<PAGE>
As filed with the Securities and Exchange Commission on March 6, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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VENTRO CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 5169 77-0465469
(Primary Standard (I.R.S. Employer
(State or Other Industrial Identification
Jurisdiction of Classification Code Number)
Incorporation or Number)
Organization) --------------
1500 Plymouth Street
Mountain View, CA 94043
(650) 567-8900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
James G. Stewart
Chief Financial Officer
Ventro Corporation
1500 Plymouth Street
Mountain View, CA 94043
(650) 567-8900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Jeffrey R. Vetter
Daniel G. Kelly, Jr. Fenwick & West LLP
Davis Polk & Wardwell Two Palo Alto Square
1600 El Camino Real Palo Alto, California 94306
Menlo Park, California 94025 (650) 494-0600
(650) 752-2000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Shares to be Registered Registered Per Unit Offering Price Fee
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<S> <C> <C> <C> <C>
% Convertible
Subordinated Notes due
2007................. $345,000,000(1) 100% $345,000,000(1) $91,080
- ------------------------------------------------------------------------------------
Common stock, $0.0002
par value per share
issuable upon
conversion of Notes.. (2) -- -- (3)
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of registration
fee. Includes $45,000,000 principal amount of notes to cover the over-
allotment option.
(2) Such indeterminate number of shares of Common Stock as shall be required
for issuance upon conversion of the Notes being registered hereunder.
(3) No additional consideration will be received for the Common Stock and,
therefore, no registration fee is required pursuant to Rule 457(i).
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 this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued March 6, 2000
$300,000,000
[VENTRO LOGO]
% CONVERTIBLE SUBORDINATED NOTES DUE 2007
-----------
Interest Payable on and
-----------
Holders may convert the notes into common stock of Ventro Corporation at any
time on or before , 2007, at a conversion price of $ per share,
subject to adjustment in certain events.
-----------
On or after , 2003, we may redeem any of the notes at the redemption
prices set forth herein, plus accrued interest.
-----------
For a more detailed description of the notes, see "Description of the Notes"
beginning on page 72.
-----------
Concurrent with this offering of notes, we and some of our stockholders are
conducting a separate offering of 1,825,000 shares of our common stock. This
offering of our notes is not conditioned on the completion of the offering of
our common stock.
-----------
The common stock is listed on the Nasdaq National Market under the symbol
"VNTR." On March 3, 2000, the reported last sale price of the common stock on
the Nasdaq National Market was $220 per share.
-----------
Investing in the notes or our common stock involves risks. See "Risk Factors"
beginning on page 6 of this prospectus.
-----------
PRICE % AND ACCRUED INTEREST, IF ANY
-----------
We have granted the underwriters the right to purchase up to an additional
$45,000,000 principal amount of notes to cover over-allotments.
-----------
The Securities and Exchange Commission and 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.
-----------
Morgan Stanley & Co. Incorporated expects to deliver the notes to purchasers on
, 2000.
MORGAN STANLEY DEAN WITTER
ROBERTSON STEPHENS
CHASE H&Q
DEUTSCHE BANC ALEX. BROWN
, 2000
<PAGE>
[Inside front cover -- graphics and text]
[Artwork of screen shot illustrating the components of Ventro marketplace
companies]
Ventro Corporation
.Speed
.Technology
.Knowledge
Suppliers
Customers
Building and Operating B2B Vertical Marketplace Companies
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 26
Use of Proceeds.......................................................... 27
Price Range of Common Stock.............................................. 27
Dividend Policy.......................................................... 27
Capitalization........................................................... 28
Selected Financial Data.................................................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 37
Management............................................................... 56
Related Party Transactions............................................... 66
Principal Stockholders................................................... 68
Description of Capital Stock............................................. 71
Description of the Notes................................................. 72
Certain Federal Income Tax Considerations................................ 83
Underwriters............................................................. 88
Experts.................................................................. 90
Change in Independent Accountants........................................ 90
Legal Matters............................................................ 90
Where to Find Additional Information..................................... 91
Index to Financial Statements............................................ F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in those jurisdictions where offers and
sales are 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 any sale of our common stock. In this prospectus, the
"Company," "we," "us" and "our" refer to Ventro Corporation.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and our common stock being sold in this offering and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus.
We are a leading builder and operator of vertical business-to-business e-
commerce marketplace companies. Our platform of enabling technologies and
operating capabilities allows us to rapidly enter new markets while realizing
economies of scale. Our solutions benefit suppliers by permitting them to lower
sales and marketing costs as well as to improve inventory management and
product delivery. Customers enjoy a significantly enhanced purchasing system
that provides access to a broad range of basic and specialized products,
increased flexibility and a reduction in the cost of the procurement process.
We created Ventro in February 2000 to expand the scope of our marketplace
companies by leveraging the assets and experience that we gained in building
and operating Chemdex, our marketplace for life sciences research products. In
addition to Chemdex, we currently operate or are developing three additional
Ventro marketplaces: Promedix, for the specialty medical products market,
Broadlane, for the high-volume, hospital and medical supplies market, and
Industria Solutions, for the fluid processing market.
We provide a secure, Internet-based solution that enables us to buy products
from suppliers and resell them to customers while streamlining business
processes, increasing productivity and reducing costs through the supply chain.
Our companies employ a robust database architecture, advanced search engines
and transaction software that enable users to easily identify, locate and
purchase the products they need. We have entered into agreements with leading
companies in each of the Ventro marketplaces, including VWR, Tenet Healthcare
and DuPont. With our strategic relationships with Ariba, Commerce One, Concur
Technologies, IBM, and SAP, we offer customers and suppliers the ability to
directly connect their enterprise software to the marketplace. This extensive
system integration provides a key competitive advantage for Ventro companies,
as customers and suppliers can directly link their front and back offices to
the Ventro marketplace and increase the automation of their procurement and
order fulfilment processes. We also provide professional and implementation
services to enable market participants to take full advantage of our operating
capabilities.
Our strategy is to build and operate leading vertical business-to-business
e-commerce marketplace companies by:
. Leveraging Our Platform. We will use our technology architecture,
operating capability and marketplace experience, as well as our
strategic relationships to rapidly enter new vertical markets.
. Being the Market Leader in the Most Attractive Markets. We will target
large, fragmented markets where we believe the aggregation enabled by
our marketplace solution will provide significant value to customers and
suppliers.
. Scaling Operations Rapidly. In order to rapidly achieve scale and
reinforce our first mover advantage, we plan to pursue markets where we
can join with industry leaders or make acquisitions to build our
expertise and enhance our position.
. Expanding Internationally. The international scope of the internet, the
global reach of many of our customers and suppliers and the worldwide
demand for the products in the markets we serve provides us with an
opportunity to grow our marketplaces internationally.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Issuer........................... Ventro Corporation
Securities Offered............... $300,000,000 principal amount of %
Convertible Subordinated Notes due 2007
(plus an additional $45.0 million principal
amount if the underwriters' over-allotment
option is fully exercised).
Issue Price...................... % plus accrued interest, if any, from the
date of issue.
Interest......................... % per annum on the principal amount,
payable semiannually in arrears in cash on
and of each year,
beginning , 2000.
Conversion....................... You may convert each note into common stock
at any time on or before , 2007 at
a conversion price of $ per share,
subject to adjustment if certain events
affecting our common stock occur.
Subordination.................... The notes will be subordinated in right of
payment to all of our existing and future
senior indebtedness and are effectively
subordinated to all debt and other
liabilities of our subsidiaries. Neither we
nor our subsidiaries are limited from
incurring debt, including senior
indebtedness, under the indenture.
Optional Redemption.............. We may redeem any of the notes on or after
, 2003 by giving you at least 30
days' notice. We may redeem the notes
either in whole or in part at the
redemption prices set forth in this
prospectus.
Fundamental Change............... If a fundamental change (as described under
"Description of the Notes--Redemption at
Option of the Holder") occurs before
, 2007, you may require us to
purchase all or part of your notes at a
redemption price equal to 100% of the
outstanding principal amount of the notes
being redeemed, together with accrued and
unpaid interest to the date of purchase.
