with this employment agreement, Mr. Zukerman purchased 350,000 shares of our common stock at a price of $0.14 per share. These shares are subject to our repurchase option, which lapses over a four year period at a rate of 25% after one year of continuous service and an additional 6.25% per calendar quarter thereafter. Upon termination of Mr. Zukerman's employment within one year after a change of control in which our stockholders receive equitable value in excess of $75 million, we have agreed that our repurchase right on four quarters of additional shares shall lapse. Upon termination of Mr. Zukerman's employment within one year of a change of control in which our stockholders receive equitable value in excess of $250 million, we have agreed that our repurchase right on an additional six quarters of additional shares shall lapse. Under the terms of our employment agreement with Michael Vanneman dated January 30, 2000, we agreed to pay Mr. Vanneman an annual salary of $180,000. Mr. Vanneman is also eligible for an annual bonus of up to $120,000 based on the achievement of sales objectives established by our Chief Executive Officer. Under an option agreement executed in connection with this employment agreement, Mr. Vanneman was granted options to purchase 320,000 shares of our common stock at a price of $2.50 per share. 220,000 of these options vest monthly over a four year period. 100,000 of these options vest after five years of service; however, 50% of this option shall vest on December 31, 2000 and 50% of this option shall vest on December 31, 2000 if we achieve certain performance milestones. Upon termination of Mr. Vanneman's employment without cause following a change of control, we have agreed to the acceleration of vesting of 50% of the remaining unvested options and Mr. Vanneman will continue to receive his salary for the shorter of six months or for the period he remains unemployed. Under the terms of a stock subscription and repurchase agreement with Philip Constantinou dated August 27, 1999, Mr. Constantinou purchased 185,000 shares of our common stock at a price of $0.14 per share. All of these shares are subject to our repurchase option that lapses as to 4.35% of these shares for each full month of service by Mr. Constantinou after May 1999. Upon a change of control, we have agreed that our repurchase right on the following number of shares shall lapse: the number of unvested shares held by Mr. Constantinou immediately after the change of control multiplied by the fraction obtained by dividing 1 by the total number of full months during the period from the change of control through April 30, 2001. The purchase price for these shares was paid by the delivery to us of a full recourse promissory note in the amount of $25,900. In addition, on March 13, 2000, we granted Mr. Constantinou an option to purchase 100,000 shares of our common stock at a price of $3.75 per share. 12 1/2% of the option shares vest quarterly beginning June 30, 2001. Under the terms of a stock subscription agreement dated May 21, 1999, Mr. Barels purchased 2,130,000 shares of our common stock at a price of $0.10 per share. The purchase price for these shares was paid to us by the delivery of a full recourse promissory note in the amount of $213,000. Limitation of Liability and Indemnification Matters Our Amended and Restated Certificate of Incorporation, which will be effective upon the completion of this offering, limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors except liability for breach of their duty of loyalty to the corporation or its stockholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, unlawful payments of dividends or unlawful stock repurchases or redemptions, or any transaction from which the director derived an 57 improper personal benefit. Such limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our Amended and Restated Bylaws provide that we shall indemnify our directors and executive officers to the fullest extent permitted by law, and grant to the Board of Directors the power on our behalf to indemnify our other officers, employees and agents. We believe that indemnification under our Amended and Restated Bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our Amended and Restated Bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent. We have entered into agreements to indemnify our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, indemnify our directors and executive officers for certain expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, services as our director, officer, employee, agent or fiduciary, any of our subsidiaries or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable. At present, there is no pending litigation or proceeding involving any of our directors or officers in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. 58 CERTAIN TRANSACTIONS There has not been within our last fiscal year, nor is there currently proposed, any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer or holder of more than 5% of any class of our voting securities or members of such person's immediate family had or will have a direct or indirect material interest other than (i) compensation agreements and other arrangements which are described in "Management," and (ii) the transactions described below. Series B Preferred Stock In May 1999, we issued an aggregate of 7,444,770 shares of Series B Preferred Stock to certain investors at a purchase price of $1.00 per share, which shares will automatically convert into 7,444,770 shares of common stock upon the completion of this offering. Affiliates of VantagePoint Venture Partners, who together hold over 5% of our outstanding capital stock, purchased 3,000,000 shares of Series B Preferred Stock; Battery Ventures III, L.P., a holder of over 5% of our outstanding capital stock, purchased 444,770 shares of Series B Preferred Stock and Gary Gigot, one of our directors, purchased 250,000 shares of Series B Preferred Stock. See "Description of Capital Stock." Series C Preferred Stock In December 1999 and January 2000, we issued a total of 10,800,507 shares of Series C Preferred Stock to certain investors at a purchase price of $4.01 per share, which shares will automatically convert into 10,800,507 shares of common stock upon the completion of this offering. Generation Capital Partners L.P., a holder of over 5% of our outstanding capital stock, purchased 3,127,277 shares of Series C Preferred Stock; affiliates of Vantage Point Venture Partners, who together hold of over 5% of our outstanding capital stock, purchased 698,254 shares of Series C Preferred Stock; and CB Capital Investors L.P., a holder of over 5% of our outstanding capital stock, purchased 2,493,766 shares of Series C Preferred Stock. See "Description of Capital Stock." Other Transactions On December 3, 1999, we entered into a $3 million term loan with Silicon Valley Bank, which has been paid in full. Silicon Valley Bank required a guaranty of this loan from certain of our stockholders. As consideration for the guaranty, we issued warrants to purchase an aggregate of 600,000 shares of Series B Preferred Stock to these shareholders at an exercise price equal to $1.00 per share, including warrants issued to (i) affiliates of VantagePoint Venture Partners to purchase an aggregate of 317,340 shares of Series B Preferred Stock, (ii) Battery Ventures III, L.P. to purchase 60,960 shares of Series B Preferred Stock, (iii) Larry Barels to purchase 66,720 shares of Series B Preferred Stock, and (iv) Gary Gigot to purchase 29,340 shares of Series B Preferred Stock. We believe that the terms of the transactions described above were no less favorable to us than would have been obtained from an unaffiliated third party. Any future transactions between us and any of our officers, directors or principal stockholders will be on terms no less favorable to us than could be obtained from unaffiliated third parties and will be approved by a majority of the independent and disinterested members of the Board of Directors. 59 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of our common stock (following automatic conversion of all preferred stock upon the effectiveness of this offering) as of March 13, 2000, and as adjusted to reflect the sale of common stock offered hereby under this prospectus, (i) by each person or entity known by us to own beneficially more than 5% of our common stock; (ii) by each of our directors; (iii) by each of our Named Executive Officers; and (iv) by all of our executive officers and directors as a group. We determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission, which generally require inclusion of shares over which a person has voting or investment power. Share ownership in each case includes shares issuable upon exercise of outstanding options and warrants that are exercisable within 60 days of March 13, 2000 as described in the footnotes below. The following calculations of the percentages of outstanding shares are based on 35,729,980 shares of our common stock outstanding as of March 13, 2000 on an as-converted basis, and shares of our common stock outstanding after this offering.
Percentage of Shares Outstanding Shares Beneficially -------------------- Owned Prior to the Before After Name of Beneficial Owner(1) Offering Offering Offering(2) - --------------------------- ------------------- -------- ----------- Battery Ventures III, L.P.(3)........ 2,018,917 5.64 CB Capital Investors L.P.(4)......... 2,493,766 6.98 Generation Capital Partners L.P.(5).. 3,241,896 9.06 VantagePoint Venture Partners(6)..... 11,527,859 31.97 Larry Barels(7)...................... 2,197,555 6.14 Philip Constantinou(8)............... 285,000 * George R. Garrick(9)................. 100,000 * Gary E. Gigot(10).................... 934,301 2.59 John A. Hawkins(5)................... 3,241,896 9.06 Kent Jarvi(11)....................... 318,718 * Kenneth P. Lawler(3)(12)............. 2,019,117 5.65 Christopher S. Logan(13)............. 1,887,000 5.11 Alan A. Salzman(6)................... 11,527,859 31.97 Shahan D. Soghikian(4)............... 2,493,766 6.98 Michael Vanneman(14)................. 320,000 * Michael Zukerman(15)................. 350,000 * All executive officers and directors as a group (12 persons)(16)......... 25,675,212 69.20
- -------- * Less than 1% of the outstanding shares of common stock. (1) Unless otherwise indicated, the principal business address of each of the individuals listed in the table is c/o Driveway Corporation, 380 Brannan Street, San Francisco, California 94107. (2) Assumes the underwriters' over-allotment option is not exercised. (3) Comprised of the following securities held by Battery Partners III, L.P.: 12,599 shares of common stock, 1,500,000 shares of Series A Preferred Stock, 444,770 shares of Series B Preferred Stock, 588 shares of common stock issuable upon exercise of immediately exercisable warrants to purchase common stock, and 60,960 shares of Series B Preferred Stock issuable upon exercise of immediately exercisable warrants to purchase Series B Preferred Stock. The address for Battery Partners III, L.P. is 901 Mariners Island Boulevard, Suite 475, San Mateo, California 94404. (4) Comprised of 2,493,766 shares of Series C Preferred Stock held by CB Capital Investors L.P. Mr. Soghikian, one of our directors, is a general partner of Chase Capital Partners, the general partner of CB Capital Investors L.P. Mr. Soghikian disclaims beneficial ownership in shares of our capital stock held by CB Capital Investors, L.P., except to the extent of his pecuniary interest therein. The address for CB Capital Investors, L.P. and Mr. Soghikian is 50 California Street, Suite 2940, San Francisco, California 94111. 60 (5) Comprised of 3,127,277 shares of Series C Preferred Stock held by Generation Capital Partners L.P., 1,146 shares of Series C Preferred Stock held by Generation Parallel Management Partners, L.P., and 113,473 shares of Series C Preferred Stock by the State Board Administration of Florida. Mr. Hawkins, one of our directors, is a managing partner of Generation Capital Partners L.P. Mr. Hawkins disclaims beneficial ownership in shares of our capital stock held by Generation Capital Partners L.P., Generation Parallel Management Partners, L.P. or the State Board of Administration of Florida, except to the extent of his pecuniary interest therein. The address for these entities and Mr. Hawkins is c/o Generation Partners, One Maritime Plaza, Suite 1425, San Francisco, California 94111. (6) Comprised of 22,256 shares of common stock held by VantagePoint Venture Partners 1996, 7,125,000 shares of Series A Preferred Stock held by VantagePoint Venture Partners 1996, 1,000,000 shares of Series B Preferred Stock held by VantagePoint Venture Partners 1996, 2,000,000 shares of Series B Preferred Stock held by VantagePoint Communications Partners, L.P., 349,127 shares of Series C Preferred Stock held by VantagePoint Venture Partners 1996, 698,254 shares of Series C Preferred Stock held by VantagePoint Communications Partners, L.P., 15,882 shares of common stock issuable upon exercise of immediately exercisable warrants to purchase common stock, and 191,419 shares of Series B Preferred Stock issuable upon exercise of immediately exercisable warrants to purchase Series B Preferred Stock held by VantagePoint Communications Partners, L.P. and 125,921 shares of Series B Preferred Stock issuable upon immediately exercisable warrants to purchase Series B Preferred Stock. Mr. Salzman, one of our directors, is a principal of VantagePoint Venture Partners. Mr. Salzman disclaims beneficial ownership of the shares held by VantagePoint Venture Partners 1996 and VantagePoint Communications Partners, L.P., except to the extent of his pecuniary interest therein. The address for these entities and Mr. Salzman is c/o VantagePoint Venture Partners, 1001 Bayhill Drive, Suite 100, San Bruno, California 94066. (7) Comprised of 2,130,835 shares of common stock and 66,720 shares of Series B Preferred Stock issuable upon exercise of immediately exercisable warrants to purchase Series B Preferred Stock. (8) Comprised of 185,000 shares of common stock and 100,000 shares of common stock subject to options that are exercisable currently or within 60 days of March 13, 2000. As of March 13, 2000, 107,917 of these shares are subject to our repurchase option and none of these options have vested. (9) Comprised of 100,000 shares of common stock subject to options that are exercisable currently or within 60 days of March 13, 2000. None of these options have vested. (10) Comprised of 2,248 shares of common stock, 650,000 shares of Series A Preferred Stock, 250,000 shares of Series B Preferred Stock, 2,088 shares of common stock issuable upon exercise of immediately exercisable warrants to purchase common stock, 29,340 shares of Series B Preferred Stock issuable upon exercise of immediately exercisable warrants to purchase Series B Preferred Stock, and 625 shares of common stock subject to options that are exercisable currently or within 60 days of March 13, 2000. (11) As of March 13, 2000, all of these shares are subject to our repurchase option. (12) Comprised of 200 shares of common stock subject to options that are exercisable currently or within 60 days of March 13, 2000 held by Mr. Lawler, and shares and warrants held by Battery Partners III, L.P. Mr. Lawler, one of our directors, is a general partner of Battery Partners III, L.P. Mr. Lawler disclaims beneficial ownership in shares of our capital stock held by Battery Partners III, L.P., except to the extent of his pecuniary interest therein. Mr. Lawler's address is 901 Mariners Island Boulevard, Suite 475, San Mateo, California 94404. (13) Comprised of 714,286 shares of common stock and 1,172,714 shares of common stock subject to options that are exercisable currently or within 60 days of March 13, 2000. As of March 13, 2000, 625,001 of these shares are subject to our repurchase option and none of these options have vested. (14) Comprised of 320,000 shares of common stock subject to options that are exercisable currently or within 60 days of March 13, 2000. None of these options have vested. (15) As of March 13, 2000 all of these shares are subject to our repurchase option. (16) Comprised of shares referenced in footnotes (3)-(15). 61 DESCRIPTION OF CAPITAL STOCK General Upon completion of this offering, we will be authorized to issue 150,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. The following description of our capital stock is not complete and is qualified in its entirety by reference to our amended and restated certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable Delaware law. Common Stock As of March 13, 2000, there were 5,818,037 shares of common stock outstanding held of record by Rule 144 stockholders and 2,136,887 shares of common stock held of record by Rule 701 stockholders. In addition, as of March 13, 2000, there were 3,729,601 shares of common stock subject to outstanding options and 857,562 shares subject to outstanding warrants. Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences to which holders of preferred stock issued after the sale of the common stock offered hereby may be entitled, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available therefore. See "Dividend Policy." In the event of our liquidation, dissolution or winding up, holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted the holders of any outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our common stock are, and the shares of common stock offered by us in this offering when issued and paid for will be, fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate in the future. Preferred Stock Upon the completion of this offering, the Board of Directors will be authorized, subject to any limitations prescribed by law, without stockholder approval, from time to time to issue up to an aggregate of 10,000,000 shares of preferred stock, in one or more series, each of such series to have such rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as shall be determined by our Board of Directors. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock. The issuance of preferred stock may decrease the market price of the common stock and may adversely affect the voting and other rights of the holders of common stock. At present, we have no plans to issue any shares of preferred stock. 62 Warrants Upon completion of this offering, we will have outstanding warrants to purchase 22,532 shares of our common stock. These warrants expire on dates ranging from December 20, 2001 to September 7, 2005 and have a weighted average exercise price of $64.98. We have assumed that 835,030 warrants at a weighted average exercise price of $1.36 per share will be exercised prior to the offering. Most of these warrants have net exercise provisions under which the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares, based on the fair market value of our common stock at the time of the exercise of the warrant, after deducting the aggregate exercise price. Registration Rights Pursuant to the terms of an Amended and Restated Investors' Rights Agreement among us and certain holders of our securities, after the completion of this offering, the holders of a majority of the registrable securities are entitled to certain rights with respect to the registration of such shares under the Securities Act. The holders of at least 35% of the registrable securities are entitled to up to five demand registrations that require us to file a registration statement covering their shares of common stock so long as the aggregate proceeds to such stockholders exceed at least $10 million. We are not required to effect (1) a registration within 45 days prior to and 180 days following the filing of a registration statement by us; (2) a registration for shares that may be registered on a Form S-3; or (3) a registration for a period not to exceed 120 days, if our Board of Directors has made a good faith determination that such registration would be seriously detrimental to us or our stockholders. Furthermore, pursuant to the terms of this agreement, the holders of registrable securities are entitled to certain piggyback registration rights in connection with any registration by us of our securities. In the event that we propose to register any shares of common stock under the Securities Act, the holders of such piggyback registration rights are entitled to receive notice of such registration and are entitled to include their shares therein, subject to certain limitations. At any time after we become eligible to file a registration statement on Form S-3, any holders of our registrable securities may require us to file a registration statement on Form S-3 under the Securities Act for a public offering of at least $500,000 of shares of registrable securities. Holders of registration rights are only entitled to one registration on Form S-3 in any consecutive twelve month period. Each of the foregoing registration rights is subject to the right of the underwriters in any underwritten offering to limit the number of shares to be included therein. The registration rights, with respect to any holder thereof, terminate upon the later of (1) five years from the effective date of this offering or (2) such date when the shares held by that holder may be sold under Rule 144 during any three-month period. We are required to bear all of the expenses of all registrations, except underwriting discounts and commissions applicable to the securities registered by the holder. The registration of any of the shares entitled to registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration. This Agreement also contains a commitment by us to indemnify the holders of registration rights, subject to certain limitations. Effect of Certain Provisions of Our Certificate of Incorporation and Bylaws, and the Delaware Anti-Takeover Law Certain provisions of our Amended and Restated Certificate of Incorporation and Bylaws, which will become effective upon the completion of this offering, may have the effect of making it more 63 difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain of these provisions allow us to issue preferred stock without any vote or further action by our stockholders, eliminate the right of our stockholders to act by written consent without a meeting and eliminate cumulative voting in the election of directors. These provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing our change in control. In addition, we are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder, unless: (1) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers, and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (3) on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Our Amended and Restated Bylaws eliminate the right of stockholders to call special meetings of stockholders. The authorization of undesignated preferred stock makes it possible for the Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in our control or management. The amendment of any of these provisions would require approval by holders of at least a majority of the outstanding common stock. Transfer Agent and Registrar The Transfer Agent and Registrar for our common stock is American Stock Transfer and Trust Company, 40 Wall Street, New York, NY 10005. Listing The common stock has been approved for quotation on the Nasdaq National Market under the trading symbol "DWAY." 64 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock, and we cannot assure you that a significant public market for our common stock will develop or be sustained after this offering. Future sales of substantial amounts of our common stock in the public market could reduce prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of certain contractual and legal restrictions on resale, as described below, sales of substantial amounts of our common stock in the public market after the restriction lapse could reduce the prevailing market price and impair our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding shares of common stock. Of these shares, shares sold in this offering, plus any shares issued upon exercise of the underwriters' over-allotment option, will be freely tradeable without restriction under the Securities Act, except for any shares purchased by our "affiliates" as defined in Rule 144 under the Securities Act (generally, officers, directors or 10% stockholders). The remaining 34,571,350 shares outstanding are "restricted shares" within the meaning of Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted shares in the public market, or the availability of such shares for sale could lower the market price of the common stock. 95.0% of these restricted shares are subject to lock-up agreements providing that the stockholder will not offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock owned as of the date of this prospectus or acquired directly from us by the stockholder or with respect to which they have or may acquire the power of disposition for a period of 180 days after the date of this prospectus without the prior written consent of FleetBoston Roberston Stephens Inc. As a result of these lock-up agreements, notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of these shares will be resellable until 181 days after the date of this prospectus. FleetBoston Robertson Stephens Inc. may, in its sole discretion, and at any time without notice, release all or any portion of the restricted shares subject to lock-up agreements. Beginning 181 days after the date of this prospectus, approximately restricted shares will be eligible for sale in the public market. All of these shares are subject to volume limitations under Rule 144, except shares eligible for sale under Rule 144(k) and shares eligible for sale under Rule 701, subject in some cases to our repurchase rights. Rule 144, 144(k) and 701 In general, under Rule 144, and beginning after the expiration of the lock- up agreements 180 days after the effective date of this offering, a person, or persons whose shares are combined, who has beneficially owned restricted shares for at least one year, including the holding period of any prior owner except an affiliate, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1.0% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or . the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. 65 Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of our current public information. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701, as currently in effect, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirement, of Rule 144. Any of our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contact may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell their Rule 701 shares in reliance on Rule 144 without having to comply with the holding period, volume limitation or notice provisions of Rule 144. We intend to file a registration statement under the Securities Act to register shares of our common stock subject to outstanding options or reserved for future issuance under our stock plans or purchased by our employees outside of our plans. As a result, these shares and any options exercised under the 1997 Plan or any other benefit plan after the effectiveness of such registration statement will also be freely tradeable in the public market, except that shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resellable under Rule 701. As of March 13, 2000, there were outstanding options to purchase a total of 3,729,601 shares of our common stock under the 1997 Plan, 1,188,623 shares were available for future issuance and 2,493,004 shares issued to employees outside of our plans. We also have reserved 8,100,000 shares and 600,000 shares for issuance under our 2000 Stock Incentive Plan and 2000 Stock Purchase Plan. 66 UNDERWRITING We are offering the shares of our common stock described in this prospectus through a number of underwriters. FleetBoston Robertson Stephens Inc., CIBC World Markets Corp., Thomas Weisel Partners LLC and E*OFFERING Corp. are the representatives of the underwriters. We have entered into an underwriting agreement with the representatives. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has separately agreed to purchase from us, the number of shares of our common stock listed next to its name below at the public offering price, less the underwriting discount described on the cover page of this prospectus:
Underwriter Number of Shares ----------- ---------------- FleetBoston Robertson Stephens Inc. ........................ CIBC World Markets Corp. ................................... Thomas Weisel Partners LLC.................................. E*OFFERING Corp............................................. ----- Total..................................................... =====
The underwriting agreement provides that the underwriters must buy all of these shares from us if they buy any of them. The underwriters will sell these shares to the public when and if the underwriters buy them from us. The underwriters are offering our common stock subject to a number of conditions, including: . the underwriters' receipt and acceptance of the common stock from us; and . the underwriters' right to reject orders in whole or in part. Over-Allotment Option. We have granted the underwriters an option to buy up to additional shares of our common stock at the same price per share as they are paying for the shares shown in the table above. The underwriters may exercise this option only to the extent that they sell more than the total number of shares shown in the table above. The underwriters may exercise this option at any time within 30 days after the date of this prospectus. To the extent that the underwriters exercise this option, the underwriters will be obligated to purchase the additional shares from us in the same proportions as they purchased the shares shown in the table above. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the other shares are being sold. Stock Market Listing. We expect our common stock will be quoted on the Nasdaq National Market under the symbol "DWAY." Determination of Offering Price. Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price will include: . the valuation multiples of publicly-traded companies that the representatives believe are comparable to us; . our financial information; . our history and prospects and the outlook for our industry; 67 . an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues; . the present state of our development and the progress of our business plan; and . the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. An active trading market for our shares may not develop. Even if an active market does develop, the public price at which our shares trade in the future may be below the offering price. Underwriting Discounts and Commissions. The underwriting discount is the difference between the price the underwriters pay to us and the price at which the underwriters initially offer the shares to the public. The following table shows the per share and total underwriting discounts to be paid to the underwriters. These amounts are shown assuming no exercise and full exercise of the underwriters' over-allotment option described above:
Per No Full Share Exercise Exercise ----- -------- -------- Public offering price................................ $ $ $ Underwriting discount................................ $ $ $ Proceeds, before expenses, to us..................... $ $ $
The expenses of this offering, not including the underwriting discount, are estimated to be approximately $ and will be paid by us. Expenses include the SEC filing fee, the NASD filing fee, Nasdaq listing fees, printing expenses, transfer agent and registrar fees and other miscellaneous fees. Lock-Up Agreements. We and our executive officers, directors and substantially all of our stockholders, have agreed, with exceptions, not to sell or transfer any shares of our common stock for 180 days after the date of this prospectus without first obtaining the written consent of FleetBoston Robertson Stephens Inc. Specifically, we and these other individuals have agreed not to, directly or indirectly: . offer to sell, contract to sell, or otherwise sell or dispose of any shares of our common stock; . loan, pledge or grant any rights with respect to any shares of our common stock; . engage in any hedging or other transaction that might result in a disposition of shares of our common stock by anyone; . execute any short sale, whether or not against the box; or . purchase, sell or grant any put or call option or other right with respect to our common stock or with respect to any security other than a broad-based market basket or index that includes, relates to or derives any significant part of its value from our common stock. These lock-up agreements apply to shares of our common stock and also to any options or warrants to purchase any shares of our common stock or any securities convertible into or exchangeable for shares of our common stock. These lock-up agreements apply to all such securities that are owned or later acquired by the persons executing the agreements. However, FleetBoston Robertson Stephens Inc. may release any of us from these agreements at any time during the 180 day period, in its sole discretion and without notice, as to some or all of the shares covered by these agreements. 68 Indemnification of the Underwriters. We will indemnify the underwriters against some civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the underwriting agreement. If we are unable to provide this indemnification, we will contribute to payments the underwriters may be required to make in respect of those liabilities. Dealers' Compensation. The underwriters initially will offer our shares to the public at the price specified on the cover page of this prospectus. The underwriters may allow to selected dealers a concession of not more than $ per share. The underwriters may also allow, and any other dealers may reallow, a concession of not more than $ per share to some other dealers. If all the shares are not sold at the public offering price, the underwriters may change the public offering price and the other selling terms. A change in the public offering price will not affect the amount of proceeds that we receive. Discretionary Accounts. The underwriters do not expect to sell more than 5% of the shares of our common stock in the aggregate to accounts over which they exercise discretionary authority. Directed Share Program. At our request, the underwriters have reserved for sale, at the initial public offering price, up to shares, or 5%, of the shares of our common stock offered by this prospectus for sale to some of our directors, officers and employees and their family members, and other persons with relationships with us. The number of shares of our common stock available for sale to the general public will be reduced to the extent those persons purchase the reserved shares. Any reserved shares which are not orally confirmed for purchase within one day of the pricing of this offering may be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. Online Activities. A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters of this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations. In particular, E*OFFERING Corp., one of the underwriters, will allocate for distribution by E*TRADE Securities, Inc. a portion of the shares that E*OFFERING is underwriting in this offering. Copies of the prospectus in electronic format, from which you can link to a "Meet the Management" presentation through an embedded hyperlink will be made available on Internet Web sites maintained by E*OFFERING Corp., www.eoffering.com, and E*TRADE Securities, Inc. Customers of E*TRADE Securities, Inc. who complete and pass an online eligibility profile may place conditional offers to purchase shares in this offering through E*TRADE's Internet Web site. Stabilization and Other Transactions. The rules of the SEC generally prohibit the underwriters from trading in our common stock on the open market during this offering. However, the underwriters are allowed to engage in some open market transactions and other activities during this offering that may cause the market price of our common stock to be above or below that which would otherwise prevail in the open market. These activities may include stabilization, short sales and over-allotments, syndicate covering transactions and penalty bids. 69 Stabilizing transactions consist of bids or purchases made by the lead representative for the purpose of preventing or slowing a decline in the market price of our common stock while this offering is in progress. . Short sales and over-allotments occur when the representatives, on behalf of the underwriting syndicate, sell more of our shares than they purchase from us in this offering. In order to cover the resulting short position, the representatives may exercise the over-allotment option described above and/or they may engage in syndicate covering transactions. . Syndicate covering transactions are bids for or purchases of our common stock on the open market by the representatives on behalf of the underwriters in order to reduce a short position incurred by the representatives on behalf of the underwriters. . A penalty bid is an arrangement permitting the representatives to reclaim the selling concession that would otherwise accrue to an underwriter if the common stock originally sold by that underwriter is repurchased by the representatives and therefore was not effectively sold to the public by such underwriter. If the underwriters commence these activities, they may discontinue them at any time without notice. The underwriters may carry out these transactions on the Nasdaq National Market, in the over-the-counter market or otherwise. Passive Market Making. Prior to the pricing of this offering, and until the commencement of any stabilizing bid, underwriters and dealers who are qualified market makers on the Nasdaq National Market may engage in passive market making transactions. Passive market making is allowed during the period when the SEC's rules would otherwise prohibit market activity by the underwriters and dealers who are participating in this offering. Passive market makers must comply with applicable volume and price limitations and must be identified as such. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for our common stock; but if all independent bids are lowered below the passive market maker's bid, the passive market maker must also lower its bid once it exceeds specified purchase limits. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker's average daily trading volume in our common stock during a specified period and must be discontinued when such limit is reached. Underwriters and dealers are not required to engage in passive market making and may end passive market making activities at any time. Experience. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker/dealer in December 1998. Since December 1998, Thomas Weisel Partners has acted as a lead or co-manager on numerous public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons, except with respect to its contractual relationship with us under the underwriting agreement entered into in connection with this offering. Conflicts of Interest. Some of the underwriters have in the past and may in the future perform financial advisory services for us. 70 LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Perkins Coie LLP. As of the consummation of this offering, Perkins Coie LLP's investment partnership owned an aggregate of 24,938 shares of Series C Preferred Stock. Certain legal matters in connection with this offering will be passed upon for the underwriters by O'Melveny & Myers LLP. EXPERTS Ernst & Young LLP, independent auditors, have audited our financial statements at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. ADDITIONAL INFORMATION For more information with respect to us and the common stock offered by this prospectus, see the registration statement and the exhibits and schedule filed by us with the Securities and Exchange Commission on Form S-1 under the Securities Act. This prospectus does not contain all of the information set forth in the registration statement and the related exhibits and schedules. Statements contained in this prospectus regarding the contents of any contract or any other document to which reference is made are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and its exhibits and schedule may be inspected without charge at the public facilities maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and Exchange Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any part of the registration statement may be obtained from these offices upon the payment of the fees prescribed by the Securities and Exchange Commission. The Securities and Exchange Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the Web site is http://www.sec.gov. 71 Driveway Corporation Index to Financial Statements Report of Independent Auditors.............................................. F-2 Financial Statements Balance Sheets.............................................................. F-3 Statements of Operations.................................................... F-4 Statements of Stockholders' Equity (Deficit)................................ F-5 Statements of Cash Flows.................................................... F-6 Notes to Financial Statements............................................... F-7
F-1 Report of Independent Auditors The Board of Directors and Stockholders Driveway Corporation We have audited the accompanying balance sheets of Driveway Corporation as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Driveway Corporation at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Francisco, California March 2, 2000 F-2 Driveway Corporation Balance Sheets (In thousands except per share data)
Pro Forma Stockholders' Equity at December 31, December 31, ------------------ 1999 1998 1999 (unaudited) -------- -------- ------------- Assets Current assets: Cash and cash equivalents................... $ 406 $ 24,747 Restricted cash............................. 115 115 Receivable from sale of Series C preferred stock...................................... -- 2,538 Accounts receivable......................... 88 -- Prepaid expenses............................ 136 322 Other current assets........................ -- 70 -------- -------- Total current assets....................... 745 27,792 Property and equipment, net.................. 534 1,678 Other assets................................. 95 88 -------- -------- Total assets............................... $ 1,374 $ 29,558 ======== ======== Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable............................ $ 699 $ 1,980 Accrued liabilities......................... 416 2,807 Deferred revenue............................ 160 167 Notes payable............................... 40 -- Current portion of capital leases........... 239 248 Convertible notes........................... 1,000 -- -------- -------- Total current liabilities.................. 2,554 5,202 Obligations under capital leases............. 176 406 Commitments and contingencies Redeemable convertible preferred stock, $0.001 par value; authorized 11,000,000 shares: Series A, Designated--10,100,000 shares; issued and outstanding--10,000,000 shares in 1998, none in 1999, and none pro forma.. 1,911 -- $ -- Series C, Designated--11,000,000 shares; issued and outstanding--none in 1998, 7,477,562 shares in 1999 ($29,985 liquidation preference), and none pro forma ................................. -- 28,383 -- Stockholders' equity (deficit): Convertible preferred stock, $0.001 par value: authorized--18,200,000 shares Series A, Designated--10,100,000 shares; issued and outstanding--none in 1998, 10,000,000 shares in 1999 ($2,000 liquidation preference), and none pro forma ................................ -- 1,980 -- Series B, Designated--8,100,000 shares; issued and outstanding--none in 1998, 7,444,770 shares in 1999 ($7,445 liquidation preference), and none pro forma ................................ -- 9,352 -- Common stock, $0.001 par value: authorized-- 70,800,000 shares; issued and outstanding-- 48,201 shares in 1998, 5,298,547 shares in 1999, and 30,220,879 shares pro forma...... -- 5 30 Additional paid-in capital.................. 17,686 27,078 66,768 Deferred compensation....................... -- (4,139) (4,139) Notes receivable from stockholders.......... -- (537) (537) Accumulated deficit......................... (20,953) (38,172) (38,172) -------- -------- -------- Total stockholders' equity (deficit)....... (3,267) (4,433) $ 23,950 -------- -------- ======== Total liabilities and stockholders' equity (deficit)................................. $ 1,374 $ 29,558 ======== ========
See accompanying notes. F-3 Driveway Corporation Statements of Operations (In thousands except per share data)
Years Ended December 31, --------------------------- 1997 1998 1999 --------- ------- ------- Revenue.......................................... $ 7 $ 187 $ 264 Cost of revenue.................................. 276 1,179 2,155 --------- ------- ------- Gross margin..................................... (269) (992) (1,891) Operating expenses: Sales and marketing............................. 1,752 1,787 4,147 Technology development.......................... 2,457 1,434 2,136 General and administrative ..................... 1,212 1,023 2,387 Stock-based compensation (Note 1)............... 38 18 4,651 --------- ------- ------- Total operating expenses...................... 5,459 4,262 13,321 --------- ------- ------- Loss from operations............................. 5,728 5,254 15,212 Other income (expense): Interest expense................................ (48) (586) (2,154) Interest income................................. 149 36 89 Other income.................................... -- 28 58 --------- ------- ------- Total other income (expense).................. 101 (522) (2,007) --------- ------- ------- Net loss......................................... $ 5,627 $ 5,776 $17,219 ========= ======= ======= Basic and diluted net loss per common share...... $1,125.00 $152.00 $ 8.78 ========= ======= ======= Shares used to compute basic and diluted net loss per common share................................ 5 38 1,962 ========= ======= ======= Pro forma basic and diluted net loss per common share (unaudited)............................... $ 1.00 ======= Shares used to compute pro forma basic and diluted net loss per common share (unaudited)... 17,162 =======
See accompanying notes F-4 Driveway Corporation Statements of Stockholders' Equity (Deficit) For the years ended December 31, 1997, 1998 and 1999 (In thousands, except share data)
Convertible Preferred Stock ---------------------------------- Notes Series A Series B Common Stock Additional Receivable ----------------- ---------------- ---------------- Paid-in Deferred from Accumulated Shares Amount Shares Amount Shares Amount Capital Compensation Stockholders Deficit ---------- ------ --------- ------ --------- ------ ---------- ------------ ------------ ----------- Balance at December 31, 1996............. -- $ -- -- $ -- 5,248 $ -- $ 9,176 $ -- $ -- $ (9,550) Issuance of options to purchase common stock to consultants..... -- -- -- -- -- -- 38 -- -- -- Issuance of common stock upon exercise of warrants........ -- -- -- -- 105 -- 3 -- -- -- Net loss and comprehensive loss............ -- -- -- -- -- -- -- -- -- (5,627) ---------- ------ --------- ------ --------- ---- ------- ------- ----- -------- Balance at December 31, 1997............. -- -- -- -- 5,353 -- 9,217 -- -- (15,177) Issuance of common stock upon exercise of options......... -- -- -- -- 478 -- 14 -- -- -- Issuance of options to purchase common stock to consultants..... -- -- -- -- -- -- 18 -- -- -- Conversion of redeemable preferred stock into common stock........... -- -- -- -- 42,370 -- 8,437 -- -- -- Net loss and comprehensive loss............ -- -- -- -- -- -- -- -- -- (5,776) ---------- ------ --------- ------ --------- ---- ------- ------- ----- -------- Balance at December 31, 1998............. -- -- -- -- 48,201 -- 17,686 -- -- (20,953) Reclassification of redeemable preferred stock due to elimination of redemption provisions...... 10,000,000 1,911 7,444,770 7,349 -- -- -- -- -- -- Issuance of warrants to purchase preferred stock to a lender and guarantors...... -- 69 -- 2,003 -- -- -- -- -- -- Issuance of common stock upon exercise of options......... -- -- -- -- 261,809 -- 10 -- -- -- Issuance of common stock to a consultant.... -- -- -- -- 365,533 -- 1,551 (378) -- -- Issuance of common stock to employees....... -- -- -- -- 4,623,004 5 5,620 (2,046) (597) -- Forgiveness of notes receivable...... -- -- -- -- -- -- -- -- 60 -- Compensation related to grant of stock options......... -- -- -- -- -- -- 2,211 (2,211) -- -- Amortization of deferred compensation.... -- -- -- -- -- -- -- 496 -- -- Net loss and comprehensive loss............ -- -- -- -- -- -- -- -- -- (17,219) ---------- ------ --------- ------ --------- ---- ------- ------- ----- -------- Balance at December 31, 1999............. 10,000,000 $1,980 7,444,770 $9,352 5,298,547 $ 5 $27,078 $(4,139) $(537) $(38,172) ========== ====== ========= ====== ========= ==== ======= ======= ===== ======== Total Stockholders' Equity (Deficit) ------------- Balance at December 31, 1996............. $ (374) Issuance of options to purchase common stock to consultants..... 38 Issuance of common stock upon exercise of warrants........ 3 Net loss and comprehensive loss............ (5,627) ------------- Balance at December 31, 1997............. (5,960) Issuance of common stock upon exercise of options......... 14 Issuance of options to purchase common stock to consultants..... 18 Conversion of redeemable preferred stock into common stock........... 8,437 Net loss and comprehensive loss............ (5,776) ------------- Balance at December 31, 1998............. (3,267) Reclassification of redeemable preferred stock due to elimination of redemption provisions...... 9,260 Issuance of warrants to purchase preferred stock to a lender and guarantors...... 2,072 Issuance of common stock upon exercise of options......... 10 Issuance of common stock to a consultant.... 1,173 Issuance of common stock to employees....... 2,982 Forgiveness of notes receivable...... 60 Compensation related to grant of stock options......... -- Amortization of deferred compensation.... 496 Net loss and comprehensive loss............ (17,219) ------------- Balance at December 31, 1999............. $ (4,433) =============
See accompanying notes. F-5 Driveway Corporation Statements of Cash Flows (In thousands)
Year Ended December 31 -------------------------- 1997 1998 1999 ------- ------- -------- Operating activities Net loss.......................................... $(5,627) $(5,776) $(17,219) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................... 845 502 423 Loss (gain) on disposal of fixed assets.......... -- (28) 114 Stock-based compensation......................... 38 18 4,651 Non-cash interest expense........................ -- 469 2,031 Changes in operating assets and liabilities: Accounts receivable............................. -- (85) 88 Prepaid expenses................................ 54 (123) (186) Other assets.................................... -- 10 (63) Accounts payable................................ 20 292 1,281 Accrued liabilities............................. 6 353 848 Deferred revenue................................ -- 35 7 ------- ------- -------- Net cash used in operating activities............. (4,664) (4,333) (8,025) Investing activities Purchases of fixed assets......................... (295) (454) (1,179) Proceeds from sale of fixed assets................ 385 86 12 ------- ------- -------- Net cash provided by (used in) investing activities....................................... 90 (368) (1,167) Financing activities Payments on notes payable......................... (156) (19) (40) Payments on capital leases........................ (146) (116) (275) Restricted cash................................... (49) -- -- Proceeds from issuance of redeemable convertible preferred stock.................................. 1,775 2,161 31,838 Proceeds from issuance of common stock............ 3 14 10 Proceeds from issuance of convertible notes....... -- 1,000 2,000 ------- ------- -------- Net cash provided by financing activities......... 1,427 3,040 33,533 ------- ------- -------- Net increase (decrease) in cash................... (3,147) (1,661) 24,341 Cash and cash equivalents, beginning of period.... 5,214 2,067 406 ------- ------- -------- Cash and cash equivalents, end of period.......... $ 2,067 $ 406 $ 24,747 ======= ======= ======== Supplemental disclosure of cash flow information Cash paid for interest............................ $ 47 $ 62 $ 49 ======= ======= ======== Schedule of noncash transactions Equipment acquired under capital leases........... $ 397 $ 102 $ 514 ======= ======= ======== Issuance of common stock for subscription receivable....................................... $ -- $ -- $ 537 ======= ======= ======== Conversion of debt to preferred stock............. $ -- $ 1,675 $ 3,000 ======= ======= ======== Conversion of Series I and Series II preferred stock into common stock.......................... $ -- $ 8437 $ -- ======= ======= ========
See accompanying notes. F-6 Driveway Corporation Notes to Financial Statements December 31, 1999 1. Significant Accounting Policies Description of Business Driveway Corporation ("Driveway" or the "Company") is a provider of online information management solutions. Driveway was originally incorporated in Washington in October 1993 and in February 1998, was reincorporated in Delaware. Revenue Recognition The Company's revenue currently consist of service fees paid by users for additional information storage space and fees paid by users of other premium services. Revenue is recognized over the period the related service is provided. Billings in advance of services being performed are recorded in deferred revenue in the accompanying balance sheets. Concentrations of Credit Risk Financial instruments that subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable. The Company maintains its cash in a domestic financial institution and performs periodic evaluations of the relative credit standing of this institution. The Company provides services to users over the Internet and generally bills its users in advance of providing the services; accordingly, credit losses have historically been insignificant. Cash and Cash Equivalents Cash and cash equivalents include bank demand deposits and short-term, highly liquid investments. Investments with original maturity dates of three months or less from the date of purchase are considered cash equivalents. Restricted Cash The Company maintains cash deposits as required under the terms of capital lease and other financing agreements. These amounts are invested with a domestic financial institution in short-term highly liquid investments and are recorded as restricted cash in the accompanying balance sheets. Property and Equipment Property and equipment are recorded at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are depreciated over the shorter of the life of the asset or the remaining term of the lease. The cost of maintenance and repairs is expensed as incurred; renewals and betterments are capitalized. The Company capitalizes internal use software costs meeting the criteria of Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Capitalized software costs are amortized on the straight line basis over estimated useful lives of three years. F-7 Driveway Corporation Notes to Financial Statements (continued) 1. Significant Accounting Policies (continued) The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Fair Value of Financial Instruments At December 31, 1999, the carrying values of financial instruments, such as restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values based on the short-term maturities of these instruments. The carrying value of capital leases approximate fair value based upon the Company's incremental borrowing rate for similar types of instruments. Advertising Costs Advertising costs are expensed as incurred. Advertising costs, which are included in sales and marketing expenses, were $451,000 , $306,000 and $1.3 million for the years ended December 31, 1997, 1998 and 1999, respectively. Technology Development Technology development expenses consist primarily of payroll and related expenses for Web site development, systems personnel and consultants. As the Company believes that its website is subject to continual and substantial change, expenditures relating to technology development are expensed as incurred. Income Taxes The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), which requires the use of the liability method in accounting for income taxes. Under this method, deferred tax liabilities and assets are measured based upon differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Stock-Based Compensation The Company accounts for stock-based awards to employees under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). F-8 Driveway Corporation Notes to Financial Statements (continued) 1. Significant Accounting Policies (continued) The Company records stock-based compensation based on the fair value of stock options granted to employees and stock options and warrants granted to non-employees, using the Black-Scholes option pricing valuation model with the following weighted-average assumptions:
Year ended December 31, ---------------- 1997 1998 1999 ---- ---- ---- Risk-free interest rate................................... 5.5% 5.5% 5.5% Dividend yield............................................ 0% 0% 0% Volatility factor......................................... 0.8 0.8 0.8 Expected option term life in years for employee stock option grants............................................ 5 5 5
Stock-based compensation expense included in the accompanying Statement of Operations is composed of the following expense categories (in thousands):
Year ended December 31, ------------------------- 1997 1998 1999 ------- ------- --------- Cost of revenue................................... $ -- $ -- $ 12 Sales and marketing............................... -- -- 1,238 Technology development............................ 38 6 513 General and administrative........................ -- 12 2,888 ------- ------- --------- $ 38 $ 18 $ 4,651 ======= ======= =========
Computation of Net Loss Per Common Share The Company computes net loss per common share based on Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" ("FAS 128"). In accordance with FAS 128, basic net loss per common share is calculated as net loss available to common stockholders divided by the weighted-average number of common shares outstanding. Diluted net loss per common share is computed using the weighted-average number of common shares outstanding. Dilutive common stock equivalents resulting from stock options (using the treasury stock method) and convertible preferred stock (using the if-converted method) have been excluded from the calculation of diluted net loss per common share as their effect is antidilutive. Pro forma net loss per common share has been computed as described above and also gives effect, under Securities and Exchange Commission guidance, to the conversion of preferred shares not included above that will automatically convert to common shares upon completion of the Company's initial public offering, using the if-converted method. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F-9 Driveway Corporation Notes to Financial Statements (continued) 1. Significant Accounting Policies (continued) Segment Information The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. FAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of FAS 131 did not affect results of operations, financial position or disclosure of segment information. The Company conducts business in one operating segment. The Company is a provider of online information management solutions. The Company's management has determined the operating segment based upon how the business is managed and operated. Recent Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 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 so, the type of hedge transaction. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 ("FAS 137"), "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("FAS 137"), which amends FAS 133 to be effective for all quarters for all years beginning after June 15, 2000 or January 1, 2001 for the Company. Management does not currently expect that adoption of FAS 133 will have a material impact on the Company's financial position or results of operations. 2. Balance Sheet Details Details of balance sheet items are as follows: Property and equipment at December 31 consist of the following (in thousands):
1998 1999 ------ ------ Computer equipment............................................ $1,395 $1,577 Software...................................................... 308 541 Office equipment and automobiles.............................. 121 182 Leasehold improvements........................................ 131 50 ------ ------ 1,955 2,350 Less accumulated depreciation and amortization................ 1,421 672 ------ ------ $ 534 $1,678 ====== ======
F-10 Driveway Corporation Notes to Financial Statements (continued) 2. Balance Sheet Details (continued) At December 31, 1998 and 1999, property and equipment includes amounts held under capital leases of $1.4 million, and $1 million, respectively, and the related accumulated amortization of $1.1 million and $425,000, respectively. Amortization of these assets is included in depreciation expense. At December 31, 1999, the Company has capital expenditure commitments amounting to $2.9 million. Accrued liabilities at December 31 consist of the following (in thousands):
1998 1999 ---- ------ Accrued marketing costs......................................... $167 $ 332 Accrued underwriting fees--Series C preferred stock............. -- 1,543 Accrued bonuses................................................. -- 428 Other accrued liabilities....................................... 249 504 ---- ------ $416 $2,807 ==== ======
3. Redeemable Convertible Preferred Stock In December 1999, the Company sold 7,477,562 shares of Series C preferred stock for $4.01 per share, resulting in net proceeds of $28.4 million. Of this amount $2.5 million was recorded as a receivable at December 31, 1999 and was subsequently received on January 4, 2000. In connection with the Series C preferred stock financing, the Company issued to the placement agent warrants to purchase 94,780 shares of Series C preferred stock at an exercise price of $4.01 per share. The value ascribed to the warrants of approximately $290,000 was offset against the Series C preferred stock proceeds. The value was based on a Black-Scholes valuation model as described in Note 1 using a fair value of the Company's Series C preferred stock on the grant date of $4.01 per share and a contractual life of 5 years. The holder of each share of Series C preferred stock has the right to one vote for each share of common stock into which such Series C could then be converted and, with respect to such vote, has full voting rights and powers equal to those of the holder of common stock. In the event of liquidation, the holders of Series C have preferential rights to liquidation payments of $4.01 per share, plus any declared but unpaid dividends. The Series C preferred stock is convertible into common stock at the option of the holder, or automatically upon the closing of an initial public offering of the Company's common stock for which the aggregate proceeds are not less than $30 million or $8.02 per share. Currently, each share of Series C converts into one share of common stock. The conversion rate is subject to adjustment, as provided by the Company's Certificate of Incorporation. The preferred stock is also redeemable at the option of the holder after December 2004 at a redemption price equal to $4.01 per share plus a ten percent annual return from date of issuance. The Series C holders have the right to receive dividends at an annual rate of $0.321 per share when and if declared by the Board of Directors. Through December 1997, the Company sold 351,143 shares of Series I preferred stock and 66,668 shares of Series II preferred stock resulting in net proceeds of $5.9 million and $2.0 million, respectively. In October 1998, the Company converted all outstanding Series I and II preferred stock F-11 Driveway Corporation Notes to Financial Statements (continued) 3. Redeemable Convertible Preferred Stock (continued) into common shares, based upon a 100 to 1 conversion ratio. Subsequent to this conversion, the Company canceled its Series I and II preferred stock and completed a 1,000 to 1 reverse stock split of its common stock. Accordingly, 42,370 shares of common stock have been issued in the Series I and II preferred stock conversion (the related common share and per share data in the accompanying financial statements have been retroactively restated to reflect the reverse stock split). In June 1998, the Company entered into promissory notes with stockholders for $775,000 of bridge financing for the Company. The notes had interest rates of 10%, matured in 45 days, and were converted into Series A preferred stock (Note 4). The Company issued additional notes payable of $900,000 during August and October 1998. In connection with the issuance of the notes, the Company issued warrants to purchase Series II preferred stock and based on the Black- Scholes valuation model described in Note 1, using the fair value of the Company's Series II preferred stock, the value of the warrants of $469,000 was recorded as interest expense in the year ended December 31, 1998. These warrants were subsequently converted into warrants to purchase common stock (Note 4). 4. Stockholders' Equity (Deficit) Convertible Preferred Stock In October 1998, the Company converted outstanding notes payable of $1.7 million into Series A preferred stock at an exchange rate of $0.20 per share. In addition, the Company sold an additional 1,625,000 shares of Series A preferred stock for $0.20 per share for net proceeds of $236,000. In November 1998 and January 1999, the Company entered into convertible notes payable agreements for $1.0 million and $2.0 million, respectively, with two institutional investors. The debentures were convertible to and in conjunction with the Company's next round of preferred equity financing. In May 1999, the Company converted all outstanding convertible notes payable into 3,000,000 shares of Series B preferred stock at an exchange rate of $1.00 per share. In addition, the Company sold an additional 4,444,770 shares of Series B preferred stock for $1.00 per share for net proceeds of $4.3 million. In October 1999, the holders of Series A and B preferred stock agreed to eliminate their right to request redemption of the preferred stock. Accordingly, Series A and B have been reclassified as of December 31,1999 to Convertible Preferred Stock in the accompanying balance sheet. In addition, the Company completed a five-to-one stock split of its Series A and B preferred stock and the accompanying financial statements have been retroactively restated to give effect to this stock split. The holder of each share of Series A and B preferred stock has the right to one vote for each share of common stock into which such Series A and B could then be converted and, with respect to such vote, has full voting rights and powers equal to those of the holder of common stock. In the event of liquidation, the holders of Series A and B have preferential rights to liquidation payments of $0.20 and $1.00 per share, respectively, plus any declared but unpaid dividends. The Series A and B preferred stock is convertible into common stock at the option of the holder, or automatically upon the closing of an initial public offering of the Company's common stock for which the aggregate F-12 Driveway Corporation Notes to Financial Statements (continued) 4. Stockholders' Equity (Deficit) (continued) proceeds are not less than $30 million and $8.02 per share. Currently, each share of Series A and B converts into one share of common stock. The conversion rate is subject to adjustment, as provided by the Company's Certificate of Incorporation. The Series A and B holders have the right to receive dividends at an annual rate of $0.016 per share and $0.08 per share, respectively, when and if declared by the Board of Directors. Common Stock Option Plan The 1997 Stock Option Plan (the "1997 Plan") provides for the issuance of incentive and nonqualified stock options to employees. There are 4,177,484 shares of common stock reserved for issuance under the 1997 Plan. Options are granted by the Company's Board of Directors and expire after ten years. Options granted under this plan shall become vested with respect to 25% of the shares of common stock covered by the option on the first anniversary date of employment, with the remaining shares vesting at 6.25% every three months thereafter, with all shares becoming fully vested on the fourth anniversary date of the date of grant. Stock option activity and price information for the years ended December 31, 1997, 1998 and 1999 are as follows:
Outstanding options Weighted- Options ---------------------- average Available Number of Price exercise for grant shares per share price ---------- ---------- ---------- --------- Balance at December 31, 1996.................... -- -- -- -- Authorized.............. 4,177,484 -- -- Granted................. (11,415) 11,415 $ 10-20 $19.87 Canceled................ 845 (845) 20 20.00 ---------- ---------- ---------- ------ Balance at December 31, 1997.................... 4,166,914 10,570 10-20 19.88 Granted................. (3,542) 3,542 30 30.00 Exercised............... -- (478) 20 20.00 Canceled................ 5,899 (5,897) 10-30 20.65 ---------- ---------- ---------- ------ Balance at December 31, 1998.................... 4,169,271 7,737 10-30 26.50 Granted................. (4,174,680) 4,174,680 0.02-1.50 0.22 Exercised............... -- (261,809) 0.02-0.25 0.04 Canceled................ 1,046,023 (1,046,023) 0.02-30 0.16 ---------- ---------- ---------- ------ Balance at December 31, 1999.................... 1,040,614 2,874,585 $0.02-30 $ 0.32 ========== ========== ========== ======
The weighted-average remaining contractual life of all outstanding options at December 31, 1999 is 9.59 years. As of December 31, 1999, options to purchase 489,615 shares are exercisable. F-13 Driveway Corporation Notes to Financial Statements (continued) 4. Stockholders' Equity (Deficit) (continued) The following table summarizes information about stock options at December 31, 1999:
Options Exercisable Not Subject to Options Outstanding Repurchase ----------------------------------------------------------------------------- Range of Weighted-Average Weighted- Weighted- Exercise Options Remaining Average Options Average Prices Outstanding Contractual Life Exercise Price Vested Exercise Price -------- ----------- ---------------- -------------- ------- -------------- $0.02- 0.02 583,689 9.03 $0.02 476,811 $ 0.02 $0.10- 0.25 1,960,714 9.68 0.18 10,166 0.25 $1.50- 30.00 330,182 9.95 1.69 2,638 21.34 --------- ------- ------ 2,874,585 489,615 $ 0.14 ========= ======= ======
Shares Reserved for Future Issuance At December 31, 1999, the Company has reserved shares of common stock for future issuance as follows: Preferred stock, including effect of preferred stock warrants: Series A....................................................... 10,081,250 Series B....................................................... 8,098,770 Series C....................................................... 7,577,342 Stock options outstanding....................................... 2,874,585 Stock options, available for grant.............................. 1,040,614 Warrants to purchase common stock............................... 22,532 ---------- 29,695,093 ==========
Deferred Compensation The Company has recorded deferred compensation charges of $2.2 million during the year ended December 31, 1999, representing the difference between the exercise price of the stock option and the fair value of common stock as of the date of grant. The Company recorded stock-based compensation expense of $185,000 for the year ended December 31, 1999 and, using a graded method, over the vesting periods of the individual stock options (four years), the deferred compensation charges will amortize $1.2 million, $509,000, $240,000 and $62,000 in the years 2000 through 2003, respectively. Options Issued to Consultants In 1999, the Company issued to consultants options to purchase 163,556 shares of common stock at exercise prices ranging from $0.14 to $1.50 per share. These options vest in varying amounts through December 2001. The Company recorded deferred compensation charges of $378,000 based on the Black-Scholes valuation model, described in Note 1, using fair values for the Company's common stock ranging from $0.50 to $3.21 per share and contractual lives of 10 years. These charges are subject to adjustment based upon the fair value of the stock at the final vesting of these options. The Company recorded stock-based compensation expense of $18,000 for the year ended December 31, 1999 related to these options. F-14 Driveway Corporation Notes to Financial Statements (continued) 4. Stockholders' Equity (Deficit) (continued) In February 1999, the Company awarded 365,533 shares of common stock to a consultant. Under the terms of the agreement, the Company had the right to repurchase the shares based on the achievement of certain milestones. At December 31, 1999, none of the shares remain subject to the repurchase rights. For the year ended December 31, 1999, the Company recorded stock-based compensation expense in 1999 of $1.2 million related to these shares. Notes Receivable From Stockholders In May 1999, the Company sold 2,130,000 shares of its common stock to a then senior executive officer and now Chairman of the Company for $213,000 in exchange for a promissory note. The note is full recourse, has an interest rate of 5.22%, is due the earlier of an initial public offering of common stock of the Company or January 2006, and requires annual interest payments equal to 20% of the annual interest accrual. For the year ended December 31, 1999, the Company recorded stock-based compensation expense of $3.0 million related to these shares based upon the difference between the issuance price of the stock and the fair value of the stock. In 1999, the Company issued 1,383,004 shares of common stock to key officers and 1,110,000 shares to employees of the Company in exchange for promissory notes in the aggregate amount of $384,000. The notes are full recourse, bear interest at 5%, and are due with accrued interest on varying dates from April 2001 through August 2003. The shares issued are subject to repurchase by the company at the original issuance price in the event the officers and employees terminate their employment. These repurchase rights lapse in varying amounts through August 2003. Shares subject to repurchase total 2,055,561 at December 31, 1999. In addition, the Company has agreed to forgive the notes from the employees ratably through April 2001 based upon continued employment with the Company. The Company recorded deferred compensation charges of $2.0 million based on the difference between the issuance price of the stock and its fair value on the date of issuance. The Company recorded stock-based compensation expense of $293,000 in the year ended December 31, 1999 related to these notes and will amortize $757,000, $440,000, $328,000, and $228,000 relating to these shares in the years 2000 through 2003, respectively. Common and Preferred Stock Warrants During the years 1995 through 1998, the Company issued warrants to purchase common stock and Series I and Series II preferred stock to non-employees. In 1998, all warrants to purchase Series I and Series II preferred stock were converted into warrants to purchase common stock. At December 31, 1999, warrants to purchase 22,532 shares of common stock remain outstanding, with exercise prices ranging from $30 to $2,400 per share. The warrants expire on various dates through September 2005. In May 1999, the Company issued 81,250 warrants (expiring in August 2002) to purchase Series A preferred stock at an exercise price of $1.00 per share to a leasing company in connection with an existing lease. Based on the Black- Scholes option valuation model described in Note 1 using a fair value of $1.00 per share and a contractual life of 3 years, the Company will record the value of the warrants of approximately $69,000 as additional interest expense over the remaining lease term. F-15 Driveway Corporation Notes to Financial Statements (continued) 4. Stockholders' Equity (Deficit) (continued) Pro Forma Disclosures of the Effect of Stock-Based Compensation Pro forma information regarding net income and net income per common share is required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), and has been determined as if the Company had accounted for its employee stock options under the fair value method of FAS 123. For purposes of pro forma disclosures, the estimated fair value of the stock option is amortized to expense over the option's vesting period. The fair value of these stock options was estimated at the date of grant using the Black-Scholes option pricing valuation model, described in Note 1. The weighted-average fair value of these options granted was $10.86, $17.17 and $0.68 for 1997, 1998 and 1999, respectively. Option valuation models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, subjective input assumptions can materially affect the fair value estimate. Had compensation costs for the Company's stock option plan been determined using the fair value at the grant dates for awards under that plan consistent with the method of FAS 123, the Company's historical net loss applicable to common shareholders and basic and diluted net loss per share would have been decreased to the pro forma amounts indicated below (in thousands, except per share data):
Year ended December 31, ------------------------- 1997 1998 1999 --------- ------- ------- Net loss: As reported...................................... $ 5,627 $ 5,776 $17,219 Pro forma........................................ 5,650 5,811 17,305 Basic and diluted net loss per common share: As reported...................................... 1,125.00 152.00 8.78 Pro forma........................................ 1,130.00 152.92 8.82
The pro forma impact of options on the operating results is not representative of the effects on net income (loss) for future years, as future years will include the effects of additional years of stock option grants. F-16 Driveway Corporation Notes to Financial Statements (continued) 5. Net Loss Per Common Share The calculation of historical and pro forma basic and diluted net loss per common share is as follows (in thousands, except share and per share data):
Years ended December 31, ---------------------------- 1997 1998 1999 --------- ------- ---------- Historical: Net loss..................................... $ 5,627 $ 5,776 $ 17,219 ========= ======= ========== Weighted-average shares of common stock outstanding................................. 5,000 38,000 2,534,000 Less: weighted-average shares subject to repurchase.................................. -- -- 572,000 --------- ------- ---------- Weighted-average shares used in computing basic and diluted net loss per common share....................................... 5,000 38,000 1,962,000 ========= ======= ========== Basic and diluted net loss per common share.. $1,125.00 $152.00 $ 8.78 ========= ======= ==========
Year ended December 31, 1999 ------------ Pro forma: Net loss..................................................... $ 17,219 ========== Weighted-average shares used in computing basic and diluted net loss per common share................................... 1,962,000 Adjustment to reflect the effect of the assumed conversion of preferred stock from the date of issuance................... 15,200,000 ---------- Weighted-average shares used in computing pro forma basic and diluted net loss per common share........................... 17,162,000 ========== Pro forma basic and diluted net loss per common share (unaudited)................................................. $ 1.00 ==========
If the Company had reported net income, the calculation of historical and pro forma diluted earnings per share would have included approximately an additional 1,475,000 common equivalent shares related to outstanding stock options not included above (determined using the treasury stock method) for the year ended December 31 1999, and approximately an additional 40,000, 2,500,000 and 15,200,000 common equivalent shares related to the conversion of preferred shares (including warrants to purchase preferred stock) using the if-converted method for the years ended December 31, 1997, 1998 and 1999, respectively. For the years ended December 31, 1997 and 1998, the common equivalent shares related to outstanding stock options are not significant. 6. Income Taxes No income tax expense was recorded for the years ended December 31, 1997, 1998 and 1999 as the Company has incurred operating losses in all periods and for all jurisdictions. F-17 Driveway Corporation Notes to Financial Statements (continued) 6. Income Taxes (continued) The following is a reconciliation of the statutory federal income tax rate to the Company's effective income tax rate:
Years ended December 31, ----------------------- 1997 1998 1999 ------- ------- ------- Statutory federal income tax benefit ................ 34.0% 34.0% 34.0% State tax benefit.................................... -- -- 7.3% Change in valuation allowance........................ (33.9%) (33.9%) (41.2%) Other................................................ (0.1%) (0.1%) (0.1%) ------- ------- ------- -- -- -- ======= ======= =======
Significant components of the Company's deferred tax assets are as follows (in thousands):
December 31 -------------------------- 1997 1998 1999 ------- ------- -------- Net operating loss carryforwards................ $ 4,741 $ 6,707 $ 12,929 Research and development credit carryforwards... 31 31 31 Other........................................... 333 328 390 ------- ------- -------- Total deferred tax assets....................... 5,105 7,066 13,350 Valuation allowance............................. (5,105) (7,066) (13,350) ------- ------- -------- Net deferred tax assets......................... $ -- $ -- $ -- ======= ======= ========
FASB Statement No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company's historical operating performance and the reported cumulative net losses in all prior years, the Company has provided a full valuation allowance against its net deferred tax assets. The Company will continue to evaluate the realizability of the deferred tax assets on a quarterly basis. The net valuation allowance increased by $1.9 million during the year ended December 31, 1997, by $2.0 million during the year ended December 31, 1998, and by $6.3 million during the year ended December 31, 1999. As of December 31, 1999, the Company had net operating loss carryforwards for federal income tax purposes of approximately $35 million, which expire in the tax years 2008 through 2019. The Company has net operating loss carryforwards for state income tax purposes of approximately $11.9 million which expire in tax year 2019. The Company has federal tax credit carryforwards of approximately $31,000 which begin to expire in 2008. Because of the "change in ownership" provisions of the Internal Revenue Code of 1986, a portion of the Company's net operating loss carryforwards and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. As a result of the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities. The Company has not determined the amount, if any, which will be lost as a result of the application of these rules. F-18 Driveway Corporation Notes to Financial Statements (continued) 7. Commitments and Contingencies Line of Credit In 1999, the Company entered into a non-revolving line of credit agreement for borrowing up to $3 million. In connection with the Series C preferred stock financing (Note 4), the Company repaid all outstanding amounts under this agreement and the facility was terminated. Under the terms of this facility, the Company issued to the lender warrants to purchase 5,000 shares of Series C preferred stock at an exercise price of $4.01 per share. The value ascribed to the warrants of approximately $14,000, based on the Black-Scholes valuation model described in Note 1 using a fair value of $4.01 per share and a contractural life of 5 years, was recorded as interest expense in the accompanying statements of operations. In addition, certain stockholders and officers of the Company provided personal guaranties for the line of credit agreement. As consideration for the guaranties, the Company issued warrants to purchase 600,000 shares of Series B preferred stock at an exercise price of $1.00 per share. The value ascribed to the warrants of $1.9 million, based on the Black-Scholes valuation model described in Note 1 using a fair value of $3.61 per share and a contractual life of 7 years, was recorded as interest expense in the accompanying statements of operations. Leases In August 1999, the Company entered into a loan facility under which the lender committed to finance equipment purchases up to $1.5 million through July 2000. As of December 31, 1999, outstanding borrowings totaling $498,000 and are included in obligations under capital leases in the accompanying balance sheet. Under the terms of this facility, the Company issued to the lender warrants to purchase 54,000 shares of Series B preferred stock at an exercise price of $1.00 per share. The value ascribed to the warrants of approximately $70,000, based on the Black-Scholes valuation model described in Note 1 using a fair value of $1.50 per share and a contractual life of 10 years, is being amortized to interest expense. The Company leases its office facilities under operating leases. Future minimum lease payments under capital leases and minimum lease payments under noncancellable operating leases are as follows (in thousands):
Capital Operating Leases Leases ------- --------- Years ending December 31: 2000...................................................... $ 318 $ 530 2001...................................................... 183 325 2002...................................................... 167 240 2003...................................................... 134 218 2004...................................................... -- 187 ----- ------ Total minimum lease payments............................... 802 $1,500 ====== Amount representing interest............................... (148) ----- Present value of minimum lease payments.................... 654 Current portion of capital lease obligations............... (248) ----- Noncurrent portion of capital lease obligations............ $ 406 =====
F-19 Driveway Corporation Notes to Financial Statements (continued) 7. Commitments and Contingencies (continued) Rent expense for the years ended December 31, 1997, 1998, and 1999 was $160,000 $185,000 and $239,000 respectively. Marketing Agreements The Company enters into various advertising, marketing and co-marketing agreements which provide for certain advertising and promotional and customer acquisition activities. Such agreements generally have terms not in excess of 12 months. Under these agreements, the Company's partners display the Driveway logo and certain of the Company's services on their websites with direct links to the Driveway website. The Company normally pays for these services based on the first time a customer clicks on one of the Driveway links and registers for the Driveway service and/or becomes an active user of the Driveway site. The costs of these services are expensed as incurred. In addition, some agreements include minimum monthly and quarterly payments and in some cases, an up-front advertising placement fee. Advertising placement fees are deferred and expensed throughout the term of the contract. At December 31, 1999, deferred placement fees total $98,000 and are included in prepaid expenses in the accompanying balance sheet. The Company recorded $648,000 in placement fee expenses for the year ended December 31, 1999. Future minimum payments under these agreements are $4.3 million 2000 and $425,000 in 2001. Advertising The Company has commitments for expenditures on media advertising in 2000. The aggregate commitments at December 31, 1999 are approximately $5.4 million. Pending Litigation While currently the Company is not aware of any significant pending litigation, the Company may from time to time become involved in various litigation arising in the ordinary course of business and the resolution of these matters could have a material effect on the Company's financial position or results of operations. Defined Contribution Pension Plan Beginning July 1997, the Company sponsored a defined contribution pension plan (the Plan) for its employees who have completed six months of service with the Company. Contributions to the Plan are based on a percentage of the employee's gross compensation, limited by IRS guidelines for such plans. The Company does not match contributions made by employees, but does pay the Plan's administrative expenses. Administrative expenses for the Plan totaled $3,000 for the year ended December 31, 1999. 8. Subsequent Events Proposed Public Offering of Common Stock On March 2, 2000, the Board authorized Driveway to proceed with an initial public offering of its common stock. If the offering is consummated as presently anticipated, all of the outstanding redeemable convertible preferred stock and convertible preferred stock will automatically convert to F-20 Driveway Corporation Notes to Financial Statements (continued) 8. Subsequent Events (continued) common stock. The unaudited pro forma shareholders' equity at December 31, 1999 gives effect to the conversion of all outstanding shares of redeemable convertible preferred stock and convertible preferred stock at that date into 24,922,332 shares of common stock upon the completion of the offering. Series C Preferred Stock In January 2000, the Company sold an additional 3,322,945 shares of Series C preferred stock for $4.01 per share, resulting in net proceeds of $12.6 million. 1997 Stock Option Plan On March 2, 2000 the number of shares reserved under this plan was increased to 5,700,000. 2000 Stock Incentive Compensation Plan On March 2, 2000 the Board of Directors adopted, and the stockholders approved, the 2000 Stock Incentive Compensation Plan to be effective upon completion of the Company's initial public offering of its common stock. The Company has reserved a total of 8,100,000 shares of common stock for issuance under the plan. The plan provides for the issuance of stock options as well as stock awards. Simultaneous with the effectiveness of the Company's initial public offering, the 1997 Stock Option Plan will be suspended, no further grants will be made under this plan and all shares reserved if not granted under this plan will become shares reserved under the 2000 stock incentive plan. 9. Events (unaudited) subsequent to date of independent auditors' report Series D Convertible Preferred Stock On March 10, 2000, the Company, sold 1,666,666 shares of Series D Convertible Preferred Stock at $6.00 per share. F-21 APPENDIX A "MEET THE MANAGEMENT" PRESENTATION FOR DRIVEWAY CORPORATION Prospective investors will be able to log on to a website maintained by E*OFFERING Corp. at www.eoffering.com, where a prospectus is available for review. Within designated sections of the prospectus, including the table of contents and the Underwriting Section of the prospectus, an embedded hyperlink {click here for "Meet the Management" Presentation} will provide exclusive access to the "Meet the Management" Presentation. This presentation highlights selected information contained elsewhere in the prospectus. This presentation does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" and our financial statements and notes to those financial statements, before making an investment decision. Visual 1: Disclaimer Imagery: Company logo. Visual Text: The "Meet the Management" Presentation is part of our prospectus. This presentation highlights selected information contained elsewhere in this prospectus. This presentation does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" and our financial statements and notes to those financial statements, before making an investment decision. Script: (Christopher Logan) The "Meet the Management" Presentation is part of our prospectus. This presentation highlights selected information contained elsewhere in this prospectus. This presentation does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" and our financial statements and notes to those financial statements, before making an investment decision. Visual 2: Introduction Imagery: See Description of Artwork contained in this Registration Statement for a description of the image located on the inside front cover of the prospectus. Script: (Christopher Logan) Welcome to the "Meet the Management" Presentation for Driveway. I'm Christopher Logan, President and CEO. I would like to introduce you to Michael Zuckerman, Vice President of Business Development and Kent Jarvi, our Chief Financial Officer. We would like to talk to you about Driveway, an easy to use online information management service that allows our members to store, manage and share their personal and business information from a single virtual location on the Web. Visual 3: Industry Background Imagery: Border and Company logo. Page with four arrows on the left of the page pointing right. Visual Text: Title: Industry Background. Bullets: "Multiple Web Access Points", "Web-enabled Devices", "Voluminous Data", "Rich Media". A-1 Script: (Christopher Logan) (see "Business--Industry Background--Expanding Uses of the Internet Driving the Need for Online Storage"): The Internet has emerged as a significant global communications medium, enabling millions of people to share information and conduct business electronically. Some of the many contributors to this growth have been the rapid technological improvements to Internet infrastructure and bandwidth capacity, which have allowed users to quickly download and upload information in multiple formats, run Web-based applications and complete commerce transactions. These uses represent a significant shift in usage patterns, as traditionally the Internet was used primarily to acquire information most often stored in simple text-based format. As the Internet continues to expand and evolve, we believe users will increasingly move towards online management and storage solutions to accommodate this shift. There are several characteristics that drive the demand of online information management. First, many users frequently use more than one personal computer for Internet access and we believe they are looking for ways to remotely access all their files form a single virtual location that is not limited by multiple computers. Second, the Internet has expanded beyond personal computers to personal digital assistants, cellular phones and other thin client devices, which have limited storage capability. This expansion has created new challenges for users who are looking for ways to access information from these devices. Third, the Internet is a virtual marketplace, providing vast quantities of information from different sources. Finally, the introduction onto the Web of rich media, including music, video and picture downloads, has created new possibilities for ecommerce and user interactivity. Visual 4: The Driveway Solution Imagery: Border and Web Site shot. Visual Text: Title: The Driveway Solution. Script: (Christopher Logan) (see "Business--The Driveway Solution"): Driveway is an easy to use online information management service that allows our members to store, manage and share their personal and business information. Our solution is available to any Internet user and for nearly all types of electronic data including URL's, desktop files and rich multimedia content. Our system is designed to be completely device and platform agnostic, a feature that offers our members the greatest freedom and flexibility to manage their online personal and business information. In addition, we actively partner with highly trafficked Web sites to help them increase their value to their users. Visual 5: The Driveway Solution (2) Imagery: Border and Company logo. Page with Driveway logo in center of page with two boxes connecting below with the headings "Benefits to our members" and "Benefits to our strategic partners". Visual Text: Title: The Driveway Solution. Under Benefits to our members list as bullets: "Ubiquitous access to information from multiple devices.", "Ability to securely share private information.", "Ease of use.", "Integration with existing Web sites and applications." Under Benefits to our partners list as bullets: "Adds functionality.", "Aids in customer acquisition and retention.", "Enhances stickiness.", "Facilitates new revenue opportunities." A-2 Script: (Christopher Logan) (see "Business--The Driveway Solution"): We believe our solution provides significant benefits to both our members and our strategic partners. Benefits to our members include the following. We allow members to store and access information at any time from any standard Web- enabled device. Secondly, we enable information-sharing by allowing our members to provide secure password-protected, highly customizable access to other Internet users. Third, our solution is compatible with all browsers, version 2.1 and above, and does not require users to download client software. Finally, our online information management solution is accessible from all of our strategic partners and more than 4,000 affiliates. Benefits to our strategic partners include the following. Our online information management services provide an additional service to our strategic partners' Web site offerings. Our online information management application can be seamlessly integrated into existing and emerging Web site applications. Second, by providing a more complete set of services to users, our strategic partners can differentiate themselves from their competitors, attract new users, and retain existing users. Third, because we can integrate our online information management solution with a strategic partner's Web site applications, users have all relevant information centrally located, potentially increasing the time a user is active on our strategic partner's Web site. Finally, our strategic partners can share revenues generated from paid services from members we receive through that strategic partner. We provide our strategic partners access to our extensive member base for opt- in marketing programs and other advertising opportunities. Visual 6: Our Strategy Imagery: Border and Company logo. Driveway logo in center of page. Circles filled with text heading will be connected to the logo as spokes. Visual Text: Title: The Driveway Strategy. Inside circled spokes: "Capitalize on Growing Member Base to Drive Multiple Revenue Streams", "Leverage Existing Strategic Partnerships and Develop New Relationships", "Build Driveway Brand", "Enable Additional Applications and Services", "Enable Functionality to Mobile Devices", "Capitalize on Web-Based Business-to-Business Opportunity", "Pursue International Market Opportunity". Script: (Christopher Logan) (see "Business--Strategy"): We intend to be the leading provider of online information management services. The primary elements of our strategy are the following. We intend to expand and capitalize on our large and growing membership base. We believe continued enhancements of our services and continued integration of Driveway into our member's Internet activities will allow us to grow and retain an increasingly active user base. As we expand the number of members and increase the amount and duration of activity on our site, we intend to utilize this customer engagement to drive multiple streams of revenue. We intend to reach to new prospective members through our strategic partnerships and leverage our growing membership base to develop new strategic relationships. Partner-driven growth is an important element of our strategy and has accounted for approximately 80% of our membership base. As our membership base A-3 grows, we believe that a strategic partner's access to our members combined with the value in an integrated Driveway service may to cause a decrease in our membership acquisition costs. We intend to establish Driveway as the leading brand for online information management. Our branding efforts are designed to foster new strategic partnerships and increase direct membership recruitment and retention. We believe that as Web sites and users begin to encounter our solution more frequently and understand the value of online information management, we will experience a dramatic increase in the number of strategic partnerships as well as continued growth in our membership base. We intend to further enable our strategic partners to create and manage new applications that utilize our Driveway services. We plan to integrate our online information management platform into online application providers' Web sites to provide a central location to store, manage and share the activities of these applications. We intend to add features to our solution that will allow our members to access their information through a variety of wireless devices, such as mobile telephones, personal digital assistants or personal computers that are connected to the Internet by wireless service. We plan to enter into relationships to enable access to a Driveway account from a wireless device. We intend to private label our Driveway service offering for Web sites that are focused on business-to-business opportunities. By private labeling our services, we intend to further spread our solution across the Web and generate revenue directly from business-to-business Web sites. We intend to form international strategic partnerships because we believe that worldwide demand for online information management presents a significant opportunity for us to acquire new members. To facilitate this effort, we developed our interface to easily allow translation into different languages. In December of 1999, we formed an exclusive partnership with Lycos Europe, a joint venture of Lycos and Bertelsmann and one of the most highly trafficked Web sites in Europe, to expand our online information management platform. And with that, I will turn it over to Michael Zukerman to discuss our affiliates and strategic relationships. Visual 7: Affiliates and Strategic Partnerships Imagery: Border and Company logo. Page with table in center of page. Visual Text: Title: Affiliates and Strategic Partnerships. Within table, list the following: "Lycos", "Lycos-Bertelsmann", "Microsoft", "Looksmart", "USA.Net", "MSN", "McAfee.com", "Backup Buddy", "PhoenixNet", "Juno Online Services". Script: (Michael Zukerman) (see "Business--Affiliates and Strategic Partnerships") We have entered into strategic relationships with ten partners, and over 4,000 Web sites have opted into our affiliate program. To date, we have acquired more than 80% of our members through our strategic partnerships and affiliates. Our affiliates provide their A-4 visitors with a link to our Web site and we pay these affiliates a fee for member conversions. We believe that our strategic partnerships aid in customer acquisition, development of new applications and services and also increase our revenues. For example, our strategic relationship with Microsoft provides a web folder feature to their site. In November 1999, Driveway signed an agreement with Lycos to provide the Driveway service to users of the various Lycos network sites. The agreement calls for integration and promotion within Lycos' Tripod and Angelfire, two of Lycos' most heavily trafficked Web-page building sites, and also contemplates further integration with the popular MyLycos personal page service. Since December 1999, our online information management service has been offered to McAfee.com visitors and subscribers through a variety of banners, tiles, text links and registration options. Now I'll turn it back over to Chris to discuss our competition. Visual 8: Competition Imagery: Border and Company logo. Page with five arrows on the left of the page pointing right. Visual Text: Title: Competition. Bullets: "Internet portal and content companies", "Online community sites", "Online music services that offer storage space for digital music files", "Internet desktop companies". Script: (Christopher Logan) (see "Business--Competition") The market for online information management is emerging and rapidly evolving. There are several companies that offer online information management solutions. None of these companies is currently dominant in our space. In addition, many companies may develop in-house solutions to provide online information management, which may compete with us for users and strategic partnerships and offer similar services as the following: Internet portal and content companies, such as America Online and Yahoo!; online community sites such as iVillage; online personal homepage services such as Yahoo! Geocities; online music services that offer storage space for digital music files such as MP3.com and Real Networks; and Internet desktop companies such as Visto and desktop.com. And with that, I will turn it over to Kent Jarvi for an overview of our financial results. Visual 9: Financial Summary Imagery: (See "Selected Financial Data") Statement of Operations and Balance Sheet Data. Visual Text: (See "Selected Financial Data") Statement of Operations and Balance Sheet Data. Script: (Kent Jarvi) (See "Management Discussion and Anlysis of Financial Condition and Results of Operations"): [ ] A-5 We launched our online information management service in February 1999. Comparison of our financial results from year to year prior to 1999 may therefore not be indicative of our future performance due to the adoption of our new business model in February 1999. We have derived substantially all our revenue to date from subscribers who pay a monthly fee for online storage services. We have recently transitioned our business model whereby registered members of our Driveway services receive an initial allocation of storage, free of charge, with the potential to purchase additional storage. Our revenue in the future will consist of service fees paid by users for additional information storage space and for other premium services. In addition, we expect to derive a substantial part of our services revenue from fees we generate from private label service offerings. We also expect to derive a significant amount of our revenue from the sale of advertisements delivered to users of our Web site. We began to generate advertising revenue in the first quarter of 2000. We also expect to derive revenue from sponsorships in which fees are paid for selective positioning and promotion of our sponsor's logo, marketing messages and site links. Revenue increased 41% to $264,000 in 1999 as compared to $187,000 in 1998. Revenue increased 2,571% in 1998 from $7,000 in 1997. The increase in total revenue in 1999 was primarily the result of the launch of our initial online information management service and the increase in registered users of this platform. The increase in revenue in 1998 was primarily due to revenue derived from our data warehousing and backup services launched in January 1998. Cost of revenue increased 83% to $2.2 million in 1999 as compared to $1.2 million in 1998. Cost of revenue increased 335% in 1998 from $276,000 in 1997. The increase in cost of revenue in 1999 was primarily attributable to the costs associated with the launch of our initial online information management service and additional costs related to increased personnel, facilities and other costs associated with growing our Web site infrastructure. The increase in 1998 was primarily due to the launch of our data warehousing and backup services. Sales and marketing expenses increased 128% to $4.1 million in 1999, as compared to $1.8 million in 1998. Sales and marketing expenses were relatively unchanged in 1998, with expenses of $1.8 million in 1997. The increases in these periods in absolute dollars are primarily attributable to an increase in advertising and distribution costs associated with our aggressive brand-building strategy and increases in personnel associated with growth in marketing and business development. We anticipate that sales and marketing expenses in absolute dollars will increase in future periods as we continue to pursue an aggressive brand-building strategy through advertising and distribution, continue to expand our international operations, and continue to build our global direct sales organization. Technology development expenses increased 50% to $2.1 million in 1999, as compared to $1.4 million in 1998. Technology and development expenses decreased 44% from $2.5 million in 1997. The increase in 1999 was primarily attributable to increases in the number of engineers and consultants that develop and enhance our services. The decrease in 1998 was primarily attributable to a decrease in personnel primarily due to a refocusing of our business. We believe a significant investment in technology is required to remain competitive in the online information management A-6 market. Accordingly, we expect to incur increased product development expenditures in absolute dollars in future periods. General and administrative expenses increased 140% to $2.4 million in 1999 as compared to $1.0 million in 1998. General and administrative expenses decreased 17% in 1998 from $1.2 million in 1997. The increase in 1999 was primarily attributable to additional finance, administrative and human resource personnel and higher occupancy costs related to the move of our corporate headquarters to San Francisco, California in the fourth quarter of 1999. The decrease in 1998 was primarily attributable to a decrease in personnel primarily due to a refocusing of our business. We believe that the absolute dollar level of general and administrative expenses will increase in future periods, as a result of an increase in personnel to support expanding operations, incur additional costs related to the growth of our business and assume the reporting requirements of a public company. Other expense increased 283% to $2.0 million in 1999 as compared to $522,000 in 1998. Other expense increased 617% in 1998 from other income of $101,000 in 1997. The increase in other expense in 1999 was primarily the result of interest charges from warrants issued in exchange for guarantees in connection with our bridge financing in the fourth quarter of 1999. The increase in other expense in 1998 was primarily due to additional bank and equipment lease financings. And with that, I will turn it back over to Chris. Chris. . . . Visual 10: End of Presentation Imagery: See Description of Artwork contained in this Registration Statement for a description of the image located on the inside front cover of the prospectus. Script: (Christopher Logan): We hope that this presentation was helpful in understanding the business model of Driveway and the strategy that our management team intends to execute. We encourage you to refer back to the prospectus for additional support and disclosure as well as to take a look at the "Risk Factors" in detail. Again, thank you for your interest in Driveway. A-7 [ARTWORK] [ARTWORK] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The expenses to be paid by the Registrant in connection with this offering areas follows. All amounts are estimates other than the SEC registration fee and the NASD filing fees. Securities and Exchange Commission Registration Fee................. $ National Association of Securities Dealers filing fee............... Nasdaq National Market listing fee.................................. * Printing fees....................................................... * Legal fees and expenses............................................. * Accounting fees and expenses........................................ * Blue sky fees and expenses.......................................... * Transfer agent and registrar fees................................... * Miscellaneous fees.................................................. * ------- Total............................................................. $* =======
- -------- * To be filed by amendment. Item 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities including reimbursement for expenses incurred arising under the Securities Act of 1933, as amended. Article VIII of our Amended and Restated Certificate of Incorporation, which will be effective upon the completion of this offering, and Article XI of our Amended and Restated Bylaws provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by Delaware law. The Underwriting Agreement (Exhibit 1.01) also provides for cross-indemnification among Driveway and the Underwriters with respect to certain matters, including matters arising under the Securities Act of 1933, as amended. Item 15. Recent Sales of Unregistered Securities The following is a summary of transactions involving sales of the Registrant's securities that were not registered under the Securities Act in the three years preceding the filing of this registration statement. Prior to our reincorporation as a Delaware corporation in 1998, we had been operating as a corporation organized under the laws of Washington. 1. On December 31, 1997, we issued an aggregate of 66,668 shares of Series II preferred stock to 5 investors for an aggregate consideration of $2,000,000. These shares of Series II preferred stock were converted into 6,667 shares of common stock on October 20, 1998. 2. On June 11, 1998, we issued two convertible promissory notes in an aggregate principal amount of $600,000 to two investors. The notes were cancelled and converted into 3,000,000 shares of Series A Preferred Stock on October 26, 1998. 3. On June 16, 1998, we issued one convertible promissory note in the principal amount of $75,000 to investor. The note was cancelled and converted into 375,000 shares of Series A Preferred Stock on October 26, 1998 II-1 4. On June 24, 1998, we issued one convertible promissory note in the principal amount of $100,000 to one investor. The note was cancelled and converted into 500,000 shares of Series A Preferred Stock on October 26, 1998. 5. On August 13, 1998, we issued one convertible promissory note in the principal amount of $500,000 to one investor. The note was cancelled and converted into 2,500,000 shares of Series A Preferred Stock on October 26, 1998. 6. On September 22, 1998, we issued one convertible promissory note in the principal amount of $100,000 to one investor. The note was cancelled and converted into 500,000 shares of Series A Preferred Stock on October 26, 1998. 7. On September 29, 1998, we issued one convertible promissory note in the principal amount of $100,000 to one investor. The note was cancelled and converted into 500,000 shares of Series A Preferred Stock on October 26, 1998. 8. On October 13, 1998, we issued one convertible promissory note in the principal amount of $100,000 to one investor. The note was cancelled and converted into 500,000 shares of Series A Preferred Stock on October 26, 1998. 9. On October 15, 1998, we issued one convertible promissory note in the principal amount of $100,000 to one investor. The note was cancelled and converted into 500,000 shares of Series A Preferred Stock on October 26, 1998. 10. On October 26, 1998, we issued an aggregate of 1,625,000 shares of Series A Preferred Stock to five investors for an aggregate consideration of $325,000. 11. On November 20, 1998, we issued convertible promissory notes in an aggregate principal amount of $1,000,000 to two investors. The notes were cancelled and converted into 1,000,000 12. On January 29, 1999, we issued convertible promissory notes in an aggregate principal amount of $1,500,000 to two investors. The notes were cancelled and converted into 1,500,000 shares of Series B Preferred Stock on May 27, 1999. 13. On May 5, 1999, we issued one convertible promissory note in the principal amount of $500,000 to one investor. The note was cancelled and converted into 500,000 shares of Series B Preferred Stock on May 27, 1999. 14. On May 20, 1999, we issued an aggregate of 2,495,533 shares of common stock to a founder and to a consultant for an aggregate consideration of $249,533. 15. On May 17, 1999, we issued one warrant to purchase up to 81,250 shares of Series A Preferred Stock to one investor, at an exercise price of $1.00 per share. 16. On May 27, 1999, we issued an aggregate of 7,444,770 shares of Series B Preferred Stock to fifteen investors for an aggregate consideration of $7,444,770. 17. On July 30, 1999, we issued aggregate of 1,064,286 shares of common stock to two founders for an aggregate consideration of $149,000. 18. On August 25, 1999, we issued two warrants to purchase up to 54,000 shares of Series B Preferred Stock to two investors, at an exercise price of $1.00 per share. 19. On August 27, 1999, we issued an aggregate of 1,100,000 shares of common stock to six founders for an aggregate consideration of $155,400. II-2 20. On September 14, 1999, we issued an aggregate of 318,718 shares of common stock to one founder for consideration of $79,679.50. 21. On November 3, 1999, we issued 12 warrants to purchase an aggregate of up to 600,000 shares of Series B Preferred Stock to two investors at an exercise price of $1.00 per share. 22. On December 3, 1999, we issued one warrant to purchase up to 5,000 shares of Series C Preferred Stock to one investor, at an exercise price of $4.01 per share. 23. On December 30, 1999, we issued one warrant to purchase up to 94,780 shares of Series C Preferred Stock to one investor, at an exercise price of $4.01 per share. 24. On December 30, 1999, we issued an aggregate of 7,477,562 shares of Series C Preferred Stock to 37 investors for an aggregate consideration of $29,985,023.62. 25. On January 8, 2000, we issued an aggregate of 3,322,945 shares of Series C Preferred Stock to 10 investors for an aggregate consideration of $13,325,009.45. E*OFFERING Corporation, an underwriter of this offering, was issued a warrant to purchase 94,780 shares of Series C Preferred Stock at an exercise price of $4.01 per share. 26. On March 10, 2000, we issued an aggregate of 1,666,666 shares of Series D Preferred Stock to 2 investors for an aggregate consideration of $9,999,996.000. The issuance of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of such Securities Act as transactions by an issuer not involving any public offering, or, in the case of options to purchase common stock, Rule 701 of the Securities Act. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. II-3 Item 16. Exhibits and Financial Statement Schedules (a) The following exhibits are filed herewith:
Exhibit No Description ---------- ----------- 1.01* --Form of Underwriting Agreement. 1.02 --Form of Lock-Up Agreement. 3.01 --Certificate of Incorporation, as amended to date. 3.02 --Form of Amended and Restated Certificate of Incorporation to be filed upon the completion of this offering. 3.03 --Bylaws. 3.04 --Form of Bylaws to be adopted following the completion of this offering. 4.01* --Form of Common Stock Certificate. 5.01* --Opinion of Perkins Coie LLP regarding legality of securities being issued. 10.01 --Company's 1997 Stock Option Plan, as amended. 10.02 --Form of Notice of Option Grant and Stock Option Agreement. 10.03* --Form of 2000 Employee Stock Purchase Plan. 10.04* --Form of 2000 Stock Incentive Plan. 10.05* --Stock Option Grant Program for Non-employee Directors. 10.06 --Notice of Stock Option Grant to Christopher S. Logan dated July 30, 1999. 10.07 --Notice of Stock Option Grant to Michael Vanneman dated February 2, 2000. 10.08* --Notice of Stock Option Grant to George R. Garrick dated March 13, 2000. 10.09* --Notice of Stock Option Grant to Philip S. Constantinou dated March 13, 2000. 10.10+ --Stock Subscription and Repurchase Agreement, with attached Promissory Note and Pledge Agreement to Promissory Note, executed by Christopher S. Logan in favor of the Registrant dated September 30, 1999. 10.11+ --Stock Subscription and Repurchase Agreement, with attached Promissory Note and Pledge Agreement to Promissory Note, executed by Kent Jarvi in favor of the Registrant dated October 10, 1999. 10.12+* --Stock Subscription and Repurchase Agreement, with attached Promissory Note and Pledge Agreement to Promissory Note, executed by Michael Zukerman in favor of the Registrant dated September 30, 1999. 10.13+ --Stock Subscription and Repurchase Agreement, with attached Promissory Note and Pledge Agreement to Promissory Note, executed by Larry Barels in favor of the Registrant dated May 21, 1999. 10.14+* --Stock Subscription and Repurchase Agreement, with attached Promissory Note and Pledge Agreement to Promissory Note, executed by Philip Constantinou in favor of the Registrant dated August 17, 1999. 10.15 --Warrant to purchase common stock issued to Comdisco, Inc. dated as of September 1, 1995. 10.16 --Warrant to purchase Series I Preferred Stock issued to Brentwood Associates VII, L.P. dated December 20, 1996. 10.17 --Warrant to purchase Series B Preferred Stock issued to Phoenix Leasing Incorporated dated August 25, 1999. 10.18 --Warrant to purchase Series B Preferred Stock issued to Robert Kingsbrook dated August 25, 1999. 10.19 --Warrant to purchase common stock issued to Preston, Gates and Ellis, a general partnership including a professional service corporation, dated December 13, 1994. 10.20 --Series A-1 Preferred Stock Purchase Agreement dated October 29, 1998. 10.21 --Series B Preferred Stock Purchase Agreement dated May 17, 1999. 10.22 --Series C Preferred Stock Purchase Agreement dated December 30, 1999. 10.23* --Addendum to Series C Preferred Stock Purchase Agreement dated January 8, 2000. 10.24 --Series D Preferred Stock Purchase Agreement dated March 10, 2000.