Use of Proceeds.................. We expect to use the net proceeds from the
offering for general corporate purposes,
including working capital expenditures and
possible acquisitions of companies or
technology. Pending these uses, we intend
to invest the net proceeds in short-term
interest-bearing, investment grade
securities.
Nasdaq National Market Symbol.... VNTR
Concurrent Offering.............. We and some of our stockholders are
offering for sale through another
prospectus 1,825,000 shares of our common
stock, excluding the over-allotment option.
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following historical consolidated statements of operations data and
consolidated balance sheet data are derived from our audited financial
statements. The unaudited pro forma consolidated statement of operations data
are derived from the Unaudited Pro Forma Combined Condensed Financial
Information and reflects our acquisitions of Promedix and SpecialtyMD as if
those acquisitions occurred on January 1, 1999.
<TABLE>
<CAPTION>
Historical
-----------------------------------
Period From
September 4, 1997 Year Ended Pro Forma
(Inception) December 31, Year Ended
Through ----------------- December 31,
December 31, 1997 1998 1999 1999
----------------- ------- -------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net revenues................ $ -- $ 29 $ 30,840 $ 30,871
Operating loss.............. (404) (8,796) (51,568) (222,501)
Loss from continuing
operations................. (404) (8,488) (48,573) (219,827)
Basic and diluted loss from
continuing operations per
share...................... $(.24) $ (4.79) $ (3.17) $ (10.96)
Weighted average common
shares outstanding--basic
and diluted................ 1,704 1,772 15,322 20,050
Other Data:
Deficiency of earnings
available to cover fixed
charges(1)................. $ (404) $ (8,486) $ (48,405)
</TABLE>
- --------
(1) Deficiency of earnings available to cover fixed charges consists of net
loss plus fixed charges. Fixed charges consist of interest charges, whether
expensed or capitalized, and that portion of rental expense we believe to
be representative of interest.
The actual column in the following table presents our actual historical
consolidated balance sheet data and is derived from our audited financial
statements. The unaudited pro forma consolidated balance sheet data are derived
from the Unaudited Pro Forma Combined Condensed Financial Information. The pro
forma column reflects the acquisitions of Promedix and SpecialtyMD as if those
acquisitions had occurred on December 31, 1999 and the issuance of an aggregate
of 11,870,800 shares of common stock subsequent to December 31, 1999. The pro
forma as adjusted column further reflects (1) our sale of the notes under this
prospectus, after deducting estimated underwriting discounts and commissions
and estimated offering expenses and (2) the sale of 1,370,000 shares of our
common stock by us in a concurrent offering under a separate prospectus at an
assumed public offering price of $220.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Historical Pro Forma
Actual Pro Forma As Adjusted
---------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments................................. $103,095 $109,545 $ 686,382
Working capital.............................. 82,130 86,283 663,120
Total assets................................. 163,933 585,009 1,171,846
Long-term debt and capital lease obligations,
net of current portion...................... 494 494 300,494
Total liabilities............................ 38,914 41,513 341,513
Total stockholders' equity................... 125,019 543,496 830,333
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in our shares is extremely risky. You should carefully
consider the following risks, in addition to the other information presented
in this prospectus, in evaluating us and our business. Any of the following
risks, as well as other risks not mentioned here, could seriously harm our
business and prospects and could cause you to lose all or part of your
investment.
Risks Related to Our Business
Our business model is not proven and may not be successful
Our business-to-business e-commerce model is based on our expansion into a
number of vertical marketplaces. This business model is new and not proven and
depends upon our ability, among other things, to:
. sell our purchasing solution to pharmaceutical and biotechnology
companies, hospitals and other healthcare providers and academic and
research institutions;
. achieve high rates of adoption by users within life sciences and
healthcare customers and among associated physicians;
. successfully identify and enter attractive vertical markets;
. maintain our current suppliers and enter into agreements with additional
suppliers;
. leverage our operational and technical expertise and our electronic
commerce platform;
. rapidly scale our operations;
. generate significant revenues from our vertical marketplaces; and
. obtain higher website traffic and transaction volumes and increase
productivity.
We cannot be certain that our business model will be successful or that we
can achieve or sustain revenue growth or generate any profits. The success of
this business model will require, among other things, that we develop and
market solutions with broad market acceptance by our customers, suppliers,
users and strategic partners. We cannot be certain that business-to-business
electronic commerce generally, or our purchasing and product information
solution, services and brand in particular, will achieve broad market
acceptance. For example, purchasers may continue obtaining product information
and purchasing products through their existing methods and may not adopt an
Internet-based purchasing solution because of their comfort with existing
information gathering and purchasing habits and direct supplier relationships,
the costs and resources required to switch purchasing methods, the need for
products and product information not offered through our vertical
marketplaces, security and privacy concerns, general reticence about
technology or the Internet or the failure of the market to develop the
necessary infrastructure for Internet-based communications, such as wide-
spread Internet access, high-speed modems, high-speed communication lines and
computer availability.
We have focused on the life sciences industry and our efforts to expand to
other industries may not succeed
To date, we have focused our business on providing an online marketplace
for the life sciences industry and our primary offering has been the Chemdex
Marketplace. However, we intend to develop marketplaces for other vertical
markets, including the healthcare industry, through Promedix as well as
through Broadlane, as well as to the fluid processing industry, through
Industria Solutions. Businesses may be less likely to use our marketplaces in
industries outside of the life sciences industry. Even if they do, we may need
to develop additional expertise or industry-specific knowledge which we may
not be able to do in a timely manner. Therefore, we may not succeed in
establishing successful marketplaces for industries outside of the life
sciences industry. We may also experience difficulties that could delay or
prevent the successful development, introduction or marketing of new or
enhanced marketplaces for other industries in the future. In addition, those
marketplaces may not meet the requirements of the particular vertical market
and therefore, may not achieve market acceptance.
6
<PAGE>
We will need to manage our growth, and to a certain extent the growth of
our joint ventures, and may also need to manage additional integration
challenges
Since inception, we have experienced expansion of our operations that has
placed significant demands on our administrative, operational and financial
resources. We expect the demands on our resources to intensify as a result of
our recent acquisitions and joint ventures and our strategy to pursue
additional acquisitions and joint ventures in the future. As of February 15,
2000, we had grown to 354 employees. We expect to hire a significant number of
new employees to support our business.
To manage future growth, we must improve our financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage our work force. We cannot assure you that we will be able to
perform these actions successfully. We intend to continue to invest in
improving our financial systems and controls in connection with higher levels
of operations. Managing acquired businesses and joint ventures entails
numerous operational and financial risks, including difficulties in
assimilating acquired operations, diversion of management's attention to other
business concerns, amortization of acquired intangible assets and potential
loss of key employees or customers of acquired operations. We cannot assure
you that we will be able to effectively achieve growth, or manage any growth,
and failure to do so could seriously harm our operating results.
We may need to make acquisitions in order to pursue our vertical market
strategy, and our business may be harmed as a result of any of these future
acquisitions.
In order to pursue our strategy of establishing marketplaces in additional
vertical markets, we may find it necessary to acquire additional businesses,
products or technologies. We may not be able to locate suitable acquisition
candidates in markets that we would like to enter. If we do identify an
appropriate acquisition candidate, we may not be able to negotiate the terms
of the acquisition successfully, finance the acquisition, or integrate the
acquired business, products or technologies into our existing business and
operations. Further, completing a potential acquisition and integrating an
acquired business will cause significant diversions of management's time and
resources.
We have in the past and intend in the future to pay for some of our
acquisitions by issuing additional common stock, which would dilute our
stockholders. We may also use cash to buy companies or technologies, and we
may need to incur debt to pay for these acquisitions. Acquisition financing
may not be available on favorable terms or at all. In addition, we may be
required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions, which would materially increase
our operating expenses. For example, as a result of our acquisitions of
Promedix and Specialty MD, we will record for the first quarter of 2000
approximately $431.7 million of goodwill and intangible assets, which will
result in noncash charges to our operations over the next two to three years.
We have a history of losses and anticipate continued losses for the
foreseeable future
We, as well as our recently-acquired companies, have had substantial losses
since inception. We incurred net losses of approximately $48.6 million in
1999, Promedix incurred net losses of approximately $16.2 million in 1999 and
SpecialtyMD incurred net losses of approximately $4.3 million in 1999. We
expect our losses to increase in the future and we cannot assure you that we
will ever achieve or sustain profitability. The extent of these losses in the
future will be contingent, in part, on the amount of growth in our revenue.
The extent of these losses in the future will also be contingent, in part, on
the amount of growth in our operating expenses, which we plan to increase as
we continue to enter new vertical markets. As of December 31, 1999, we had an
accumulated deficit of approximately $57.5 million. If our revenues fail to
grow at anticipated rates or operating expenses increase without a
commensurate increase in revenues, or we fail to adjust operating expense
levels accordingly, the imbalance between revenues and operating expenses will
negatively affect our business, revenues, results of operations and financial
condition. Our historical financial information is of limited value in
projecting future operating results because of the lack of our operating
history as a combined organization and the emerging nature of our markets.
7
<PAGE>
To date, we have derived revenues primarily from product sales through our
Chemdex Marketplace. The Promedix businesses has had minimal revenues, and
neither Industria Solutions nor Broadlane has had any significant revenues. In
order to increase our revenues, we must, among other things:
. attract new enterprise customers to and retain existing enterprise
customers in each of our vertical marketplaces;
. encourage users employed by our enterprise customers to adopt our
Internet-based purchasing solution and to use it frequently;
. increase the breadth of our product offering by adding and maintaining
supplier and content partner relationships; and
. develop new sources of revenues and expand into other vertical markets
beyond our existing revenue sources and vertical markets.
If we are unable to accomplish one or more of these objectives, our
revenues may not grow and our business, revenues, financial condition and
results of operations will be negatively affected. We may not be able to build
on our current sources of revenues by adding additional products or services
or expanding into additional vertical markets. Even if we do add additional
products or services or expand into additional vertical markets, there are
economic, legal, regulatory and other risks associated with adding these new
revenue sources. For example, we may post advertisements on our website to
generate advertising revenue. However, our supplier relationships may be
harmed if our suppliers associate advertisements posted on our website with a
bias in our offering of life sciences research products or specialty
healthcare products.
Our gross margins are low and we will have to increase productivity in our
business to be profitable
Our gross margin for 1999 was approximately 5.0%. We negotiate price
discounts we receive from our suppliers, and thus we are vulnerable to any
decrease in these discount rates. Any decrease would have a significant
negative impact on our financial results. Our gross margins on sales of life
sciences research products are small relative to the margins earned by
traditional distributors of life sciences research products. We expect that
our gross margins in our other vertical marketplaces will be similar to those
in the Chemdex Marketplace. If we do not increase the discounts that we
negotiate from suppliers, substantially increase our revenues and scale our
business in a manner that generates increased productivity, including further
automation of our purchasing solution, we may never achieve profitability.
In addition, due to our low gross margins, unexpected costs or expenses we
incur would substantially affect our ability to achieve or maintain operating
profits. For example, in our Chemdex Marketplace we generally bear the risks
of the loss of products upon shipment by our suppliers to our customers, of
product returns and refunds to our customers and of non-collection of accounts
receivable. Although we maintain insurance for claims for damages to our
customers or others caused by our products, we do not have insurance coverage
for product returns or uncollectible accounts receivable or have adequate
insurance coverage for the costs of products lost during shipment.
We have a limited operating history, which makes it difficult for you to
evaluate our combined business and prospects
We were founded as Chemdex Corporation in September 1997. We changed our
name to Ventro and announced our vertical market strategy in February 2000.
Promedix was founded in December 1996 and for its first two years provided
website design and hosting services for specialty medical manufacturing
clients. Promedix's current strategy of providing a Java-based product
research and purchasing system is being developed, has not been commercially
released and has yet to generate any significant revenue. The SpecialtyMD
business was founded in May 1998; however, we do not intend to continue
SpecialtyMD as a separate business.
8
<PAGE>
Therefore, we have a limited operating history under our current business
model. As such, we will face risks and difficulties as an early stage company
in new and rapidly evolving markets. Some of these specific risks and
difficulties include the following:
. we may be unable to significantly increase and maintain customer
adoption and use of our Internet-based product information and
purchasing solutions;
. we depend substantially on product information and purchasing solutions
that have been present in the market for a limited time and may not be
successful;
. we may be unable to develop and enhance the Ventro, Chemdex and Promedix
brands or those of Broadlane and Industria Solutions;
. we may be unable to maintain existing or establish new relationships
with suppliers of life sciences research products and specialty medical
products;
. we may be unable to establish relationships with suppliers, customers or
other key participants in other markets;
. we will depend substantially on revenues from product sales, and we may
be unable to significantly increase revenues from product sales or
generate revenues from other sources;
. we may be unable to significantly increase revenues from product sales
or generate revenues from supplier sponsorship of clinical content,
supplier payment for placement of additional product support information
or from other sources;
. we may be unable to adapt to rapidly changing technologies and
developing markets;
. we may be unable to effectively manage our rapidly expanding operations
and the increasing use of our services;
. we may be unable to attract, retain and motivate qualified personnel,
particularly people who understand specialized life sciences research
products, specialty healthcare products, the process of specialty
product selection or the life sciences and healthcare industries, or
other vertical markets that we may pursue;
. we may be unable to compete in a highly competitive market dominated by
larger, more established companies with substantial financial resources
and significant customer relationships; and
. we may be unable to comply with applicable laws and regulations to
economically compete in a highly competitive market.
Due to our limited operating history under our current business model, we
believe that period-to-period comparisons of our revenues and results of
operations are not meaningful. As a result, you should not rely on revenues or
results of operations for any prior period as an indication of future
performance or prospects.
The unpredictability of our quarterly results may negatively affect the
trading price of our common stock
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
. demand for and market acceptance of our Internet-based purchasing
solutions, services and marketplaces;
. introduction of new and enhanced purchasing solutions and services by us
or our competitors;
. budgeting cycles of customers and users;
. loss of one or more of our key suppliers, content partners, customers or
strategic relationships;
9
<PAGE>
. changes in our pricing policy or those of our competitors or suppliers;
. amount and timing of capital expenditures and other costs relating to
the expansion of our operations;
. timing and number of new hires;
. ability to comply with applicable laws and regulations or obtain
necessary permits and licenses to sell or ship products to customers;
. timing and success in entering new vertical markets;
. technical difficulties with our website or Internet-based purchasing
solution;
. level of activity and funding in the life sciences and specialty medical
products industries or other vertical markets; and
. general economic conditions.
We may from time to time make pricing, service or marketing decisions or
enter into strategic business combinations that could have a negative effect
on our business, revenues, financial condition or results of operations for
any number of quarterly periods. For example, we intend to significantly
expand our development and engineering expenses to improve our Internet-based
purchasing solution. In addition, in order to accelerate the promotion of our
brand names, we intend to increase our marketing budget significantly. These
increases in expenses may negatively affect our results of operations for a
number of quarterly periods and we cannot assure that these measures will
increase our revenues.
Due to our relatively short operating history, our recent acquisitions and
relatively new business model, we have limited meaningful historical financial
data upon which to base our planned operating expenses. Accordingly, our
expense levels are based in part on our expectations as to future revenues
from new customers and are relatively fixed in the short term. We cannot be
certain that we will be able to accurately predict our revenues, particularly
in light of our limited operating history, the intense competition in the life
sciences and specialty medical products industries, and the resulting
uncertainty as to the success of our business model. If we fail to accurately
predict revenues in relation to fixed expense levels and we are unable to
adjust our operating expenses in a timely manner in response to lower-than-
expected revenues, our results of operations and financial condition could be
negatively affected.