II-4
Exhibit No Description ---------- ----------- 10.25 --Fifth Amended and Restated Investor's Rights Agreement dated March 10, 2000. 10.26 --Form of Indemnification Agreement between the Registrant and each of its directors and officers. 10.27 --Form of Proprietary Information and Inventions Assignment Agreement. 10.28+ --Employment Agreement between the Registrant and Christopher S. Logan dated May 28, 1999. 10.29+ --Employment Agreement between the Registrant and Kent Jarvi dated August 13, 1999. 10.30+ --Employment Agreement between the Registrant and Michael Zukerman dated June 14, 1999. 10.31+ --Employment Agreement between the Registrant and Michael Vanneman dated January 30, 2000. 10.32+ --Employment Agreement between the Registrant and Larry Jones dated December 20, 2000. 10.33+* --Managed Storage Services Agreement between the Registrant and Storage Technology Corporation dated August 25, 1998. 10.34+* --Managed Storage Services Agreement between the Registrant and Storage Technology Corporation dated September 29, 1998. 10.35+* --Agreement between the Registrant and Level 3 Communications, LLC dated . 10.36+* --Exodus Communications, Inc. Internet Data Center Services Order Form dated February 25, 1997. 10.37+ --Supply Agreement between the Registrant and EMC Corporation dated March 9, 2000. 10.38+ --Lease Agreement between the Registrant and Union Square Limited Partnership dated January 27, 1998. 10.39+ --Lease Agreement between the Registrant and Bryant Street Associates dated November 29, 1999. 10.40+* --Sublease Agreement between the Registrant and the Kenwood Group dated May 26, 1999. 12.01* --Statement regarding computation of ratios. 23.01 --Consent of Ernst and Young LLP Independent Auditors. 23.02 --Consent of Perkins Coie LLP (included in Exhibit 5.01). 24.01 --Power of Attorney (see page II-7 of the Registration Statement). 27.01 --Financial Data Schedule.
- -------- * To be filed by amendment. + Confidential treatment requested. (b) Financial Statement Schedules No financial statement schedules are provided, because the information called for is not required or is shown either in the financial statements or the notes thereto. Item 17. Undertakings The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Certificate of Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection II-5 with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on this 14th day of March, 2000. DRIVEWAY CORPORATION /s/ Christopher S. Logan By: _________________________________ Christopher S. Logan President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Christopher S. Logan and Kent Jarvi, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Christopher S. Logan President, Chief Executive and March 14, 2000 ______________________________________ member of the Board of Directors Christopher S. Logan /s/ Kent Jarvi Chief Financial Officer March 14, 2000 ______________________________________ Kent Jarvi /s/ Larry Barels Director March 14, 2000 ______________________________________ Larry Barels Director ______________________________________ George R. Garrick
II-7
Signature Title Date --------- ----- ---- /s/ Gary E. Gigot Director March 14, 2000 ______________________________________ Gary E. Gigot /s/ John A. Hawkins Director March 14, 2000 ______________________________________ John A. Hawkins /s/ Alan E. Salzman Director March 14, 2000 ______________________________________ Alan E. Salzman /s/ Shahan D. Soghikian Director March 14, 2000 ______________________________________ Shahan D. Soghikian
II-8 EX-1.02 2 FORM OF LOCK-UP AGREEMENT EXHIBIT 1.02 Lock-Up Agreement BancBoston Robertson Stephens Inc. 555 California Street, Suite 2600 San Francisco, California 94104 RE: Driveway Corporation (the "Company") Ladies & Gentlemen: The undersigned is an owner of record or beneficially of certain shares of Common Stock of the Company ("Common Stock") or securities convertible into or exchangeable or exercisable for Common Stock. The Company proposes to carry out a public offering of Common Stock (the "Offering") for which you will act as the representatives (the "Representatives") of the underwriters. The undersigned recognizes that the Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you and the other underwriters are relying on the representations and agreements of the undersigned contained in this letter in carrying out the Offering and in entering into underwriting arrangements with the Company with respect to the Offering. In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to (collectively, a "Disposition") any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock (collectively, "Securities") now owned or hereafter acquired directly by such person or with respect to which such person has or hereafter acquires the power of disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restriction, (ii) as a distribution to partners or shareholders of such person, provided that the distributees thereof agree in writing to be bound by the terms of this restriction, (iii) with respect to dispositions of Common Shares acquired on the open market or connection with the offering or (iv) with the prior written consent of BancBoston Robertson Stephens Inc., for a period commencing on the date hereof and continuing to a date 180 days after the Registration Statement is declared effective by the Securities and Exchange Commission (the "Lock-up Period"). The foregoing restriction has been expressly agreed to preclude the holder of the Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Securities during the Lock-up Period, even if such Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that included, relates to or derives any significant part of its value from Securities. The undersigned also agrees and consents to the entry of stop transfer instructions with the transfer agent and registrar of the Company against the transfer of shares of Common Stock or Securities held by the undersigned except in compliance with the foregoing restrictions. BancBoston Robertson Stephens Inc., acting alone and in its sole discretion, may waive any provisions of this Lock-Up Agreement without notice to any third party. This agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned. In the event that the Registration Statement shall not have been declared effective on or before July 30, 2000, this Lock-Up Agreement shall be of no further force or effect. Dated:________________ By:______________________________________ Signature _________________________________________ Printed Name of Person Signing (indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity) EX-3.01 3 CERTIFICATE OF INCORPORATION EXHIBIT 3.01 FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DRIVEWAY CORPORATION Driveway Corporation, a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the "General Corporation Law"), DOES HEREBY CERTIFY: FIRST: That the name of this corporation is Driveway Corporation, and that this corporation was originally incorporated pursuant to the General Corporation Law on February 17, 1998 under the name Atrieva Corporation. SECOND: That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety as follows: ARTICLE I The name of this corporation is Driveway Corporation ARTICLE II The address of the registered office of this corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, State of Delaware 19801. The name of its registered agent at such address is Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV A. Classes of Stock. This corporation is authorized to issue two ---------------- classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that this corporation is authorized to issue is one hundred eight million (108,000,000) shares. seventy-four million eight hundred thousand (74,800,000) shares shall be Common Stock and thirty-three million two hundred thousand (33,200,000) shares shall be Preferred Stock, each with a par value of $0.001 per share. B. Rights, Preferences and Restrictions of Preferred Stock. The ------------------------------------------------------- Preferred Stock authorized by this Restated Certificate of Incorporation may be issued from time to time in one or more series. The rights, preferences, privileges, and restrictions granted to and imposed on (i) the Series A Preferred Stock, which series shall consist of ten million one hundred thousand (10,100,000) shares (the "Series A Preferred Stock"); (ii) the Series B Preferred Stock, which series shall consist of eight million one hundred thousand (8,100,000) shares (the "Series B Preferred Stock"); (iii) the Series C Preferred Stock, which series shall consist of eleven million (11,000,000) shares (the "Series C Preferred Stock"); and (iv) the Series D Preferred Stock, which series shall consist of four million (4,000,000) shares (the "Series D Preferred Stock") (collectively the "Preferred Stock"), are as set forth below in this Article IV(B). 1. Dividend Provisions. ------------------- (a) The holders of shares of Series C and Series D Preferred Stock shall be entitled to receive dividends out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Series A Preferred Stock, the Series B Preferred Stock and the Common Stock of this corporation, at the rate of (i) $0.48 per share per annum for the Series D Preferred Stock; and (ii) $0.321 per share per annum for the Series C Preferred Stock (in each case, as adjusted for any stock splits, stock dividends, recapitalizations or the like), payable when, as, and if declared by the Board of Directors. Such dividends shall not be cumulative. If upon the payment of such dividend, the assets and funds thus distributed among the holders of the Series D Preferred Stock and Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of Preferred Stock that may from time to time come into existence, the assets legally available therefor shall be distributed ratably among the holders of the Series D Preferred Stock and Series C Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) The holders of shares of Series A Preferred Stock and Series B Preferred Stock shall be entitled to receive dividends out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock of this corporation, at the rate of (i) $0.016 per share per annum for the Series A Preferred Stock; and (ii) $0.08 per share per annum for the Series B Preferred Stock (in each case, as adjusted for any stock splits, stock dividends, recapitalizations or the like), payable when, as, and if declared by the Board of Directors. Such dividends shall not be cumulative. If upon the payment of such dividend, the assets and funds thus distributed among the holders of the Series A Preferred Stock and Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of Preferred Stock that may from time to time come into existence, the assets legally available therefor shall be 2 distributed ratably among the holders of the Series A Preferred Stock and Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (c) This corporation shall not repurchase shares of or pay dividends on shares of its Series A Preferred Stock, Series B Preferred Stock or Common Stock during any calendar year unless dividends for the total amount of the annual dividend rate for the Series D Preferred Stock and Series C Preferred Stock shall have first been paid or declared and set apart for payment in full to the holders of the Series D Preferred Stock and Series C Preferred Stock during that calendar year; provided, however, that this restriction shall not apply to the repurchase by this corporation of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for this corporation that are subject to restricted stock purchase agreements or stock option exercise agreements under which this corporation has the option to repurchase such shares at any price: (i) upon the occurrence of certain events, such as the termination of employment or services; or (ii) pursuant to the Company's exercise of a right of first refusal to repurchase such shares. (d) The holders of the outstanding Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1 upon the affirmative vote or written consent of the holders of at least a majority of (i) the Series D Preferred Stock and Series C Preferred Stock then outstanding, voting together as a single class; and (ii) the Series A Preferred Stock and the Series B Preferred Stock then outstanding, voting together as a single class. (e) The holders of Preferred Stock shall also be entitled to participate in, out of any assets legally available therefor, payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock of this corporation as if such shares of Preferred Stock have converted into Common Stock immediately prior to the payment thereof, payable when, as and if declared by the Board of Directors. The participation of the holders of Preferred Stock in the payment of such dividend shall be prior and in preference to payment of such dividend to holders of Common Stock. Such dividends shall not be cumulative, and no right shall accrue to the holders of the Preferred Stock by reason of the fact that dividends on such shares are not declared or paid in any year. 2. Liquidation Preference. In the event of any liquidation, ---------------------- dissolution or winding up of this corporation, either voluntary or involuntary, the assets of this corporation that may be legally distributed to this corporation's stockholders (the "Assets") shall be distributed to stockholders in the following manner: (a) the holders of Series D Preferred Stock and Series C Preferred Stock shall be entitled to receive prior and in preference to any distribution of any of the Assets to the holders of Series A Preferred Stock, Series B Preferred Stock and Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $6.00 for each outstanding share of Series D Preferred Stock (the "Original Series D Issue Price") and (ii) $4.01 for each outstanding share of Series C Preferred Stock (the "Original Series C Issue Price") plus, in each 3 case, an amount equal to declared but unpaid dividends on such share (subject to adjustment of such dollar amounts for any stock splits, stock dividend, combination, recapitalization or the like) (such aggregate amount being referred to herein as the "Series D Premium" or "Series C Premium," as applicable). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series D Preferred Stock and Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full Series D Premium and Series C Premium, as applicable, then the entire assets and funds of this corporation legally available for distribution shall be distributed ratably among the holders of the Series D Preferred Stock and Series C Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) If there are any Assets remaining after the payment or distribution (or the setting aside for payment or distribution) of the Series D Premium and Series C Premium to the holders of the Series D Preferred Stock and Series C Preferred Stock, respectively, then the holders of Series A Preferred Stock and Series B Preferred Stock then outstanding shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.20 for each outstanding share of Series A Preferred Stock (the "Original Series A Issue Price") and (ii) $1.00 for each outstanding share of Series B Preferred Stock (the "Original Series B Issue Price"), plus, in each case, an amount equal to declared but unpaid dividends on such share (subject to adjustment of such dollar amounts for any stock splits, stock dividend, combination, recapitalization or the like). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock and Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire remaining assets and funds of this corporation legally available for distribution after the payment in full of the Series D Premium and Series C Premium shall be distributed ratably among the holders of the Series A Preferred Stock and Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (c) Upon the completion of the distributions required by subsections (a) and (b) of this Section 2 and any other distribution that may be required with respect to any series of Preferred Stock that may from time to time come into existence, the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held thereby. (d) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of this corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the Preferred Stock then outstanding, voting together as a single class, and a majority of the Series D Preferred Stock and Series C Preferred Stock then outstanding, voting together as a single class, shall determine otherwise), (A) the acquisition of fifty percent (50%) or more of the outstanding voting power of this corporation by another entity or group by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation), (B) any merger or consolidation involving this corporation, unless after giving effect thereto the stockholders of this corporation 4 immediately prior thereto continue to own (in substantially the same percentages) more than fifty percent (50%) of the outstanding voting power of this corporation', but excluding any merger effected exclusively for the purpose of changing the domicile of this corporation; or (C) a sale of all or substantially all of the assets of this corporation. (ii) In any of such events, if the consideration received by this corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock, voting together as a single class. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by this corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock, voting together as a single class. (iii) In the event the requirements of this subsection 2(d) are not complied with, this corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 2 have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(d)(iv) hereof. 5 (iv) This corporation shall give each holder of record of Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and this corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this corporation has given the first notice provided for herein or sooner than ten (10) days after this corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened or waived upon the written consent of the holders of (a) the Series A Preferred Stock and Series B Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such shares of Series A Preferred Stock and Series B Preferred Stock, voting together as single class; and (b) the Series C Preferred Stock and Series D Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such shares of Series C and Series D Preferred Stock, voting together as a single class. 3. Conversion. The holders of the Preferred Stock shall have ---------- conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be ---------------- convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of this corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Series A Issue Price, the Original Series B Issue Price, the Original Series C Issue Price and the Original Series D Issue Price, respectively, by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Series A Issue Price, the initial Conversion Price per share for the shares of Series B Preferred Stock shall be the Original Series B Issue Price, the initial Conversion Price per share for shares of Series C Preferred Stock shall be the Original Series C Issue Price and the initial Conversion Price per share for shares of Series D Preferred Stock shall be the Original Series D Issue Price; provided, however, that the Conversion Price for the Preferred Stock shall be subject to adjustment as set forth in subsection 3(d). (b) Automatic Conversion. Each share of Preferred Stock shall -------------------- automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share of Preferred Stock immediately upon the earlier of (i) this corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 or SB-1 under the Securities Act of 1933, as amended, in which the aggregate proceeds to this corporation (after deducting underwriters' discounts and expenses relating to the offering, including fees of this corporation's counsel for the offering) are at least $30,000,000 at a price per share of at least $8.02 (as adjusted for stock dividends, stock splits, combinations and the like) (a "Qualified Public Offering") or (ii) the date specified by written consent or agreement of the holders of (A) a majority of the then outstanding shares of Series A 6 Preferred Stock and Series B Preferred Stock, voting together as a single class; and (B) a majority of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock, voting together as a single class, to the conversion of all then outstanding Preferred Stock. (c) Mechanics of Conversion. Before any holder of Preferred ----------------------- Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Preferred Stock, and shall give written notice to this corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933 or any event that would be deemed a liquidation of this corporation, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering or such liquidation event, as the case may be, in which event the persons entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities or of such liquidation event, as the case may be. (d) Conversion Price Adjustments of Preferred Stock for --------------------------------------------------- Certain Dilutive Issuances, Splits, Combinations and Other Events. The - ----------------------------------------------------------------- Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as follows: (i) Issuance of Additional Stock below Purchase Price. ------------------------------------------------- If this corporation shall issue, after the date upon which any shares of Preferred Stock were first issued (the "Purchase Date", with respect to such series), any Additional Stock (as defined below) without consideration or for a consideration per share less (or having an exchange or conversion price) than the Conversion Price for such series in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance shall automatically be adjusted as set forth in this Section 3(d)(i), unless otherwise provided in this Section 3(d)(i). (A) Adjustment Formula. Whenever the Conversion ------------------ Price is required to be adjusted pursuant to this Section 3(d)(i), the new Conversion Price shall be determined by multiplying the Conversion Price then in effect by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance or sale calculated on a fully diluted basis (the "Outstanding Common") plus the number ------------------ of shares of Common Stock that the aggregate consideration received by this corporation for the issuance of the Additional Stock would purchase at the Conversion Price then in effect; and (y) 7 the denominator of which shall be the number of shares of Outstanding Common plus the number of shares of such Additional Stock. For purposes of the foregoing calculation, the term "Outstanding Common" shall include shares of Common Stock deemed issued pursuant to Section 3(d)(i)(E) below. (B) Definition of "Additional Stock". For -------------------------------- purposes of this Section 3(d)(i), "Additional Stock" shall mean any shares of ---------------- ---- Common Stock issued (or deemed to have been issued pursuant to Section 3(d)(i)(E)) by this corporation after the Purchase Date) other than (1) Common Stock issued pursuant to a transaction described in Section 3(d)(ii) and (iii) hereof, for which adjustment to the Conversion Price is made pursuant to the terms thereof, (2) Common Stock issuable pursuant to warrants, convertible notes or other rights to acquire securities of this corporation outstanding as of the Purchase Date, (3) Common Stock issuable or issued to employees, consultants, officers or directors of this corporation under the Corporation's stock plan and approved by a majority of the Board of Directors of the Corporation, (4) Common Stock issued or issuable upon conversion of the Preferred Stock, (5) up to 100 shares of Common Stock issued to certain of the existing holders of fractional shares of Common Stock as of the Purchase Date, as approved by a majority of the Board of Directors of this corporation; or (6) Common Stock issued pursuant to a strategic alliance (the "Alliance"), provided that if more than 20% of the fully diluted shares of this corporation's capital stock outstanding immediately prior to such Alliance are to be issued in conjunction with such Alliance, such issuance shall require the approval of a majority of the holders of the Series C Preferred Stock then outstanding (C) No Fractional Adjustments. No adjustment of ------------------------- the Conversion Price for the Preferred Stock pursuant to this Section 3(d) shall be made in an amount less than one cent ($0.01) per share; provided, that any -------- adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. (D) Determination of Consideration. In the case ------------------------------ of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid to this corporation before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this corporation for any underwriting or otherwise in 8 connection with the issuance and sale thereof. In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors irrespective of any accounting treatment. (E) Deemed Issuances of Common Stock. In the -------------------------------- case of the issuance (whether before, on or after the applicable Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this Section 3(d)(i): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Section 3(d)(i)(D)), if any, received by this corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by this corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by this corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Section 3(d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall (except to the extent an adjustment on account of the event causing a change resulting from such antidilution provisions is provided for elsewhere in this Section 3) be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. 9 (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 3(d)(i)(E)(1) and 3(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 3(d)(i)(E)(3) or 3(d)(i)(E)(4). (F) No Increased Conversion Price. ----------------------------- Notwithstanding any other provisions of this Section 3(d)(i), except to the limited extent provided for in Sections 3(d)(i)(E)(3) and 3(d)(i)(E)(4), no adjustment of the Conversion Price pursuant to this Section 3(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (ii) Stock Splits and Dividends. In the event this -------------------------- corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of ------------------------ any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 3(d)(i)(E). (iii) Reverse Stock Splits. If the number of shares of -------------------- Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (iv) Special Conversion Price Adjustment. ----------------------------------- Notwithstanding the other 10 conversion price adjustments as may become effective pursuant to the provisions of this Article IV, Section (d), if this corporation has not completed a Qualified Public Offering prior to July 31, 2000, then the Conversion Price of the Series C Preferred Stock then in effect shall be adjusted as of the close of business on July 31, 2000 to an amount equal to nine-elevenths (9/11) of such Conversion Price in effect immediately prior to such adjustment. (e) Other Distributions. In the event this corporation shall ------------------- declare a distribution payable in securities of other persons, evidences of indebtedness issued by this corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 3(d)(ii), then, in each such case for the purpose of this Section 3(e), the holders of Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of this corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of this corporation entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time ----------------- there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or Section 2) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of such Preferred Stock the number of shares of stock or other securities or property of this corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of such Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (g) No Impairment. The corporation will not, by amendment of ------------- its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. (h) No Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued upon conversion shall be rounded up to the nearest whole share. The number of shares of Common Stock issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the applicable Conversion Price. (ii) Upon the occurrence of each adjustment or readjustment of 11 the Conversion Price of Preferred Stock pursuant to this Section 3, this corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Preferred Stock. (i) Notices of Record Date. In the event of any taking by this ---------------------- corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this corporation shall mail to each holder of Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. In the event of a liquidating distribution pursuant to Section 2 of Article IV hereof, this corporation shall mail to each Purchaser of Preferred Stock at least twenty (20) days prior to date of such distribution, a notice (i) certifying (x) the anticipated aggregate proceeds available for distribution to holders of Preferred Stock and Common Stock, (y) the amount expected to be distributed pursuant to Section 2 hereof in respect of each share of Preferred Stock and Common Stock and (z) the amount expected to be distributed pursuant to Section 2 hereof in respect of shares of Preferred Stock if the holder of such shares converted such shares into Common Stock immediately prior to such liquidating distribution and (ii) stating that in connection with such liquidating distribution the holders of shares of Preferred Stock may prior to such liquidating distribution convert their shares of Preferred Stock into Common Stock at the applicable Conversion Rate. (j) Reservation of Stock Issuable Upon Conversion. The --------------------------------------------- corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of such series of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of such series of Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation. 12 (k) Notices. Any notice required by the provisions of this ------- Section 3 to be given to the holders of shares of Preferred Stock shall be deemed given upon personal delivery, upon delivery by nationally recognized courier, upon delivery via telegram, email or fax, or five (5) days after deposit in the U. S. mail, postage prepaid, and addressed to each holder of record at such holder's address appearing on this corporation's books. (l) Status of Converted Stock. In the event any shares of ------------------------- Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so converted shall be cancelled and shall not be reissuable by this corporation. The Restated Certificate of Incorporation of this corporation shall be appropriately amended to effect the corresponding reduction in this corporation's authorized capital stock. 4. Redemption. ---------- (a) Redemption of Series C Preferred Stock. Subject to the -------------------------------------- terms and conditions of this Section 4(a), to the extent that any outstanding shares of Series C Preferred Stock have not been redeemed or converted into Common Stock prior to December 31, 2004 (the "Trigger Date"), holders of a ------------ majority of the outstanding shares of Series C Preferred Stock may make a written request to the Company for the redemption of all the Series C Preferred Stock under this Section 4(a) signed by the holders of at least a majority of the then outstanding shares of Series C Preferred Stock, voting together as a single class (a "Redemption Request"), redeem from any source of funds legally ------------------ available therefor at the redemption price therefor described in this Section 4(a), on the date (the "Redemption Date") that is one (1) month following its --------------- receipt of such written Redemption Request, all of the shares of Series C Preferred Stock that are outstanding on the date this corporation receives such written redemption request. The redemption price for each share of Series C Preferred Stock shall be in an amount such that after giving effect to the purchase and redemption of Series C Preferred Stock held thereby, each holder of Series C Preferred Stock shall receive a compound annual return of ten percent (10%) over the Original Series C Issue Price, plus all declared and unpaid dividends on the Original Series C Issue Price (as adjusted for any stock splits, stock dividends, reorganizations or the like) (collectively, the "Redemption Price"). If upon any redemption date scheduled under this subsection for the redemption of Series C Preferred Stock, the funds and assets of this corporation legally available to redeem such stock shall be insufficient to redeem all shares of Series C Preferred Stock, then any such unredeemed shares shall be carried forward and shall be redeemed (together with any other shares of Preferred Stock then scheduled to be redeemed) at the earliest date upon which this corporation lawfully has funds available to continue redemption of such unredeemed shares, to the full extent of legally available funds of this corporation at such time, and any such unredeemed shares shall continue to be so carried forward until redeemed. Shares of Series C Preferred Stock which are subject to redemption hereunder but which have not been redeemed due to insufficient legally available funds and assets of this corporation shall continue to be outstanding and entitled to all dividend, liquidation, conversion and other rights, preferences, privileges and restrictions of the Series C Preferred Stock until such shares have been converted or redeemed. 13 (b) Redemption Notice. Promptly (but in no event less than ----------------- ten (10) days after receipt of a Redemption Request, written notice shall be mailed by this corporation, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of Series C Preferred Stock to be redeemed, at the address last shown on the records of this corporation for such holder or given by the holder in writing to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of this corporation is located, notifying such holder of the redemption, the redemption price, the number of such holder's shares of Series C Preferred Stock to be redeemed, the place at which payment may be obtained and calling upon such holder to surrender to the corporation, in the manner and at the place designated, the certificate or certificates representing the shares to be redeemed (such notice is referred to herein as the "Redemption Notice"). (c) Surrender of Certificates. On or before the Redemption ------------------------- Date, each holder of Series C Preferred Stock to be redeemed on the Redemption Date shall (unless such holder has previously exercised such holder's right to convert such shares of Preferred Stock into Common Stock as provided in Article IV, Section (B)(3) hereof), surrender the certificate(s) representing such shares of Preferred Stock to be redeemed to this corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the redemption price for such shares shall be payable to the order of the person whose name appears on such certificate(s) as the owner thereof, and each surrendered certificate shall be canceled and retired. If less than all of the shares represented by such certificate are redeemed, then this corporation shall promptly issue a new certificate representing the unredeemed shares. (d) Effect of Redemption. If the Redemption Request and -------------------- Redemption Notice have been duly given, and if on the Redemption Date the Redemption Price is either paid or made available for payment through the deposit arrangements specified in Section 4(e) hereof, then notwithstanding that the certificates evidencing any of the shares of Series C Preferred Stock so called for redemption shall not have been surrendered, the shares of Series C Preferred Stock shall no longer be outstanding after the Redemption Date, all dividends with respect to such shares shall cease to accrue after the Redemption Date, such shares shall not thereafter be transferred on this corporation's books and all of the rights of such holders of such shares with respect to such shares shall terminate after the Redemption Date, except only the right of the holders to receive the Redemption Price therefor without interest upon surrender of their certificate(s) therefor. (e) Deposit of Redemption Price. If a Redemption Request has --------------------------- been duly given as provided in Section 4(a) above, then on or prior to the Redemption Date, this corporation may, at its option, deposit with a bank or trust company having a capital and surplus of at least $100,000,000.00, as a trust fund, a sum equal to the aggregate Redemption Price for all shares of Series C Preferred Stock called for redemption on the Redemption Date and not yet redeemed, with irrevocable instructions and authority to the bank or trust company to pay, on or after the Redemption Date, the Redemption Price to the respective holders upon the surrender of their share certificates. From and after the date of such deposit, the shares so called for redemption shall be redeemed. The deposit shall constitute full payment of the shares to their holders, and from and after the date of the deposit, the shares shall be deemed to be no longer 14 outstanding, all dividends with respect to such shares shall cease to accrue and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares, without interest, upon surrender of their certificates therefor, and the right to convert such shares as provided in Section 3 hereof. Any funds so deposited and unclaimed at the end of one (1) year from the Redemption Date shall be released or repaid to this corporation, after which time the holders of shares called for redemption who have not claimed such funds shall be entitled to receive payment of the Redemption Price only from this corporation. (f) The Series A Preferred Stock, Series B Preferred Stock and the Series D Preferred Stock are not redeemable. 5. Voting Rights. ------------- (a) General Voting Rights. The holder of each share of --------------------- Preferred Stock shall have the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as- converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) Voting for the Election of Directors. As long as at least a ------------------------------------ majority of the shares of Series A Preferred Stock originally issued remain outstanding, the holders of such shares of Series A Preferred Stock shall be entitled to appoint one (1) director of this corporation at each election of directors. As long as at least a majority of the shares of Series B Preferred Stock originally issued remain outstanding, the holders of such shares of Series B Preferred Stock shall be entitled to appoint one (1) director of this corporation at each election of directors. As long as at least a majority of the shares of Series C Preferred Stock originally issued remain outstanding, the holders of such shares of Series C Preferred Stock shall be entitled to appoint two (2) directors of this corporation at each election of directors. The holders of the outstanding Common Stock shall be entitled to elect two (2) directors of this corporation at each election of directors. Other directors shall be elected upon the approval of the holders of a majority of the Preferred Stock and the Common Stock, voting together as a single class. The holders of Preferred Stock and certain holders of the Common Stock are subject to a Voting Agreement on file with this corporation. In the case of any vacancy (other than a vacancy caused by removal) in the office of a director occurring among the directors elected by the holders of a class or series of stock pursuant to this Section 5(b), the remaining directors so elected by that class or series may by affirmative vote of a majority thereof (or the remaining director so elected if there be but one, or if there are no such directors remaining, by the affirmative vote of the holders of a majority of the 15 shares of that class or series), elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant. Any director who shall have been elected by the holders of a class or series of stock or by any directors so elected as provided in the immediately preceding sentence hereof may be removed during the aforesaid term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to unanimous written consent. 6. Protective Provisions. --------------------- (a) So long as any shares of Series C Preferred Stock or Series D Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock, voting together as a single class (except in the case of each of paragraphs (ii), (iv) and (vii) below, or otherwise generally, if the matter to be voted on does not have the same effect on the Series C Preferred Stock and Series D Preferred Stock, in which case this corporation must first obtain the approval of the holders of a majority of the then outstanding shares of each of the Series C Preferred Stock and Series D Preferred Stock, voting separately): (i) (A) sell, convey, or otherwise dispose of all or substantially all of its property or business, or (B) merge or consolidate with any other corporation (other than a wholly-owned subsidiary corporation), unless after giving effect thereto the stockholders of this corporation immediately prior thereto continue to own (in substantially the same percentages) more than fifty percent (50%) of the outstanding voting power of this corporation, or (C) participate in or be the subject of any transaction or series of transactions as a result of which any entity or group acquires fifty percent (50%) or more of the outstanding voting power of this corporation; (ii) alter or change the rights, preferences or privileges of the shares of any series of Preferred Stock or Common Stock so as to affect adversely the shares of any series of Preferred Stock; (iii) increase or decrease the size of this corporation's Board of Directors; (iv) authorize or issue, or obligate itself to issue, any other equity security, or reclassify any security into including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series C Preferred Stock or Series D Preferred Stock with respect to dividends, liquidation, redemption or voting or otherwise; (v) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) or pay a dividend on any share or shares of Common 16 Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for this corporation or any subsidiary pursuant to agreements under which this corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; (vi) effect any transaction that would result in the liquidation or winding up of this corporation; (vii) amend this corporation's Certificate of Incorporation or bylaws so as to adversely alter the rights, preferences or privileges of the outstanding shares of Series C Preferred Stock or Series D Preferred Stock; (viii) enter into any line of business other than Internet, data storage or data management businesses; or (ix) incur, guarantee, or pledge or hypothecate any of its assets to secure any indebtedness, other than (A) indebtedness (not exceeding $10,000,000 in the aggregate) incurred by this corporation pursuant to capital equipment leases; or (B) trade indebtedness of the Company incurred in the ordinary course of business and not more than sixty (60) days past due. (b) Subject to the rights of any series of Preferred Stock that may from time to time come into existence, so long as any shares of Series A Preferred Stock or Series B Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class: (i) alter or change the rights, preferences or privileges of the shares of Preferred Stock or Common Stock so as to affect adversely the shares of Series A or Series B Preferred Stock; (ii) increase or decrease the size of this corporation's Board of Directors; (iii) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Preferred Stock with respect to dividends, liquidation, redemption or voting; (iv) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) or pay a dividend on any share or shares of Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for this corporation or any subsidiary pursuant to agreements under which this corporation has the option to repurchase such shares at cost or at cost upon the occurrence of 17 certain events, such as the termination of employment; (v) effect any transaction that would result in the liquidation or winding up of this corporation; (vi) amend this corporation's Certificate of Incorporation or bylaws so as to expressly adversely alter the rights, preferences or privileges of the outstanding shares of Series A Preferred Stock or Series B Preferred Stock; (vii) enter into any line of business other than Internet, data storage or data management businesses; or (viii) incur, guarantee, or pledge or hypothecate any of its assets to secure any indebtedness, other than (A) indebtedness (not exceeding $10,000,000 in the aggregate) incurred by this corporation pursuant to capital equipment leases; or (B) trade indebtedness of the Company incurred in the ordinary course of business and not more than sixty (60) days past due. 7. Status of Converted Stock. In the event any shares of ------------------------- Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so converted shall be cancelled and shall not be issuable by this corporation. The Restated Certificate of Incorporation of this corporation shall be appropriately amended to effect the corresponding reduction in this corporation's authorized capital stock. C. Common Stock. The rights, preferences, privileges and restrictions ------------ granted to and imposed on the Common Stock are as set forth below in this Article IV(C). 1. Dividend Rights. Subject to the prior rights of holders of all --------------- classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of this corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or ------------------ winding up of this corporation, the assets of this corporation shall be distributed as provided in Section 2 of Division (B) of Article IV hereof. 3. Redemption. The Common Stock is not redeemable. ---------- 4. Voting Rights. The holder of each share of Common Stock shall ------------- have the right to one vote for each such share, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of this corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. ARTICLE V Except as otherwise provided in this Certificate of Incorporation, in furtherance 18 and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of this corporation. ARTICLE VI The number of directors of this corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of this corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of this corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this corporation. ARTICLE IX A director of this corporation shall, to the fullest extent permitted by the General Corporation Law as it now exists or as it may hereafter be amended, not be personally liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law is amended, after approval by the stockholders of this Article, to authorize corporation action further eliminating or limiting the personal liability of directors, then the liability of a director of this corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended. Any amendment, repeal or modification of this Article IX, or the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article IX, by the stockholders of this corporation shall not apply to or adversely affect any right or protection of a director of this corporation existing at the time of such amendment, repeal, modification or adoption. ARTICLE X Except as otherwise provided in this Certificate of Incorporation, this corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 19 ARTICLE XI To the fullest extent permitted by applicable law, this corporation is authorized to provide indemnification of (and advancement of expenses to) agents of this corporation (and any other persons to which General Corporation 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 General Corporation Law, subject only to limits created by applicable General Corporation Law (statutory or non-statutory), with respect to actions for breach of duty to this corporation, its stockholders, and others. Any amendment, repeal or modification of the foregoing provisions of this Article XI shall not adversely affect any right or protection of a director, officer, agent, or other person existing at the time of, or increase the liability of any director of this corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification. * * * THIRD: The foregoing amendment and restatement was approved by the holders of the requisite number of shares of said corporation in accordance with Section 228 of the General Corporation Law. FOURTH: That said amendment and restatement was duly adopted in accordance with the provisions of Section 242 and 245 of the General Corporation Law. 20 IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been executed by the President and the Secretary of this corporation on this 10th day of March, 2000. /s/ Christopher Logan ----------------------------------------- Christopher Logan, President /s/ Kent Jarvi ----------------------------------------- Kent Jarvi, Secretary EX-3.02 4 FORM OF AMENDED AND RESTATED CERT OF INCORPORATION EXHIBIT 3.02 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DRIVEWAY CORPORATION The undersigned, Christopher Logan and Kent Jarvi, certify that: 1. They are the duly elected President and Secretary, respectively, of Driveway Corporation, a Delaware corporation. 2. The Corporation incorporated in Delaware on February 17, 1998 under the name Atrieva Corporation. On November 2, 1999, the corporation changed its name to Driveway Corporation. 3. Pursuant to Sections 228, 242 and 245 of the Delaware General Corporation Law, this Amended and Restated Certificate of Incorporation restates and amends the provisions of the Original Certificate. 4. The Certificate of Incorporation of this corporation is hereby amended and restated to read in full as follows: ARTICLE I The name of this corporation is "Driveway Corporation." ARTICLE II The address of the corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, 19901. The name of its registered agent at such address is The Corporation Trust Center. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law. ARTICLE III A. CLASSES OF STOCK The Corporation is authorized to issue two classes of stock, to be designated as "Preferred Stock," $0.001 par value, and "Common Stock," $0.001 par value, respectively. The total number of shares that the corporation is authorized to issue is 160,000,000. The number of shares of Preferred Stock authorized is 10,000,000 shares, and the number of shares of Common Stock authorized is 150,000,000 shares. B. RIGHTS AND RESTRICTIONS OF COMMON STOCK (a) The Common Stock is not redeemable. (b) The holder of each share of Common Stock shall have the right to one vote and shall be entitled to notice of any stockholders' meeting in accordance with the Amended and Restated Bylaws of the corporation, and shall be entitled to vote upon such matters and in such manner as provided by law. C. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. D. AUTHORITY OF BOARD OF DIRECTORS WITH RESPECT TO STOCK MATTERS The authority of the Board of Directors with respect to each class or series of stock shall include, without limitation of the foregoing, the right to determine and fix: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of any such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation; -2- (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible or not, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the corporation, acting in accordance with this Amended and Restated Certificate of Incorporation, may deem advisable and that are not inconsistent with law and the provisions of this Amended and Restated Certificate of Incorporation. ARTICLE IV In addition to any other class vote that may be required by law so long as any shares of Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Preferred Stock voting together as a single class: (a) adversely alter or change the powers, preferences or special rights of the Preferred Stock; or (b) increase or decrease (other than by redemption or conversion) the aggregate number of authorized shares of Preferred Stock; or (c) create, authorize or issue any new class or series of shares having any powers, preferences or special rights superior to or on a parity with the Preferred Stock as to dividends, liquidation, conversion rights or voting rights; or (d) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to (i) the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for this corporation or any subsidiary pursuant to agreements under which this corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment or (ii) the redemption of any share or shares of Preferred Stock; or -3- (e) sell, convey or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this corporation is disposed of; or (f) change the authorized number of directors of this corporation. ARTICLE V The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this right. ARTICLE VI The corporation is to have perpetual existence. ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, except as provided in Article XI of the Amended and Restated Certificate of Incorporation, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. ARTICLE VIII 1. Limitation on Directors' Liability. To the fullest extent permitted by ---------------------------------- the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. 2. Indemnification. The corporation may indemnify to the fullest extent --------------- permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a director, officer or employee of the corporation, or any predecessor of the corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. 3. Amendments. Neither any amendment nor repeal of this Article VIII, nor ---------- the adoption of any provision of the corporation's Amended and Restated Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent position. -4- ARTICLE IX In the event any shares of Preferred Stock shall be redeemed or converted, the shares so converted or redeemed shall not revert to the status of authorized but unissued shares, but instead shall be canceled and shall not be re-issuable by the corporation. ARTICLE X Holders of stock of any class or series of the corporation shall not be entitled to cumulate their votes for the election of directors or any other matter submitted to a vote of the stockholders, unless such cumulative voting is required pursuant to the Delaware General Corporation Law, in which event each such holder shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) such holder would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and the holder may cast all of such votes for a single director or may distribute them among the number of directors to be voted for, or for any two or more of them as such holder may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes. 1. Number of Directors. The number of directors which constitutes the whole Board of Directors of the corporation shall be designated in the Amended and Restated Bylaws of the corporation. Each director shall serve until the next annual meeting of the stockholders or until his successor is duly elected. 2. Election of Directors. Elections of directors need not be by written ballot unless the Amended and Restated Bylaws of the corporation shall so provide. ARTICLE XI No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Amended and Restated Bylaws and no action shall be taken by the stockholders by written consent. The affirmative vote of a majority of the then outstanding voting securities of the corporation shall be required for the amendment, repeal or modification of the provisions of Article X, Article XI or Article XIII of this Amended and Restated Certificate of Incorporation or Sections 6 (Special Meeting), 5(b) (Notice of Stockholders' Meeting), 15 (Advance Notice of Stockholder Nominees and Stockholder Business), 10 (Voting), 13 (Stockholder Action by Written Consent Without a Meeting) or 15 (Number of Directors) of the corporation's Amended and Restated Bylaws. -5- ARTICLE XII Any meeting of stockholders may be held within or without the State of Delaware, as the Amended and Restated Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Amended and Restated Bylaws of the corporation. SIGNATURE PAGE FOLLOWS -6- We further declare under penalty of perjury under the laws of the State of Delaware that the matters set forth in this certificate are true and correct of our own knowledge. Executed at San Francisco, California this ______ day of __________, 2000. _________________________________________________ Christopher Logan President & Chief Executive Officer _________________________________________________ Kent Jarvi Secretary -7- EX-3.03 5 BYLAWS EXHIBIT 3.03 BYLAWS OF DRIVEWAY CORPORATION Originally adopted on February 18, 1998. Amendments are listed on p. i DRIVEWAY CORPORATION AMENDMENTS Date of Section Effect of Amendment Amendment - ----------- -------------------------------------------- ------------- 3.2 Change in authorized number of directors 1/21/00 to seven (7). -i- CONTENTS SECTION 1. OFFICES ..................................................... 1 SECTION 2. STOCKHOLDERS ................................................ 1 2.1 Annual Meeting .............................................. 1 2.2 Special Meetings ............................................ 1 2.3 Place of Meeting ............................................ 1 2.4 Notice of Meeting ........................................... 2 2.5 Waiver of Notice ............................................ 2 2.5.1 Waiver in Writing ................................... 2 2.5.2 Waiver by Attendance ................................ 2 2.6 Fixing of Record Date for Determining Stockholders .......... 3 2.6.1 Meetings............................................. 3 2.6.2 Consent to Corporate Action Without a Meeting ....... 3 2.6.3 Dividends, Distributions and Other Rights ........... 4 2.7 Voting List ................................................. 4 2.8 Quorum....................................................... 4 2.9 Manner of Acting ............................................ 5 2.10 Proxies...................................................... 5 2.10.1 Appointment ......................................... 5 2.10.2 Delivery to Corporation; Duration ................... 5 2.11 Voting of Shares ............................................ 6 2.12 Voting for Directors ........................................ 6 2.13 Action by Stockholders Without a Meeting .................... 6 SECTION 3. BOARD OF DIRECTORS .......................................... 7 3.1 General Powers .............................................. 7 3.2 Number and Tenure ........................................... 7 3.3 Annual and Regular Meetings ................................. 7 3.4 Special Meetings ............................................ 7 3.5 Meetings by Telephone ....................................... 7 3.6 Notice of Special Meetings .................................. 8 3.6.1 Personal Delivery ................................... 8 3.6.2 Delivery by Mail .................................... 8 3.6.3 Delivery by Private Carrier ......................... 8 3.6.4 Facsimile Notice .................................... 8 3.6.5 Delivery by Telegraph ............................... 8 3.6.6 Oral Notice ......................................... 9 3.7 Waiver of Notice ............................................ 9 3.7.1 In Writing .......................................... 9
-ii- 3.7.2 By Attendance ....................................... 9 3.8 Quorum....................................................... 9 3.9 Manner of Acting ............................................ 9 3.10 Presumption of Assent ....................................... 10 3.11 Action by Board or Committees Without a Meeting ............. 10 3.12 Resignation ................................................. 10 3.13 Removal...................................................... 10 3.14 Vacancies ................................................... 10 3.15 Committees .................................................. 11 3.15.1 Creation and Authority of Committees ................ 11 3.15.2 Minutes of Meetings ................................. 11 3.15.3 Quorum and Manner of Acting ......................... 11 3.15.4 Resignation ......................................... 12 3.15.5 Removal.............................................. 12 3.16 Compensation ................................................ 12 SECTION 4. OFFICERS .................................................... 12 4.1 Number....................................................... 12 4.2 Election and Term of Office ................................. 13 4.3 Resignation ................................................. 13 4.4 Removal...................................................... 13 4.5 Vacancies ................................................... 13 4.6 Chairman of the Board ....................................... 13 4.7 President ................................................... 13 4.8 Vice President .............................................. 14 4.9 Secretary ................................................... 14 4.10 Treasurer ................................................... 14 4.11 Salaries .................................................... 15 SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS ....................... 15 5.1 Contracts ................................................... 15 5.2 Loans to the Corporation .................................... 15 5.3 Checks, Drafts, Etc ......................................... 15 5.4 Deposits .................................................... 15 SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER .................. 15 6.1 Issuance of Shares .......................................... 15 6.2 Certificates for Shares ..................................... 16 6.3 Stock Records ............................................... 16 6.4 Restriction on Transfer ..................................... 16 6.5 Transfer of Shares .......................................... 17
-iii- 6.6 Lost or Destroyed Certificates .............................. 17 6.7 Shares of Another Corporation ............................... 17 SECTION 7. BOOKS AND RECORDS ........................................... 17 SECTION 8. ACCOUNTING YEAR ............................................. 18 SECTION 9. SEAL ........................................................ 18 SECTION 10. INDEMNIFICATION ............................................. 18 10.1 Right to Indemnification .................................... 18 10.2 Right of Indemnitee to Bring Suit ........................... 19 10.3 Nonexclusivity of Rights .................................... 19 10.4 Insurance, Contracts and Funding ............................ 20 10.5 Indemnification of Employees and Agents of the Corporation .. 20 10.6 Persons Serving Other Entities .............................. 20 SECTION 11. AMENDMENTS OR REPEAL ........................................ 21
-iv- BYLAWS OF DRIVEWAY CORPORATION SECTION 1. OFFICES The principal office of the corporation shall be located at its principal place of business or such other place as the Board of Directors (the "Board") may designate. The corporation may have such other offices, either within or without the State of Delaware, as the Board may designate or as the business of the corporation may require from time to time. SECTION 2. STOCKHOLDERS 2.1 Annual Meeting The annual meeting of the stockholders shall be each year within 90 to 180 days after the fiscal year end of the corporation at a date, time and location determined by resolution of the Board for the purpose of electing Directors and transacting such other business as may properly come before the meeting. If the day fixed for the annual meeting is a legal holiday at the place of the meeting, the meeting shall be held on the next succeeding business day. If the annual meeting is not held on the date designated therefor, the Board shall cause the meeting to be held on such other date as may be convenient. 2.2 Special Meetings The Chairman of the Board, the President or the Board may call special meetings of the stockholders for any purpose. Holders of not less than one-tenth of all the outstanding shares of the corporation entitled to vote at the meeting may call special meetings of the stockholders for any purpose by giving notice to the corporation as specified in subsection 2.4 hereof. 2.3 Place of Meeting All meetings shall be held at the principal office of the corporation or at such other place within or without the State of Delaware designated by the Board, by any persons entitled to call a meeting hereunder or in a waiver of notice signed by all the stockholders entitled to notice of the meeting. 2.4 Notice of Meeting The Chairman of the Board, the President, the Secretary, the Board, or stockholders calling an annual or special meeting of stockholders as provided for herein, shall cause to be delivered to each stockholder entitled to notice of or to vote at the meeting either personally or by mail, not less than 10 nor more than 60 days before the meeting, written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Upon written request delivered to the corporation in accordance with subsection 2.5 hereof by the holders of not less than the number of outstanding shares of the corporation, the stockholders may request that the corporation call a special meeting of stockholders. Within 60 days of such a request, it shall be the duty of the Secretary to give notice of a special meeting of stockholders to be held on such date and at such place and hour as the Secretary may fix, and if the Secretary shall neglect or refuse to issue such notice, the person making the request may do so and may fix the date for such meeting. If such notice is mailed, it shall be deemed delivered when deposited in the official government mail properly addressed to the stockholder at such stockholder's address as it appears on the stock transfer books of the corporation with postage prepaid. If the notice is telegraphed, it shall be deemed delivered when the content of the telegram is delivered to the telegraph company. Notice given in any other manner shall be deemed delivered when dispatched to the stockholder's address, telephone number or other number appearing on the stock transfer records of the corporation. 2.5 Waiver of Notice 2.5.1 Waiver in Writing Whenever any notice is required to be given to any stockholder under the provisions of these Bylaws, the Certificate of Incorporation or the General Corporation Law of the State of Delaware, as now or hereafter amended (the "DGCL"), a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. 2.5.2 Waiver by Attendance The attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when a stockholder 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. -2- 2.6 Fixing of Record Date for Determining Stockholders 2.6.1 Meetings For the purpose of determining stockholders entitled to notice of and to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall be not more than 60 (or the maximum number permitted by applicable law) nor less than 10 days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of and to vote at the meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. 2.6.2 Consent to Corporate Action Without a Meeting For the purpose of determining stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than 10 (or the maximum number permitted by applicable law) days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by Chapter 1 of the DGCL, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by Chapter 1 of the DGCL, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action. -3- 2.6.3 Dividends, Distributions and Other Rights For the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders 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 may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 (or the maximum number permitted by applicable law) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. 2.7 Voting List At least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, shall be made, arranged in alphabetical order, with the address of and number of shares held by each stockholder. This list shall be open to examination by any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of 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. This list shall also be produced and kept at such meeting for inspection by any stockholder who is present. 2.8 Quorum A majority of the outstanding shares of the corporation entitled to vote, present in person or represented by proxy at the meeting, shall constitute a quorum at a meeting of the stockholders; provided, that where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy at the meeting, shall constitute a quorum entitled to take action with respect to that vote on that matter. If less than a majority of the outstanding shares entitled to vote are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. If a quorum is present or represented at a reconvened meeting following such an adjournment, any business may be transacted that might have been transacted at the meeting as originally called. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. -4- 2.9 Manner of Acting In all matters other than the election of Directors, if a quorum is present, the affirmative vote of the majority of the outstanding shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number is required by these Bylaws, the Certificate of Incorporation or the DGCL. Where a separate vote by a class or classes is required, if a quorum of such class or classes is present, the affirmative vote of the majority of outstanding shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class or classes unless the vote of a greater number is required by these Bylaws, the Certificate of Incorporation or the DGCL. 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. 2.10 Proxies 2.10.1 Appointment Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy. Such authorization may be accomplished by the stockholder or such stockholder's authorized officer, director, employee or agent executing a writing or causing his or her signature to be affixed to such writing by any reasonable means, including facsimile signature, or (b) transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the intended holder of the proxy or to a proxy solicitation firm, proxy support service or similar agent duly authorized by the intended proxy holder to receive such transmission; provided, that any such telegram, cablegram or other electronic transmission must either set forth or be accompanied by information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission by which a stockholder has authorized another person to act as proxy for such stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. -5- 2.10.2 Delivery to Corporation; Duration A proxy shall be filed with the Secretary before or at the time of the meeting or the delivery to the corporation of the consent to corporate action in writing. A proxy shall become invalid three years after the date of its execution unless otherwise provided in the proxy. A proxy with respect to a specified meeting shall entitle the holder thereof to vote at any reconvened meeting following adjournment of such meeting but shall not be valid after the final adjournment thereof. 2.11 Voting of Shares Each outstanding share entitled to vote with respect to the subject matter of an issue submitted to a meeting of stockholders shall be entitled to one vote upon each such issue. 2.12 Voting for Directors Each stockholder entitled to vote at an election of Directors may vote, in person or by proxy, the number of shares owned by such stockholder for as many persons as there are Directors to be elected and for whose election such stockholder has a right to vote. 2.13 Action by Stockholders Without a Meeting Only action properly brought before stockholders by or at the direction of the Board of Directors may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall (a) be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted (as determined in accordance with subsection 2.6.2 hereof) and (b) be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the records of proceedings of meetings of stockholders. Delivery made to the corporation's registered office shall be by hand or by certified mail or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless written consents signed by the requisite number of stockholders entitled to vote with respect to the subject matter thereof are delivered to the corporation, in the manner required by this Section 2, within 60 (or the maximum number permitted by applicable law) days of the earliest dated consent delivered to the corporation in the manner required by this Section 2. The validity of any consent executed by a proxy for a -6- stockholder pursuant to a telegram, cablegram or other means of electronic transmission transmitted to such proxy holder by or upon the authorization of the stockholder shall be determined by or at the direction of the Secretary. A written record of the information upon which the person making such determination relied shall be made and kept in the records of the proceedings of the stockholders. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any such consent shall be inserted in the minute book as if it were the minutes of a meeting of the stockholders. SECTION 3. BOARD OF DIRECTORS 3.1 General Powers The business and affairs of the corporation shall be managed by the Board. 3.2 Number and Tenure The Board shall be composed of not less than one nor more than five Directors, the specific number to be set by resolution of the Board. The number of Directors may be changed from time to time by amendment to these Bylaws, but no decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Unless a Director resigns or is removed, he or she shall hold office until the next annual meeting of stockholders or until his or her successor is elected, whichever is later. Directors need not be stockholders of the corporation or residents of the State of Delaware. 3.3 Annual and Regular Meetings An annual Board meeting shall be held without notice immediately after and at the same place as the annual meeting of stockholders. By resolution, the Board or any committee designated by the Board may specify the time and place either within or without the State of Delaware for holding regular meetings thereof without other notice than such resolution. 3.4 Special Meetings Special meetings of the Board or any committee appointed by the Board may be called by or at the request of the Chairman of the Board, the Chief Executive Officer, the President, the Secretary or, in the case of special Board meetings, any Director, and, in the case of any special meeting of any committee appointed by the Board, by the Chairman thereof. The person or persons authorized to call special -7- meetings may fix any place either within or without the State of Delaware as the place for holding any special meeting called by them. 3.5 Meetings by Telephone Members of the Board or any committee designated by the Board may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. 3.6 Notice of Special Meetings Notice of a special Board or committee meeting stating the place, day and hour of the meeting shall be given to a Director in writing or orally by telephone or in person. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in the notice of such meeting. 3.6.1 Personal Delivery If notice is given by personal delivery, the notice shall be effective if delivered to a Director at least two days before the meeting. 3.6.2 Delivery by Mail If notice is delivered by mail, the notice shall be deemed effective if deposited in the official government mail properly addressed to a Director at his or her address shown on the records of the corporation with postage prepaid at least five days before the meeting. 3.6.3 Delivery by Private Carrier If notice is given by private carrier, the notice shall be deemed effective when dispatched to a Director at his or her address shown on the records of the corporation at least three days before the meeting. 3.6.4 Facsimile Notice If notice is delivered by wire or wireless equipment that transmits a facsimile of the notice, the notice shall be deemed effective when dispatched at least two days before the meeting to a Director at his or her telephone number or other number appearing on the records of the corporation. -8- 3.6.5 Delivery by Telegraph If notice is delivered by telegraph, the notice shall be deemed effective if the content thereof is delivered to the telegraph company at least two days before the meeting for delivery to a Director at his or her address shown on the records of the corporation. 3.6.6 Oral Notice If notice is delivered orally, by telephone or in person, the notice shall be deemed effective if personally given to the Director at least two days before the meeting. 3.7 Waiver of Notice 3.7.1 In Writing Whenever any notice is required to be given to any Director under the provisions of these Bylaws, the Certificate of Incorporation or the DGCL, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board or any committee appointed by the Board need be specified in the waiver of notice of such meeting. 3.7.2 By Attendance The attendance of a Director at a Board or committee meeting shall constitute a waiver of notice of such meeting, except when a Director 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. 3.8 Quorum A majority of the total number of Directors fixed by or in the manner provided in these Bylaws or, if vacancies exist on the Board, a majority of the total number of Directors then serving on the Board, provided, however, that such number may be not less than one-third of the total number of Directors fixed by or in the manner provided in these Bylaws, shall constitute a quorum for the transaction of business at any Board meeting. If less than a majority are present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. -9- 3.9 Manner of Acting The act of the majority of the Directors present at a Board or committee meeting at which there is a quorum shall be the act of the Board or committee, unless the vote of a greater number is required by these Bylaws, the Certificate of Incorporation or the DGCL. 3.10 Presumption of Assent A Director of the corporation present at a Board or committee meeting at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his or her dissent is entered in the minutes of the meeting, or unless such Director files a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or forwards such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. A Director who voted in favor of such action may not dissent. 3.11 Action by Board or Committees Without a Meeting Any action that could be taken at a meeting of the Board or of any committee appointed by the Board may be taken without a meeting if a written consent setting forth the action so taken is signed by each of the Directors or by each committee member. Any such written consent shall be inserted in the minute book as if it were the minutes of a Board or a committee meeting. 3.12 Resignation Any Director may resign at any time by delivering written notice to the Chairman of the Board, the President, the Secretary or the Board, or to the registered office of the corporation. Any such resignation shall take effect at the time specified therein or, if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 3.13 Removal At a meeting of stockholders called expressly for that purpose, one or more members of the Board (including the entire Board) may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote on the election of Directors. -10- 3.14 Vacancies Any vacancy occurring on the Board may be filled by the affirmative vote of a majority of the remaining Directors though less than a quorum of the Board. A Director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office. Any directorship to be filled by reason of an increase in the number of Directors may be filled by the Board. 3.15 Committees 3.15.1 Creation and Authority of Committees The Board may, by resolution passed by a majority of the number of Directors fixed by or in the manner provided in these Bylaws, appoint standing or temporary committees, each committee to consist of one or more 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 a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board establishing such committee or as otherwise provided in these Bylaws, shall have and may exercise all the powers and authority of the Board 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 require it; but no such committee shall have the power or authority in reference to (a) 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 as provided in Section 151(a) of the DGCL, fix the designations, preferences or rights of such shares to the extent permitted under Section 141 of the DGCL), (b) adopting an agreement of merger or consolidation under Section 251 or 252 of the DGCL, (c) recommending to the stockholders the sale, lease or exchange or other disposition of all or substantially all the property and assets of the corporation, (d) recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (e) amending these Bylaws; and, unless expressly provided by resolution of the Board, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL. -11- 3.15.2 Minutes of Meetings All committees so appointed shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose. 3.15.3 Quorum and Manner of Acting A majority of the number of Directors composing any committee of the Board, as established and fixed by resolution of the Board, shall constitute a quorum for the transaction of business at any meeting of such committee but, if less than a majority are present at a meeting, a majority of such Directors present may adjourn the meeting from time to time without further notice. The act of a majority of the members of a committee present at a meeting at which a quorum is present shall be the act of such committee. 3.15.4 Resignation Any member of any committee may resign at any time by delivering written notice to the Chairman of the Board, the President, the Secretary, the Board or the Chairman of such committee. Any such resignation shall take effect at the time specified therein or, if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 3.15.5 Removal The Board may remove from office any member of any committee elected or appointed by it, but only by the affirmative vote of not less than a majority of the number of Directors fixed by or in the manner provided in these Bylaws. 3.16 Compensation By Board resolution, Directors and committee members may be paid their expenses, if any, of attendance at each Board or committee meeting, a fixed sum for attendance at each Board or committee meeting or a stated salary as Director or a committee member, or a combination of the foregoing. No such payment shall preclude any Director or committee member from serving the corporation in any other capacity and receiving compensation therefor. -12- SECTION 4. OFFICERS 4.1 Number The officers of the corporation shall be a President, a Secretary and a Treasurer, each of whom shall be elected by the Board. One or more Vice Presidents and such other officers and assistant officers, including a Chairman of the Board, may be elected or appointed by the Board, such officers and assistant officers to hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as may be provided by resolution of the Board. Any officer may be assigned by the Board any additional title that the Board deems appropriate. The Board may delegate to any officer or agent the power to appoint any such subordinate officers or agents and to prescribe their respective terms of office, authority and duties. Any two or more offices may be held by the same person. 4.2 Election and Term of Office The officers of the corporation shall be elected annually by the Board at the Board meeting held after the annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as a Board meeting conveniently may be held. Unless an officer dies, resigns or is removed from office, he or she shall hold office until the next annual meeting of the Board or until his or her successor is elected. 4.3 Resignation Any officer may resign at any time by delivering written notice to the Chairman of the Board, the President, a Vice President, the Secretary or the Board. Any such resignation shall take effect at the time specified therein or, if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 4.4 Removal Any officer or agent elected or appointed by the Board may be removed by the Board whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. -13- 4.5 Vacancies A vacancy in any office because of death, resignation, removal, disqualification, creation of a new office or any other cause may be filled by the Board for the unexpired portion of the term, or for a new term established by the Board. 4.6 Chairman of the Board If elected, the Chairman of the Board shall perform such duties as shall be assigned to him or her by the Board from time to time and shall preside over meetings of the Board and stockholders unless another officer is appointed or designated by the Board as Chairman of such meeting. 4.7 President The President shall be the chief executive officer of the corporation unless some other officer is so designated by the Board, shall preside over meetings of the Board and stockholders in the absence of a Chairman of the Board and, subject to the Board's control, shall supervise and control all the assets, business and affairs of the corporation. The President may sign certificates for shares of the corporation, deeds, mortgages, bonds, contracts or other instruments, except when the signing and execution thereof have been expressly delegated by the Board or by these Bylaws to some other officer or agent of the corporation or are required by law to be otherwise signed or executed by some other officer or in some other manner. In general, the President shall perform all duties incident to the office of President and such other duties as are prescribed by the Board from time to time. 4.8 Vice President In the event of the death of the President or his or her inability to act, the Vice President (or if there is more than one Vice President, the Vice President who was designated by the Board as the successor to the President, or if no Vice President is so designated, the Vice President first elected to such office) shall perform the duties of the President, except as may be limited by resolution of the Board, with all the powers of and subject to all the restrictions upon the President. Any Vice President may sign with the Secretary or any Assistant Secretary certificates for shares of the corporation. Vice Presidents shall have, to the extent authorized by the President or the Board, the same powers as the President to sign deeds, mortgages, bonds, contracts or other instruments. Vice Presidents shall perform such other duties as from time to time may be assigned to them by the President or the Board. -14- 4.9 Secretary The Secretary shall be responsible for preparation of minutes of meetings of the Board and stockholders, maintenance of the corporation's records and stock registers, and authentication of the corporation's records and shall in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the President or the Board. In the absence of the Secretary, an Assistant Secretary may perform the duties of the Secretary. 4.10 Treasurer If required by the Board, the Treasurer shall give a bond for the faithful discharge of his or her duties in such amount and with such surety or sureties as the Board shall determine. The Treasurer shall: have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in banks, trust companies or other depositories selected in accordance with the provisions of these Bylaws; sign certificates for shares of the corporation; and in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the President or the Board. In the absence of the Treasurer, an Assistant Treasurer may perform the duties of the Treasurer. 4.11 Salaries The salaries of the officers shall be fixed from time to time by the Board or by any person or persons to whom the Board has delegated such authority. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a Director of the corporation. SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS 5.1 Contracts The Board may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. 5.2 Loans to the Corporation No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board. Such authority may be general or confined to specific instances. -15- 5.3 Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, or agent or agents, of the corporation and in such manner as is from time to time determined by resolution of the Board. 5.4 Deposits All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board may select. SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.1 Issuance of Shares No shares of the corporation shall be issued unless authorized by the Board, which authorization shall include the maximum number of shares to be issued and the consideration to be received for each share. 6.2 Certificates for Shares Certificates representing shares of the corporation shall be signed by the Chairman of the Board or a Vice Chairman of the Board, if any, or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, any of whose signatures may be a facsimile. The Board may in its discretion appoint responsible banks or trust companies from time to time to act as transfer agents and registrars of the stock of the corporation; and, when such appointments shall have been made, no stock certificate shall be valid until countersigned by one of such transfer agents and registered by one of such registrars. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person was such officer, transfer agent or registrar at the date of issue. All certificates shall include on their face written notice of any restrictions that may be imposed on the transferability of such shares and shall be consecutively numbered or otherwise identified. 6.3 Stock Records The stock transfer books shall be kept at the registered office or principal place of business of the corporation or at the office of the corporation's transfer agent or -16- registrar. The name and address of each person to whom certificates for shares are issued, together with the class and number of shares represented by each such certificate and the date of issue thereof, shall be entered on the stock transfer books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. 6.4 Restriction on Transfer Except to the extent that the corporation has obtained an opinion of counsel acceptable to the corporation that transfer restrictions are not required under applicable securities laws, or has otherwise satisfied itself that such transfer restrictions are not required, all certificates representing shares of the corporation shall bear a legend on the face of the certificate, or on the reverse of the certificate if a reference to the legend is contained on the face, that reads substantially as follows: "The securities evidenced by this certificate have not been registered under the Securities Act of 1933 or any applicable state law, and no interest therein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless (a) there is an effective registration statement under such Act and applicable state securities laws covering any such transaction involving said securities or (b) this corporation receives an opinion of legal counsel for the holder of these securities (concurred in by legal counsel for this corporation) stating that such transaction is exempt from registration or this corporation otherwise satisfies itself that such transaction is exempt from registration. Neither the offering of the securities nor any offering materials have been reviewed by any administrator under the Securities Act of 1933 or any applicable state law." 6.5 Transfer of Shares The transfer of shares of the corporation shall be made only on the stock transfer books of the corporation pursuant to authorization or document of transfer made by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney-in-fact authorized by power of attorney duly executed and filed with the Secretary of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificates for a like number of shares shall have been surrendered and canceled. -17- 6.6 Lost or Destroyed Certificates In the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the Board may prescribe. 6.7 Shares of Another Corporation Shares owned by the corporation in another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Board may determine or, in the absence of such determination, by the Chairman of the Board, the Vice Chairman of the Board, the President or any Vice President of the corporation. SECTION 7. BOOKS AND RECORDS The corporation shall keep correct and complete books and records of account, stock transfer books, minutes of the proceedings of its stockholders and Board and such other records as may be necessary or advisable. SECTION 8. ACCOUNTING YEAR The accounting year of the corporation shall be the calendar year, provided that if a different accounting year is at any time selected for purposes of federal income taxes, the accounting year shall be the year so selected. SECTION 9. SEAL The seal of the corporation, if any, shall consist of the name of the corporation, the state of its incorporation and the year of its incorporation. SECTION 10. INDEMNIFICATION 10.1 Right to Indemnification Each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a Director or officer of the corporation or that, being or having been such a Director or officer or an employee of the corporation, he or she is or was serving at the request of the corporation as a Director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as such a Director, officer, -18- employee or agent or in any other capacity while serving as such a Director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the full extent permitted by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than permitted prior thereto), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, -------- however, that except as provided in subsection 10.2 hereof with respect to - ------- proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized or ratified by the Board. The right to indemnification conferred in this subsection 10.1 shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that if the DGCL requires, an advancement of expenses - -------- ------- incurred by an indemnitee in his or her capacity as a Director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this subsection 10.1 or otherwise. 10.2 Right of Indemnitee to Bring Suit If a claim under subsection 10.1 hereof is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. The indemnitee shall be presumed to be entitled to indemnification under this Section 10 upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses, where the required undertaking, if any is required, has been tendered to the -19- corporation), and thereafter the corporation shall have the burden of proof to overcome the presumption that the indemnitee is not so entitled. Neither the failure of the corporation (including its Board, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances nor an actual determination by the corporation (including its Board, independent legal counsel or its stockholders) that the indemnitee is not entitled to indemnification shall be a defense to the suit or create a presumption that the indemnitee is not so entitled. 10.3 Nonexclusivity of Rights The rights to indemnification and to the advancement of expenses conferred in this Section 10 shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, agreement, vote of stockholders or disinterested Directors, provisions of the Certificate of Incorporation or these Bylaws of the corporation or any subsidiary of the corporation, or otherwise. Notwithstanding any amendment to or repeal of this Section 10, any indemnitee shall be entitled to indemnification in accordance with the provisions hereof with respect to any acts or omissions of such indemnitee occurring prior to such amendment or repeal. 10.4 Insurance, Contracts and Funding The corporation may maintain insurance, at its expense, to protect itself and any Director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL. The corporation, without further stockholder approval, may enter into contracts with any Director, officer, employee or agent in furtherance of the provisions of this Section 10 and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Section 10. 10.5 Indemnification of Employees and Agents of the Corporation The corporation may, by action of the Board, grant rights to indemnification and advancement of expenses to employees or agents or groups of employees or agents of the corporation with the same scope and effect as the provisions of this Section 10 with respect to the indemnification and advancement of expenses of Directors and officers of the corporation; provided, -------- however, that an undertaking shall be made by an employee or agent only if - ------- required by the Board. -20- 10.6 Persons Serving Other Entities Any person who is or was a Director, officer or employee of the corporation who is or was serving (a) as a Director or officer of another corporation of which a majority of the shares entitled to vote in the election of its Directors is held by the corporation or (b) in an executive or management capacity in a partnership, joint venture, trust or other enterprise of which the corporation or a wholly owned subsidiary of the corporation is a general partner or has a majority ownership shall be deemed to be so serving at the request of the corporation and entitled to indemnification and advancement of expenses under subsection 10.1 hereof. -21- SECTION 11. AMENDMENTS OR REPEAL These Bylaws may be amended or repealed and new Bylaws may be adopted by the Board. The stockholders may also amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the Board may be amended or repealed by the stockholders. Notwithstanding any amendment to Section 10 hereof or repeal of these Bylaws, or of any amendment or repeal of any of the procedures that may be established by the Board pursuant to Section 10 hereof, any indemnitee shall be entitled to indemnification in accordance with the provisions hereof and thereof with respect to any acts or omissions of such indemnitee occurring prior to such amendment or repeal. The foregoing Bylaws were adopted by the Board of Directors on January 21, 1999. _________________________________ Secretary -22- EX-3.04 6 FORM OF BYLAWS EXHIBIT 3.04 AMENDED AND RESTATED BYLAWS OF DRIVEWAY CORPORATION ARTICLE I OFFICES Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL Section 3. Corporate Seal. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation and the inscription, "Corporate Seal-Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. Section 5. Annual Meeting. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any 1 supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received 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 no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received 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, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, 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. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in 2 writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other 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 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine he shall so declare at the meeting, and the defective nomination shall be disregarded. (d) For purposes of this Section 5, "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. Section 6. Special Meetings. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) 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), and shall be held at such place, on such date, and at such time as the Board of Directors, shall fix. (b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, and the Secretary of the corporation. No business 3 may be transacted at such special meeting otherwise than as specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Section 7. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders 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, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder 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. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of' the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that 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. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in 4 the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series. Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 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, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list 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, 5 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 specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 13. Action Without Meeting. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. (c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of the State of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. (d) Notwithstanding the foregoing, no such action by written consent may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock of the corporation (the "Initial Public Offering"). Section 14. Organization. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the 6 stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS Section 15. Number and Term of Office. The number of directors that shall constitute the whole board shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting of the stockholders, except as otherwise provided in these Bylaws, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. Section 17. Election of Directors. Except as provided in Sections 18 and 19 of these Bylaws, the directors shall be elected at each annual meeting of the stockholders and shall hold office until the next annual meeting. Each director, including a director appointed to fill a vacancy, shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. Section 18. Vacancies. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from 7 any increase in the number of directors, shall unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. Section 19. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. Section 20. Removal. Subject to the rights of the holders of any series of Preferred Stock, no director shall be removed from office without Cause. For purposes of this Section 20, "Cause" shall mean dishonesty, fraud, misconduct or conviction, plea of nolo contendere to or confession of a felony. Subject to any limitations imposed by law, the Board of Directors or any individual director may be removed from office at any time with cause by the affirmative vote of the holders of a majority of the voting power of all the then- outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the "Voting Stock"). Section 21. Meetings. (a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. (c) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place 8 within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two (2) of the directors. (d) Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting 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 by such means shall constitute presence in person at such meeting. (e) Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty- four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the 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. (f) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 22. Quorum and Voting. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with Section 15 hereof, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at 9 any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. Section 25. Committees. (a) Executive Committee. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the 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, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to 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 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, 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. (b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. 10 (c) Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 25 may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors 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, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special 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. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. 11 ARTICLE V OFFICERS Section 27. Officers Designated. The officers of the corporation shall be a Chairman of the Board of Directors, a Chief Executive Officer, a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as it shall deem necessary. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. Section 28. Tenure and Duties of Officers. (a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (c) Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The Chief Executive Officer shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof 12 in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him or her in these Bylaws and other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. 13 ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to 14 have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, -or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. Section 36. Transfers. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more 15 classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. Section 37. Fixing Record Dates. (a) 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, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) Prior to the Initial Public Offering, in order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the 16 stockholders 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 record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the Chief Executive Officer or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX 17 DIVIDENDS Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X FISCAL YEAR Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents. (a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) and officers to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers and officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d). 18 (b) Others. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the Delaware General Corporation Law. (c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer or officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Section 43 or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers and officers under this Section 43 shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer or officer. Any right to indemnification or advances granted by this Section 43 to a director or executive officer or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or 19 was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this Section 43 or otherwise shall be on the corporation. (e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law. (f) Survival of Rights. The rights conferred on any person by this Section 43 shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) Insurance. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43. (h) Amendments. Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Section 43 in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) Saving Clause. If this Section 43 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by 20 any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. (j) Certain Definitions. For the purposes of this Section 43, the following definitions shall apply: (i) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (ii) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (iii) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (iv) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (v) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section 43. 21 ARTICLE XII NOTICES Section 44. Notices. (a) Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. (c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (d) Time Notices Deemed Given. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (g) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is 22 unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two (2) consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two (2) consecutive annual meetings, or (ii) all, and at least two (2), payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENT Section 45. Amendments. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. 23 ARTICLE XIV LOANS TO OFFICERS Section 46. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. ARTICLE XV MISCELLANEOUS Section 47. Annual Report. (a) Subject to the provisions of paragraph (b) of this Section 47, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than one hundred (100) stockholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than one hundred (100) holders of record of the corporation's shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived. 24 EX-10.01 7 1997 STOCK OPTION PLAN EXHIBIT 10.01 DRIVEWAY CORPORATION 1997 STOCK OPTION PLAN (as amended and restated on September 13, 1999) (as further amended to reflect the Company's 11/2/1999 name change) SECTION 1. PURPOSE The purpose of the Driveway Corporation 1997 Stock Option Plan (the "Plan") is to enhance the long-term shareholder value of Driveway Corporation, a Delaware corporation (the "Company"), by offering opportunities to employees, directors, officers, consultants, agents, advisors and independent contractors of the Company and its Subsidiaries (as defined in Section 2) to participate in the Company's growth and success, and to encourage them to remain in the service of the Company and its Subsidiaries and to acquire and maintain stock ownership in the Company. SECTION 2. DEFINITIONS For purposes of the Plan, the following terms shall be defined as set forth below: 2.1 Board "Board" means the Board of Directors of the Company. 2.2 Cause "Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Plan Administrator, and its determination shall be conclusive and binding. 2.3 Code "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.4 Common Stock "Common Stock" means the common stock, $0.001 par value, of the Company. 2.5 Corporate Transaction "Corporate Transaction" means any of the following events: (a) Consummation of any merger or consolidation of the Company in which the Company is not the continuing or surviving corporation, or pursuant to which shares of the Common Stock are converted into cash, securities or other property, if following -1- such merger or consolidation the holders of the Company's outstanding voting securities immediately prior to such merger or consolidation own less than 66-2/3% of the outstanding voting securities of the surviving corporation; (b) Consummation of any sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company's assets other than a transfer of the Company's assets to a majority-owned subsidiary corporation (as the term "subsidiary corporation" is defined in Section 8.3) of the Company; or (c) Approval by the holders of the Common Stock of any plan or proposal for the liquidation or dissolution of the Company. Ownership of voting securities shall take into account and shall include ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the date of adoption of the Plan) under the Exchange Act. 2.6 Disability "Disability" means "disability" as that term is defined for purposes of Section 22(e)(3) of the Code. 2.7 Early Retirement "Early Retirement" means early retirement as that term is defined by the Plan Administrator from time to time for purposes of the Plan. 2.8 Exchange Act "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.9 Fair Market Value The "Fair Market Value" shall be as established in good faith by the Plan Administrator or (a) if the Common Stock is listed on the Nasdaq National Market, the average of the high and low per share sales prices for the Common Stock as reported by the Nasdaq National Market for a single trading day or (b) if the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, the average of the high and low per share sales prices for the Common Stock as such price is officially quoted in the composite tape of transactions on such exchange for a single trading day. If there is no such reported price for the Common Stock for the date in question, then such price on the last preceding date for which such price exists shall be determinative of the Fair Market Value. -2- 2.10 Good Reason "Good Reason" means the occurrence of any of the following events or conditions and the failure of the Successor Corporation to cure such event or condition within 30 days after receipt of written notice by the Optionee: (a) a change in the Optionee's status, title, position or responsibilities (including reporting responsibilities) that, in the Optionee's reasonable judgment, represents a substantial reduction in the status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Optionee of any duties or responsibilities that, in the Optionee's reasonable judgment, are materially inconsistent with such status, title, position or responsibilities; or any removal of the Optionee from or failure to reappoint or reelect the Optionee to any of such positions, except in connection with the termination of the Optionee's employment for Cause, for Disability or as a result of his or her death, or by the Optionee other than for Good Reason; (b) a reduction in the Optionee's annual base salary; (c) the Successor Corporation's requiring the Optionee (without the Optionee's consent) to be based at any place outside a 35-mile radius of his or her place of employment prior to a Corporate Transaction, except for reasonably required travel on the Successor Corporation's business that is not materially greater than such travel requirements prior to the Corporate Transaction; (d) the Successor Corporation's failure to (i) continue in effect any material compensation or benefit plan (or the substantial equivalent thereof) in which the Optionee was participating at the time of a Corporate Transaction, including, but not limited to, the Plan, or (ii) provide the Optionee with compensation and benefits substantially equivalent (in terms of benefit levels and/or reward opportunities) to those provided for under each material employee benefit plan, program and practice as in effect immediately prior to the Corporate Transaction; (e) any material breach by the Successor Corporation of its obligations to the Optionee under the Plan or any substantially equivalent plan of the Successor Corporation; or (f) any purported termination of the Optionee's employment or services for Cause by the Successor Corporation that does not comply with the terms of the Plan or any substantially equivalent plan of the Successor Corporation. 2.11 Grant Date "Grant Date" means the date the Plan Administrator adopted the granting resolution or a later date designated in a resolution of the Plan Administrator as the date an Option is to be granted. -3- 2.12 Incentive Stock Option "Incentive Stock Option" means an Option to purchase Common Stock granted under Section 7 with the intention that it qualify as an "incentive stock option" as that term is defined in Section 422 of the Code. 2.13 Nonqualified Stock Option "Nonqualified Stock Option" means an Option to purchase Common Stock granted under Section 7 other than an Incentive Stock Option. 2.14 Option "Option" means the right to purchase Common Stock granted under Section 7. 2.15 Optionee "Optionee" means (i) the person to whom an Option is granted; (ii) for an Optionee who has died, the personal representative of the Optionee's estate, the person(s) to whom the Optionee's rights under the Option have passed by will or by the applicable laws of descent and distribution, or the beneficiary designated in accordance with Section 9; or (iii) person(s) to whom an Option has been transferred in accordance with Section 9. 2.16 Plan Administrator "Plan Administrator" means the Board or any committee of the Board designated to administer the Plan under Section 3.1. 2.17 Retirement "Retirement" means retirement as of the individual's normal retirement date as that term is defined by the Plan Administrator from time to time for purposes of the Plan. 2.18 Securities Act "Securities Act" means the Securities Act of 1933, as amended. 2.19 Subsidiary "Subsidiary," except as provided in Section 8.3 in connection with Incentive Stock Options, means any entity that is directly or indirectly controlled by the Company or in which the Company has a significant ownership interest, as determined by the Plan Administrator, and any entity that may become a direct or indirect parent of the Company. 2.20 Successor Corporation "Successor Corporation" has the meaning set forth under Section 10.2. -4- SECTION 3. ADMINISTRATION 3.1 Plan Administrator The Plan shall be administered by the Board or a committee or committees (which term includes subcommittees) appointed by, and consisting of two or more members of, the Board. If and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the Plan Administrator and the membership of any committee acting as Plan Administrator, with respect to any persons subject or likely to become subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may delegate the responsibility for administering the Plan with respect to designated classes of eligible persons to different committees consisting of two or more members of the Board, subject to such limitations as the Board deems appropriate. Committee members shall serve for such term as the Board may determine, subject to removal by the Board at any time. 3.2 Administration and Interpretation by the Plan Administrator Except for the terms and conditions explicitly set forth in the Plan, the Plan Administrator shall have exclusive authority, in its discretion, to determine all matters relating to Options under the Plan, including the selection of individuals to be granted Options, the type of Options, the number of shares of Common Stock subject to an Option, all terms, conditions, restrictions and limitations, if any, of an Option and the terms of any instrument that evidences the Option. The Plan Administrator shall also have exclusive authority to interpret the Plan and may from time to time adopt, and change, rules and regulations of general application for the Plan's administration. The Plan Administrator's interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Plan Administrator pursuant to the Plan, shall be conclusive and binding on all parties involved or affected. The Plan Administrator may delegate administrative duties to such of the Company's officers as it so determines. SECTION 4. STOCK SUBJECT TO THE PLAN 4.1 Authorized Number of Shares Subject to adjustment from time to time as provided in Section 10.1, a maximum of 4,177,484 shares of Common Stock shall be available for issuance under the Plan. Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. 4.2 Reuse of Shares Any shares of Common Stock that have been made subject to an Option that cease to be subject to the Option (other than by reason of exercise of the Option to the extent it is exercised for shares) shall again be available for issuance in connection with future grants of Options under the Plan. -5- SECTION 5. ELIGIBILITY Options may be granted under the Plan to those officers, directors and key employees of the Company and its Subsidiaries as the Plan Administrator from time to time selects. Options may also be made to consultants, agents, advisors and independent contractors who provide services to the Company and its Subsidiaries. SECTION 6. AWARDS 6.1 Form and Grant of Options The Plan Administrator shall have the authority, in its sole discretion, to determine the type or types of awards to be made under the Plan. Such awards may consist of Incentive Stock Options and/or Nonqualified Stock Options. Options may be granted singly or in combination. 6.2 Acquired Company Option Awards Notwithstanding anything in the Plan to the contrary, the Plan Administrator may grant Options under the Plan in substitution for awards issued under other plans, or assume under the Plan awards issued under other plans, if the other plans are or were plans of other acquired entities ("Acquired Entities") (or the parent of the Acquired Entity) and the new Option is substituted, or the old award is assumed, by reason of a merger, consolidation, acquisition of property or of stock, reorganization or liquidation (the "Acquisition Transaction"). In the event that a written agreement pursuant to which the Acquisition Transaction is completed is approved by the Board and said agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, said terms and conditions shall be deemed to be the action of the Plan Administrator without any further action by the Plan Administrator, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such awards shall be deemed to be Optionees. SECTION 7. TERMS AND CONDITIONS OF OPTIONS 7.1 Grant of Options The Plan Administrator is authorized under the Plan, in its sole discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock Options, which shall be appropriately designated. 7.2 Option Exercise Price The exercise price for shares purchased under an Option shall be as determined by the Plan Administrator, but shall not be less than 100% of the Fair Market Value of the Common Stock on the Grant Date with respect to Incentive Stock Options. -6- 7.3 Term of Options The term of each Option shall be as established by the Plan Administrator or, if not so established, shall be 10 years from the Grant Date. 7.4 Exercise of Options The Plan Administrator shall establish and set forth in each instrument that evidences an Option the time at which or the installments in which the Option shall become exercisable, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option will become exercisable according to the following schedule, which may be waived or modified by the Plan Administrator at any time: Period of Holder's Continuous Employment or Service With the Company or Its Subsidiaries Percent of Total Option From the Option Grant Date That Is Exercisable -------------------------- ------------------- After 1 year 25% Each three-month period of continuous service completed thereafter An additional 6.25% After 4 years 100% To the extent that the right to purchase shares has accrued thereunder, an Option may be exercised from time to time by written notice to the Company, in accordance with procedures established by the Plan Administrator, setting forth the number of shares with respect to which the Option is being exercised and accompanied by payment in full as described in Section 7.5. The Plan Administrator may determine at any time that an Option may not be exercised as to less than 100 shares at any one time (or the lesser number of remaining shares covered by the Option). 7.5 Payment of Exercise Price The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid in cash or by check or, unless the Plan Administrator in its sole discretion determines otherwise, either at the time the Option is granted or at any time before it is exercised, a combination of cash and/or check and one or both of the following alternative forms: (a) tendering (either actually or, if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) Common Stock already owned by the Optionee for at least six months (or any shorter period necessary to avoid a charge to the Company's earnings for financial reporting purposes) having a Fair Market Value on the day prior to the exercise date equal to the aggregate Option exercise price or (b) if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed exercise notice, together with irrevocable instructions, to (i) a brokerage firm designated by the Company to deliver promptly to the -7- Company the aggregate amount of sale or loan proceeds to pay the Option exercise price and any withholding tax obligations that may arise in connection with the exercise and (ii) the Company to deliver the certificates for such purchased shares directly to such brokerage firm, all in accordance with the regulations of the Federal Reserve Board. In addition, the exercise price for shares purchased under an Option may be paid, either singly or in combination with one or more of the alternative forms of payment authorized by this Section 7.5, by: (y) a promissory note delivered pursuant to Section 12 or (z) such other consideration as the Plan Administrator may permit. 7.6 Post-Termination Exercises The Plan Administrator shall establish and set forth in each instrument that evidences an Option whether the Option will continue to be exercisable, and the terms and conditions of such exercise, if an Optionee ceases to be employed by, or to provide services to, the Company or its Subsidiaries, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option will be exercisable according to the following terms and conditions, which may be waived or modified by the Plan Administrator at any time. In case of termination of the Optionee's employment or services other than by reason of death or Cause, the Option shall be exercisable, to the extent of the number of shares purchasable by the Optionee at the date of such termination, only (a) within one year if the termination of the Optionee's employment or services is coincident with Retirement, Early Retirement at the Company's request or Disability or (b) within three months after the date the Optionee ceases to be an employee, director, officer, consultant, agent, advisor or independent contractor of the Company or a Subsidiary if termination of the Optionee's employment or services is for any reason other than Retirement, Early Retirement at the Company's request or Disability, but in no event later than the remaining term of the Option. Any Option exercisable at the time of the Optionee's death may be exercised, to the extent of the number of shares purchasable by the Optionee at the date of the Optionee's death, by the personal representative of the Optionee's estate, the person(s) to whom the Optionee's rights under the Option have passed by will or the applicable laws of descent and distribution or the beneficiary designated pursuant to Section 9 at any time or from time to time within one year after the date of death, but in no event later than the remaining term of the Option. Any portion of an Option that is not exercisable on the date of termination of the Optionee's employment or services shall terminate on such date, unless the Plan Administrator determines otherwise. In case of termination of the Optionee's employment or services for Cause, the Option shall automatically terminate upon first notification to the Optionee of such termination, unless the Plan Administrator determines otherwise. If an Optionee's employment or services with the Company are suspended pending an investigation of whether the Optionee shall be terminated for Cause, all the Optionee's rights under any Option likewise shall be suspended during the period of investigation. A transfer of employment or services between or among the Company and its Subsidiaries shall not be considered a termination of employment or services. The effect of a Company-approved leave of absence on the terms and conditions of an Option shall be determined by the Plan Administrator, in its sole discretion. -8- SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS To the extent required by Section 422 of the Code, Incentive Stock Options shall be subject to the following additional terms and conditions: 8.1 Dollar Limitation To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event the Optionee holds two or more such Options that become exercisable for the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted. 8.2 10% Shareholders If an individual owns more than 10% of the total voting power of all classes of the Company's stock, then the exercise price per share of an Incentive Stock Option shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date and the Option term shall not exceed five years. The determination of 10% ownership shall be made in accordance with Section 422 of the Code. 8.3 Eligible Employees Individuals who are not employees of the Company or one of its parent corporations or subsidiary corporations may not be granted Incentive Stock Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary corporation" shall have the meanings attributed to those terms for purposes of Section 422 of the Code. 8.4 Term The term of an Incentive Stock Option shall not exceed 10 years. 8.5 Exercisability To qualify for Incentive Stock Option tax treatment, an Option designated as an Incentive Stock Option must be exercised within three months after termination of employment for reasons other than death, except that, in the case of termination of employment due to total disability, such Option must be exercised within one year after such termination. Employment shall not be deemed to continue beyond the first 90 days of a leave of absence unless the Optionee's reemployment rights are guaranteed by statute or contract. For purposes of this Section 8.5, "total disability" shall mean a mental or physical impairment of the Optionee that is expected to result in death or that has lasted or is expected to last for a continuous period of 12 months or more and that causes the Optionee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties for the Company and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day -9- after the Company and the two independent physicians have furnished their opinion of total disability to the Plan Administrator. 8.6 Taxation of Incentive Stock Options In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the Code, the Optionee must hold the shares issued upon the exercise of an Incentive Stock Option for two years after the Grant Date of the Incentive Stock Option and one year from the date of exercise. An Optionee may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option. The Plan Administrator may require an Optionee to give the Company prompt notice of any disposition of shares acquired by the exercise of an Incentive Stock Option prior to the expiration of such holding periods. 8.7 Promissory Notes The amount of any promissory note delivered pursuant to Section 12 in connection with an Incentive Stock Option shall bear interest at a rate specified by the Plan Administrator but in no case less than the rate required to avoid imputation of interest (taking into account any exceptions to the imputed interest rules) for federal income tax purposes. SECTION 9. ASSIGNABILITY No Option granted under the Plan may be assigned, pledged or transferred by the Optionee other than by will or by the applicable laws of descent and distribution, and, during the Optionee's lifetime, such Option may be exercised only by the Optionee or a permitted assignee or transferee of the Optionee (as provided below). Notwithstanding the foregoing, and to the extent permitted by Section 422 of the Code, the Plan Administrator, in its sole discretion, may permit such assignment, transfer and exercisability and may permit an Optionee to designate a beneficiary who may exercise the Option after the Optionee's death; provided, however, that any Option so assigned or transferred shall be subject to all the same terms and conditions contained in the instrument evidencing the Option. SECTION 10. ADJUSTMENTS 10.1 Adjustment of Shares In the event that, at any time or from time to time, a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to shareholders other than a normal cash dividend, or other change in the Company's corporate or capital structure results in (a) the outstanding shares, or any securities exchanged therefor or received in their place, being exchanged for a different number or class of securities of the Company or of any other corporation or (b) new, different or additional securities of the Company or of any other corporation being received by the holders of shares of Common Stock of the Company, then the Plan Administrator shall make proportional adjustments in (i) the maximum number and kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the number and kind of securities that are subject to any outstanding Option and the per share price of such securities, without any change in the aggregate price to be paid therefor. The -10- determination by the Plan Administrator as to the terms of any of the foregoing adjustments shall be conclusive and binding. 10.2 Corporate Transaction Except as otherwise provided in the instrument that evidences the Option, in the event of any Corporate Transaction, outstanding Options shall terminate and cease to remain outstanding immediately following the consummation of the Corporate Transaction, except to the extent assumed by the surviving corporation, the successor corporation or its parent corporation, as applicable (the "Successor Corporation") pursuant to the terms of the agreement of merger or consolidation entered into between the Company and the Successor Corporation. In the event that an Optionee's employment or services should subsequently terminate within one year following a Corporate Transaction in which Options are assumed or replaced and do not otherwise accelerate at that time, the Optionee shall be entitled to exercise, in addition to any vested portion of the Option, that portion of the unvested Option that would otherwise be vested and exercisable if the Option vested on a pro rata basis after each full month of employment or service, unless such employment or services are terminated by the Successor Corporation for Cause or by the Optionee voluntarily without Good Reason. 10.3 Further Adjustment of Options Subject to Section 10.2, the Plan Administrator shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation or change in control of the Company, as defined by the Plan Administrator, to take such further action as it determines to be necessary or advisable, and fair and equitable to Optionees, with respect to Options. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Options so as to provide for earlier, later, extended or additional time for exercise and other modifications, and the Plan Administrator may take such actions with respect to all Optionees, to certain categories of Optionees or only to individual Optionees. The Plan Administrator may take such action before or after granting Options to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, reorganization, liquidation or change in control that is the reason for such action. 10.4 Limitations The grant of Options will in no way affect the Company's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 10.5 Fractional Shares In the event of any adjustment in the number of shares covered by an Option, each such Option shall cover only the number of full shares resulting from such adjustment. SECTION 11. WITHHOLDING -11- The Company may require the Optionee to pay to the Company the amount of any withholding taxes that the Company is required to withhold with respect to the grant or exercise of any Option. Subject to the Plan and applicable law, the Plan Administrator may, in its sole discretion, permit the Optionee to satisfy withholding obligations, in whole or in part, by paying cash, by electing to have the Company withhold shares of Common Stock or by transferring shares of Common Stock to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligation. The Company shall have the right to withhold from any shares of Common Stock issuable pursuant to an Option or from any cash amounts otherwise due or to become due from the Company to the Optionee an amount equal to such taxes. The Company may also deduct from any Option any other amounts due from the Optionee to the Company or a Subsidiary. SECTION 12. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES To assist an Optionee (including an Optionee who is an officer or a director of the Company) in acquiring shares of Common Stock pursuant to an Option granted under the Plan, the Plan Administrator, in its sole discretion, may authorize, either at the Grant Date or at any time before the acquisition of Common Stock pursuant to the Option, (a) the extension of a loan to the Optionee by the Company, (b) the payment by the Optionee of the purchase price, if any, of the Common Stock in installments, or (c) the guarantee by the Company of a loan obtained by the Optionee from a third party. The terms of any loans, installment payments or loan guarantees, including the interest rate and terms of repayment, will be subject to the Plan Administrator's discretion. Loans, installment payments and loan guarantees may be granted with or without security. The maximum credit available is the purchase price, if any, of the Common Stock acquired, plus the maximum federal and state income and employment tax liability that may be incurred in connection with the acquisition. SECTION 13. REPURCHASE AND FIRST REFUSAL RIGHTS; ESCROW 13.1 Repurchase Rights The Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Common Stock pursuant to the exercise of an Option. Should the Optionee cease to be employed by or provide services to the Company, then all shares of Common Stock issued upon exercise of an Option that are unvested at the time of cessation of employment or the service relationship shall be subject to repurchase at the exercise price paid for such shares. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise) shall be established by the Plan Administrator and set forth in the agreement evidencing such right. All the Company's outstanding repurchase rights under this Section 13.1 are assignable by the Company at any time. Such rights shall automatically terminate, and all shares subject to such terminated rights shall immediately vest in full, upon the occurrence of a Corporate Transaction, except to the extent that (a) any such repurchase right is expressly assigned to the -12- Successor Corporation in connection with the Corporate Transaction or (b) such termination is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. The Plan Administrator shall have the discretionary authority, exercisable either before or after the Optionee's cessation of employment or service, to cancel the Company's outstanding repurchase rights with respect to one or more shares purchased or purchasable by the Optionee under an Option and thereby accelerate the vesting of such shares in whole or in part at any time. 13.2 First Refusal Rights Until the date on which the initial registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act first becomes effective, the Company shall have the right of first refusal with respect to any proposed sale or other disposition by the Optionee of any shares of Common Stock issued pursuant to an Option granted under the Plan. Such right of first refusal shall be exercisable in accordance with the terms and conditions established by the Plan Administrator and set forth in the agreement evidencing such right. 13.3 Escrow To ensure that shares of Common Stock acquired upon exercise of an Option that are subject to any repurchase or forfeiture right and/or security for any promissory note will be available for repurchase, the Plan Administrator may require the Optionee to deposit the certificate or certificates evidencing such shares with an agent designated by the Plan Administrator under the terms and conditions of escrow and security agreements approved by the Plan Administrator. If the Plan Administrator does not require such deposit as a condition of exercise of an Option, the Plan Administrator reserves the right at any time to require the Optionee to so deposit the certificate or certificates in escrow. The Company shall bear the expenses of the escrow. As soon as practicable after the expiration of any repurchase rights or forfeiture rights, and after full repayment of any promissory note secured by the shares in escrow, the agent shall deliver to the Optionee the shares no longer subject to such restrictions and no longer security for any promissory note. In the event of any stock dividend, stock split or consolidation of shares or any like capital adjustment of any of the outstanding securities of the Company, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of ownership of shares acquired upon exercise of an Option shall be subject to any repurchase rights and/or security for any promissory note with the same force and effect as the shares subject to such repurchase rights and/or security interest immediately before such event. SECTION 14. MARKET STANDOFF In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company's initial public offering, a person shall not sell, make any short sale of, loan, -13- hypothecate, pledge, grant any option for the purchase of, or otherwise dispose of or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to any shares issued pursuant to an Option granted under the Plan without the prior written consent of the Company or its underwriters. Such limitations shall be in effect for such period of time as may be requested by the Company or such underwriters and agreed to by the Company's officers and directors with respect to their shares; provided, however, that in no event shall such period exceed 180 days. The limitations of this Section 14 shall in all events terminate two years after the effective date of the Company's initial public offering. Holders of shares issued pursuant to an Option granted under the Plan shall be subject to the market standoff provisions of this Section 14 only if the officers and directors of the Company are also subject to similar arrangements. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company's outstanding Common Stock effected as a class without the Company's receipt of consideration, any new, substituted or additional securities distributed with respect to the purchased shares shall be immediately subject to the provisions of this Section 14, to the same extent the purchased shares are at such time covered by such provisions. In order to enforce the limitations of this Section 14, the Company may impose stop-transfer instructions with respect to the purchased shares until the end of the applicable standoff period. SECTION 15. AMENDMENT AND TERMINATION OF PLAN 15.1 Amendment of Plan The Plan may be amended only by the Board in such respects as it shall deem advisable; however, to the extent required for compliance with Section 422 of the Code or any applicable law or regulation, shareholder approval will be required for any amendment that will (a) increase the total number of shares as to which Options may be granted under the Plan, (b) modify the class of persons eligible to receive Options, or (c) otherwise require shareholder approval under any applicable law or regulation. 15.2 Termination of Plan The Board may suspend or terminate the Plan at any time. The Plan will have no fixed expiration date; provided, however, that no Incentive Stock Options may be granted more than 10 years after the earlier of the Plan's adoption by the Board and approval by the shareholders. 15.3 Consent of Optionee The amendment or termination of the Plan shall not, without the consent of the Optionee, impair or diminish any rights or obligations under any Option theretofore granted under the Plan. -14- Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Optionee, be made in a manner so as to constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. SECTION 16. GENERAL 16.1 Option Agreements Options granted under the Plan shall be evidenced by a written agreement that shall contain such terms, conditions, limitations and restrictions as the Plan Administrator shall deem advisable and that are not inconsistent with the Plan. 16.2 Continued Employment or Services; Rights in Options None of the Plan, participation in the Plan or any action of the Plan Administrator taken under the Plan shall be construed as giving any person any right to be retained in the employ of the Company or limit the Company's right to terminate the employment or services of any person. 16.3 Registration The Company shall be under no obligation to any Optionee to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under state securities laws, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal and state securities laws. Inability of the Company to obtain, from any regulatory body having jurisdiction, the authority deemed by the Company's counsel to be necessary for the lawful issuance and sale of any shares hereunder or the unavailability of an exemption from registration for the issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of an Option, the Company may require the Optionee to represent and warrant at the time of any such exercise or receipt that such shares are being purchased or received only for the Optionee's own account and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any relevant provision of the aforementioned laws. At the option of the Company, a stop-transfer order against any such shares may be placed on the official stock books and records of the Company, and a legend indicating that such shares may not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates to ensure exemption from registration. The Plan Administrator -15- may also require such other action or agreement by the Optionee as may from time to time be necessary to comply with the federal and state securities laws. 16.4 No Rights as a Shareholder No Option shall entitle the Optionee to any dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Option, free of all applicable restrictions. 16.5 Compliance With Laws and Regulations Notwithstanding anything in the Plan to the contrary, the Board, in its sole discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Optionees who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Optionees. Additionally, in interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "incentive stock option" within the meaning of Section 422 of the Code. 16.6 No Trust or Fund The Plan is intended to constitute an "unfunded" plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Optionee, and no Optionee shall have any rights that are greater than those of a general unsecured creditor of the Company. 16.7 Severability If any provision of the Plan or any Option is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Option under any law deemed applicable by the Plan Administrator, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Plan Administrator's determination, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, person or Option, and the remainder of the Plan and any such Option shall remain in full force and effect. 16.8 Appendix Provisions Optionees who are residents of the State of California shall be subject to the additional terms and conditions set forth in Appendix A to the Plan. SECTION 17. EFFECTIVE DATE The Plan's effective date is the date on which it is adopted by the Board, so long as it is approved by the Company's shareholders at any time within 12 months of such adoption. -16- Adopted by the Board on January 13, 1997 and approved by the Company's shareholders on February 5, 1997. Plan amended and restated by the Board on September 13, 1999, and further amended to reflect the Company's November 2, 1999 name change. -17- APPENDIX A FOR CALIFORNIA RESIDENTS TO DRIVEWAY CORPORATION 1997 STOCK OPTION PLAN This Appendix to the Driveway Corporation 1997 Stock Option Plan (the "Plan") shall have application only to Optionees who are residents of the State of California. Capitalized terms contained herein shall have the same meanings given to them in the Plan, unless otherwise provided in this Appendix. Notwithstanding any provision contained in the Plan to the contrary and to the extent required by applicable law, the following terms and conditions shall apply to all Options granted to residents of the State of California, until such time as the Common Stock becomes a "listed security" under the Securities Act: 1. Nonqualified Stock Options shall have an exercise price that is not less than 85% of the Fair Market Value of the stock at the time the Option is granted, as determined by the Board, except that the exercise price shall be 110% of the Fair Market Value in the case of any person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations. 2. Options shall have a term of not more than 10 years from the date the Option is granted. 3. Options shall be nontransferable other than by will or the laws of descent and distribution. Notwithstanding the foregoing, and to the extent permitted by Section 422 of the Code, the Plan Administrator, in its discretion, may permit distribution of an Option to an inter vivos or testamentary trust in which the Option is to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to "immediate family" as that term is defined in Rule 16a- 1(e) of the Exchange Act. 4. Options shall become exercisable at the rate of at least 20% per year over five years from the date the Option is granted, subject to reasonable conditions such as continued employment. However, in the case of an Option granted to officers, directors or consultants of the Company or any of its affiliates, the Option may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company or any of its affiliates. 5. Unless employment is terminated for Cause, the right to exercise an Option in the event of termination of employment, to the extent that the Optionee is otherwise entitled to exercise an Option on the date employment terminates, shall be a. at least six months from the date of termination of employment if termination was caused by death or Disability; and b. at least 30 days from the date of termination if termination of employment was caused by other than death or Disability; -1- c. but in no event later than the remaining term of the Option. 6. No Option may be granted to a resident of California more than 10 years after the earlier of the date of adoption of the Plan and the date the Plan is approved by the shareholders. 7. Any Option exercised before shareholder approval is obtained shall be rescinded if shareholder approval is not obtained within 12 months before or after the Plan is adopted. Such shares shall not be counted in determining whether such approval is obtained. 8. The Company shall provide annual financial statements of the Company to each California resident holding an outstanding Option under the Plan. Such financial statements need not be audited and need not be issued to key employees whose duties at the Company assure them access to equivalent information. 9. Any right of repurchase on behalf of the Company in the event of an Optionee's termination of employment shall be (a) at a purchase price that is not less than the Fair Market Value of the securities upon termination of employment, and the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within 90 days of termination of employment (or in the case of securities issued upon exercise of Options after the date of termination, within 90 days after the date of the exercise), and the right shall terminate when the Company's securities become publicly traded; or (b) at the original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least 20% of the shares per year over five years from the date the Option is granted (without respect to the date the Option was exercised or became exercisable) and the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within 90 days of termination of employment (or in the case of securities issued upon exercise of Options after the date of termination, within 90 days after the date of the exercise). In addition to the restrictions set forth in clauses (a) and (b), the securities held by an officer, director or consultant of the Company or an affiliate of the Company may be subject to additional or greater restrictions. -2- PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
Date of Adoption/ Amendment/ Date of Shareholder Adjustment Section Effect of Amendment Approval ---------- ------- ------------------- -------------------
-3- EX-10.02 8 FORM OF NOTICE OF OPTION GRANT AND STOCK OPTION AG EXHIBIT 10.02 DRIVEWAY CORPORATION 1997 STOCK OPTION PLAN Notice of Stock Option Grant We are pleased to inform you that you have been selected by Driveway Corporation (the "Company") to receive the following Option to purchase Common Stock of the Company. The terms of the Option are as set forth in this Notice, the attached Stock Option Agreement and the Company's 1997 Stock Option Plan (the "Plan"): Name of Optionee: ------------------------- Total Number of Shares Granted: ------------------------- Type of Option: Incentive Stock Option Exercise Price Per Share: $ -------- Date of Grant: ------------------------ Vesting Commencement Date: ------------------------ Vesting Schedule: This Option may be exercised immediately, in whole or in part, subject to the Company's right to repurchase shares acquired on exercise, which right shall lapse in accordance with the following schedule: the first 25% of the shares subject to the Option will vest and cease to be subject to the repurchase option one year after the Vesting Commencement Date. The remainder of the shares subject to the Option will vest and cease to be subject to the repurchase option as to an additional 6.25% of the shares subject to the Option after each full three-month period of continuous employment or service thereafter. The Option will be fully vested 4 years from the Vesting Commencement Date. Expiration Date: ----------------------------------- By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and the Stock Option Agreement, both of which are attached to and made a part of this document. Optionee: Driveway Corporation By: - ------------------------- ------------------------------- Title: - ------------------------- ------------------------------- Print Name THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. Driveway Corporation 1997 Stock Option Plan: Stock Option Agreement SECTION 1. Grant Of Option. (a) Option. On the terms and conditions set forth in the Notice of Stock Option Grant and this Agreement, the Company grants to the Optionee on the Date of Grant the Option to purchase at the Exercise Price the number of Shares set forth in the Notice of Stock Option Grant (the "Option"). The Exercise Price is agreed to be at least 100% of the Fair ------ Market Value per Share on the Date of Grant (110% of Fair Market Value if Section 8.2 of the Plan applies). This Option is intended to be an ISO or a Nonstatutory Option, as provided in the Notice of Stock Option Grant. (b) Stock Plan and Defined Terms. This Option is granted pursuant to the Plan, a copy of which the Optionee acknowledges having received. The provisions of the Plan are incorporated into this Agreement by this reference. Unless otherwise defined herein, capitalized terms are defined in Section 13 of this Agreement. SECTION 2. RIGHT TO EXERCISE. (a) Exercisability. Subject to the terms and conditions set forth in this Agreement and the Plan, this Option shall vest and become exercisable according to the Vesting Schedule set forth in the Notice of Stock Option Grant. (b) $100,000 Limitation. If the Option is designated as an ISO on the Notice of Stock Option Grant and the aggregate Exercise Price Per Share with respect to which the Option first becomes exercisable during any calendar year (under the Option and all other ISOs you hold) exceeds $100,000, the excess portion will be treated as a nonqualified stock option, unless the Internal Revenue Service changes the rules and regulations governing the $100,000 limit for ISOs. A portion of the Option may be treated as a nonqualified stock option if certain events cause exercisability of the Option to accelerate. (c) Stockholder Approval. Any other provision of this Agreement notwithstanding, no portion of this Option shall be exercisable at any time prior to the approval of the Plan by the Company's stockholders. 2 SECTION 3. No Transfer Or Assignment Of Option. Except as otherwise provided in this Agreement, this Option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process. SECTION 4. Exercise Procedures. (a) Notice of Exercise. The Optionee or the Optionee's representative may exercise this Option by giving written notice to the Company pursuant to Section 12(c). The notice shall specify the election to exercise this Option, the number of Shares for which it is being exercised and the form of payment. The notice shall be signed by the person exercising this Option. In the event that this Option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative's right to exercise this Option. The Optionee or the Optionee's representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the Purchase Price. (b) Issuance of Shares. After receiving a proper notice of exercise, the Company shall cause to be issued a certificate or certificates for the Shares as to which this Option has been exercised, registered in the name of the person exercising this Option (or in the names of such person and his or her spouse as community property or as joint tenants with right of survivorship). The Company shall cause such certificate or certificates to be deposited in escrow or delivered to or upon the order of the person exercising this Option. (c) Withholding Taxes. In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this Option, the Optionee, as a condition to the exercise of this Option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements. The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the disposition of Shares purchased by exercising this Option. SECTION 5. Payment For Stock. (a) Cash. All or part of the Purchase Price may be paid in cash or cash equivalents. (b) Surrender of Stock. All or any part of the Purchase Price may be paid by surrendering, or attesting to the ownership of, Shares of Common Stock that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when this Option is exercised. The Optionee shall not surrender, or attest to the ownership of, Shares in payment of the Purchase Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes. (c) Exercise/Sale. If Stock is publicly traded, all or part of the Purchase Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) 3 of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company. (d) Exercise/Pledge. If Stock is publicly traded, all or part of the Purchase Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company. SECTION 6. Term And Expiration. (a) Basic Term. This Option shall in any event expire on the expiration date set forth in the Notice of Stock Option Grant, which date is 10 years after the Date of Grant (five years after the Date of Grant if this Option is designated as an ISO in the Notice of Stock Option Grant and Section 8.2 of the Plan applies). (b) Termination of Service (Except by Death). If the Optionee's Continuous Status as an Employee or Consultant (as such term is defined in the Plan) terminates for any reason other than death, then this Option shall expire on the earliest of the following occasions: (i) The expiration date determined pursuant to Subsection (a) above (the "Expiration Date"); (ii) The date that is twelve (12) months after the termination of Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability within the meaning of Section 22(e)(3) of the Code; (iii) The date that is six (6) months after the termination of Optionee's Continuous Status as an Employee or Consultant as a result of a disability which does not fall within the meaning of Subsection (ii) above, provided, however, that to the extent that Optionee fails -------- ------- to exercise an Option which is an ISO within three months of the date of such termination, the Option will not qualify for ISO treatment; (iv) The date that is six (6) months after Optionee's death if it occurs during the period of Continuous Status as an Employee or Consultant; or (v) The date three (3) months after the termination of the Optionee's Service for any reason other than as described in Subsections (ii), (iii) or (iv) above. The Optionee may exercise all or part of this Option at any time before its expiration under the preceding sentence, but only to the extent that this Option had become vested and exercisable before the Optionee's Service terminated. When the Optionee's Service terminates, this Option shall expire immediately with respect to the number of Shares for which this Option is not yet vested and exercisable. Notwithstanding the foregoing, in the event that the Optionee dies within thirty (30) days after termination of Service but before the expiration of this Option, all or part of this Option may be exercised until the earlier of six (6) months after the date of Optionee's death 4 or the Expiration Date by the executors or administrators of the Optionee's estate or by any person who has acquired this Option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this Option had become exercisable before the Optionee's Service terminated. (c) Leaves of Absence. For any purpose under this Agreement, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if Continuous Status as an Employee or Consultant for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company). (d) Notice Concerning ISO Treatment. If this Option is designated as an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an ISO to the extent it is exercised (i) more than three months after the date the Optionee ceases to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code), (ii) more than 12 months after the date the Optionee ceases to be an Employee by reason of such permanent and total disability or (iii) after the Optionee has been on a leave of absence for more than 90 days, unless the Optionee's reemployment rights are guaranteed by statute or by contract. SECTION 7. Right Of First Refusal. (a) Right of First Refusal. In the event that the Optionee proposes to sell, pledge or otherwise transfer to a third party any Shares issued upon the exercise of this Option, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all of such Shares. If the Optionee desires to transfer Shares acquired under this Agreement, the Optionee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal or state securities laws. The Transfer Notice shall be signed both by the Optionee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Company shall have the right to purchase all of the Shares on the terms of the proposal described in the Transfer Notice (subject, however, to any change in such terms permitted under Subsection (b) below) by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company. The Company's rights under this Subsection (a) shall be freely assignable, in whole or in part. (b) Transfer of Shares. If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, the Optionee may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal and state securities laws and not in violation of any other contractual restrictions to which the Optionee is bound. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in 5 Subsection (a) above. If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Shares with cash or cash equivalents equal to the present value of the consideration described in the Transfer Notice. (c) Additional Shares or Substituted Securities. In the event of the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company's outstanding securities without receipt of consideration, any new, substituted or additional securities or other property (including money paid other than as an ordinary cash dividend) which are by reason of such transaction distributed with respect to any Shares subject to this Section 7 or into which such Shares thereby become convertible shall immediately be subject to this Section 7. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 7. (d) Termination of Right of First Refusal. Any other provision of this Section 7 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Optionee desires to transfer Shares, the Company shall have no Right of First Refusal, and the Optionee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above. (e) Permitted Transfers. This Section 7 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to the Optionee's spouse, children or grandchildren or to a trust by the Optionee for the benefit of the Optionee or the Optionee's spouse, children or grandchildren, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If the Optionee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Section 7 shall apply to the Transferee to the same extent as to the Optionee. (f) Termination of Rights as Stockholder. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be purchased in accordance with this Section 7, then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Shares shall be deemed to have been purchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement. 6 SECTION 8. Legality Of Initial Issuance. No Shares shall be issued upon the exercise of this Option unless and until the Company has determined that: (a) It and the Optionee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof; (b) Any applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and (c) Any other applicable provision of state or federal law has been satisfied. By acceptance of this Option, Optionee acknowledges that Optionee has read and understands Section 16.3 of the Plan. SECTION 9. No Registration Rights. The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law. SECTION 10. Restrictions On Transfer. (a) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any state or any other law. (b) Market Stand-Off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company's initial public offering, the Optionee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its underwriters. Such restriction (the "Market Stand-Off") shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriters. In no event, however, shall such period exceed 180 days. The Market Stand-Off shall in any event terminate two years after the date of the Company's initial public offering. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company's outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with 7 respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand- Off. In order to enforce the Market Stand-Off, the Company may impose stop- transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period. The Company's underwriters shall be beneficiaries of the agreement set forth in this Subsection (b). This Subsection (b) shall not apply to Shares registered in the public offering under the Securities Act, and the Optionee shall be subject to this Subsection (b) only if the directors and officers of the Company are subject to similar arrangements. (c) Investment Intent at Grant. The Optionee represents and agrees that the Shares to be acquired upon exercising this Option will be acquired for investment, and not with a view to the sale or distribution thereof. (d) Investment Intent at Exercise. In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this Option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel. (e) Legends. All certificates evidencing Shares purchased under this Agreement shall bear the following legend: "THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE." All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law): "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." (f) Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer 8 required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend. (g) Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 10 shall be conclusive and binding on the Optionee and all other persons. SECTION 11. Adjustment Of Shares. In the event of any transaction described in Section 10 of the Plan, the terms of this Option (including, without limitation, the number and kind of Shares subject to this Option and the Exercise Price) shall be adjusted as set forth in Section 10 of the Plan. In the event that the Company is a party to a merger or consolidation, this Option shall be subject to the agreement of merger or consolidation, as provided in Section 10 of the Plan. SECTION 12. Miscellaneous Provisions. (a) Rights as a Stockholder. Neither the Optionee nor the Optionee's representative shall have any rights as a stockholder with respect to any Shares subject to this Option until the Optionee or the Optionee's representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5. (b) No Retention Rights. Nothing in this Option or in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause. (c) Notice. Any notice required by the terms of this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to the Company at its principal executive office and to the Optionee at the address that he or she most recently provided to the Company. (d) Entire Agreement. The Notice of Stock Option Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) which relate to the subject matter hereof. (e) Assigns. This Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon Optionee and Optionee's heirs, executors, administrators, successors and assigns. (f) No Waiver. No waiver of any provision of this Agreement will be valid unless in writing, signed by the person against whom such waiver is sought to be enforced, nor will failure to enforce any right hereunder constitute a continuing waiver of the same or a waiver of any other right hereunder. 9 (g) Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, as such laws are applied to contracts entered into and performed in such State. SECTION 13. Definitions. (a) "Agreement" shall mean this Stock Option Agreement. (b) "Board of Directors" shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Committee" shall mean a committee of the Board of Directors, as described in Section 2 of the Plan. (e) "Company" shall mean Driveway Corporation, a Delaware corporation. (f) "Consultant" shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors. (g) "Date of Grant" shall mean the date specified in the Notice of Stock Option Grant, which date shall be the later of (i) the date on which the Board of Directors resolved to grant this Option or (ii) the first day of the Optionee's Service. (h) "Disability" shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. (i) "Employee" shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary. (j) "Exercise Price" shall mean the amount for which one Share may be purchased upon exercise of this Option, as specified in the Notice of Stock Option Grant. (k) "Fair Market Value" shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons. (l) "ISO" shall mean an employee incentive stock option described in Section 422(b) of the Code. (m) "Nonstatutory Option" shall mean a stock option not described in Sections 422(b) or 423(b) of the Code. (n) "Notice of Stock Option Grant" shall mean the document so entitled to which this Agreement is attached. 10 (o) "Optionee" shall mean the individual named in the Notice of Stock Option Grant. (p) "Outside Director" shall mean a member of the Board of Directors who is not an Employee. (q) "Parent" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (r) "Plan" shall mean the Driveway Corporation 1997 Stock Option Plan, as in effect on the Date of Grant. (s) "Purchase Price" shall mean the Exercise Price multiplied by the number of Shares with respect to which this Option is being exercised. (t) "Right of First Refusal" shall mean the Company's right of first refusal described in Section 7. (u) "Securities Act" shall mean the Securities Act of 1933, as amended. (v) "Service" shall mean service as an Employee, Outside Director or Consultant. (w) "Share" shall mean one share of Stock issued upon exercise of an Option, as adjusted in accordance with Section 10 of the Plan (if applicable). (x) "Stock" shall mean the Common Stock of the Company. (y) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (z) "Transferee" shall mean any person to whom the Optionee has directly or indirectly transferred any Share acquired under this Agreement. (aa) "Transfer Notice" shall mean the notice of a proposed transfer of Shares described in Section 7. 11 EX-10.06 9 NOTICE OF STOCK OPTION GRANT TO C LOGAN EXHIBIT 10.06 Driveway Corporation 1997 Stock Option Plan Notice of Stock Option Grant We are pleased to inform you that you have been selected by Driveway Corporation (the "Company") to receive the following Option to purchase Common Stock of the Company. The terms of the Option are as set forth in this Notice, the attached Stock Option Agreement and the Company's 1997 Stock Option Plan (the "Plan"):
Name of Optionee: Chris Logan Total Number of Shares Granted: 1,172,714 Type of Option: Incentive Stock Option Exercise Price Per Share: $0.14 Date of Grant: July 30, 1999 Vesting Commencement Date: June 14, 1999 Vesting Schedule: This Option may be exercised immediately, in whole or in part, subject to the Company's right to repurchase shares acquired on exercise, which right shall lapse in accordance with the following schedule: 2.0833% of the shares subject to the Option will vest one month after the Vesting Commencement Date and an additional 2.0833% of the shares subject to the Option shall vest after Optionee completes each full month of continuous employment or service thereafter; provided however, ---------------- that immediately prior to a Corporate Transaction (as defined in the Plan) in which the Company or stockholders of the Company receive as consideration in connection with such Corporate Transaction (as defined in the Plan) cash, securities or other assets (i) valued in excess of $75 million, then 25% of the portion of the then outstanding options that are not at that time vested shall become vested; or (ii) valued in excess of $250 million, then 50% of the portion of the then outstanding options that are not at that time vested shall become vested. Expiration Date: July 29, 2009
By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and the Stock Option Agreement, both of which are attached to and made a part of this document. OPTIONEE: DRIVEWAY CORPORATION /s/ By: /s/ - ---------------------- ---------------------- Chris Logan Title: Kent Jarvi - ---------------------- ---------------------- Print Name EX-10.07 10 NOTICE OF STOCK OPTION GRANT TO M VANNEMAN EXHIBIT 10.07 Driveway Corporation 1997 Stock Option Plan Notice of Stock Option Grant We are pleased to inform you that you have been selected by Driveway Corporation (the "Company") to receive the following Option to purchase Common Stock of the Company. The terms of the Option are as set forth in this Notice, the attached Stock Option Agreement and the Company's 1997 Stock Option Plan (the "Plan"):
Name of Optionee: Michael Vanneman Total Number of Shares Granted: 220,000 Type of Option: Incentive Stock Option Exercise Price Per Share: $2.50 Date of Grant: February 2, 2000 Vesting Commencement Date: February 2, 2000 Vesting Schedule: This Option may be exercised immediately, in whole or in part, subject to the Company's right to repurchase shares acquired on exercise, which right shall lapse in accordance with the following schedule: 2.0833% of the shares subject to the Option will vest and cease to be subject to the repurchase option one month after the Vesting Commencement Date. The remainder of the shares subject to the Option will vest and cease to be subject to the repurchase option as to an additional 2.0833% of the shares subject to the Option after each full month of continuous employment or service thereafter; provided however, that in the event Optionee's employment is terminated within one year after the occurrence of a Corporate Transaction (as defined in the Plan), 50% of the portion of the then outstanding options that are not at that time vested shall become vested. Expiration Date: February 1, 2010
By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and the Stock Option Agreement, both of which are attached to and made a part of this document. Optionee: Driveway Corporation By: - --------------------------- --------------------------- Title: - --------------------------- ------------------------ Print Name EX-10.10 11 STOCK SUBSCRIPTION S LOGAN EXHIBIT 10.10 ATRIEVA CORPORATION STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT This Stock Subscription and Repurchase Agreement (this "Agreement") is entered into as of September 30, 1999 by and between Atrieva Corporation, a Delaware corporation (the "Company"), and Chris Logan (the "Shareholder"). RECITALS A. In connection with the execution and delivery of this Agreement, the Company is issuing to the Shareholder as of the date hereof 714,286 shares of common stock of the Company (the "Shares"). B. In order to induce the Company to issue the Shares, the Shareholder and the Company desire that the issuance of the Shares be subject to the terms and conditions set forth in this Agreement and that all of the Shares be subject to a repurchase option in favor of the Company as set forth in this Agreement. AGREEMENTS In consideration of the foregoing and the other provisions set forth herein, the parties hereby agree as follows: 1. Share Subscription and Shareholder Representations The Shareholder hereby subscribes for and agrees to purchase the Shares at a purchase price of $0.14 per share, or an aggregate of $100,000.04. Concurrent with the delivery of this Agreement, the Shareholder agrees to deliver a promissory note substantially in the form attached hereto as Exhibit A as --------- payment of the purchase price and a Pledge Agreement to Promissory Note substantially in the form attached hereto as Exhibit B. --------- For purposes of complying with applicable securities laws in connection with such purchase, the Shareholder represents and warrants to the Company as follows: (a) I am a resident of the State of California. (b) I am familiar with the Company's business, financial condition and prospects and have had access to and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. I possess sufficient business and financial experience to protect my interests in connection with the purchase of the Shares. I am aware that the Shares have not been registered under the Securities Act of 1933 (the "1933 Act") or any state securities laws pursuant to exemption(s) from registration. I understand that the reliance by the Company on such exemption(s) is CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission predicated in part upon the truth and accuracy of the representations contained in this Section. (c) I am purchasing the Shares for my own personal account for investment and not with a view to the sale or distribution of any or all of the Shares. I agree that I will in no event sell or distribute any or all of the Shares unless (1) there is an effective registration statement under the 1933 Act and applicable state securities laws covering any such transaction or (2) the Company receives an opinion of my legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration. (d) I consent to the placing of a legend on my certificate(s) for the Shares stating that the Shares have not been registered under the 1933 Act or any state securities law and setting forth the restriction on transfer contemplated hereby and to the placing of a stop transfer order on the books of the Company and with any transfer agents against the Shares until the Shares may be legally resold or distributed. 2. Repurchase Option The Shares shall be subject to the following repurchase option in favor of the Company (the "Repurchase Option"): (a) If the Shareholder's employment as an employee of the Company is terminated (1) by the Company for any reason, (2) by the Shareholder for any reason or (3) upon death or total disability of the Shareholder, the Company shall have the right at any time within ninety (90) days after the date of termination of Shareholder's employment as an employee of the Company (the "Termination Date"), provided that the Termination Date shall have occurred prior to the termination of the Repurchase Option, to repurchase from the Shareholder, at a price per share of $0.14 (appropriately adjusted for any subsequent stock split, dividend, combination, other recapitalization or similar event) (the "Repurchase Price"), up to but not exceeding the number of Shares that do not constitute Vested Shares (as defined below) as of the date immediately prior to the Termination Date. (b) The Shares shall vest and be no longer be subject to the Repurchase Option (the "Vested Shares") as follows: (1) 6.25% of the Shares shall vest and be no longer subject to the Repurchase Option every three months beginning September 14, 1999 (which shall be the first vesting date) and ending on June 14, 2003. (2) Immediately prior to the closing of a merger, consolidation, recapitalization or other business combination or transaction pursuant to which the holders of the outstanding voting power of the Company immediately prior to the transaction would hold less than 50% of the outstanding voting power of the Company immediately after the -2- transaction (except for a merger effected exclusively for the purpose of changing the domicile of the Company) (a "Change of Control") and in which the Company or shareholders of the Company received as consideration in connection with such transaction cash, securities or other assets valued in excess of $75 million, 25% of the then outstanding Shares that are not at that time Vested Shares shall become vested. Immediately prior to a Change of Control in which the Company or the shareholders of the Company receive as consideration in connection with such transaction cash, securities or other assets valued in excess of $250 million, 50% of the then outstanding Shares that are not at that time Vested Shares shall become vested. Each of the events described in in this subparagraph shall be deemed an "Acceleration Event". (c) The Repurchase Option, if exercised by the Company, shall be exercised by written notice signed by an officer or director of the Company after approval by the Board of Directors and shall be delivered to the Shareholder on or prior to the expiration of the 90-day period referred to in paragraph (a) above. The Company may pay for the Shares it has elected to repurchase (1) by delivery to the Shareholder of a check in the amount of the aggregate Repurchase Price for the number of Shares being repurchased, (2) by cancellation by the Company of an amount of the Shareholder's indebtedness to the Company equal to the aggregate Repurchase Price for the number of Shares being repurchased or (3) by a combination of (1) and (2). Payment of the Repurchase Price shall be completed as promptly as reasonably practicable after notice of exercise of the Repurchase Option is delivered to the Shareholder. (d) Upon receipt of any certificate(s) representing the Shares subject to the Repurchase Option, the Shareholder shall immediately pledge and deliver the certificate(s) to the Company as pledgeholder, to be held pursuant to the Repurchase Option and Pledge Agreement to Promissory Note and shall execute and deliver to the Company an assignment separate from certificate endorsed in blank for such Shares in substantially the form set forth in Attachment 1 hereto. ------------ 3. Transfer Restrictions (a) Without the prior written consent of the Company, none of the Shares may be transferred by the Shareholder under any circumstances, voluntarily or involuntarily; provided, however, that the Shares may be transferred without such prior written consent if and only if (1) the Repurchase Option shall have ceased to apply to such Shares as provided in this Agreement, (2) the Shareholder shall have complied fully with the requirements of this Section 3 and the other provisions of this Agreement and (3) the Shares are no longer subject to the pledge pursuant to the Pledge Agreement to Promissory Note. (b) Any purported Transfer without compliance with this Section shall be void. The Company may place a legend on the certificate or certificates evidencing the Shares referencing the restrictions on transfer set forth in this Agreement. -3- 4. Legend All certificates representing any of the Shares shall have endorsed thereon the following legend, in addition to any other legend required by the Company ----------- respecting the restricted nature of the Shares: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT THAT INCLUDES A REPURCHASE RIGHT IN FAVOR OF THE CORPORATION RELATING TO THESE SECURITIES." 5. Rights as Shareholder Subject to the terms hereof, the Shareholder shall have all the rights of a shareholder with respect to the Shares during the term of this Agreement, including without limitation the right to vote and receive any dividends or other distributions declared thereon. 6. Adjustments for Stock Splits, Recapitalizations and Similar Events If, at any time or from time to time, there is (1) a dividend of any security, stock split or other change in the character or amount of any of the outstanding securities of the Company, or (2) any consolidation, merger or similar event in connection with which the Repurchase Option does not lapse and terminate under the terms of this Agreement, then, in such event, any and all new, substituted or additional securities or other property to which the Shareholder is entitled by reason of his ownership of the Shares then subject to the Repurchase Option shall be immediately included in the definition of "Shares" under this Agreement and shall be subject to the Repurchase Option and the pledge provisions of Section 2 with the same force and effect as the Shares currently subject to this Agreement, the Repurchase Option and the pledge provisions of Section 2. The Repurchase Price per share upon exercise of the Repurchase Option shall be appropriately adjusted as determined by the Board of Directors of the Company to reflect any such event referred to in this Section 6. 7. Termination This Agreement shall terminate in its entirety at the earlier of (a) such time as none of the Shares remain subject to the Repurchase Option under Section 2; and (b) June 14, 2003. 8. Tax Matters The Shareholder acknowledges that he has considered and analyzed the appropriate treatment by him of the transactions contemplated hereby under the Internal Revenue Code of 1986, as amended (the "Code"), including without limitation Section 83 thereof. The -4- Shareholder agrees that any decision as to whether to file an election relating thereto, and the due and proper filing of any such election, are solely the Shareholder's responsibilities. 9. Cooperation The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 10. Specific Enforcement Each party expressly agrees that the other party would be irreparably damaged if this Agreement were not specifically enforced. Upon a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any party, the other party shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions of this Agreement. 11. Notices All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, or otherwise delivered by hand or by messenger, facsimile or courier, addressed (a) if to the Shareholder, at the Shareholder's then current address on the Company's books or at such other address as the Shareholder shall have furnished to the Company in writing, or (b) if to the Company, at its principal executive office, attention Chief Executive Officer, with a copy to William Kushner, Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, CA 94025. If notice is provided by mail, it shall be deemed to be given three (3) business days after proper deposit in the U.S. Mail, and if notice is given by hand or by messenger, facsimile or courier, it shall be deemed to be given upon receipt. 12. Entire Agreement This Agreement (including the Attachment and Exhibits attached hereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both oral and written, among such parties, or any of them, with respect to such subject matter. In particular, and not in any manner limiting the foregoing, this Agreement supercedes all provisions relating to the sale, offer or issuance of stock of the Company (the "Stock Provisions") in that certain employment agreement, dated May 28, 1999, by the Company to Shareholder and the Company and Shareholder agree that the Stock Provisions are null, void and of no further force and effect. The rights of the Company and obligations of Shareholder under this Agreement shall not be limited in any manner by the Pledge Agreement to Promissory Note between the Company and the Shareholder. -5- 13. Amendment and Waiver Neither this Agreement nor any provision hereof may be modified, amended or terminated except by a written agreement signed by the parties hereto, and no waiver of any provision of this Agreement shall be effective unless in writing and signed by or on behalf of the party to be bound by such waiver. 14. Governing Law This Agreement shall be governed by and construed under the laws of the state of California, without regard to rules governing conflict of laws. 15. Successors and Assigns The provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors, administrators and personal representatives of the parties hereto. Notwithstanding anything to the contrary contained in this Agreement, no Shares may be transferred by the Shareholder under any circumstances, without the prior written consent of the Company which may be withheld for any reason, so long as such Shares are subject to the Repurchase Option contained in this Agreement or the pledge pursuant to the Pledge Agreement to Promissory Note. Any transfer or purported transfer in violation of this Section 15 shall be void. 16. Headings The headings of the sections and paragraphs of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 17. Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18. Severability If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms. -6- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATRIEVA CORPORATION By /s/ Kent W. Jarvi -------------------------------- Name: Kent W. Jarvi ------------------------------ Title: CFO ----------------------------- Address: One Union Square 600 University Street, Suite 911 Seattle, Washington 98101 SHAREHOLDER /s/ Christopher Logan ---------------------------------- Print Name: Christopher Logan Address: [*] ---------------------------------- ---------------------------------- ---------------------------------- -7- ATTACHMENT 1 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Stock Subscription and Repurchase Agreement dated as of September 30, 1999 (the "Repurchase Agreement"), Chris Logan hereby sells, assigns, and transfers unto Atrieva Corporation, a Delaware corporation (the "Company") _______ shares of the Common Stock of the Company, standing in the undersigned's name on the books of said corporation represented by Certificate No. _____ herewith, and does hereby irrevocably constitute and appoint _________________ attorney to transfer the said stock on the books of the Company with full power of substitution in the premises. Dated _________________. Signature ------------------------------ Name: Chris Logan Spouse --------------------------------- Name: Instruction to Persons Signing: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. The purpose of this assignment is to enable the Company to exercise its "Repurchase Option" set forth in the Repurchase Agreement without requiring additional signatures on the part of the Purchaser. EXHIBIT A PROMISSORY NOTE --------------- $100,000.04 San Francisco, California September 30, 1999 FOR VALUE RECEIVED, the undersigned promises to pay in lawful money of the United States to the order of Atrieva Corporation (the "Company") at its principal place of business or at such other place as the holder hereof from time to time may designate in writing, the principal sum of one hundred thousand dollars four cents ($100,000.04), with simple interest on the principal balance from the date hereof at an annual rate of 6%, compounded semi-annually. The outstanding principal and interest hereunder shall be due and payable in full on the first to occur of (a) January 1, 2006 or (b) the date on which the undersigned sells shares of the Company's Common Stock, provided that the -------- net proceeds to the undersigned are at least equal to the principal amount due hereunder (the "Maturity Date"); provided further, that in the event that the ---------------- undersigned's employment by or association with the Company is terminated for any reason prior to payment in full of this Note, this Note shall be accelerated and all remaining unpaid principal and interest shall become due and payable sixty (60) days after such termination. This Note may be prepaid at any time without penalty. All money paid toward the satisfaction of this Note shall be applied first to the payment of interest as required hereunder and then to the retirement of the principal. If suit is brought on this note after any default in any payment, the undersigned promises and agrees to pay reasonable attorneys' fees incurred thereby. This note is to be construed in all respects and enforced according to the laws of the State of California. This note is a full recourse note and is secured by a Pledge Agreement to Promissory Note, dated September 30, 1999, between the undersigned and the Company. Presentment, notice of dishonor, and protest are waived by the undersigned. This note shall be fully binding on and inure to the benefit of the successors, heirs, legal representatives, and assigns of the parties hereto. By /s/ Christopher S. Logan -------------------------------- Name: Chris Logan PLEDGE AGREEMENT TO PROMISSORY NOTE THIS PLEDGE AGREEMENT, dated as of September 30, 1999, is given by Chris Logan ("Grantor") to Atrieva Corporation, a Delaware corporation ("Grantee"). Grantor hereby represents, covenants and agrees with grantee as follows: RECITALS A. Grantee has made a loan to Grantor in the amount of $100,000.04 (the "Loan"). B. Grantor has executed a promissory note dated September 30, 1999, in the principal amount of $100,000.04 payable to Grantee (the "Note") in connection with the Loan. C. Grantor has agreed to pledge certain shares of common stock (the "Stock") to Grantee to secure the payment and performance in full of his obligations under the Note. D. The parties desire to set forth the terms and conditions of the pledge of the Stock in this Agreement. AGREEMENTS Section 1. Pledge of the Collateral Grantor hereby pledges to Grantee the following-described property (the "Collateral"), together with all proceeds thereof:
No. of Shares Title of Class Issuer ------------- -------------- ------ 714,286 Common Atrieva Corporation. [* * *]
This pledge is given to secure (a) the due and timely payment of all amounts due under the Note to Grantee by Grantor and (b) the performance by Grantor of his obligations under this Agreement (together, the "Obligations"). Section 2. Representations and Warranties Grantor hereby represents and warrants to Grantee as follows: 2.1 Binding Effect This Agreement constitutes the valid obligation of Grantor which is binding and enforceable against him in accordance with its terms. 2.2 Title to Collateral Grantor is the legal and beneficial owner of the Collateral free and clear of any lien, claim, security interest, option, encumbrance or right of any other, except the security interest created by this Agreement and the pledge pursuant to the Stock Subscription and Repurchase Agreement between Grantee and Grantor of even date herewith (the "Repurchase Agreement"). 2.3 Security Interest When this Agreement is duly executed and delivered by Grantor and Grantee has possession of the Collateral, this Agreement will constitute and Grantee will have a valid and perfected first priority security interest in and to the Collateral, effective against all third parties. Section 3. Delivery of Certificate Concurrently herewith, Grantor shall deliver to Grantee the stock certificate(s) representing all of the Collateral, together with appropriate assignments separate from certificate naming Grantee as assignee, duly endorsed by Grantor for transfer in blank, in the form and substance of Attachment A-1, -------------- attached hereto. Section 4. Handling of Collateral Grantee shall not be required, except at its sole option, to realize upon the Collateral, collect dividends thereon, exercise any rights or options of the Grantor pertaining thereto, to keep the Collateral insured, or do any other thing for the protection, enforcement or collection of the Collateral. Under no circumstances shall Grantee in any way be responsible for failure to act in Grantor's behalf nor shall it be in any way responsible for any negligent act with respect to the Collateral. Grantee shall not exercise voting rights or collect cash dividends with respect to the Collateral unless and until the occurrence of an Event of Default, as defined in Section 8 hereof, and such rights may be exercised by Grantor prior to any such occurrence. Upon an Event of Default (as defined below), Grantee is authorized to transfer to itself or to any other person all or any of the Collateral, and may fill in blanks in any transfers or other documents delivered to it, provided that any surplus of the proceeds of the Collateral after payment in full of all obligations secured hereby shall be paid over to Grantor. Nothing in this Pledge Agreement, including, without limitation, this Section 4, shall limit the rights of Grantee or obligations of Grantor under the Repurchase Agreement. -2- Section 5. Stock Dividends and Recapitalizations In the event any issuer of the Collateral shall declare a stock dividend or any stock split with respect to the Collateral, or in the event the Collateral shall be replaced as a result of any dissolution, merger, consolidation, reorganization, recapitalization or other similar proceeding involving an issuer of the Collateral, or in the event there shall be a distribution of assets or securities with respect to the Collateral, all such distributed assets, shares or other securities to which Grantor is entitled as a result of any such transactions shall be delivered to Grantee and shall automatically become subject to all of the terms and conditions of this Agreement to the same extent as though they had been included as, and shall be deemed to be, a part of the Collateral from the date hereof. Section 6. Substitutions, Extension The obligations of Grantor hereunder shall not be affected by the release or substitution of any other security for the Obligations secured hereby or by any release, waiver, renewal, extension of time or compromise given to Grantor with regard to any of the Obligations or for any other reason other than the full payment or satisfaction by Grantor of the Obligations. Section 7 Termination This Agreement shall terminate upon Grantor's payment or satisfaction in full of all of the Obligations; provided, however, that upon the request of the Grantor (but no more than twice a year), a portion of the Collateral shall be released from the pledge that is equal to the percentage of the principal amount due under the Note that has been forgiven by Grantee pursuant to the terms of the Note. Section 8. Events of Default 8.1 Events of Default The failure by Grantor (a) to pay any portion of principal of, or interest, if any, on, the Note when due or (b) to perform his obligations under this Agreement shall constitute Events of Default under this Agreement. 8.2 Effect Upon the occurrence of any Event of Default, the obligations secured hereby shall then or at any time thereafter, at the option of Grantee, become immediately due and payable without notice or demand, and Grantee shall have an immediate right to pursue the remedies provided herein. -3- Section 9. Remedies If an Event of Default occurs, Grantee shall have all remedies provided by law, including, without limitation, all rights of a secured party under the California Uniform Commercial Code (the "UCC"), whether or not this Agreement and the transactions contemplated hereby are determined to be governed by the UCC. Without limiting the generality of the foregoing, Grantee shall be entitled to exercise all voting rights connected with the Collateral and to transfer all right, title and interest in and to the Collateral to be transferred to Grantee or to any purchaser acceptable to Grantee upon terms and conditions acceptable to Grantee; provided that any surplus of the proceeds of the Collateral after payment in full of all obligations secured hereby shall be paid over to Grantor. Section 10. Cumulative Rights The security and the rights and remedies provided for in this Agreement are cumulative, and are in addition to any rights or security or remedies of Grantee under any other instruments or agreements, or under applicable law. Section 11. Expenses Grantor shall pay on demand the costs of all filings and recordings deemed desirable by Grantee, and all expenses, including reasonable attorneys' fees, which Grantee may incur in protecting, defending or realizing on any part of the Collateral, or in protecting or defending the priority of the security interest created hereby, whether or not a lawsuit be involved, all such sums to be deemed secured by this pledge. Section 12. Notices Notices to Grantee and Grantor shall be sent as follows: -4- TO GRANTEE: (a) Atrieva Corporation 380 Brannan Street San Francisco, CA 94107 Attn: Kent Jarvi Facsimile: (415) 247-8850 with a copy to: Perkins Coie LLP 135 Commonwealth Drive, Suite 250 Menlo Park, CA 94025 Attn: William Kushner Facsimile: (650) 752-6050 TO GRANTOR: (b) Chris Logan ----------------------- [*] ----------------------- ----------------------- ----------------------- with a copy to: ----------------------- ----------------------- ----------------------- ----------------------- Section 13. Modifications, Consents and Waivers No failure or delay on the part of Grantee in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of such right or power preclude any other or further exercise thereof or the exercise of any other right or power. No amendment, modification or waiver of any provision of this Agreement, nor consent to any departure therefrom, shall be effective unless in writing and consented to by Grantee. Section 14. Additional Documents Grantor shall at Grantee's request, from time to time, at Grantor's sole cost and expense, execute, reexecute, deliver and redeliver any and all documents, and do and perform -5- such other and further acts as may reasonably be required by Grantee to enable Grantee to perfect, preserve and protect its security interest in the Collateral and its rights and remedies under this Agreement or granted by law and to carry out and effect the intents and purposes of this Agreement. Section 15. Miscellaneous 15.1 Amendment Neither this Agreement nor any provision hereof may be amended, modified, waived, discharged or terminated other than by an instrument in writing signed by the party to be bound. 15.2 Binding Agreement The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 15.3 Headings Paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. 15.4 Severability Any provision hereof which is invalid or prohibited by law shall be inoperative and all other provisions hereof shall remain effective. 15.5 Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original if fully executed, but all of which together shall constitute one and the same instrument. 15.6 Applicable Law This Agreement shall be construed in accordance with and governed by the laws of the state of California. -6- IN WITNESS WHEREOF, Grantor has executed this Pledge Agreement as of the date first written above. /s/ Christopher S. Logan --------------------------- Name: Chris Logan --------------------------- Spouse ACCEPTED: ATRIEVA CORPORATION By /s/ Kent W. Jarvi ---------------------------- Name: Kent W. Jarvi ------------------------- Title: CFO ------------------------ Dated: 9/30/99 ------------------------ -7- ATTACHMENT A-1 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned, Chris Logan, hereby assigns and transfers unto Atrieva Corporation, a Delaware corporation, ___________ shares of the Common Stock of Atrieva Corporation standing in its name on the books of said corporation. The undersigned hereby irrevocably constitutes and appoints Perkins Coie LLP to transfer said shares on the books of said corporation with full power of substitution in the premises. DATED: _________ __, 1999 By:/s/ Christopher S. Logan -------------------------- Name: Chris Logan In Presence of: /s/ Kent W. Jarvi - ------------------------- Name: Kent W. Jarvi -8- EX-10.11 12 STOCK SUBSCRIPTION K JARVI EXHIBIT 10.11 ATRIEVA CORPORATION STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT This Stock Subscription and Repurchase Agreement (this "Agreement") is entered into as of October 10, 1999 by and between Atrieva Corporation, a Delaware corporation (the "Company"), and Kent Jarvi (the "Shareholder"). RECITALS A. In connection with the execution and delivery of this Agreement, the Company is issuing to the Shareholder as of the date hereof 318,718 shares of common stock of the Company (the "Shares"). B. In order to induce the Company to issue the Shares, the Shareholder and the Company desire that the issuance of the Shares be subject to the terms and conditions set forth in this Agreement and that all of the Shares be subject to a repurchase option in favor of the Company as set forth in this Agreement. AGREEMENTS In consideration of the foregoing and the other provisions set forth herein, the parties hereby agree as follows: 1. Share Subscription and Shareholder Representations The Shareholder hereby subscribes for and agrees to purchase the Shares at a purchase price of $0.25 per share, or an aggregate of $79,679.50. Concurrent with the delivery of this Agreement, the Shareholder agrees to deliver a promissory note substantially in the form attached hereto as Exhibit A as --------- payment of the purchase price and a Pledge Agreement to Promissory Note substantially in the form attached hereto as Exhibit B. --------- For purposes of complying with applicable securities laws in connection with such purchase, the Shareholder represents and warrants to the Company as follows: (a) I am a resident of the State of California. (b) I am familiar with the Company's business, financial condition and prospects and have had access to and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. I possess sufficient business and financial experience to protect my interests in connection with the purchase of the Shares. I am aware that the Shares have not been registered under the Securities Act of 1933 (the "1933 Act") or any state securities laws pursuant to exemption(s) from registration. I understand that the reliance by the Company on such exemption(s) is CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission predicated in part upon the truth and accuracy of the representations contained in this Section. (c) I am purchasing the Shares for my own personal account for investment and not with a view to the sale or distribution of any or all of the Shares. I agree that I will in no event sell or distribute any or all of the Shares unless (1) there is an effective registration statement under the 1933 Act and applicable state securities laws covering any such transaction or (2) the Company receives an opinion of my legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration. (d) I consent to the placing of a legend on my certificate(s) for the Shares stating that the Shares have not been registered under the 1933 Act or any state securities law and setting forth the restriction on transfer contemplated hereby and to the placing of a stop transfer order on the books of the Company and with any transfer agents against the Shares until the Shares may be legally resold or distributed. 2. Repurchase Option The Shares shall be subject to the following repurchase option in favor of the Company (the "Repurchase Option"): (a) If the Shareholder's employment as an employee of the Company is terminated (1) by the Company for any reason (subject to Section 2(b)(2) below), (2) by the Shareholder for any reason or (3) upon death or total disability of the Shareholder, the Company shall have the right at any time within ninety (90) days after the date of termination of Shareholder's employment as an employee of the Company (the "Termination Date"), provided that the Termination Date shall have occurred prior to the termination of the Repurchase Option, to repurchase from the Shareholder, at a price per share of $0.25 (appropriately adjusted for any subsequent stock split, dividend, combination, other recapitalization or similar event) (the "Repurchase Price"), up to but not exceeding the number of Shares that do not constitute Vested Shares (as defined below) as of the date immediately prior to the Termination Date. (b) The Shares shall vest and be no longer subject to the Repurchase Option (the "Vested Shares") as follows: (1) Subject to the provisions of Section 2(b)(2) below, 25% of the Shares shall vest and be no longer subject to the Repurchase Option on August 23, 2000; thereafter, 6.25% of the Shares shall vest and be no longer subject to the Repurchase Option every three months for the period beginning August 23, 2000 and ending on August 23, 2003. 2 (2) Notwithstanding the provisions of Sections 2(a) or 2(b)(1), if (a) the Company closes a merger, consolidation, recapitalization or other business combination or transaction pursuant to which the holders of the outstanding voting power of the Company immediately prior to the transaction would hold less than 50% of the outstanding voting power of the Company immediately after the transaction (except for a merger effected exclusively for the purpose of changing the domicile of the Company) (a "Change of Control"), and (b) should there occur any "Involuntary Termination", (defined as: (i) the Shareholder is terminated without Cause (as such term is defined in the Employment Agreement, dated August 13, 1999, between the Company and the Shareholder (the "Employment Agreement")); or (ii) the Shareholder's total cash compensation (salary plus bonus) is reduced from the amounts set forth in the Employment Agreement; or (iii) the Shareholder experiences a significant change in responsibility; or (iv) the Shareholder is permanently relocated to an office outside of San Francisco County), then (1) the Repurchase Option shall lapse with respect to the portion of the Shares that would otherwise be Vested Shares if the Shares vested at a rate of 2.083% per month beginning August 23, 1999 through the date at which an Involuntary Termination occurs, and (2) 50% of the then remaining outstanding Shares that are not at that time Vested Shares shall become vested. (c) The Repurchase Option, if exercised by the Company, shall be exercised by written notice signed by an officer or director of the Company after approval by the Board of Directors and shall be delivered to the Shareholder on or prior to the expiration of the 90-day period referred to in paragraph (a) above. The Company may pay for the Shares it has elected to repurchase (1) by delivery to the Shareholder of a check in the amount of the aggregate Repurchase Price for the number of Shares being repurchased, (2) by cancellation by the Company of an amount of the Shareholder's indebtedness to the Company equal to the aggregate Repurchase Price for the number of Shares being repurchased or (3) by a combination of (1) and (2). Payment of the Repurchase Price shall be completed as promptly as reasonably practicable after notice of exercise of the Repurchase Option is delivered to the Shareholder. (d) Upon receipt of any certificate(s) representing the Shares subject to the Repurchase Option, the Shareholder shall immediately pledge and deliver the certificate(s) to the Company as pledgeholder, to be held pursuant to the Repurchase Option and Pledge Agreement to Promissory Note and shall execute and deliver to the Company an assignment separate from certificate endorsed in blank for such Shares in substantially the form set forth in Attachment 1 hereto. ------------ 3. Transfer Restrictions (a) Without the prior written consent of the Company, none of the Shares may be transferred by the Shareholder under any circumstances, voluntarily or involuntarily; provided, however, that the Shares may be transferred without such prior written consent if and only if (1) the Repurchase Option shall have ceased to apply to such Shares as provided in this Agreement, (2) the Shareholder shall have complied fully with the requirements of this 3 Section 3 and the other provisions of this Agreement and (3) the Shares are no longer subject to the pledge pursuant to the Pledge Agreement to Promissory Note. (b) Any purported Transfer without compliance with this Section shall be void. The Company may place a legend on the certificate or certificates evidencing the Shares referencing the restrictions on transfer set forth in this Agreement. 4. Legend All certificates representing any of the Shares shall have endorsed thereon the following legend, in addition to any other legend required by the Company ----------- respecting the restricted nature of the Shares: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT THAT INCLUDES A REPURCHASE RIGHT IN FAVOR OF THE CORPORATION RELATING TO THESE SECURITIES." 5. Rights as Shareholder Subject to the terms hereof, the Shareholder shall have all the rights of a shareholder with respect to the Shares during the term of this Agreement, including without limitation the right to vote and receive any dividends or other distributions declared thereon. 6. Adjustments for Stock Splits, Recapitalizations and Similar Events If, at any time or from time to time, there is (1) a dividend of any security, stock split or other change in the character or amount of any of the outstanding securities of the Company, or (2) any consolidation, merger or similar event in connection with which the Repurchase Option does not lapse and terminate under the terms of this Agreement, then, in such event, any and all new, substituted or additional securities or other property to which the Shareholder is entitled by reason of his ownership of the Shares then subject to the Repurchase Option shall be immediately included in the definition of "Shares" under this Agreement and shall be subject to the Repurchase Option and the pledge provisions of Section 2 with the same force and effect as the Shares currently subject to this Agreement, the Repurchase Option and the pledge provisions of Section 2. The Repurchase Price per share upon exercise of the Repurchase Option shall be appropriately adjusted as determined by the Board of Directors of the Company to reflect any such event referred to in this Section 6. 4 7. Termination This Agreement shall terminate in its entirety at the earlier of (a) such time as none of the Shares remain subject to the Repurchase Option under Section 2; and (b) August 23, 2003. 8. Tax Matters The Shareholder acknowledges that he has considered and analyzed the appropriate treatment by him of the transactions contemplated hereby under the Internal Revenue Code of 1986, as amended (the "Code"), including without limitation Section 83 thereof. The Shareholder agrees that any decision as to whether to file an election relating thereto, and the due and proper filing of any such election, are solely the Shareholder's responsibilities. 9. Cooperation The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 10. Specific Enforcement Each party expressly agrees that the other party would be irreparably damaged if this Agreement were not specifically enforced. Upon a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any party, the other party shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions of this Agreement. 11. Notices All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, or otherwise delivered by hand or by messenger, facsimile or courier, addressed (a) if to the Shareholder, at the Shareholder's then current address on the Company's books or at such other address as the Shareholder shall have furnished to the Company in writing, or (b) if to the Company, at its principal executive office, attention Chief Executive Officer, with a copy to William Kushner, Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, CA 94025. If notice is provided by mail, it shall be deemed to be given three (3) business days after proper deposit in the U.S. Mail, and if notice is given by hand or by messenger, facsimile or courier, it shall be deemed to be given upon receipt. 12. Entire Agreement This Agreement (including the Attachment and Exhibits attached hereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all 5 prior agreements and undertakings, both oral and written, among such parties, or any of them, with respect to such subject matter. In particular, and not in any manner limiting the foregoing, this Agreement supercedes all provisions relating to the sale, offer or issuance of stock or options to purchase stock of the Company (the "Stock Provisions") in the Employment Agreement and the Company and Shareholder agree that the Stock Provisions are null, void and of no further force and effect. The rights of the Company and obligations of Shareholder under this Agreement shall not be limited in any manner by the Pledge Agreement to Promissory Note between the Company and the Shareholder. 13. Amendment and Waiver Neither this Agreement nor any provision hereof may be modified, amended or terminated except by a written agreement signed by the parties hereto, and no waiver of any provision of this Agreement shall be effective unless in writing and signed by or on behalf of the party to be bound by such waiver. 14. Governing Law This Agreement shall be governed by and construed under the laws of the state of California, without regard to rules governing conflict of laws. 15. Successors and Assigns The provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors, administrators and personal representatives of the parties hereto. Notwithstanding anything to the contrary contained in this Agreement, no Shares may be transferred by the Shareholder under any circumstances, without the prior written consent of the Company which may be withheld for any reason, so long as such Shares are subject to the Repurchase Option contained in this Agreement or the pledge pursuant to the Pledge Agreement to Promissory Note. Any transfer or purported transfer in violation of this Section 15 shall be void. 16. Headings The headings of the sections and paragraphs of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 17. Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6 18. Severability If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATRIEVA CORPORATION By /s/ Christopher S. Logan ------------------------- Name: Christopher S. Logan Title: CEO Address: One Union Square 600 University Street, Suite 911 Seattle, Washington 98101 SHAREHOLDER /s/ Kent Jarvi ------------------------ Kent Jarvi Address: [*] ------------------------ ------------------------ ------------------------ 8 ATTACHMENT 1 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Stock Subscription and Repurchase Agreement dated as of October , 1999 (the "Repurchase Agreement"), -- Kent Jarvi hereby sells, assigns, and transfers unto Atrieva Corporation, a Delaware corporation (the "Company") shares of the Common Stock of the ------- Company, standing in the undersigned's name on the books of said corporation represented by Certificate No. herewith, and does hereby irrevocably ----- constitute and appoint attorney to transfer the said stock on ----------------- the books of the Company with full power of substitution in the premises. Dated . ----------------- Signature /s/ Kent Jarvi ------------------ Name: Kent Jarvi Spouse None -------------- Name: Instruction to Persons Signing: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. The purpose of this assignment is to enable the Company to exercise its "Repurchase Option" set forth in the Repurchase Agreement without requiring additional signatures on the part of the Purchaser. 9 EXHIBIT A PROMISSORY NOTE --------------- $79,679.50 San Francisco, CA October 10, 1999 FOR VALUE RECEIVED, the undersigned promises to pay in lawful money of the United States to the order of Atrieva Corporation (the "Company") at its principal place of business or at such other place as the holder hereof from time to time may designate in writing, the principal sum of $79,679.50, with simple interest on the principal balance from the date hereof at an annual rate of 6%, compounded semi-annually. The outstanding principal and interest hereunder shall be due and payable in full on the first to occur of (a) January 1, 2006 or (b) the date on which the undersigned sells shares of the Company's Common Stock, provided that the -------- net proceeds to the undersigned are at least equal to the principal amount due hereunder (the "Maturity Date"); provided further, that in the event that the ---------------- undersigned's employment by or association with the Company is terminated for any reason prior to payment in full of this Note, this Note shall be accelerated and all remaining unpaid principal and interest shall become due and payable sixty (60) days after such termination. This Note may be prepaid at any time without penalty. All money paid toward the satisfaction of this Note shall be applied first to the payment of interest as required hereunder and then to the retirement of the principal. If suit is brought on this note after any default in any payment, the undersigned promises and agrees to pay reasonable attorneys' fees incurred thereby. This note is to be construed in all respects and enforced according to the laws of the State of California. This note is a full recourse note and is secured by a Pledge Agreement to Promissory Note, dated October 10, 1999, between the undersigned and the Company. Presentment, notice of dishonor, and protest are waived by the undersigned. This note shall be fully binding on and inure to the benefit of the successors, heirs, legal representatives, and assigns of the parties hereto. By /s/ Kent W. Jarvi ----------------- Name: Kent Jarvi 10 EXHIBIT B PLEDGE AGREEMENT TO PROMISSORY NOTE THIS PLEDGE AGREEMENT, dated as of October 10, 1999, is given by Kent Jarvi ("Grantor") to Atrieva Corporation, a Delaware corporation ("Grantee"). Grantor hereby represents, covenants and agrees with grantee as follows: RECITALS A. Grantee has made a loan to Grantor in the amount of $79,679.50 (the "Loan"). B. Grantor has executed a promissory note dated October 10, 1999, in the principal amount of $79,679.50 payable to Grantee (the "Note") in connection with the Loan. C. Grantor has agreed to pledge certain shares of common stock (the "Stock") to Grantee to secure the payment and performance in full of his obligations under the Note. D. The parties desire to set forth the terms and conditions of the pledge of the Stock in this Agreement. AGREEMENTS Section 1. Pledge of the Collateral Grantor hereby pledges to Grantee the following-described property (the "Collateral"), together with all proceeds thereof: No. of Shares Title of Class Issuer ----------------- ---------------- ---------------------- 318,718 Common Atrieva Corporation [* * *] This pledge is given to secure (a) the due and timely payment of all amounts due under the Note to Grantee by Grantor and (b) the performance by Grantor of his obligations under this Agreement (together, the "Obligations"). Section 2. Representations and Warranties Grantor hereby represents and warrants to Grantee as follows: 11 2.1 Binding Effect This Agreement constitutes the valid obligation of Grantor which is binding and enforceable against him in accordance with its terms. 2.2 Title to Collateral Grantor is the legal and beneficial owner of the Collateral free and clear of any lien, claim, security interest, option, encumbrance or right of any other, except the security interest created by this Agreement and the pledge pursuant to the Stock Subscription and Repurchase Agreement between Grantee and Grantor of even date herewith (the "Repurchase Agreement"). 