New accounting rules could be proposed that might require us to report
substantially lower revenues
Based on generally accepted accounting principles, we include in our net
revenues the gross revenues from sales of products and related shipping fees,
net of discounts and provisions for sales returns and other allowances as we
are acting as a principal in purchasing products from our suppliers and
reselling them to our customers. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101--Revenue Recognition in
Financial Statements, which summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In addition, the Emerging Issues Task Force may prepare new guidance in this
area. If any guidance is proposed and subsequently implemented, these
initiatives may limit the ability of Internet businesses to include in
revenues the gross value of product sales between buyers and sellers. We
cannot predict at this time whether any initiatives will be proposed or
adopted or whether they will require us to change our method of recognizing
revenues for financial reporting purposes. If we are required to change our
accounting policies, we may in the future report substantially lower revenues,
and we may be required to restate the results from earlier periods. This could
cause the market price of our common stock to fall significantly.
If we do not successfully integrate the operations of our recently-acquired
businesses into our operations, our business may be harmed
Our recent mergers involve the integration of two companies into us. The
continued integration of the operations of Promedix and SpecialtyMD into our
operations will require the dedication of management
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resources. We may not be able to overcome any difficulties that we may
encounter in integrating their operations into our operations. The
difficulties of combining these companies into our operations are exacerbated
by the necessity of coordinating geographically-separated organizations,
integrating personnel with disparate business backgrounds and combining
different corporate cultures. The process of integrating operations could
cause an interruption of, or loss of momentum in, our business activities,
including the businesses acquired in the mergers.
We have a significant amount of debt that we may be unable to service or
repay
In connection with the sale of the notes, we will incur $300.0 million of
indebtedness, $345.0 million if the over-allotment option is exercised in
full, which will result in our having as of December 31, 1999 a ratio of long-
term debt to total pro forma capitalization (including the acquisitions of
Promedix and SpecialtyMD) of approximately 26.6%, 29.4% if the over-allotment
option is exercised in full. The annual interest payments on the notes offered
will be $ million, which we expect to fund from cash flow from operations.
We will need to generate substantial amounts of cash from our operations to
fund interest payments and to repay the principal amount of debt when it
matures, while at the same time funding capital expenditures and our other
working capital needs. If we do not have sufficient cash to repay our debts as
they become due, we may be unable to refinance our debt on reasonable terms or
at all. For example, the notes could be declared immediately due and payable
if we do not make timely payments. If we cannot meet our debt obligations from
the cash generated by our business, we may not be able to develop and sell new
products, respond to changing business or economic conditions adequately, make
acquisitions or otherwise fund our business.
If we cannot build a critical mass of suppliers and customers, we will not
be able to increase our product offering and draw more customers
Our business model depends in large part on our ability to build a critical
mass of products and suppliers in each of our vertical marketplaces. To
attract and maintain suppliers, we must attract a critical mass of customers.
However, customers must perceive value in each of our marketplaces which, in
part, depends upon the breadth of our product offerings from our suppliers. If
we are unable to increase the number of suppliers and draw more customers to
each of our marketplaces, we will not be able to benefit from any network
effect in the marketplace, where the value to each participant in a
marketplace increases with the addition of each new participant. As a result,
the overall value of our marketplaces and our purchasing solutions would be
harmed, which would negatively affect our business, revenues, financial
condition and results of operations.
Our ability to increase the number of suppliers and products offered on our
current and future marketplaces might also be limited by several factors,
including:
. consolidation among suppliers;
. reluctance of suppliers to offer products and product information in an
online marketplace that potentially includes their competitors;
. perceptions by suppliers that preferred treatment is given to other
suppliers; and
. exclusive or preferential arrangements signed by suppliers with our
competitors.
If our current suppliers, or other suppliers we are trying to include in our
marketplaces, agree not to include their products in our marketplaces, our
business could suffer.
The success of our business depends on maintaining and expanding our
supplier base
Our future success depends in large part upon our ability to offer and
deliver a broad and deep product offering to our customers in each of our
marketplaces. We rely on independent suppliers and manufacturers for products
offered through our marketplaces. To increase the breadth of our product
offerings, including related products that we do not currently offer such as
medical devices and laboratory equipment and supplies, we must establish
relationships with additional suppliers. Some potential suppliers may view us
as detrimental to their
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business, since suppliers compete with one another and with us for sales and
customers. Our agreements with suppliers are typically for one-year terms and
we cannot assure you that these agreements will be renewed beyond the initial
term. In addition, these suppliers are not required to accept purchase orders
from us. If we fail to secure products from our suppliers or if a significant
number of suppliers do not renew their agreements with us, the breadth and
depth of products that we can offer users would be decreased. In addition,
there are significant costs, difficulties and risks associated with adding new
products in related markets, such as the difficulty of signing up new
suppliers, obtaining necessary permits, complying with governmental
regulation, pressures on margins, new competition and integration of these new
products into our marketplaces. These events could result in decreased
adoption and use of our purchasing solution and decreased revenues, which
could have a negative effect on our business, results of operations and
financial condition.
Our cost of revenues includes the cost of the goods we buy from our
suppliers. We cannot assure you that our suppliers will enter into or renew
agreements with us on the same or similar terms as those currently in effect
or that the cost of goods payable to our suppliers will remain the same. Less
favorable terms will make it difficult for us to achieve profitable
operations. Any decreases in our already low gross margins will have a
significant negative effect on our results of operations and financial
condition.
Our supplier agreements are nonexclusive and many of our suppliers sell
their products directly to our customers through other channels. In addition,
the growing reach and use of the Internet has further intensified competition
in our industry. Some suppliers provide customers with direct access to
products, and if suppliers, including our current suppliers, provide products
to enterprise customers and their users at a cost lower than ours, our
revenues, results of operations and financial condition could be negatively
affected.
If we cannot timely and accurately add supplier product data to our
databases we may lose sales and customers, which would adversely affect our
revenues
Currently, we are responsible for loading supplier product information into
the database for our Chemdex Marketplace and categorizing the information for
search purposes. We expect to use a similar process for Promedix, Industria
Solutions, Broadlane and any of our future vertical marketplaces. This process
entails a number of risks, including dependence on our suppliers to provide us
in a timely manner with accurate, complete and current information about their
products, and to promptly update this information when it changes. We will not
derive revenue from these products until these data are loaded in our system.
Timely loading of these products in our database depends upon a number of
factors, including the file formats of the data provided to us by suppliers
and our ability to further automate and expand our operations to accurately
load these data in our product database, any of which could delay the actual
loading of these products beyond the dates estimated by us. We may in the
future use an independent company to input some or all of the data provided by
suppliers. If this company fails to accurately input the data accurately, our
reputation might suffer and we could lose customers.
In addition, we are generally obligated under our supplier agreements to
load updated product data onto our database for access through our
marketplaces within a specified period of time following their delivery from
the supplier. Our current supplier data backlog could make it difficult for us
to meet these data update obligations to our suppliers. While we intend to
further automate the loading and updating of supplier data on our system, we
cannot assure you that we will be able to do so in a timely manner, in part
because achieving a higher level of automation depends upon our suppliers'
automating their delivery of product data to us. If our suppliers do not
provide us in a timely manner with accurate, complete and current information
about the products we offer, our database may be less useful to our customers
and users and may expose us to liability. Although we screen our suppliers'
information before we make it available to our customers and users, we cannot
guarantee that the product information available in our marketplaces will
always be accurate, complete and current, or comply with governmental
regulations. This could expose us to liability or result in decreased adoption
and use of our Internet-based purchasing solution, which could reduce our
revenues and therefore have a negative effect on our results of operations and
financial condition.
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If our third-party carriers do not provide timely and professional delivery
of products to our customers, our business will be harmed
We rely on third-party carriers for shipments to and from customers. We are
therefore subject to the risks, including employee strikes and inclement
weather, associated with our carriers' ability to provide delivery services.
If carriers do not deliver the products to our customers in a professional,
safe and timely manner, then our services will not meet customer expectations
and our reputation and brand names will be damaged. In addition, deliveries
that are nonconforming, late or are not accompanied by information required by
applicable law or regulations, could expose us to liability or result in
decreased adoption and use of our marketplaces, which could have a negative
effect on our business, results of operations and financial condition.
Further, in our Chemdex Marketplace, we, and not our suppliers, typically bear
the responsibility for product refunds and returns and the risk of non-
collectibility of accounts receivable from our customers.
To attract customers and suppliers to our marketplaces, we must not favor
one supplier over another
The vertical markets in which we operate consist of complex sets of
relationships among manufacturers, suppliers, distributors and customers. We
believe that this will be true in other vertical markets we may enter in the
future. Adoption of our solution by suppliers and customers depends on their
perception that we provide a neutral, unbiased marketplace to purchase and
sell products. To the extent that we are perceived by our customers or
suppliers as favoring one supplier over another, customers and suppliers may
lose confidence in our marketplaces as fair and neutral marketplaces and
choose alternative solutions. Our relationship with VWR, including the fact
that VWR is a stockholder and is represented on our board of directors, may
compromise the perception that we provide a neutral and unbiased marketplace
for life sciences research products. Any bias, whether perceived or actual,
could have a negative impact on our ability to maintain or increase our
supplier base, which in turn may limit our ability to maintain or increase our
customer base. This would reduce revenues and therefore have a negative impact
on our business, results of operations and financial condition.
We face intense competition that could limit our ability to expand our base
of customers and users
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. We face competition from
four main areas: other companies with e-commerce offerings, traditional
suppliers and distributors of products in the vertical markets we serve,
companies that have developed their own purchasing solutions and enterprise
software companies that offer, or may develop, alternative purchasing
solutions. We may not be able to compete successfully against our current or
future competitors and competition could seriously harm our business, results
of operations and financial condition. Our competitors and potential
competitors may develop superior Internet purchasing solutions that achieve
greater market acceptance than our solution. In addition, substantially all of
our prospective customers have established long-standing relationships with
some of our competitors or potential competitors, including most of our
suppliers. Accordingly, we cannot be certain that we will be able to expand
our customer list and user base, or retain our current customers or suppliers.
Competition is likely to intensify as our markets mature and as we enter
additional vertical markets. As competitive conditions intensity, competitors
may:
. enter into strategic or commercial relationships with larger, more
established companies and content providers;
. secure services and products from suppliers on more favorable terms;
. devote greater resources to marketing and promotional campaigns;
. secure exclusive or preferential arrangements with purchasers or
suppliers that limit sales through our marketplaces; and
. devote substantially more resources to website and systems development.
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Many of our existing and potential competitors have longer operating
histories, greater name recognition, larger customer bases and greater
financial, technical and marketing resources than we do. As a result of these
factors, our competitors and potential competitors may be able to respond more
quickly to market forces, undertake more extensive marketing campaigns for
their brands and services and make more attractive offers to purchasers and
suppliers, potential employees and strategic partners. In addition, new
technologies may increase competitive pressures. We cannot be certain that we
will be able to maintain or expand our user base. We may not be able to
compete successfully against current and future competitors and competition
could result in price reductions, reduced sales, gross margins and operating
margins and loss of market share.
If we succeed in expanding into other vertical markets, we could also face
competition from many different larger and small companies.
Our solution and services are new and face rapid technological changes and
if we do not respond appropriately, we may lose customers
The markets for our solution are characterized by rapid technological
advances, evolving standards in the Internet and software markets, changes in
customer requirements and frequent new product and service introductions and
enhancements. As a result, our future success depends upon our ability to
enhance our current Internet-based purchasing solution and services, to
develop and introduce new solutions and services that will achieve market
acceptance, and where necessary to integrate our Internet-based purchasing
solution with our customers' enterprise resource planning systems. If we do
not adequately respond to the need to develop and introduce new solutions or
services, or to integrate with our customers' enterprise resource planning
systems, then our business, revenues, results of operations and financial
condition will be negatively affected. For example, we may lose market share
and ultimately revenue as our customers switch to our competitors' offerings
if:
. we are unable to develop technology that is a success in a particular
marketplace;
. our technology does not integrate with our customers' and suppliers'
systems; and
. our technology is surpassed by the superior technology of a competitor.
Further, we may incur significant expense to integrate our purchasing
solution with our customers' enterprise resource planning systems and business
rules, and to maintain this integration as our customers' enterprise resource
planning systems evolve. Failure to provide this integration may delay or
altogether dissuade the market or a particular customer from adopting our
Internet-based purchasing solution, which could negatively affect our revenues
and therefore have a material adverse effect on our business, results of
operations and financial condition.
We must devote significant resources toward attracting users in order to
grow our business
Recognition and positive perception of the Chemdex and Promedix brand names
in the life sciences and specialty medical products industries and the Ventro
brand name in general are important to our success. We have only recently
changed our name to Ventro and begun pursuing our vertical market strategy. We
intend to significantly expand our advertising and publicity efforts in the
near future. However, we may not achieve our desired goal of increasing the
awareness of our brand names. Even if recognition of our brand names
increases, it may not lead to an increase in the number of visitors to our
online marketplaces or websites or increase the number of users of our
services. In addition, as part of our brand building efforts, we intend to
undertake a number of promotional programs and these may not be successful.
We may not be able to determine or design the features and functionality
that our enterprise customers and users require or prefer
Our success depends upon our ability to accurately determine the features
and functionality that our customers require or prefer in an e-commerce
solution, and our ability to successfully design and implement
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purchasing solutions that include these features and functionality. If we are
unable to determine or design the features and functionality that our
customers require or prefer in an e-commerce solution, our business will be
negatively affected. We have designed our marketplaces based upon internal
development efforts and feedback from a relatively limited number of
enterprise and users. We cannot be certain, however, that the features and
functionality that we currently offer in our marketplaces, or those that we
may offer in future releases of our solution, will satisfy the requirements or
preferences of our current or potential customers.
We depend on our key personnel to manage our business effectively in a
rapidly changing market
Our performance substantially depends on the performance of our executive
officers and other key employees. We do not have any employment agreements
with our executive officers and key employees, except for certain agreements
with former Promedix and SpecialtyMD executives, although some of our
executives and employees have severance arrangements. Our failure to
successfully manage our personnel requirements would have a negative effect on
our business, revenues, financial condition and results of operations. We have
experienced difficulty from time to time in hiring the personnel necessary to
support the growth of our business, and we may experience similar difficulty
in hiring and retaining personnel in the future, especially in light of the
volatility and current market price of our common stock. Competition for
senior management, experienced sales and marketing personnel, software
developers, qualified engineers and other employees is intense, and we cannot
be certain that we will be successful in attracting and retaining our
personnel. The loss of the services of any of our executive officers or other
key employees could have a negative effect on our business. In particular, the
loss of services of David Perry, our President and Chief Executive Officer,
and Pierre Samec, our Chief Information Officer, would have a detrimental
effect on our business. Mr. Perry is one of the co-founders and is primarily
responsible for our vision and future direction, and Mr. Samec is responsible
for all of our technology systems and software.
Our current or any future joint ventures may not produce significant
revenues for us
We have only recently announced our Broadlane and Industria Solutions joint
ventures. These ventures target markets that have typically not utilized the
Internet or electronic commerce as means of purchasing supplies. Therefore,
these joint ventures, or any other joint ventures that we may enter into in
the future, may never achieve significant revenues. In addition, we anticipate
that in order to enter additional vertical markets, we may need to establish
joint ventures with key participants in the target market. We may not be
successful in attracting key participants for any future joint ventures.
Furthermore, these key participants could decide to develop a marketplace on
their own or with another third party, which could make it more difficult for
us to enter a new market. Even if we are able to enter into the joint ventures
with these participants, these entities may not devote sufficient resources to
the joint venture or the joint venture may never achieve commercial success.
Therefore, we cannot assure you that any future joint ventures will result in
significant revenues to us.
In addition, as part of our joint venture agreements, we could be required
to exclusively license our technology to the joint venture for a particular
market. If the venture is not commercially successful, we would not be able to
pursue other opportunities within that market.
We rely on a limited number of enterprise customers, and any loss of an
enterprise customer could have a negative effect on us
We expect that for the foreseeable future we will generate a significant
portion of our revenues from a limited number of enterprise customers.