2.3 Security Interest When this Agreement is duly executed and delivered by Grantor and Grantee has possession of the Collateral, this Agreement will constitute and Grantee will have a valid and perfected first priority security interest in and to the Collateral, effective against all third parties. Section 3. Delivery of Certificate Concurrently herewith, Grantor shall deliver to Grantee the stock certificate(s) representing all of the Collateral, together with appropriate assignments separate from certificate naming Grantee as assignee, duly endorsed by Grantor for transfer in blank, in the form and substance of Attachment A-1, -------------- attached hereto. Section 4. Handling of Collateral Grantee shall not be required, except at its sole option, to realize upon the Collateral, collect dividends thereon, exercise any rights or options of the Grantor pertaining thereto, to keep the Collateral insured, or do any other thing for the protection, enforcement or collection of the Collateral. Under no circumstances shall Grantee in any way be responsible for failure to act in Grantor's behalf nor shall it be in any way responsible for any negligent act with respect to the Collateral. Grantee shall not exercise voting rights or collect cash dividends with respect to the Collateral unless and until the occurrence of an Event of Default, as defined in Section 8 hereof, and such rights may be exercised by Grantor prior to any such occurrence. Upon an Event of Default (as defined below), Grantee is authorized to transfer to itself or to any other person all or any of the Collateral, and may fill in blanks in any transfers or other documents delivered to it, provided that any surplus of the proceeds of the Collateral after payment in full of all obligations secured hereby shall be paid over to Grantor. Nothing in this Pledge Agreement, including, without limitation, this Section 4, shall limit the rights of Grantee or obligations of Grantor under the Repurchase Agreement. 12 Section 5. Stock Dividends and Recapitalizations In the event any issuer of the Collateral shall declare a stock dividend or any stock split with respect to the Collateral, or in the event the Collateral shall be replaced as a result of any dissolution, merger, consolidation, reorganization, recapitalization or other similar proceeding involving an issuer of the Collateral, or in the event there shall be a distribution of assets or securities with respect to the Collateral, all such distributed assets, shares or other securities to which Grantor is entitled as a result of any such transactions shall be delivered to Grantee and shall automatically become subject to all of the terms and conditions of this Agreement to the same extent as though they had been included as, and shall be deemed to be, a part of the Collateral from the date hereof. Section 6. Substitutions, Extension The obligations of Grantor hereunder shall not be affected by the release or substitution of any other security for the Obligations secured hereby or by any release, waiver, renewal, extension of time or compromise given to Grantor with regard to any of the Obligations or for any other reason other than the full payment or satisfaction by Grantor of the Obligations. Section 7 Termination This Agreement shall terminate upon Grantor's payment or satisfaction in full of all of the Obligations; provided, however, that upon the request of the Grantor (but no more than twice a year), a portion of the Collateral shall be released from the pledge that is equal to the percentage of the principal amount due under the Note that has been forgiven by Grantee pursuant to the terms of the Note. Section 8. Events of Default 8.1 Events of Default The failure by Grantor (a) to pay any portion of principal of, or interest, if any, on, the Note when due or (b) to perform his obligations under this Agreement shall constitute Events of Default under this Agreement. 8.2 Effect Upon the occurrence of any Event of Default, the obligations secured hereby shall then or at any time thereafter, at the option of Grantee, become immediately due and payable without notice or demand, and Grantee shall have an immediate right to pursue the remedies provided herein. 13 Section 9. Remedies If an Event of Default occurs, Grantee shall have all remedies provided by law, including, without limitation, all rights of a secured party under the California Uniform Commercial Code (the "UCC"), whether or not this Agreement and the transactions contemplated hereby are determined to be governed by the UCC. Without limiting the generality of the foregoing, Grantee shall be entitled to exercise all voting rights connected with the Collateral and to transfer all right, title and interest in and to the Collateral to be transferred to Grantee or to any purchaser acceptable to Grantee upon terms and conditions acceptable to Grantee; provided that any surplus of the proceeds of the Collateral after payment in full of all obligations secured hereby shall be paid over to Grantor. Section 10. Cumulative Rights The security and the rights and remedies provided for in this Agreement are cumulative, and are in addition to any rights or security or remedies of Grantee under any other instruments or agreements, or under applicable law. Section 11. Expenses Grantor shall pay on demand the costs of all filings and recordings deemed desirable by Grantee, and all expenses, including reasonable attorneys' fees, which Grantee may incur in protecting, defending or realizing on any part of the Collateral, or in protecting or defending the priority of the security interest created hereby, whether or not a lawsuit be involved, all such sums to be deemed secured by this pledge. Section 12. Notices Notices to Grantee and Grantor shall be sent as follows: 14 TO GRANTEE: (a) Atrieva Corporation 380 Brannan Street San Francisco, CA 94107 Attn: Kent Jarvi Facsimile: (415) 247-8850 with a copy to: Perkins Coie LLP 135 Commonwealth Street, Suite 250 Menlo Park, CA 94025 Attn: William Kushner Facsimile: (650) 752-6050 TO GRANTOR: (b) Kent Jarvi ---------------- [*] ---------------- ---------------- ---------------- with a copy to: ---------------- ---------------- ---------------- ---------------- Section 13. Modifications, Consents and Waivers No failure or delay on the part of Grantee in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of such right or power preclude any other or further exercise thereof or the exercise of any other right or power. No amendment, modification or waiver of any provision of this Agreement, nor consent to any departure therefrom, shall be effective unless in writing and consented to by Grantee. Section 14. Additional Documents Grantor shall at Grantee's request, from time to time, at Grantor's sole cost and expense, execute, reexecute, deliver and redeliver any and all documents, and do and perform 15 such other and further acts as may reasonably be required by Grantee to enable Grantee to perfect, preserve and protect its security interest in the Collateral and its rights and remedies under this Agreement or granted by law and to carry out and effect the intents and purposes of this Agreement. Section 15. Miscellaneous 15.1 Amendment Neither this Agreement nor any provision hereof may be amended, modified, waived, discharged or terminated other than by an instrument in writing signed by the party to be bound. 15.2 Binding Agreement The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 15.3 Headings Paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. 15.4 Severability Any provision hereof which is invalid or prohibited by law shall be inoperative and all other provisions hereof shall remain effective. 15.5 Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original if fully executed, but all of which together shall constitute one and the same instrument. 15.6 Applicable Law This Agreement shall be construed in accordance with and governed by the laws of the state of California. 16 IN WITNESS WHEREOF, Grantor has executed this Pledge Agreement as of the date first written above. /s/ Kent Jarvi --------------- Name: Kent Jarvi None --------------- Spouse ACCEPTED: ATRIEVA CORPORATION By /s/ Christopher S. Logan ------------------------ Name: Christopher S. Logan -------------------- Title: CEO ------------------- Dated: 10/10/99 -------------------- 17 ATTACHMENT A-1 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned, Kent Jarvi, hereby assigns and transfers unto Atrieva Corporation, a Delaware corporation, shares ----------- of the Common Stock of Atrieva Corporation standing in its name on the books of said corporation. The undersigned hereby irrevocably constitutes and appoints Perkins Coie LLP to transfer said shares on the books of said corporation with full power of substitution in the premises. DATED: , 1999 --------- -- By: /s/ Kent W. Jarvi ------------------ Name: Kent Jarvi In Presence of: Christopher S. Logan - ----------------------- Name: Christopher Logan 18 EX-10.13 13 STOCK SUBSCRIPTION L BARELS EXHIBIT 10.13 ATRIEVA CORPORATION STOCK SUBSCRIPTION AGREEMENT This Stock Subscription Agreement (this "Agreement") is entered into as of May 21, 1999 by and between Atrieva Corporation, a Delaware corporation (the "Company"), and Larry Barels (the "Shareholder"). RECITALS A. In connection with the completion of the Series B Preferred Stock financing, the Company desires to issue to the Shareholder as of the date hereof 2,130,000 shares of common stock of the Company (the "Shares"). B. In order to induce the Company to issue the Shares, the Shareholder has entered into an Employment Agreement with the Company on March 10, 1999 and this Agreement. AGREEMENTS In consideration of the foregoing and the other provisions set forth herein, the parties hereby agree as follows: 1. Share Subscription and Shareholder Representations The Shareholder hereby subscribes for and agrees to purchase the Shares at a purchase price of $0.10 per share, or an aggregate of $213,000. Concurrent with the delivery of this Agreement, the Shareholder has delivered a promissory note substantially in the form attached hereto as Exhibit A as payment of the --------- Purchase Price and a Pledge Agreement to Promissory Note substantially in the form attached hereto as Exhibit B. For purposes of complying with applicable --------- securities laws in connection with such purchase, the Shareholder represents and warrants to the Company as follows: (a) I am a resident of the State of California and qualify as an "accredited investor" as that term is defined by the Securities and Exchange Commission (the "SEC"). (b) I am familiar with the Company's business, financial condition and prospects and have had access to and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. I possess sufficient business and financial experience to protect my interests in connection with the purchase of the Shares. I am aware that the Shares have not been registered under the Securities Act of 1933 (the "1933 Act") or any state securities laws pursuant to exemption(s) from registration. I understand that the reliance by the Company on such exemption(s) is CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission predicated in part upon the truth and accuracy of the representations contained in this Section. (c) I am purchasing the Shares for my own personal account for investment and not with a view to the sale or distribution of any or all of the Shares. I agree that I will in no event sell or distribute any or all of the Shares unless (1) there is an effective registration statement under the 1933 Act and applicable state securities laws covering any such transaction or (2) the Company receives an opinion of my legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration. (d) I consent to the placing of a legend on my certificate(s) for the Shares stating that the Shares have not been registered under the 1933 Act or any state securities law and setting forth the restriction on transfer contemplated hereby and to the placing of a stop transfer order on the books of the Company and with any transfer agents against the Shares until the Shares may be legally resold or distributed. 2. Transfer Restrictions (a) Without the prior written consent of the Company, none of the Shares may be transferred by the Shareholder under any circumstances, voluntarily or involuntarily; provided, however, that the Shares may be transferred without such prior written consent if and only if either (i) the Shares are no longer subject to the pledge pursuant to the Pledge Agreement to Promissory Note or (ii) the Shareholder shall be transferring the Shares to the Company pursuant to Section 2 of that certain Services Agreement, of even date herewith, between the Shareholder and the Company. (b) Any purported Transfer without compliance with this Section 2 shall be void. The Company may place a legend on the certificate or certificates evidencing the Shares referencing the restrictions on transfer set forth in this Agreement. 3. Legend All certificates representing any of the Shares shall have endorsed thereon the following legend, in addition to any other legend required by the Company respecting the restricted nature of the Shares: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN STOCK SUBSCRIPTION AGREEMENT, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER." -2- 4. Rights as Shareholder Subject to the terms hereof and except as otherwise provided in Sections 4 and 10 of the Pledge Agreement to Promissory Note, the Shareholder shall have all the rights of a shareholder with respect to the Shares during the term of this Agreement, including without limitation the right to vote and receive any dividends or other distributions declared thereon. 5. Adjustments for Stock Splits, Recapitalizations and Similar Events If, at any time or from time to time, there is (1) a dividend of any security, stock split or other change in the character or amount of any of the outstanding securities of the Company, or (2) any consolidation, merger or similar event, then, in such event, any and all new, substituted or additional securities or other property to which the Shareholder is entitled by reason of his ownership of the Shares at the time of effectiveness of such event shall be immediately included in the definition of "Shares" under this Agreement and shall be subject to the pledge provisions of Section 1 with the same force and effect as the Shares currently subject to this Agreement. 6. Termination This Agreement shall terminate in its entirety at such time as none of the Shares remain subject to the provisions of Section 2. 7. Tax Matters The Shareholder acknowledges that he has considered and analyzed the appropriate treatment by him of the transactions contemplated hereby under the Internal Revenue Code of 1986, as amended (the "Code"), including without limitation Section 83 thereof. The Shareholder agrees that any decision as to whether to file an election relating thereto, and the due and proper filing of any such election, are solely the Shareholder's responsibilities. 8. Cooperation The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 9. Specific Enforcement Each party expressly agrees that the other party would be irreparably damaged if this Agreement were not specifically enforced. Upon a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any party, the other party shall, in addition to all other remedies, each be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions of this Agreement. -3- 10. Notices All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first class mail, postage prepaid, or otherwise delivered by hand or by messenger, facsimile or courier, addressed (a) if to the Shareholder, at the Shareholder's then current address on the Company's books or at such other address as the Shareholder shall have furnished to the Company in writing, or (b) if to the Company, at its principal executive office, attention Chief Executive Officer and Chief Financial Officer, with a copy to David McShea, Perkins Coie LLP, 1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice is provided by mail, it shall be deemed to be given three (3) business days after proper deposit in the U.S. Mail, and if notice is given by hand or by messenger, facsimile or courier, it shall be deemed to be given upon receipt. 11. Entire Agreement This Agreement (including the Attachment and Exhibits attached hereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both oral and written, among such parties, or any of them, with respect to such subject matter. 12. Amendment and Waiver Neither this Agreement nor any provision hereof may be modified, amended or terminated except by a written agreement signed by the parties hereto, and no waiver of any provision of this Agreement shall be effective unless in writing and signed by or on behalf of the party to be bound by such waiver. 13. Governing Law This Agreement shall be governed by and construed under the laws of the state of Washington as applied to agreements among Washington residents, made and to be performed entirely within Washington. 14. Successors and Assigns The provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors, administrators and personal representatives of the parties hereto. Notwithstanding anything to the contrary contained in this Agreement, no Shares may be transferred by the Shareholder under any circumstances, without the prior written consent of the Company which may be withheld for any reason, so long as such Shares are subject to the pledge pursuant to the Pledge Agreement to Promissory Note. Any transfer or purported transfer in violation of this Section 2 shall be void. -4- 15. Headings The headings of the sections and paragraphs of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 16. Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Severability If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATRIEVA CORPORATION By: /s/ Kern F. Maresca --------------------------------------------- Name: Kern F. Maresca ------------------------------------------- Title: V.P. Finance ------------------------------------------ Address: One Union Square 600 University Street, Suite 911 Seattle, Washington 98101 SHAREHOLDER /s/ Larry Barels ------------------------------------------------- Larry Barels Address: [*] ------------------------------------------------- -5- EXHIBIT A PROMISSORY NOTE --------------- $213,000 Seattle, Washington May 21, 1999 (the "Date of Issuance") FOR VALUE RECEIVED, the undersigned promises to pay in lawful money of the United States to the order of Atrieva Corporation. (the "Company") at its principal place of business or at such other place as the holder hereof from time to time may designate in writing, the principal sum of two hundred and thirteen thousand dollars ($213,000) with interest on the principal balance from the date hereof at the rate of five and twenty-two hundredths percent (5.22%) compounded annually. The principal on this note shall be due and payable on the first to occur of: (a) January 1, 2006, (b) an IPO (as such term is defined in the Stock Subscription Agreement, dated as of the date hereof, between the Company and the holder hereof (the "Stock Subscription Agreement")) and (c) a Sale of the Company (as defined below) (the "Maturity Date"). Twenty percent of all unpaid interest that accrues annually on the principal balance shall be due and payable annually on the anniversary of the Date of Issuance. All accrued but unpaid interest as of the Maturity Date shall be due and payable on the Maturity Date. If default be made in the payment of any principal or interest when due, then as long as this note is in default, without prior notice, this note shall thereafter bear interest at the lesser of (a) one and one-half percent (1.5%) per month or (b) the maximum rate permitted by law. "Sale of the Company" shall mean a merger, consolidation, recapitalization or other business combination or transaction pursuant to which either (1) the holders of the outstanding voting power of the Company immediately prior to the transaction would not hold at least 50% of the outstanding voting power of the surviving corporation in the transaction, or its parent, immediately after the transaction or (2) substantially all of the assets of the Company would be transferred or controlled by a third party not affiliated with the Company, except that excluded from the definition of "Sale of the Company" are a merger effected exclusively for the purpose of changing the domicile of the Company and a merger, consolidation, recapitalization or other business combination or similar transaction effected for the purpose of reorganizing the Company into a holding company structure. If suit is brought on this note after any default in any payment, the undersigned promises and agrees to pay reasonable attorneys' fees incurred thereby by the Company. This note is to be construed in all respects and enforced according to the laws of the State of Washington. This note is a full recourse note and is secured by a Pledge Agreement to Promissory Note, of even date with the Date of Issuance of this note, between the undersigned and the Company. Presentment, notice of dishonor, and protest are waived by the undersigned. This note shall be fully binding on and inure to the benefit of the successors, heirs, legal representatives, and assigns of the parties hereto. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. By /s/ Larry Barels ---------------------------------------------- Larry Barels -2- EXHIBIT B PLEDGE AGREEMENT TO PROMISSORY NOTE THIS PLEDGE AGREEMENT, dated as of May 21, 1999, is given by Larry Barels ("Grantor") to Atrieva Corporation, a Delaware corporation ("Grantee"). GRANTOR HEREBY REPRESENTS, COVENANTS AND AGREES WITH GRANTEE AS FOLLOWS: RECITALS A. Grantee has made a loan to Grantor in the amount of $213,000 (the "Loan"). B. Grantor has executed a promissory note with a Date of Issuance that is of even date with this Agreement, in the principal amount of $213,000 payable to Grantee (the "Note") in connection with the Loan. C. Grantor has agreed to pledge certain shares of common stock (the "Stock") to Grantee to secure the payment and performance in full of his obligations under the Note. D. The parties desire to set forth the terms and conditions of the pledge of the Stock in this Agreement. AGREEMENTS Section 1. Pledge of the Collateral Grantor hereby pledges to Grantee the following-described property (the "Collateral"), together with all proceeds thereof: No. of Shares Title of Class Issuer --------- -------------- ---------------------------------- 2,130,000 Common Atrieva Corporation. [* * *] This pledge is given to secure (a) the due and timely payment of all amounts due under the Note to Grantee by Grantor and (b) the performance by Grantor of his obligations under this Agreement (together, the "Obligations"). Section 2. Representations and Warranties Grantor hereby represents and warrants to Grantee as follows: 2.1 Binding Effect This Agreement constitutes the valid obligation of Grantor which is binding and enforceable against him in accordance with its terms. 2.2 Title to Collateral Grantor is the legal and beneficial owner of the Collateral free and clear of any lien, claim, security interest, option, encumbrance or right of any other, except the security interest created by this Agreement. 2.3 Security Interest When this Agreement is duly executed and delivered by Grantor and Grantee has possession of the Collateral, this Agreement will constitute and Grantee will have a valid and perfected first priority security interest in and to the Collateral, effective against all third parties. Section 3. Delivery of Certificate Concurrently herewith, Grantor shall deliver to Grantee the stock certificate(s) representing all of the Collateral, together with appropriate assignments separate from certificate naming Grantee as assignee, duly endorsed by Grantor for transfer in blank, in the form and substance of Attachment A-1, -------------- attached hereto. Section 4. Handling of Collateral Grantee shall not be required, except at its sole option, to realize upon the Collateral, collect dividends thereon, exercise any rights or options of the Grantor pertaining thereto, to keep the Collateral insured, or do any other thing for the protection, enforcement or collection of the Collateral. Under no circumstances shall Grantee in any way be responsible for failure to act on Grantor's behalf nor shall it be in any way responsible for any negligent act with respect to the Collateral. Grantee shall not exercise voting rights or collect cash dividends with respect to the Collateral unless and until the occurrence of an Event of Default, as defined in Section 9 hereof, and such rights may be exercised by Grantor prior to any such occurrence. Upon an Event of Default (as defined below), Grantee shall be authorized to transfer to itself or to any other person all or any of the Collateral, and may fill in blanks in any transfers or other documents delivered to it, provided that any surplus of the proceeds of the Collateral after payment in full of all obligations secured hereby shall be paid over to Grantor. -2- Section 5. Holder of Record So long as an Event of Default which has not been cured does not exist hereunder, Grantor shall remain the holder of record of the Collateral. Section 6. Stock Dividends and Recapitalizations In the event any issuer of the Collateral shall declare a stock dividend or any stock split with respect to the Collateral, or in the event the Collateral shall be replaced as a result of any dissolution, merger, consolidation, reorganization, recapitalization or other similar proceeding involving an issuer of the Collateral, or in the event there shall be a distribution of assets or securities with respect to the Collateral, all such distributed assets, shares or other securities to which Grantor is entitled as a result of any such transactions shall be delivered to Grantee and shall automatically become subject to all of the terms and conditions of this Agreement to the same extent as though they had been included as, and shall be deemed to be, a part of the Collateral from the date hereof. Section 7. Substitutions, Extension The obligations of Grantor hereunder shall not be affected by the release or substitution of any other security for the Obligations secured hereby or by any release, waiver, renewal, extension of time or compromise given to Grantor with regard to any of the Obligations or for any other reason other than the full payment or satisfaction by Grantor of the Obligations. Section 8. Termination This Agreement shall terminate upon the earlier of (a) Grantor's payment or satisfaction in full of all of the Obligation or (b) the closing of the sale of the Shares by Grantor to the Grantee pursuant to the Section 2 of the Services Agreement, of even date herewith, between Grantor and Grantee (the "Services Agreement"). Section 9. Events of Default 9.1 Events of Default The failure by Grantor (a) to pay any portion of principal of or interest on the Note when due or (b) to perform his obligations under this Agreement which, in the case of either (a) or (b), Grantor fails to cure within 20 days of written notice from Grantee shall constitute Events of Default under this Agreement. 9.2 Effect Upon the occurrence of any Event of Default, the Obligations secured hereby shall then or at any time thereafter, at the option of Grantee, become immediately due and payable -3- without notice or demand, and Grantee shall have an immediate right to pursue the remedies provided herein. Section 10. Remedies If an Event of Default occurs, Grantee shall have all remedies provided by law, including, without limitation, all rights of a secured party under the Washington Uniform Commercial Code (the "UCC"), whether or not this Agreement and the transactions contemplated hereby are determined to be governed by the UCC. Without limiting the generality of the foregoing, Grantee shall be entitled to exercise all voting rights connected with the Collateral and to transfer all right, title and interest in and to the Collateral to be transferred to Grantee or to any purchaser acceptable to Grantee upon terms and conditions acceptable to Grantee; provided that any surplus of the proceeds of the Collateral after payment in full of all obligations secured hereby shall be paid over to Grantor. Section 11. Cumulative Rights The security and the rights and remedies provided for in this Agreement are cumulative, and are in addition to any rights or security or remedies of Grantee under any other instruments or agreements, or under applicable law. Section 12. Expenses Grantor shall pay on demand the costs of all filings and recordings deemed desirable by Grantee, and all expenses, including reasonable attorneys' fees, which Grantee may incur in protecting, defending or realizing on any part of the Collateral, or in protecting or defending the priority of the security interest created hereby, whether or not a lawsuit be involved, all such sums to be deemed secured by this pledge. Section 13. Notices Notices to Grantee and Grantor shall be sent as follows: -4- TO GRANTEE: (a) Atrieva Corporation One Union Square 600 University Street, Suite 911 Seattle, Washington 98101 Attn: Ken Maraca Facsimile: (206) 382-6615 with a copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101 Attn: David McShea Facsimile: (206) 583-8500 TO GRANTOR: (b) Larry Barels [*] or to such other address as Grantor or Grantee, as the case may be, may give the other party notice of in accordance with this Section 1.3. If notice is provided by mail, it shall be deemed to be given three (3) business days after proper deposit in the U.S. Mail, and if notice is given by hand or by messenger, facsimile or courier, it shall be deemed to be given upon receipt. Section 14. Modifications, Consents and Waivers No failure or delay on the part of Grantee in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of such right or power preclude any other or further exercise thereof or the exercise of any other right or power. No amendment, modification or waiver of any provision of this Agreement, nor consent to any departure therefrom, shall be effective unless in writing and consented to by Grantee. Section 15. Additional Documents Grantor shall at Grantee's request, from time to time, at Grantor's sole cost and expense, execute, reexecute, deliver and redeliver any and all documents, and do and perform such other and further acts as may reasonably be required by Grantee to enable Grantee to -5- perfect, preserve and protect its security interest in the Collateral and its rights and remedies under this Agreement or granted by law and to carry out and effect the intents and purposes of this Agreement. Section 16. Miscellaneous 16.1 Amendment Neither this Agreement nor any provision hereof may be amended, modified, waived, discharged or terminated other than by an instrument in writing signed by the party to be bound. 16.2 Binding Agreement The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 16.3 Headings Paragraph headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. 16.4 Severability Any provision hereof which is invalid or prohibited by law shall be inoperative and all other provisions hereof shall remain effective. 16.5 Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original if fully executed, but all of which together shall constitute one and the same instrument. 16.6 Applicable Law This Agreement shall be construed in accordance with and governed by the laws of the state of Washington. Grantor hereby irrevocably submits to the exclusive jurisdiction and venue of the Superior Court of the State of Washington for King County and the United States Federal District Court for the Western District of Washington for the purposes of proceedings arising out of or relating to this Agreement and hereby waives and agrees irrevocably not to assert any claim that he is not personally subject to the jurisdiction of the above-named courts. IN WITNESS WHEREOF, Grantor has executed this Pledge Agreement as of the date first written above. -6- /s/ Larry Barels ------------------------------------------------- Name: Larry Barels /s/ Wendy Barels ------------------------------------------------- Spouse ACCEPTED: ATRIEVA CORPORATION By: /s/ Kern F. Maresca ------------------------------------------ Name: Kern F. Maresca ---------------------------------------- Title: V.P. Finance --------------------------------------- Dated: --------------------------------------- -7- ATTACHMENT A-1 ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned, Larry Barels, hereby assigns and transfers unto Atrieva Corporation, a Delaware corporation, ________ shares of the Common Stock of Atrieva Corporation standing in its name on the books of said corporation. The undersigned hereby irrevocably constitutes and appoints Perkins Coie LLP to transfer said shares on the books of said corporation with full power of substitution in the premises. DATED: May __, 1999 By: --------------------------------------------- Name: Larry Barels In Presence of: - ----------------------------- Name: -8- EX-10.15 14 WARRANT TO PURCHASE COMMON STOCK EXHIBIT 10.15 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT To Purchase Shares of the Common Stock of XACTDATA SERVICES, INC. Dated as of September 1, 1995 (the "Effective Date") WHEREAS, XactData Services, Inc., a Washington corporation (the "Company") has entered into a Master Lease Agreement dated as of September 1, 1995, Equipment Schedule No. VL-1 dated as of September 1, 1995, and related Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Common Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK. ------------------------------------------- The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, 433 fully paid and non-assessable shares of the Company's Common Stock ("Common Stock") at a purchase price of $72.00 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. ----------------------------- Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Common Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) ten (10) years or (ii) five (5) years from the effective date of the Company's initial public offering, whichever is longer. 3. EXERCISE OF THE PURCHASE RIGHTS. -------------------------------- The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Common Stock in accordance with the following formula: X = Y(A-B) ------ A -1- A Where: X = the number of shares of Common Stock to be issued to the Warrantholder. Y = the number of shares of Common Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Common Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Common Stock shall mean with respect to each share of Common Stock: (i) if the exercise is in connection with an initial public offering of the Company's Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the initial "Price to Public" specified in the final prospectus with respect to the offering, and: (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices over a twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined, or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined. (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Common Stock shall be deemed to be the value received by the holders of the Company's Common Stock pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. --------------------- (a) Authorization and Reservation of Shares. During the term of this --------------------------------------- Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein. (b) Registration or Listing. If any shares of Common Stock required to be ----------------------- reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the 1933 Act, as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. - 2 - 5. NO FRACTIONAL SHARES OR SCRIP. ----------------------------- No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. ------------------------ This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. ---------------------- The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. ----------------- The purchase price per share and the number of shares of Common Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital ------------------------- reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of Common Stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Common Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by -------------------------- combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall ------------------------------------ combine or subdivide its Common Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend --------------- payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of - 3 - shares of Common Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Right to Purchase Additional Stock. If, the Warrantholder's total cost ---------------------------------- of equipment leased pursuant to the Leases exceeds $260,000, Warrantholder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares, which number shall be determined by (i) multiplying the amount by which the Warrantholder's total equipment cost exceeds $260,000 by 12%, and (ii) dividing the product thereof by the Exercise Price per share referenced above. (f) Antidilution Rights. Additional antidilution rights applicable to the ------------------- Common Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. (g) Notice of Adjustments. If: (i) the Company shall declare any dividend --------------------- or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least twenty (20) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date hereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (g) Timely Notice. Failure to timely provide such notice required by ------------- subsection (g) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. -------------------------------------------------------- (a) Reservation of Common Stock. The Common Stock issuable upon exercise --------------------------- of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Common Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended, and minutes of all Board of Directors (including all committees of the Board of Directors, if any) and Shareholder meetings from___, 19__ through - 4 - _____, 19__ . The issuance of certificates for shares of Common Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this ------------- Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice ---------------------- to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, ----------------- Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 2,000,000 shares of Common Stock, of which 67,951 shares are issued and outstanding. (ii) There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company except as outline in Exhibit_____. (iii) In accordance with the Company's Articles of Incorporation, no shareholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock. (e) Insurance. The Company has in full force and effect insurance policies, --------- with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) Other Commitments to Register Securities. Except as set forth in this ---------------------------------------- Warrant Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (g) Exempt Transaction. Subject to the accuracy of the Warrantholder's ------------------ representations in Section 10 hereof, the issuance of the Common Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (h) Compliance with Rule 144. At the written request of the Warrantholder, ------------------------ who proposes to sell Common Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. - 5 - 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. -------------------------------------------------- This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Common Stock issuable upon ------------------ exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Common Stock ------------- issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the ------------------------------------- Warrantholder make a disposition of any of its rights to acquire Common Stock unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Common Stock or do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Common Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Common Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Common Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in -------------- financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that if the ----------------------- Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Common Stock pursuant to this Warrant Agreement, or (ii) the Common Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Common Stock or Common Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within ------------------- the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 --------- hereof, this Warrant Agreement and all rights hereunder are transferable in whole or - 6 - event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MISCELLANEOUS. ------------- (a) Effective Date. The provisions of this Warrant Agreement shall be -------------- construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding --------------- between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and ------------- construed for all purposes under and in accordance with the laws of the State of Illinois. (d) Counterparts. This Warrant Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) Notices. Any notice required or permitted hereunder shall be given in ------- writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture Group, cc: Legal Department, attn: General Counsel, (and/or, if by facsimile, (708) 518-5466 and (708)518-5088) and (ii) to the Company at 600 University St., #911, Seattle, WA 98101 attention: (and/or if by facsimile, (206) 382-6615 or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting -------- party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. (g) No Impairment of Rights. The Company will not, by amendment of its ----------------------- Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of -------- the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this ------------ Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by ---------- a written instrument signed by the Company and by the Warrantholder. -7- (k) Additional Documents. The Company, upon execution of this Warrant -------------------- Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase price for the Leases referenced in the preamble of this Warrant Agreement exceeds $1,000,000, the Company will also provide Warrantholder with an opinion from the Company's counsel with respect to those same representations, warranties and covenants. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. Company: XACTDATA SERVICES, INC. By: /s/ [illegible] ------------------------ Title: [illegible] President ------------------------ Warrantholder: COMDISCO, INC. By: /s/ [illegible] -------------------------- Title: /s/ [illegible] ------------------------- 9/19/98 - 8 - EXHIBIT I NOTICE OF EXERCISE TO:______________________ (1) The undersigned Warrantholder hereby elects to purchase___ shares of the Common Stock of XactData Services, Inc., pursuant to the terms of the Warrant Agreement dated the _____ day of_________________, 19__ (the "Warrant Agreement") between ________________________________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Common Stock of ---------------------------------------------- the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below. ________________________ (Name) ________________________ (Address) Warrantholder: COMDISCO, INC. By: _____________________ Title: ____________________ Date: ____________________ -9- EXHIBIT II ACKNOWLEDGEMENT OF EXERCISE The undersigned, ______________________________________________ hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares of the Common Stock of XactData Services, Inc., pursuant to the terms of the Warrant Agreement, and further acknowledges that ________ shares remain subject to purchase under the terms of the Warrant Agreement. Company: By: ___________________________ Title: __________________________ Date: __________________________ -10- EXHIBIT III TRANSFER NOTICE (To transfer or assign the foregoing Warrant Agreement execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to ________________________________________________________________________________ (Please Print) whose address is _____________________________________________________________________________ ________________________________________________________________________________ Dated: _______________________________ Holder's Signature: _____________________ Holder's Address: ______________________ _____________________________________ Signature Guaranteed:______________________________________________ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. - 11 - EX-10.16 15 WARRANT TO PURCHASE SERIES 1 PREFERRED STOCK EXHIBIT 10.16 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, (II) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (III) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. No. 3 WARRANT TO PURCHASE GRANT DATE: December 20, 1996 SHARES OF SERIES I PREFERRED STOCK XACTLABS CORPORATION -------------------- SERIES I PREFERRED STOCK WARRANT CERTIFICATE For value received, XACTLABS CORPORATION, a Washington corporation (the "Company"), grants to Brentwood Associates VII, L.P. (the "Holder") the right, subject to the terms of this Warrant, to purchase at any time and from time to time during the period commencing December 20, 1996 and ending on the Expiration Date, as defined below, at $17.00 per share (the "Basic Exercise Price"), up to 5,882 fully paid and nonassessable shares of Series I Preferred Stock of the Company. The Basic Exercise Price and the number of shares that may be purchased are subject to adjustment under the terms of this Warrant. 1. DEFINITIONS As used in this Warrant, unless the context otherwise requires: 1.1 "Basic Exercise Price" means the price at which each Warrant Share may -------------------- be purchased upon exercise of this Warrant as stated in the first sentence of this Warrant. 1.2 "Exercise Date" means any date when this Warrant is exercised, in ------------- whole or in part, in the manner indicated in Sections 2.1 and 2.2 hereof. 1.3 "Exercise Price" means the Basic Exercise Price; provided, however, -------------- that if an adjustment is required under Section 7 hereof, then "Exercise Price" means, after each such adjustment, the price at which each Warrant Share may be purchased upon exercise of this Warrant immediately after the last such adjustment. 1. 4 "Expiration Date" means 5:00 p.m., Seattle time, on December 20, --------------- 2001. 1.5 "Grant Date" means the date this Warrant was first granted as stated ---------- at the beginning of this Warrant. 1.6 "Securities Act" means the Securities Act of 1933, as amended from -------------- time to time, and all rules and regulations promulgated thereunder, or any act, rules or regulations that replace the Securities Act or any such rules and regulations. 1.7 "Series I Stock" means the Series I Preferred Stock, without par -------------- value, of the Company existing on the Grant Date. 1.8 "Warrant" means this Series I Stock Warrant and each subsequent ------- Series I Stock Warrant, if any, for which this Warrant is exchanged. 1.9 "Warrant Shares" means any shares of Series I Stock or other -------------- securities issued or subject to issuance upon exercise of this Warrant or upon exchange of a Warrant Share for Warrant Shares of different denominations. 2. DURATION AND EXERCISE OF WARRANT 2.1 Exercise Period Subject to the provisions of Section 7.1(d) hereof, this Warrant may be exercised at any time after the Grant Date and on or before the Expiration Date. After the Expiration Date, this Warrant shall become void, and all rights to purchase Warrant Shares shall thereupon cease. 2.2 Procedure for Exercise This Warrant may be exercised by the Holder, in whole or in part by (i) surrendering this Warrant to the Company, (ii) tendering to the Company payment of the Exercise Price for the Warrant Shares for which exercise is made and (iii) executing and delivering to the Company the Exercise Form attached hereto. Upon exercise, the Holder will be deemed to be the holder of record of the Warrant Shares for which exercise is made, even though the transfer or registrar books of the Company may then be closed or certificates representing such Warrant Shares may not then be actually delivered to the Holder. -2- 2.3 Certificates and Agreement Within a reasonable time but no more than 30 days after exercise, certificates for such Warrant Shares shall be delivered to the Holder, and, unless this Warrant has expired, a Warrant representing the number of Warrant Shares, if any, with respect to which this Warrant shall not have been exercised, shall be issued to the Holder. 2.4 Securities Act Compliance Unless the transfer of the Warrant Shares shall have been registered under the Securities Act as a condition of its delivery of the certificates for the Warrant Shares, the Company may require the Holder (including the transferee of the Warrant Shares in whose name the Warrant Shares are to be registered) to deliver to the Company, in writing, representations regarding the purchaser's sophistication, investment intent, acquisition for his, her or its own account and such other matters as are reasonable and customary for purchasers of securities in an unregistered private offering, and the Company may place conspicuously upon each certificate representing the Warrant Shares a legend substantially in the following form, the terms of which are agreed to by the Holder (including such transferee): The securities evidenced by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or applicable state law, and no interest therein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless (i) there is an effective registration statement under the Act and applicable state securities laws covering any such transaction involving said securities, (ii) this corporation receives an opinion of legal counsel for the holder of these securities satisfactory to this corporation stating that such transaction is exempt from registration, or (iii) this corporation otherwise satisfies itself that such transaction is exempt from registration. 2.5 Taxes The Company covenants and agrees that it will pay when due and payable any and all stamp or transfer taxes that may be payable in connection with the issuance of this Warrant, or the issuance of any Warrant Shares upon the exercise of this Warrant. The Company shall not, however, be required to pay any tax that may be payable in respect of any subsequent transfer of this Warrant or of the Warrant Shares. -3- 3. VALIDITY AND RESERVATION OF WARRANT SHARES The Company covenants that this Warrant and all shares of Series I Stock issued upon exercise of this Warrant in accordance with the terms hereof will be validly issued, fully paid and nonassessable. The Company agrees that as long as this Warrant may be exercised, the Company will have authorized and reserved for issuance upon exercise of this Warrant a sufficient number of Warrant Shares to provide for exercise in full. 4. FRACTIONAL SHARES No fractional Warrant Share shall be issued upon the exercise of this Warrant. With respect to any fraction of a Warrant Share otherwise issuable upon any such exercise, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Exercise Price. 5. LIMITED RIGHTS OF HOLDER The Holder shall not, solely by virtue of being the Holder of this Warrant, have any of the rights of a holder of Series I Stock, either at law or in equity, until such Warrant shall have been exercised and the Holder shall be deemed to be the holder of record of Warrant Shares as provided in this Warrant, at which time the person or persons in whose name or names the certificate or certificates for Warrant Shares being purchased are to be issued shall be deemed the holder or holders of record of such shares for all purposes. 6. EXCHANGE OR LOSS OF WARRANT 6.1 Exchange This Warrant is exchangeable, without expense to the Holder and upon surrender hereof to the Company, for Warrants of different denominations entitling the Holder to purchase Warrant Shares equal in total number and identical in type to the Warrant Shares covered by this Warrant. 6.2 Loss, Theft, Destruction or Mutilation Upon receipt by the Company of satisfactory evidence of the loss, theft, destruction or mutilation of this Warrant and either (in the case of loss, theft or destruction) reasonable indemnification or (in the case of mutilation) the surrender of this Warrant for cancellation, the Company will execute and deliver to the Holder, without charge, a new Warrant of like denomination. Any such new Warrant executed and delivered shall constitute an additional obligation of the Company, -4- whether or not this Warrant, reportedly lost, stolen, destroyed or mutilated, shall be at any time presented by anyone to the Company for exercise. 7. ADJUSTMENT OF EXERCISE PRICE 7.1 General If any of the following events shall occur at any time or from time to time prior to the exercise in full or expiration of this Warrant, the following adjustments shall be made in the Exercise Price, with the exceptions hereinafter provided: (a) Recapitalization In case the Company effects a subdivision, combination, reclassification or other recapitalization of its outstanding shares of Series I Stock into a greater or lesser number of shares of Series I Stock, the Exercise Price in effect immediately after such subdivision, combination, reclassification or other recapitalization shall be proportionately decreased or increased, as the case may be. (b) Stock Dividends If the Company shall declare a dividend on its Series I Stock payable in stock or other securities of the Company or of any other corporation to the holders of its Series I Stock, the Holder shall, without additional cost, be entitled to receive upon the exercise of this Warrant, in addition to the Warrant Shares to which such Holder is otherwise entitled upon such exercise, the number of shares of stock, or other securities that such Holder would have been entitled to receive if such Holder had been a holder, on the record date for such dividend, of the number of shares of Series I Stock so purchased under this Warrant. (c) Merger or Consolidation-No Change in Control In case of any merger, consolidation or reorganization of the Company with or into one or more corporations that results in holders of the Company's voting equity securities immediately prior to such event together owning a majority interest of the voting equity securities of the surviving corporation immediately following such event, the Holder, upon the exercise of this Warrant after the record date for determination of shareholders entitled thereto, shall receive, in lieu of or in addition to any shares of Series I Stock, the proportionate share of all stock or other securities (appropriately adjusted for any subsequent events of the issuer of such stock or securities that are of the kind that would cause adjustment of the Exercise Price hereunder) or other property issued, paid or delivered for or on all the Series I Stock -5- as would have been allocable to the Warrant Shares so purchased under this Warrant had this Warrant been exercised immediately prior to said record date. (d) Merger or Consolidation--Change in Control In case of any merger, consolidation or reorganization of the Company with or into one or more other corporations, that results in the holders of the Company's voting equity securities immediately prior to such event together owning less than a majority interest of the voting securities of the surviving corporation immediately following such event, or in case of any sale, lease, transfer or conveyance to another corporation of all or substantially all the assets of the Company or proposed liquidation of the Company, then in any such event the Holder shall be given notice of such proposed action at approximately the same time and in substantially the same manner as the holders of the Series I Stock. The Holder may attend the meeting of the Company's shareholders at which such action is considered and voted upon. If the proposed action is approved according to applicable law by the shareholders of all corporations or other entities that are parties to the proposed action, the Holder shall be so notified in writing by the Company by registered or certified mail at least 10 days before the effectiveness thereof. Notwithstanding the period of exercisability stated on the face of this Warrant, this Warrant shall become forever null and void to the extent not exercised on or before 5:00 p.m., Pacific time, on the tenth business day following the delivery of such notice. (e) Minimum Adjustment Not Required Anything in this Section 7.1 to the contrary notwithstanding, the Company shall not be required, except as hereinafter provided, to make any adjustment of the Exercise Price in any case in which the amount by which such Exercise Price would be increased or reduced, in accordance with the foregoing provisions, which would be less than $.001, but in such a case, any adjustment that would otherwise be required to be made will be carried forward and made at the time and together with the next subsequent adjustment that, together with any and all such adjustments so carried forward, shall amount to not less than $.001; provided, however, that adjustments in the Exercise Price shall be required and made in accordance with the provisions of this Section 7.1 (other than this Section 7.1(e)) not later than such time as may be required in order to preserve the tax-free nature of any distribution (within the meaning of Section 305 of the United States Internal Revenue Code of 1986, as amended) to the Holder or the holders of Series I Stock. In the event of any subdivision, combination, reclassification or other recapitalization of shares of Series I Stock, said amount (as theretofore decreased or increased) shall be proportionately decreased or increased. -6- 7.2 Number of Warrant Shares Adjusted After any adjustment of the Exercise Price pursuant to Section 7.1 hereof, the number of Warrant Shares issuable at the new Exercise Price shall be adjusted to the number obtained by (i) multiplying the number of Warrant Shares issuable upon exercise of this Warrant immediately before such adjustment by the Exercise Price in effect immediately before such adjustment and (ii) dividing the product so obtained by the new Exercise Price. 7.3 Notice of Adjustment Whenever events occur requiring the Exercise Price to be adjusted, the Company shall promptly file with its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, a certificate of its chief financial officer showing the adjusted Exercise Price, setting forth in reasonable detail the acts requiring such adjustment, and stating such other facts as shall be necessary to show the manner and figures used to compute such adjustment. Such chief financial officer's certificate shall be made available at all reasonable times for inspection by the Holder. Promptly after each such adjustment, the Company shall mail a copy of such certificate by certified mail to the Holder. The Company shall endorse on any Warrant executed and delivered by the Company a description of each adjustment, if any, under this Section 7 as the result of events occurring before the execution and delivery of the Warrant. If, within 45 days of the mailing of such certificate, the Holder notifies the Company in writing of the Holder's good-faith disagreement with the adjusted Exercise Price contained in the Company certificate, then the Company will promptly obtain a certificate of a firm of independent certified public accountants of recognized standing selected by the Company's Board of Directors (who may be the regular auditors of the Company) covering the same items required by the Company certificate. The Company will promptly mail a copy of the accountants' certificate to the Holder of this Warrant. The certificate of the firm of independent public accountants will be conclusive evidence of the correctness of the computations with respect to any adjustment of the Exercise Price. 8. NOTICES TO HOLDER So long as this Warrant is outstanding, whenever the Company shall expect to (i) pay any dividend or distribution upon the Series I Stock, (ii) effect any recapitalization, merger, consolidation, reorganization, transfer, sale, lease or conveyance as referred to in Section 7 hereof, or (iii) be involved in any voluntary or involuntary dissolution, liquidation or winding up of the Company, at least 10 days -7- before the proposed action or any applicable record date, the Company shall give the Holder written notice describing the proposed action and stating the date on which (x) a record date is to be fixed for the purpose of such dividend, distribution or right or (y) such recapitalization, merger, consolidation, reorganization, transfer, sale, lease, conveyance, dissolution, liquidation or winding up is to take place and when, if any date is to be fixed, the record holders of Series I Stock shall be entitled to exchange their shares of Series I Stock for securities or other property deliverable upon such recapitalization, merger, consolidation, reorganization, transfer, sale, lease, conveyance, dissolution, liquidation or winding up. 9. MISCELLANEOUS 9.1 Successors and Assigns All the covenants and provisions of this Warrant that are by or for the benefit of the Company or of the Holder shall bind and inure to the benefit of their respective permitted successors and assigns hereunder. This Warrant may not be transferred or assigned without the consent of the Company except to a partner or shareholder of the Holders. 9.2 Notice Notice or demand pursuant to this Warrant to be given or made by the Holder to or on the Company shall be sufficiently given or made if sent by registered or certified mail, postage prepaid, addressed, until another address is designated in writing by the Company, as follows: XactLabs Corporation One Union Square 600 University Street, Suite 911 Seattle, WA 98101 Any notice or demand authorized by this Warrant to be given or made by the Company to or on the Holder shall be given to the Holder by registered or certified mail, postage prepaid, addressed at his, her or its last known address as it shall appear on the books of the Company, until another address is designated in writing. 9.3 Applicable Law The validity, interpretation and performance of this Warrant shall be governed by the laws of the State of Washington. -8- 9.4 Headings The Section headings herein are for convenience only and are not part of this Warrant and shall not affect the interpretation thereof. 9.5 Amendment The terms of this Warrant may be amended only with the written consent of the Company and the Holder of this Warrant. THIS SPACE LEFT INTENTIONALLY BLANK -9- XACTLABS CORPORATION Dated: December 20, 1996 By: /s/ ALAN J. HIGGINSON ----------------- --------------------- Alan J. Higginson, Chief Executive Officer and President -10- EXERCISE FORM (To be executed by the Holder in connection with the exercise of this Warrant in whole or in part) TO: XACTLABS CORPORATION The undersigned (___________________________________________________________) Please insert Social Security or other tax identifying number of Holder hereby irrevocably elects to exercise the right of purchase represented by the within Warrant for, and to purchase thereunder, __________________ shares of Series I Stock provided for therein and tenders payment herewith to the order of XACTLABS CORPORATION in the amount of $ ___________________. The undersigned requests that certificates for such shares of Series I Stock be issued as follows: Name: ______________________________________________________________________ Address:____________________________________________________________________ Deliver to:_________________________________________________________________ Address:____________________________________________________________________ and, if said number of shares of Series I Stock shall not be all the shares of Series I Stock purchasable hereunder, that a new Warrant for the balance remaining of the shares of Series I Stock purchasable under the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below. Address:_____________________________________________________________________ Dated:_____________________, 19_____ Signature__________________________ Note: Signature must correspond with the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatever. -11- EX-10.17 16 WARRANT TO PURCHASE SERIES B PREFERRED STOCK EXHIBIT 10.17 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO COMPANY, SUCH TRANSACTION IS IN COMPLIANCE THEREWITH. SERIES B PREFERRED STOCK WARRANT of ATRIEVA CORPORATION THIS CERTIFIES THAT PHOENIX LEASING INCORPORATED (the "Holder") is entitled to purchase from ATRIEVA CORPORATION, a Delaware corporation (the "Company"), ------- during the Exercise Period, Nine Thousand Nine Hundred (9,900) fully-paid and non-assessable shares of Company's Series B Preferred Stock (the "Preferred"), --------- at a price of Five Dollars ($5.00) per share (the "Warrant Price"), such price ------------- and number of shares being subject to adjustment as set forth herein. The "Exercise Period" commences on August 25, 1999 (the "Effective Date") and --------------- --------------- terminates on the later of (i) the tenth (10th) anniversary of the Effective Date, or (ii) the fifth (5th) anniversary of the IPO. "IPO" means the first Public Offering and "Public Offering" means a public offering of Company's Common Stock pursuant to an effective registration statement under the Act. This Warrant is subject to the following terms and conditions: 1. Exercise of Warrant. Holder may exercise this Warrant in whole or in ------------------- part, at any time during the Exercise Period, by surrendering this Warrant together with the "Notice of Exercise" and "Investment Representation Statement" ------------------ ----------------------------------- attached hereto as Exhibits "A" and "B", respectively, duly completed and ------------------- executed, at Company's address set forth below its signature hereto (the "Principal Office") and by paying Company, in the manner provided for in the ---------------- following paragraph, the Warrant Price for the Preferred purchased. In lieu of exercising this Warrant for cash, Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by surrendering this Warrant at the Principal Office, together with notice of such election (which shall state the number of shares being exercised hereunder), in which event Company shall issue to Holder the number of shares of Preferred (or Common Stock if the Preferred has been converted into Common Stock) equal to the quotient obtained by dividing (x) the value of the shares of Preferred being exercised (the "Exercised Shares") on the ----------------- date this Warrant is exercised (the "Exercise Date"), which shall be determined ------------- by subtracting (A) the aggregate Warrant Price of the Exercised Shares immediately prior to the exercise hereof from (B) the aggregate fair market value of the Exercised Shares on the Exercise Date, by (y) the fair market value of one share of Preferred (or Common Stock if the Preferred has been converted into Common Stock) as of the Exercise Date. If the number or shares to be issued determined in accordance with the foregoing formula is other than a whole number, Company shall pay to Holder cash equal to the fair market value of the resulting fractional share on the Exercise Date in lieu of issuing such fractional share. 1 For purposes of converting this Warrant in accordance with the preceding paragraph, the fair market value per share of the Preferred (or Common Stock if the Preferred has been converted into Common Stock) shall be determined as follows: (i) If this Warrant is exercised in connection with and contingent upon a Public Offering, and if Company's registration statement relating to such Public Offering has been declared effective by the Securities and Exchange Commission, then the fair market value shall be the initial "Price to Public" specified in the final prospectus with respect to such offering. (ii) If this Warrant is exercised in connection with any Sale or Merger, then the fair market value shall be equal to the sum of all cash, stock and other consideration received by Company (as valued in accordance with the following paragraphs of this section), divided by the number of outstanding shares (and options to purchase shares) of Company's capital stock (on an as- converted into Common Stock basis) as of the closing of such transaction. If this Warrant is not exercised in connection with and contingent upon a Public Offering, a Sale or Merger, then Company's Board of Directors, acting in good faith, shall determine fair market value. In determining fair market value, no discount shall be taken for the shares representing a minority interest in Company. The exercise of this Warrant may be made contingent upon (i) the closing of a Public Offering, (ii) the closing of any consolidation or merger of Company with or into any other unaffiliated party or any other reorganization in which the holders of the Company's voting equity securities immediately prior to such transaction own less than a majority interest of the successor corporation following such transaction (a "Merger"), or (iii) the sale of all or ------ substantially all of Company's assets (a "Sale"). Company shall notify Holder if ---- an event or transaction of the kind described in this section is proposed at least fifteen (15) days prior to the closing of such event or transaction; such notice shall also contain such details of the proposed event or transaction as are reasonable in the circumstances. Notwithstanding the period of exercisability stated on the face of this Warrant, this Warrant shall become forever null and void to the extent not exercised before 5:00 p.m. Pacific Time on the tenth day following the delivery of such notice relating to a Merger or Sale. Certificates for the shares issuable upon exercise of this Warrant and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant shall be issued as of the Exercise Date and shall be delivered to Holder within thirty (30) days following the Exercise Date (subject to the transfer restrictions contained herein and upon Holder paying applicable transfer taxes). All shares of Preferred issued upon the exercise hereof shall be fully paid and non-assessable and shall be free from all taxes, liens and charges with respect thereto except for those created by Holder. 2. Transfer and Exercise Conditions. This Warrant may be transferred or -------------------------------- exercised only if (i) Company receives, at the time of such transfer or exercise, a representation in writing that this Warrant (or portion hereof transferred) or the shares of Preferred or other securities being issued upon such exercise, as applicable, are being acquired for investment not with a view to any sale or distribution thereof, or a statement of the pertinent facts covering any proposed distribution thereof, and (ii) other than a transfer registered under the Act, Company receives a legal opinion, in form and substance satisfactory to it, reciting the pertinent circumstances surrounding the proposed transfer and stating that it is exempt from the Act's prospectus and the registration requirements. The opinion requirement shall not apply to a transfer to an affiliate of Holder, so long as it complies with applicable securities laws and affiliate is an accredited investor. Each certificate evidencing the shares of Preferred issued upon 2 exercise of this Warrant, or Common Stock issued upon conversion of such Preferred, or upon any transfer of such shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at Company's option, contain a legend, in form and substance satisfactory to Company, restricting the transfer of such shares to sales or other dispositions exempt from the Act's requirements. 3. Adjustment of Warrant Price and Shares. The Warrant Price and the number -------------------------------------- of shares purchasable hereunder shall he adjusted from time to time as follows: (a) Subdivisions or Combinations. If outstanding shares of the ---------------------------- Preferred are subdivided, the Warrant Price in effect immediately prior to such subdivision shall be proportionately decreased, and if the outstanding shares of the Preferred arc combined, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision or combination, as applicable. (b) Stock Dividends. If a dividend is paid with respect to Preferred in --------------- Preferred, then the Warrant Price in effect immediately prior to the record date for distribution of such dividend shall be adjusted to the price determined by multiplying the Warrant Price in effect immediately prior to such date by a fraction (i) the numerator of which is the total number of shares of Preferred outstanding immediately prior to such dividend and (ii) the denominator of which is the total number of shares of Preferred outstanding immediately after such dividend. (c) Reclassification. In case of any reclassification, change or ---------------- conversion of securities of the class or series issuable upon exercise hereof (other than as a result of a Merger or Sale or a subdivision or combination described above), or in case of any Merger or Sale where the successor entity is obligated to assume or agrees to assume the obligations of this Warrant, Company or such successor entity, as applicable, shall duly execute and deliver to Holder a new warrant so that Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Preferred therefore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or conversion by a holder of the number of shares of Preferred then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this section. The provisions of this subsection shall similarly apply to successive reclassifications, changes, and conversions. (d) Antidilution Rights. The Preferred's antidilution rights are set ------------------- forth in its Certificate of Incorporation attached hereto as Exhibit "C" (the ----------- "Certificate"). Such rights shall not be restated, amended or modified in any - ------------ manner which adversely affects Holder differently than holders of Preferred without Holder's prior written consent. Company shall promptly notify Holder of any restatement, amendment or modification to the Certificate. (e) Notices. Within thirty (30) days after each adjustment of the ------- Warrant Price and the number of shares of Preferred purchasable hereunder, Company shall give written notice to Holder of the adjusted Warrant Price and the increased or decreased number of shares purchasable hereunder, setting forth in reasonable detail the method of calculation of each. 4. Registration. Holder shall become a party to the Company's Third ------------ Amended and Restated Investors' Rights Agreement (the "Rights Agreement") and the Company shall cause the 3 Amendment to Rights Agreement attached hereto as Exhibit "E" to become effective ----------- and binding on the parties thereto. Holder shall also become a party to the Company's Series A-1 and Series B Preferred Stock Voting Agreement, attached hereto as Exhibit "F." ------------ 5. Holder Representations. Concurrently herewith, Holder shall have ----------------------- executed the Investment Representation Statement. 6. Company Representations. Company represents and warrants to Holder, as ----------------------- of the Effective Date: (a) This Warrant has been duly authorized and executed by Company and is a valid and binding obligation of Company, enforceable in accordance with its terms except as to the effect of (i) applicable bankruptcy and similar laws affecting the rights of creditors, and (ii) rules or law governing specific performance, injunctive relief and other equitable remedies. (b) The Preferred, when issued in accordance with the terms hereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issue of such shares. (c) Company's execution and delivery of this Warrant does not, and the issuance of the Preferred upon exercise of this Warrant in accordance with the terms hereof does not, (i) conflict with Company's Certificate or Bylaws, (ii) contravene any law, governmental rule or regulation, judgment or order applicable to Company, or (iii) conflict with or constitute a default under any contract to which Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency or other person, other than state or federal securities law filings. (d) During the period within which this Warrant may be exercised, Company will at all times have authorized and reserved for the purpose of the issue upon exercise of this Warrant a sufficient number of shares of Preferred to provide for the exercise of this Warrant and a sufficient number of shares of Common Stock to provide for the conversion of the Preferred into Common Stock. 7. Miscellaneous. -------------- (a) The terms of this Warrant shall be binding upon and shall inure to the benefit of the successors or assigns of Company and of Holder and of the Preferred issued or issuable upon the exercise hereof, and Company's obligations relating to the Preferred issuable upon exercise of this Warrant shall survive such exercise. (b) Company stipulates that Holder's remedies at law if Company defaults or threatens to default in performing in accordance with the terms hereof are not and will not be adequate to the fullest extent permitted by law, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. If either party seeks to enforce its rights hereunder by legal proceedings or otherwise, then the non- prevailing party shall pay the prevailing party's reasonable costs and expenses, including all reasonable attorneys' fees. (c) Any communication pursuant hereto will be sufficiently given if sent by first class mail, postage prepaid, addressed to (a) Holder at its last known address appearing on Company's books or (b) Company at the Principal Office. A party may designate a different address (and Company 4 may change the Principal Office) by notice to the other pursuant to this subsection. A notice shall be deemed effective upon the earlier of (i) receipt or (ii) the third day after mailing in accordance with the terms of this subsection. (d) Company shall not, by amendment of the Certificate or otherwise, avoid or seek to avoid the observance or performance of any of the terms hereof, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action needed or appropriate to protect Holder's rights against impairment. (e) Upon receipt of evidence reasonably satisfactory to Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to Company, or in the case of any such mutilation, upon surrender and cancellation of such Warrant, Company, at its expense, shall execute and deliver, in lieu thereof, a new Warrant of like date and tenor. (f) This Warrant shall be governed by the laws of the State of Delaware, without giving effect to conflicts of law principles. (g) So long as this Warrant has not terminated, Holder shall be entitled to receive such financial information as any holders of the Preferred. IN WITNESS WHEREOF, Company has caused this Warrant to be signed by its duly authorized officer. ATRIEVA CORPORATION ACCEPTED AND AGREED: PHOENIX LEASING INCORPORATED By: /s/ KENT W. JARVI By: /s/ V. H. NELSON ------------------------------- -------------------------- Print Name: Kent W. Jarvi Print Name: V. H. Nelson ------------------------ ----------------- Title: Chief Financial Officer Title: Vice President ----------------------------- ----------------------- Address: [illegible] Street --------------------------- San Francisco, CA 94107 --------------------------- 5 EXHIBIT A --------- NOTICE OF EXERCISE Ladies and Gentlemen: The undersigned Holder (the "Holder") elects to exercise the Series B Preferred Stock Warrant (the "Warrant") by and between Holder and ATRIEVA CORPORATION (the ------- "Company"), dated August 25, 1999, by surrendering the Warrant at the Principal ------- Office, in exchange for _____ shares of Series B Preferred Stock of Company (or, _____shares of Company's Common Stock if such Series B Preferred Stock has been converted into Common Stock). Holder confirms the investment representations and warranties made in Investment Representation Statement of the Warrant, a copy or which is available from Company, and accepts such shares subject to the restrictions of the Warrant. Dated:_______________________ HOLDER:______________________ _____________________________ (Signature) _____________________________ (Typed or Printed Name) _____________________________ (Title) Address: _____________________________ _____________________________ _____________________________ EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT Warrants to Purchase ____________ Shares of Series B Preferred Stock of ATRIEVA CORPORATION In connection with the purchase of the above-listed securities the Undersigned hereby represents to ATRIEVA CORPORATION] ("Company"): ------- 1. Receipt for Information. It has received all the information it ----------------------- considers necessary or appropriate for deciding whether to purchase Company's Series B Preferred Stock issuable upon exercise of the Warrant, dated__________ (the "Warrant"), issued by Company to it, and it has examined any information ------- furnished to it by Company in connection therewith. 2. Investment Representation. ------------------------- (a) The Warrant and the shares of stock to be received by it upon exercising this Warrant (the "Securities") will be acquired for investment for ---------- its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and it has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this Statement, it further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations with respect to any Securities. (b) It understands that the Securities may not be registered under the Securities Act of 1933, as amended (the "Act"), and applicable state securities --- laws, on the ground that the issuance of such Securities is exempt pursuant to Section 4(2) of the Act and state law exemptions relating to offers and sales not by means of a public offering, and that Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. It is an "Accredited Investor", as defined in Rule 501 of the Securities and ------------------- Exchange Commission. (c) It will not make a disposition of any Securities until it has (i) notified Company of the proposed disposition and has furnished Company with a statement of the circumstances surrounding the proposed disposition, and (ii) has furnished Company with an opinion of counsel satisfactory to Company and Company's counsel to the effect that (a) appropriate action for complying with the Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Act and such laws is available, and (b) the proposed transfer will not violate any of said laws. (d) It is able to fend for itself in the transactions contemplated by this Statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. It has had the opportunity to ask questions of Company concerning Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by Company. 1 (e) It acknowledges that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations. It is aware that the conditions for resale set forth in Rule 144 have not been satisfied. (f) It represents that at no time was it presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Securities. (g) If it is the original holder of the Warrant, it has a preexisting business or personal relationship with Company of any of its officers, directors or controlling persons, or by reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with and who are not compensated by Company or any affiliate or selling agent of Company, directly or indirectly, has, and could be reasonably assumed to have, the capacity to protect its own interests in connection with the purchase of the Securities. Dated:______________________________ ____________________________________ (Signature) ____________________________________ (Typed or Printed Name) ____________________________________ (Title) 2 EX-10.18 17 WARRANT TO PURCHASE SERIES B PREFERRED STOCK EXHIBIT 10.18 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO COMPANY, SUCH TRANSACTION IS IN COMPLIANCE THEREWITH. SERIES B PREFERRED STOCK WARRANT of ATRIEVA CORPORATION THIS CERTIFIES THAT ROBERT KINGSBOOK (the "Holder") is entitled to purchase ------ from ATRIEVA CORPORATION, a Delaware corporation (the "Company"), during the ------- Exercise Period, Nine Hundred (900) fully-paid and non-assessable shares of Company's Series B Preferred Stock (the "Preferred"), at a price of Five Dollars --------- ($5.00) per share (the "Warrant Price"), such price and number of shares being ------------- subject to adjustment as set forth herein. The "Exercise Period" commences on --------------- August 25, 1999 (the "Effective Date") and terminates on the later of (i) the -------------- tenth (l0th) anniversary of the Effective Date, or (ii) the fifth (5th) anniversary of the IPO. "IPO" means the first Public Offering and "Public --- ------ Offering" means a public offering of Company's Common Stock pursuant to an - -------- effective registration statement under the Act. This Warrant is subject to the following terms and conditions: 1. Exercise of Warrant. Holder may exercise this Warrant in whole or in ------------------- part, at any time during the Exercise Period, by surrendering this Warrant together with the "Notice of Exercise" and "Investment Representation ------------------ ------------------------- Statement" attached hereto as Exhibits "A" and "B", respectively, duly completed - --------- -------------------- and executed, at Company's address set forth below its signature hereto (the "Principal Office") and by paying Company, in the manner provided for in the - ----------------- following paragraph, the Warrant Price for the Preferred purchased. In lieu of exercising this Warrant for cash, Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by surrendering this Warrant at the Principal Office, together with notice of such election (which shall state the number of shares being exercised hereunder), in which event Company shall issue to Holder the number of shares of Preferred (or Common Stock if the Preferred has been converted into Common Stock) equal to the quotient obtained by dividing (x) the value of the shares of Preferred being exercised (the "Exercised Shares") on the ---------------- date this Warrant is exercised (the "Exercise Date"), which shall be determined ------------- by subtracting (A) the aggregate Warrant Price of the Exercised Shares immediately prior to the exercise hereof from (B) the aggregate fair market value of the Exercised Shares on the Exercise Date, by (y) the fair market value of one share of Preferred (or Common Stock if the Preferred has been converted into Common Stock) as of the Exercise Date. If the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, Company shall pay to Holder cash equal to the fair market value of the resulting fractional share on the Exercise Date in lieu of issuing such fractional share. 1 For purposes of converting this Warrant in accordance with the preceding paragraph, the fair market value per share of the Preferred (or Common Stock if the Preferred has been converted into Common Stock) shall be determined as follows: (i) If this Warrant is exercised in connection with and contingent upon a Public Offering, and if Company's registration statement relating to such Public Offering has been declared effective by the Securities and Exchange Commission, then the fair market value shall be the initial "Price to Public" specified in the final prospectus with respect to such offering. (ii) If this Warrant is exercised in connection with any Sale or Merger, then the fair market value shall be equal to the sum of all cash, stock and other consideration received by Company (as valued in accordance with the following paragraphs of this section), divided by the number of outstanding shares (and options to purchase shares) of Company's capital stock (on an as- converted into Common Stock basis) as of the closing of such transaction. If this Warrant is not exercised in connection with and contingent upon a Public Offering, a Sale or Merger, then Company's Board of Directors, acting in good faith, shall determine fair market value. In determining fair market value, no discount shall be taken for the shares representing a minority interest in Company. The exercise of this Warrant may be made contingent upon (i) the closing of a Public Offering, (ii) the closing of any consolidation or merger of Company with or into any other unaffiliated party or any other reorganization in which the holders of the Company's voting equity securities immediately prior to such transaction own less than a majority interest of the successor corporation following such transaction (a "Merger"), or (iii) the sale of all or ------ substantially all of Company's assets (a "Sale"). Company shall notify Holder if ---- an event or transaction of the kind described in this section is proposed at least fifteen (15) days prior to the closing of such event or transaction; such notice shall also contain such details of the proposed event or transaction as are reasonable in the circumstances. Notwithstanding the period of exercisability stated on the face of this Warrant, this Warrant shall become forever null and void to the extent not exercised before 5:00 p.m. Pacific Time on the tenth day following the delivery of such notice relating to a Merger or Sale. Certificates for the shares issuable upon exercise of this Warrant and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant shall be issued as of the Exercise Date and shall be delivered to Holder within thirty (30) days following the Exercise Date (subject to the transfer restrictions contained herein and upon Holder paying applicable transfer taxes). All shares of Preferred issued upon the exercise hereof shall be fully paid and non-assessable and shall be free from all taxes, liens and charges with respect thereto except for those created by Holder. 2. Transfer and Exercise Conditions. This Warrant may be transferred or -------------------------------- exercised only if (i) Company receives, at the time of such transfer or exercise, a representation in writing that this Warrant (or portion hereof transferred) or the shares of Preferred or other securities being issued upon such exercise, as applicable, are being acquired for investment not with a view to any sale or distribution thereof, or a statement of the pertinent facts covering any proposed distribution thereof, and (ii) other than a transfer registered under the Act, Company receives a legal opinion, in form and substance satisfactory to it, reciting the pertinent circumstances surrounding the proposed transfer and stating that it is exempt from the Act's prospectus and the registration requirements. The opinion requirement shall not apply to a transfer to an affiliate of Holder, so long as it complies with applicable securities laws and affiliate is an accredited investor. Each certificate evidencing the shares of Preferred issued upon 2 exercise of this Warrant, or Common Stock issued upon conversion of such Preferred, or upon any transfer of such shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at Company's option, contain a legend, in form and substance satisfactory to Company, restricting the transfer of such shares to sales or other dispositions exempt from the Act's requirements. 3. Adjustment of Warrant Price and Shares. The Warrant Price and the -------------------------------------- number of shares purchasable hereunder shall be adjusted from time to time as follows: (a) Subdivisions or Combinations. If outstanding shares of the ---------------------------- Preferred are subdivided, the Warrant Price in effect immediately prior to such subdivision shall be proportionately decreased, and if the outstanding shares of the Preferred are combined, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision or combination, as applicable. (b) Stock Dividends. If a dividend is paid with respect to Preferred --------------- in Preferred, then the Warrant Price in effect immediately prior to the record date for distribution of such dividend shall be adjusted to the price determined by multiplying the Warrant Price in effect immediately prior to such date by a fraction (i) the numerator of which is the total number of shares of Preferred outstanding immediately prior to such dividend and (ii) the denominator of which is the total number of shares of Preferred outstanding immediately after such dividend. (c) Reclassification. In case of any reclassification, change or ---------------- conversion of securities of the class or series issuable upon exercise hereof (other than as a result of a Merger or Sale or a subdivision or combination described above), or in case of any Merger or Sale where the successor entity is obligated to assume or agrees to assume the obligations of this Warrant, Company or such successor entity, as applicable, shall duly execute and deliver to Holder a new warrant so that Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Preferred therefore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or conversion by a holder of the number of shares of Preferred then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this section. The provisions of this subsection shall similarly apply to successive reclassifications, changes, and conversions. (d) Antidilution Rights. The Preferred's antidilution rights are set ------------------- forth in its Certificate of Incorporation attached hereto as Exhibit "C" (the ----------- "Certificate"). Such rights shall not be restated, amended or modified in any - ------------ manner which adversely affects Holder differently than holders of Preferred without Holder's prior written consent. Company shall promptly notify Holder of any restatement, amendment or modification to the Certificate. (e) Notices. Within thirty (30) days after each adjustment of the ------- Warrant Price and the number of shares of Preferred purchasable hereunder, Company shall give written notice to Holder of the adjusted Warrant Price and the increased or decreased number of shares purchasable hereunder, setting forth in reasonable detail the method of calculation of each. 4. Registration. Holder shall become a party to the Company's Third ------------ Amended and Restated Investors' Rights Agreement (the "Rights Agreement") and the Company shall cause the 3 Amendment to Rights Agreement attached hereto as Exhibit "E" to become effective ------------ and binding on the parties thereto. Holder shall also become a party to the Company's Series A-1 and Series B Preferred Stock Voting Agreement, attached hereto as Exhibit "F." ------------ 5. Holder Representations. Concurrently herewith, Holder shall have ---------------------- executed the Investment Representation Statement. 6. Company Representations. Company represents and warrants to Holder, as ----------------------- of the Effective Date: (a) This Warrant has been duly authorized and executed by Company and is a valid and binding obligation of Company, enforceable in accordance with its terms except as to the effect of (i) applicable bankruptcy and similar laws affecting the rights of creditors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. (b) The Preferred, when issued in accordance with the terms hereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issue of such shares. (c) Company's execution and delivery of this Warrant does not, and the issuance of the Preferred upon exercise of this Warrant in accordance with the terms hereof does not, (i) conflict with Company's Certificate or Bylaws, (ii) contravene any law, governmental rule or regulation, judgment or order applicable to Company, or (iii) conflict with or constitute a default under any contract to which Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency or other person, other than state or federal securities law filings. (d) During the period within which this Warrant may be exercised, Company will at all times have authorized and reserved for the purpose of the issue upon exercise of this Warrant a sufficient number of shares of Preferred to provide for the exercise of this Warrant and a sufficient number of shares of Common Stock to provide for the conversion of the Preferred into Common Stock. 7. Miscellaneous. ------------- (a) The terms of this Warrant shall be binding upon and shall inure to the benefit of the successors or assigns of Company and of Holder and of the Preferred issued or issuable upon the exercise hereof, and Company's obligations relating to the Preferred issuable upon exercise of this Warrant shall survive such exercise. (b) Company stipulates that Holder's remedies at law if Company defaults or threatens to default in performing in accordance with the terms hereof are not and will not be adequate to the fullest extent permitted by law, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. If either party seeks to enforce its rights hereunder by legal proceedings or otherwise, then the non- prevailing party shall pay the prevailing party's reasonable costs and expenses, including all reasonable attorneys' fees. (c) Any communication pursuant hereto will be sufficiently given if sent by first class mail, postage prepaid, addressed to (a) Holder at its last known address appearing on Company's books or (b) Company at the Principal Office. A party may designate a different address (and Company 4 may change the Principal Office) by notice to the other pursuant to this subsection. A notice shall be deemed effective upon the earlier of (i) receipt or (ii) the third day after mailing in accordance with the terms of this subsection. (d) Company shall not, by amendment of the Certificate or otherwise, avoid or seek to avoid the observance or performance of any of the terms hereof, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action needed or appropriate to protect Holder's rights against impairment. (e) Upon receipt of evidence reasonably satisfactory to Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to Company, or in the case of any such mutilation, upon surrender and cancellation of such Warrant, Company, at its expense, shall execute and deliver, in lieu thereof, a new Warrant of like date and tenor. (f) This Warrant shall be governed by the laws of the State of Delaware, without giving effect to conflicts of law principles. (g) So long as this Warrant has not terminated, Holder shall be entitled to receive such financial information as any holders of the Preferred. IN WITNESS WHEREOF, Company has caused this Warrant to be signed by its duly authorized officer. ATRIEVA CORPORATION ACCEPTED AND AGREED: ROBERT KINGSBOOK By: /s/ KENT W. JARVI By: /s/ ROBERT A. KINGSBOOK ----------------- ----------------------- Print Name: Kent W. Jarvi Print Name: Robert A. Kingsbook ------------- ------------------- Title: CFO Title: --- ---------------------- Address: 380 Brannan St. --------------- San Francisco, CA 94107 ----------------------- 5 EXHIBIT A --------- NOTICE OF EXERCISE Ladies and Gentlemen: The undersigned Holder (the "Holder") elects to exercise the Series B Preferred ------ Stock Warrant (the "Warrant") by and between Holder and ATRIEVA CORPORATION (the ------- "Company"), dated August 25, 1999, by surrendering the Warrant at the Principal ------- Office, in exchange for __________ shares of Series B Preferred Stock of Company (or, ________ shares of Company's Common Stock if such Series B Preferred Stock has been converted into Common Stock). Holder confirms the investment representations and warranties made in Investment Representation Statement of the Warrant, a copy of which is available from Company, and accepts such shares subject to the restrictions of the Warrant. Dated: __________________________________________ HOLDER: _______________________________________ ________________________________________________ (Signature) ________________________________________________ (Typed or Printed Name) ________________________________________________ (Title) Address: ________________________________________________ ________________________________________________ ________________________________________________ EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT Warrants to Purchase _________ Shares of Series B Preferred Stock of ATRIEVA CORPORATION In connection with the purchase of the above-listed securities the undersigned hereby represents to ATRIEVA CORPORATION] ("Company"): ------- 1 . Receipt of Information. It has received all the information it ---------------------- considers necessary or appropriate for deciding whether to purchase Company's Series B Preferred Stock issuable upon exercise of the Warrant, dated __________ (the "Warrant"), issued by Company to it, and it has examined any information ------- furnished to it by Company in connection therewith. 2. Investment Representation. ------------------------- (a) The Warrant and the shares of stock to be received by it upon exercising the Warrant (the "Securities") will be acquired for investment for ---------- its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof and it has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this Statement, it further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations with respect to any Securities. (b) It understands that the Securities may not be registered under the Securities Act of 1933, as amended (the "Act"), and applicable state securities --- laws, on the ground that the issuance of such Securities is exempt pursuant to Section 4(2) of the Act and state law exemptions relating to offers and sales not by means of a public offering, and that Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. It is an "Accredited Investor", as defined in Rule 501 of the Securities and ------------------- Exchange Commission. (c) It will not make a disposition of any Securities until it has (i) notified Company of the proposed disposition and has furnished Company with a statement of the circumstances surrounding the proposed disposition, and (ii) has furnished Company with an opinion of counsel satisfactory to Company and Company's counsel to the effect that (a) appropriate action for complying with the Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Act and such laws is available, and (b) the proposed transfer will not violate any of said laws. (d) It is able to fend for itself in the transactions contemplated by this Statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. It has had the opportunity to ask questions of Company concerning Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by Company. 1 (e) It acknowledges that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations. It is aware that the conditions for resale set forth in Rule 144 have not been satisfied. (f) It represents that at no time was it presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Securities. (g) If it is the original holder of the Warrant, it has a preexisting business or personal relationship with Company or any of its officers, directors or controlling persons, or by reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with and who are not compensated by Company or any affiliate or selling agent of Company, directly or indirectly, has, and could be reasonably assumed to have, the capacity to protect its own interests in connection with the purchase of the Securities. Dated:___________________________________________ ________________________________________________ (Signature) ________________________________________________ (Typed or Printed Name) ________________________________________________ (Title) 2 EXHIBIT C --------- CERTIFICATE OF INCORPORATION EXHIBIT D --------- RIGHTS AGREEMENT EXHIBIT E --------- AMENDMENT TO RIGHTS AGREEMENT EX-10.19 18 WARRANT TO PURCHASE COMMON STOCK EXHIBIT 10.19 COPY ORIGINAL IN PRESTON GATES & ELLIS CORPORATE VAULT No. 5 NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES ACT (COLLECTIVELY, THE "SECURITIES LAWS"). THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE, OR OTHERWISE TRANSFERRED UNLESS SALE OR TRANSFER (I) IS REGISTERED UNDER THE SECURITIES LAWS OR (II) IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. XACTDATA SERVICES, INC. COMMON STOCK WARRANT -------------------- ISSUE DATE: December 13, 1994 629 Shares of Common Stock THIS IS TO CERTIFY THAT FOR SERVICES RENDERED AND OTHER GOOD AND VALUABLE CONSIDERATION, PRESTON GATES & ELLIS, a Washington general partnership including a professional service corporation (the "Holder"), is entitled to subscribe for and purchase from XACTDATA SERVICES, INC., a Washington corporation (the "Company"), Six Hundred Twenty-Nine (629) shares of the Company's common stock (the "Warrant Shares") subject to the provisions of this Warrant. ARTICLE I. EXERCISE OF WARRANT; PURCHASE PRICE. ------------------------------------ 1.01. Exercise of Warrant. Subject to the provisions of Section 1.02, the ------------------- Holder may exercise this Warrant in whole, or in part, at any time prior to the expiration date under the conditions set forth in Section 1.08. THIS WARRANT SHALL EXPIRE AT 12:00 NOON, PACIFIC TIME TEN YEARS FROM THE ISSUE DATE, (the "Expiration Date"). 1.02. Exercise Price; Timing of Exercise. As of the Issue Date and until ---------------------------------- the Expiration Date, the Holder may purchase a maximum of Six Hundred Twenty- Nine (629) Warrant Shares. This Warrant is exercisable in whole or in part. The exercise price of the Warrant (the "Exercise Price") shall be paid by certified check or other immediately available funds and shall be One Dollar ($ 1.00) per share. 1.03. Method of Exercise. The Holder shall exercise this Warrant by ------------------ surrendering it at the offices of the Company at the address designated for notice purposes under Section 4.02 below, together with (i) a duly executed subscription in substantially the form of the Subscription Notice appearing at the end of this Warrant, and (ii) a certified check or other immediately available funds payable to the Company in the amount equal to the aggregate Exercise Price for the number of Warrant Shares being purchased. In addition, Holder shall execute the Shareholders' Agreement among the shareholders of the Company as a condition of exercise of the Warrant as well as such other documents as are signed by all of the other shareholders of the Company. 1.04. Issuance of Share Certificates. As soon as practicable after the ------------------------------ Warrant has been so exercised and the Shareholders' Agreement and the other applicable documents have been signed, the Company shall issue and deliver, in such name or names as Holder may direct, a certificate or certificates for the number of Warrant Shares for which Holder subscribed. The Holder shall for all purposes be deemed to have become the holder of record of the Warrant Shares purchased on the date on which this Warrant was surrendered and the Exercise Price paid, irrespective of the date of delivery of the certificate or certificates respecting the Warrant Shares, provided that, if the date of such surrender is a date when the stock transfer books of the Company are closed, such person shall be deemed to become the holder of record at the close of business on the next succeeding date on which the stock transfer books are open. Surrendered Warrants shall be canceled by or on behalf of the Company, except that if the Warrant is exercised in part, the Company shall execute and deliver a new Warrant evidencing the right of Holder to purchase the balance of the Warrant Shares. 1.05. No Fractional Shares or Scrip. No fractional shares or scrip ----------------------------- representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall round up the number of shares to the nearest whole share. 1.06. Replacement of Warrant. On receipt of evidence reasonably ---------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver in lieu of this Warrant, a Warrant of like tenor and amount. 1.07. Rights of Holder. The Holder shall not be entitled to vote or ---------------- receive dividends or be deemed the holder of common stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company until the Warrant shall have been exercised as provided herein. 1.08. Restrictions on Exercise. The Holder may exercise this Warrant upon ------------------------ or after the happening of any of the following events: (a) The issuance by the Company or any of the subsidiaries of the Company of shares, options or convertible debt other than those shares included in the Company's Vested -2- Management ISO and the Initial Accredited Investor Offering, as these terms are defined in the Company's Shareholder Agreement, dated July 26, 1994; (b) The sale, exchange, pledge or hypothecation or other form of transfer of greater than fifty percent (50%) of the Company's current issued and outstanding stock; (c) The sale, lease, exchange, or exclusive licensing or similar disposition of all or substantially all of the Company's property and assets, or the property and assets of any subsidiary of the Company, not in the regular course of business; (d) The merger, consolidation or exchange of shares of the Company or any of its subsidiaries with another foreign or domestic corporation; (e) The filing of a bankruptcy petition involving the Company or any of its subsidiaries, and if an involuntary petition, if the petition is not dismissed within 90 days, or other proceeding for receivership, dissolution or cessation of business of the company; or (f) Any act or acts which would cause the business of the Company to be wound up and the Company dissolved. ARTICLE 2. TRANSFER OF THE WARRANT. ----------------------- 2.01. Transfer. This Warrant may be transferred or assigned to an -------- "Accredited Investor", as this term is defined under Regulation D promulgated pursuant to the Securities Act of 1933, as amended. In the event this Warrant hereunder is to be transferred or assigned, first the Company and then its existing shareholders shall have the right to acquire this Warrant on the same terms and conditions of the proposed transfer or assignment. This right of first refusal must be exercised by the Company within fifteen (15) days of notice from the Holder and by the existing shareholders within fifteen (15) days of the waiver or exercise of this right by the Company. Any securities purchased upon exercise of this Warrant will be subject to the restrictions on transfer in the Shareholders' Agreement. Further, such securities may not be transferred unless (a) such transfer is registered under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities or blue sky laws or (b) the Company has received a legal opinion reasonably satisfactory to the Company to the effect that the transfer is exempt from the prospectus delivery and registration requirements of the Securities Act and any applicable state securities or blue sky laws. 2.02. Legend. A legend setting forth or referring to the above ------ restrictions shall be placed on this Warrant, any replacement hereof and any certificate representing a security issued pursuant to the exercise hereof and a stop transfer restriction or order shall be placed on the books of the Company and with any transfer agent until such securities may be legally sold or otherwise transferred. In addition, the certificates that represent shares of common stock of the Company also have been issued with and have endorsed upon them a legend substantially as follows: -3- SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS UNDER A SHAREHOLDER AGREEMENT DATED JULY 26, 1994, A COPY OF WHICH IS ON FILE WITH THE CORPORATION AND AVAILABLE FOR INSPECTION UPON REQUEST. ARTICLE 3. PROVISIONS FOR PROTECTION OF THE HOLDER. ---------------------------------------- 3.01. Reservation of Shares. The Company shall at all times reserve such --------------------- number of shares of its authorized but unissued common stock as necessary to permit the exercise of the Warrant for of all of the Warrant Shares. If at any time an insufficient number of shares is authorized for such purpose, the Company will take such action as, in the opinion of its counsel, may be necessary to increase its authorized but unissued common stock to such number of shares as shall be sufficient for such purpose. 3.02. Compliance with Securities Laws. Neither this Warrant nor the ------------------------------- Warrant Shares have been registered under the Securities Act or any state securities laws. This Warrant has been acquired for investment purposes and not with a view to distribution or resale. 3.03. Adjustment for Stock Splits. In case the Company shall (a) pay a --------------------------- dividend in or make a distribution in shares of its common stock or other shares of the Company, (b) subdivide its outstanding shares of common stock, or (c) issue by reclassification of its shares of common stock any other shares of any other stock of the Company, the number of Warrant Shares shall be adjusted so that Holder shall be entitled to receive the number of shares of the Company which it would have been entitled to receive after the happening of any of the events described above, had such Warrant been exercised immediately prior to the record date for such dividend or the effective date of such subdivision or reclassification. No adjustment in the number of Warrant Shares shall be required unless such adjustment would require an increase in the Warrant Shares of at least 1/4 of 1%; provided, however, that any adjustments which are not required to be made by reason of this sentence shall be carried forward and taken into account in any subsequent adjustment. Determinations made by the Company's Board of Directors in good faith on any adjustment pursuant to this section shall be final and binding, absent manifest error. 3.04. Merger. In case the Company or any successor company shall ------ consolidate or merge with, or convey all or substantially all its property and assets to, any other entity or person, provision shall be made in the charter of the resulting or surviving corporation or otherwise for the protection of the conversion rights of the Warrant, as nearly equivalent as practicable, into any such other shares of stock and other securities and property deliverable upon conversion of the shares of common stock into which the Warrant may have been exercised immediately prior to such event, subject to the exercisability of additional Warrant Shares pursuant to Section 1.02. -4- ARTICLE 4. MISCELLANEOUS PROVISIONS. ------------------------- 4.01. Applicable Law. This Warrant shall be governed by and construed in -------------- accordance with the laws of the State of Washington. 4.02. Notices. Any notice or other document required or permitted to be ------- given in connection with this Warrant shall be sufficiently given if sent by first class mail, postage prepaid, addressed to the Company as follows: XactData Services, Inc, 4850 Columbia Center 701 Fifth Avenue Seattle, WA 98104 (until notice of another address is given in writing by the Company to the Holder of this Warrant) and to the Holder at the last address shown on the books of the Company or its transfer agent maintained for the registry and transfer of Warrants. 4.03. Successors. All covenants and provisions of this Warrant by or for ---------- the benefit of the Company shall bind and inure to the benefit of its respective successors and assigns. 4.04. Benefits of this Warrant. Nothing in this Warrant shall be ------------------------ construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or claim under this Warrant. 4.05. Headings. The headings used herein are for convenience only, are -------- not a part of this Warrant and shall not affect the interpretation hereof. 4.06. Day Not A Business Day. If the day on or before which any action ---------------------- that would otherwise be required to be taken hereunder is not a day on which banks are required to be open in the cities of Seattle, Washington ("Business Day"), that action will be required to be taken on or before the requisite time on the next succeeding day that is a Business Day. XACTDATA SERVICES, INC., a Washington Corporation [illegible] By _________________________ [illegible] Its_______________________ [illegible] ATTEST:___________________ -5- (FORM OF SUBSCRIPTION NOTICE TO BE EXECUTED UPON EXERCISE OF WARRANT) SUBSCRIPTION NOTICE ------------------- The undersigned, the registered holder of Warrant No.__ (the "Warrant"), issued by XactData Services, Inc. (hereby (1) irrevocably subscribes for ______ shares of common stock which the undersigned is entitled to purchase under the terms and conditions of the Warrant, (2) makes payment of $_____ in full [by certified check/by ______ ] therefor as called for by the Warrant, and (3) directs that the certificates for such shares of common stock issuable upon exercise of the Warrant be issued in the name of and delivered to ___________________ whose address is _______________________. _____________________________ (Name) _____________________________ (Address) SIGNATURE: __________________________ Dated:______________, 199 __ _______________________________________________________________________________ NOTICE: The signature on this Subscription Notice must correspond with the name as written upon the face of the Warrant, or upon an assignment form attached hereto. -6- EX-10.20 19 SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.20 ATRIEVA CORPORATION SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT CONTENTS SECTION 1. Authorization and Sale of Preferred Shares ...................... 1 1.1 Authorization ................................................... 1 1.2 Sale of Preferred ............................................... 1 SECTION 2. Closing Date; Delivery .......................................... 1 2.1 Closing Date .................................................... 1 2.2 Delivery ........................................................ 2 2.3 Subsequent Rights Offering ...................................... 2 2.4 Subsequent Sales of Shares ...................................... 2 SECTION 3. Representations and Warranties .................................. 3 3.1 Organization and Standing ....................................... 3 3.2 Capitalization .................................................. 3 3.3 Corporate Power; Authorization .................................. 4 3.4 Subsidiaries .................................................... 5 3.5 Validity of Securities .......................................... 5 3.6 Governmental Consents ........................................... 5 3.7 Compliance with Other Instruments and Laws ...................... 6 3.8 Litigation ...................................................... 7 3.9 Proprietary Information; Inventions; Employees and Consultants .. 8 3.10 Patents and Other Intangible Assets ............................. 9 3.11 Financial Statements ............................................ 11 3.12 Absence of Certain Changes ...................................... 11 3.13 Material Contracts and Commitments .............................. 12 3.14 Registration Rights ............................................. 13 3.15 Title to Property and Assets .................................... 13 3.16 Outstanding Indebtedness; Liabilities ........................... 14 3.17 Stockholder Agreements .......................................... 14 3.18 Employee Compensation Plans ..................................... 14 3.19 Labor Union Activities .......................................... 15 3.20 Employee Relations .............................................. 15 3.21 Tax Returns and Audits .......................................... 15 3.22 Disclosure; Business Plan ....................................... 16 3.23 Certain Transactions ............................................ 16 3.24 Environmental Laws and Regulations .............................. 16 3.25 Other Names ..................................................... 17 3.26 Minute Books .................................................... 17 3.27 Insurance Coverage .............................................. 17
SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT PAGE i 3.28 Returns and Complaints .......................................... 17 3.29 Qualified Small Business Stock .................................. 17 3.30 No Discrimination ............................................... 18 3.31 Use of Proceeds ................................................. 18 3.32 "Company's Knowledge" ........................................... 18 3.33 Representations and Warranties in Related Documents ............. 18 SECTION 4. Representations and Warranties of the Purchasers; Restrictions on Transfer Imposed by the Act; and California Corporate Securities Law .................................................. 18 4.1 Representations and Warranties .................................. 18 4.1.1 Investment ............................................... 18 4.1.2 Accredited Investor ...................................... 19 4.1.3 Power and Authorization .................................. 19 4.1.4 Legal Investment ......................................... 19 4.2 Transfer of Securities .......................................... 20 4.2.1 Legend ................................................... 20 4.2.2 Restrictions on Transfer ................................. 20 4.2.3 Termination of Restrictions and Removal of Legend ........ 21 4.3 Corporate Securities Law ........................................ 21 SECTION 5. Conditions to Obligations of the Purchasers ..................... 22 5.1 Representations and Warranties Correct; Performance of Obligations ..................................................... 22 5.2 Opinion of Company's Counsel .................................... 22 5.3 Consents and Waivers ............................................ 22 5.4 Legal Investment ................................................ 22 5.5 Restated Certificate ............................................ 22 5.6 Satisfactory Proceedings; Compliance Certificate ................ 23 5.7 Board of Directors .............................................. 23 5.8 Investors Rights Agreement ...................................... 23 5.9 Due Diligence ................................................... 23 5.10 Conversion of Series I Stock and Series II Stock ................ 23 5.11 Reverse Stock Split ............................................. 23 SECTION 6. Conditions to Obligations of the Company ........................ 23 6.1 Representations and Warranties .................................. 24 6.2 Qualifications .................................................. 24 6.3 Legal Investment ................................................ 24 6.4 Conversion ...................................................... 24
SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT PAGE ii 6.5 Amended and Restated Warrants to Purchase Series I Stock and Series II Stock ................................................. 24 SECTION 7. Miscellaneous ................................................... 24 7.1 Waivers and Amendments .......................................... 24 7.2 Governing Law ................................................... 25 7.3 Survival ........................................................ 25 7.4 Successors and Assigns .......................................... 25 7.5 Entire Agreement ................................................ 25 7.6 Notices, Etc .................................................... 26 7.7 Delays or Omissions ............................................. 26 7.8 Severability .................................................... 26 7.9 Construction .................................................... 26 7.10 Counterparts .................................................... 27 7.11 Headings ........................................................ 27 7.12 Plural Terms .................................................... 27 7.13 Survival ........................................................ 27 7.14 Finder's Fee .................................................... 27 7.15 Expenses ........................................................ 28 7.16 Attorney's Fees ................................................. 28 7.17 Further Covenants ............................................... 28
SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT PAGE iii SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT SCHEDULES: 1. Schedule of Purchasers 2. Disclosure Schedules EXHIBITS: A Restated Certificate of Incorporation B Second Amended and Restated Investors Rights Agreement C Opinion of Counsel SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT PAGE iv ATRIEVA CORPORATION SERIES A-1 PREFERRED STOCK PURCHASE AGREEMENT This Series A-1 Preferred Stock Purchase Agreement (this "Agreement"), is made as of October 29, 1998 by and among Atrieva Corporation, a Delaware corporation (the "Company"), and the undersigned purchasers (the "Purchasers"). NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. Authorization and Sale of Preferred Shares 1.1 Authorization The Company has duly authorized the sale and issuance of up to 3,000,000 shares of its Series A-1 Convertible Preferred Stock (the "Series A-1 Stock") having the rights, privileges and preferences set forth in the Company's Restated Certificate of Incorporation (the "Restated Certificate") in the form attached hereto as Exhibit A. --------- 1.2 Sale of Preferred Subject to the terms and conditions hereof, the Company shall issue and sell to the Purchasers, and each Purchaser agrees, severally, to purchase at the Closing, from the Company, shares of Series A-1 Stock (collectively, the "Shares"), at a purchase price of one dollar ($1.00) per share. The amount to be purchased by each Purchaser and the form of consideration therefor is set forth in the Schedule of Purchasers attached as Schedule 1. The Purchasers agree to convert at the Closing, in accordance with Section 1 of the Convertible Promissory Note(s), held by the Purchasers, the principal amount of such Note(s) into such number of shares of Series A-1 Stock as specified in Section 1 of the Notes. SECTION 2. Closing Date; Delivery 2.1 Closing Date The closing of the purchase and sale of the Shares hereunder (the "Closing") shall be held at the offices of Orrick, Herrington & Sutcliffe, 400 Sansome Street, San Francisco, California, at 2:00 p.m., October 29, 1998 or at such other time and place as is mutually agreed to by the parties hereto (the date of the Closing is hereinafter referred to as the "Closing Date"). The parties agree that faxed signature pages will be acceptable for the Closing, to be followed up with original signature pages. PAGE 1 2.2 Delivery Subject to the terms of this Agreement, at the Closing, the Company will deliver to each Purchaser a certificate representing the number of Shares being purchased by such Purchaser, which certificate shall be registered in the name of such Purchaser, against payment in full by the Purchaser of the purchase price therefor by check or such other form of payment as set forth on Schedule 1, payable to the order of the Company. 2.3 Subsequent Rights Offering The Company shall, within a 90-day period after the Closing, conduct a rights offering to the holders of the Company's Common Stock (as defined below) (excluding holders who have converted shares pursuant to Section 5.10) (the "Rights Offering"), which the Company's Board of Directors may in its discretion limit to a Rights Offering to holders of Common Stock of the Company that the Company believes qualify as accredited investors pursuant to Rule 501 of Regulation D promulgated pursuant to the Securities Act of 1933, as amended (the "Act"). The Rights Offering shall allow the holders of Common Stock to whom the Rights Offering is made to purchase shares of Series A-1 Stock on the same terms as provided for in this Agreement. The Purchasers hereby agree to the Rights Offering, subject to final approval of its structure by VantagePoint Venture Partners. The purchasers under the Rights Offering shall execute documents determined appropriate by the Board of Directors of the Company and consistent with this Agreement. Any shares sold pursuant to the Rights Offering shall be deemed to be "Series A-1 Stock" and shall be deemed to be "Shares" sold pursuant to this Agreement, any purchasers thereof shall be deemed to be "Purchasers" for all purposes under this Agreement, and any such subsequent sale shall be deemed to occur at a "Closing" and the date of any such Closing shall be deemed to be a "Closing Date." The Purchasers in the Rights Offering shall become parties to this Agreement by signing a counterpart signature page hereto. Should any such sales be made, the Company shall prepare and distribute to the Purchasers a revised Schedule of Purchasers reflecting such sales. 2.4 Subsequent Sales of Shares At any time up to 120 days following the Closing, the Company may sell up to the balance of any shares of Series A-1 Stock not sold at the Closing authorized under Section 1.1, to such additional investors as may be approved by the Board of Directors. All such sales shall be made on the terms and conditions set forth in this Agreement. Any Shares sold pursuant to this Section 2.4 shall be deemed to be "Series A-1 Stock" and shall be deemed to be "Shares" sold pursuant to this Agreement, any purchasers thereof shall be deemed to be "Purchasers" for all PAGE 2 purposes under this Agreement, and any such subsequent sale shall be deemed to occur at a "Closing" and the date of any such Closing shall be deemed to be a "Closing Date." The new purchasers shall become parties to this Agreement by signing a counterpart signature page hereto. Should any such sales be made, the Company shall prepare and distribute to the Purchasers a revised Schedule of Purchasers reflecting such sales. SECTION 3. Representations and Warranties The Company hereby represents and warrants to the Purchasers that: 3.1 Organization and Standing The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. The Company has all requisite power and authority to own and operate its properties and assets and to conduct its business as presently conducted and as proposed to be conducted. The Company is qualified or licensed and in good standing as a foreign corporation in all jurisdictions where the nature of its business or property makes such qualification or licensing necessary and the failure to be so qualified or licensed could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company. Except as set forth in Schedule 3.1, true, complete and accurate copies of the Company's Restated Certificate of Incorporation, Bylaws and all amendments to each to date have been delivered to counsel for the Purchasers and the Company has provided such counsel with copies of the minutes of all meetings, and all consents in lieu of meetings, of the Board of Directors and stockholders of the Company that have occurred since December 31, 1997. Prior to the Closing, the Company shall have properly filed the Restated Certificate with the Secretary of State of Delaware and the Restated Certificate, as amended, shall be in full force and effect. 3.2 Capitalization (a) The authorized capital stock of the Company at the Closing will be 300,000,000 shares of common stock, par value $.001 per share ("Common Stock") and 40,000,000 shares of preferred stock, par value $.001 per share ("Preferred Stock"), 3,000,000 of which shares of Preferred Stock are designated Series A-1 Stock; of such authorized shares of capital stock of the Company, 48,178.560 shares of Common Stock and 2,000,000 shares of Series A-1 Stock will be issued and outstanding immediately following the Closing. The Preferred Stock will have, as of the Closing, the rights, preferences and privileges set forth in the Restated Certificate. PAGE 3 (b) All issued and outstanding shares have been, and as of the Closing Date will be, duly authorized, validly issued, fully paid and nonassessable, and are and were, and as of the Closing Date will have been, offered, issued, sold and delivered by the Company in compliance with all applicable state and federal laws concerning the issuance of securities. (c) Except as set forth on Schedule 3.2(c), there are no outstanding rights, subscriptions, calls, options, warrants, preemptive rights, conversion rights or agreements granted or issued by or binding upon the Company for the purchase or acquisition (contingent or otherwise) from the Company of any shares of its capital stock or any other securities, except in accordance with the terms of this Agreement. Except as set forth in Schedule 3.2(c), the Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any security convertible into or exchangeable for any shares of its capital stock. Except as set forth in Schedule 3.2(c), no holder of Common Stock or Preferred Stock or any other security of the Company or any other person or entity is entitled to any preemptive right, right of first refusal or similar right as a result of the issuance of the Shares or otherwise, except as set forth therein. Except as set forth in Schedule 3.2(c), there is no voting trust, agreement or arrangement among any of the beneficial holders of Common Stock or Preferred Stock of the Company affecting the exercise of the voting rights of such stock. (d) Attached as Schedule 3.2(d) is a true and complete list of the names of the record holders of all of the outstanding Common Stock and Preferred Stock and of the holders of all outstanding options or other rights to purchase Common Stock, Preferred Stock, or other securities of the Company. Such list attached contains a true and complete description of the number of shares held by each such holder. With respect to each outstanding option, such list sets forth the date of grant, the number of shares subject thereto, the exercise price, and vesting schedule. Schedule 3.2(d) also shows the current directors and officers of the Company. 3.3 Corporate Power; Authorization The Company has all requisite power and authority to enter into this Agreement and the other documents and agreements contemplated herein, to sell the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and the other documents and agreements contemplated herein. All corporate action on the part of the Company and its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the other documents and agreements contemplated herein, for the performance of the Company's obligations hereunder, for the consummation of the transactions contemplated herein, and for the authorization, issuance and delivery of the Shares PAGE 4 and the Common Stock issuable upon conversion thereof has been taken or will be taken prior to the Closing. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. As of the Closing Date, this Agreement and the other documents and agreements contemplated herein and therein will have been duly executed and delivered by the Company, and all parties thereto (other than the Purchasers), and will constitute legal, valid and binding obligations of the Company and such other parties, enforceable against each of them in accordance with their terms. 3.4 Subsidiaries The Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock or equity interest in any corporation, association or business entity. The Company is not, directly or indirectly, a participant in any joint venture or partnership. 3.5 Validity of Securities The Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and nonassessable and will be free and clear of any preemptive rights, security interests, claims, liens or encumbrances created by the Company. The Common Stock issuable upon conversion of the Shares has been, or prior to the Closing will be, duly and validly reserved and, upon issuance in accordance with the terms of this Agreement and the Restated Certificate, will be duly and validly issued, fully paid and nonassessable and will be free and clear of any preemptive rights, security interests, restrictions on transfer, claims, liens or encumbrances created other than by the Purchasers and other than restrictions under applicable and state securities laws. 3.6 Governmental Consents (a) No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, or notice to any federal, state or local governmental or public authority or agency on the part of the Company is or was required for the Company's valid execution, delivery and performance of this Agreement or the offer, sale or issuance of the Shares (and the Common Stock issuable upon conversion thereof) or the consummation of any other transaction contemplated hereby, except for the filing of the Restated Certificate in the office of the Secretary of State of Delaware, which shall be filed by the Company prior to the Closing, and, the filing of a notice under Regulation D under the Act, and the filing of a notice of exemption pursuant to Section 25102(f) of the California Corporate PAGE 5 Securities Law of 1968, as amended (the "California Securities Law"), and applicable filings under Washington and Illinois, and other state securities laws, all of which shall be filed by the Company immediately following the Closing. Based in part upon the truth of the representations and warranties of the Purchasers contained in Section 4 of this Agreement, the offer, sale and issuance of the Shares (and of the Common Stock issuable upon conversion thereof) in conformity with the terms of this Agreement are exempt from the registration requirements of Section 5 of the Act, from the qualification requirements of Section 25110 of the California Securities Law, and from the requirements under Washington and Illinois, and other applicable state securities laws. (b) The Company has obtained all consents, approvals or authorizations of, made all declarations or filings with, and given all notices to, all federal, state or local governmental or public authorities or agencies which are necessary for the continued conduct by the Company of its business as now conducted or as proposed to be conducted in which the failure to so obtain, make or give could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company. 3.7 Compliance with Other Instruments and Laws Except as described in Schedule 3.7: (a) The Company is not (i) in violation or default of any provision of its Restated Certificate or Bylaws, each as amended and in effect on the date hereof and on and as of the Closing Date; or (ii) except as to defaults which would result in liability or loss to the Company of $10,000 or less, in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in, and is not otherwise in default under, (A) any evidence of indebtedness for any money borrowed or any other evidence of indebtedness or any instrument or agreement under or pursuant to which any evidence of indebtedness for money borrowed or other evidence of indebtedness has been issued, or (B) any other instrument, mortgage, deed of trust, loan, contract, commitment or obligation to which it is a party or by which it is bound or any of its properties is affected. The Company has not defaulted on, nor has it failed to make at the time contemplated, payment of any principal of, or premium or interest on, any indebtedness of $10,000 or more. Neither the execution, delivery and performance of and compliance with this Agreement nor the offer, issuance and sale of the Shares (and the Common Stock issuable upon conversion thereof) does or will: (i) conflict with or violate the Restated Certificate or Bylaws of the Company; (ii) conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute or default under, or result in the creation of any lien on any of the properties or assets of the Company pursuant PAGE 6 to the terms of any instrument or agreement referred to in this Section to which the Company is a party or by which it is bound; or (iii) require the consent of, or other action by, any stockholder, trustee or any creditor of, any lessor to or any investor in, the Company or any other person. (b) The Company is in full compliance with all laws and ordinances and all governmental rules and regulations to which it is subject, the violation of which would result in liability or loss to the Company of more than $10,000. Based in part upon the representations and warranties of the Purchasers in Section 4 hereof with respect to an exemption from the registration requirements of the Act and the qualification requirements of the California Securities Act of 1968 and the qualification requirements of Washington and Illinois and other applicable state securities laws, neither the execution, delivery or performance of this Agreement by the Company nor the offer, issuance, sale or delivery of the Shares (and the Common Stock issuable upon conversion thereof) does or will cause the Company to be in violation of any statute, law or ordinance or any judgment, decree, writ, injunction, order, award or other action of any court or governmental authority or arbitrator or any order, rule or regulation of any federal, state, county, municipal or other governmental or public authority or agency. (c) The Company is not a party to or bound by (nor is any of its properties affected by) any contract or agreement, or subject to any order, writ, injunction or decree or any action of any court or any governmental department, commission, bureau, board or other administrative agency or official, or any charter or other corporate or contractual restriction which materially adversely affects, or in the future could materially adversely affect, the business, earnings, prospects, properties or conditions (financial or other) of the Company. 3.8 Litigation Except as set forth in Schedule 3.8, there is no action, suit, proceeding, claim or investigation in any court or by or before any other governmental or public authority or agency or any arbitrator or arbitration panel, pending or, to the best knowledge of the Company, threatened against or affecting the Company or any of its properties that, either individually or in the aggregate, (a) could question the validity or enforceability of this Agreement and the other agreements and documents contemplated thereby or the right of the Company to enter into any of them, or to consummate the transactions contemplated hereby or thereby, or (b) could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any PAGE 7 of the Company's employees, the use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to, and none of its assets are bound by, the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality or arbitrator or arbitration panel. Except as set forth in Schedule 3.8, there is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 3.9 Proprietary Information; Inventions; Employees and Consultants (a) Since its organization, the Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all intellectual property and all Inventions (as defined below). Except as set forth in Schedule 3.9(a), since its organization, each of the Company's employees, consultants, and contractors who, either alone or in concert with others, developed, invented, discovered, derived, programmed or designed intellectual property or Inventions (as defined below), or who has knowledge of or access to information about intellectual property or Inventions, has entered into a written agreement ("Proprietary Information Agreement") with the Company which substantially provides that (i) this intellectual property, other information and Inventions are proprietary to the Company and are not to be divulged (except as authorized by the Company), misused or misappropriated, and (ii) this intellectual property, other information and Inventions are to be disclosed by such employees, consultants, and contractors to the Company; in cases where this intellectual property and Inventions may be subject to rights of a third person, the Company has secured from said third person unrestricted, perpetual, irrevocable, royalty-free (except to the extent set forth in Schedule 3.10), and exclusive license rights thereto. As used herein, "Inventions" means all inventions, developments and discoveries which during the period of an employees', consultant's, or contractor's service to the Company he, she or it makes or conceives of, either solely or jointly with others, that relate to any subject matter with which his, her, or its work for the Company may be concerned, or relate to or are connected with the business, products, services or projects of the Company, or relate to the actual or demonstrably anticipated research or development of the Company or involve the use of the Company's funds, time, material, facilities or trade secret information, except as excluded pursuant to applicable law. (b) Except as set forth in Schedule 3.9(b), the Company is not aware that any of the Company's employees or consultants is or will be in violation of his or her Proprietary Information Agreement, and the Company shall use its best efforts to prevent any such violation. Except as set forth in Schedule 3.9(b), the Company is not PAGE 8 aware that any of the Company's employees or consultants is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would conflict with his or her obligation to use his or her best efforts to promote the interests of the Company. Neither the execution nor delivery of this Agreement and the agreements contemplated thereby, nor the carrying on of the Company's business by its employees and consultants, nor the conduct of its business as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument known to the Company under which any of such employees or consultants is now obligated. The Company does not believe it is or will be necessary to utilize any inventions, copyrights, or other intellectual property of any of its employees or consultants (or people it currently intends to hire) made or owned prior to their employment with or engagement by the Company or that it is or will be necessary to utilize any other assets or rights of any of its employees or consultants (or people it currently intends to hire) made or owned prior to their employment with or engagement by the Company, in violation of any limitations or restrictions to which any such employee or consultant is a party or to which any of such assets or rights may be subject. (c) The form(s) of Proprietary Information Agreement signed by each employee and consultant of the Company is contained as Schedule 3.9(c). 3.10 Patents and Other Intangible Assets (a) Schedule 3.10(a) summarizes all patents, patent applications, trademarks, copyrights and other intellectual property of the Company with a description of their scope. (b) Except as set forth in Schedule 3.10(b), the Company (i) owns or has the right to use, free and clear of all liens, claims and restrictions, all patents, patent applications, trademarks, service marks, trade names, inventions, trade secrets, copyrights, licenses and rights with respect to the foregoing, used in or necessary for the conduct of its business as now conducted or proposed to be conducted, (ii) is not infringing upon or otherwise acting adversely to the right or claimed right of any person or entity under or with respect to any patent, trademark, service mark, trade name, invention, trade secret, copyright, license or other intellectual property or right with respect with respect thereto, and (iii) is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, invention, trade secret, or copyright with respect to the use thereof or in connection with the conduct of its business or otherwise. PAGE 9 (c) Except as set forth in Schedule 3.10(c), the Company owns and has the unrestricted right to use all product rights, manufacturing rights, trade secrets, including know-how, negative know-how, formulas, patterns, compilations, programs, devices, methods, techniques, processes, inventions, designs, computer programs and technical data and all information that derives independent economic value, actual or potential, from not being generally known or known by competitors and which the Company has taken reasonable steps to maintain in secret (all of the foregoing of which are collectively referred to herein as "intellectual property") required for the development, manufacture, operation, and sale of all products and services sold or proposed to be sold by the Company, free and clear of any right, lien or claim of others, including without limitation former employers of its employees, consultants and contractors and current employers of employees, consultants and contractors where such employees, consultants or contractors are also employed or under contract with another person; provided, however, that the possibility exists that other persons or entities, completely independently of the Company or its employees, consultants, or contractors could have developed trade secrets or items of technical information similar or identical to those of the Company. Except as set forth in Schedule 3.10(c), the Company has no actual knowledge of any such development of similar or identical trade secrets or technical information by others. (d) Except as set forth in Schedule 3.10(d), the Company has not sold, transferred, assigned, licensed or subjected to any lien, security interest, or other encumbrance, any intellectual property, trade secret, know- how, invention, design, process, computer program or technical data, or any interest therein, necessary or useful for the development, manufacture, use, operation or sale of any product or service presently under development or manufactured, sold or rendered by the Company. (e) Except as set forth in Schedule 3.10(e), no director, officer, employee, agent or stockholder of the Company owns or has any right in the intellectual property of the Company, or any patents, trademarks, service marks, trade names, copyrights, licenses or rights with respect to the foregoing, or any inventions, developments or discoveries used in or necessary for the conduct of the Company's business as now conducted or as proposed to be conducted. (f) Except as set forth in Schedule 3.10(f), the Company has no actual knowledge of any facts or has not received any communication alleging or stating that the Company or any contractor, consultant or employee has violated or infringed, or by conducting business as proposed, would violate or infringe, any patent, trademark, service mark, trade name, copyright, trade secret, proprietary right, process or other intellectual property of any other person or entity; the Company has no knowledge of any impediment with respect to any employee, consultant, or PAGE 10 contractor who performs or is to perform services of any kind for the Company that would interfere with such person's ability to promote the business of the Company or would conflict with the business or proposed Company business. (g) Neither the execution nor delivery of this Agreement and the agreements contemplated thereby, nor the carrying on of the Company's business by its employees, consultants, and contractors nor the conduct of its business as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument known to the Company under which any of such employees, consultants or contractors is now obligated. (h) The Company has not granted any license to use its proprietary information or intellectual property, except as listed in Schedule 3.10(h). Except as set forth in Schedule 3.10(h), the Company has not granted to any other person or entity rights to license, market or sell its proposed products or services and the Company is not bound by any agreement that affects the Company's exclusive right to develop, license, market or sell its products or services. 3.11 Financial Statements The Company has delivered to the Purchasers complete and accurate copies of its unaudited balance sheet as at June 30, 1998 (the "Balance Sheet") and its unaudited statements of operations for the twelve (12) month period therein specified and the audited balance sheet as at June 30, 1997 and its audited statements of operations and of cash flows for the twelve-month periods specified therein (all such financial statements and balance sheets being referred to herein collectively as the "Financial Statements"), which audited financials have been certified by Ernst & Young LLP. The Financial Statements are true, complete, and correct and have been prepared in accordance with generally accepted accounting principles (subject to normal and customary year- end adjustments that are not material for any unaudited statements and except that the unaudited statements do not include footnotes) applied on a consistent basis throughout the periods indicated. The Financial Statements present fairly, completely and accurately the financial condition of the Company as of the respective dates and for the periods indicated. The Company does not have any obligation or a liability, individually or in the aggregate, in excess of $25,000, required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles that is not disclosed by the Financial Statements. PAGE 11 3.12 Absence of Certain Changes Except as set forth in Schedule 3.12, since December 31, 1997 (a) the Company has not entered into any transaction which was not in the ordinary course of its business; (b) there has been no material adverse change in the business, earnings, prospects, properties or condition (financial or other) of the Company; (c) there has been no damage to, destruction of or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business, earnings, prospects, properties or condition (financial or other) of the Company; (d) the Company has not declared or paid any dividend or made any distribution on its capital stock, redeemed, purchased or otherwise acquired any of its capital stock, granted any options to purchase shares of its capital stock, or issued any shares of its capital stock; (e) the Company has not received notice that there has been a cancellation of an order for its services or a loss of a customer of the Company, the cancellation or loss of which could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company; (f) there has been no resignation or termination of employment of any key officer or key employee of the Company and the Company does not know of the impending resignation or termination of employment of any key officer or key employee of the Company in either case; (g) there has been no labor dispute involving the Company or any of its employees; (h) there has been no material change in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise; (i) there have been no loans made by the Company to its employees, officers or directors, other than travel advances and other advances made in the ordinary course of business; (j) there has been no waiver or compromise by the Company of a valuable right or of a debt owed to it or amendment or change to any material contract or arrangement of the Company; (k) there has been no sale, assignment, or transfer of any patents, trademarks, copyrights, trade secrets other intangible assets; (l) there has been no extraordinary increase in the compensation of any of the Company's employees, officers or directors and there has been no increase in the compensation of any such employees, officers or directors who earn compensation at an annual rate of more than $40,000; (m) there has been no agreement or commitment by the Company to do or perform any of the acts described in this Section 3.12 or (n) there has been no other event or condition of any character which might reasonably be expected either to materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company or liabilities of the Company or to impair the ability of the Company to conduct the business now being or proposed to be conducted by it. PAGE 12 3.13 Material Contracts and Commitments (a) Except as set forth in Schedule 3.13, the Company has no currently existing contract, obligation, agreement, plan, arrangement, commitment or the like (written or oral) of a material nature (the "Contracts"), including, without limitation, the following: (1) loans, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgages, pledges, liens, security interests or other encumbrances on any of the Company's property or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (2) employment, bonus or consulting agreements, pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company and agreements among stockholders and the Company; (3) agreements with dealers, sales representatives, brokers or other distributors, jobbers, advertisers or sales agencies; (4) agreements with any labor union or collective bargaining organization or other similar labor agreements; (5) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including without limitation agreements with processors and subcontractors; (6) any indenture, agreement or other document (including private placement brochures) relating to the sale or repurchase of securities; (7) any joint venture contract or arrangement or other agreement involving a sharing of profits or expenses to which the Company is a party; (8) agreements and purchase orders with customers; (9) agreements limiting the freedom of the Company to compete in any line of business or in any geographic area or with any person; (10) agreements providing for disposition of the business, assets or shares of the Company, agreements of merger or consolidation to which the Company is a party or letters of intent with respect to the foregoing; (11) agreements involving or letters of intent with respect to the acquisition of the business, assets or shares of any other business; (12) license agreements; and (13) powers of attorney. (b) The Company has provided the Purchasers or other representatives with either copies of or access to all of the Contracts. Each of the Contracts is valid, binding and in full force and effect in all material respects and enforceable by the Company in accordance with its terms. The Company is not in default under, or otherwise in violation of the terms of, any of the Contracts in any material respect. To the best of the Company's, knowledge, no other party to any of the Contracts is in default thereunder or otherwise in violation of the terms thereof, in any material respect. PAGE 13 3.14 Registration Rights Except as disclosed in Schedule 3.14, the Company has not granted or agreed to grant any rights relating to the registration of its securities under applicable federal and state securities laws, including but not limited to demand or piggy-back registration rights. 3.15 Title to Property and Assets Except as set forth in Schedule 3.15, the Company has good and marketable title to its properties and assets (including but not limited to its intellectual property and other intangible assets Schedule 3.10) (except for assets and properties having aggregate value of less than $10,000) free and clear of all mortgages, security interests, claims, liens and encumbrances, except liens for current taxes and assessments not yet due. The Company owns or leases all properties and assets necessary to the operation of its business as now conducted. With respect to the property and assets it leases, the Company has the right to, and does, enjoy peaceful and undisturbed possession under all leases under which it is leasing property. Except as set forth in Schedule 3.15, all such leases are in full force and effect, and the Company is in compliance with such leases and holds a valid leasehold interest free of all security interests, liens, claims or encumbrances. The Company's tangible properties and assets are in good condition and repair, except for hidden defects where the defects cause $10,000 or less of damage and except for ordinary wear and tear. 3.16 Outstanding Indebtedness; Liabilities Except as set forth in Schedule 3.16, the Company has no indebtedness for borrowed money which the Company has directly or indirectly created, incurred, assumed or guaranteed, or with respect to which the Company has otherwise become directly or indirectly liable, except as shown on the Balance Sheet. Except as set forth in Schedule 3.16, the Company has no liabilities or obligations, absolute or contingent, which are not shown or provided for in the Balance Sheet, (1) except liabilities or obligations which are less than $25,000 in the aggregate, or (2) those incurred after the date of the Balance Sheet in the ordinary course of business, (3) normal contractual obligations under the Contracts set forth in Schedule 3.13. 3.17 Stockholder Agreements Except as set forth in Schedule 3.17, there are no voting trusts or other agreements or arrangements which grant rights with respect to any shares of the Company's capital stock or which in any way affect any stockholder's ability or right to freely alienate or vote such shares. PAGE 14 3.18 Employee Compensation Plans Except as set forth in Schedule 3.18, the Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement. The Company does not maintain any "employee benefit plan" (as such term is defined by the Employee Retirement Income Security Act of 1974). Counsel for the Purchasers has been provided with copies of such plans, if any, and any agreements arising therefrom to which the Company currently is a party. 3.19 Labor Union Activities The Company is not engaged in any unfair labor practice which could adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company. There are (a) no unfair labor practice complaint pending or, to the best knowledge of the Company threatened against the Company or before the National Labor Relations Board which could adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company and no grievance or arbitration proceeding arising out of or under a collective bargaining agreement is so pending or threatened; (b) no strike, labor dispute, slow down or stoppage pending or, to the best knowledge of the Company, threatened against the Company; and (c) no union representation question existing with respect to the employees of the Company and no union organizing activities taking place with respect to the Company. 3.20 Employee Relations To the best of the Company's knowledge, its relations with its employees are good. 3.21 Tax Returns and Audits Except as set forth in Schedule 3.21, the Company has duly prepared and timely filed all United States income tax returns and all state and municipal tax returns required to be filed by it and has paid or made adequate provision for the payment of all taxes, assessments, fees and charges shown on such returns or on other assessments or charges received by the Company. Except as set forth in Schedule 3.21, no federal or state income or sales tax returns of the Company have been audited. Except as set forth in Schedule 3.21, no deficiency assessment or proposed adjustment of the Company's United States income tax or state or municipal taxes is pending. Except as set forth in Schedule 3.21, no extensions of the time for the assessment of deficiencies have been granted to the Company. The Company is not a party to or bound by or PAGE 15 obligated under any tax sharing or similar agreement. There are no liens on any properties or assets of the Company imposed or arising as a result of the delinquent payment or the non-payment of any tax, assessment, fee or other governmental charge. The charges, accruals and reserves, if any, on the books of the Company in respect of federal, state and local corporate franchise and income taxes for all fiscal periods to date are adequate in accordance with generally accepted accounting principles, and the Company does not know of any additional unpaid assessments for such periods or of any basis therefor. There are no applicable taxes, fees or other governmental charges payable by the Company in connection with the execution and delivery of this Agreement or the offer, issuance, sale and delivery of the Shares (and the Common Stock issuable upon conversion thereof). 3.22 Disclosure; Business Plan No representation, warranty or statement by the Company in this Agreement or in any written statement or certificate furnished or to be furnished to the Purchasers pursuant to this Agreement (including all exhibits and schedules hereto and any other agreements or documents delivered on the Closing or any Financial Statements referred to in Section 3.11 hereof) contains or will contain any untrue statement of a material fact or, when taken together, omits or will omit to state a material fact necessary to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Company that has not been disclosed to the Purchasers in writing that (1) materially adversely affects or could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company or (2) adversely affects or could adversely affect the ability of the Company to perform its obligations under this Agreement. 3.23 Certain Transactions Except as set forth in Schedule 3.23, the Company is not indebted, either directly or indirectly, to any of its officers, directors or holders of Common Stock or to their respective spouses, children or other family members; none of such officers, directors and holders of capital stock or any members of their families are indebted to the Company or, to the best of the Company's knowledge, have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company. No officer, director or holder of any of the Company's capital stock or to the best of the Company's knowledge, any member of their immediate families is, directly or indirectly, interested in any contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. PAGE 16 3.24 Environmental Laws and Regulations The Company has met, and continues to meet, all applicable local, state and federal environmental laws and regulations, and has disposed of its waste products and effluents and/or has caused others to dispose of the waste products and effluents of the Company, if any, in accordance with all applicable state, local, federal and national environmental laws and regulations and in such a manner that no harm has resulted or will result to any of its employees or properties or to any other persons or entities or their properties. 3.25 Other Names Other than the name Atrieva Corporation, XactData Services, Inc., XactData International and XactLabs Corporation, the business conducted by the Company prior to the date hereof has not been conducted under any corporate, trade or fictitious name. 3.26 Minute Books The minute books of the Company provided to the Purchasers contain all resolutions adopted by directors and stockholders since the incorporation of the Company and fairly and accurately reflect, in all material respects, all matters and transactions referred to in such minutes or written consents. 3.27 Insurance Coverage Except as set forth in Schedule 3.27, there is in full force and effect one or more policies of insurance issued by insurers of recognized responsibility insuring the Company and its properties and business against such losses and risks, and in such amounts, as are customary in the case of corporations engaged in the same or similar business and similarly situated. The Company has not been refused any insurance coverage sought or applied for, and the Company has no reason to believe that it will be unable to renew its existing insurance coverage as and when the same shall expire upon terms at least as favorable as those presently in effect, other than possible increases in premiums that do not result from any act or omission of the Company. Such insurance is summarized in Schedule 3.27. 3.28 Returns and Complaints Except as set forth in Section 3.28, the Company has received no customer complaints concerning its products and/or services, nor has it had any of its products returned by a purchaser or distributor thereof, other than minor non- recurring warranty problems or minor complaints and returns in the ordinary course of business. PAGE 17 3.29 Qualified Small Business Stock The Shares will constitute "qualified small business stock" within the meaning of Section 1202 of the Internal Revenue Code of 1986, as amended, as of the date of issuance. The Company will use its reasonable best efforts to comply with the reporting and recordkeeping requirements of Section 1202 and any regulations promulgated thereunder. 3.30 No Discrimination The Company has not and does not in any manner or form discriminate, foster discrimination or permit discrimination against any person, whether as to race, sex, religion, or other legally protected classes of persons. 3.31 Use of Proceeds The Company shall use the proceeds from the sale of the Shares for working capital and general corporate purposes. 3.32 "Company's Knowledge" As used in this Section 3, the terms "to the best of the Company's knowledge," "to the best knowledge of the Company," "known to the Company" or similar phrases shall mean the best knowledge of the Company, its officers and directors, after careful consideration of the matters set forth in the representation that is so qualified and a diligent review of all files, documents, agreements and other materials in such person's possession or subject to his or her control. 3.33 Representations and Warranties in Related Documents The representations and warranties by the Company, contained in the Second Amended and Restated Investors Rights Agreement in the form attached as Exhibit B (the "Amended and Restated Investors Rights Agreement"), and in any document, certificate or instrument delivered pursuant to this Agreement are true and correct and the Purchasers shall be entitled to rely on such representations and warranties as if they were made to the Purchasers in this Agreement as of the Closing Date. SECTION 4. Representations and Warranties of the Purchasers; Restrictions on Transfer Imposed by the Act; and California Corporate Securities Law 4.1 Representations and Warranties Each Purchaser hereby represents and warrants to the Company as follows: PAGE 18 4.1.1 Investment (i) The Purchaser acknowledges that the Shares have not been registered under the Act or qualified under the California Securities Law or registered or qualified under any other state securities laws on the ground that no distribution or public offering of the Shares is to be effected, and that in this connection the Company is relying in part on the representations of the Purchaser set forth in this Section 4; (ii) The Purchaser further acknowledges that no public market now exists for any of the securities issued by the Company and that a public market may never exist for the Shares and the Common Stock issuable upon conversion thereof; (iii) The Purchaser is purchasing the Shares for its own account (or the account of its parent, subsidiaries or affiliates) and not as nominee or agent for any other person; and (iv) By reason of its business or financial experience, the Purchaser has the capacity to protect its own interests in connection with the transactions contemplated hereunder, is able to bear the risks of an investment in the Company, and at the present time could afford a complete loss of such investment. 4.1.2 Accredited Investor The Purchaser represents that it is an Accredited Investor (as such term is defined in Rule 501 of Regulation D promulgated under the Act) and is acquiring the Shares for its own account and not with a view to, or for sale in connection with, any distribution thereof in a manner contrary to Section 5 of the Act or of the California Securities Law and Rules and Regulations of the California Commissioner of Corporations thereunder or of any other applicable state securities laws or regulations. 4.1.3 Power and Authorization The Purchaser has all requisite power and authority to enter into this Agreement and the other documents and agreements contemplated herein, to purchase the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and the other documents and agreements contemplated herein. This Agreement has been duly executed and delivered by the Purchaser and constitutes a legal, valid, and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. PAGE 19 4.1.4 Legal Investment The acquisition and retention of the Shares by the Purchaser does not violate any governmental law, rule or regulation binding on Purchaser. 4.2 Transfer of Securities None of the Shares shall be transferable except upon the conditions specified in this Section 4.2, which conditions are intended to insure compliance with the provisions of the Act and applicable state securities laws in respect to the transfer of such Shares. 4.2.1 Legend Unless and until otherwise permitted by this Section 4.2, each certificate or other document evidencing any of the Shares shall be endorsed with a legend substantially in the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED OR REGISTERED UNDER ANY STATE SECURITIES LAWS. THEY HAVE BEEN ACQUIRED BY THE SHAREHOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF UNLESS (1) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFIED OR REGISTERED UNDER APPLICABLE STATE SECURITIES LAWS, (2) IN COMPLIANCE WITH RULE 144 or RULE 144A UNDER THE ACT, OR (3) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION AND QUALIFICATION IS REQUIRED." 4.2.2 Restrictions on Transfer None of the Shares shall be transferred (other than transfers to a parent, subsidiary, or other affiliate of a holder of the Shares), and the Company shall not be required to register any such transfer, unless and until one of the following events shall have occurred: (i) The Company shall have received an opinion of counsel, in form and substance reasonably acceptable to the Company and its counsel, or other evidence reasonably acceptable to the Company, stating that the contemplated transfer is exempt from registration under the Act as then in effect, the Rules PAGE 20 and Regulations of the Securities and Exchange Commission (the "Commission") thereunder, and applicable state securities laws. Within five business days after delivery to the Company and its counsel of such opinion or evidence, the Company either shall deliver to the proposed transferor a statement to the effect that such opinion or evidence is not satisfactory in the reasonable opinion of its counsel (and shall specify in detail the legal analysis supporting for any such conclusion) or shall authorize the Company's transfer agent to make the requested transfer; (ii) The Company shall have been furnished with a letter from the Commission in response to a written request in form and substance acceptable to counsel for the Company setting forth all of the facts and circumstances surrounding the contemplated transfer, stating that the Commission will take no action with regard to the contemplated transfer; (iii) The Shares are transferred pursuant to a registration statement which has been filed with the Commission and has become effective and are qualified or registered under the applicable state securities laws; or (iv) The Shares are transferred pursuant to and in accordance with Rule 144 or Rule 144A promulgated by the Commission under the Act. 4.2.3 Termination of Restrictions and Removal of Legend The restrictions on transfer imposed by this Section 4.2 shall cease and terminate as to the Shares, when (i) such securities shall have been effectively registered under the Act and sold by the holder thereof in accordance with such registration, (ii) an acceptable opinion or other evidence as described in Section 4.2.(b)(i) or a "no action" letter described in Section 4.2.(b)(ii) states that future transfers of such securities by the transferor or the contemplated transferee would be exempt from registration under the Act, or (iii) such securities may be sold under and in accordance with Rule 144(k) promulgated by the Commission under the Act. When the restrictions on transfer contained in this Section 4.2 have terminated as provided above, the holder of the securities as to which such restrictions shall have terminated or the transferee of such holder shall be entitled to receive promptly from the Company, without expense to him, and upon surrender of existing certificates, new certificates not bearing the legend set forth in Section 4.2(a) hereof. 4.3 Corporate Securities Law THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF PAGE 21 CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. SECTION 5. Conditions to Obligations of the Purchasers The obligation of the Purchasers to purchase the Shares at the Closing is subject to the fulfillment to its satisfaction on or prior to the Closing Date of each of the following conditions, unless waived in writing by the Purchasers: 5.1 Representations and Warranties Correct; Performance of Obligations The representations and warranties made by the Company in Section 3 hereof shall be true, correct and complete in all respects when made, and shall be true, correct and complete in all respects on the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. The Company shall have performed or complied with all covenants, agreements and conditions contained in this Agreement required to be performed or complied with by the Company on or prior to the Closing Date. 5.2 Opinion of Company's Counsel The Purchasers shall have received from Perkins Coie LLP, counsel to the Company, opinions, dated the Closing Date, in substantially the form attached hereto as Exhibit C. --------- 5.3 Consents and Waivers The Company shall have obtained any and all consents, permits and waivers and made all filings necessary or appropriate for consummation of the transactions contemplated by this Agreement. 5.4 Legal Investment At the time of the Closing, the purchase of the Shares by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject. PAGE 22 5.5 Restated Certificate The Restated Certificate shall have been properly filed with the Secretary of State of the State of Delaware and the same shall be in full force and effect. 5.6 Satisfactory Proceedings; Compliance Certificate All corporate and legal proceedings taken by the Company in connection with the transactions contemplated by this Agreement and all documents relating to such transactions, shall be satisfactory to the Purchasers and to its counsel. The Company shall have delivered to the Purchasers a certificate, executed on behalf of the Company by the President and the Secretary of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in subsections 5.1, 5.3 and 5.5. 5.7 Board of Directors The Bylaws of the Company shall provide that the Board of Directors shall consist of five persons, unless otherwise approved by the Board of the Company. 5.8 Investors Rights Agreement The Company shall have executed the Second Amended and Restated Investors Rights Agreement. 5.9 Due Diligence The Purchasers shall have completed and be satisfied with its due diligence investigation into the Company, in the Purchasers' sole discretion. 5.10 Conversion of Series I Stock and Series II Stock All outstanding shares of the Company's Series I Convertible Preferred Stock (the "Series I Stock") and Series II Convertible Preferred Stock (the "Series II Stock") shall have been converted to Common Stock. 5.11 Reverse Stock Split The Company shall have declared a 1,000-for-1 reverse stock split (the "Reverse Stock Split") of the Common Stock and amended its Restated Certificate of Incorporation to implement the Reverse Stock Split. PAGE 23 SECTION 6. Conditions to Obligations of the Company The Company's obligation to issue, sell and deliver the Shares at the Closing is subject to the fulfillment to its satisfaction on or prior to the Closing Date of each of the following conditions, unless waived by the Company. 6.1 Representations and Warranties The representations and warranties made by the Purchasers in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. 6.2 Qualifications The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale of the Shares and the underlying Common Stock to the Purchasers pursuant to this Agreement, or such offer and sale shall be exempt from such qualification under the California Securities Law. 6.3 Legal Investment At the time of the Closing, the purchase of the Shares by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject. 6.4 Conversion All outstanding shares of Series I Stock and Series II Stock shall have been converted to Common Stock. All of the holders of the Company's Convertible Promissory Notes (the "Notes") shall have delivered for cancellation by the Company the Notes as consideration for the purchase of such Shares. 6.5 Amended and Restated Warrants to Purchase Series I Stock and Series II Stock All outstanding warrants to purchase Series I Stock and Series II Stock (the "Preferred Warrants") shall have been amended and restated such that the Preferred Warrants will be convertible into Common Stock. PAGE 24 SECTION 7. Miscellaneous 7.1 Waivers and Amendments With the written consent of the record or beneficial holders of more than 51% of the combined number of outstanding Shares (treated as if converted), the obligations of the Company and the rights of the holders of the Shares under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its board of directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. Upon the effectuation of each such waiver, consent, agreement of amendment or modification, the Company promptly shall give written notice thereof to the record holders of the Shares. This Agreement or any provision hereof may not be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, except to the extent provided in this Section 7.1. 7.2 Governing Law This Agreement shall be governed in all respects by the laws of the State of California. 7.3 Survival The representations, warranties, covenants and agreements made herein shall survive the execution of this Agreement and the Closing of the transactions contemplated hereby, notwithstanding any investigation made by the Purchasers. All statements as to factual matters contained in any certificate, exhibit or other instrument delivered by or on behalf of the Company or the Founder pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be the representations and warranties of the Company, as of the date of such certificate or instrument. 7.4 Successors and Assigns Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. PAGE 25 7.5 Entire Agreement This Agreement and the other documents delivered pursuant hereto (including, without limitation, the Second Amended and Restated Investors Rights Agreement) constitute and contain the full and entire understanding and agreement between and among the parties with regard to the subjects hereof and thereof, and supersede any prior or contemporaneous understandings, representations, warranties, promises, agreements, conditions, negotiations, correspondence, communications, and term sheets (oral or written) between or among the parties. The parties acknowledge that they have not relied, in entering into this Agreement or the other documents and agreements delivered pursuant hereto, upon any understandings, representations, warranties, promises, agreements or conditions not specifically set forth herein. 7.6 Notices, Etc All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given, upon personal delivery upon confirmation of receipt if given by facsimile, upon the next business day if given, by overnight commercial delivery service, or upon the seventh day following mailing by registered air mail, postage prepaid, addressed (a) if to the Purchasers, at the address set forth in the Schedule of Purchasers or at such address as it shall have thereafter furnished to the Company in writing, (b) if to the Company, at 600 University Avenue, Suite 911, Seattle, WA 98101, Attention: President, or at such other address as the Company shall have furnished to the Purchasers in writing, or (c) if to any other holder of any Shares or of Common Stock issued upon conversion of Shares, at such address as such holder shall have furnished to the Company in writing, or, until such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares or shares who so furnished an address to the Company. In addition, any notice delivered to an address outside the United States shall be duplicated by counterpart fax notice. 7.7 Delays or Omissions No delay or omission to exercise any right, power or remedy accruing to any holder of any securities issued or sold or to be issued or sold hereunder, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. PAGE 26 7.8 Severability In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal, and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 7.9 Construction The titles and subtitles of this Agreement are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. This Agreement and its provisions contained therein and the exhibits hereto shall not be construed or interpreted for or against any party to this Agreement because said party drafted or caused the party's legal representative to draft any of its provisions. 7.10 Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.11 Headings Headings in this Agreement and the other Agreements are for convenience of reference only and are not a part of the substance hereof or thereof. 7.12 Plural Terms All terms defined in this Agreement or the other agreements contemplated hereby in the singular form shall have comparable meanings when used in the plural form and vice versa. ---- ----- 7.13 Survival All representations and warranties of the parties contained herein, or in any schedule, document, statement, certificate or other instrument referred to herein as delivered by or on behalf of any party in connection with the transactions contemplated hereby shall survive the execution and delivery of this Agreement, any investigation by or on behalf of any party and the termination or completion of the transactions contemplated hereby. PAGE 27 7.14 Finder's Fee Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses or defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.15 Expenses Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiations, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall, at the Closing, by wire transfer and as a condition of the Closing, reimburse the fees of one special counsel for VantagePoint Venture Partners 1996 and the out of pocket expenses of such counsel. Counsel for VantagePoint Venture Partners 1996 is solely counsel for such entity, and not for any other Purchasers. 7.16 Attorney's Fees In the event that any dispute among the parties to this Agreement should result in a legal proceeding, the prevailing party shall be entitled to recover from the other party(ies) to such dispute, all fees, costs and expenses of enforcing any right under or with respect to this Agreement, including without limitation, fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 7.16 Further Covenants The Company agrees to reserve a number of shares of Common Stock equal to approximately 20% of the outstanding shares of the post-financing Common Stock (on a fully-diluted basis) for reservation and issuance in connection with employee Common Stock options. PAGE 28 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed themselves or by their respective representatives thereunto duly authorized as of the day and year first above written. The Company: ATRIEVA CORPORATION By /s/ Alan J. Higginson ------------------------------ Alan J. Higginson, Chief Executive Officer and President Purchasers: VANTAGEPOINT VENTURE PARTNERS 1996 By: VantagePoint Associates LLC, its General Partner By: /s/ Alan E. Salzman ------------------------------ Name: Alan E. Salzman ------------------------- Title: Managing Member ------------------------ BATTERY VENTURES III, L.P. By: Battery Partners III, L.P. By: /s/ Kenneth P. Lawler ------------------------------ Name: Kenneth P. Lawler ------------------------- Title: General Partner ------------------------ PAGE 29 AMOCO CORPORATION MASTER TRUST FOR EMPLOYEES PENSION PLANS By: _____________________________ Name: _______________________ Title: ______________________ /s/ Gary Gigot --------------------------------- Gary Gigot /s/ Kenneth Williams --------------------------------- Kenneth Williams PAGE 30 EX-10.21 20 SERIES B PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.21 ATRIEVA CORPORATION SERIES B PREFERRED STOCK PURCHASE AGREEMENT CONTENTS
SECTION 1. Authorization and Sale of Preferred Shares....................................................... 1 1.1 Authorization.................................................................................... 1 1.2 Sale of Preferred................................................................................ 1 SECTION 2. Closing Date; Delivery........................................................................... 1 2.1 Closing Date..................................................................................... 1 2.2 Delivery......................................................................................... 2 2.3 Subsequent Sales of Shares....................................................................... 2 SECTION 3. Representations and Warranties................................................................... 2 3.1 Organization and Standing........................................................................ 2 3.2 Capitalization................................................................................... 3 3.3 Corporate Power; Authorization................................................................... 4 3.4 Subsidiaries..................................................................................... 4 3.5 Validity of Securities........................................................................... 4 3.6 Governmental Consents............................................................................ 5 3.7 Compliance with Other Instruments and Laws....................................................... 5 3.8 Litigation....................................................................................... 7 3.9 Proprietary Information; Inventions; Employees and Consultants................................... 7 3.10 Patents and Other Intangible Assets.............................................................. 9 3.11 Financial Statements............................................................................. 10 3.12 Absence of Certain Changes....................................................................... 11 3.13 Material Contracts and Commitments............................................................... 12 3.14 Registration Rights.............................................................................. 13 3.15 Title to Property and Assets..................................................................... 13 3.16 Outstanding Indebtedness; Liabilities............................................................ 13 3.17 Stockholder Agreements........................................................................... 14 3.18 Employee Compensation Plans...................................................................... 14 3.19 Labor Union Activities........................................................................... 14 3.20 Employee Relations............................................................................... 14 3.21 Tax Returns and Audits........................................................................... 14 3.22 Disclosure....................................................................................... 15 3.23 Certain Transactions............................................................................. 15 3.24 Environmental Laws and Regulations............................................................... 16 3.25 Other Names...................................................................................... 16 3.26 Minute Books..................................................................................... 16 3.27 Insurance Coverage............................................................................... 16 3.28 Returns and Complaints........................................................................... 17
SERIES B PREFERRED STOCK PURCHASE AGREEMENT PAGE i 3.29 Qualified Small Business Stock..................................................................... 17 3.30 No Discrimination.................................................................................. 17 3.31 Use of Proceeds.................................................................................... 17 3.32 "Company's Knowledge".............................................................................. 17 3.33 Representations and Warranties in Related Documents................................................ 17 SECTION 4. Representations and Warranties of the Purchasers; Restrictions on Transfer Imposed by the Act; and California Corporate Securities Law............................... 18 4.1 Representations and Warranties..................................................................... 18 4.1.1 Investment................................................................................. 18 4.1.2 Accredited Investor........................................................................ 18 4.1.3 Power and Authorization.................................................................... 19 4.1.4 Legal Investment........................................................................... 19 4.2 Transfer of Securities............................................................................. 19 4.2.1 Legend..................................................................................... 19 4.2.2 Restrictions on Transfer................................................................... 20 4.2.3 Termination of Restrictions and Removal of Legend.......................................... 20 4.3 Corporate Securities Law........................................................................... 21 SECTION 5. Conditions to Obligations of the Purchasers........................................................ 21 5.1 Representations and Warranties Correct; Performance of Obligations................................. 21 5.2 Opinion of Company's Counsel....................................................................... 21 5.3 Consents and Waivers............................................................................... 22 5.4 Legal Investment................................................................................... 22 5.5 Certificate of Designation......................................................................... 22 5.6 Satisfactory Proceedings; Compliance Certificate................................................... 22 5.7 Board of Directors................................................................................. 22 5.8 Investors Rights Agreement......................................................................... 22 5.9 Due Diligence...................................................................................... 22 5.10 Minimum Investment................................................................................. 22 5.11 Legal Fees......................................................................................... 23 SECTION 6. Conditions to Obligations of the Company........................................................... 23 6.1 Representations and Warranties..................................................................... 23 6.2 Qualifications..................................................................................... 23 6.3 Legal Investment................................................................................... 23 6.4 Cancellation of Purchaser Notes.................................................................... 23 6.5 Minimum Investment................................................................................. 23
SERIES B PREFERRED STOCK PURCHASE AGREEMENT PAGE ii SECTION 7. Miscellaneous............................................................................... 24 7.1 Waivers and Amendments...................................................................... 24 7.2 Governing Law............................................................................... 24 7.3 Survival.................................................................................... 24 7.4 Successors and Assigns...................................................................... 24 7.5 Entire Agreement............................................................................ 24 7.6 Notices, Etc................................................................................ 25 7.7 Delays or Omissions......................................................................... 25 7.8 Severability................................................................................ 25 7.9 Construction................................................................................ 26 7.10 Counterparts................................................................................ 26 7.11 Headings.................................................................................... 26 7.12 Plural Terms................................................................................ 26 7.13 Finder's Fee................................................................................ 26 7.14 Expenses.................................................................................... 27 7.16 Attorney's Fees............................................................................. 27
SERIES B PREFERRED STOCK PURCHASE AGREEMENT PAGE iii SERIES B PREFERRED STOCK PURCHASE AGREEMENT SCHEDULES: 1. Schedule of Purchasers 2. Disclosure Schedules EXHIBITS: A Certificate of Designation B Third Amended and Restated Investors Rights Agreement C Opinion of Counsel SERIES PREFERRED STOCK PURCHASE AGREEMENT PAGE iv ATRIEVA CORPORATION SERIES B PREFERRED STOCK PURCHASE AGREEMENT This Series B Preferred Stock Purchase Agreement (this "Agreement"), is made as of May ,1999 by and among Atrieva Corporation, a Delaware corporation (the "Company"), and the undersigned purchasers (the "Purchasers"). NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. Authorization and Sale of Preferred Shares 1.1 Authorization The Company has duly authorized the sale and issuance of up to 1,500,000 shares of its Series B Convertible Preferred Stock (the "Series B Stock") having the rights, privileges and preferences set forth in the Company's Certificate of Designation (the " Certificate of Designation"), in the form attached hereto as Exhibit A. - --------- 1.2 Sale of Preferred Subject to the terms and conditions hereof, the Company shall issue and sell to the Purchasers, and each Purchaser agrees, severally, to purchase at the Closing, from the Company, shares of Series B Stock (collectively, the "Shares"), at a purchase price of five dollars ($5.00) per share. The amount to be purchased by each Purchaser and the form of consideration therefor is set forth in the Schedule of Purchasers attached as Schedule 1. The Purchasers that hold Convertible Promissory Notes issued by the Company (the "Purchaser Notes") agree to convert at the Closing, in accordance with Section 3.5 of such Purchaser Note(s), the principal amount of, and accrued interest on, such Purchaser Notes (such principal plus interest, the "Note Amount") into the number of shares of Series B Stock equal to the Note Amount divided by five (5), rounded down to the nearest whole share. SECTION 2. Closing Date; Delivery 2.1 Closing Date The closing of the purchase and sale of the Shares hereunder (the "Closing") shall be held at the offices of Orrick, Herrington & Sutcliffe LLP, 400 Sansome Street, San Francisco, California, at 2:00 p.m., May __, 1999 or at such other time and place as is mutually agreed to by the parties hereto (the date of the Closing is hereinafter referred to as the "Closing Date"). The parties agree that faxed signature PAGE 1 pages will be acceptable for the Closing, to be followed up with original signature pages. 2.2 Delivery Subject to the terms of this Agreement, at the Closing, the Company will deliver to each Purchaser a certificate representing the number of Shares being purchased by such Purchaser, which certificate shall be registered in the name of such Purchaser, against payment in full by the Purchaser of the purchase price therefor by check payable to the order of the Company or such other form of payment as set forth on Schedule 1. 2.3 Subsequent Sales of Shares At any time up to 120 days following the Closing, the Company may sell up to the balance of any shares of Series B Stock not sold at the Closing authorized under Section 1.1, to such additional investors as may be approved by the Board of Directors. All such sales shall be made on the terms and conditions set forth in this Agreement. Any Shares sold pursuant to this Section 2.3 shall be deemed to be "Series B Stock" and shall be deemed to be "Shares" sold pursuant to this Agreement, any purchasers thereof shall be deemed to be "Purchasers" for all purposes under this Agreement, and any such subsequent sale shall be deemed to occur at a "Closing" and the date of any such Closing shall be deemed to be a "Closing Date." The new purchasers shall become parties to this Agreement by signing a counterpart signature page hereto. Should any such sales be made, the Company shall prepare and distribute to the Purchasers a revised Schedule of Purchasers reflecting such sales. SECTION 3. Representations and Warranties The Company hereby represents and warrants to the Purchasers that: 3.1 Organization and Standing The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. The Company has all requisite power and authority to own and operate its properties and assets and to conduct its business as presently conducted and as proposed to be conducted. The Company is qualified or licensed and in good standing as a foreign corporation in all jurisdictions where the nature of its business or property makes such qualification or licensing necessary and the failure to be so qualified or licensed could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company. Except as set forth in Schedule 3.1, true, complete and accurate copies of the Company's Restated Certificate of Incorporation, Bylaws and all amendments to each to date have been PAGE 2 delivered to the Purchasers and the Company has provided or made available to the Purchasers copies of the minutes of all meetings, and all consents in lieu of meetings, of the Board of Directors and stockholders of the Company. Prior to the Closing, the Company shall have properly filed the Certificate of Designation with the Secretary of State of Delaware and the Company's Restated Certificate of Incorporation, as amended by the Certificate of Designation, shall be in full force and effect. 3.2 Capitalization (a) The authorized capital stock of the Company at the Closing will be 300,000,000 shares of common stock, par value $.001 per share ("Common Stock") and 40,000,000 shares of preferred stock, par value $.001 per share ("Preferred Stock"), 3,000,000 of which shares of Preferred Stock are designated Series A-1 Convertible Preferred Stock (the "Series A-1 Stock) and 1,500,000 of which shares of Preferred Stock are designated Series B Stock; of such authorized shares of capital stock of the Company, 2,553,142.56 shares of Common Stock, 2,000,000 shares of Series A-1 Stock and 514,554 shares of Series B Stock will be issued and outstanding immediately following the initial Closing. The Series B Stock will have, as of the Closing, the rights, preferences and privileges set forth in the Certificate of Designation. (b) All issued and outstanding shares have been, and as of the Closing Date will be, duly authorized, validly issued, fully paid and nonassessable, and are and were, and as of the Closing Date will have been, offered, issued, sold and delivered by the Company in compliance with all applicable state and federal laws concerning the issuance of securities. (c) Except as set forth on Schedule 3.2(c), there are no outstanding rights, subscriptions, calls, options, warrants, preemptive rights, conversion rights or agreements granted or issued by or binding upon the Company for the purchase or acquisition (contingent or otherwise) from the Company of any shares of its capital stock or any other securities, except in accordance with the terms of this Agreement. Except as set forth in Schedule 3.2(c), the Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any security convertible into or exchangeable for any shares of its capital stock. Except as set forth in Schedule 3.2(c), no holder of Common Stock or Preferred Stock or any other security of the Company or any other person or entity is entitled to any preemptive right, right of first refusal or similar right as a result of the issuance of the Shares or otherwise, except as set forth therein. Except as set forth in Schedule 3.2(c), there is no voting trust, agreement or arrangement among any of the beneficial holders of Common Stock or Preferred Stock of the Company affecting the exercise of the voting rights of such stock. PAGE 3 (d) Attached as Schedule 3.2(d) is a true and complete list of the names of the record holders of all of the outstanding Common Stock and Preferred Stock and of the holders of all outstanding options or other rights to purchase Common Stock, Preferred Stock, or other securities of the Company. Such list attached contains a true and complete description of the number of shares held by each such holder. With respect to each outstanding option, such list sets forth the date of grant, the number of shares subject thereto, the exercise price, and vesting schedule. Schedule 3.2(d) also shows the current directors and officers of the Company. 3.3 Corporate Power; Authorization The Company has all requisite power and authority to enter into this Agreement and the other documents and agreements contemplated herein, to sell the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and the other documents and agreements contemplated herein. All corporate action on the part of the Company and its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the other documents and agreements contemplated herein, for the performance of the Company's obligations hereunder, for the consummation of the transactions contemplated herein, and for the authorization, issuance and delivery of the Shares and the Common Stock issuable upon conversion thereof has been taken or will be taken prior to the Closing. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. As of the Closing Date, this Agreement and the other documents and agreements contemplated herein and therein will have been duly executed and delivered by the Company, and all parties thereto (other than the Purchasers), and will constitute legal, valid and binding obligations of the Company and such other parties, enforceable against each of them in accordance with their terms. 3.4 Subsidiaries The Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock or equity interest in any corporation, association or business entity. The Company is not, directly or indirectly, a participant in any joint venture or partnership. 3.5 Validity of Securities The Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and nonassessable and will be free and clear of any preemptive rights, security interests, claims, liens or PAGE 4 encumbrances created by the Company. The Common Stock issuable upon conversion of the Shares has been, or prior to the Closing will be, duly and validly reserved and, upon issuance in accordance with the terms of this Agreement and the Certificate of Designation, will be duly and validly issued, fully paid and nonassessable and will be free and clear of any preemptive rights, security interests, restrictions on transfer, claims, liens or encumbrances created other than by the Purchasers and other than restrictions under applicable and state securities laws. 3.6 Governmental Consents (a) No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, or notice to any federal, state or local governmental or public authority or agency on the part of the Company is or was required for the Company's valid execution, delivery and performance of this Agreement or the offer, sale or issuance of the Shares (and the Common Stock issuable upon conversion thereof) or the consummation of any other transaction contemplated hereby, except for the filing of the Certificate of Designation in the office of the Secretary of State of Delaware, which shall be filed by the Company prior to the Closing, and, the filing of a notice under Regulation D under the Act, and the filing of a notice of exemption pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended (the "California Securities Law"), and applicable filings under Washington, and other state securities laws, all of which shall be filed by the Company immediately following the Closing. Based in part upon the truth of the representations and warranties of the Purchasers contained in Section 4 of this Agreement, the offer, sale and issuance of the Shares (and of the Common Stock issuable upon conversion thereof) in conformity with the terms of this Agreement are exempt from the registration requirements of Section 5 of the Act, from the qualification requirements of Section 25110 of the California Securities Law, and from the requirements under Washington, and other applicable state securities laws. (b) The Company has obtained all consents, approvals or authorizations of, made all declarations or filings with, and given all notices to, all federal, state or local governmental or public authorities or agencies which are necessary for the continued conduct by the Company of its business as now conducted or as proposed to be conducted in which the failure to so obtain, make or give could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company. 3.7 Compliance with Other Instruments and Laws Except as described in Schedule 3.7: PAGE 5 (a) The Company is not (i) in violation or default of any provision of the Company's Restated Certificate of Incorporation or Bylaws, each as amended and in effect on the date hereof and on and as of the Closing Date; or (ii) except as to defaults which would result in liability or loss to the Company of $10,000 or less, in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in, and is not otherwise in default under, (A) any evidence of indebtedness for any money borrowed or any other evidence of indebtedness or any instrument or agreement under or pursuant to which any evidence of indebtedness for money borrowed or other evidence of indebtedness has been issued, or (B) any other instrument, mortgage, deed of trust, loan, contract, commitment or obligation to which it is a party or by which it is bound or any of its properties is affected. The Company has not defaulted on, nor has it failed to make at the time contemplated, payment of any principal of, or premium or interest on, any indebtedness of $10,000 or more. Neither the execution, delivery and performance of and compliance with this Agreement nor the offer, issuance and sale of the Shares (and the Common Stock issuable upon conversion thereof) does or will: (i) conflict with or violate the Company's Restated Certificate of Incorporation or Bylaws of the Company; (ii) conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute or default under, or result in the creation of any lien on any of the properties or assets of the Company pursuant to the terms of any instrument or agreement referred to in this Section to which the Company is a party or by which it is bound; or (iii) require the consent of, or other action by, any stockholder, trustee or any creditor of, any lessor to or any investor in, the Company or any other person. (b) The Company is in full compliance with all laws and ordinances and all governmental rules and regulations to which it is subject, the violation of which would result in liability or loss to the Company of more than $10,000. Based in part upon the representations and warranties of the Purchasers in Section 4 hereof with respect to an exemption from the registration requirements of the Act and the qualification requirements of the California Securities Act of 1968 and the qualification requirements of Washington and other applicable state securities laws, neither the execution, delivery or performance of this Agreement by the Company nor the offer, issuance, sale or delivery of the Shares (and the Common Stock issuable upon conversion thereof) does or will cause the Company to be in violation of any statute, law or ordinance or any judgment, decree, writ, injunction, order, award or other action of any court or governmental authority or arbitrator or any order, rule or regulation of any federal, state, county, municipal or other governmental or public authority or agency. (c) The Company is not a party to or bound by (nor is any of its properties affected by) any contract or agreement, or subject to any order, writ, PAGE 6 injunction or decree or any action of any court or any governmental department, commission, bureau, board or other administrative agency or official, or any charter or other corporate or contractual restriction which materially adversely affects, or in the future could materially adversely affect, the business, earnings, prospects, properties or conditions (financial or other) of the Company. 3.8 Litigation Except as set forth in Schedule 3.8, there is no action, suit, proceeding, claim or investigation in any court or by or before any other governmental or public authority or agency or any arbitrator or arbitration panel, pending or, to the best knowledge of the Company, threatened against or affecting the Company or any of its properties that, either individually or in the aggregate, (a) could question the validity or enforceability of this Agreement and the other agreements and documents contemplated thereby or the right of the Company to enter into any of them, or to consummate the transactions contemplated hereby or thereby, or (b) could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, the use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to, and none of its assets are bound by, the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality or arbitrator or arbitration panel. Except as set forth in Schedule 3.8, there is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 3.9 Proprietary Information; Inventions; Employees and Consultants (a) Since its organization, the Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all intellectual property and all Inventions (as defined below). Except as set forth in Schedule 3.9(a), since its organization, each of the Company's employees, consultants, and contractors who, either alone or in concert with others, developed, invented, discovered, derived, programmed or designed intellectual property or Inventions (as defined below), or who has knowledge of or access to information about intellectual property or Inventions, has entered into a written agreement ("Proprietary Information Agreement") with the Company which substantially provides that (i) this intellectual property, other information and Inventions are proprietary to the Company and are not PAGE 7 to be divulged (except as authorized by the Company), misused or misappropriated, and (ii) this intellectual property, other information and Inventions are to be disclosed by such employees, consultants, and contractors to the Company; in cases where this intellectual property and Inventions may be subject to rights of a third person, the Company has secured from said third person unrestricted, perpetual, irrevocable, royalty-free (except to the extent set forth in Schedule 3.10), and exclusive license rights thereto. As used herein, "Inventions" means all inventions, developments and discoveries which during the period of an employees', consultant's, or contractor's service to the Company he, she or it makes or conceives of, either solely or jointly with others, that relate to any subject matter with which his, her, or its work for the Company may be concerned, or relate to or are connected with the business, products, services or projects of the Company, or relate to the actual or demonstrably anticipated research or development of the Company or involve the use of the Company's funds, time, material, facilities or trade secret information, except as excluded pursuant to applicable law. (b) Except as set forth in Schedule 3.9(b), the Company is not aware that any of the Company's employees or consultants is or will be in violation of his or her Proprietary Information Agreement, and the Company shall use its best efforts to prevent any such violation. Except as set forth in Schedule 3.9(b), the Company is not aware that any of the Company's employees or consultants is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would conflict with his or her obligation to use his or her best efforts to promote the interests of the Company. Neither the execution nor delivery of this Agreement and the agreements contemplated thereby, nor the carrying on of the Company's business by its employees and consultants, nor the conduct of its business as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument known to the Company under which any of such employees or consultants is now obligated. The Company does not believe it is or will be necessary to utilize any inventions, copyrights, or other intellectual property of any of its employees or consultants (or people it currently intends to hire) made or owned prior to their employment with or engagement by the Company or that it is or will be necessary to utilize any other assets or rights of any of its employees or consultants (or people it currently intends to hire) made or owned prior to their employment with or engagement by the Company, in violation of any limitations or restrictions to which any such employee or consultant is a party or to which any of such assets or rights may be subject. EXHIBIT A PAGE 8 3.10 Patents and Other Intangible Assets (a) Schedule 3.10(a) summarizes all patents, patent applications, trademarks, copyrights and other intellectual property of the Company with a description of their scope. (b) Except as set forth in Schedule 3.10(b), the Company (i) owns or has the right to use, free and clear of all liens, claims and restrictions, all patents, patent applications, trademarks, service marks, trade names, inventions, trade secrets, copyrights, licenses and rights with respect to the foregoing, used in or necessary for the conduct of its business as now conducted or proposed to be conducted, (ii) is not infringing upon or otherwise acting adversely to the right or claimed right of any person or entity under or with respect to any patent, trademark, service mark, trade name, invention, trade secret, copyright, license or other intellectual property or right with respect with respect thereto, and (iii) is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, invention, trade secret, or copyright with respect to the use thereof or in connection with the conduct of its business or otherwise. (c) Except as set forth in Schedule 3.10(c), the Company owns and has the unrestricted right to use all product rights, manufacturing rights, trade secrets, including know-how, negative know-how, formulas, patterns, compilations, programs, devices, methods, techniques, processes, inventions, designs, computer programs and technical data and all information that derives independent economic value, actual or potential, from not being generally known or known by competitors and which the Company has taken reasonable steps to maintain in secret (all of the foregoing of which are collectively referred to herein as "intellectual property") required for the development, manufacture, operation, and sale of all products and services sold or proposed to be sold by the Company, free and clear of any right, lien or claim of others, including without limitation former employers of its employees, consultants and contractors and current employers of employees, consultants and contractors where such employees, consultants or contractors are also employed or under contract with another person; provided, however, that the possibility exists that other persons or entities, completely independently of the Company or its employees, consultants, or contractors could have developed trade secrets or items of technical information similar or identical to those of the Company. Except as set forth in Schedule 3.10(c), the Company has no actual knowledge of any such development of similar or identical trade secrets or technical information by others. (d) Except as set forth in Schedule 3.10(d), the Company has not sold, transferred, assigned, licensed or subjected to any lien, security interest, or other EXHIBIT A PAGE 9 encumbrance, any intellectual property, trade secret, know-how, invention, design, process, computer program or technical data, or any interest therein, necessary or useful for the development, manufacture, use, operation or sale of any product or service presently under development or manufactured, sold or rendered by the Company. (e) Except as set forth in Schedule 3.10(e), no director, officer, employee, agent or stockholder of the Company owns or has any right in the intellectual property of the Company, or any patents, trademarks, service marks, trade names, copyrights, licenses or rights with respect to the foregoing, or any inventions, developments or discoveries used in or necessary for the conduct of the Company's business as now conducted or as proposed to be conducted. (f) Except as set forth in Schedule 3.10(f), the Company has no actual knowledge of any facts or has not received any communication alleging or stating that the Company or any contractor, consultant or employee has violated or infringed, or by conducting business as proposed, would violate or infringe, any patent, trademark, service mark, trade name, copyright, trade secret, proprietary right, process or other intellectual property of any other person or entity; the Company has no knowledge of any impediment with respect to any employee, consultant, or contractor who performs or is to perform services of any kind for the Company that would interfere with such person's ability to promote the business of the Company or would conflict with the business or proposed Company business. (g) Neither the execution nor delivery of this Agreement and the agreements contemplated thereby, nor the carrying on of the Company's business by its employees, consultants, and contractors nor the conduct of its business as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument known to the Company under which any of such employees, consultants or contractors is now obligated. (h) The Company has not granted any license to use its proprietary information or intellectual property, except as listed in Schedule 3.10(h). Except as set forth in Schedule 3.10(h), the Company has not granted to any other person or entity rights to license, market or sell its proposed products or services and the Company is not bound by any agreement that affects the Company's exclusive right to develop, license, market or sell its products or services. EXHIBIT A PAGE 10 3.11 Financial Statements The Company has delivered to the Purchasers complete and accurate copies of its audited balance sheet as at June 30, 1998 and its audited statements of operations and cash flows for the twelve (12) month period therein specified and its unaudited balance sheet as of January 31, 1999 (the "Balance Sheet") (such financial statements and balance sheets being referred to herein collectively as the "Financial Statements"), which audited financials have been certified by Ernst & Young LLP. The Financial Statements are true, complete, and correct and have been prepared in accordance with generally accepted accounting principles (subject to normal and customary year-end adjustments that are not material for any unaudited statements and except that the unaudited statements do not include footnotes) applied on a consistent basis throughout the periods indicated. The Financial Statements present fairly, completely and accurately the financial condition of the Company as of the respective dates and for the periods indicated. 3.12 Absence of Certain Changes Except as set forth in Schedule 3.12, since January 31, 1999 (a) the Company has not entered into any transaction which was not in the ordinary course of its business; (b) there has been no material adverse change in the business, earnings, prospects, properties or condition (financial or other) of the Company; (c) there has been no damage to, destruction of or loss of any of the properties or assets of the Company (whether or not covered by insurance) materially adversely affecting the business, earnings, prospects, properties or condition (financial or other) of the Company; (d) the Company has not declared or paid any dividend or made any distribution on its capital stock, redeemed, purchased or otherwise acquired any of its capital stock, granted any options to purchase shares of its capital stock, or issued any shares of its capital stock; (e) the Company has not received notice that there has been a cancellation of an order for its services or a loss of a customer of the Company, the cancellation or loss of which could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company; (f) there has been no resignation or termination of employment of any key officer or key employee of the Company and the Company does not know of the impending resignation or termination of employment of any key officer or key employee of the Company in either case; (g) there has been no labor dispute involving the Company or any of its employees; (h) there has been no material change in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise; (i) there have been no loans made by the Company to its employees, officers or directors, other than travel advances and other advances made in the ordinary course of business; (j) there has been no waiver or compromise by the Company of a valuable right or of a debt owed to it or amendment or change to any material contract or EXHIBIT A PAGE 11 arrangement of the Company; (k) there has been no sale, assignment, or transfer of any patents, trademarks, copyrights, trade secrets other intangible assets; (l) there has been no extraordinary increase in the compensation of any of the Company's employees, officers or directors and there has been no increase in the compensation of any such employees, officers or directors who earn compensation at an annual rate of more than $40,000; (m) there has been no agreement or commitment by the Company to do or perform any of the acts described in this Section 3.12 or (n) there has been no other event or condition of any character which might reasonably be expected either to materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company or liabilities of the Company or to impair the ability of the Company to conduct the business now being or proposed to be conducted by it. 3.13 Material Contracts and Commitments (a) Except as set forth in Schedule 3.13, the Company has no currently existing contract, obligation, agreement, plan, arrangement, commitment or the like (written or oral) of a material nature (the "Contracts"), including, without limitation, the following: (1) loans, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money, or mortgages, pledges, liens, security interests or other encumbrances on any of the Company's property or any agreement or instrument evidencing any guaranty by the Company of payment or performance by any other person; (2) employment, bonus or consulting agreements, pension, profit sharing, deferred compensation, stock bonus, retirement, stock option, stock purchase, phantom stock or similar plans, including agreements evidencing rights to purchase securities of the Company and agreements among stockholders and the Company; (3) agreements with dealers, sales representatives, brokers or other distributors, jobbers, advertisers or sales agencies; (4) agreements with any labor union or collective bargaining organization or other similar labor agreements; (5) any contract or series of contracts with the same person for the furnishing or purchase of machinery, equipment, goods or services, including without limitation agreements with processors and subcontractors; (6) any indenture, agreement or other document (including private placement brochures) relating to the sale or repurchase of securities; (7) any joint venture contract or arrangement or other agreement involving a sharing of profits or expenses to which the Company is a party; (8) agreements and purchase orders with customers; (9) agreements limiting the freedom of the Company to compete in any line of business or in any geographic area or with any person; (10) agreements providing for disposition of the business, assets or shares of the Company, agreements of merger or consolidation to which the Company is a party or letters of intent with respect to the foregoing; (11) agreements involving or letters of EXHIBIT A PAGE 12 intent with respect to the acquisition of the business, assets or shares of any other business; (12) license agreements; and (13) powers of attorney. (b) The Company has provided the Purchasers or other representatives with either copies of or access to all of the Contracts. Each of the Contracts is valid, binding and in full force and effect in all material respects and enforceable by the Company in accordance with its terms. The Company is not in default under, or otherwise in violation of the terms of, any of the Contracts in any material respect. To the best of the Company's, knowledge, no other party to any of the Contracts is in default thereunder or otherwise in violation of the terms thereof, in any material respect. 3.14 Registration Rights Except as disclosed in Schedule 3.14, the Company has not granted or agreed to grant any rights relating to the registration of its securities under applicable federal and state securities laws, including but not limited to demand or piggy-back registration rights. 3.15 Title to Property and Assets Except as set forth in Schedule 3.15, the Company has good and marketable title to its properties and assets (including but not limited to its intellectual property and other intangible assets Schedule 3.10) (except for assets and properties having aggregate value of less than $25,000) free and clear of all mortgages, security interests, claims, liens and encumbrances, except liens for current taxes and assessments not yet due. The Company owns or leases all properties and assets necessary to the operation of its business as now conducted. With respect to the property and assets it leases, the Company has the right to, and does, enjoy peaceful and undisturbed possession under all leases under which it is leasing property. Except as set forth in Schedule 3.15, all such leases are in full force and effect, and the Company is in compliance with such leases and holds a valid leasehold interest free of all security interests, liens, claims or encumbrances. The Company's tangible properties and assets are in good condition and repair, except for hidden defects where the defects cause $25,000 or less of damage and except for ordinary wear and tear. 3.16 Outstanding Indebtedness; Liabilities Except as set forth in Schedule 3.16, the Company has no indebtedness for borrowed money which the Company has directly or indirectly created, incurred, assumed or guaranteed, or with respect to which the Company has otherwise become directly or indirectly liable, except as shown on the Balance Sheet. Except as set forth EXHIBIT A PAGE 13 in Schedule 3.16, the Company has no liabilities or obligations, absolute or contingent, which are not shown or provided for in the Balance Sheet, (1) except liabilities or obligations which are less than $25,000 in the aggregate, or (2) those incurred after the date of the Balance Sheet in the ordinary course of business, (3) normal contractual obligations under the Contracts set forth in Schedule 3.13. 3.17 Stockholder Agreements Except as set forth in Schedule 3.17, there are no voting trusts or other agreements or arrangements which grant rights with respect to any shares of the Company's capital stock or which in any way affect any stockholder's ability or right to freely alienate or vote such shares. 3.18 Employee Compensation Plans Except as set forth in Schedule 3.18, the Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement. The Company does not maintain any "employee benefit plan" (as such term is defined by the Employee Retirement Income Security Act of 1974). The Purchasers have been provided with access to copies of such plans, if any, and any agreements arising therefrom to which the Company currently is a party. 3.19 Labor Union Activities The Company is not engaged in any unfair labor practice which could adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company. There is (a) no unfair labor practice complaint pending or, to the best knowledge of the Company, threatened against the Company or before the National Labor Relations Board which could adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company and no grievance or arbitration proceeding arising out of or under a collective bargaining agreement is so pending or threatened; (b) no strike, labor dispute, slow down or stoppage pending or, to the best knowledge of the Company, threatened against the Company; and (c) no union representation question existing with respect to the employees of the Company and no union organizing activities taking place with respect to the Company. 3.20 Employee Relations To the best of the Company's knowledge, its relations with its employees are good. EXHIBIT A PAGE 14 3.21 Tax Returns and Audits Except as set forth in Schedule 3.21, the Company has duly prepared and timely filed all United States income tax returns and all state and municipal tax returns required to be filed by it and has paid or made adequate provision for the payment of all taxes, assessments, fees and charges shown on such returns or on other assessments or charges received by the Company. Except as set forth in Schedule 3.21, no federal or state income or sales tax returns of the Company have been audited. Except as set forth in Schedule 3.21, no deficiency assessment or proposed adjustment of the Company's United States income tax or state or municipal taxes is pending. Except as set forth in Schedule 3.21, no extensions of the time for the assessment of deficiencies have been granted to the Company. The Company is not a party to or bound by or obligated under any tax sharing or similar agreement. There are no liens on any properties or assets of the Company imposed or arising as a result of the delinquent payment or the non-payment of any tax, assessment, fee or other governmental charge. The charges, accruals and reserves, if any, on the books of the Company in respect of federal, state and local corporate franchise and income taxes for all fiscal periods to date are adequate in accordance with generally accepted accounting principles, and the Company does not know of any additional unpaid assessments for such periods or of any basis therefor. There are no applicable taxes, fees or other governmental charges payable by the Company in connection with the execution and delivery of this Agreement or the offer, issuance, sale and delivery of the Shares (and the Common Stock issuable upon conversion thereof). 3.22 Disclosure No representation, warranty or statement by the Company in this Agreement or in any written statement or certificate furnished or to be furnished to the Purchasers pursuant to this Agreement (including all exhibits and schedules hereto and any other agreements or documents delivered on the Closing or any Financial Statements referred to in Section 3.11 hereof) contains or will contain any untrue statement of a material fact or, when taken together, omits or will omit to state a material fact necessary to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Company that has not been disclosed to the Purchasers in writing that (1) materially adversely affects or could materially adversely affect the business, earnings, prospects, properties or condition (financial or other) of the Company or (2) adversely affects or could adversely affect the ability of the Company to perform its obligations under this Agreement. EXHIBIT A PAGE 15 3.23 Certain Transactions Except as set forth in Schedule 3.23, the Company is not indebted, either directly or indirectly, to any of its officers, directors or holders of Common Stock or to their respective spouses, children or other family members; none of such officers, directors and holders of capital stock or any members of their families are indebted to the Company or, to the best of the Company's knowledge, have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company. No officer, director or holder of any of the Company's capital stock or, to the best of the Company's knowledge, any member of their immediate families is, directly or indirectly, interested in any contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 3.24 Environmental Laws and Regulations The Company has met, and continues to meet, all applicable local, state and federal environmental laws and regulations, and has disposed of its waste products and effluents and/or has caused others to dispose of the waste products and effluents of the Company, if any, in accordance with all applicable state, local, federal and national environmental laws and regulations and in such a manner that no harm has resulted or will result to any of its employees or properties or to any other persons or entities or their properties. 3.25 Other Names Other than the name Atrieva Corporation, XactData Services, Inc., XactData International and XactLabs Corporation, the business conducted by the Company prior to the date hereof has not been conducted under any corporate, trade or fictitious name. 3.26 Minute Books The minute books of the Company provided to the Purchasers contain all resolutions adopted by directors and stockholders since the incorporation of the Company and fairly and accurately reflect, in all material respects, all matters and transactions referred to in such minutes or written consents. 3.27 Insurance Coverage Except as set forth in Schedule 3.27, there is in full force and effect one or more policies of insurance issued by insurers of recognized responsibility insuring the EXHIBIT A PAGE 16 Company and its properties and business against such losses and risks, and in such amounts, as are customary in the case of corporations engaged in the same or similar business and similarly situated. The Company has not been refused any insurance coverage sought or applied for, and the Company has no reason to believe that it will be unable to renew its existing insurance coverage as and when the same shall expire upon terms at least as favorable as those presently in effect, other than possible increases in premiums that do not result from any act or omission of the Company. Such insurance is summarized in Schedule 3.27. 3.28 Returns and Complaints Except as set forth in Section 3.28, the Company has received no customer complaints concerning its products and/or services, nor has it had any of its products returned by a purchaser or distributor thereof, other than minor non- recurring warranty problems or minor complaints and returns in the ordinary course of business. 3.29 Qualified Small Business Stock The Shares will constitute "qualified small business stock" within the meaning of Section 1202 of the Internal Revenue Code of 1986, as amended, as of the date of issuance. The Company will use its reasonable best efforts to comply with the reporting and recordkeeping requirements of Section 1202 and any regulations promulgated thereunder. 3.30 No Discrimination The Company has not and does not in any manner or form discriminate, foster discrimination or permit discrimination against any person, whether as to race, sex, religion, or other legally protected classes of persons. 3.31 Use of Proceeds The Company shall use the proceeds from the sale of the Shares for working capital and general corporate purposes. 3.32 "Company's Knowledge" As used in this Section 3, the terms "to the best of the Company's knowledge," "to the best knowledge of the Company," "known to the Company" or similar phrases shall mean the best knowledge of the Company, its officers and directors, after careful consideration of the matters set forth in the representation that is so qualified and a diligent review of all files, documents, agreements and other materials in such person's possession or subject to his or her control. EXHIBIT A PAGE 17 3.33 Representations and Warranties in Related Documents The representations and warranties by the Company, contained in the Third Amended and Restated Investors Rights Agreement in the form attached as Exhibit B (the "Third Amended and Restated Investors Rights Agreement"), and in any document, certificate or instrument delivered pursuant to this Agreement are true and correct and the Purchasers shall be entitled to rely on such representations and warranties as if they were made to the Purchasers in this Agreement as of the Closing Date. SECTION 4. Representations and Warranties of the Purchasers; Restrictions on Transfer Imposed by the Act; and California Corporate Securities Law 4.1 Representations and Warranties Each Purchaser hereby represents and warrants to the Company as follows: 4.1.1 Investment (i) The Purchaser acknowledges that the Shares have not been registered under the Act or qualified under the California Securities Law or registered or qualified under any other state securities laws on the ground that no distribution or public offering of the Shares is to be effected, and that in this connection the Company is relying in part on the representations of the Purchaser set forth in this Section 4; (ii) The Purchaser further acknowledges that no public market now exists for any of the securities issued by the Company and that a public market may never exist for the Shares and the Common Stock issuable upon conversion thereof; (iii) The Purchaser is purchasing the Shares for its own account (or the account of its parent, subsidiaries or affiliates) and not as nominee or agent for any other person; and (iv) By reason of its business or financial experience, the Purchaser has the capacity to protect its own interests in connection with the transactions contemplated hereunder, is able to bear the risks of an investment in the Company, and at the present time could afford a complete loss of such investment. EXHIBIT A PAGE 18 4.1.2 Accredited Investor The Purchaser represents that it is an Accredited Investor (as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act") and is acquiring the Shares for its own account and not with a view to, or for sale in connection with, any distribution thereof in a manner contrary to Section 5 of the Act or of the California Securities Law and Rules and Regulations of the California Commissioner of Corporations thereunder or of any other applicable state securities laws or regulations. 4.1.3 Power and Authorization The Purchaser has all requisite power and authority to enter into this Agreement and the other documents and agreements contemplated herein, to purchase the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and the other documents and agreements contemplated herein. This Agreement has been duly executed and delivered by the Purchaser and constitutes a legal, valid, and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. 4.1.4 Legal Investment The acquisition and retention of the Shares by the Purchaser does not violate any governmental law, rule or regulation binding on Purchaser. 4.2 Transfer of Securities None of the Shares shall be transferable except upon the conditions specified in this Section 4.2, which conditions are intended to insure compliance with the provisions of the Act and applicable state securities laws in respect to the transfer of such Shares. 4.2.1 Legend Unless and until otherwise permitted by this Section 4.2, each certificate or other document evidencing any of the Shares shall be endorsed with a legend substantially in the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED OR REGISTERED UNDER ANY STATE SECURITIES LAWS. THEY HAVE BEEN ACQUIRED BY THE SHAREHOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, EXHIBIT A PAGE 19 HYPOTHECATED, OR OTHERWISE DISPOSED OF UNLESS (1) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFIED OR REGISTERED UNDER APPLICABLE STATE SECURITIES LAWS, (2) IN COMPLIANCE WITH RULE 144 or RULE 144A UNDER THE ACT, OR (3) THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE CORPORATION TO THE EFFECT THAT NO REGISTRATION AND QUALIFICATION IS REQUIRED." 4.2.2 Restrictions on Transfer None of the Shares shall be transferred (other than transfers to a parent, subsidiary, or other affiliate of a holder of the Shares), and the Company shall not be required to register any such transfer, unless and until one of the following events shall have occurred: (i) The Company shall have received an opinion of counsel, in form and substance reasonably acceptable to the Company and its counsel, or other evidence reasonably acceptable to the Company, stating that the contemplated transfer is exempt from registration under the Act as then in effect, the Rules and Regulations of the Securities and Exchange Commission (the "Commission") thereunder, and applicable state securities laws. Within five business days after delivery to the Company and its counsel of such opinion or evidence, the Company either shall deliver to the proposed transferor a statement to the effect that such opinion or evidence is not satisfactory in the reasonable opinion of its counsel (and shall specify in detail the legal analysis supporting for any such conclusion) or shall authorize the Company's transfer agent to make the requested transfer; (ii) The Company shall have been furnished with a letter from the Commission in response to a written request in form and substance acceptable to counsel for the Company setting forth all of the facts and circumstances surrounding the contemplated transfer, stating that the Commission will take no action with regard to the contemplated transfer; (iii) The Shares are transferred pursuant to a registration statement which has been filed with the Commission and has become effective and are qualified or registered under the applicable state securities laws; or (iv) The Shares are transferred pursuant to and in accordance with Rule 144 or Rule 144A promulgated by the Commission under the Act. EXHIBIT A PAGE 20 4.2.3 Termination of Restrictions and Removal of Legend The restrictions on transfer imposed by this Section 4.2 shall cease and terminate as to the Shares, when (i) such securities shall have been effectively registered under the Act and sold by the holder thereof in accordance with such registration, (ii) an acceptable opinion or other evidence as described in Section 4.2.2(i) or a "no action" letter described in Section 4.2.2(ii) states that future transfers of such securities by the transferor or the contemplated transferee would be exempt from registration under the Act, or (iii) such securities may be sold under and in accordance with Rule 144(k) promulgated by the Commission under the Act. When the restrictions on transfer contained in this Section 4.2 have terminated as provided above, the holder of the securities as to which such restrictions shall have terminated or the transferee of such holder shall be entitled to receive promptly from the Company, without expense to him, and upon surrender of existing certificates, new certificates not bearing the legend set forth in Section 4.2.1 hereof. 4.3 Corporate Securities Law THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. SECTION 5. Conditions to Obligations of the Purchasers The obligation of the Purchasers to purchase the Shares at the Closing is subject to the fulfillment to its satisfaction on or prior to the Closing Date of each of the following conditions, unless waived in writing by the Purchasers: 5.1 Representations and Warranties Correct; Performance of Obligations The representations and warranties made by the Company in Section 3 hereof shall be true, correct and complete in all respects when made, and shall be true, correct and complete in all respects on the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. The Company shall have EXHIBIT A PAGE 21 performed or complied with all covenants, agreements and conditions contained in this Agreement required to be performed or complied with by the Company on or prior to the Closing Date. 5.2 Opinion of Company's Counsel The Purchasers shall have received from Perkins Coie LLP, counsel to the Company, opinions, dated the Closing Date, in substantially the form attached hereto as Exhibit C. --------- 5.3 Consents and Waivers The Company shall have obtained any and all consents, permits and waivers and made all filings necessary or appropriate for consummation of the transactions contemplated by this Agreement. 5.4 Legal Investment At the time of the Closing, the purchase of the Shares by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject. 5.5 Certificate of Designation The Certificate of Designation shall have been properly filed with the Secretary of State of the State of Delaware and the same shall be in full force and effect. 5.6 Satisfactory Proceedings; Compliance Certificate All corporate and legal proceedings taken by the Company in connection with the transactions contemplated by this Agreement and all documents relating to such transactions, shall be satisfactory to the Purchasers. The Company shall have delivered to the Purchasers a certificate, executed on behalf of the Company by the President and the Secretary of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in subsections 5.1, 5.3 and 5.5. 5.7 Board of Directors The Bylaws of the Company shall provide that the Board of Directors shall be composed of not less than one nor more than seven persons, unless otherwise approved by the Board of the Company. EXHIBIT A PAGE 22 5.8 Investors Rights Agreement The Company shall have executed the Third Amended and Restated Investors Rights Agreement. 5.9 Due Diligence The Purchasers shall have completed and be satisfied with their respective due diligence investigations into the Company, in the Purchasers' sole discretion. 5.10 Minimum Investment The aggregate purchase price for the Shares to be issued at the Closing shall be at least $2,500,000. 5.11 Legal Fees The legal fees and expenses of one counsel to VantagePoint Venture Partners 1996 shall have been paid. SECTION 6. Conditions to Obligations of the Company The Company's obligation to issue, sell and deliver the Shares at the Closing is subject to the fulfillment to its satisfaction on or prior to the Closing Date of each of the following conditions, unless waived by the Company. 6.1 Representations and Warranties The representations and warranties made by the Purchasers in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of the Closing Date. 6.2 Qualifications The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale of the Shares and the underlying Common Stock to the Purchasers pursuant to this Agreement, or such offer and sale shall be exempt from such qualification under the California Securities Law. 6.3 Legal Investment At the time of the Closing, the purchase of the Shares by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject. EXHIBIT A PAGE 23 6.4 Cancellation of Purchaser Notes The Purchasers holding the Purchaser Notes shall have delivered for cancellation by the Company the Purchaser Notes as partial consideration for the purchase of such Shares. 6.5 Minimum Investment The aggregate purchase price for the Shares to be issued at the Closing shall be at least $2,500,000. SECTION 7. Miscellaneous 7.1 Waivers and Amendments With the written consent of the record or beneficial holders of more than 51% of the combined number of outstanding Shares (treated as if converted), the obligations of the Company and the rights of the holders of the Shares under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its board of directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. Upon the effectuation of each such waiver, consent, agreement of amendment or modification, the Company promptly shall give written notice thereof to the record holders of the Shares. This Agreement or any provision hereof may not be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, except to the extent provided in this Section 7.1. 7.2 Governing Law This Agreement shall be governed in all respects by the internal laws of the State of California without regard to conflicts of law principles. 7.3 Survival The representations, warranties, covenants and agreements made herein shall survive the execution of this Agreement and the Closing of the transactions contemplated hereby, notwithstanding any investigation made by the Purchasers. All statements as to factual matters contained in any certificate, exhibit or other instrument delivered by or on behalf of the Company pursuant hereto or in connection EXHIBIT A PAGE 24 with the transactions contemplated hereby shall be deemed to be the representations and warranties of the Company, as of the date of such certificate or instrument. 7.4 Successors and Assigns Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 7.5 Entire Agreement This Agreement and the other documents delivered pursuant hereto (including, without limitation, the Third Amended and Restated Investors Rights Agreement) constitute and contain the full and entire understanding and agreement between and among the parties with regard to the subjects hereof and thereof, and supersede any prior or contemporaneous understandings, representations, warranties, promises, agreements, conditions, negotiations, correspondence, communications, and term sheets (oral or written) between or among the parties. The parties acknowledge that they have not relied, in entering into this Agreement or the other documents and agreements delivered pursuant hereto, upon any understandings, representations, warranties, promises, agreements or conditions not specifically set forth herein. 7.6 Notices, Etc All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery upon confirmation of receipt if given by facsimile, upon the next business day if given by overnight commercial delivery service, or upon the seventh day following mailing by registered air mail, postage prepaid, addressed (a) if to the Purchasers, at the address set forth in the Schedule of Purchasers or at such address as it shall have thereafter furnished to the Company in writing, (b) if to the Company, at 600 University Avenue, Suite 911, Seattle, WA 98101, Attention: President, or at such other address as the Company shall have furnished to the Purchasers in writing, or (c) if to any other holder of any Shares or of Common Stock issued upon conversion of Shares, at such address as such holder shall have furnished to the Company in writing, or, until such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares or shares who so furnished an address to the Company. In addition, any notice delivered to an address outside the United States shall be duplicated by counterpart fax notice. EXHIBIT A PAGE 25 7.7 Delays or Omissions No delay or omission to exercise any right, power or remedy accruing to any holder of any securities issued or sold or to be issued or sold hereunder, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 7.8 Severability In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal, and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 7.9 Construction The titles and subtitles of this Agreement are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. This Agreement and its provisions contained therein and the exhibits hereto shall not be construed or interpreted for or against any party to this Agreement because said party drafted or caused the party's legal representative to draft any of its provisions. 7.10 Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.11 Headings Headings in this Agreement and the other Agreements are for convenience of reference only and are not a part of the substance hereof or thereof. EXHIBIT A PAGE 26 7.12 Plural Terms All terms defined in this Agreement or the other agreements contemplated hereby in the singular form shall have comparable meanings when used in the plural form and vice versa. ---- ----- 7.13 Finder's Fee Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses or defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.14 Expenses Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiations, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall, at the Closing, by wire transfer and as a condition of the Closing, reimburse the fees of one special counsel for VantagePoint Venture Partners 1996 and the out of pocket expenses of such counsel. Counsel for VantagePoint Venture Partners 1996 is solely counsel for such entity, and not for any other Purchasers. 7.16 Attorney's Fees In the event that any dispute among the parties to this Agreement should result in a legal proceeding, the prevailing party shall be entitled to recover from the other party(ies) to such dispute, all fees, costs and expenses of enforcing any right under or with respect to this Agreement, including without limitation, fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. [Remainder of page intentionally left blank.] EXHIBIT A PAGE 27 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed themselves or by their respective representatives thereunto duly authorized as of the day and year first above written. The Company: ATRIEVA CORPORATION By /s/ Larry Barels ---------------------------------- Larry Barels, Chief Executive Officer and President Purchasers: VANTAGEPOINT VENTURE PARTNERS 1996 By: VantagePoint Associates LLC, its General Partner By: /s/ James D. Marver ------------------------------- Name: James D. Marver ------------------------- Title: Managing Member ------------------------ BATTERY VENTURES III, L.P. By: Battery Partners III, L.P. By: /s/ Kenneth P. Lawler ---------------------------- Name: Kenneth P. Lawler ---------------------- Title: General Partner --------------------- /s/ Gary Gigot ------------------------------- Gary Gigot EXHIBIT A PAGE 28 /s/ H. David Kenyon ---------------------------------------- /s/ Meredith W. Kenyon ---------------------------------------- H. David Kenyon and Meredith W. Kenyon /s/ Robert London ---------------------------------------- Robert London VANTAGEPOINT COMMUNICATIONS PARTNERS, LP By: VantagePoint Communications Associates LLC, its General Partner By: /s/ James D. Marver ------------------------------------- Name: James D. Marver ---------------------------------- Title: Managing Member /s/ Frank Cutler ----------------------------------------------- Frank Cutler /s/ Reese Jones ----------------------------------------------- Reese Jones NEW YORK LIFE INSURANCE COMPANY By: New York Life Insurance Company By: /s/ Philip A. Smith ------------------------------------------- Title: Director -- Venture Capital ---------------------------------------- WILLIAM JAMES BELL 1993 TRUST By: /s/ William J. Bell ------------------------------------------ EXHIBIT A PAGE 29 Title: Trustee ---------------------------------------- CYPRESS VI PARTNERS By: /s/ Leonard S. Eber ----------------------------------- Title: Managing Partner -------------------------------- EXHIBIT A PAGE 30 EX-10.22 21 SERIES C PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.22 DRIVEWAY CORPORATION SERIES C PREFERRED STOCK PURCHASE AGREEMENT DRIVEWAY CORPORATION SERIES C PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 30th day of December, 1999, by and among DRIVEWAY CORPORATION, a Delaware corporation (the "Company"), and the investors severally and not jointly listed on Schedule A hereto, each of which is herein referred to as an ---------- "Investor." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. -------------------------- 1.1 Sale and Issuance of Series C Preferred Stock. --------------------------------------------- (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Fourth Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Restated Certificate"). - --------- (b) On or prior to the Closing, the Company shall authorize (i) the sale and issuance to the Investors of the Series C Preferred Stock and (ii) the issuance of the shares of Common Stock to be issued upon conversion of the Series C Preferred Stock (the "Conversion Shares"). The Series C Preferred Stock and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate. (c) Subject to the terms and conditions of this Agreement, each Investor agrees, severally and not jointly, to purchase at the Closing or pursuant to Section 1.3 and the Company agrees to sell and issue to each Investor at the Closing or pursuant to Section 1.3, that number of shares of the Company's Series C Preferred Stock set forth opposite such Investor's name on Schedule A hereto for the purchase price of $4.01 per share (the "Purchase - ---------- Price"). 1.2 Closing; Delivery. ----------------- The purchase and sale of the Series C Preferred Stock shall take place at the offices of Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, CA 94025, at 10:00 a.m., on December 30, 1999, or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of Series C Preferred Stock sold pursuant hereto mutually agree upon orally or in writing (which time and place are designated as the "Closing"). At the Closing the Company shall deliver to each Investor a certificate representing the Series C Preferred Stock that such Investor is purchasing against payment of the purchase price therefor by check, wire transfer, cancellation of indebtedness, or any combination thereof. In the event that payment by an Investor is made, in whole or in part, by cancellation of indebtedness, then such Investor shall surrender to the Company for cancellation at the Closing any evidence of such indebtedness or shall execute an instrument of cancellation in form and substance acceptable to the Company. 1.3 Subsequent Sale of Series C Preferred Stock. ------------------------------------------- The Company may sell up to the balance of the authorized number of shares of Series C Preferred Stock not sold at the Closing to such purchasers as its Board of Directors shall select at a price not less than $4.01 per share and on the same terms and conditions as provided in this Agreement and the Ancillary Agreements, provided the agreement for sale and the transactions contemplated thereby are closed not later than thirty (30) days following the Closing. Any such purchaser shall become a party to (i) this Agreement; (ii) that certain Fourth Amended and Restated Investors' Rights Agreement dated of even date herewith, by and among the Company, the Investors and certain holders of the Company's Common Stock and Preferred Stock, the form of which is attached hereto as Exhibit B (the "Investors' Rights Agreement"); and (iii) that certain Voting --------- Agreement between the Company, the Founders, the Investors and certain holders of Common Stock and Preferred Stock, the form of which is attached hereto as Exhibit E (the "Voting Agreement" and together with the Investors Rights - --------- Agreement, the "Ancillary Agreements") and shall have the rights and obligations hereunder and thereunder. 2. Representations and Warranties of the Company. --------------------------------------------- The Company hereby represents and warrants to each Investor, as of the Closing and except as set forth on a schedule of exceptions attached hereto as Exhibit F (the "Schedule of Exceptions") furnished to each such Investor and - --------- special counsel for the Investors, that: 2.1 Organization, Good Standing and Qualification. --------------------------------------------- The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as currently proposed to be conducted. The Company is duly qualified to transact business and is in good 2 standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. 2.2 Capitalization and Voting Rights. -------------------------------- The authorized capital of the Company consists, or will consist immediately prior to the Closing, of: (a) Preferred Stock. 29,200,000 shares of preferred stock (the "Preferred Stock"), of which (i) 10,100,000 have been designated Series A Preferred Stock (the "Series A Preferred Stock"), 10,000,000 of which are outstanding as of the date hereof; (ii) 8,100,000 have been designated Series B Preferred Stock, 7,444,770 of which are outstanding as of the date hereof; and (iii) 11,000,000 have been designated Series C Preferred Stock, none of which are outstanding as of the date hereof and up to all of which may be sold pursuant to this Agreement (collectively, the "Preferred Stock"). The rights, privileges and preferences of the Preferred Stock are as stated in the Company's Restated Certificate. The outstanding shares of Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act of 1933, as amended (the "Act"), and any relevant state securities laws, or pursuant to valid exemptions therefrom. (b) Common Stock. 70,800,000 shares of common stock ("Common Stock"), of which 5,178,761 are issued and outstanding. The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act of 1933, as amended (the "Act"), and any relevant state securities laws, or pursuant to valid exemptions therefrom. (c) The Company has reserved 4,177,484 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company under the Company's 1997 Stock Option Plan (the "Option Plan"), of which (1) 2,986,865 shares are issuable upon exercise of options to purchase shares of Common Stock currently outstanding; (2) 142,285 have been exercised and are included in the Company's outstanding Common Stock; and (3) 1,048,334 shares are available for future grants. Additionally, the Company has granted options to purchase 12 shares of Common Stock not pursuant to any stock option plan (the "Non-Plan Options"). (d) Except for: (1) the conversion privileges of the outstanding Preferred Stock; (2) the rights provided in the Investors' Rights Agreement; (3) options issued and outstanding under the Option Plan; and (4) the 3 Non-Plan Options, there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company, and to the Company's knowledge from any of the shareholders of the Company, of any shares of its capital stock. Except for the Voting Agreement, the Company is not a party or subject to any agreement or understanding, and, to the best of the Company's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. (e) Section 2.2(e) of the Schedule of Exceptions sets forth a complete list of all outstanding stockholders, optionholders and other security holders of the Company as of the Closing, and shows, for each option, the date of grant, the grant price, vesting schedule and vesting status. 2.3 Subsidiaries. ------------ The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2.4 Authorization. ------------- All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the Ancillary Agreements, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series C Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series C Preferred Stock has been taken or will be taken prior to the Closing. This Agreement and the Ancillary Agreements constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent that each of (A) the indemnification provisions contained in the Investors' Rights Agreement and (B) the board compensation provisions contained in the Voting Agreement may be limited by applicable federal or state securities laws. 4 2.5 Valid Issuance of Preferred and Common Stock. -------------------------------------------- (a) The Series C Preferred Stock that is being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Investors' Rights Agreement, and will have been issued in full compliance with all applicable preemptive rights and all applicable state and federal securities laws. The Common Stock issuable upon conversion of the Series C Preferred Stock purchased under this Agreement has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Investors' Rights Agreement and will have been issued in full compliance with all applicable preemptive rights and all applicable state and federal securities laws. (b) The outstanding shares of the capital stock of the Company are duly and validly issued, fully paid and non assessable, and such shares of such capital stock, and all outstanding stock, options and other securities of the Company have been issued in full compliance with all applicable preemptive rights, with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "Act"), and with the registration and qualification requirements of all applicable state securities laws, or in compliance with applicable exemptions therefrom, and all other provisions of applicable federal and state securities laws, including without limitation, anti-fraud provisions. 2.6 Governmental Consents. --------------------- No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except (i) the filing of the Restated Certificate with the Secretary of State of Delaware; (ii) the filing pursuant to Section 25102.1(d) of the California Corporate Securities Law of 1968, as amended; and (iii) the filing pursuant to Regulation D, Rule 506 of the Securities Act of 1933, as amended, and the rules thereunder, or such other post-closing filings as may be required, all of which filings will be effected by the Company within 15 days of the sale of the Series C Preferred Stock hereunder, or such shorter time as may be required by law. 5 2.7 Offering. -------- Subject in part to the truth and accuracy of each Investor's representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Series C Preferred Stock as contemplated by this Agreement are exempt from the registration requirements of any applicable state and federal securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 2.8 Litigation. ---------- There is no action, suit, proceeding or investigation pending or, to the knowledge of the Company, threatened that questions the validity of this Agreement or the Ancillary Agreements, or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business or any information technology or techniques allegedly proprietary to any of their former employers, clients or other parties or their obligations under any agreements with prior employers, clients or other parties. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate. 2.9 Proprietary Information Agreements. ---------------------------------- Each employee of and consultant to the Company has executed a Proprietary Information and Inventions Agreement in substantially the form provided to special counsel to the Investors and designated as the "Existing Form of PIIA." Each new employee of the Company hired after the date hereof shall execute a Proprietary Information and Inventions Agreement in substantially the form provided to special counsel to the Investors and designated as the "New Form of PIIA." The Company is not aware that any of its employees or consultants are in violation of either the Existing Form of PIIA or the New Form of PIIA, and the Company will use its diligent efforts to prevent any such violation. 6 2.10 Proprietary Assets. ------------------ The Company has full title and ownership of or licenses to all patents, patent applications, trademarks, service marks, trade names, copyrights, moral rights, mask works, trade secrets, compositions of matter formulas, designs, information, proprietary rights, know-how and processes ("Proprietary Assets") necessary for its business as now conducted and, except for such items as have yet to be conceived or developed by the Company or that are expected to be generally commercially available for licensing on reasonable terms from third parties, as currently proposed to be conducted, without any conflict with or infringement of the rights of others, and the Company has taken and in the future will use its best efforts to take, all steps reasonably necessary to preserve its legal rights in, and the secrecy of, all its Proprietary Assets. There are no outstanding options, licenses, or agreements of any kind relating to the Proprietary Assets, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the Proprietary Assets of any other person or entity, except for commercially available end- user, object code, internal-use software license and support/maintenance agreements with respect to such proprietary rights of any other person or entity. The Company is not obligated to pay any royalties or other payments to third parties with respect to the marketing, sale, distribution, manufacture, license or use of any Proprietary Asset or any other proprietary rights. To the best of the Company's knowledge, the Company has not violated or infringed, and is not currently violating or infringing any Proprietary Asset of any other person or entity. The Company has not received any communications alleging that the Company or any of its employees has violated or infringed or, by conducting its business as proposed, would violate or infringe any of the Proprietary Assets of any other person or entity. To the best of its knowledge with respect to its Proprietary Assets the Company has not violated or, by conducting its business as currently proposed, would not violate, any of the Proprietary Assets of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, or any other restriction that would materially interfere with the use of his or her best efforts to carry out his or her duties for the Company or to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, the Ancillary Agreements, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a material default under, any contract, covenant or instrument under which any of such employees is now 7 obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. To the best of the Company's knowledge, at no time during the conception or reduction of any of the Company's Proprietary Assets to practice was any developer, inventor or other contributor to such patents operating under any grants from any governmental entity or agency or private source, performing research sponsored by any governmental entity or agency or private source or subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any third party that could adversely affect the Company's rights in such Proprietary Assets. 2.11 Compliance with Other Instruments. --------------------------------- The Company is not in violation or default of any provision of its Restated Certificate or Bylaws, or in any material respect of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of any federal or state judgement, decree, order, statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or default or be in conflict with or constitute, with or without the passage of time and giving of notice, either a material default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties. The Company's business as it is presently conducted is in full compliance with all applicable federal, state local and foreign laws, rules, regulations, orders and decrees (collectively, "Laws") applicable to the Company and/or its properties (including, without limitation, Laws relating to foreign payments), and the Company is not in violation of (and the transactions contemplated by this Agreement and the Ancillary Agreements will not result in, any violation of) any applicable Laws. 2.12 Agreements, Action. ------------------ (a) Except for agreements explicitly contemplated hereby and by the Ancillary Agreements, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. 8 (b) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound that may individually involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of, $75,000, or (ii) the license of any patent, copyright, trademark, trade secret or other proprietary right to or from the Company (other than the license to the Company of commercially available software in the ordinary course of business), or (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's products or services, or (iv) indemnification by the Company with respect to infringements of proprietary rights. (c) The Company has not (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $75,000 or, in the case of indebtedness and/or liabilities individually less than $75,000, in excess of $150,000 in the aggregate that remains outstanding, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses or in connection with the exercise of employee stock options, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (e) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate or Bylaws that adversely affects its business as now conducted or as currently proposed to be conducted, its properties or its financial condition. 2.13 Related-Party Transactions. -------------------------- No employee, officer, or director of the Company or member of his or her immediate family or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the 1933 Act) is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is 9 affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, or directors of the Company and members of their immediate families may own less than five percent (5%) of the outstanding stock in publicly traded companies that may compete with the Company. No member of the immediate family of any officer or director of the Company or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the 1933 Act is directly or indirectly interested in any material contract or agreement to which the Company is a party. 2.14 Permits. ------- The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses, or other similar authority. 2.15 Manufacturing and Marketing Rights. ---------------------------------- The Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.16 Disclosure. ---------- The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Series C Preferred Stock and all information that the Company believes is reasonably necessary to enable such Investor to make such decision. Neither this Agreement, the Ancillary Agreements, nor any other statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.17 Registration Rights. ------------------- Except as provided in the Investors' Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 10 2.18 Corporate Documents. ------------------- Except for amendments necessary to satisfy representations and warranties or conditions contained herein (the form of which amendments has been approved by the Investors), the Restated Certificate and Bylaws of the Company are in the form previously provided to special counsel for the Investors. 2.19 Title to Property and Assets. ---------------------------- The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.20 Financial Statements. -------------------- The Company has delivered to each Investor (A) its audited financial statements (balance sheet, statement of operations and statement of cash flows) as of June 30, 1999; and (B) its unaudited financial statements for the period commencing July 1, 1999 through September 30, 1999 (the "Financial Statements"). The Financial Statements (i) are accurate and complete in all material respects; (ii) fairly present the financial condition and operating results of the Company as of the date and for the periods indicated therein and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicted and with each other, except that the Financial Statements referenced in Section 2.20(B) may not contain all footnotes required by generally accepted accounting principles; and (iii) are in accordance with the books and records of the Company. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise required to be disclosed on a financial statement prepared in accordance with generally accepted accounting principles, other than liabilities incurred in the ordinary course of business subsequent to September 30, 1999 and which in the aggregate, are not material to the financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. The Company maintains a standard system of accounting established and administered in accordance with generally accepted accounting principles. 11 2.21 Employee Benefit Plans. ---------------------- The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.22 Tax Returns, Payments and Elections. ----------------------------------- The Company has filed all tax returns and reports (including information returns and reports) as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the Schedule of Exceptions. The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or as currently proposed to be conducted or any of its properties or assets. The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. None of the Company's federal income tax returns and none of its state income or franchise tax or sales or use tax returns has ever been audited by governmental authorities. The Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. 2.23 Minute Books. ------------ The minute books of the Company provided to the Investors contain a complete summary of all meetings of directors and shareholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 2.24 Labor Agreements and Actions, Employee Compensation. --------------------------------------------------- The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested 12 or, to the best of the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the best of the Company's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company, nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. To the best of its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. 2.25 Brokers. ------- The Company has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 2.26 Qualified Small Business Stock. ------------------------------ As of the Closing: (i) the Company will be an eligible corporation as defined in Section 1202(e)(4) of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) the Company will not have made any purchases of its own stock during the one-year period proceeding the Closing having an aggregate value exceeding 5% of the aggregate value of all its capital stock as of the beginning of such period and (iii) the Company's aggregate gross assets, as defined by Code Section 1202(d)(2), at no time between inception and through the Closing have exceeded or will exceed $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3). 2.27 Changes. ------- Since September 30, 1999 there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; 13 (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is not material to the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; (g) except for non-exclusive licenses granted in the ordinary course of business, any sale, assignment or transfer of any Proprietary Assets or other intangible assets; (h) any resignation or termination of employment of any officer or key employee of the Company; and the Company is not aware of any impending resignation or termination of employment of any such officer or key employee; (i) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (j) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances made in the ordinary course of its business; (k) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; 14 (l) to the Company's knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, prospectus, operating results or business of the Company (as such business is presently conducted); or (m) any agreement or commitment by the Company to do any of the things described in this Section 2.27. 2.28 Environmental and Safety Laws. ----------------------------- The Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.29 Insurance. --------- The Company has obtained, or will obtain as soon as reasonably practicable after the Closing and will maintain, fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. All such policies are listed and described in the Schedule of Exceptions. The Company has in effect and will at all times maintain directors' and officers' liability insurance, on customary terms and with reputable carriers, in amounts not less than $2,000,000 per occurrence. 2.30 Year 2000 Compatibility. ----------------------- To the best of the Company's knowledge, all of the Company's products will record, store, process and calculate and present calendar dates falling on and after January 1, 2000, and will calculate any information dependent on or relating to such dates in the same manner and with the same functionality, data integrity and performance as the products record, store, process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates (collectively "Year 2000 --------- Compliant"). All of the Company's material products will lose no functionality - --------- with respect to the introduction of records containing dates falling on or after January 1, 2000. All of the Company's internal computer systems, including without limitation, its accounting systems, are Year 2000 Compliant. To the knowledge of the Company, each vendor of products or services to the Company will continue to furnish such products or services to the Company without interruption or material delay, on and after January 1, 2000. The Company has no reason to believe that the failure by any vendor, or the failure of such vendor's 15 respective products, services and operations, to be Year 2000 Compliant will have a material adverse effect on the Company. 3. Representations and Warranties of the Investors. ----------------------------------------------- Each Investor hereby severally and not jointly represents and warrants to the Company that: 3.1 Authorization. ------------- Such Investor has full power and authority to enter into this Agreement, the Investors' Rights Agreement and Voting Agreement, and each such agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. --------------------------------- This Agreement is made with such Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Series C Preferred Stock to be received by such Investor and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. ------------------------- Such Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series C Preferred Stock. Such Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series C Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the 16 representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. 3.4 Investment Experience. --------------------- Such Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series C Preferred Stock. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Series C Preferred Stock. 3.5 Accredited Investor. ------------------- Such Investor is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 3.6 Restricted Securities. --------------------- Such Investor understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, such Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.7 Further Limitations on Disposition. ---------------------------------- Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and the Investors' Rights Agreement provided and to the extent this Section and such agreement are then applicable, and: (a) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably 17 requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act. (c) Notwithstanding the provisions of Paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor (i) to an Affiliate (as defined in Rule 405 under the Act; or (ii) that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 3.8 Legends. ------- It is understood that the certificates evidencing the Securities may bear one or all of the following legends: (a) "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act." (b) Any legend required by the laws of the State of California and the State of Delaware, including any legend required by the California Department of Corporations and Sections 417 and 418 of the California Corporations Code or by any provision of the Delaware General Corporations Law. 3.9 Foreign Investors. ----------------- If the Investor is not a U.S. person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Investor hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Series C Preferred Stock or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Series C Preferred Stock, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Series C Preferred Stock. Such Investor's subscription and payment for and continued beneficial ownership of the 18 Series C Preferred Stock will not violate any applicable securities or other laws of the Investor's jurisdiction. 4. Conditions of Investors' Obligations at Closing. ----------------------------------------------- The obligations of each Investor under subSection 1. 1 (c) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent thereto: 4.1 Representations and Warranties. ------------------------------ The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 4.2 Performance. ----------- The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 Compliance and Secretary Certificates. ------------------------------------- The Company shall deliver to each Investor at its respective Closing a certificate executed by the President stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating that there shall have been no adverse change in the business, assets, operations, prospects or financial condition of the Company since the date of the Financial Statements. The Company shall also deliver to each Investor at the Closing a certificate executed by the Secretary of the Company dated as of the date of the Closing certifying as to the following matters: (a) resolutions adopted by the Company's Board of Directors and stockholders relating to the transactions contemplated by this Agreement; (b) Restated Certificate (c) Bylaws of the Company and (d) such other matters as the Investors' counsel may reasonably request. 4.4 Qualifications. -------------- All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 19 4.5 Proceedings and Documents. ------------------------- All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors' special counsel, and they shall have received all such counterpart originals and certified or other copies of such documents as they may reasonably request. 4.6 Proprietary Information Agreements. ---------------------------------- Each employee of and consultant to the Company shall have entered into a Proprietary Information and Inventions Agreement in one of the forms previously provided to special counsel for the Investors. 4.7 Bylaws. ------ The Bylaws of the Company shall provide that the Board of Directors of the Company shall consist of seven (7) persons. 4.8 Board of Directors. ------------------ At Closing, the directors of the Company shall be Messrs. Alan Salzman, Ken Lawler, Chris Logan, Larry Barels, Gary Gigot, John A. Hawkins and Paul Roberts. 4.9 Opinion of Company Counsel. -------------------------- Each Investor shall have received from Perkins Coie LLP counsel for the Company, opinions dated as of the Closing, in the form attached hereto as Exhibit D. 4.10 Investors' Rights Agreement. --------------------------- The Company, each Investor and the requisite number of Prior Investors and Common Holders (as such terms are defined in the Investor Rights Agreement) shall have entered into the Investors' Rights Agreement in the form attached as Exhibit B. 4.11 Voting Agreement. ---------------- The Company, each Investor and a requisite number of Prior Investors and Founders (as such terms are defined in the Voting Agreement) shall have entered into the Voting Agreement in the form attached as Exhibit E. 20 5. Conditions of the Company's Obligations at Closing. -------------------------------------------------- The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by that Investor: 5.1 Representations and Warranties. ------------------------------ The representations and warranties of the Investors contained in Section 3 shall be true on and as of the respective Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 Performance. ----------- All covenants, agreements and conditions contained in this Agreement to be performed by the Investors on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 Qualifications. -------------- All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly, obtained and effective as of the Closing. 5.4 Investors' Rights Agreement. --------------------------- The Company, each Investor and the requisite number of Prior Investors and Common Holders (as such terms are defined in the Investor Rights Agreement) shall have entered into the Investors' Rights Agreement in the form attached as Exhibit B. 5.5 Voting Agreement. ---------------- The Company, each Investor and a requisite number of Prior Investors and Founders (as such terms are defined in the Voting Agreement) shall have entered into the Voting Agreement in the form attached as Exhibit E. 6. Miscellaneous. ------------- 6.1 Survival of Warranties. ---------------------- The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and 21 delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company. 6.2 Successors and Assigns. ---------------------- Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.3 Governing Law. ------------- This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, without regard to provisions regarding choice of laws. 6.4 Counterparts. ------------ This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 Titles and Subtitles. -------------------- The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 Notices. ------- All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) business days after deposit with the U.S. Postal Services or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, shall be addressed, if to 22 Investor, at each investor's address as set forth on the Schedule of purchasers to this Agreement, and, if to the Company, at the address of its principal corporate offices, Attn: Chief Financial Officer, with a copy to Perkins Coie, LLP, 135 Commonwealth Drive, Suite 135, Menlo Park, CA 94025, Attn: Mark Albert, Esq., or at such other address as such party may designate by notice to the other parties hereto. 6.7 Finder's Fee. ------------ Each party represents that except for the compensation described in Section 2 of that certain Retainer Letter Agreement dated as of October 11, 1999 between the Company and eOffering corporation, a copy of which has been provided to counsel to Lead Investor, it neither is nor will become obligated for any finders' fee or commission in connection with this transaction. Each Investor, severally and not jointly, agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.8 Expenses. -------- Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall, at the Closing, reimburse the reasonable fees of special counsel for the Investors, not to exceed $30,000, and shall, upon receipt of a bill therefor, reimburse the reasonable out-of-pocket expenses of such counsel. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Ancillary Agreements or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.9 Amendments and Waivers. ---------------------- Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Common Stock issuable or issued upon 23 conversion of the Series C Preferred Stock. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company. 6.10 Severability. ------------ If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.11 Corporate Securities Law. ------------------------ THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 6.12 Aggregation of Stock. -------------------- All shares of the Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 6.13 Entire Agreement. ---------------- This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. Nothing in this Agreement, however, shall be deemed to terminate or supercede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the date hereof, which agreements shall continue in full force and effect until terminated in accordance with their respective terms. 24 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. DRIVEWAY CORPORATION By: /s/ Chris Logan ------------------------------------ Chris Logan, Chief Executive Officer INVESTOR: Levitin Family Charitable Trust ------------------------------------------------ (Purchaser Name) By: /s/ Eli Levitin ------------------------------------ Name: Eli Levitin ------------------------------------ Title: Trustee ------------------------------------ INVESTOR: New Dimensions Trading Ltd. ------------------------------------------------ (Purchaser Name) By: /s/ Chana Edelstein ------------------------------------ Name: Chana Edelstein ------------------------------------ Title: Director ------------------------------------ INVESTOR: James B. Tannanbaum ------------------------------------------------- (Purchaser Name) By: /s/ James B. Tannanbaum ------------------------------------- INVESTOR: Logan Revocable Trust of 5/4/89 ------------------------------------------------- (Purchaser Name) By: /s/ Gary Logan ------------------------------------- Name: Gary Logan ------------------------------------- Title: Trustee ------------------------------------- INVESTOR: TWB Investment Partnership ------------------------------------------------- (Purchaser Name) By: /s/ Robert E. Giles ------------------------------------- Name: Robert E. Giles ------------------------------------- Title: General Partner ------------------------------------- INVESTOR: Jay Berkett ------------------------------------------------- (Purchaser Name) By: /s/ Jay Berkett -------------------------------------- INVESTOR: Sidney Tuchman ------------------------------------------------- (Purchaser Name) By: /s/ Sidney Tuchman ------------------------------------- INVESTOR: Millard S. Drexler ------------------------------------------------- (Purchaser Name) By: /s/ Millard S. Drexler ------------------------------------- INVESTOR: Peter Campbell ------------------------------------------------- (Purchaser Name) By: /s/ Peter Campbell ------------------------------------- INVESTOR: Lawrence A. Zulch ------------------------------------------------- (Purchaser Name) By: /s/ Lawrence A. Zulch ------------------------------------- INVESTOR: Frank Perna, Jr. ------------------------------------------------- (Purchaser Name) By: /s/ Frank Perna, Jr. ------------------------------------- INVESTOR: Jason Strober ------------------------------------------------- (Purchaser Name) By: /s/ Jason Strober ------------------------------------- INVESTOR: Fern Investments ------------------------------------------------- (Purchaser Name) By: /s/ Adam Violch ------------------------------------- GENERATION CAPITAL PARTNERS L.P. By: Generation Partners L.P., as General Partner By: Generation Capital Company LLC, its General Partner By: /s/ John Hawkins ---------------------------- John Hawkins Managing Director STATE BOARD OF ADMINISTRATION OF FLORIDA By: Generation Parallel Management Partners, L.P., as Manager By: Generation Capital Company LLC, as General Partner By: /s/ John Hawkins ---------------------------- John Hawkins Managing Director GENERATION PARALLEL MANAGEMENT PARTNERS L.P. By: Generation Capital Company LLC, as General Partner By: /s/ John Hawkins ----------------------------- John Hawkins Managing Director CB CAPITAL INVESTORS, L.P. By: CB Capital Investors, Inc., as General Partner By: Its: ___________________________ FARALLON CAPITAL PARTNERS, L.P. By: Farallon Partners, L.L.C., its General Partner By: /s/ --------------------------------- Managing Member FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P. By: Farallon Partners, L.L.C., its General Partner By: /s/ --------------------------------- Managing Member FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P. By: Farallon Partners, L.L.C., its General Partner By: /s/ --------------------------------- Managing Member FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P. By: Farallon Partners, L.L.C., its General Partner By: /s/ --------------------------------- Managing Member RR CAPITAL PARTNERS, L.P. By: Farallon Partners, L.L.C., its General Partner By: /s/ --------------------------------- Managing Member CMS CO-INVESTMENT SUBPARTNERSHIP, a Delaware general partnership By: CMS Co-Investment Partners, L.P., a Delaware limited partnership By: CMS/Co-Investment Associates, L.P., a Delaware limited partnership By: MSPS/Co-Investment, Inc. a Delaware corporation By: /s/ -------------------------- Its: Vice President By: CMS 1997 Investment Partners, L.P., a Delaware limited partnership By: CMS 1997, Inc. a Delaware corporation By: /s/ -------------------------- Its: Vice President By: CMS Co-Investment Partners I-Q, L.P., a Delaware limited partnership By: CMS/Co-Investment Associates, L.P., a Delaware limited partnership By: MSPS/Co-Investment, Inc. a Delaware corporation By: /s/ -------------------------- Its: Vice President By: CMS 1997 Investment Partners, L.P., a Delaware limited partnership By: CMS 1997, Inc. a Delaware corporation By: /s/ -------------------------- Its: Vice President BRIND INVESTMENT PARTNERS III By: /s/ ------------------------- Its: General Partner WILLIAM JAMES BELL 1993 TRUST By: /s/ William James Bell ---------------------------- Name: William James Bell Its: Trustee AARON WOLFSON /s/ Aaron Wolfson ------------------------------- ABRAHAM WOLFSON /s/ Abraham Wolfson ------------------------------- MORRIS WOLFSON /s/ Morris Wolfson ------------------------------- VANTAGEPOINT COMMUNICATIONS PARTNERS, L.P. By: VantagePoint Communications Associates, L.L.C., Its General Partner By: /s/ Alan E. Salzman ---------------------------------- Its: Managing Member SANDLER CAPITAL IV PARTNERS, L.P. SANDLER CAPITAL IV FTE PARTNERS, L.P. SANDLER INTERNET PARTNERS, L.P. By: Sandler Investment Partners, L.P., the General Partner By: Sandler Capital Management, the General Partner By: MJDM Corp., a General Partner By: /s/ ------------------------------ Edward G. Grinacoff Its: President RS PREMIUM PARTNERS LP RS Premium Partners LP (Puma) RS Pacific Partners (Jaguar) By: /s/ ------------------------------ James L. Callinan Its: Chief Investment Officer EX-10.24 22 SERIES D PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.24 DRIVEWAY CORPORATION SERIES D PREFERRED STOCK PURCHASE AGREEMENT DRIVEWAY CORPORATION SERIES D PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 10th day of March, 2000, by and among DRIVEWAY CORPORATION, a Delaware corporation (the "Company"), and the investors severally and not jointly listed on Schedule A hereto, each of which is herein referred to as an "Investor." ---------- THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. -------------------------- 1.1 Sale and Issuance of Series D Preferred Stock. --------------------------------------------- (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Fifth Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Restated Certificate"). - --------- (b) On or prior to the Closing, the Company shall authorize (i) the sale and issuance to the Investors of the Series D Preferred Stock and (ii) the issuance of the shares of Common Stock to be issued upon conversion of the Series D Preferred Stock (the "Conversion Shares"). The Series D Preferred Stock and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate. (c) Subject to the terms and conditions of this Agreement, each Investor agrees, severally and not jointly, to purchase at the Closing or pursuant to Section 1.3 and the Company agrees to sell and issue to each Investor at the Closing or pursuant to Section 1.3, that number of shares of the Company's Series D Preferred Stock set forth opposite such Investor's name on Schedule A hereto for the purchase price of $6.00 per share (the "Purchase - ---------- Price"). 1.2 Closing; Delivery. ----------------- The purchase and sale of the Series D Preferred Stock shall take place at the offices of Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, CA 94025, at 10:00 a.m., on March ___, 2000, or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of Series D Preferred Stock sold pursuant hereto mutually agree upon orally or in writing (which time and place are designated as the "Closing"). At the Closing the Company shall deliver to each Investor a certificate representing the Series D Preferred Stock that such Investor is purchasing against payment of the purchase price therefor by check or wire transfer. 2. Representations and Warranties of the Company. --------------------------------------------- The Company hereby represents and warrants to each Investor, as of the Closing and except as set forth on a schedule of exceptions attached hereto as Exhibit F (the "Schedule of Exceptions") furnished to each such Investor and - --------- special counsel for the Investors, that: 2.1 Organization, Good Standing and Qualification. --------------------------------------------- The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as currently proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. 2.2 Capitalization and Voting Rights. -------------------------------- The authorized capital of the Company consists, or will consist immediately prior to the Closing, of: (a) Preferred Stock. 33,200,000 shares of preferred stock (the "Preferred Stock"), of which (i) 10,100,000 have been designated Series A Preferred Stock (the "Series A Preferred Stock"), 10,000,000 of which are outstanding as of the date hereof; (ii) 8,100,000 have been designated Series B Preferred Stock, 7,444,770 of which are outstanding as of the date hereof; (iii) 11,000,000 have been designated Series C Preferred Stock, 10,800,507 of which are outstanding as of the date hereof; and (iv) 4,000,000 have been designated Series D Preferred Stock, none of which are outstanding as of the date hereof and up to all of which may be sold pursuant to this Agreement (collectively, the "Preferred Stock"). The rights, privileges and preferences of the Preferred Stock are as stated in the Company's Restated Certificate. The outstanding shares of Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act of 1933, as amended (the "Act"), and any relevant state securities laws, or pursuant to valid exemptions therefrom. 2 (b) Common Stock. 74,800,000 shares of common stock ("Common Stock"), of which 5,721,221 are issued and outstanding. The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Act, and any relevant state securities laws, or pursuant to valid exemptions therefrom. (c) The Company has reserved 5,700,000 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company under the Company's 1997 Stock Option Plan (the "Option Plan"), of which (1) 3,499,726 shares are issuable upon exercise of currently outstanding options to purchase shares of Common Stock; (2) 790,110 have been exercised and are included in the Company's outstanding Common Stock; and (3) 1,510,171 shares are available for future grants. (d) Except for: (1) the conversion privileges of the outstanding Preferred Stock; (2) the rights provided in the Investors' Rights Agreement; (3) options issued and outstanding under the Option Plan; and (4) the Non-Plan Options, there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company, and to the Company's knowledge from any of the shareholders of the Company, of any shares of its capital stock. Except for the Voting Agreement, the Company is not a party or subject to any agreement or understanding, and, to the best of the Company's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. (e) Section 2.2(e) of the Schedule of Exceptions sets forth a complete list of all outstanding stockholders, optionholders and other security holders of the Company as of the Closing, and shows, for each option, the date of grant, the grant price, vesting schedule and vesting status. 2.3 Subsidiaries. ------------ The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2.4 Authorization. ------------- All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement 3 and the Ancillary Agreements, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series D Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series D Preferred Stock has been taken or will be taken prior to the Closing. This Agreement and the Ancillary Agreements constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent that each of (A) the indemnification provisions contained in the Investors' Rights Agreement and (B) the board compensation provisions contained in the Voting Agreement may be limited by applicable federal or state securities laws. 2.5 Valid Issuance of Preferred and Common Stock. -------------------------------------------- (a) The Series D Preferred Stock that is being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Investors' Rights Agreement, and will have been issued in full compliance with all applicable preemptive rights and all applicable state and federal securities laws. The Common Stock issuable upon conversion of the Series D Preferred Stock purchased under this Agreement has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Investors' Rights Agreement and will have been issued in full compliance with all applicable preemptive rights and all applicable state and federal securities laws. (b) The outstanding shares of the capital stock of the Company are duly and validly issued, fully paid and non assessable, and such shares of such capital stock, and all outstanding stock, options and other securities of the Company have been issued in full compliance with all applicable preemptive rights, with the registration and prospectus delivery requirements of the Act, and with the registration and qualification requirements of all applicable state securities laws, or in compliance with applicable exemptions therefrom, and all other provisions of applicable federal and state securities laws, including without limitation, anti-fraud provisions. 4 2.6 Governmental Consents. --------------------- No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except (i) the filing of the Restated Certificate with the Secretary of State of Delaware; (ii) the filing pursuant to Section 25102.1(d) of the California Corporate Securities Law of 1968, as amended; and (iii) the filing pursuant to Regulation D, Rule 506 of the Securities Act of 1933, as amended, and the rules thereunder, or such other post-closing filings as may be required, all of which filings will be effected by the Company within 15 days of the sale of the Series D Preferred Stock hereunder, or such shorter time as may be required by law. 2.7 Offering. -------- Subject in part to the truth and accuracy of each Investor's representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Series D Preferred Stock as contemplated by this Agreement are exempt from the registration requirements of any applicable state and federal securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 2.8 Litigation. ---------- There is no action, suit, proceeding or investigation pending or, to the knowledge of the Company, threatened that questions the validity of this Agreement or the Ancillary Agreements, or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business or any information technology or techniques allegedly proprietary to any of their former employers, clients or other parties or their obligations under any agreements with prior employers, clients or other parties. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or 5 investigation by the Company currently pending or that the Company intends to initiate. 2.9 Proprietary Information Agreements. ---------------------------------- Each employee of and consultant to the Company has executed a Proprietary Information and Inventions Agreement in substantially the form provided to special counsel to the Investors and designated as the "Existing Form of PIIA." Each new employee of the Company hired after the date hereof shall execute a Proprietary Information and Inventions Agreement in substantially the form provided to special counsel to the Investors and designated as the "New Form of PIIA." The Company is not aware that any of its employees or consultants are in violation of either the Existing Form of PIIA or the New Form of PIIA, and the Company will use its diligent efforts to prevent any such violation. 2.10 Proprietary Assets. ------------------ The Company has full title and ownership of or licenses to all patents, patent applications, trademarks, service marks, trade names, copyrights, moral rights, mask works, trade secrets, compositions of matter formulas, designs, information, proprietary rights, know-how and processes ("Proprietary Assets") necessary for its business as now conducted and, except for such items as have yet to be conceived or developed by the Company or that are expected to be generally commercially available for licensing on reasonable terms from third parties, as currently proposed to be conducted, without any conflict with or infringement of the rights of others, and the Company has taken and in the future will use its best efforts to take, all steps reasonably necessary to preserve its legal rights in, and the secrecy of, all its Proprietary Assets. There are no outstanding options, licenses, or agreements of any kind relating to the Proprietary Assets, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the Proprietary Assets of any other person or entity, except for commercially available end- user, object code, internal-use software license and support/maintenance agreements with respect to such proprietary rights of any other person or entity. The Company is not obligated to pay any royalties or other payments to third parties with respect to the marketing, sale, distribution, manufacture, license or use of any Proprietary Asset or any other proprietary rights. To the best of the Company's knowledge, the Company has not violated or infringed, and is not currently violating or infringing any Proprietary Asset of any other person or entity. The Company has not received any communications alleging that the Company or any of its employees has violated or infringed or, by conducting its business as proposed, would violate or infringe any of the Proprietary Assets of any other person or entity. To the best of its knowledge with respect to its 6 Proprietary Assets the Company has not violated or, by conducting its business as currently proposed, would not violate, any of the Proprietary Assets of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, or any other restriction that would materially interfere with the use of his or her best efforts to carry out his or her duties for the Company or to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, the Ancillary Agreements, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a material default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. To the best of the Company's knowledge, at no time during the conception or reduction of any of the Company's Proprietary Assets to practice was any developer, inventor or other contributor to such patents operating under any grants from any governmental entity or agency or private source, performing research sponsored by any governmental entity or agency or private source or subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any third party that could adversely affect the Company's rights in such Proprietary Assets. 2.11 Compliance with Other Instruments. --------------------------------- The Company is not in violation or default of any provision of its Restated Certificate or Bylaws, or in any material respect of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of any federal or state judgement, decree, order, statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or default or be in conflict with or constitute, with or without the passage of time and giving of notice, either a material default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or 7 properties. The Company's business as it is presently conducted is in full compliance with all applicable federal, state local and foreign laws, rules, regulations, orders and decrees (collectively, "Laws") applicable to the Company and/or its properties (including, without limitation, Laws relating to foreign payments), and the Company is not in violation of (and the transactions contemplated by this Agreement and the Ancillary Agreements will not result in, any violation of) any applicable Laws. 2.12 Agreements, Action. ------------------ (a) Except for agreements explicitly contemplated hereby and by the Ancillary Agreements, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. (b) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound that may individually involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of, $75,000, or (ii) the license of any patent, copyright, trademark, trade secret or other proprietary right to or from the Company (other than the license to the Company of commercially available software in the ordinary course of business), or (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's products or services, or (iv) indemnification by the Company with respect to infringements of proprietary rights. (c) The Company has not (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $75,000 or, in the case of indebtedness and/or liabilities individually less than $75,000, in excess of $150,000 in the aggregate that remains outstanding, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses or in connection with the exercise of employee stock options, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. 8 (e) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate or Bylaws that adversely affects its business as now conducted or as currently proposed to be conducted, its properties or its financial condition. 2.13 Related-Party Transactions. -------------------------- No employee, officer, or director of the Company or member of his or her immediate family or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the Act) is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, or directors of the Company and members of their immediate families may own less than five percent (5%) of the outstanding stock in publicly traded companies that may compete with the Company. No member of the immediate family of any officer or director of the Company or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the Act is directly or indirectly interested in any material contract or agreement to which the Company is a party. 2.14 Permits. ------- The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses, or other similar authority. 2.15 Manufacturing and Marketing Rights. ---------------------------------- The Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 9 2.16 Disclosure. ---------- The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Series D Preferred Stock and all information that the Company believes is reasonably necessary to enable such Investor to make such decision. Neither this Agreement, the Ancillary Agreements, nor any other statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.17 Registration Rights. ------------------- Except as provided in the Investors' Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.18 Corporate Documents. ------------------- Except for amendments necessary to satisfy representations and warranties or conditions contained herein (the form of which amendments has been approved by the Investors), the Restated Certificate and Bylaws of the Company are in the form previously provided to special counsel for the Investors. 2.19 Title to Property and Assets. ---------------------------- The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.20 Financial Statements. -------------------- The Company has delivered to each Investor (A) its audited financial statements (balance sheet, statement of operations and statement of cash flows) as of June 30, 1999; and (B) its unaudited financial statements for the period commencing July 1, 1999 through December 31, 1999 (the "Financial Statements"). The Financial Statements (i) are accurate and complete in all material respects; (ii) fairly present the financial condition and operating results of the Company as of the date and for the periods indicated therein and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods 10 indicated and with each other, except that the Financial Statements referenced in Section 2.20(B) may not contain all footnotes required by generally accepted accounting principles; and (iii) are in accordance with the books and records of the Company. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise required to be disclosed on a financial statement prepared in accordance with generally accepted accounting principles, other than liabilities incurred in the ordinary course of business subsequent to December 31, 1999 and which in the aggregate, are not material to the financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. The Company maintains a standard system of accounting established and administered in accordance with generally accepted accounting principles. 2.21 Employee Benefit Plans. ---------------------- The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.22 Tax Returns, Payments and Elections. ----------------------------------- The Company has filed all tax returns and reports (including information returns and reports) as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the Schedule of Exceptions. The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or as currently proposed to be conducted or any of its properties or assets. The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. None of the Company's federal income tax returns and none of its state income or franchise tax or sales or use tax returns has ever been audited by governmental authorities. The Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required 11 to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. 2.23 Minute Books. ------------ The minute books of the Company provided to the Investors contain a complete summary of all meetings of directors and shareholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 2.24 Labor Agreements and Actions, Employee Compensation. --------------------------------------------------- The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the best of the Company's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company, nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. To the best of its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. 2.25 Brokers. ------- The Company has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 2.26 [Qualified Small Business Stock. ------------------------------- As of the Closing: (i) the Company will be an eligible corporation as defined in Section 1202(e)(4) of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) the Company will not have made any purchases of its own stock during the one-year period proceeding the Closing having an aggregate value exceeding 5% of the 12 aggregate value of all its capital stock as of the beginning of such period and (iii) the Company's aggregate gross assets, as defined by Code Section 1202(d)(2), at no time between inception and through the Closing have exceeded or will exceed $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3).] 2.27 Changes. ------- Since December 31, 1999 there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is not material to the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; (g) except for non-exclusive licenses granted in the ordinary course of business, any sale, assignment or transfer of any Proprietary Assets or other intangible assets; 13 (h) any resignation or termination of employment of any officer or key employee of the Company; and the Company is not aware of any impending resignation or termination of employment of any such officer or key employee; (i) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (j) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances made in the ordinary course of its business; (k) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (l) to the Company's knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, prospectus, operating results or business of the Company (as such business is presently conducted); or (m) any agreement or commitment by the Company to do any of the things described in this Section 2.27. 2.28 Environmental and Safety Laws. ----------------------------- The Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.29 Insurance. --------- The Company has obtained, or will obtain as soon as reasonably practicable after the Closing and will maintain, fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. All such policies are listed and described in the Schedule of Exceptions. The Company has in effect and will at all times maintain directors' and officers' liability insurance, on customary terms and with reputable carriers, in amounts not less than $2,000,000 per occurrence. 14 3. Representations and Warranties of the Investors. ----------------------------------------------- Each Investor hereby severally and not jointly represents and warrants to the Company that: 3.1 Authorization. ------------- Such Investor has full power and authority to enter into this Agreement, the Investors' Rights Agreement and Voting Agreement, and each such agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. --------------------------------- This Agreement is made with such Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Series D Preferred Stock to be received by such Investor and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. ------------------------- Such Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series D Preferred Stock. Such Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series D Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. 15 3.4 Investment Experience. --------------------- Such Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series D Preferred Stock. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Series D Preferred Stock. 3.5 Accredited Investor. ------------------- Such Investor is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 3.6 Restricted Securities. --------------------- Such Investor understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, such Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.7 Further Limitations on Disposition. ---------------------------------- Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and the Investors' Rights Agreement provided and to the extent this Section and such agreement are then applicable, and: (a) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act. 16 (c) Notwithstanding the provisions of Paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor (i) to an Affiliate (as defined in Rule 405 under the Act; or (ii) that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 3.8 Legends. ------- It is understood that the certificates evidencing the Securities may bear one or all of the following legends: (a) "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act." (b) Any legend required by the laws of the State of California and the State of Delaware, including any legend required by the California Department of Corporations and Sections 417 and 418 of the California Corporations Code or by any provision of the Delaware General Corporations Law. 3.9 Foreign Investors. ----------------- If the Investor is not a U.S. person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Investor hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Series D Preferred Stock or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Series D Preferred Stock, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Series D Preferred Stock. Such Investor's subscription and payment for and continued beneficial ownership of the Series D Preferred Stock will not violate any applicable securities or other laws of the Investor's jurisdiction. 4. Conditions of Investors' Obligations at Closing. ----------------------------------------------- 17 The obligations of each Investor under Section 1.1 (c) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent thereto: 4.1 Representations and Warranties. ------------------------------ The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 4.2 Performance. ----------- The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 Compliance and Secretary Certificates. ------------------------------------- The Company shall deliver to each Investor at its respective Closing a certificate executed by the President stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating that there shall have been no adverse change in the business, assets, operations, prospects or financial condition of the Company since the date of the Financial Statements. The Company shall also deliver to each Investor at the Closing a certificate executed by the Secretary of the Company dated as of the date of the Closing certifying as to the following matters: (a) resolutions adopted by the Company's Board of Directors and stockholders relating to the transactions contemplated by this Agreement; (b) Restated Certificate; (c) Bylaws of the Company; and (d) such other matters as the Investors' counsel may reasonably request. 4.4 Qualifications. -------------- All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 4.5 Proceedings and Documents. ------------------------- All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably 18 satisfactory in form and substance to the Investors' special counsel, and they shall have received all such counterpart originals and certified or other copies of such documents as they may reasonably request. 4.6 Proprietary Information Agreements. ---------------------------------- Each employee of and consultant to the Company shall have entered into a Proprietary Information and Inventions Agreement in one of the forms previously provided to special counsel for the Investors. 4.7 Bylaws. ------ The Bylaws of the Company shall provide that the Board of Directors of the Company shall consist of seven (7) persons. 4.8 Board of Directors. ------------------ At Closing, the directors of the Company shall be Messrs. Alan Salzman, Ken Lawler, Chris Logan, Larry Barels, Gary Gigot, John A. Hawkins and Shahan Soghikian. 4.9 Opinion of Company Counsel. -------------------------- Each Investor shall have received from Perkins Coie LLP counsel for the Company, opinions dated as of the Closing, in the form attached hereto as Exhibit D. 4.10 Investors' Rights Agreement. --------------------------- The Company, each Investor and the requisite number of Prior Investors and Common Holders (as such terms are defined in the Investor Rights Agreement) shall have entered into the Investors' Rights Agreement in the form attached as Exhibit B. 4.11 Voting Agreement. ---------------- The Company, each Investor and a requisite number of Prior Investors and Founders (as such terms are defined in the Voting Agreement) shall have entered into the Voting Agreement in the form attached as Exhibit E. 5. Conditions of the Company's Obligations at Closing. -------------------------------------------------- The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by that Investor: 19 5.1 Representations and Warranties. ------------------------------ The representations and warranties of the Investors contained in Section 3 shall be true on and as of the respective Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 Performance. ----------- All covenants, agreements and conditions contained in this Agreement to be performed by the Investors on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 Qualifications. -------------- All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly, obtained and effective as of the Closing. 5.4 Investors' Rights Agreement. --------------------------- The Company, each Investor and the requisite number of Prior Investors and Common Holders (as such terms are defined in the Investor Rights Agreement) shall have entered into the Investors' Rights Agreement in the form attached as Exhibit B. 5.5 Voting Agreement. ---------------- The Company, each Investor and a requisite number of Prior Investors and Founders (as such terms are defined in the Voting Agreement) shall have entered into the Voting Agreement in the form attached as Exhibit E. 6. Miscellaneous. ------------- 6.1 Survival of Warranties. ---------------------- The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company. 20 6.2 Successors and Assigns. ---------------------- Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.3 Governing Law. ------------- This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, without regard to provisions regarding choice of laws. 6.4 Counterparts. ------------ This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 Titles and Subtitles. -------------------- The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 Notices. ------- All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) business days after deposit with the U.S. Postal Services or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, shall be addressed, if to Investor, at each investor's address as set forth on the Schedule of purchasers to this Agreement, and, if to the Company, at the address of its principal corporate offices, Attn: Chief Financial Officer, with a copy to Perkins Coie, LLP, 135 Commonwealth 21 Drive, Suite 135, Menlo Park, CA 94025, Attn: Mark Albert, Esq., or at such other address as such party may designate by notice to the other parties hereto. 6.7 Finder's Fee. ------------ Each party represents that it neither is nor will become obligated for any finders' fee or commission in connection with this transaction. Each Investor, severally and not jointly, agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.8 Expenses. -------- Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall, at the Closing, reimburse the reasonable fees of special counsel for the Investors, not to exceed $[10,000], and shall, upon receipt of a bill therefor, reimburse the reasonable out-of-pocket expenses of such counsel. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Ancillary Agreements or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.9 Amendments and Waivers. ---------------------- Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Common Stock issuable or issued upon conversion of the Series D Preferred Stock. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company. 22 6.10 Severability. ------------ If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.11 Corporate Securities Law. ------------------------ THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 6.12 Aggregation of Stock. -------------------- All shares of the Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 6.13 Entire Agreement. ---------------- This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. Nothing in this Agreement, however, shall be deemed to terminate or supercede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the date hereof, which agreements shall continue in full force and effect until terminated in accordance with their respective terms. 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. DRIVEWAY CORPORATION By: /s/ Chris Logan ---------------------------------------- Chris Logan, Chief Executive Officer EMC CORPORATION By: /s/ Michael J. Cody -------------------------------------- Name: Michael J. Cody ------------------------------------ Title: ----------------------------------- Address: 35 Parkwood Drive -------------------------------- Hopkington, MA 01748 ----------------------------------------- Fax: (508) 435-8900 ------------------------------------ LYCOS INC. By: /s/ Thomas E. Guilfoile ------------------------------------ Name: Thomas E. Guilfoile ----------------------------------- Title: V.P. Finance & Admin. --------------------------------- Address: 400-2 Totten Pond Road -------------------------------- Waltham, MA 02451 ----------------------------------------- Fax: (781) 370-2600 ------------------------------------ SIGNATURE PAGE FOR DRIVEWAY, CORPORATION SERIES D PREFERRED STOCK PURCHASE AGREEMENT EX-10.25 23 FIFTH AMENDMENT AND RESTATED INVESTOR'S RIGHTS EXHIBIT 10.25 DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT March 10, 2000 CONTENTS 1. Registration Rights........................................ 1 1.1 Definitions........................................... 1 1.2 Request for Registration.............................. 2 1.3 Company Registration.................................. 4 1.4 Form S-3 Registration................................. 5 1.5 Obligations of the Company............................ 6 1.6 Information from Holder............................... 7 1.7 Expenses of Registration.............................. 7 1.8 Indemnification....................................... 8 1.9 Reports Under Securities Exchange Act of 1934......... 10 1.10 Assignment of Registration Rights..................... 11 1.11 Limitations on Subsequent Registration Rights......... 11 1.12 "Market Stand-Off" Agreement.......................... 12 1.13 Termination of Registration Rights.................... 12 2. Covenants of the Company. 13 2.1 Delivery of Financial Statements...................... 13 2.2 Inspection............................................ 13 2.3 Termination of Information and Inspection Covenants... 13 2.4 Right of First Offer.................................. 14 2.5 Board Expenses........................................ 15 2.6 Termination of Certain Covenants...................... 15 3. Rights of Refusal and Co-Sale.............................. 15 3.1 Rights of Refusal..................................... 15 3.2 Right of Co-Sale...................................... 17 3.3 Non-Exercise of Rights................................ 18 3.4 Limitations to Rights of Refusal and Co-Sale.......... 18 3.5 Prohibited Transfers.................................. 19 3.6 Legend................................................ 19 3.7 Termination of Rights of Refusal and Co-Sale.......... 20 4. Miscellaneous.............................................. 20 4.1 Successors and Assigns................................ 20 4.2 Governing Law......................................... 20 4.3 Counterparts.......................................... 20 4.4 Titles and Subtitles.................................. 20 4.5 Notices............................................... 20 4.6 Expenses.............................................. 21 4.7 Entire Agreement: Amendments and Waivers.............. 21 4.8 Severability.......................................... 21 4.9 Aggregation of Stock.................................. 21