Further, our enterprise customers are not obligated to use our purchasing
solution exclusively or for any minimum number of transactions or dollar
amounts. We currently do not offer all of the life science research and
specialty medical products required by our customers, and we expect that our
customers will continue to use multiple sources to meet their needs. In
addition, our contracts with our customers are for limited terms and our
customers may discontinue use of our marketplaces at any time upon short
notice and without penalty. If we lose any of our enterprise customers, or if
we are unable to add new enterprise customers, our revenues will not increase
as expected, we will lose access to the users employed by these enterprises,
we could lose a number of our product suppliers, and our brand names and
customer and supplier perceptions of our purchasing solution would be harmed.
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We expect to depend on our Chemdex Marketplace for substantially all of our
revenues for the foreseeable future
Revenues from our Chemdex Marketplace accounted for all of our net revenues
during the year ended December 31, 1999. We anticipate that revenues from the
Chemdex Marketplace will continue to account for a substantial majority of our
revenues for the foreseeable future. Consequently, a decline in demand for the
Chemdex Marketplace or its failure to achieve broader market acceptance, would
seriously harm our business.
We will significantly depend on our strategic relationship with VWR for the
foreseeable future
We entered into a strategic relationship agreement with VWR Scientific
Products Corporation to jointly market VWR laboratory products using the
Chemdex Marketplace. The agreement gives us the right to offer approximately
350,000 VWR-distributed products to our customers through the Chemdex
Marketplace. We and VWR also jointly developed an Internet purchasing solution
for VWR's existing and future customers that will provide access to three
categories of products:
. products distributed by VWR (VWR core products);
. products distributed by Ventro (Ventro core products); and
. products that are not distributed by either VWR or Ventro but are
purchased from third parties (third-party products).
Due to the extent to which the Chemdex Marketplace operations are
integrated with VWR, and because the Chemdex Marketplace accounts for the
substantial majority of our revenues, we will significantly depend on VWR for
the foreseeable future. We may experience technical or logistical difficulties
in integrating VWR's suppliers, products and services with the Chemdex
Marketplace. If we are unable to do so in a timely manner, our business,
revenues, financial condition and results of operations could be negatively
affected. In addition, our agreement with VWR is nonexclusive except as to the
purchase of third-party products by VWR and some other provisions and has a
limited term. We cannot be certain that VWR will not enter into a similar
relationship with one of our competitors, or that VWR will renew our agreement
at the end of its term.
We receive no fee for orders for VWR core products through the Chemdex
Marketplace from VWR's 40 largest customers and we receive a minimal fee for
all other orders for VWR core products forwarded to VWR. Under the terms of
the agreement, VWR provides some support services for purchasing third-party
products in exchange for a fee which approximates VWR's costs incurred.
Since we receive minimal gross margins for sales of third-party products,
our gross profit margins on these sales are lower than our margins on sales of
Chemdex core products. To the extent sales of VWR core products or third-party
products increase relative to, or displace our sales of Chemdex core products,
our revenues and gross margins will likely decline, which would make it more
difficult for us to achieve profitability.
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us. For example, we plan to provide the greatest number and
variety of products from the greatest number of suppliers possible; however,
our strategic relationship with VWR may deter other suppliers, particularly
those that offer products that compete directly with VWR products, from
entering into agreements with us. In addition, as noted above, our agreement
with VWR is nonexclusive, and it is possible that VWR could enter into similar
relationships with one or more of our competitors, or develop its own
purchasing solution that would compete with ours.
The Chief Executive Officer of VWR is a member of our board of directors,
which may lead to conflicts of interest that could be detrimental to us
Paul Nowak, the Chief Executive Officer of VWR, is a member of our board of
directors. This may lead to conflicts of interest, as VWR is one of the
laboratory supply industry's largest distributors and is a potential
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competitor of ours. In addition, VWR has entered into and may in the future
enter into relationships with our competitors, other suppliers or our
customers. Although we intend to have Mr. Nowak recuse himself from board
discussions that involve potential conflicts of interest, we cannot be sure
that this will minimize these conflicts of interests or that Mr. Nowak's
position as a member of our board of directors will not operate to our
detriment.
The time it takes to sell and implement our solution is long, which could
negatively affect our revenue growth, if any, and make it difficult to predict
our revenues and results of operations
A key element of our current strategy is to market our solutions directly
to the enterprise purchasing departments, the information technology groups
and the individual users of our Internet-based purchasing solution. The time
it takes to sell and implement our solution is long and we devote significant
sales, marketing and management resources to the sales process without any
assurance that the customer will use our marketplaces or websites. We are
generally required to provide a significant level of education to our
customers and potential customers regarding the use and benefits of our
Internet-based purchasing solution. Furthermore, potential enterprise
customers and a number of their departments typically engage in extensive
internal reviews and analyses before making purchasing decisions. The sale and
implementation of our solution are subject to delays due to our customers'
internal budgeting and procedures for approving capital expenditures and
deploying new technologies within their networks. These delays also could
impair our ability to generate revenue.
Even if enterprise customers adopt our purchasing solution, we may not
increase our revenues if users within these enterprises do not use our
marketplaces or websites
Our revenues have been, and for the foreseeable future will continue to be,
primarily derived from purchases of life sciences research products by
researchers, research assistants and other users within our enterprise
customers. These persons may not use our marketplaces to purchase their
research products. Even if we successfully maintain existing enterprise
customers and add new enterprise customers, we may not be able to increase
revenues if users within our enterprise customers do not adopt and use our
marketplaces. Once an enterprise customer adopts our Internet-based purchasing
solution, it takes time for researchers and other users within the enterprise
to become aware of, learn to use and begin using our marketplaces. The long
sales cycle and the time it takes for researchers and purchasing professionals
to begin using our Internet-based purchasing solution could negatively affect
our revenue growth and makes it difficult to predict our results of
operations. Also, our efforts to attract users to adopt and to increase their
use of our solution may not be successful, which would limit our ability to
generate revenues from these customers.
Reductions in the research and development budgets and government research
funding of our customers will negatively affect our revenues from the Chemdex
Marketplace
The Chemdex Marketplace is used by researchers and their assistants and
staff at pharmaceutical and biotechnology companies and academic and research
institutions. Changes in the research and development budgets of these
companies and institutions and the timing of spending under these budgets can
have a significant effect on the demand for life sciences research products.
These budgets are based on a wide variety of factors including the resources
available to make these expenditures, the spending priorities among various
types of research, and the policies regarding these expenditures during
recessionary periods. Any decrease in life sciences research and development
expenditures by these companies and institutions could have a negative effect
on our revenues.
A significant portion of Chemdex's sales are expected to be to research
scientists and entities whose funding is dependent on grants from government
agencies such as the U.S. National Institute of Health, or the NIH, and
similar domestic and international agencies. The funding associated with
approved NIH grants generally becomes available at particular times of the
year, as determined by the federal government, and may result in fluctuations
in our revenues and results of operations. Although NIH research funding has
increased during the past several years, grants have, in the past, been frozen
for extended periods or have otherwise become unavailable to various
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institutions, sometimes without advance notice. Furthermore, recent government
proposals designed to reduce or eliminate budgetary deficits have included
reduced allocations to the NIH and other government agencies that fund
research and development activities. If government funding, especially NIH
grants, were to become unavailable to researchers for any extended period of
time, or if overall research funding were to decrease, there could be a
negative effect on our business, revenues, results of operations and financial
condition.