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THIS FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of March __, 2000, by and among DRIVEWAY CORPORATION, a Delaware corporation (the "Company"), the investors listed on Schedule A hereto, each of which is herein referred to as an "Investor," and the holders of Common Stock listed on Schedule B hereto, each of which is herein referred to as a "Common Holder." RECITALS -------- WHEREAS, certain of the Investors have agreed to purchase shares of the Company's Series D Preferred Stock (the "Series D Preferred") pursuant to a Series D Preferred Stock Purchase Agreement of even date herewith (the "Preferred Purchase Agreement"); WHEREAS, to induce such Investors to invest funds in the Company pursuant to the Purchase Agreement, a majority of the Investors (who have purchased shares of the Company's Preferred Stock prior to the date hereof (the "Existing Investors")), holding a majority of the outstanding shares of Series C Preferred Stock, the Common Holders and the Company wish to amend and restate the Company's existing Investor Rights Agreement to extend the rights contained in this Agreement to the Investors and to add certain other rights and obligations; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Agreement: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.10 hereof; provided, however, that the Common Holders shall not be deemed to be Holders for purposes of Section 1.2, 1.4, 1.10, 1.11, 2.4, 4.1 and 4.7. (d) The term "Initial Offering" means the Company's first firm commitment underwritten public offering of its Common Stock under the Act. (e) The term "1934 Act" means the Securities Exchange Act of 1934, as amended. (f) The term "NASD" means the National Association of Securities Dealers, Inc. (g) "Qualified Public Offering" means the Company's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 or SB-1 under the Act, in which the aggregate proceeds to the Company (after deducting underwriters' discounts and expenses relating to the offering, including fees of this corporation's counsel for the offering) are at least $30,000,000 at a price per share of at least $8.02 (as adjusted for stock dividends, stock splits, combinations and the like). (h) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (i) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock; (ii) (A) Common Stock; and (B) Common Stock issuable or issued upon conversion of Preferred Stock, in either case acquired by the Investors pursuant to the exercise thereby of preemptive rights or rights of first refusal; (iii) the shares of Common Stock issued to the Common Holders in the amounts set forth opposite each of their respective names on Schedule B hereto and the shares of Common Stock issued to eOffering Corporation pursuant to that certain Warrant to purchase 95,050 shares of Series C Preferred Stock dated December 30, 1999, provided, however, that such shares of Common Stock shall not be deemed Registrable Securities for the purposes of Section 1.2, 1.4, 1.10 (except for 1.10 (iii)), 1.11, 2.4, 4.1 and 4.7 and (iv) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i), (ii), (iii) and (iv) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned. (j) The number of shares of "Registrable Securities" outstanding shall be determined by the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that when issued or issuable would be, Registrable Securities. (k) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Request for Registration. (a) Subject to the conditions of this Section 1.2, if the Company shall receive at any time after the earlier of (i) one (1) year after the date of this Agreement or (ii) six (6) months after the effective date of the Initial Offering, a written request from (1) the Holders of a majority of the outstanding Series C Preferred Stock and the Series D Preferred Stock, voting together as a single class; or (2) the Holders of a majority of the outstanding Registrable Securities (voting together on an as converted basis) that the Company file a registration statement under the Act covering the registration of at least $10 million of Registrable Securities (in each such case, the "Initiating Holders"), then the Company, shall within twenty (20) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 1.2, use its best efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written request received by the Company within twenty (20) days of receipt of the Company's notice pursuant to this Section 1.2(a). (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a). In such event the right of any Holder 2 to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders and reasonably satisfactory to the Company subject to the limitations set forth in Section 1.12 hereof. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company that marketing factors require a limitation of the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in such registration shall be allocated first to the Holders of Series C Preferred Stock and the Series D Preferred Stock (or common stock issued upon the conversion thereof) on a pro rata basis based on the number of Registrable Securities held by such Holders and then to other Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by such other Holders (including the Initiating Holders); provided that the Holders of the Series C Preferred Stock and the Series D Preferred Stock may exercise this right to priority on only one occasion based upon a majority vote by the Holders of Series C Preferred Stock and Series D Preferred Stock, voting together as a single class. All other cutbacks shall be made on a pro rata basis based upon the number of Registrable Securities held by such Holders; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are entirely excluded from such underwriting. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (c) The Company shall not be required to effect a registration pursuant to this Section 1.2: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act, or (ii) after the Company has effected four (4) registrations pursuant to this Section 1.2 ((A) two of which shall have been effected at the request of the Holders of a majority of the Series A Preferred Stock and the Series B Preferred Stock, voting together as a single class; and (B) two (2) of which shall have been effected at the request of the Holders of a majority of the Series C Preferred Stock and the Series D Preferred Stock, voting together as a single class), and such registrations have been declared or ordered effective; provided, however, that in the event that the number of Registrable Securities included in any registration pursuant to this Section 1.2 is reduced by more than fifty percent (50%) of the number of Registrable Securities proposed to be offered pursuant to Section 1.2(b) above in any offering, then the Company shall not have the right under this Section 1.2(c)(ii) to refuse to effect a registration until a total of five (5) registrations pursuant to this Section 1.2 have been effected and such registrations have been declared or ordered effective (provided that any such fifth registration granted pursuant to this subparagraph (ii) shall be allocated to the holders of the Series C Preferred Stock and the Series D Preferred Stock voting together as a single class); or (iii) during the period starting with the date forty-five (45) days prior to the Company's good faith estimate of the date of the filing of, and ending on a date one 3 hundred eighty (180) days following the effective date of, a Company-initiated registration subject to Section 1.3 below, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iv) if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 1.4 hereof; or (v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the Company's Chief Executive Officer or Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders, provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12)-month period. 1.3 Company Registration. (a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other equity securities under the Act in connection with the public offering of such securities (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a corporate transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder at least thirty (30) days prior written notice of such registration. Upon the written request of each Holder given within twenty (20) days after receipt of such notice by the Company in accordance with Section 4.5, the Company shall, subject to the provisions of Section 1.3(c), use all reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. (b) Right to Terminate Registration. The Company shall have the ------------------------------- right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7 hereof. (c) Underwriting Requirements. In connection with any offering ------------------------- involving an underwriting of shares of the Company's capital stock, the Company shall not be required under this Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters) and enter into an underwriting agreement in customary form subject to the limitations set forth in Section 1.11 hereof, with an underwriter or underwriters selected by the Company, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such 4 securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling Holders according to the total amount of securities entitled to be included therein owned by each selling Holder or in such other proportions as shall mutually be agreed to by such selling Holders), but in no event shall (i) the amount of securities of the selling Holders included in the opening be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities, in which case the selling Holders may be excluded if no other shareholder's securities are included, or (ii) notwithstanding (i) above, any shares being sold by a shareholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering, (iii) the number of shares of Registrable Securities to be included in such underwriting (excluding any Registrable Securities held by Common Holders) be reduced unless all Registrable Securities held by the Common Holders are first entirely excluded from such underwriting or (iv) the number of shares of Registrable Securities to be included in such underwriting (excluding any Registrable Securities held by Common Holders) be reduced unless all shares that are not Registrable Securities that are held by any other person including, without limitation, any person who is an employee, officer or director of the Company (or any subsidiary of the Company) shall first be entirely excluded from such underwriting. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder that is a Holder of Registrable Securities and that is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling Holder," and any pro rata reduction with respect to such "selling Holder" shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals. 1.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders, and (b) use its best efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company, provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $500,000; 5 (iii) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer or Chairman of the Board of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any twelve month period; (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected one such registration on Form S-3 for the Holders pursuant to this Section 1.4; or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is currently qualified to do business or has previously executed a general consent to service of process in such jurisdiction and except as may be required under the Act. (c) Subject the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as requests for registration effected pursuant to Sections 1.2. 1.5 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the Registration Statement has been completed; provided, however, that such 120 day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement, (c) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be 6 required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form with the managing underwriter of such offering; (f) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; (h) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and (i) use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1 (to the extent required by the underwriters), if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.6 Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.7 Expenses of Registration. All expenses (other than underwriting discounts and commissions) incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company. Notwithstanding the 7 foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or Section 1.4 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be requested in the withdrawn registration), unless, in the case of a registration requested under Section 1.2, the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, either (a) the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change; or (b) the Company has exercised its right to delay such registration as provided in Section 1.2(c)(v) or Section 1.4(b)(iii), and the Holders have withdrawn the request with reasonable promptness following notice by the Company of its exercise of such right, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1; (a) To the extent permitted by law, the Company will indemnify, and hold harmless each Holder, the partners, retired partners, officers, directors and shareholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined the Act) for such Holder and each person, if any, who controls any of the foregoing persons or entities within the meaning of the Act or the 1934 Act, joint and severally against any losses, claims, damages or liabilities to which they may become subject under the Act, the 1934 Act or any federal or state securities law insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any federal or state securities laws or any rule or regulations promulgated under the Act, the 1934 Act or any federal or state securities laws; and the Company will reimburse each such Holder, underwriter, controlling person or person intended to be indemnified pursuant to this subsection l.8(a) (as such expenses are incurred) for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling person; provided further, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter, or any person controlling such Holder or underwriter, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the 8 offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was furnished to such Holder by the Company but was not sent or given by or on behalf of such Holder or underwriter to such person, if required by law so to have been delivered by, in the case of any underwriter by or on behalf of such underwriter, or in the case of any Holder by such Holder or Holder's broker or dealer, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use connection with such registration; and each such Holder will reimburse any person intended to be indemnified pursuant to this subsection l.8(b) for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), provided that in no event shall any indemnity under this subsection 1.8(b), together with the amount of any contribution under Section 1.8(d), exceed the net proceeds from the offering received by such Holder; provided further, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any party, or any person controlling such party, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such party, if required by law so to have been delivered by or on behalf of such party seeking indemnification hereunder, at or prior to the written confirmation of the sale of the shares to such person asserting any such losses, claims, damages or liabilities, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (c) Promptly after receipt by an indemnified party under this Section l.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties, provided however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such 9 proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8. (d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided that in no event shall any contribution under this subsection 1.8(d), together with the amount of any indemnification from such Holder pursuant to Section 1.8(b), exceed the net proceeds from the offering received by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section l, and otherwise. 1.9 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) 10 a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form, and (d) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is reasonably necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective. 1.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is a direct or indirect partner, limited partner or retired partner of a Holder (or a spouse, former spouse or member of such partner's, limited partner's or retired partner's immediate family, or a custodian, trustee (including a trustee of a voting trust), executor, or other fiduciary for the account of such partner, limited partner or retired partner or his or her spouse, former spouse or immediate family members); provided that after such assignment or transfer, such direct or indirect partner, limited partner or retired partner holds at least 50,000 shares of Registrable Securities (as adjusted for subsequent stock dividends, splits or combinations), and provided further that such limitation shall terminate and be of no force and effect upon the sale of the Company's Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on form S-1 or SB-2 under the Act, as amended, (ii) an Affiliate (as defined in Rule 405 under the Act) of the Holder, (iii) after such assignment or transfer the transferee holds at least 100,000 shares of Registrable Securities (as adjusted for subsequent stock dividends, splits or combinations) or (iv) is, in the case of a Common Holder, a spouse or member of such Common Holder's immediate family, or a custodian, trustee (including a trustee of a voting trust), executor, or other fiduciary for the account of such Common Holder's spouse or members of such Common Holder's immediate family, or a trust for such Common Holder's own self, or a charitable remainder trust, provided: (a) the Company is, within a reasonable time after such transfer, furnished a written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.12 below; and (c) such assignment shall be effective only if immediately follow such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. 1.11 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of (i) the Holders of a majority of the Series C Preferred Stock and the Series D Preferred Stock, voting together as a single class; and (ii) the Holders of a majority of the Registrable Securities (excluding the Series C Preferred Stock and the Series D Preferred Stock), voting together as a single class, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.3 or 1.4 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable 11 Securities of the Holders that are included or (b) to demand registration of their securities. 1.12 "Market Stand-Off" Agreement. Each Holder hereby agrees that, if requested by the Company and the managing underwriters, it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company's Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are then owned by the Holder or are, except in the open market, thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock or securities convertible into, or exercisable or exchangeable for, Common Stock whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing provisions of this Section 1.12 shall apply only to the Company's initial public offering of equity securities, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers and directors and greater than one percent (1%) shareholders of the Company enter into similar agreements (each, a "Restricted Person," and collectively, the "Restricted Persons"), shall not apply to transactions related to shares of Common Stock or other securities acquired in open market transactions after the completion of the public offering and shall not apply to the transfer of any Common Stock or other securities to a direct or indirect partner, limited partner or retired partner of a Holder (or a spouse, former spouse or member of such partner's, limited partner's or retired partner's immediate family, or a custodian, trustee (including a trustee of a voting trust), executor, or other fiduciary for the account of such partner, limited partner or retired partner or his or her spouse, former spouse or immediate family members), or to the estate of any such partner or retired partner of a Holder, provided, however, that in such case, it shall be a condition to the transfer that the transferee execute an agreement, in a form acceptable to the underwriters, stating that the transferee is receiving and holding the Common Stock or other securities subject to the provisions of this Agreement, including without limitation this Section 1.12. If any Restricted Person is released from any agreement similar to the agreements set forth in this Section 1.12, or if the provisions of any such similar agreement are waived with respect to any Restricted Person, then without any further act the agreements set forth in this Section 1.12 shall terminate. The underwriters in connection with the Company's initial public offering are intended third party beneficiaries of this Section 1.12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 1.13 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 after five (5) years following a Qualified Public Offering or, as to any Holder, such earlier time at which all Registrable Securities held by such Holder (and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold in any three (3)-month period without 12 registration in compliance with Rule 144 of the Act. 2. Covenants of the Company. 2.1 Delivery of Financial Statements. The Company shall deliver to each Investor holding, together with such Investor's Affiliates (as defined in Rule 405 under the Act), at least 250,000 shares of Registrable Securities (as adjusted for subsequent stock dividends, splits or combinations): (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance in generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; (c) within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail; and (d) as soon as practicable, but in any event at least thirty (30) days prior to the end of each fiscal year, a comprehensive operating budget forecasting the Company's revenues, expenses and cash position on a month-to-month basis for the upcoming fiscal year , prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company. 2.2 Inspection. The Company shall permit each Investor holding, together with such Investor's Affiliates (as defined in Rule 405 under the Act), at least 250,000 shares of Registrable Securities (as adjusted for stock dividends, splits or combinations), at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor, provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information unless such Investor executes a nondisclosure agreement in a form reasonably satisfactory to the Company. 2.3 Termination of Information and Inspection Covenants. The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the final commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall 13 first occur. 2.4 Right of First Offer. Subject to the terms and conditions specified in this paragraph 2.4, the Company hereby grants to each Major Investor (as hereinafter defined) a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.4, a Major Investor shall mean any Investor or transferee that holds, together with such Investor's Affiliates (as defined in Rule 405 under the Act), at least 450,000 shares of Preferred Stock (or the Common Stock issued upon conversion thereof) (as adjusted for stock splits, stock dividends, combinations and other recapitalizations). For purposes of this Section 2.4, Investor includes any general partners, retired partners and affiliates of an Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners, retired partners and affiliates in such proportion as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exchangeable or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions: (a) The Company shall deliver a notice in accordance with Section 3.5 ("Notice") to the Major Investor, stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms upon which it proposes to offer such Shares. (b) By written notification received by the Company, within twenty (20) calendar days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares that equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock then held, by such Major Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion of all convertible securities). The Company shall promptly, in writing, inform each Major Investor that elects to purchase all the Shares available to it (a "Fully-Exercising Investor") of any other Major Investor's failure to do likewise. During the ten (10) day period commencing after such information is given, each Fully-Exercising Investor may elect to purchase that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of Preferred Stock then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and held by all Fully-Exercising Investors who wish to purchase some of the unsubscribed shares. (c) If all Shares that Investors are entitled to obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided in subsection 2.4(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within ninety (90) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. (d) The right of first offer in this paragraph 2.4 shall not be applicable to (i) the 14 issuance of Common Stock as a result of stock splits, reverse stock splits or stock dividends, (ii) Common Stock issuable pursuant to warrants, convertible notes or other rights to acquire securities of the Corporation outstanding as of the Purchase Date or issued upon the unanimous approval of the Board of Directors, (iii) Common Stock issuable or issued to employees, consultants, officers or directors of the Corporation under the Company's 1997 Option Plan, (iv) Common Stock issued or issuable upon conversion of the Preferred Stock, (v) fractional shares of Common Stock issued to certain of the existing holders of Common Stock who hold fractional shares as of the date hereof, as approved by the Board of Directors of the Company, (vi) the issuance of securities pursuant to a bona fide, firmly underwritten public offering of shares of Common Stock, registered under the Act or (vii) the issuance of securities in connection with a bona fide strategic alliance or other partnership or business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise; subject to the approval of the Holders of a majority of the Series C Preferred Stock and the Series D Preferred Stock voting together, if in any case the number of shares issued pursuant to this clause (vii) in any transaction or series of related transactions would exceed 20% of the fully-diluted shares outstanding immediately prior to the first such issuance. 2.5 Board Expenses. The Company covenants to reimburse each non-employee director for all reasonable travel-related expenses incurred in connection with his attendance at meetings of the Board of Directors. 2.6 Termination of Certain Covenants. The covenants set forth in Sections 2.4 and 2.5 shall terminate and be of no further force or effect upon and in connection with a Qualified Public Offering. 3. Rights of Refusal and Co-Sale. 3.1 Rights of Refusal. (a) Transfer Notice. If at any time any Holder (a --------------- "Transferring Holder") proposes to sell, transfer or otherwise convey any Registrable Securities to one or more third parties pursuant to an understanding with such third parties (a "Transfer"), then such Transferring Holder shall give the Company written notice of that Transferring Holder's intention to make the Transfer (the "Transfer Notice"), which Transfer Notice shall include (i) a description of the Registrable Securities to be transferred ("Offered Shares"), (ii) the identity (including the name and address) of the prospective transferee(s) and (iii) the consideration and the material terms and conditions upon which the proposed Transfer is to be made. The Company will upon receipt promptly forward the Transfer Notice to each Holder who, together with such Holder's "Affiliates" (as defined in Rule 405 under the Act) holds more than 200,000 Registrable Securities (an "Offeree Holder"). The Transfer Notice shall certify that the Transferring Holder has received a firm offer from the prospective transferee(s) and in good faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed Transfer. (b) Company's Option. The Company shall have an option for ---------------- a period of ten (10) days from receipt of the Transfer Notice to elect to purchase all or any portion of the Offered Shares at the same price and subject to the same material terms and conditions as described in the Transfer Notice. The Company may exercise such purchase option and, thereby, purchase all (or a portion of) the Offered Shares by notifying the Transferring Holder in writing 15 before expiration of such (10) day period as to the number of such shares which it wishes to purchase. If the Company gives the Transferring Holder notice that it desires to purchase such shares, then payment for the Offered Shares shall be by check, wire transfer, cancellation of indebtedness or any combination of the foregoing, against delivery of the Offered Shares to be purchased at a place agreed upon between the parties and at the time of the scheduled closing therefor, which shall be no later than forty-five (45) days after the Company's receipt of the Transfer Notice, unless the Transfer Notice contemplated a later closing with the prospective third party transferee(s) or unless the value of the purchase price has not yet been established pursuant to Section 3.1(e). If the Company fails to purchase all of the Offered Shares by exercising the option granted in this Section 3.1(b) within the period provided, the Offered Shares shall be subject to the options granted to the Offeree Holders pursuant to this Agreement. (c) Additional Transfer Notice. Subject to the Company's -------------------------- right set forth in Section 3.1(b), if at any time the Transferring Holder proposes a Transfer, and the Company has declined to purchase all of the Offered Shares, the Transferring Holder shall give each Offeree Holder an "Additional Transfer Notice" which shall include all of the information and certifications required in a Transfer Notice and shall additionally identify the Offered Shares which the Company has declined to purchase (the "Remaining Shares") and briefly describe each Offeree Holders' rights of first refusal and co-sale rights with respect to the proposed Transfer. (d) Holders' Option. The Offeree Holders shall have an --------------- option for a period of twenty (20) days from the Offeree Holder's receipt of the Additional Transfer Notice from the Holder set forth in Section 3.1(c) to elect to purchase their respective pro rata share of the Remaining Shares at the same price and subject to the same material terms and conditions as described in the Additional Transfer Notice. Each Offeree Holder may exercise such purchase option and, thereby, purchase all or any portion of his, her or its pro rata share (with any reallotments as provided below) of the Remaining Shares, by notifying the Transferring Holder and the Company in writing, before expiration of the twenty (20) day period as to the number of such shares which he, she or it wishes to purchase (including any reallotment). Each Offeree Holder's pro rata share of the Remaining Shares shall be a fraction of the Remaining Shares, the numerator of which is equal to the number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) owned by such Offeree Holder on the date of the Transfer Notice and the denominator of which is equal to the total number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) held by all Offeree Holders on the date of the Transfer Notice. Each Offeree Holder shall have a right of reallotment such that, if any other Offeree Holder fails to exercise the right to purchase its full pro rata share of the Remaining Shares, the other participating Offeree Holders may exercise an additional right to purchase, on a pro rata basis, the Remaining Shares not previously purchased. Such reallotment shall occur within five (5) days after the expiration of the twenty (20) day period described in this Section 3.1(d) applicable to the initial allotment of the Remaining Shares. Each Offeree Holder shall be entitled to apportion Remaining Shares to be purchased among its partners, retired partners and affiliates, provided that such Offeree Holder notifies the Transferring Holder of such allocation. If an Offeree Holder gives the Transferring Holder notice that it desires to purchase its pro rata share of the Remaining Shares and, as the case may be, its reallotment, then payment for the Remaining Shares shall be by check, wire transfer, cancellation of indebtedness or any combination of the foregoing, against delivery of the Remaining Shares to be purchased at a place agreed upon between the parties and at the time of the scheduled closing therefor, which shall be no later than forty-five (45) days after the Offeree Holder's receipt of the Additional Transfer Notice, unless the Transfer Notice contemplated a later closing with the prospective third party transferee(s) or unless the value of the purchase price has not 16 yet been established pursuant to Section 3.1(e). (e) Valuation of Property. Should the purchase price specified in the --------------------- Transfer Notice or Additional Transfer Notice be payable in property other than cash or evidences of indebtedness, the Company (or the Offeree Holders) shall have the right to pay the purchase price in the form provided in Sections 3(b) and (d) equal in amount to the value of such property. If the Transferring Holder and the Company (or the Offeree Holders) cannot agree on such value within ten (10) days after the Company's receipt of the Transfer Notice (or the Holders' receipt of the Additional Transfer Notice), the valuation shall be made by an appraiser of recognized standing selected by the Transferring Holder and the Company (or the Offeree Holders) or, if they cannot agree on an appraiser within twenty (20) days after the Company's receipt of the Transfer Notice (or the Holders' receipt of the Additional Transfer Notice), each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by the Transferring Holder and the Company (or the Offeree Holders), with the half of the cost borne by the Company and the Offeree Holders borne pro rata by each based on the number of shares such parties were interested in purchasing pursuant to this Section 3. If the time for the closing of the Company's purchase or the Offeree Holders' purchase has expired but for the determination of the value of the purchase price offered the prospective transferee(s), then such closing shall be held on or prior to the fifth business day after such valuation shall have been made pursuant to this subsection. 3.2 Right of Co-Sale. (a) To the extent the Company and the Offeree Holders do not exercise their respective rights of refusal as to all of the Offered Shares pursuant to Section 3.1, then each Offeree Holder (a "Selling Holder," for purposes of this subsection 3.2) which notifies the Transferring Holder in writing within thirty (30) days after receipt of the Additional Transfer Notice, shall have the right to participate in such sale of Registrable Securities on the same terms and conditions as specified in the Transfer Notice. Such Selling Holder's notice to the Transferring Holder shall indicate the number of shares of Registrable Securities the Selling Holder wishes to sell under his, her or its right to participate. To the extent one or more of the Selling Holders exercise such right of participation in accordance with the terms and conditions set forth below, the number of shares of Registrable Securities that the Transferring Holder may sell in the Transfer shall be correspondingly reduced. (b) Each Selling Holder may sell all or any part of that number of shares of Registrable Securities equal to the product obtained by multiplying (i) the aggregate number of shares of Registrable Securities covered by the Transfer Notice by (ii) a fraction, the numerator of which is the number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) owned by the Selling Holder on the date of the Transfer Notice and the denominator of which is the total number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) owned by the Transferring Holder and all of the Selling Holders on the date of the Transfer Notice. (c) Each Selling Holder shall effect its participation in the sale by promptly delivering to the Transferring Holder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent: (i) the type and number of shares of Registrable Securities which such Selling Holder elects to sell; or 17 (ii) that number of shares of Registrable Securities which are at such time convertible into the number of shares of Common Stock which such Selling Holder elects to sell; provided, however, that if the prospective third-party purchaser objects to the delivery of Registrable Securities in lieu of Common Stock, such Selling Holder shall convert such Registrable Securities into Common Stock and deliver Common Stock as provided in this Section 3.2. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the transferee and contingent on such transfer. (d) The stock certificate or certificates that the Selling Holder delivers to the Transferring Holder pursuant to Section 3.2(c) shall be transferred to the prospective transferee in consummation of the sale of the Registrable Securities pursuant to the terms and conditions specified in the Transfer Notice, and the Transferring Holder shall concurrently therewith remit to such Selling Holder that portion of the sale proceeds to which such Selling Holder is entitled by reason of its participation in such sale. To the extent that any prospective transferee or transferees prohibit such assignment or otherwise refuses to purchase shares or other securities from a Selling Holder exercising its rights of co-sale hereunder, the Transferring Holder shall not sell to such prospective purchaser any Registrable Securities unless and until, simultaneously with such sale, the Transferring Holder shall purchase such shares or other securities from such Selling Holder for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice. 3.3 Non-Exercise of Rights. To the extent that the Company and the Offeree Holders have not exercised their rights to purchase all of the Offered Shares within the time periods specified in Section 3.1, the Transferring Holder shall have a period of thirty (30) days from the expiration date of such rights in which to sell the Offered Shares not purchased by the Company or the Offeree Holders, upon terms and conditions (including the purchase price) no more favorable than those specified in the Transfer Notice to the third-party transferee(s) identified in the Transfer Notice. The third-party transferee(s) shall acquire such shares subject to the rights of first refusal and co-sale rights under this Agreement. In the event the Transferring Holder does not consummate the sale or disposition of such shares within the thirty (30) day period following the expiration of these rights, the Company's first refusal rights and the Offeree Holders' first refusal rights and co-sale rights shall continue to be applicable to any subsequent disposition of the Offered Shares by the Transferring Holder until such right lapses in accordance with the terms of this Agreement. Furthermore, the exercise or non-exercise of the rights of the Company and the Offeree Holders under this Section 3 to purchase Registrable Securities from the Transferring Holder or participate in sales of Registrable Securities by the Transferring Holder shall not adversely affect their rights to make subsequent purchases from the Transferring Holder of Registrable Securities or subsequently participate in sales of Registrable Securities by the Transferring Holder. 3.4 Limitations to Rights of Refusal and Co-Sale. Notwithstanding the provisions of Section 3.1 and 3.2 of this Agreement, (i) each Holder may sell or otherwise transfer, assign, with or without consideration, Registrable Securities to a transferee or assignee of such securities that is a direct or indirect partner, limited partner or retired partner of a Holder (or a spouse, former spouse or member of such partner's, limited partner's or retired partner's immediate family, or a custodian, trustee (including a trustee of a voting trust), executor, or other fiduciary for the account of such partner, limited partner or retired partner or his or her spouse, former spouse or immediate family members) or an Affiliate (as defined 18 in Rule 405 under the Act); and (ii) Larry Barels and Chris Logan may within thirty (30) days of the date hereof transfer an aggregate of 300,000 Registrable Securities to a transferee, provided that each such transferee or assignee, prior to the completion of the sale, transfer, or assignment shall have executed documents assuming the obligations of such Holder under this Agreement with respect to the transferred securities. Such transferred Registrable Securities shall remain "Registrable Securities" hereunder, and such transferee, assignee or donee shall be treated as a "Holder" for purposes of this Agreement. 3.5 Prohibited Transfers. (a) In the event a Transferring Holder should sell any Registrable Securities in contravention of the co-sale rights of the Selling Holders under Section 3.2 (a "Prohibited Transfer"), the Selling Holders, in addition to such other remedies as may be available at law, in equity or hereunder, shall have the put option provided below, and such Transferring Holder shall be bound by the applicable provisions of such option. (b) In the event of a Prohibited Transfer by such Transferring Holder, each Selling Holder shall have the right to sell to such Transferring Holder the type and number of shares of Registrable Securities equal to the number of shares each Selling Holder would have been entitled to transfer to the third-party transferee(s) under Section 3.2 hereof had the Prohibited Transfer been effected pursuant to and in compliance with the terms hereof. Such sale shall be made on the following terms and conditions: (i) The price per share at which the shares are to be sold to such Transferring Holder shall be equal to the price per share paid by the third-party transferee(s) to the Transferring Holder in the Prohibited Transfer. The Transferring Holder shall also reimburse each Selling Holder for any and all fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Selling Holder's rights under Section 3. (ii) Within ninety (90) days after the later of the dates on which the Transferring Holder (A) received notice of the Prohibited Transfer or (B) otherwise became aware of the Prohibited Transfers each Selling Holder shall, if exercising the option created hereby, deliver to the Transferring Holder the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer. (iii) The Transferring Holder shall, upon receipt of the certificate or certificates for the shares to be sold, pursuant to this Section 3.5, pay the aggregate purchase price therefor and the amount of reimbursable fees and expenses, as specified in subparagraph 3.5(c)(i), in cash or by other means acceptable to the Selling Holder. (iv) Notwithstanding the foregoing, any attempt by a Transferring Holder to transfer Registrable Securities in violation of Section 3 hereof shall be void and the Company agrees it will not effect such a transfer nor will it treat any alleged transferee(s) as the holder of such shares without the written consent of a majority in interest of the Holders (on an as converted basis). (c) Any transfer made in contravention of the rights of first refusal and co-sale under this Section 3 shall be null and void. 3.6 Legend. Each existing or replacement certificate for shares now owned or hereafter acquired by the Common Holders shall bear the following legend upon its face: 19 "THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION." 3.7 Termination of Rights of Refusal and Co-Sale. The rights and remedies described under this Section 3 shall terminate and be of no further force or effect upon the earlier to occur of: (i) a Qualified Public Offering; and (ii) the closing of the Company's sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of merger, consolidation or other transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation in which more than fifty percent (50%) of the outstanding voting power of this corporation is disposed of (whether or not the stockholders prior to such transaction are stockholders of the acquiring entity as of the acquisition date), but excluding any merger effective exclusively for the purpose of changing the domicile of the Corporation. 4. Miscellaneous. 4.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among California residents entered into and to be performed entirely within Delaware. 4.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 4.5 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon delivery by confirmed facsimile transmission, or the next business 20 day after deposit with a nationally recognized overnight courier service, or five (5) business days after deposit with the United States Post Office, or by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the attached Schedule A, or ---------- at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 4.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs and necessary disbursements in addition to any over relief to which such party may be entitled and such prior agreement shall have no further force or effect. 4.7 Entire Agreement: Amendments and Waivers. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) the Company; (ii) the holders of a majority of the Series C Preferred Stock voting together as a single class and the Series D Preferred Stock voting together as a single class; and (iii) the holders of a majority of the Registrable Securities; provided however, that in the event that such amendment or waiver adversely affects the obligations and/or rights of the Common Holders in a different manner than the other Holders, such amendment or waiver shall also require the written consent of Common Holders holding a majority of the shares of Common Stock subject to this Agreement and held by them. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities each future holder of all such Registrable Securities, the Common Holders and the Company. This Agreement amends, restates and supersedes that certain Fourth Amended and Restated Investors' Rights Agreement dated as of December 30, 1999. 4.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable, law such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 4.9 Aggregation of Stock. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 21 IN WITNESS WHEREOF, the parties have executed this Fifth Amended and Restated Investors' Rights Agreement as of the date first above written. THE COMPANY: DRIVEWAY CORPORATION By: /s/ Chris Logan ---------------------------------------- Name: Chris Logan Its: Chief Executive Officer -------------------------------------- INVESTOR: ____________________________________________ (Name) By: ________________________________________ Name: ______________________________________ Title: _____________________________________ Address: ___________________________________ ____________________________________________ Fax: _______________________________________ SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THE COMPANY: DRIVEWAY CORPORATION By: ________________________________________ Its: _______________________________________ INVESTOR: EMC Corporation -------------------------------------------- (Name) By: /s/ --------------------------------------- Name: Michael J. Cody ------------------------------------- Title: ------------------------------------- Address: 35 Parkwood Drive ------------------------------------ Hopkinton, MA 01748 -------------------------------------------- Fax: (508) 435-8900 -------------------------------------- SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT PRIOR INVESTOR: VantagePoint Communications Partners, L.P. By: VantagePoint Communications Associates, L.L.C., Its General Partner By: /s/ --------------------------------------- Name: Alan E. Salzman -------------------------------------- Title: Managing Member ------------------------------------ Address: 1001 Bayhill Drive, #100 San Bruno, CA 94066 Fax: (650) 869-6078 SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT PRIOR INVESTOR: VantagePoint Venture Partners 1996 L.P. By: VantagePoint Associates, L.L.C., Its General Partner By: /s/ --------------------------------------- Name: Alan E. Salzman ------------------------------------- Title: Managing Member ------------------------------------- Address: 1001 Bayhill Drive, #100 San Bruno, CA 94066 Fax: (650) 869-6078 SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT PRIOR INVESTOR: Generation Capital Partners L.P. By: Generation Partners L.P., as General Partner By: Generation Capital Company LLC, its General Partner By: /s/ ----------------------------------------- Name: John Hawkins ---------------------------------------- Title: Managing Partner --------------------------------------- Address: One Maritime Plaza, Suite 1425 San Francisco, CA 94111 Fax: (415) 646-8625 SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT PRIOR INVESTOR: State Board of Administration of Florida By: Generation Parallel Management Partners, L.P., as Manager By: Generation Capital Company LLC, as General Partner By: /s/ ---------------------------------------- Name: John Hawkins -------------------------------------- Title: Managing Partner ------------------------------------- Address: One Maritime Plaza, Suite 1425 San Francisco, CA 94111 Fax: (415) 646-8625 SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT PRIOR INVESTOR: Generation Parallel Management Partners L.P. By: Generation Capital Company LLC, as General Partner By: /s/ --------------------------------------- Name: John Hawkins ------------------------------------- Title: Managing Partner ------------------------------------- Address: One Maritime Plaza, Suite 1425 San Francisco, CA 94111 Fax: (415) 646-8625 SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT PRIOR INVESTOR: CB CAPITAL INVESTORS, L.P. By: CB Capital Investors, Inc., Its General Partner By: /s/ ---------------------------------------- Name: Shahan Soghikian ------------------------------------- Title: General Partner ------------------------------------- Address: 50 California Street, Suite 2940 San Francisco, CA 94111 Fax: (415) 591-1205 SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT COMMON HOLDER: Larry Barels By: /s/ ----------------------------------------- Name: Larry Barels -------------------------------------- Address: 2407 Foothill Lane ------------------------------------- Santa Barbara, CA 93105 --------------------------------------------- Fax: (805) 965-6406 --------------------------------------- SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT COMMON HOLDER: Chris Logan By: /s/ ----------------------------------------- Name: Christopher S. Logan -------------------------------------- Address: 8100 Sonoma Mountain Road ------------------------------------- Glen Ellen, CA 95442 --------------------------------------------- Fax: ________________________________________ SIGNATURE PAGE FOR DRIVEWAY CORPORATION FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT EX-10.26 24 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.26 DRIVEWAY CORPORATION INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is effective as of March 13, 2000 by and between Driveway Corporation, a Delaware corporation (the "Corporation"), and _______________ ("Indemnitee"). WHEREAS, the Corporation desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Corporation and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Corporation, the Corporation wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, the Corporation and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Corporation's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Corporation and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, in view of the considerations set forth above, the Corporation desires that Indemnitee shall be indemnified and advanced expenses by the Corporation as set forth herein; NOW, THEREFORE, the Corporation and Indemnitee hereby agree as set forth below. 1. Certain Definitions. ------------------- (a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing more than 50% of the total voting power represented by the Corporation's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation and any new director whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of (in one transaction or a series of related transactions) all or substantially all of the Corporation's assets. (b) "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "Corporation" shall include, in addition to Driveway Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Driveway Corporation (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. (e) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Corporation, which approval shall not be unreasonably withheld) of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. 2 (f) "Expense Advance" shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim. (g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Corporation or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other Indemnitees under similar indemnity agreements). (h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee, agent or fiduciary of the Corporation which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. (i) "Reviewing Party" shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Corporation's obligations hereunder and under applicable law, which may include a member or members of the Corporation's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification. (j) "Section" refers to a section of this Agreement unless otherwise indicated. (k) "Voting Securities" shall mean any securities of the Corporation that vote generally in the election of directors. 2. Indemnification. --------------- (a) Indemnification of Expenses. Subject to the provisions of --------------------------- Section 2(b) below, the Corporation shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. (b) Review of Indemnification Obligations. Notwithstanding the ------------------------------------- foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Corporation shall have no further obligation under 3 Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Corporation shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Corporation) for all Expenses theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder under applicable law; provided, however, that if -------- ------- Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Corporation for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Corporation for any Expenses shall be unsecured and no interest shall be charged thereon. (c) Indemnitee Rights on Unfavorable Determination; Binding ------------------------------------------------------- Effect. If any Reviewing Party determines that Indemnitee substantively is - ------ not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Corporation hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Corporation and Indemnitee. (d) Selection of Reviewing Party; Change in Control. If there ----------------------------------------------- has not been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Corporation's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Corporation's Certificate of Incorporation or Bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Corporation (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Corporation and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Corporation agrees to abide by such opinion. The Corporation agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Corporation shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Corporation otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. 4 (e) Mandatory Payment of Expenses. Notwithstanding any other ----------------------------- provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. Expense Advances. ---------------- (a) Obligation to Make Expense Advances. Upon receipt of a ----------------------------------- written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefore by the Corporation hereunder under applicable law, the Corporation shall make Expense Advances to Indemnitee. (b) Form of Undertaking. Any obligation to repay any Expense ------------------- Advances hereunder pursuant to a written undertaking by the Indemnitee shall be unsecured and no interest shall be charged thereon. (c) Determination of Reasonable Expense Advances. The parties -------------------------------------------- agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Corporation in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. 4. Procedures for Indemnification and Expense Advances. --------------------------------------------------- (a) Timing of Payments. All payments of Expenses (including ------------------ without limitation Expense Advances) by the Corporation to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Corporation, but in no event later than thirty (30) business days after such written demand by Indemnitee is presented to the Corporation, except in the case of Expense Advances, which shall be made no later than ten (10) business days after such written demand by Indemnitee is presented to the Corporation. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a -------------------------------- condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Corporation notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Corporation shall be directed to the Chief Executive Officer of the Corporation at the address shown on the signature page of this Agreement (or such other address as the Corporation shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) No Presumptions; Burden of Proof. For purposes of this -------------------------------- Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo ---- contendere, or its equivalent, shall not create a presumption that - ---------- 5 Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder under applicable law, the burden of proof shall be on the Corporation to establish that Indemnitee is not so entitled. (d) Notice to Insurers. If, at the time of the receipt by the ------------------ Corporation of a notice of a Claim pursuant to Section 4(b) hereof, the Corporation has liability insurance in effect which may cover such Claim, the Corporation shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Corporation shall be -------------------- obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Corporation, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Corporation's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Corporation, the Corporation will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently retained by or on behalf of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Corporation, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee in the conduct of any such defense, or (C) the Corporation shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. 5. Additional Indemnification Rights; Nonexclusivity. ------------------------------------------------- (a) Scope. The Corporation hereby agrees to indemnify the ----- Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Corporation's Certificate of Incorporation, the Corporation's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a 6 member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof. (b) Nonexclusivity. The indemnification and the payment of -------------- Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Corporation's Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity. 6. No Duplication of Payments. The Corporation shall not be liable -------------------------- under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Corporation's Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder. 7. Partial Indemnification. If Indemnitee is entitled under any ----------------------- provision of this Agreement to indemnification by the Corporation for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 8. Mutual Acknowledgement. Both the Corporation and Indemnitee ---------------------- acknowledge that in certain instances, federal law or applicable public policy may prohibit the Corporation from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Corporation has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Corporation's right under public policy to indemnify Indemnitee. 9. Liability Insurance. To the extent the Corporation maintains ------------------- liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Corporation's directors, if Indemnitee is a director; or of the Corporation's officers, if Indemnitee is not a director of the Corporation but is an officer; or of the Corporation's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 7 10. Exceptions. Notwithstanding any other provision of this Agreement, ---------- the Corporation shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify or make Expense ---------------------------- Advances to Indemnitee with respect to Claims arising out of acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under applicable law. (b) Claims Initiated by Indemnitee. To indemnify or make Expense ------------------------------ Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Corporation's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advances, or insurance recovery, as the case may be. (c) Lack of Good Faith. To indemnify Indemnitee for any Expenses ------------------ incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Corporation to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous. (d) Claims Under Section 16(b). To indemnify Indemnitee for -------------------------- Expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 11. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be -------------------------------------- binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Corporation), spouses, heirs and personal and legal representatives. The Corporation shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Corporation, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Corporation or of any other enterprise at the Corporation's request. 8 13. Expenses Incurred in Action Relating to Enforcement or ------------------------------------------------------ Interpretation. In the event that any action is instituted by Indemnitee under - -------------- this Agreement or under any liability insurance policies maintained by the Corporation to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including, without limitation, attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Corporation under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, - -------- ------- Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. 14. Period of Limitations. No legal action shall be brought and no cause --------------------- of action shall be asserted by or in the right of the Corporation against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Corporation shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter -------- ------- period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 15. Notice. All notices, requests, demands and other communications ------ under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Corporation and Indemnitee each hereby ----------------------- irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 17. Severability. The provisions of this Agreement shall be severable ------------ in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) 9 are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 18. Choice of Law. This Agreement, and all rights, remedies, ------------- liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely in the State of Delaware without regard to principles of conflicts of laws. 19. Subrogation. In the event of payment under this Agreement, the ----------- Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 20. Amendment and Termination. No amendment, modification, termination ------------------------- or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 21. Integration and Entire Agreement. This Agreement sets forth the -------------------------------- entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 22. No Construction as Employment Agreement. Nothing contained in this --------------------------------------- Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Corporation or any of its subsidiaries or affiliated entities. 10 IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. DRIVEWAY CORPORATION By: --------------------------------- Name: Kent Jarvi Title: Chief Financial Officer Address: 380 Brannan Street San Francisco, CA 94107 AGREED TO AND ACCEPTED INDEMNITEE: ----------------------------- (signature) Name: ------------------------ Address: --------------------- ----------------------------- 11 EX-10.27 25 FORM OF PROPRIETARY INFORMATION AND INVENTIONS EXHIBIT 10.27 Employee: --------- Driveway Corporation PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my becoming employed (or my employment being continued) or my being retained as a consultant (or my consulting relationship being continued) by Driveway Corporation, a Delaware corporation, or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the "Company"), and in consideration of my employment or consulting relationship ------- with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following: 1. Employment or Consulting Relationship. I understand and acknowledge ------------------------------------- that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of or in a consulting relationship with, or the duration of my employment or consulting relationship with, the Company under any existing agreements between the Company and me or under applicable law. Any employment or consulting relationship between the Company and me, whether commenced prior to or upon the date of this Agreement, shall be referred to herein as the "Relationship." ------------ 2. At Will Employment. I understand and acknowledge that my Relationship ------------------ with the Company is and shall continue to be at will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability. 3. Proprietary Information. ----------------------- (a) Company Information. I agree at all times during the term of the ------------------- Relationship and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the President of the Company, any Proprietary Information of the Company that I obtain or create. I further agree not to make copies of such Proprietary Information except as authorized by the Company. I understand that "Proprietary Information" means any Company ----------------------- proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that "Proprietary Information" includes, but ----------------------- is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Proprietary Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) Former Employer Information. I represent that my performance of --------------------------- all terms of this Agreement as an employee or consultant of the Company have not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of the Relationship, and I will not use in the course of the Relationship, disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) Third Party Information. I recognize that the Company has ----------------------- received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company in a manner consistent with the Company's agreement with such third party. 4. Inventions. ---------- (a) Inventions Retained and Licensed. I have attached hereto, as -------------------------------- Exhibit A, a list describing all inventions, original works of authorship, - --------- developments, improvements, and trade secrets that were made by me prior to the Relationship (collectively referred to as "Prior Inventions"), which belong to ---------------- me, which relate to the Company's proposed or current business, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If in the course of the Relationship, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty- free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) Assignment of Inventions. I agree that I will promptly make full ------------------------ written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign, and agree to assign, to the Company, or its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, that I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time of the Relationship (collectively referred to as "Inventions"), except as provided in Section 4(e) ---------- below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of the Relationship are "works made for hire" (to the greatest extent permitted ------------------- by applicable law) and are compensated by my -2- salary (if I am an employee) or by such amounts paid to me under any applicable consulting agreement or consulting arrangements (if I am a consultant), unless regulated otherwise by mandatory law. (c) Maintenance of Records. I agree to keep and maintain adequate and ---------------------- current written records of all Inventions made by me (solely or jointly with others) during the term of the Relationship. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company. (d) Patent and Copyright Registrations. I agree to assist the ---------------------------------- Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for, obtain maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. (e) Exception to Assignments. I understand that the provisions of ------------------------ this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the Company --------- promptly in writing of any inventions that I believe meet such provisions and that are not disclosed on Exhibit A. --------- 5. Returning Company Documents. I agree that, at the time of termination --------------------------- of the Relationship, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, -3- flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. In the event of the termination of the Relationship, I agree to sign and deliver the "Termination Certificate" attached hereto as Exhibit C. - ------------------------ --------- 6. Notification to Other Parties. ----------------------------- (a) Employees. In the event that I leave the employ of the Company, I --------- hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement. (b) Consultants. I hereby grant consent to notification by the Company ----------- to any other parties besides the Company with whom I maintain a consulting relationship, including parties with whom such relationship commences after the effective date of this Agreement, about my rights and obligations under this Agreement. 7. Solicitation of Employees, Consultants and Other Parties. -------------------------------------------------------- I agree that during the term of the Relationship, and for a period of twenty- four (24) months immediately following the termination of the Relationship for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months following termination of the Relationship for any reason, with or without cause, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of the Relationship. 8. Representations and Covenants. ----------------------------- (a) Facilitation of Agreement. I agree to execute promptly any proper ------------------------- oath or verify any proper document required to carry out the terms of this Agreement upon the Company's written request to do so. (b) Conflicts. I represent that my performance of all the terms of --------- this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of the Relationship. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement. -4- (c) Voluntary Execution. I certify and acknowledge that I have ------------------- carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions. 9. General Provisions. ------------------ (a) Governing Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. (b) Entire Agreement. This Agreement sets forth the entire agreement ---------------- and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement. (c) Severability. If one or more of the provisions in this Agreement ------------ are deemed void by law, then the remaining provisions will continue in full force and effect. (d) Successors and Assigns. This Agreement will be binding upon my ---------------------- heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. (e) Survival. The provisions of this Agreement shall survive the -------- termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee. (f) Advice of Counsel. I ACKNOWLEDGE THAT, IN EXECUTING THIS ----------------- AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] -5- The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE OR CONSULTANT: DRIVEWAY CORPORATION ________________________, an Individual: By: ----------------------- -------------------------------- Signature Title: -------------------- Date: Date: --------------------- --------------------------- Address: Address: 380 Brannan Street Street:_______________________________ San Francisco, California 94103 _______________________________ -6- EXHIBIT A --------- LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4
Identifying Number Title Date of Brief Description - ----- ---- --------------------
___ No inventions or improvements ___ Additional Sheets Attached Signature of Employee/Consultant: --------------------- Print Name of Employee/Consultant: -------------------- Date: ---------------------------- EXHIBIT B --------- Section 2870 of the California Labor Code is as follows: (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. EXHIBIT C --------- TERMINATION CERTIFICATE This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to Driveway Corporation, its subsidiaries, affiliates, successors or assigns (together the "Company"). ------- I further certify that I have complied with all the terms of the Company's Proprietary Information and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement. I further agree that, in compliance with the Proprietary Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees. I further agree that for twenty-four (24) months from this date, I will not hire any employees or consultants of the Company and I will not solicit, induce, recruit or encourage any of the Company's employees or consultants to leave their employment, nor will I solicit any of the Company's licensors, customers or licensees to terminate any relationship with the Company. Date: ------------------------- ----------------------------------- (Signature) ----------------------------------- (Type/Print Name) EX-10.28 26 EMPLOYMENT AGREEMENT C LOGAN EXHIBIT 10.28 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of May 25, 1999, is entered into by Atrieva Corporation (the "Employer"), a Delaware corporation, and Chris Logan ("Employee"). 1. BACKGROUND In consideration of the promises herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, Employer and Employee hereby agree as follows: 2. EMPLOYMENT Employee shall be the President and Chief Executive Officer of the Atrieva Corporation as of date of approval by the Employer's Board of Directors. Employee shall at all times report to, and his business activities shall be subject to the direction and control of, the Employer's Board of Directors. Subject to this direction and control, and to Employer's Certificate of Incorporation and Bylaws, Employee will have authority to make any and all decisions affecting the company, including use of proceeds, employee hiring and firing, management titles, product pricing, and representations of company policy. The Employer's Board of Directors may limit Employee's authority at any time, or may assign Employee other duties from time to time which are customarily performed by a corporation's CEO, and which relate to the business of Employer, or to any parent or related corporations or entities, or to any business ventures in which Employer or said related corporations or entities may participate. 3. TERM This Agreement shall become effective as of the date of this Agreement and shall terminate in accordance with the provisions of paragraph 8 below. 4. COMPENSATION 4.1 Salary During the term of this Agreement, Employer agrees to pay or cause to be paid to Employee, and Employee agrees to accept in exchange for the services rendered hereunder by him, a salary of $13,750 before all legally required payroll deductions. Such salary shall be paid in substantially equal monthly installments, on monthly paydays that are consistent with the payroll schedule used for other employees of Employer. CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission 4.2 Performance Bonus In addition to the annual salary described in subparagraph 4.1 above, Employee shall be entitled to receive a Bonus of up to $35,000 annually, said Bonus to be paid once per year on the anniversary of the date of hire, the Bonus will be based upon objectives determined and agreed upon by the Employer's Board of Directors. Said objectives will be defined in writing no later than 60 days after Employees signing of this agreement. All legally required payroll deductions shall be taken from the Employee's Performance Bonus to arrive at his net payable Performance Bonus. 4.3 Stock Subscription Agreement In addition, the Employee and Employer shall enter into a stock subscription agreement allowing the Employee to purchase 1,887,000 shares of the Employer's common stock. The said stock shall be purchased with a note (due 5 years from the date of the note) at a simple interest rate of 6% payable annually. The stock price will be the fair market value as determined by the Employee's Board of Directors at the same board meeting that this agreement is ratified. The Employer shall have a repurchase right for the stock at the aforementioned stock price which shall reduce ratably over a four year period. The stock above referenced shall have a provision calling for the repurchase rights of the company to expire under specific events relating to a change in control which result in a liquidity event to the company's shareholders. In the event that a change in control takes place in which the shareholders receive an equitable value in excess of 75 million dollars, repurchase rights covering shares representing 25% of the employee's total share purchase shall lapse. In the event of a change of ownership resulting in an equitable value in excess of 250 million dollars, repurchase rights covering shares representing 50% of the employee's total share purchase shall lapse. 4.1 EMPLOYEE BENEFITS During the term of this Agreement, Employee will be entitled to participate in such fringe benefit programs as may be provided from time to time by Employer to its employees generally. Employee's participation in all such fringe benefit programs shall be subject to and in accordance with all applicable eligibility and other requirements of those programs, including, without limitation, the terms of any applicable employee benefits plans. -2- 6. BOARD SEAT Employee, as long as he remains CEO, shall be granted a board seat at the next regularly scheduled board meeting. 7. TERMINATION Employment of Employee pursuant to this Agreement may be terminated as follows: 7.1. By Employer With or without Cause or for no cause (as defined in subparagraph 7.4 below), Employer may terminate the employment of Employee at any time during the term of this Agreement upon giving Notice of Termination (as defined in subparagraph 7.5 below). 7.2. By Employee Employee may terminate his employment at any time, for any reason, upon giving Notice of Termination. 7.3. Automatic Termination This Agreement and Employee's employment hereunder shall terminate automatically upon the death or Total Disability of Employee. The term "Total Disability" as used herein shall mean Employee's inability to perform the essential functions of Employer's Chief Executive Officer for a period or periods aggregating 60 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond Employee's control, unless Employee is granted a leave of absence by Employer's Board of Directors. Employee and Employer hereby acknowledge that Employee's ability to perform the essential functions of Employer's Chief Executive Officer is of the essence of this Agreement. Termination hereunder shall be deemed to be effective (a) at the end of the calendar month in which Employee's death occurs or (b) immediately upon a determination by Employer's Board Directors of Employees Total Disability. 7.4. Cause Wherever reference is made in this Agreement to termination being with or without Cause, "Cause" is limited to the occurrence of one or more of the following events: (a) Failure or refusal to carry out the lawful duties of Employer's Chief Executive Officer or any directions of the Employer, which directions are reasonably consistent with the duties herein set forth to be performed by Employee; (b) Violation by Employee of a state or federal criminal law involving the commission of any crime against Employer or any felony; -3- (c) Current use by Employee of illegal substances; intoxication at work which impairs Employee's performance of duties; deception, fraud, misrepresentation or dishonesty by Employee; any incident materially compromising Employee's reputation or ability to represent Employer with the public; any breach of Employee's duty of loyalty to Employer, any act or omission by Employee which substantially impairs Employer's business, good will or reputation; unacceptable performance, as determined in the sole and absolute discretion of Employer's Board of Directors; or any other serious misconduct; or (d) Any other material violation of any provision of this Agreement. 7.5. Notice The term "Notice of Termination" shall mean at least five days' written notice of termination of Employee's employment, during which period Employee's employment and performance of services will continue; provided, however, that Employer may, upon notice to Employee and without reducing Employee's compensation during such period, excuse Employee from any or all of his duties during such period. The effective date of the termination of Employee's employment hereunder shall be the date on which such five-day period expires. 8. TERMINATION PAYMENTS In the event of termination of Employee's employment hereunder, all compensation set forth in this Agreement shall terminate except as specifically provided in this paragraph 8. 8.1. Termination by Employer If Employer terminates Employee's employment without Cause (as defined in subparagraph 7.4 above), Employee shall be entitled to receive (a) continuation of his salary for a twelve period following the effective date of the termination of Employee's employment so long as Employee remains unemployed; (b) any unpaid salary that has accrued for services already performed as of the effective date of the termination of Employee's employment. If Employee is terminated by Employer for Cause, Employee shall not be entitled to any payments hereunder, other than those set forth in clause (b) of this subparagraph 8.1. 8.2. Termination by Employee In the case of the termination of Employee's employment by Employee, Employee shall not be entitled to any payments hereunder, other than those set forth in clause (b) of subparagraph 8.1 hereof -4- 8.3. Termination by Automatic Termination In the case of the automatic termination of Employee's employment because of Employee's death or Total Disability, Employee shall not be entitled to any payments hereunder, other than those set forth in clauses (b) of subparagraph 8.1 hereof. 8.4. Payment Schedule All payments under this paragraph 8 shall be made to Employee at the same interval as payments of salary were made to Employee immediately prior to termination and the legally required payroll deductions will be made. 9. REPRESENTATIONS AND WARRANTIES In order to induce Employer to enter into this Agreement, Employee represents and warrants to Employer that neither the execution nor the performance of this Agreement by Employee will violate or conflict in any way with any other agreement by which Employee may be bound, or with any other duties imposed upon Employee by corporate or other statutory or common law. 10. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of "Cause" set forth in subparagraph 7.4 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period. 11. FORM OF NOTICE All notice given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof. If to Employee: Chris Logan [***] If to Employer: Atrieva Corporation 600 University Street, Suite 911 Seattle, WA 98101 Fax: (206) 749-2950 -5- Copy to: David F. McShea Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101 Fax: (206) 583-8500 If notice is mailed, such notice shall be effective upon mailing, or if notice is personally delivered or sent by telecopy or other electronic facsimile transmission, it shall be effective upon receipt. 13. ASSIGNMENT This Agreement is personal to Employee and shall not be assignable by Employee. Employer may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation or other reorganization to which Employer is a party or (b) any corporation, partnership, association or other person to which Employer may transfer all or substantially all of the assets and business of Employer existing at such time. All of the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 14. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 15. ARBITRATION With the exception of any claims for which the applicable law precludes a pre- dispute agreement to binding arbitration, any controversies or claims arising out of or relating to this Agreement, or to the employment relationship between Employee and Employer, shall be settled by final and binding arbitration administered by the American Arbitration Association (the "AAA") under its then- current National Rules for the Resolution of Employment Disputes. A single arbitrator shall be selected and the arbitration shall be held in Seattle, Washington. The parties shall equally share the fees and expenses of the arbitrator and the administrative expenses of the AAA. Judgment upon the arbitrator's award may be entered in any court having jurisdiction and, for this purpose, Employee irrevocably consents to the jurisdiction of the United -6- States District Court for the Western District of Washington and the courts of the State of Washington, with venue in King County. 16. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by Employer and Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Employer and Employee. 17. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and interpreted, construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 18. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 19. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. 20. ENTIRE AGREEMENT This Agreement and a Stock Subscription Agreement between the parties to this Agreement and dated as of the date of this Agreement constitute the entire agreement between Employer and Employee with respect to the subject matter hereof, and all -7- prior or contemporaneous oral or written communications, understandings or agreements between Employer and Employee with respect to such subject matter are hereby superseded and nullified in their entireties. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the dates set forth below. FOR EMPLOYER: FOR EMPLOYEE: By: /s/ [ILLEGIBLE]^^ /s/ Chris Logan ----------------------------- -------------------------------- of Atrieva Corporation Chris Logan Its CEO -------------------------- Date: 6-1-1999 Date: June 1, 1999 --------------------------- --------------------------- -8- EX-10.29 27 EMPLOYMENT AGREEMENT K JARVI EXHIBIT 10.29 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of Aug. 13,1999, is entered into by Atrieva Corporation (the "Employer"), a Delaware corporation, and Kent Jarvi ("Employee"). 1. BACKGROUND In consideration of the promises herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, Employer and Employee hereby agree as follows: 2. EMPLOYMENT Employee shall be the Chief Financial Officer of the Atrieva Corporation with a start date of Aug. 23, 1999 subject to the approval by the Employer's Board of Directors. Employee shall at all times report to, and his business activities shall be subject to the direction and control of, the Chief Executive Officer. 3. TERM This Agreement shall become effective as of the date of this Agreement and shall terminate in accordance with the provisions of paragraph 5 below. 4. COMPENSATION 4.1 Salary During the term of this Agreement Employer agrees to pay or cause to be paid to Employee, and Employee agrees to accept in exchange for the services rendered hereunder by him, a salary of $10,833.33 before all legally required payroll deductions. Such salary shall be paid in substantially equal monthly installments, on monthly paydays that are consistent with the payroll schedule used for other employees of Employer. 4.2 Performance Bonus In addition to the annual salary described in subparagraph 4.1 above, Employee shall be entitled to receive a Bonus of up to $5,000.00. quarterly, said Bonus to be paid in a timely fashion upon the completion of each calendar quarter, the Bonus will be based upon objectives determined and agreed upon by the CEO. Said objectives will be defined in writing no later than 60 days after Employees CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission signing of this agreement. All legally required payroll deductions shall Be taken from the Employee's Performance Bonus to arrive at his net payable Performance Bonus. 4.3 Stock Subscription Agreement In addition, the Employee and Employer shall enter into a stock subscription agreement allowing the Employee to purchase 318,718 shares of the Employer's common stock. The said stock shall be purchased with a note, (due 5 years from the date of the note) at a simple interest rate of 6% payable annually. The stock price will be the fair market value as determined by the Employer's Board of Directors at the same board meeting that this agreement is ratified. The Employer shall have a repurchase right for the stock at the aforementioned stock price, which shall reduce from the Employee start date proportionately by month after a 12-month cliff, over a four year period. 4.4 Employee Benefits During the term of this Agreement, Employee will be entitled to participate in such fringe benefit programs as may be provided from time to time by Employer to its employees generally. Employee's participation in all such fringe benefit programs shall be subject to and in accordance with all applicable eligibility and other requirements of those programs, including, without limitation, the terms of any applicable employee benefits plans. 5. TERMINATION Employment of Employee pursuant to this Agreement may be terminated as follows: 5.1. By Employer With or without cause or for no cause (as defined in subparagraph 5.4 below), Employer may terminate the employment of Employee at any time during the term of this Agreement upon giving Notice of Termination (as defined in subparagraph 5.5 below). 5.2 By Employee Employee may terminate his employment at any time, for any reason, upon giving Notice of Termination. 5.3 Automatic Termination This Agreement and Employee's employment hereunder shall terminate automatically upon the death or Total Disability of Employee. The term "Total Disability" as used herein shall mean Employee's inability to perform the essential -2- functions of Employer's Chief Financial Officer for a period or periods aggregating 60 calendar days in any 12 month period as a result of physical or mental illness, loss of legal capacity or any other case beyond Employee's control, unless Employee is granted a leave of absence by Employer's Chief Executive Officer. Employee and Employer hereby acknowledge that Employee's ability to perform the essential functions of Employees Chief Financial Officer is of the essence of this Agreement. Termination hereunder shall be deemed to be effective (a) at the end of the calendar month in which Employee's death occurs or (b) immediately upon a determination by Employees Chief Executive Officer of Employee's Total Disability. 5.4 Cause Wherever reference is made in this Agreement to termination being with or without Cause, "Cause" is limited to the occurrence of one or more of the following events: (a) Failure or refusal to carry out the lawful duties of Employer's Chief Financial Officer or any directions of the Employer, which directions are reasonably consistent with the duties herein set forth to be performed by Employee; (b) Violation by Employee of a state or federal criminal law involving the commission of any crime against Employer or any felony; (c) Current use by Employee of illegal substances at work which impairs Employee's performance of duties; intoxication at work which impairs Employee's performance of duties; deception, fraud, misrepresentation or dishonesty by Employee; any incident materially compromising Employee's reputation or ability to represent Employer with the public; any breach of Employee's duty of loyalty to Employer; any act or omission by Employee which substantially impairs Employer's business, good will or reputation; unacceptable performance, as determined in the sole and absolute discretion of Employer's Chief Executive Officer, or any other serious misconduct; or (d) Any other material violation of any provision of this Agreement. 5.5 Notice The term "Notice of Termination" shaft mean at least five days' written notice of termination of Employee's employment, during which period Employee's employment and performance of services will continue; provided, however, that Employer may, upon notice to Employee and without reducing Employee's compensation during such period, excuse Employee from any or all of his duties during such period. The effective date of the termination of Employee's employment hereunder shall be the date on which such five-day period expires. -3- 6. TERMINATION PAYMENTS In the event of termination of Employee's employment hereunder, all compensation set forth in this Agreement shall terminate except as specifically provided in this paragraph 6. 6.1 Termination by Employer If Employer terminates Employee's employment without Cause (as defined in subparagraph 5.4 above), Employee shall be entitled to receive (a) continuation of his salary for a six month period following the effective date of the termination of Employee's employment so long as Employee remains unemployed; (b) the elimination of the cliff period of the employee's stock vesting and continued vesting of stock for a six month period. (c) any unpaid salary that has accrued for services already performed as of the effective date of the termination of Employee's employment. If Employee is terminated by Employer for Cause, Employee shall not be entitled to any payments hereunder, other than those set forth in clause (c) of this subparagraph 6.1. 6.2 Termination by Employer after Change of Control If subsequent to a change in control of the Company which results in a liquidity event to the company's shareholders, the Employee is terminated without cause, has a reduction in total cash compensation (salary plus bonus), experiences a significant change in responsibility or is permanently relocated to an office outside of San Francisco County, or the acquiring company fails to assume the stock subscription agreement or substitute a similar agreement or other consideration, in addition to the termination provisions set forth above, the Company shall forfeit 50% of the remaining repurchase rights of the Employee's stock. 6.3 Termination by Employee In the case of the termination of Employee's employment by Employee, Employee shall not be entitled to any payments hereunder, other than those set forth in clause (c) of subparagraph 6.1 hereof. 6.4 Termination by Automatic Termination In the case of the automatic termination of Employee's employment because of Employee's death or Total Disability, Employee shall not be entitled to any payments hereunder, other than those set forth in clauses (c) of subparagraph 6.1 hereof. -4- 6.5 Payment Schedule All payments under this paragraph 6 shall be made to Employee at the same interval as payments of salary were made to Employee immediately prior to termination and the legally required payroll deductions will be made. 7. REPRESENTATIONS AND WARRANTIES In order to induce Employer to enter into this Agreement, Employee represents and warrants to Employer that neither the execution nor the performance of this Agreement by Employee will violate or conflict in any way with any other agreement by which Employee may be bound, or with any other duties imposed upon Employee by corporate or other statutory or common law. 8. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement other than pursuant to the definition of "Cause" set forth in subparagraph 5.4 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period. 9. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof. If to Employee: Kent Jarvi [***] If to Employer: Atrieva Corporation 600 University Street, Suite 911 Seattle, WA 98101 Fax: (206) 749-2950 Copy to: David F. McShea Perkins Coie LLP 1201 Third Avenue, 40th Floor -5- Seattle, WA 98101 Fax: (206) 583-8500 If notice is mailed, such notice shall be effective upon mailing, or if notice is personally delivered or sent by telecopy or other electronic facsimile transmission, it shall be effective upon receipt. 10. ASSIGNMENT This Agreement is personal to Employee and shall not be assignable by Employee. Employer may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation or other reorganization to which Employer is a party or (b) any corporation, partnership, association or other person to which Employer may transfer all or substantially all of the assets and business of Employer existing at such time. All of the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 11. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 12. ARBITRATION With the exception of any claims for which the applicable law precludes a predispute agreement to binding arbitration, any controversies or claims arising out of or relating to this Agreement, or to the employment relationship between Employee and Employer, shall be settled by final and binding arbitration administered by the American Arbitration Association (the "AAA") under its then- current National Rules for the Resolution of Employment Disputes. A single arbitrator shall be selected and the arbitration shall be held in Seattle, Washington. The parties shall equally share the fees and expenses of the arbitrator and the administrative expenses of the AAA. Judgment upon the arbitrator's award may be entered in any court having jurisdiction and, for this purpose, Employee irrevocably consents to the jurisdiction of the United States District Court for the Western District of Washington and the courts of the State of Washington, with venue in King County. -6- 13. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by Employer and Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Employer and Employee. 14. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and interpreted, construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 15. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 16. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. 17. ENTIRE AGREEMENT This Agreement and a Stock Subscription Agreement between the parties to this Agreement and dated as of the date of this Agreement constitute the entire agreement between Employer and Employee with respect to the subject matter hereof, -7- and all prior or contemporaneous oral or written communications, understandings or agreements between Employer and Employee with respect to such subject matter are hereby superseded and nullified in their entireties. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the dates set forth below. FOR EMPLOYER: FOR EMPLOYEE: By: /s/ [ILLEGIBLE]^^ /s/ Ken Jarvi ---------------------------- ----------------------------- of Atrieva Corporation Kent Jarvi Its President & CEO Date: 8/20/99 Date: 8/20/99 ------------------------- ----------------------- -8- EX-10.30 28 EMPLOYMENT AGREEMENT M ZUKERMAN EXHIBIT 10.30 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of June 14, 1999, is entered into by Atrieva Corporation (the "Employer") a Delaware corporation, and Michael Zukerman ("Employee"). 1. BACKGROUND In consideration of the promises herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, Employer and Employee hereby agree as follows: 2. EMPLOYMENT Employee shall be the Vice President of Business Development of the Atrieva Corporation as of date of approval by the Employer's Board of Directors. Employee shall at all times report to, and his business activities shall be subject to the direction and control of, the Employer's President and CEO. 3. TERM This Agreement shall become effective as of the date of this Agreement and shall terminate in accordance with the provisions of paragraph 5 below. 4. COMPENSATION 4.1 Salary During the term of this Agreement, Employer agrees to pay or cause to be paid to Employee, and Employee agrees to accept in exchange for the services rendered hereunder by him, a salary of $12,500 before all legally required payroll deductions. Such salary shall be paid in substantially equal monthly installments, on monthly paydays that are consistent with the payroll schedule used for other employees of Employer. 4.2 Performance Bonus In addition to the annual salary described in subparagraph 4.1 above, Employee shall be entitled to receive a quarterly bonus of up to $10,000. The Bonus will be paid subject to achievement by Employee of objectives determined and agreed upon between Employee and the Employer's President and CEO. Said objectives will be defined in writing no later than 60 days after Employee's signing of this agreement. All legally required payroll deductions shall be taken from the Employee's Performance Bonus to arrive at his net payable Performance Bonus. CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission 4.3 Incentive Stock Options In addition, the Employee shall receive Incentive Stock Options in the amount of 350,000 shares. These shares shall vest according to the 1997 Stock Option Plan vesting schedule of 25% on the first anniversary date of the date of grant, and 6.25% per quarter thereafter. Should there occur any "Involuntary Termination" (as defined below) within twelve (12) months following a Change in Control of the Company, then on the effective date of the Involuntary Termination, any stock option(s) held by Employee at the time of the Involuntary Termination shall, in addition to amounts already vested and/or exercisable, immediately vest and/or become exercisable according to the following schedule: Valuation of Company in Additional vesting ----------------------- ------------------ Change in Control Transaction ----------------------------- Less than S75 Million None $75 Million or Greater, Initial one year cliff vesting but less than $250 Million waived, if then applicable, and replaced with quarterly vesting from the option commencement date, plus 4 quarters additional vesting Greater than $250 Million As above, plus 2 additional quarters vesting (a) The term "Involuntary Termination" shall mean the termination of Employees employment with the Company: (i) involuntarily upon his dismissal, other than for Cause (as defined below); or (ii) voluntarily or involuntarily following (A) a change in Employee's position with the Company which materially reduces Employees level of responsibility, or (B) a change in Employees place of -2- employment to a county outside, of Alameda, San Francisco, or Contra Costa counties, provided and only if such change(s) or reduction(s) --------------------- are effected without Employees written concurrence. 4.4 Employee Benefits During the term of this Agreement, Employee will be entitled to participate in such fringe benefit programs as may be provided from time to time by Employer to its employees generally. Employee's participation in all such fringe benefit programs shall be subject to and in accordance with all applicable eligibility and other requirements of those programs, including, without limitation, the terms of any applicable employee benefits plans. 5. TERMINATION Employment of Employee pursuant to this Agreement may be terminated as follows: 5.1. By Employer With or without Cause or for no cause (as defined in subparagraph 5.4 below), Employer may terminate the employment of Employee at any time during the term of this Agreement upon giving Notice of Termination (as defined in subparagraph 5.5 below). 5.2. By Employee Employee may terminate his employment at any time, for any reason, upon giving Notice of Termination. 5.3. Automatic Termination This Agreement and Employee's employment hereunder shall terminate automatically upon the death or Total Disability of Employee. The term "Total Disability" as used herein shall mean Employee's inability to perform the essential functions of Employer's Vice President of Business Development for a period or periods aggregating 60 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond Employee's control, unless Employee is granted a leave of absence by Employer's President and CEO. Employee and Employer hereby acknowledge that Employee's ability to perform the essential functions of Employer's Vice President of Business Development is of the essence of this Agreement. Termination hereunder shall be deemed to be effective (a) at the end of the calendar month in which Employee's death occurs or (b) immediately upon a determination by Employer's President and CEO of Employee's Total Disability. -3- 5.4. Cause Wherever reference is made in this Agreement to termination being with or without Cause "Cause" is limited to the occurrence of one or more of the following events: (a) Failure or refusal to use reasonable efforts to carry out die lawful directions of the Employer, which directions are reasonably consistent with the duties herein set forth to be performed by Employee; (b) Violation by Employee of a state or federal criminal law involving the commission of any crime against Employer or any felony; (c) Intoxication at work which impairs Employee's performance of duties; deception, fraud, misrepresentation or dishonesty by Employee; any incident materially compromising Employee's reputation or ability to represent Employer with the public; or material breach of Employee's duty of loyalty to Employer. 5.5. Notice The term "Notice of Termination" shall mean at least five days' written notice of termination of Employee's employment, during which period Employee's employment and performance of services will continue; provided, however, that Employer may, upon notice to Employee and without reducing Employee's compensation during such period, excuse Employee from any or all of his duties during such period. The effective date of the termination of Employee's employment hereunder shall be the date on which such five-day period expires. 6. REPRESENTATIONS AND WARRANTIES In order to induce Employer to enter into this Agreement, Employee represents and warrants to Employer that neither the execution nor the performance of this Agreement by Employee will violate or conflict in any way with any other agreement by which Employee may be bound, or with any other duties imposed upon Employee by corporate or other statutory or common law. 7. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period. -4- 8. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof: If to Employee: Michael Zukerman [***] If to Employer Atrieva Corporation 600 University Street, Suite 911 Seattle, WA 98101 Fax; (206) 749-2950 Copy to: David F. McShea Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101 Fax: (206) 583-8500 If notice is mailed such notice shall be effective upon mailing, or if notice is personally delivered or sent by telecopy or other electronic facsimile transmission it shall be effective upon receipt. 9. ASSIGNMENT This Agreement is personal to Employee and shall not be assignable by Employee. Employer may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation or other reorganization to which Employer is a party or (b) any corporation, partnership, association or other person to which Employer may transfer all or substantially all of the assets and business of Employer existing at such time. All of the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 10. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance -5- shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 11. ARBITRATION With the exception of any claims for which the applicable law precludes a pre- dispute agreement to binding arbitration, any controversies or claims arising out of or relating to this Agreement, or to the employment relationship between Employee and Employer, shall be settled by final and binding arbitration administered by the American Arbitration Association (the "AAA") under its then- current National Rules for the Resolution of Employment Disputes. A single arbitrator shall be selected and the arbitration shall be held in the city in which Employee principally caries out his duties. The parties shall equally share the fees and expenses of the arbitrator and the administrative expenses of the AAA. Judgment upon the arbitrator's award may be entered in any court having jurisdiction. 12. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by Employer and Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Employer and Employee. 13. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and interpreted, construed and enforced in accordance with, the laws of the state of California, without regard to any rules governing conflicts of laws. 14. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such -6- invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 15. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. 16. ENTIRE AGREEMENT This Agreement between the parties to this Agreement and dated as of the date of this Agreement constitute the entire agreement between Employer and Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between Employer and Employee with respect to such subject matter are hereby superseded and nullified in their entireties. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the dates set forth below. FOR EMPLOYER: FOR EMPLOYEE: By: [SIGNATURE ILLEGIBLE]^^ /s/ Michael Zukerman -------------------------- ----------------------------- of Atrieva Corporation Michael Zukerman Its CEO ---------------------- Date: 6/14/99 Date: 6/14/99 ------------------------- ------------------------ -7- EX-10.31 29 EMPLOYMENT AGREEMENT M VANNEMAN EXHIBIT 10.31 [LETTERHEAD OF DRIVEWAY CORPORATION] Jan. 30, 2000 Michael Vanneman [***] [***] Mike, I am pleased to confirm our offer to have you join Driveway Corporation in the capacity of Vice President of Sales. Your start date will be Feb. 2, 2000 or sooner. You will be reporting directly to me in my capacity as President and CEO. You will be managing all aspects of Sales including Advertising, Premium Service Sales, and Opt-in Programs. You will be expected to build and manage the Sales organization and continue to develop and evolve the Sales model for the company. Your annual compensation target will be $300,000 per year. This will include a $180,000 annual base salary and additional target commission of $120,000 paid against performance relative to revenue objectives. I will also recommend to the Driveway Corporation board of directors that you be granted options on 220,000 shares of common stock. These options will be subject to a four (4) year vesting period with shares vesting monthly. We would include in this option grant some protection against the termination of your position after an acquisition of the company by another entity. In this event, you would receive accelerated vesting of 50% of your then remaining unvested options. We will include in the definition of termination of your position the relocation of your position outside the San Francisco Bay area. Also, in the event of the above termination, you will receive salary continuation for the six month period following the effective date of the termination of your employment so long as you remain unemployed. I will also recommend to the Board that you be extended an additional grant totaling 100,000 shares that vest on a seven-year cliff. Accelerated vesting would apply to 50,000 shares at Dec. 31, 2000 and 50,000 shares at Dec. 31, 2001 contingent on your achieving the revenue plans for those years. You will be eligible for a full range of health, life, dental, and vision insurance as well as other benefits. Be advised that a condition of employment is the execution of a Proprietary Information and Inventions Agreement. I am very excited by the prospects of having you join our senior team and look forward to working with you. Please acknowledge acceptance by counter signing and returning a copy of this letter. Sincerely, /s/ Christopher S. Logan Christopher S. Logan President & CEO Acknowledged and accepted, /s/ Mike Vanneman 2/1/00 ------------------------------- Mike Vanneman Date CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission EX-10.32 30 EMPLOYMENT AGREEMENT L JONES EXHIBIT 10.32 [LOGO OF DRIVEWAY.COM] Dec. 20, 1999 Larry Jones [***] [***] Dear Larry: I am pleased to confirm our offer of employment with Driveway Corporation in the capacity of Vice President of Product Management, reporting to me. Your start date will be Jan. 31, 2000 or sooner. Your responsibilities will include planning and implementation of all aspects of the Driveway Service. This will include the product management of development of Driveway technology and the integration of the Driveway service with partner sites. Your role will include the management of a group of Product and Project managers the will work with all departments of the organization. Your total target compensation will be $172,000 per year that will consist of a base salary of $140,000 per year and a quarterly bonus of $8,000. We will also provide you a signing bonus of $15,000. Upon acceptance of employment, you will be eligible (subject to Board of Director approval) for a grant of an option to purchase 200,000 shares of the company's common stock under the 1997 Stock Option Plan for a per share purchase price determined by the Board of Directors on the date of grant. This option will be subject to a four (4) year vesting period with shares vesting monthly. I will also recommend to the board that your shares include provisions for the acceleration of half of your unvested shares in the event that you are terminated from your position following the acquisition of Driveway by another company. You will be eligible for the Company's full range of medical, dental, vision, life and LTD insurance as well as other benefits. These benefits and the company's policies will be described to you at the time that you begin your employment. However, if you have any questions about your benefits prior to that time, we will be happy to answer them. Be advised that a condition of employment is the execution of a Proprietary Information and Invention Assignment Agreement. You should also understand that Driveway employs its employees on an "at will" basis. This means that your employment is voluntary and for no set period. If you accept employment with the company, you will be free to resign at any time, with or without cause. Likewise, the company will be free to terminate your employment at any time, with or without cause. I am very excited by the prospects of having you on the team and look forward to working with you. This offer will remain in effect until Dec. 31, 1999. Please acknowledge your acceptance of this offer by signing below and returning this letter. If you have any questions, please do not hesitate to call. Sincerely, Christopher S. Logan CEO Agreed and accepted: /s/ Lawrence Jones 12/29/99 Anticipated Start Date 1/29/00 - --------------------- -------- ------- Signature Date CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission EX-10.37 31 SUPPLY AGREEMENT EXHIBIT 10.37 SUPPLY AGREEMENT ---------------- SUPPLY AGREEMENT dated as of March 9, 2000 by and between DRIVEWAY CORPORATION, a Delaware corporation (the "Company"), and EMC CORPORATION, a Massachusetts corporation ("EMC"). In connection with EMC's acquisition of Series D Preferred Stock of the Company, pursuant to the Series D Preferred Stock Purchase Agreement dated as of March 9, 2000 by and among the Company and EMC, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and EMC hereby agree as follows: 1. Sole Supplier. ------------- (a) During the term of this Agreement, EMC shall produce and sell to the Company, and the Company shall purchase from EMC, as the Company's sole supplier, all of the Company's requirements for Products, or other products having functionality substantially similar to that of the Products. For purposes of this Agreement, the term "Products" shall mean enterprise storage and enterprise storage software products. [***] 2. Customer Agreement. All Company purchases of Products hereunder ------------------ shall be made pursuant to the EMC Customer Agreement, a form of which is attached hereto as Annex A. [***] 3. Term. The initial term of this Agreement shall be for a period of ---- three (3) years commencing on the date hereof. Upon expiration of such initial term, the term hereof shall automatically renew for a period of one (1) year unless either EMC or the Company shall, by written notice given to the other party not less thirty (30) days prior to CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission such expiration, elect not so to renew the term, in which event this Agreement shall expire at the end of the then current term. 4. Notices. All notices required by this Agreement must be in ------- writing and sent by certified mail, return receipt requested, or by overnight courier. The date of notice is the date it is received. Notices hereunder shall be sent as follows: If to the Company: Driveway Corporation 380 Brannan Street San Francisco, CA 94107 Attn: Chris Logan, Chief Executive Officer with a copy to: William Kushner, Esq. Perkins Coie LLP 135 Commonwealth Drive Suite 250 Menlo Park, CA 94025-1105 If to EMC: EMC Corporation 35 Parkwood Drive Hopkinton, MA 01748 Attention: Bob Sliney, Director of Finance, New Business Development with a copy to: EMC Corporation 35 Parkwood Drive Hopkinton, MA 01748 Attention: Office of the General Counsel A party may, by written notice, designate a different address for notices or different or additional persons to be notified. 5. No Assignment. Neither party may assign any of its rights ------------- hereunder without the prior written consent of the other party; provided, however, that no consent shall be required for any assignment (i) to any business entity controlling, controlled by or under common control with a party or (ii) to the purchaser of all or substantially all of a party's assets or stock through merger, consolidation or otherwise. 6. Law. This Agreement shall be governed by the laws of the Commonwealth --- of Massachusetts, without reference to the conflicts of laws provisions thereof. 2 7. Entire Agreement. This Agreement, together with any Annexes ---------------- hereto, constitutes the entire agreement of EMC and the Company with respect to the subject matter hereof. 8. Severability. If any provision of this Agreement is invalid or ------------ unenforceable, then the other provisions shall remain enforceable and a court of competent jurisdiction shall reform this Agreement to permit enforcement of the invalid or unenforceable provision to the maximum extent permitted by law. 9. Public Announcements. EMC and the Company shall consult with each -------------------- other before issuing any press release or making any public statement with respect to this Agreement, EMC's acquisition of Series D Preferred Stock and any matters related hereto or thereto and shall not issue any such press release or make any such public statement without the prior written consent of the other party, which shall not be unreasonably withheld. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties. [REMAINDER OF PAGE INTENTIONALLY BLANK] 3 IN WITNESS WHEREOF, EMC and the Company have caused this Agreement to be executed under seal as of the date first written above. EMC CORPORATION By: /s/ Michael J. Cody ------------------------------ Name: Michael J. Cody Title: Vice President DRIVEWAY CORPORATION By: /s/ Christopher S. Logan ------------------------------ Name: Christopher S. Logan Title: CEO 4 EX-10.38 32 LEASE AGREEMENT UNION SQUARE EXHIBIT 10.38 TABLE OF CONTENTS ONE UNION SQUARE ---------------- 1. BASIC LEASE INFORMATION............................................................ 1 2. RENT PAYMENT....................................................................... 2 3. REAL PROPERTY DESCRIPTION (ONE UNION SQUARE).........................................2 4. POSSESSION...........................................................................3 5. ACCEPTANCE AND CARE OF PREMISES......................................................3 6. ALTERATIONS..........................................................................3 7. INSPECTION AND REPAIRS...............................................................4 8. SERVICES BY LESSOR...................................................................4 9. FIRE OR OTHER CASUALTY...............................................................6 10. WAIVER OF SUBROGATION................................................................6 11. USES............................................................................... 6 12. SIGNS AND ADVERTISING.............................................................. 7 13. ACCIDENTS AND INDEMNITY............................................................ 7 14. LIENS AND INSOLVENCY............................................................... 8 15. DEFAULT AND RE-ENTRY............................................................... 8 16. REMOVAL OF PROPERTY AND REPLACEMENT OF NON-STANDARD ITEMS................................................................. 9 17. NON-WAIVER......................................................................... 9 18. COSTS AND ATTORNEYS' FEES.......................................................... 9 19. PRIORITY........................................................................... 9 20. CONDEMNATION....................................................................... 10 21. ASSIGNNMENT AND SUBLETTING......................................................... 10 22. RULES, REGULATIONS AND MISCELLANEOUS............................................... 12 23. SUCCESSORS......................................................................... 15 24. SHARED TENANT SERVICES............................................................. 15 25. AMERICAN DISABILITIES ACT.......................................................... 16 26. TENANT IMPROVEMENTS................................................................ 16 27. OPTION TO CANCEL................................................................... 17
ATRIEVA CORPORATION, LESSEE --------------------------- CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission ONE UNION SQUARE Seattle, Washington OFFICE LEASE THIS LEASE, made this 27TH day of January, 1998, between: UNION SQUARE LIMITED PARTNERSHIP, a Washington Limited Partnership, (Lessor) and ATRIEVA CORPORATION, a Washington corporation, (Lessee). Lessee, in consideration of this Lease, covenants and agrees with Lessor as follows: 1. BASIC LEASE INFORMATION 1.1 Leased Premises. Lessee hereby leases from Lessor, Room(s) 905-921 (the --------------- Leased Premises) as outlined in red on the attached print marked Exhibit A in the building at Seattle, Washington, known as One Union Square (the Building), and situated on the real property described in Section 4 (the Land). 1.2 Floor Areas. For purposes of this Lease, the usable area of the Leased ----------- Premises is deemed to be 8,389 square feet. The rentable area of the Leased Premises is deemed to be 9,396 square feet. The Leased Premises are deemed to be 1.52946 percent of the rentable area of the Building. In the event a portion of the Building is damaged or any other event or change occurs which alters the usable or rentable areas of the Leased Premises or the Building, Lessor may appropriately adjust the foregoing areas and percent. Usable and rentable areas shall mean such areas as defined generally by the Building Owners and Managers Association International in its "Standard Method for Measuring Floor Area in Office Buildings" (American National Standard ANSIZ 65.1-1980). Whenever areas are herein referred to generally, it shall mean rentable area. Lessee has undertaken such examination of rentable and usable areas of the Building as it desires and agrees with the areas set forth above 1.3 Term. The lease term shall be [***] commencing [***] ---- and ending [***]. 1.4 Rent. The Base Monthly Rent, payable without demand in advance on the ---- first day of each calendar month, shall be: [***] 1.5 Use. The Leased Premises shall be used only for the purposes of --- business office. 1.6 Lessee's Address for Notices if Other Than the Leased Premises: --------------------------------------------------------------- 1.7 Lessor's Address for Notices and Payment of Rent: ------------------------------------------------- UNICO Properties, Inc. Rainier Tower 1301 5th Avenue, Suite 3500 Seattle, WA 98101-2647 1.8 Exhibits and Other Attachments Which are Part of the Lease: ----------------------------------------------------------- Exhibit A: Print with Leased Premises outlined in red on standard floor plan. 2. RENT PAYMENT Lessee shall pay the rent and other charges provided for in this Lease, in lawful money of the United States on or before their specified due dates to Lessor at the address specified in Section 1.8, or to such other party or at such other place as Lessor may hereafter from time to time designate in writing. All rent which is past due shall bear interest at the rate of one percent (1%) per month from the date rent is due until paid. If the maximum annual rate of interest permitted by applicable law shall be less than the rate of interest provided for herein, then all past due payments of rent shall bear interest at the maximum rate permitted by applicable law from due date until paid. Lessee acknowledges that late payment by Lessee to Lessor of rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and economically unpractical to ascertain. Therefore, if any payment of rent due from Lessee is not received by Lessor within 10 days after the due date, Lessee shall pay to Lessor (in addition to the interest above provided) a late charge of Fifty Dollars ($50) or two percent (2%) of the overdue rent, whichever shall be greater. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Lessor will incur by reason of late payment by Lessee and is in addition to any interest charges on past due rent. The term "rent" when used in this Lease shall include Base Monthly Rent and all other amounts however designated payable by Lessee to Lessor hereunder. 3. REAL PROPERTY DESCRIPTION (ONE UNION SQUARE) The legal description of the Land is: Commencing at the most southwesterly corner of Lot 12, of Block 61, Addition to Town of Seattle (commonly known as A.A. Denny's Fifth Addition to City of Seattle), according to plat recorded in Volume 1 of Plats, page 89, in King County, Washington; thence north 303708" west along the westerly line of said block 119.84 feet; thence north 5920'00" east 105.15 feet; thence north 3040'32" west 38.89 feet; thence north 5923'00" east 14.80 feet; thence north 3037'00" west 0.55 feet; thence 2 north 5920'14" east 135.80 feet to the easterly line of said block; thence south 3035'43" east along said east line 159.45 feet to the most southeasterly corner of said block; thence south 5922'32" west 255.64 feet to the point of beginning (also known as Parcel A of City of Seattle Short Subdivision No. 8606903, King County Recording No. 8702260616). 4. POSSESSION In the event of the inability of Lessor to deliver possession of the Leased Premises or any portion thereof, at the time of the commencement of the term of this Lease, Lessor shall not be liable for any damage caused thereby, nor shall this Lease thereby become void or voidable. Lessee shall not be liable for payment of any rent until such time as Lessor can deliver possession, except as may be otherwise provided in an Exhibit to this Lease. 5. ACCEPTANCE AND CARE OF PREMISES 5.1 Taking of possession of the Leased Premises by Lessee shall be conclusive evidence the Leased Premises were, on that date, in good, clean and tenantable condition. 5.2 Lessee shall keep the Leased Premises neat and clean and in a sanitary condition and shall at all times preserve them in as good condition and repair as they now are, or may hereafter be put into, reasonable use and wear and damage by fire or other unavoidable casualty excepted. All damage or injury done to the Leased Premises by Lessee or by any persons who may be in or upon the Leased Premises with the consent of Lessee, including the cracking or breaking of glass of arty windows and doors, shall be paid for by Lessee and Lessee shall pay for all damage to the Building caused by Lessee's misuse of the Leased Premises or the appurtenances thereto. Lessee shall not put any curtains, draperies or other hangings on or beside the windows in the Leased Premises without first obtaining Lessor's consent. If Lessee shall fail to keep and preserve the Leased Premises in said condition and state of repair Lessor may at its option put or cause the same to be put into the condition and state of repair agreed upon, and in such case Lessee, on demand, shall pay the cost thereof 6. ALTERATIONS Lessee shall design the Leased Premises so they will comply with then applicable laws at the commencement of the lease term. Lessee shall not make any alterations, additions or improvements in or to the Leased Premises (other than decorations and non-structural alterations that do not affect the Building systems), or make changes to locks on doors, or add, disturb or in any way change any plumbing or wiring therein, without the prior written consent of Lessor (such consent not to be unreasonably withheld). Lessor may require that any such work be performed by Lessor's employees or contractor(s) employed by Lessor. Lessor, at its option, may at its own expense make any repairs, alterations or improvements which Lessor may deem necessary or advisable for the preservation, safety or improvement of the Leased Premises or the Building, provided only that Lessee shall at all times have reasonable access to the Leased Premises. Lessee shall, at its own expense, make any alterations, additions or improvements to the Leased Premises 3 which arc required by law during the term of this Lease. Lessor's approval concerning the initial improvement or any subsequent alteration, addition or improvement of the Leased Premises is for Lessor's benefit only and shall not create any responsibility or liability on the part of Lessor for design sufficiency or compliance with applicable laws. 7. INSPECTION AND REPAIRS Lessor shall have the right, on reasonable prior notice (except in an emergency) to inspect the Leased Premises at all reasonable times and the right to enter the same for the purpose of cleaning, repairing,altering or improving the same, or the Building, but nothing contained in this Lease shall be construed so as to impose any obligation on Lessor to make any repairs, alterations or improvements except as expressly provided in Section 9. 8. SERVICES BY LESSOR 8.1 Lessor will, at its expense furnish Lessee with the following services and utilities: (a) Elevator service during normal business hours of the Building (8:00 a.m. to 6:00 p.m.- Monday through Friday and 9:00 a.m. to 1:00 p.m. - Saturday, except legal holidays generally observed in the State of Washington) and the service of at least one elevator during all other hours. (b) Heating and air cooling to maintain a temperature condition which in Lessor's judgment provides for comfortable occupancy of the Leased Premises during normal business hours of the Building, provided Lessee complies with Lessor's instructions regarding use of drapes and thermostats and Lessee does not utilize heat generating machines or equipment which affect the temperature otherwise maintained by the air cooling system. Upon request Lessor shall make available at Lessee's expense after hours heat or air cooling. The minimum, use of after hours heat or air cooling and the cost thereof shall be determined by Lessor and confirmed in writing to Lessee, as the same may change from time to time. (c) Water for drinking, lavatory and toilet purposes. (d) Electricity for building standard lighting and operation of low power usage office machines in quantities usually furnished by Lessor to tenants in the Building for general office use. Low power usage machines are typewriters, desk top calculators, desk top computer terminals and similar equipment with similar power requirements which operate on 110 volt circuits. (e) Janitorial service and window washing. This service includes vacuum cleaning of carpets and cleaning of Building standard vinyl composition tile, but no other services with respect to carpets or non-standard floor coverings. Shampoo or similar cleaning of carpets and repair and replacement of carpets shall be Lessee's responsibility and at Lessee's expense. (f) Maintain the exterior window blinds or draperies, windows, doors, floors, walls, ceilings, plumbing and plumbing fixtures, and electrical distribution system and lighting fixtures in 4 good condition and repair, except for damage caused by Lessee, its employees, agents, invitees or visitors, and except that such service will not be provided as to any of the foregoing items that are not standard for the Building. (g) Replacement of burned out fluorescent tubes in light fixtures which are standard for the Building. Burned out bulbs, tubes or other light sources in fixtures which are not standard for the Building will be replaced by Lessor at Lessee's expense. 8.2 Lessor shall use reasonable diligence to remedy an interruption in the furnishing of such services and utilities. If, however, any governmental authority imposes regulations, controls or other restrictions upon Lessor or the Building which would require a change in the services provided by Lessor under this Lease, Lessor may comply with such regulations, controls or other restrictions, including without limitation, curtailment, rationing or restrictions on the use of electricity or any other form of energy serving the Leased Premises. Lessee will cooperate and do such things as are reasonably necessary to enable Lessor to comply with such regulations, controls or other restrictions. 8.3 Whenever heat generating machines or equipment or lighting other than building standard fights are used in the Leased Premises by Lessee which affect the temperature otherwise maintained by the air cooling system, Lessor shall have the right to install supplementary air cooling units in the Leased Premises, and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Lessee to Lessor upon billing by Lessor. Lessor may impose a reasonable charge for utilities and services, including without limitation, air cooling, electric current and water; required to be provided the Leased Premises by reason of, (a) any substantial recurrent use of the Leased Premises at any time other than the hours of 7:00 a.m. to 6:00 p.m., Monday through Friday, (b) any use beyond what Lessor agrees to furnish as described above, (c) electricity used by equipment designated by Lessor as high power usage equipment or (d) the installation, maintenance, repair, replacement or operation of supplementary air cooling equipment, additional electrical systems or other equipment required by reason of special electrical, heating, cooling or ventilating requirements of equipment used by Lessee at the Leased Premises. High power usage equipment includes without limitation, data processing machines, punch card machines, computers and machines which operate on 220 volt circuits. Lessee shall not install or operate high power usage equipment on the Leased Premises without Lessor's prior written consent, which may be refused unless Lessee confirms in writing its obligation to pay the additional charges necessitated by such equipment. At Lessor's option, separate meters for such utilities and services may be installed for the Leased Premises and Lessee upon demand therefor, shall immediately pay Lessor for the installation, maintenance, repair and replacement of such meters. 8.4 Lessor does not warrant that any of the services and utilities referred to above will be free from interruption. Interruption of services and utilities shall not be deemed an eviction or disturbance of Lessee's use and possession of the Leased Premises or any part thereof or render Lessor liable to Lessee for damages, or relieve Lessee from performance of Lessee's obligations under this Lease. 5 9. FIRE OR OTHER CASUALTY In the event the Building or the Leased Premises shall be destroyed or rendered untenantable, either wholly or in part, by fire or other casualty, Lessor may, at its option, restore the Building or Leased Premises to as near their previous condition as is reasonably possible, and in the meantime the rent shall be abated in the same proportion as the untenantable portion of the Leased Premises bears to the whole thereof; but unless Lessor, within sixty (60) days after the happening of any such casualty, shall notify Lessee of its election to so restore, this Lease shall thereupon terminate and end. Such restoration by Lessor shall not include replacement of furniture, equipment or other items that do not become part of the Building or any improvements to the Leased Premises in excess of those provided for in the allowance for building standard items. 10. WAIVER OF SUBROGATION Anything in this Lease to the contrary notwithstanding, Lessor and Lessee each hereby waives any and all claims against the other, its agents, officers, directors, shareholders or employees, for loss or damage to the Leased Premises or the Building, or any personal property of such party therein, that is caused by or results from fire and other perils insured against under (a) the normal fire with extended coverage property insurance policies, or (b) the standard business interruption insurance policies, carried by the parties and in force at the time of damage or loss. Each party shall cause each such insurance policy obtained by it to provide that the insurance company waives all right to recovery by way of subrogation against the other party in connection with any such damage or loss. 11. USES The Leased Premises are to be used only for the uses specified in Section 1.6 hereof, and for no other business or purpose without the prior written consent of Lessor. Lessee shall comply with all applicable laws, ordinances, rules and regulations in its use and occupancy of the Leased Premises, including those related to the use and disposal of hazardous substances and materials, and shall indemnify and hold Lessor harmless from any loss or damage resulting therefrom. Lessee shall not allow anything to be done in the Leased Premises which will increase the existing rate of insurance on the Building, and will immediately reimburse Lessor for any such resulting increase. Lessee shall not commit or allow to be committed any waste upon the Leased Premises, or any public or private nuisance or other act or thing which disturbs the quiet enjoyment of any other tenant in the Building. Lessee shall not, without the prior written consent of Lessor, use any apparatus, machinery or device in or about the Leased Premises which will cause any substantial noise or vibration. If any of Lessees office machines and equipment should disturb the quiet enjoyment of any other tenant in the Building, then Lessee shall provide adequate insulation, or take such other action as may be necessary to eliminate the disturbance. Lessee shall comply with all laws relating to its use of the Leased Premises. 6 12. SIGNS AND ADVERTISING Lessee shall not inscribe any inscription or post, place, or in any manner display any sign, notice, picture, placard or poster, or any advertising matter whatsoever, anywhere in or about the Leased Premises or the Building at places visible (either directly or indirectly as an outline or shadow on a glass pane) from anywhere outside the Leased Premises without first obtaining Lessor's written consent thereto. Any such consent by Lessor shall be upon the understanding and condition that Lessee will remove the same at the expiration or sooner termination of this Lease and Lessee shall pay Lessor the cost to repair any damage to the Leased Premises or the Building caused thereby. Lessor shall have the right to prohibit any advertising by Lessee which, in its opinion, tends to impair the reputation of the Building as a first-class shopping, business or professional area. 13. ACCIDENTS AND INDEMNITY 13.1 Lessee shall protect, defend, indemnify and hold Lessor harmless from all loss, damage, liability or expense, including attorneys' fees, resulting from any injury to any person or any loss of or damage to any property caused by or resulting from any act, omission or negligence of Lessee or any officer, employee, agent, contractor, invitee, or visitor of Lessee in or about the Leased Premises or the Building, but the foregoing provision shall not be construed to make Lessee responsible for loss, damage, liability or expense resulting from injuries to third parties caused by any act, omission or negligence of Lessor, or of any officer, employee, agent, contractor, invitee or visitor of Lessor. Except for the omissions or negligence of Lessor, Lessor shall not be liable for any loss or damage to person or property sustained by Lessee, or other persons, which may be caused by the Building or the Leased Premises, or any appurtenances thereto, being out of repair, or by the bursting or leakage of any water, gas, sewer or steam pipe, or by theft, or by any act of neglect of any tenant or occupant of the Building, or of any other person, or by any other cause of whatsoever nature. 13.2 Liability Insurance. Lessee shall, throughout the term of this Lease ------------------- and any renewal hereof, at its own expense, keep and maintain in full force and effect, a policy of commercial general liability insurance including a contractual liability endorsement covering Lessee's obligations under this Lease, insuring Lessee's activities upon, in or about the Leased Premises or the Building against claim of bodily injury or death or property damage or loss with a limit of not less than One Million Dollars ($1,000,000) combined single limit. 13.3 Property Insurance. Lessee shall, throughout the term of this Lease ------------------ and any renewal hereof, at its own expense, keep and maintain in full force and effect, what is commonly referred to as "all risk" coverage insurance (but excluding earthquake and flood) on Lessee's leasehold improvements and personal property and equipment in the Leased Premises in an amount not less than the current One Hundred Percent (100%) replacement value thereof. 13.4 Insurance Policy Requirements. All insurance under this Section 13 ----------------------------- shall be with companies satisfactory to Lessor and authorized to do business in Washington, and Lessor shall be named as an additional insured on all such policies of Lessee. No insurance policy required 7 hereunder shall be cancelled or reduced in coverage and each insurance policy shall provide that it is not subject to cancellation or a reduction in coverage except after thirty (30) days prior written notice to Lessor. Lessee shall deliver to Lessor prior to commencement of the lease term and from time to time thereafter, copies of policies of such insurance or certificates evidencing the existence and amounts of same and naming Lessor as an additional insured thereunder. In no event shall the limits of any insurance policy required hereunder be considered as limiting the liability of Lessee under this Lease. 14. LIENS AND INSOLVENCY Lessee shall keep the Leased Premises and the Building free from any liens arising out of any work performed, materials ordered or obligations incurred by Lessee. If Lessee becomes insolvent, voluntarily or involuntarily bankrupt, or if a receiver, or assignee or other liquidating officer is appointed for the business of Lessee, then Lessor, at its option, may immediately or any time thereafter terminate Lessees right of possession under this Lease. 15. DEFAULT AND RE-ENTRY Lessee covenants as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions by Lessee to be kept and performed and that this Lease is made upon the condition of such performance. Except for a default under the preceding Section 14 for which immediate right of termination is given to Lessor, if Lessee fails to pay any installment of rent within three (3) days after written notice, or to perform any other covenant under this Lease within thirty (30) days after written notice from Lessor stating the nature of the default, Lessor may terminate this Lease and re-enter and take possession of the Leased Premises using such force as may be necessary; provided that if the nature of such default other than for non- payment of rent is such that the same cannot reasonably be cured within such thirty-day period, Lessee shall not be deemed to be in default if Lessee shall within such period commence such cure and thereafter diligently prosecute the same to completion. If Lessor elects to terminate this Lease, Lessor may declare all rent owing for the remainder of the Term immediately due and payable, less the amount Lessee proves could reasonably be collected during such period. Notwithstanding such retaking of possession by Lessor and/or termination of this Lease, Lessee's liability for the rent provided herein shall not be extinguished for the balance of the term of this Lease, and Lessee shall make good to Lessor any deficiency arising from a reletting of the Leased Premises at a lesser rental, plus the costs and expenses of renovating or altering the Leased Premises and the costs and expenses of reletting the Leased Premises, including but not limited to, lease commissions, tenant improvements, etc. Lessee shall pay any such deficiency each month as the amount thereof is ascertained by Lessor. If Lessor retakes possession, Lessor shall have the right to let any other available space in the Building before reletting or attempting to relet the Leased Premises, and such action shall not relieve Lessee of any of its obligations hereunder. All remedies provided herein are cumulative and are in addition to those provided by law. 8 16. REMOVAL OF PROPERTY AND REPLACEMENT OF NON-STANDARD ITEMS Upon the expiration or termination of the lease term, Lessee shall (a) at its expense remove Lessees goods and effects and those of all persons claiming under Lessee, and (b) if Lessee caused the Leased Premises to be improved with other than building standard ceiling suspension system, acoustical tile ceiling, fluorescent light fixtures, millwork detail, doors and door frames, hardware or hard surface floor tile and base, or any corridor adjacent to the core of the Building to be other than building standard width and construction, Lessee shall pay Lessor an amount equal to the cost to replace all such non-standard items with building standard items and the cost to replace such non-standard public corridor with one of building standard width and construction. Lessee shall also be required to remove all data and telecommunications cabling installed after April 1, 1998 for use by Lessee in or around the Leased Premises (including building telecommunication closets and risers). Any property left in the Leased Premises after the expiration or termination of the lease term shall be deemed to have been abandoned and the property of Lessor to dispose of as Lessor deems expedient at Lessee's expense. 17. NON-WAIVER Failure of Lessor to insist, in any one or more instances, upon strict performance of any term, covenant or condition of this Lease, or to exercise any option herein contained, shall not be construed as a waiver, or a relinquishment for the future, of such term, covenant, condition or option, but the same shall continue and remain in full force and effect. The receipt by Lessor of rents with knowledge of a breach of any of the terms, covenants or conditions of this Lease to be kept or performed by Lessee shall not be deemed a waiver of such breach, and Lessor shall not be deemed to have waived any provision of this Lease unless expressed in writing and signed by Lessor. 18. COSTS AND ATTORNEYS' FEES Lessee shall reimburse Lessor for all costs, charges, expenses, consultant fees, expert witness fees and attorneys' fees that Lessor incurs, with or without litigation, (a) in connection with the enforcement of this Lease or (b) in connection with any action taken by Lessor in accordance with this Lease to protect its interests or to recover amounts owed to Lessor under this Lease including, but not limited to, any action necessitated by a bankruptcy filing by or against Lessee or the exercise by any other creditor of Lessee of its rights against Lessee. 19. PRIORITY Lessee agrees that this Lease shall be subordinate to any first mortgages or deeds of trust that may hereafter be placed upon the Leased Premises or the Building containing the same, and to any and all advances to be made thereunder, and to the interest thereon, and all renewals, replacement and extensions thereof. Within fifteen (15) days after written request from Lessor, Lessee shall execute any documents that may be necessary or desirable to effectuate the subordination of this Lease to any such mortgages or deeds of trust and shall execute estoppel 9 certificates as requested by Lessor from time to time in the standard form of any such mortgagee or beneficiary. 20. CONDEMNATION If all of the Leased Premises or such portions of the Building as may be required for the reasonable use of the Leased Premises, are taken by eminent domain, this Lease shall automatically terminate as of the date Lessee is required to vacate the Leased Premises and all rent shall be paid to that date. In case of a taking of a part of the Leased Premises, or a portion of the Building not required for the reasonable use of the Leased Premises, then this Lease shall continue in full force and effect and the rent shall be equitably reduced based on the proportion by which the floor area of the Leased Premises is reduced, such rent reduction to be effective as of the date possession of such portion is delivered to the condemning authority. Lessor reserves all rights to damages to the Leased Premises for any taking by eminent domain, and Lessee hereby assigns to Lessor any right Lessee may have to such damages or award, and Lessee shall make no claim against Lessor for damages for termination of the leasehold interest or interference with Lessee's business. Lessee shall have the right, however, to claim and recover from the condemning authority compensation for any loss to which Lessee may be put for Lessee's moving expenses and for the interruption of or damage to Lessee's business, provided, that such damages may be claimed only if they are awarded separately in the eminent domain proceeding and not as part of the damages recoverable by Lessor. 21. ASSIGNMENT AND SUBLETTING 21.1 Lessee shall not, without the prior written consent of Lessor, assign this Lease or any interest therein, or sublet the Leased Premises or any part thereof, or permit the use of the Leased Premises by any party other than Lessee or mortgage or otherwise transfer this Lease (collectively "transfer"). Such consent shall be entirely discretionary with Lessor, except as otherwise provided in Section 21.6. Consent to one such transfer shall not destroy or waive this provision, and all subsequent transfers shall likewise be made only upon obtaining prior written consent of Lessor. Sublessees or assignees shall become directly liable to Lessor for all obligations of Lessee hereunder, without relieving Lessee of any liability. 21.2 Anything contained herein to the contrary notwithstanding, Lessor hereby consents to an assignment of this Lease, or subletting of all or part of the Leased Premises, to (a) the parent of Lessee or to a wholly owned subsidiary of Lessee or of such parent, (b) any corporation into which or with which Lessee may be merged or consolidated, provided that the net worth of the, resulting corporation is at least equal to the greater of (i) the net worth of Lessee on the date hereof or (ii) the net worth of Lessee immediately prior to such merger or consolidation, or (c) any entity to which Lessee sells all or substantially all of its assets, provided that such entity expressly assumes all of Lessee's obligations hereunder. An assignment forbidden within the meaning of this Section includes without limitation one or more sales or transfers, by operation of law or otherwise, or creation of new stock, by which an aggregate of more than fifty percent (50%) of Lessee's stock shall be vested in a party or parties who are nonstockholders as of the date hereof. This Section 21.2 shall not apply if Lessee's stock is or becomes listed on a 10 recognized security exchange or if at least eighty percent (80%) of its stock is owned by a corporation whose stock is listed on a recognized security exchange. 21.3 If Lessee wishes to assign this Lease or sublet the Leased Premises or any part therof, Lessee shall first give written notice ("Lessee's Notice") to Lessor of its intention to do so, which notice shall contain the name of the proposed assignee or subtenant (collectively "transferee"), the nature of the proposed transferee's business to be carried on in the Leased Premises and the terms and provisions of the proposed assignment or sublease. Lessee shall also provide Lessor with a copy of the proposed assignment or sublease when it is available and such financial and other information with respect to the proposed transferee and transfer that Lessor may reasonably require. At any time within sixty (60) days after Lessor's receipt of Lessee's Notice, Lessor may by written notice ("Lessor's Notice") to Lessee elect to, (a) recapture the affected space by terminating this Lease as to the portion of the Leased Premises covered by the proposed sublease or assignment effective upon a date specified in Lessor's Notice, which date shall not be earlier than thirty (30) days nor later than sixty (60) days after Lessor's Notice, with a proportionate reduction of all rights and obligations of Lessee hereunder that are based on the area of the Leased Premises, (b) consent to the proposed sublease or assignment, or (c) disapprove the proposed sublease or assignment. If Lessor's Notice states Lessor elects to exercise the recapture option described above, Lessee shall have the option for a period of ten (10) days after receipt of Lessor's Notice by written notice to Lessor within such period to withdraw Lessee's Notice of proposed transfer and not proceed with the proposed sublease or assignment. 21.4 Whether or not Lessor consents to a proposed transfer, Lessee shall reimburse Lessor on demand for any and all costs that may be incurred by Lessor in connection with any proposed transfer including, without limitation, the cost of investigating the acceptability of the proposed transferee and attorneys' fees incurred in connection with each proposed transfer. 21.5 If Lessor consents to any proposed assignment or sublease, (a) Lessee may enter into same, but only upon the specific terms and conditions set forth in Lessee's Notice, (b) any sublease or assignment shall be subject to, and in full compliance with, all of the terms and provisions of this Lease, (c) the consent by Lessor to any assignment of sublease shall not relieve Lessee of any obligation under this Lease, (d) each transferee shall assume all obligations of Lessee under this Lease and shall be and remain jointly and severally liable with Lessee for the payment of rent, and the performance of all of the terms, covenants, conditions and agreements herein contained on Lessees part to be performed, (e) no assignment shall be binding on Lessor unless Lessee and the transferee shall deliver to Lessor a counterpart of the assignment that contains a covenant of assumption by the transferee satisfactory to Lessor and is otherwise satisfactory in form and substance to Lessor, and (f) any rent or other consideration accruing to Lessee as the result of such assignment of sublease which is in excess of the rent then being paid by Lessee for the portion of the Leased Premises affected by the assignment or sublease, shall be paid by Lessee to Lessor monthly as additional rent. 11 21.6 Notwithstanding the foregoing, in the event of a proposed assignment or sublease, if Lessor does not exercise its option to recapture under Section 21.3, then Lessor will not unreasonably withhold its consent thereto if (a) Lessee is not then in default hereunder, (b) the proposed transferee will continuously occupy and use the Leased Premises for the term of the transfer; (c) the use by the proposed transferee will be a business office consistent in quality to and otherwise compatible with the other tenants in the Building, (d) the proposed transferee is reputable and of sound financial condition, and (e) the Base Monthly Rent under this Lease is amended (if necessary), to be the base monthly rent Lessor is then willing to accept from others for the Leased Premises during the remaining term of the Lease as assigned or the term of the sublease, which shall be the then fair rental value thereof as reasonably determined by Lessor, which may be a fixed monthly amount or an amount that increases periodically and (f) the use by the proposed transferee will not violate any rights of exclusivity granted to other tenants or any other restrictions on use to which Lessor is subject. 21.7 Any option(s) granted to Lessee in this Lease or any option(s) granted to Lessee in any amendments to this Lease, to the extent that said option(s) have not been exercised, shall terminate and be voided in the event this Lease or any portion thereof is assigned, or any part of the Leased Premises are sublet, or all or any portion of Lessee's interest in the Leased Premises are otherwise transferred. 22. RULES, REGULATIONS AND MISCELLANEOUS 22.1 Lessee shall use the Leased Premises and the public areas in the Building in accordance with such reasonable rules and regulations as may from time to time be adopted by Lessor for the general safety, care and cleanliness of the Leased Premises or the Building, and the preservation of good order therein, and shall cause Lessee's employees, agents, invitees and visitors to abide by such rules and regulations. 22.2 Lessee shall not place any boxes, cartons, or other rubbish in the corridors or other public areas of the Building. 22.3 Lessor does not guarantee the continued present status of light or air over any premises adjoining or in the vicinity of the Building. Any diminution or shutting off of light, air or view by any structure which may be erected on lands near or adjacent to the Building shall in no way affect this Lease or impose any liability on Lessor. 22.4 Lessee shall conserve heat, air-conditioning, water and electricity and shall use due care in the use of the Leased Premises and of the public areas in the Building, and without qualifying the foregoing, shall not neglect or misuse water fixtures, electric lights and heating and air-conditioning apparatus. 22.5 Lessor shall not be liable for the consequences of admitting by pass- key or refusing to admit to the Leased Premises the Lessee or any of the Lessee's agents or employees or other persons claiming the right of admittance. 12 22.6 Lessee shall peaceably and quietly enjoy the Leased Premises so long as it pays the rent payable by it hereunder and is not in default in performing all the provisions of this Lease. 22.7 The titles to sections of this Lease are for convenience only and shall have no effect upon the construction or interpretation of any part thereof This Lease shall be governed by the laws of the State of Washington. 22.8 All notices under this Lease shall be in writing and delivered in person or sent by registered or certified mail to Lessor at the same place rent payments are made, and to Lessee at the Leased Premises, or such addresses as may hereafter be designated by either party in writing. Notices mailed as aforesaid shall be deemed given on the third business day after the date of such mailing. 22.9 The rent herein is exclusive of any sales, business and occupation, gross receipts or other tax based on rents or tax upon this Lease or tax upon or measured by the number of employees of Lessee or the area of the Leased Premises or any similar tax or charge. If any such tax or charge be hereafter enacted, Lessee shall reimburse to Lessor the amount thereof together with each Base Monthly Rent payment. If it shall not be lawful for Lessee so to reimburse Lessor, the Base Monthly Rent payable to Lessor under this Lease shall be revised to net Lessor the same net rental after imposition of any such tax or charge upon Lessor as would have been payable to Lessor prior to the imposition of such tax or charge. Lessee shall not be liable to reimburse Lessor for any federal income tax. 22.10 Lessee shall not place any plants, sculptures or other items so as to be located wholly or partially in the public corridor portions of the Building without Lessor' s prior written approval. 22.11 All improvements, alterations or additions which may be made by either of the parties hereto upon the Leased Premises, except movable office furnishings, shall become part of the Building when made, and shall remain upon and be surrendered with the Leased Premises as a part thereof. The maintenance and care of such improvements shall be the responsibility of Lessee, except as otherwise provided in Section 9. For example, Lessor shall vacuum, but Lessee shall shampoo, repair and replace carpets. Wall paneling, partitions, closets, built-in cabinets, sinks, doors, however attached, floor coverings and other built-in units of all kinds are a partial listing of improvements that become property of Lessor as aforesaid. Wall hung office furniture, refrigerator/sink units and other electrical appliances may be removed by Lessee provided the reasonably estimated amount to cap plumbing and repair screw holes or other damage is paid by Lessee to Lessor prior to such removal and such removal does not cause any material damage to the property. 22.12 The freight elevator shall not be used by Lessee or others to move furniture, supplies or other items to or from the Leased Premises unless Lessee prior to such use has scheduled and coordinated such use with Lessor's Service Department. Lessee shall not permit passenger elevators to be used to move furniture, supplies or other items to or from the Leased 13 Premises. Lessee shall cause its suppliers and other providers to comply with the foregoing provisions. 22.13 The name of the Building may at anytime be changed by Lessor. 22.14 This Lease is the final and complete expression of the parties' agreement and no representations, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force and effect. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated orally, but only by instrument in writing executed by Lessor and Lessee. 22.15 UNICO Properties, Inc. (UNICO) is Lessor's manager and rental agent in all matters concerning this Lease and the Leased Premises, and the Lessee, until notified in writing to the contrary by either the Lessor or UNICO or the Assignee of Lessor's interest under this Lease, shall recognize such agency and pay all rental, furnish all statements, and give any notice which the Lessee may be under the duty of giving hereunder, or may elect to give hereunder, to UNICO at its office in the City of Seattle, King County, Washington, instead of to the Lessor. As long as such agency shall exist, the rights and options extended to Lessor shall be deemed extended to UNICO, and each and every other term and provision of this Lease which is in any way beneficial to the Lessor, including especially every stipulation against liability, or limiting liability, shall inure to the benefit of UNICO and its agents and shall be applicable to UNICO and its agents in the same manner and as fully and with the same effect as to Lessor. Whenever Lessor's consent is required, Lessee shall request such consent from UNICO. The consent of UNICO shall be deemed the consent of UNICO and Lessor. 22.16 Lessee agrees to look only to the equity of Lessor in the Building and the Land and not to Lessor personally with respect to any obligations or payments due or which may become due from lessor hereunder, and no other property or assets of Lessor or any partner, joint venturer, member, officer, director, shareholder, agent, or employee of Lessor, disclosed or undisclosed, shall be subject for the satisfaction of Lessee's claims under or with respect to this Lease, and no partner, member, officer, director, agent or employee of Lessor shall be personally liable in any manner or to any extent in connection with this Lease. If at any time the holder of Lessor's interests hereunder is a partnership, limited liability company or joint venture, a deficit in the capital account of any partner, member or joint venturer shall not be considered an asset of such partnership, limited liability company or joint venture. In the event of a sale or conveyance by Lessor of the Building, the same shall operate to release Lessor from any and all obligations and liabilities on the part of Lessor accruing from and after the effective date of the sale or conveyance. 22.17 Broker Commission Lessee shall defend, indemnify and hold Lessor ----------------- harmless from all claims and liabilities or expenses arising from agreements or other arrangements made by or on behalf of Lessee with any broker or finders. Notwithstanding the foregoing, Lessor acknowledges the representation of Lessee by Colliers Macaulay Nicolls International in connection with this Lease, and Lessor shall pay a broker's commission to Colliers Macaulay Nicolls International in 14 keeping with Lessor's standard policy, and any indemnity by Lessee set forth herein shall not apply to any claim by Colliers Macaulay Nicolls International against Lessor. 22.18 Security Deposit Lessee has deposited the sum specified in Section ---------------- 1.10 with Lessor. Lessor shall pay the remaining balance thereof to Lessee, without any interest thereon, within thirty (30) days after the expiration or prior termination of the lease term, or any extension thereof, if Lessee has fully performed all of its obligations under this Lease. Lessor may withdraw from the deposit the amount of any unpaid rent or additional rent or other charges not paid to Lessee when due, and Lessee shall immediately redeposit an amount equal to that so withdrawn. 22.19 Holdover If Lessee remains in possession of all or part of the Leased -------- Premises after the expiration of the term of this Lease, with or without Lessor's written consent, for each month or partial month of such possession, Lessee shall pay Lessor an amount equal to 150% of the Base Monthly Rent payable hereunder immediately prior to the expiration of the term. Such holdover by Lessee shall not be deemed an extension of the term or the grant by Lessor to Lessee of a month to month tenancy. Lessee shall also indemnify and hold Lessor harmless from all loss, cost, liability and expense incurred by Lessor if Lessee remains in such possession of all or part of the Leased Premises without Lessor's prior written consent. 22.20 Recording Neither Lessor nor Lessee shall record this Lease or any --------- memorandum thereof. 22.21 Directory Board Lessor shall, throughout the term of this Lease, --------------- maintain a directory board in the main lobby of the building which shall list Lessee, and up to ten (10) of Lessee's employees. The cost of said designations shall be at Lessor's expense for the initial ten (10) designations and at Lessee's expense thereafter. 22.22 Authority Each individual executing this Lease on behalf of Lessee --------- represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of Lessee and that this Lease is binding on Lessee in accordance with its terms. 23. SUCCESSORS All the covenants, agreements, terms and conditions contained in this Lease shall apply to and be binding upon Lessor and Lessee and their respective heirs, executors, administrators, successors and assigns. 24. SHARED TENANT SERVICES Lessee, acknowledges that any provision of telecommunications and office automation services and equipment ("Shared Tenant Services") by a gird party provider, including but not limited to Shared Technologies Inc., its agents, affiliates and successors (the "Provider") is entirely separate and distinct from this Lease agreement and that Lessor has no duty of performance concerning the provision of Shared Tenant Services. Lessee hereby agrees to look solely to the provider for any failure in the provision of Shared Tenant Services. 15 25. AMERICANS WITH DISABILITIES ACT (ADA) COMPLIANCE Lessor and Lessee acknowledge that, in accordance with the provisions of the Americans with Disabilities Act (the "ADA"), responsibility for compliance with the terms and conditions of Title III of the ADA may be allocated as between Lessor and Lessee. Notwithstanding anything to the contrary contained in the Lease, Lessor and Lessee agree that the responsibility for compliance with the ADA (including, without limitation, the removal of architectural and communications barriers and the provision of auxiliary aids and services to the extent required) shall be allocated as follows: (i) Lessee shall be responsible for compliance with the provisions of Title III of the ADA for any construction, renovations, alterations and repairs made within the Leased Premises if such construction, renovations, alterations and repairs are made by Lessee, at its expense without the assistance of the Lessor; (ii) Lessee shall be responsible for compliance with the provisions of Title III of the ADA for all construction, renovations, alterations and repairs Lessor makes within the Leased Premises, whether at Lessor's or Lessee's expense; and (iii) Lessor shall be responsible for compliance with the provisions of Title III of the ADA for all exterior and interior areas of the Building not included within the Leased Premises. Lessor agrees to indemnify and hold Lessee harmless from and against any claims, damages, costs and liabilities arising out of Lessor's failure, or alleged failure, as the case may be, to comply with Title III of the ADA, which indemnification obligation shall survive the expiration or termination of this Lease. Lessee agrees to indemnify and hold Lessor harmless from and against any claims, damages, costs and liabilities arising out of Lessee's failure, or alleged failure, as the case may be, to comply with Title III of the ADA, which indemnification obligation shall survive the expiration or termination of this Lease. Lessor and Lessee each agree that the allocation of responsibility for ADA compliance shall not require Lessor or Lessee to supervise, monitor or otherwise review the compliance activities of the other with respect to its assumed responsibilities for ADA compliance as set forth in this Section. The allocation of responsibility for ADA compliance between Lessor and Lessee, and the obligations of Lessor and Lessee established by such allocations, shall supersede any other provisions of the Lease that may contradict or otherwise differ from the requirements of this Section. 26. TENANT IMPROVEMENTS Prior to April 1, 1998, Lessor shall, at Lessor's expense, complete the following work within the Leased Premises: (a) Construct, finish and paint new demising walls on the west side and the east side of the Leased Premises, in the locations shown on Exhibit A. Electrical work required in the construction of such demising walls shall be paid for by Lessee. (b) Construct an access corridor and new door for the main entrance to the Leased Premises on the west side of the elevator lobby, as shown on Exhibit A. Notwithstanding Section 16 above, Lessee shall have no obligation to pay Lessor at the end of the Lease term for the cost to replace the access corridor. 16 27. OPTION TO CANCEL Lessor and Lessee each shall have the option to terminate this Lease upon ninety (90) days prior written notice. In the event the Lease is terminated prior to the expiration of the Lease, Lessee shall pay to Lessor the unamortized commission fee plus interest at eleven percent (11%) per annum. IN WITNESS WHEREOF, this Lease has been executed by Lessor and Lessee as of the day and year first above set forth. LESSEE: LESSOR: UNION SQUARE LIMITED ATRIEVA CORPORATION, a PARTNERSHIP, a Washington Limited Washington corporation Partnership By UNICO PROPERTIES, INC. (Manager and authorized rental agent for Union Square Limited Partnership) By /s/ALAN J. HIGGINSON -------------------- Its President & CEO --------------- By /s/JOHN SCHOETTLER ------------------ John Schoettler, Vice President 17 LESSOR'S AKNOWLEDGEMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 11th day of February, 1998, before me personally appeared John ---- --------- Schoettler, to me known to be the Vice President of UNICO PROPERTIES, INC., the corporation that executed the within and foregoing instrument, and acknowledged, the said instrument to be the free and voluntary act and deed of said corporation and Union Square Limited Partnership, for the uses and purposes therein mentioned, and on oath stated that he (she) was authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. [NOTARY SEAL GOES HERE] /s/ANNE VAN HEUSDEN ------------------- Anne Van Heusden Notary Public in and for the State of Washington, residing at Bellevue. My commission expires: 3-10-2000. LESSEE'S CORPORATE ACKNOWLEDGEMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 28th day of January, 1998, before me personally appeared Alan J. ---- ------- ------- Higginson to me known to be President and CEO of ATRIEVA CORPORATION, the - --------- ----------------- corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that they (he or she) were authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/LAURI GAYLE FULLNER ---------------------- (Print name)Lauri Gayle Fullner Notary Public in and for the State of Washington, residing at Seattle ------- My commission expires: 10-30-00 -------- [THIS PAGE IS BLANK] ------ UNION ------ SQUARE ------ DATE: March 9,1999 TO: Mr. Kern Maresca Atrieva Corporation 600 University Street #911 Seattle, WA 98101 We are forwarding the below via: [ ] US Mail [ ] Courier Delivery [X] Personal Delivery [ ] Express Overnight [ ] Others ____________ COPIES DATE DESCRIPTION 1 01/15/1999 Executed copy of Atrieva Corporation's First Amendment to Lease for Rooms 905-921, One Union Square, Seattle, WA. THE AFOREMENTIONED DOCUMENTS ARE TRANSMITTED as checked below: [ ] For approval [X] For your information/files [ ] As requested previously discussed [ ] For your review and comment [ ] Signature and notary REMARKS BY: /s/ARNE GILLAM Arne Gillam Director of Leasing Union Square [STAMPED MARKED "ORIGINAL" GOES HERE] FIRST AMENDMENT TO LEASE Lessor: Union Square Limited Partnership Lessee: Atrieva Corporation Premises: Commonly referred to as Rooms 905-21 in the Building as more particularly referred to in the Lease. Date of this Amendment: January 15,1999 Lessor and Lessee are parties to a Lease dated January 27, 1998, and desire to amend the same as follows: 1. Section 1.3 Term shall be changed from [***], to a term of [***]. 2. Section 1.4 Rent is changed to read [***]. 3. Section 27 is deleted. 4. All other terms and conditions of the Lease are to remain the same. Please execute all three (3) originals of the First Amendment to Lease, have your signature witnessed by a Notary Public, and return all three originals to my attention. Upon receipt of the same I will do likewise returning one original for your records. Lessee: Lessor: Atrieva Corporation Union Square Limited Partnership, Washington Limited Partnership by /s/KERN MARESCA Unico Properties, Inc., (manager and leasing agent for Union Square Limited Partnership) By_________________ By /s/DONALD M. WISE ----------------- Its VP Finance Its Senior Vice President ---------- --------------------- Date 3-4-99 Date 3-8-99 ------ ------ LESSEE'S CORPORATE ACKNOWLEDGEMENT STATE OF WAHINGTON ) ) ss. COUNTY OF KING ) On this 4th day of March, 1999, before me personally appeared Kern Maresca to me known to be the Vice President of Finance of Atrieva Corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that they (he or she) were authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/SHIELAH C. SABALZA --------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. LESSOR'S AKNOWLEDGEMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 8th day of March, 1999, before me personally appeared Donald M. Wise, to me known to be the Senior Vice President of UNICO PROPERTIES, INC., the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation and UNION SQUARE LIMITED PARTNERSHIP, for the uses and purposes therein mentioned, and on oath stated that he (she) was authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/SHIELAH C. SABALZA --------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. [THIS PAGE IS BLANK] SECOND AMENDMENT TO LEASE Lessor: UNION SQUARE LIMITED PARTNERSHIP Lessee: Atrieva Corporation, a Washington corporation Premises: Commonly referred to as Suite 911 in the One Union Square Building as more particularly described in the Lease. Date of this Amendment: September 15, 1999 Lessor and Lessee are parties to Lease dated January 27, 1998, as amended January 15, 1999, (the Lease) and desire to further amend the Lease. The parties mutually agree: 1. Section 1.1, Leased Premises is hereby amended from rooms 905-921 to rooms --------------- 911-921. 2. Section 1.2, Floor Areas is hereby amended from 8,389 usable square feet; ----------- 9,396 rentable square feet to 6,391 usable square feet; 7,221 rentable square feet. 3. Section 1.2, Floor Areas is hereby amended from 1.52946 percent of the ------------ rentable area of the Building to 1.0982 percent. 4. Section 1.3 Term is hereby amended from [***]. ---- 5. Section 1.4 Rent is hereby amended as follows: ---- Commencing [***] and thereafter on the first day of each calendar month until [***], Lessee shall pay base monthly rent of [***] for the entire Leased Premises (9,396 rsf). Commencing [***] and thereafter on the first day of each calendar month until [***], Lessee shall pay base monthly rent of [***]. Commencing [***] and thereafter on the first day of each calendar month until [***], Lessee shall pay base monthly rent of [***]. Commencing [***] and thereafter on the first day of each calendar month until [***], Lessee shall pay base monthly rent of [***]. Commencing [***] and thereafter on the first day of each calendar month until [***], Lessee shall pay base monthly rent of [***]. Commencing [***] and thereafter on the first day of each calendar month until [***], Lessee shall pay base monthly rent of [***]. 6. Section 1.9 Base Indices is incorporated with a base year of 1999. ------------ Consumer Price Index for September 1999. Cost of electricity per kilowatt-hour (average) for 12 months ending September 30, 2000. Janitorial hourly labor rate as of September 30, 1999. Operating Cost Adjustment Base: $6.96 per sq. ft, per yr. The first rent adjustment pursuant to Section 27 will be January 1, 2001. 7. Section 21.8 Lessee shall be permitted to sublease individual offices to any subagents and/or clients, without obtaining Lessor's consent. Otherwise, Lessee shall be permitted to sublease or assign all or a portion of the Premises, subject to Lessor's consent, which shall not be unreasonably withheld. Any profits from a sublease or assignment above and beyond the documented rent that Lessee is paying shall be split 50/50 between Lessor and Lessee. Said profits shall be net of any fees associated with subleasing or assigning the Premises. 8. Section 27. Option to Cancel shall be deleted and replaced with Sec. 27 Annual Rent Adjustment (Operating Expenses). 27.1 A portion of the initial rental rate shall be adjusted January 1 of each year during the term of this Lease commencing January 1, 2001. Three separate indicators, each to be factored separately by one-third of the Operating Cost Adjustment Base, are used to provide a reasonably broad base to determine the amount of such adjustment. These indicators are the Consumer Price Index, the cost of electricity and janitorial hourly labor rate. 27.2 The base indices for the Consumer Price Index, the cost of electricity and janitorial hourly labor rate, shall be as stated in Section 1.5. Succeeding indices for each of these indices will be calculated annually thereafter, using the succeeding data for the month of September, 12-month period ending September 30, and September 30, respectively. The ratio that each succeeding index bean to its base index shall be reduced by 1.00 and multiplied by one-third of the Operating Cost Adjustment Base, and by the rentable area of the Leased Premises. Each January 1, commencing the calendar year specified in Section 1.5, the monthly rent otherwise provided for in this Lease shall be increased by 1/12th the sum of the amounts so determined. In no event shall the Base Monthly Rent be decreased. 27.3 The Consumer Price Index to be used shall be the Consumer Price Index for all urban consumers, U.S. city average, all items, series 1982-84 equals 100 (as published by the U.S. Department of Labor, Bureau of Statistics). If this index is revised or changed Page 2 (as, for example, by taking the average index for different years as the base figure of 100) the base index shall all be adjusted accordingly. If this index is discontinued, the index promulgated by the Department of Labor, which most closely approximates the above-referenced index, shall be used and the base index shall be adjusted accordingly. 27.4 The cost of electricity to be used shall be the average cost to Lessor per kilowatt-hour of electricity consumed in the Building for the 12- month periods ending the September 30 specified in Section 1.5 and each September 30 thereafter. 27.5 The janitorial hourly labor rate to be used shall be the hourly compensation paid to persons employed as janitors in the Building, including all applicable taxes and fringe benefits payable by employers. 9. Lessor shall provide Lessee with a tenant improvement allowance of [***] per usable square foot for improvements to the Leased Premises, including the demising of the downsized space. The allowance amount shall be reduced to reimburse Lessee for previously installed carpet. Lessee shall furnish Lessor with an invoice stipulating such amount. 10. Sec. 28 Option to Extend [***] provided Lessee fully satisfies the conditions hereafter stated. If so extended, this lease shall continue as though the extended term were part of the original term except the base monthly rent pursuant to Section 1.4 shall be [***]. Lessee's right to extend the lease as above stated is subject to the following conditions: (a) Lessee shall give Lessor six (6) months prior written notice pursuant to this section of the Lease. (b) Lessee shall not be in default under the Lease when said notice is given. (c) This Lease shall be in full force and effect when said notice is given. (d) Lessee shall have confirmed in writing Lessee's obligation to pay the base monthly rent required by Lessor for the extended term within 30 (30) days of notification by Lessor of said rental rate. (e) Upon receipt of Lessee's acknowledgement, Lessor shall prepare an amendment modifying the lease. 11. Sec. 29 Brokerage Fees shall be added to read as the following: A brokerage fee of [***] per rentable square foot will be paid to Colliers International, one-half at signing of the lease and one-half upon occupancy. Page 3 12. Exhibit "A" of the Lease, changed to reflect the revised floor plan, is attached hereto an made a part hereof. 13. All other terms and conditions are to remain the same. Lessee: Lessor: ATRIEVA CORPORATION, A UNION SQUARE LIMITED WASHINGTON CORPORATION, PARTNERSHIP, a Washington corporation a Washington Limited Partnership By UNICO PROPERTIES, INC. (Manager and authorized rental agent for Union Square Limited Partnership) By /s/KERN MARESCA By /s/DONALD M. WISE --------------- ----------------- Kern Maresca Donald M. Wise Its Vice President of Finance Its Senior Vice President ------------------------- --------------------- Date: 9-17-99 Date: 9-20-99 ------- ------- Page 4 LESSOR'S ACKNOWLEDGMENT STATE OF WASHINGTON) ) ss. COUNTY OF KING ) On this 20th day of September, 1999, before me personally appeared Donald M. Wise, to me known to be the Senior Vice President of UNICO PROPERTIES, INC., the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation and UNION SQUARE LIMITED PARTNERSHIP, for the uses and purposes therein mentioned, and on oath stated that he (she) was authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/SHIELAH C. SABALZA --------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. LESSEE'S CORPORATE ACKNOWLEDGEMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 17th day of September, 1999, before me personally appeared Kern Maresca to me known to be the Vice President of Finance of Atrieva Corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that they (he or she) were authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ SHIELAH C. SABALZA --------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. Page 6 [MAP OF BUILDING GOES HERE] ATRIEVA CORPORATION Rooms 905-921 EXHIBIT A [MAP OF BUILDING GOES HERE] Atrieva Corporation Rooms 911-921 (Amended) EXHIBIT A [THIS PAGE IS BLANK] -------- UNION -------- SQUARE -------- DATE: October 11,1999 TO: Mr. Kern Maresca Atrieva Corporation 600 University Street #911 Seattle, WA 98101 We are forwarding the below via: [X] US Mail [ ] Courier Delivery [ ] Personal Delivery [ ] Express Overnight [ ] Others ____________ COPIES DATE DESCRIPTION 1 09/24/1999 Executed copy of Atrieva Corporation's Third Amendment to Lease for Rooms 911 of One Union Square in Seattle, Washington. THE AFOREMENTIONED DOCUMENTS ARE TRANSMITTED as checked below: [ ] For approval [X] For your information/files [ ] As requested previously discussed [ ] For your review and comment [ ] Signature and notary REMARKS THIRD AMENDMENT TO LEASE Lessor Union Square Limited Partnership Lessee: Atrieva Corporation Premises: Commonly referred to as Suite 911 in the One Union Square Building as more particularly described in the Lease. Date of this Amendment September 24, 1999 Lessor and Lessee are parties to Lease dated January 27, 1998 as amended and desire to further amend the lease as follows: Section 30, Real Property Taxes shall be added as follows: [***] The foregoing charges constitute additional rent that shall be deemed to accrue uniformly during the calendar year in which the payment is due. Payment under the provisions of this Section for the year the lease term ends shall be prorated, based on reasonable projections of the increase through the termination of this Lease and shall be due thirty (30) days before such termination. All other terms and conditions are to remain the same. Lessee: Lessor: Atrieva Corporation, a Washington Union Square Limited Partnership Corporation a Washington Limited Partnership By Unico Properties, Inc. (Manager and Authorized rental agent for Union Square Limited Partnership) By /s/ KERN MARESCA By /s/ DONALD M. WISE --------------- ----------------- Kern Maresca Donald M. Wise Its Vice President Its Senior Vice President - --------------------- --------------------- Date 9-29-99 Date 9-29-99 ------- ------- LESSEE'S CORPORATE ACKNOWLEDGEMENT STATE OF WAHSINGTON ) ) ss. COUNTY OF KING ) On this 29th day of September, 1999, before me personally appeared Kern Maresca to me known to be the Vice President of Finance of Atrieva Corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that they (he or she) were authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ SHIELAH C. SABALZA --------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. LESSOR'S ACKNOWLEDGEMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 29th day of September, 1999, before me personally appeared Donald M. Wise, to me known to be the Senior Vice President of UNICO PROPERTIES, INC., the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation and UNION SQUARE LIMITED PARTNERSHIP, for the uses and purposes therein mentioned, and on oath stated that he (she) was authorized to execute the said instrument and that the seat affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year fast above written. /s/ SHIELAH C. SABALZA --------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. [ORIGINAL STAMPED HERE] FIRST AMENDMENT TO LEASE Lessor: Union Square Limited Partnership Lessee: Atrieva Corporation Premises: Commonly referred to as Rooms 905-21 in the Building as more particularly referred to in the Lease. Date of this Amendment: January 15,1999 Lessor and Lessee are parties to a Lease dated January 27, 1998, and desire to amend the same as follows: 1. Section 1.3 Term shall be changed from [***], to a term of [***]. 2. Section 1.4 Rent is changed to read [***] commencing [***] and ending [***]. 3. Section 27 is deleted. 4. All other terms and conditions of the Lease are to remain the same. Please execute all three (3) originals of the First Amendment to Lease, have your signature witnessed by a Notary Public, and return all three originals to my attention. Upon receipt of the same I will do likewise returning one original for your records. Lessee: Lessor: Atrieva Corporation Union Square Limited Partnership, a Washington Limited Partnership by /s/KERN MARESCA Unico Properties, Inc., (manager and leasing agent for Union Square Limited Partnership) By By /s/ DONALD M. WISE ------------------ ------------------ Its VP Finance Its Senior Vice President ---------- --------------------- Date 3-4-99 Date 3-8-99 ------ ------ LESSEE'S CORPORATE ACKNOWLEDGEMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 4th day of March, 1999, before me personally appeared Kern Maresca to me known to be the Vice President of Finance of Atrieva Corporation, the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that they (he or she) were authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. /s/ SHIELAH C. SABALZA ---------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. LESSOR'S ACKNOWLEDGEMENT STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On this 8th day of March, 1999, before me personally appeared Donald M. Wise, to me known to be the Senior Vice President of UNICO PROPERTIES, INC., the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation and UNION SQUARE LIMITED PARTNERSHIP, for the uses and purposes therein mentioned, and on oath stated that he (she) was authorized to execute the said instrument and that the seal affixed (if any) is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seat the day and year first above written. /s/ SHIELAH C. SABALZA ---------------------- Shiela C. Sablza [NOTARY SEAL GOES HERE] Notary Public in and for the State of Washington, residing at Seattle. My commission expires April 2, 2002. EX-10.39 33 LEASE AGREEMENT BRYANT ST EXHIBIT 10.39 [LOGO] STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Basic Provisions ("Basic Provisions"). 1.1 Parties: This Lease ("Lease"), dated for reference purposes only November 29, 1999, is made by and between BRYANT STREET ASSOCIATES, 33 BRYANT STREET, SUITE 200, SAN FRANCISCO, CA 94107 ("Lessor") and DRIVEWAY CORPORATION, 380 BRANNON STREET, SAN FRANCISCO 94107 ("Lessee"), (collectively the "Parties", or individually a "Party"). 1.2(a) Premises: That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 460 BRYANT STREET located in the City of SAN FRANCISCO, County of SAN FRANCISCO, State of CALIFORNIA, with zip code 94107, as outlined on Exhibit A attached hereto ("Premises") and generally described as (describe briefly the nature of the Premises): 9930 SQUARE FEET OF THE SECOND FLOOR, WHICH INCLUDES EXCLUSIVE USE OF BATHROOMS ON THE FLOOR AND SHARED USE OF STAIRS AND COMMON LOADING. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the building containing the Premises ("Building") or to any other buildings in the Project. The Premises, the Building collectively referred to as the "Project." (See also Paragraph 2.) [1.2 (b) Parking: THIS HAS BEEN CROSSED OUT] 1.3 Term: [***] ("Original Term") commencing [***] ("Commencement Date") and ending [***] ("Expiration Date"). (See also Paragraph 3.) 1.4 Early Possession:_______________________________("Early Possession Date") (See also Paragraphs 3.2 and 3.3.) 1.5 Base Rent: [***] per month ("Base Rent"), payable on the FIRST day of each month commencing [***]. (See also Paragraph 4) [_] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 Lessee's Share of Common Area Operating Expenses: [***] ("Lessee's Share"). 1.7 Base Rent and Other Monies Paid Upon Execution: (a) Base Rent: [***] for the period [***] through [***] (b) Common Area Operating Expenses: [***] for the period [***] (c) Security Deposit: [***] ("Security Deposit"). (See also Paragraph 5.) (d) Other: $______________ for___________________________________ (e) Total Due Upon Execution of this Lease: [***] 1.8 Agreed Use: SOFTWARE DEVELOPMENT 1.9 Insuring Party. Lessor is the "Insuring Party". (See also Paragraph 8.) 1.10 Real estate Brokers: (See also Paragraph 15.) (a) Representation: The following real estate brokers (the "Brokers") and brokerage relationships exist in this transaction (check applicable boxes): [_] TRI COMMERCIAL REAL ESTATE SERVICES represents Lessor exclusively (Lessor's Broker") [_] WALKER PACIFIC represents Lessee exclusively ("Lessee's Broker"); or [_] _________________represents both Lessor and Lessee ("Dual Agency") (b) Payment to Brokers: Upon execution and delivery of this Lease by both parties, Lessor shall pay to Brokers of the total Base Rent for the brokerage series rendered by the Brokers). 1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by __________("Guarantor"). (See also Paragraph 37.) 1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 55 and Exhibits A through B, all of which constitute a part of this Lease. 2. Premises. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term a the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. 2.2 Condition. Lessor shall deliver that portion of the Premises contained within the Building ("Unit") to Lessee broom clear and free of debris on the Commencement Date of the early Possession Date, whichever first occurs ("Start Date"), and, so long as the required service contracts described in Paragraph 7.1 (b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC") on said date and that the structural elements of the room, bearing walls and foundation of the Unit shall be free of material defects. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non- compliance malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee and Lessee's sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7). 2.3 Compliance. Lessor warrants that the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with applicable laws covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ("Applicable Requirements"). Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3 (a).) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate ___________ [ILLEGIBLE] ----------- ___________ [ILLEGIBLE] ----------- Initials Initials CONFIDENTIAL TREATMENT **Confidential treatment has been HAS BEEN REQUESTED FOR requested with respect to the CERTAIN PORTIONS OF THIS information contained within the DOCUMENT "[**]" markings. Such marked portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission PAGE 1 for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do no comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specifically the nature and extent of such non- compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost of such work as follows: (a) Subject to Paragraph 2.3(c) below, such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commending such Capital Expenditure. (b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor. (c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to nonvoluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease. 2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefore as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee' ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. 2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work. 2.6 Vehicle Parking. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces that said number. Said parking spaces shall be used for parking by vehicles no larger than full- size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) Lessee shall not service or store any vehicles in the Common Areas. (c) If Lessee permits or allows any of the prohibited activities described in the Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.7 Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that re provided and designated by the Lessor form time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadway, walkways, driveways and landscaped areas. 2.8 Common Areas- Lessee's Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any properly, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur, then Lessor shall have the right ,without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("Rules and Regulations") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project. 2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Project to be a part of the Common Areas: (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 2 Initials (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee's Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date. 3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing. 3.4 Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. Rent. 4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("Rent"). 4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6.) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following: (i) The operation, repair and maintenance, in neat, clean, good order and condition, but not the replacement (see subparagraph (e)), of the following: (aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems. (bb) Exterior signs and any tenant directories. (cc) Any fire sprinkler systems. (ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered. (iii) Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections (iv) Reserves set aside for maintenance and repair of Common Areas. (v) Any increase above the Base Real Property Taxes (as defined In Paragraph 10). (vi) Any "Insurance Cost Increase" (as defined In Paragraph 8). (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas. (viii) The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph 2.3 provided, however, that Lessor shall allocate the cost of any such Capital Expenditure over a 12 year period and Lessee shall not be required to pay more than Lessee's Share of 1/144th of the cost of such Capital Expenditure in any given month. (ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense. (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within 10 days after a reasonably detailed statement of actual expenses is presented to Lessee. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12 month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during the preceding year exceed Lessee's Share as indicated on such statement, Lessor shall be credited the amount of such overpayment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during the preceding year were less than Lessee's Share as indicated on such statement, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement. (e) When a capital component such as the roof, foundations, exterior walls or a Common Area capital improvement, such as the parking lot paving, elevators, fences, etc. requires replacement, rather than repair or maintenance, Lessor shall, at Lessor's expense, be responsible for such replacement. Such expenses and/or costs are not Common Area Operating Expenses. 4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefore deposit monies with Lessor sufficient to restore ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 3 Initials said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bar the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased ware and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment of any monies to be paid by Lessee under this Lease. 6. Use. 6.1. Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use. 6.2 Hazardous Substances. (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statue or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefore. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of nay report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance. (c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonable recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party. (d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of nay Hazardous Substance under the Premises from areas outside of the Project). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. (e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. (f) Investigations and Remediation. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities. (g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefore (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's right under paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the ten monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation s soon as reasonable possible after the required funds are available. If Lessee doe not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination. ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 4 Initials 6.3 Lessee's Compliance with Applicable Requirements. Except as otherwise provided in the Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any many to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. 6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. 7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations. 7.1 Lessee's Obligations. (a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment. electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (b) Service Contracts. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises; (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. (c) Failure to Perform. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly reimburse Lessor for the cost thereof. (d) Replacement. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor's accountants, Lessee may, however, prepay its obligation at any time. 7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or Interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. 7.3 Utility Installations; Trade Fixtures; Alterations. (a) Definitions. The term "Utility Installations" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the Improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). (b) Consent. Lessee shall not make any Alterations or Utility installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility installation and/or upon Lessee's posting an additional Security Deposit with Lessor. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs. ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 5 Initials 7.4 Ownership; Removal; Surrender; and Restoration. (a) Ownership. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises. (b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. (c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. 8. Insurance; Indemnity. 8.1 Payment of Premium Increases. (a) As used herein, the term "Insurance Cost Increase" is defined as any increase in the actual cost of the insurance applicable to the Building and/or the Project and required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter defined, calculated on an annual basis. Insurance Cost increase shall include, but not be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises, Building and/or Project, increased valuation of the Premises, Building and/or Project, and/or a general premium rate increase. The term Insurance Cost Increase shall not, however, include any premium increases resulting from the nature of the occupancy of any other tenant of the Building. If the parties insert a dollar amount in Paragraph 1.9, such amount shall be considered the "Base Premium." The Base Premium shall be the annual premium applicable to the 12 month period, then the Base Premium shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the Start Date, assuming the most nominal use possible of the Building. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $2,000,000 procured under Paragraph 8.2(b). (b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000, an "Additional Insured-Managers or Lessors of Premises Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "Insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance - Building, Improvements and Rental Value. (a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence. (b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the project Rent Otherwise payable by Lessee, for the next 12 month period. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. 8.4 Lessee's Property; Business Interruption Insurance. (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force. (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease. ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 6 Initials 8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 Lessor any order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other party may, but all not be required to procure and maintain the same. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 Indemnity. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnity, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lease shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. 8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions. (a) Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is partial or total. (b) "Premises Total Destruction" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is partial or total. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, or, or under the Premises. 9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $5,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefore. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the partly responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease. Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. 9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6. 9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 7 Initials expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished. 9.6 Abatement of Rent; Lessee's Remedies. (a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein. (b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced with 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be used by Lessor. 9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. Real Property Taxes. 10.1 Definitions. (a) "Real Property Taxes." As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project or any portion thereof or a change in the improvements thereon. (b) "Base Real Property Taxes." As used herein, the term "Base Real Property Taxes" shall be the amount of Real Property Taxes, which are assessed against the Premises, Building, Project or Common Areas in the calendar year during which the Lease is executed. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. 10.2 Payment of Taxes. Lessor shall pay the Real Property Taxes applicable to the Project, and except as otherwise provided in Paragraph 10.3, any increases in such amounts over the Base Real Property Taxes shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility installations placed upon the Premises by Lessee or at Lessee's request. 10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available Lessor's reasonable determine thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the number of times per month that the dumpster is emptied, then Lessor may increase Lessee's Base Rent by an amount equal to such increased costs. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. (a) Lessee shall not voluntarily or by operation of law assign transfer, mortgage or encumber (collectively, "assignment") or sublet all of any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent. (b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% of more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale acquisition, financing, transfer, leveraged buy out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results of will result in a reduction of the Net Worth of Lessee by an amount greater than 50% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor ha consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles. (d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 3.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be decreased to 110% of the scheduled adjusted rent. (e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or junctive relief. ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 8 Initials 12.2 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease; (ii) release Lessee of any obligations hereunder; or (iii) after the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee. (b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver of estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach. (c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting. (d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or 10% of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing. 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly Incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary. (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor. (c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies. 13.1 Default; Breach. A "Default" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A "Breach" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period: (a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism. (b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee. (c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41 (easements), or (viii) any other documentation of information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach. If Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as defined In 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor; (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the guaranty; or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable, by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach: ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 9 Initials (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessees Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13 1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee' s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's fight to possession. (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture. Any agreement for free of abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to 12% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default of Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ("Interest") charged shall be equal to the prime rate reported In the Wall Street Journal as published closest prior to the date when due plus 4%, but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4. 13.6 Breach by Lessor. (a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion. (b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Bass Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease, in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation. 15. Brokerage Fee. 15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease. ___________ [ILLEGIBLE] ----------- ___________ [ILLEGIBLE] ----------- Initials PAGE 10 Initials 15.2 Assumptions of Obligations. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker for the limited purpose of collecting any brokerage fee owed. 15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said name Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which my be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the Indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 16. Estoppel Certificates. (a) Each Party (as "Responding Party") shall within 10 days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Estoppel Certificate" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. (b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. (c) If Lessor desires to finance, refinance or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be sued only for the purposes herein set forth. 17. Definition of Lessor. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in the Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6.2 above. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Days. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days. 20. Limitation of Liability. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction. 21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that is has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker. 23. Notices. 23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may be written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing. 23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notice delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation or receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday, or legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision of provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. Disclosures Regarding The Nature of a Real Estate Agency Relationship. (a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows: ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 11 Initials (i) Lessor's Agent. A Lessor's agent under a listing agreement -------------- with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary ------------- duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills ---------------------------- and care in performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party with does not involve the affirmative duties set forth above. (ii) Lessee's Agent. An agent can agree to act as agent for the -------------- Lessee only. In these situations, the agent is not the Lessor's agent, even if by agreement the agent my receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost ------------- care, integrity, honesty, and loyalty in dealings with the Lessee. To the ------ Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in - --------------------- performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party with does not involve the affirmative duties set forth above. (iii) Agent Representing both Lessor and Lessee. A real estate ----------------------------------------- agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional. (b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker. (c) Buyer and Seller agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential. 26. No Right to Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased by 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered as part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representative, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee aggress that the holders of any such Security Devices (in this Lease together referred to as "Lender") shall have not liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquired ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor; (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor. 30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non- Disturbance Agreement within said 60 days, the Lessee may, at Lessee's option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as my be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. 31. Attorneys' Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation). 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement or rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "For Sale" signs and Lessor may during the last 6 months of the term hereof place on the Premises any ordinary "For Lease" signs. Lessee may at any time place on the Premises any ordinary "For Sublease" sign. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligate to exercise any standard of reasonableness in determining whether to permit an auction. ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 12 Initials 34. Signs. Except for ordinary "For Sublease" signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor's prior written consent. All signs must comply with all Applicable Requirements. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably request the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request. 37. Guarantor. 37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease. 37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect. 38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. 39. Options. If Lessee is granted an option, as defined below, then the following provisions shall apply. 39.1 Definition. "Option" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor. 39.2 Options Personal to Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting. 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been give 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) An option shall terminate and be no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to lessee 3 or more notices of separate Default during any 12 month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and the Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 41. Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights. 42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. 43. Authority. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority. 44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 45. Offer. Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 46. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises. 47. Multiple Parties. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease. 48. Waiver of Jury Trial. The Parties hereby waive their respective rights to trial by jury in any action or proceeding involving the Property or arising out this Agreement. 49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [_] is [_] is not attached to this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 13 Initials ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: 1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE. WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED. The parties hereto have executed this Lease at the place on the dates specified above their respective signatures. Executed at: San Francisco, California Executed at: San Francisco, California -------------------------------- ------------------------------- On: 1/20/00 on:_________________________________________ ----------------------------------------- By LESSOR: By LESSEE: Bryant Street Associates Driveway Corporation - -------------------------------------------- -------------------------------------------- A California General Partnership A Delaware Corporation - -------------------------------------------- -------------------------------------------- By: /s/ A. Robert Fisher By: /s/ [ILLEGIBLE]^^ - -------------------------------------------- ---------------------------------------- Name Printed: A. Robert Fisher Name Printed: [ILLEGIBLE]^^ ------------------------------- ------------------------------- Title: Partner Title: Corporate Controller ------------------------------------- -------------------------------------- By:_________________________________________ By: /s/ Kent Jarvi ---------------------------------------- Name Printed:_______________________________ Name Printed: Kent Jarvi ------------------------------ Title:______________________________________ Title: Chief Financial Officer ------------------------------------- Address: 333 Bryant Street, Suite 200 Address: 380 Brannan Street ----------------------------------- ------------------------------------ San Francisco, California 94107 San Francisco, California 94107 - -------------------------------------------- -------------------------------------------- ____________________________________________ ____________________________________________ Telephone: (415) 981 - 6076 Telephone: (415) 247 - 8850 ---------------------------------- --------------------------------- Facsimile: ( )_____________________________ Facsimile: ( )_____________________________ Federal ID No.______________________________ Federal ID No.______________________________
These forms are often modified to meet changing requirements of law and needs of the Industry. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 700 South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777 (C) Copyright 1998-By American Industrial Real Estate Association. All rights reserved. No part of these works may be reproduced in any form without permission in writing. ___________ [ILLEGIBLE]^^ ----------- ___________ [ILLEGIBLE]^^ ----------- Initials PAGE 14 Initials DESCRIPTION OF PROPERTY ----------------------- Beginning at a point on the northwesterly line of Bryant Street, distant thereon 225 feet northeasterly from the northeasterly line of Third Street; running thence northeasterly along said line of Bryant Street 150 feet and 2-3/8 inches; thence at a right angle northwesterly 155 feet to the southeasterly line of Stillman Street; thence at a right angle southwesterly along said line of Stillman Street 150 feet and 2-3/8 inches; thence at a right angle southeasterly 155 feet to the Point of beginning, consisting of approximately 9,930 square feet of second floor space. EXCEPT that certain passageway between the truck entrance on Stillman Street and the freight elevator shall be a common area to be used for ingress and egress jointly by the Lessees occupying the third floor and the Lessee herein; together with the front and rear stairs of the demised property. Being a portion of 100 Vara Block No. 358. EXHIBIT A TO DRIVEWAY CORPORATION LEASE Page 1 of 1 PLEASE ----------- [ILLEGIBLE]^^ ----------- [ILLEGIBLE]^^ ----------- INITIAL EX-23.01 34 CONSENT OF ERNST & YOUNG Exhibit 23.01 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 2, 2000, in the Registration Statement (Form S-1) and related Prospectus of Driveway Corporation for the registration of its common stock. /s/ Ernst & Young LLP San Francisco, California March 14, 2000 EX-27.01 35 FINANCIAL DATA SCHEDULE
5 12-MOS 12-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 DEC-31-1999 521,000 24,862,000 0 0 88,000 0 0 0 0 0 745,000 27,792,000 1,955,000 2,350,000 1,421,000 672,000 1,374,000 29,558,000 2,554,000 5,202,000 0 0 1,911,000 28,383,000 0 11,332,000 0 5,000 (3,267,000) (15,770,000) 1,374,000 29,558,000 0 0 187,000 264,000 1,179,000 2,155,000 4,262,000 13,321,000 28,000 58,000 0 0 586,000 2,154,000 (5,776,000) (17,219,000) 0 0 (5,776,000) (17,219,000) 0 0 0 0 0 0 (5,776,000) (17,219,000) (152.00) (8.78) (152.00) (8.78)
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