Changes in the healthcare environment that affect the purchasing practices
and operation of healthcare organizations, or any consolidation in the
healthcare industry, could affect our revenues from the Promedix Marketplace
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. Factors such as changes in
reimbursement policies for healthcare expenses, consolidation in the
healthcare industry and general economic conditions affect the purchasing
practices and operation of healthcare organizations. Changes in regulations
affecting the healthcare industry, such as any increased regulation by the
Food and Drug Administration of the purchase and sale of medical products,
could require us to make unplanned enhancements to Promedix, or result in
delays or cancellations of orders or reduce demand for this service. Federal
and state legislatures have periodically considered programs to reform or
amend the U.S. healthcare system at both the federal and state level. These
programs may contain proposals to increase governmental involvement in
healthcare, lower reimbursement rates or otherwise change the environment in
which healthcare industry providers operate. We do not know what effect any
proposals would have on Promedix.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide services to industry
participants will become more intense and the importance of establishing a
relationship with each industry participant will become greater. These
industry participants may try to use their market power to negotiate fee
reductions of Promedix's services. If we were forced to reduce these fees, our
operating results could suffer if we cannot achieve corresponding reductions
in our expenses.
We are subject to government regulation that exposes us to potential
liability and negative publicity.
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping,
licensing, and other regulatory requirements applicable to our business during
the entire transaction. Our reliance on suppliers' regulatory due diligence
assessment of purchasers and the compliance by suppliers and purchasers with
applicable governmental regulations may not be sufficient if we are held to
need our own licenses. For example, if we are held to be seller or a
distributor of regulated products because we take legal title, we may have
inadvertently violated some governmental regulations by not having the
appropriate license or permit and may be subject to potentially severe civil
or criminal penalties and fines for each offense. We are aware that some of
our prior sales may have been made in the absence of our having the requisite
local, state, or federal license or permit. We may be subject to potentially
severe civil and criminal penalties and fines for each of these sales, which
could have a material adverse impact on our business, revenues, results of
operations and financial condition. In addition to these prior sales, we are
unable to verify that our suppliers have in the past complied, or will in the
future comply, with the applicable governmental regulatory requirements, or
that their actions are adequate or sufficient to satisfy all governmental or
other legal requirements that may be applicable to our sales. We could be
fined or exposed to significant civil or criminal liability, including
monetary fines and injunctions, and we could receive potential negative
publicity, if the applicable governmental regulatory requirements have not
been, or are not being, fully met by our suppliers or by us directly. Negative
publicity, fines and liabilities could also occur if an unqualified person, or
even a qualified customer, lacks the appropriate license or permits to sell,
use or ship, or improperly receives a dangerous or unlicensed product through
the Chemdex or Promedix marketplaces. We do not maintain any reserve for
potential liabilities resulting from government regulation. It is also
possible that a number of laws and regulations may be adopted or interpreted
in the United States and abroad with particular applicability to the Internet.
18
<PAGE>
We may be exposed to product liability claims
We face potential liability for claims based on the type and adequacy of
the information and data that we obtain from suppliers and make available, and
the nature of the products that we sell and distribute utilizing the Internet,
including claims for breach of warranty, product liability, misrepresentation,
violation of governmental regulations and other commercial claims. In
particular, we bear the risk of liability for product loss, spill, or release,
and resulting damages to persons and property during delivery by the supplier
to the customer and return by the customer to the supplier. We do not pass
through the manufacturers' warranties on the products we distribute. However,
we bear the risk of loss of revenue from the product sale if a purchaser does
not pay for a defective product. We also bear some risk if our suppliers have
not obtained appropriate approvals for products regulated by the U. S. Food &
Drug Administration, or do not comply with the requirements relating to those
approvals. The failure to obtain or comply with those approvals, or other
failures by these products themselves, could result in costly product recalls,
significant fines and judgments, civil and criminal liabilities, and negative
publicity. Although we maintain general liability insurance, our insurance may
not cover some claims, penalties, or spills, is subject to policy limits and
exclusions, and may not be adequate to fully indemnify us or our employees for
any civil, governmental or criminal liability that may be imposed.
Furthermore, this insurance may not be available at commercially reasonable
rates in the future. Any liability not covered by our insurance or in excess
of our insurance coverage could have a negative effect on our business,
results of operations and financial condition. Our liability is potentially
greater with respect to sales to users and others that are not affiliated with
an enterprise customer.
Because we facilitate the sale of many different life sciences and
specialty medical products by suppliers, and publish information about medical
products, we may become subject to legal proceedings regarding defects in
these products or the information provided. In addition, Promedix takes title
to certain products between the period of time after the supplier has
delivered the product but before the product has been accepted by the
customer. Any claims, with or without merit, could be time-consuming to
defend, result in costly litigation or divert management's attention and
resources.
We also seek to obtain indemnification from our suppliers against some of
these claims. However, the scope of the indemnification is limited, a few of
our suppliers have not agreed to indemnify us, and some suppliers may be
unable or unwilling to indemnify us in the future. In addition, we are not in
a position to monitor our suppliers' activities. Therefore, we are exposed to
liability and risk for these claims.
As we enter new vertical markets, including the healthcare and fluid
processing markets, which we have recently entered, we expect to face exposure
to similar product liability risks.
We may require additional capital for our operations, which could have a
negative effect on your investment
We currently anticipate that our existing borrowing arrangements and
available funds will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in the future in order to fund rapid
expansion, to pursue customer sales and implementation, to develop new or
enhanced solutions and services, to respond to competitive pressures or to
acquire complementary businesses, technologies or services. Our joint
ventures, in particular, may require us to raise additional funds because we
may be responsible, at our own expense, for building and growing the
infrastructure that will be required to support the joint ventures.
If we raise additional funds through the issuance of equity or additional
convertible debt securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution and these
securities may have powers, preferences and rights that are senior to those of
the rights of our common stock. We cannot be certain that additional financing
will be available on terms favorable to us, if at all. If adequate funds are
not available or not available on acceptable terms, we may be unable to fund
our expansion, promote our brand identity, take advantage of unanticipated
acquisition opportunities, develop or enhance services or respond to
competitive pressures. Any inability to do so could have a negative effect on
our business, revenues, financial condition and results of operations.
19
<PAGE>
Our international expansion may make it more difficult to manage our
business
We have begun to enter the international market. We are in the process of
establishing international operations, hiring additional personnel and
establishing relationships with additional suppliers and partners. This
expansion will require significant management attention and financial
resources and could have a negative effect on our business, revenues,
financial condition and results of operations. We cannot assure you that we
will be able to create or sustain international demand for our Internet-based
purchasing solution and services. In addition, our international business may
be subject to a variety of risks, including applicable government regulation,
difficulties in collecting international accounts receivable, longer payment
cycles, increased costs associated with maintaining international marketing
efforts, the introduction of non-tariff barriers and higher duty rates and
difficulties in enforcement of contractual obligations and intellectual
property rights. We cannot assure you that these factors will not have a
negative effect on any future international sales and, consequently, on our
business, results of operations and financial condition.
We depend on our intellectual property rights and are subject to the risk
of infringement or loss of rights
Our intellectual property is important to our business, and we seek to
protect our intellectual property through copyrights, trademarks, trade
secrets, confidentiality provisions in our customer, supplier and strategic
relationship agreements, nondisclosure agreements with third parties, and
invention assignment agreements with our employees and contractors. We cannot
assure that measures we take to protect our intellectual property will be
successful or that third parties will not develop alternative purchasing
solutions that do not infringe upon our intellectual property. In addition, we
could be subject to intellectual property infringement claims by others. Our
failure to protect against misappropriation of our intellectual property, or
claims that we are infringing the intellectual property of third parties could
have a negative effect on our business, revenues, financial condition and
results of operations.
We license some of the software for our websites from third party
developers. The use of this software is an integral part of our Internet
solution. A positive relationship with the third party developers is important
to maintaining our access to source code needed to operate the website.
Without the cooperation of these third party developers the functionality of
the Internet site would be impaired.
We will be licensing our technology to our joint venture partners,
frequently granting exclusive licenses to these joint ventures to use our
technology within the joint venture's vertical market, thus losing some
control over the use of our technology. Pursuant to our existing licenses, we
have made certain representations and warranties with respect to the
technology we have licensed to the joint ventures, and we have agreed to
defend and indemnify the joint ventures against claims of infringement. It is
possible we will have to do the same with future joint ventures. As such, we
may be exposed to a greater risk of liability for intellectual property
infringement claims by others, which could have a negative impact on our
business, revenues, financial condition and results of operation.
Risks Related to the Internet Industry
Our business will suffer if the life sciences, specialty medical products,
healthcare, fluid processing or other vertical industries do not accept
Internet solutions
Business-to-business e-commerce is a new and emerging business practice
that remains largely untested. Growth in the demand for our Internet-based
purchasing solutions, services and marketplaces depends on the adoption of e-
commerce and Internet solutions by life sciences, specialty medical products,
hospitals, medical supplies, fluid processing or other vertical industry
participants, which requires the acceptance of a new way of conducting
business and purchasing supplies. Our business could suffer dramatically if e-
commerce and Internet solutions are not accepted or not perceived to be
effective.
20
<PAGE>
The Internet may not prove to be a viable commercial marketplace for the
life sciences, specialty medical products healthcare, fluid processing
industries or other vertical industries for a number of reasons, including:
. inadequate development of the necessary infrastructure for Internet-
based communications within life sciences and specialty medical products
organizations and other vertical industries;
. security and confidentiality concerns of customers and suppliers;
. lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
. implementation of competing purchasing solutions;
. lack of human contact that current, traditional suppliers provide; and
. governmental regulation.
The accelerated growth and increasing volume of Internet traffic may cause
performance problems that may slow adoption of our Internet-based purchasing
and product information solution
The growth of Internet traffic to very high volumes of use over a
relatively short period of time has caused frequent periods of decreased
Internet performance, delays and, in some cases, system outages. This
decreased performance is caused by limitations inherent in the technology
infrastructure supporting the Internet and the internal networks of Internet
users. If Internet usage continues to grow rapidly, the infrastructure of the
Internet may be unable to support the demands of growing e-commerce usage, and
the Internet's performance and reliability may decline. If our existing or
potential enterprise and research customers experience frequent outages or
delays on the Internet, the adoption or use of our Internet-based, e-commerce
purchasing and product information solution may grow more slowly than we
expect or even decline. Our ability to increase the speed and reliability of
our Internet-based purchasing and product information solution is limited by
and depends upon the reliability of both the Internet and the internal
networks of our existing and potential customers. As a result, if improvements
in the infrastructure supporting both the Internet and the internal networks
of our enterprise customers and their users are not made in a timely fashion,
we may have difficulty obtaining new customers, or maintaining our existing
customers, either of which could reduce our potential revenues and have a
negative impact on our business, results of operations and financial
condition.
Security and disruption problems with the Internet or transacting business
over the Internet may inhibit the growth of our Internet-based purchasing
solution
The secure transmission of confidential information over the Internet is
essential to maintaining customer and supplier confidence in our marketplaces
and our product information websites. Customers generally are concerned with
security and privacy on the Internet and any publicized security problems
could inhibit the growth of the Internet, and therefore our purchasing and
product information solution, as a means of conducting transactions.
Substantial security breaches on our system could significantly harm our
business. A party that is able to circumvent our security systems could
misappropriate proprietary information or cause interruptions in our
operations. We incur substantial expense to protect against and remedy
security breaches and their consequences. Despite the implementation of
security measures, our networks may be vulnerable to unauthorized and illegal
access, computer viruses and other disruptive problems. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to users accessing our solution.
Internet service providers and online service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. We may be required to expend significant capital
or other resources to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Although we intend to continue to
implement industry-standard security measures, we cannot be certain that
measures implemented by us will not be circumvented in the future.
21
<PAGE>
If we experience a security breach that results in the misappropriation of
proprietary information maintained in our systems or if we experience
interruptions in our service, our reputation and brand names may be damaged
and we may be exposed to a risk of loss or litigation and possible liability.
Damage to our reputation and brand names could cause us to lose suppliers and
customers and negatively affect our business, results of operations and
financial condition. Our insurance policies may not be adequate to reimburse
us for losses caused by security breaches or service disruption.
System failure may cause interruption of our services
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service, and attract and
retain customers, suppliers, users and strategic partners. Currently our
infrastructure and systems are located at one site at Exodus Communications in
Sunnyvale, California. We anticipate adding a mirror site at a different,
distant location. Until then, we depend on our single-site infrastructure and
any disruption to this infrastructure resulting from a natural disaster or
other event could result in an interruption in our service, fewer transactions
and, if sustained or repeated, could impair our reputation and the
attractiveness of our services.
Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and
similar events. We do not have a formal disaster recovery plan or alternative
provider of hosting services. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that could occur. Any
failure on our part to expand our system or Internet infrastructure to keep up
with the demands of our customers and users, or any system failure that causes
an interruption in service or a decrease in responsiveness of our Internet-
based purchasing solution or website, could result in fewer transactions and,
if sustained or repeated, could impair our reputation and the attractiveness
of our brand names, which would harm our business, revenues, financial
condition and results of operations.
Regulation or taxation of the Internet or transacting business over the
Internet may inhibit the growth of our Internet-based purchasing solution
Due to the increasing popularity and use of the Internet and of e-commerce,
it is possible that a number of taxes, laws and regulations may be adopted in
the U.S. and abroad with particular applicability to the Internet and e-
commerce transactions. It is possible that governments will adopt taxes and
enact legislation that may be applicable to us in areas such as content,
product distribution, network security, encryption and the use of key escrow,
data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and re-transmission
activities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation and
personal privacy is uncertain. Taxes, laws or regulations may limit the growth
of the Internet, dampen e-commerce and reduce the number of transactions,
increase our cost of doing business or increase our legal exposure. Any of
these factors could have a negative effect on our business, revenues, and
results of operations and financial condition.
Significant credit card fraud could harm our net revenues
If we are unable to adequately prevent or detect fraudulent credit card
transactions, our net sales and results of operations would be harmed. Under
current credit card practices, we are liable for fraudulent credit card
transactions because we do not obtain a cardholder's signature.
Risks Related to the Offering
Because the notes are subordinated to our senior debt obligations, we may
not have sufficient funds to pay our obligations under the notes if we
encounter financial difficulties
The notes will be unsecured and subordinated in right of payment to all of
our existing and future senior debt obligations. Therefore, if we go bankrupt,
liquidate our assets, reorganize or enter into other specified
22
<PAGE>
transactions, our assets will be available to pay our obligations with respect
to the notes only after we have paid all of our senior debt obligations in
full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the notes then outstanding. The notes will also be effectively
subordinated in right of payment of all the liabilities, including trade
payables, of our subsidiaries that do not guarantee the notes. The indenture
governing the notes does not prohibit or limit the ability of us or our
subsidiaries to incur senior debt obligations, other debt obligations and
other liabilities. If any of these actions are taken, this could harm our
ability to pay our obligations under the notes. Although neither we nor our
subsidiaries currently have a material amount of senior indebtedness, we or
they may incur additional liabilities in the future. See "Description of
Notes--Subordination of Notes."
We may not have sufficient funds or may be restricted in our ability to
repurchase the notes upon a fundamental change
Upon a fundamental change, as defined below, each holder of notes has the
right, at the holder's option, to require us to repurchase all or a portion of
the holder's notes. If a fundamental change were to occur, we may not have
sufficient funds to pay the repurchase price for all notes tendered by
holders. Any future credit agreements or other agreements relating to other
indebtedness, including senior indebtedness, to which we become a party may
contain restrictions and provisions limiting our ability to repurchase the
notes. In the event a fundamental change occurs at a time when we are
prohibited from purchasing or redeeming notes, we could seek the consent of
lenders to the purchase of notes or could attempt to refinance the borrowings
that contain this prohibition. If we do not obtain a consent or repay these
borrowings, we would remain prohibited from purchasing or redeeming notes. Our
failure to repurchase tendered notes would constitute an event of default
under the indenture, which might constitute a default under the terms of other
indebtedness that we may enter into from time to time. In these circumstances,
the subordination provisions in the indenture would likely restrict payments
to the holders of notes. The term "fundamental change" is limited to specified
transactions and may not include other events that might adversely affect our
financial condition. In addition, the requirement that we offer to repurchase
the notes upon a fundamental change does not necessarily afford holders of the
notes protection in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving us. See "Description
of Notes--Redemption at Option of Holders."
We conduct a significant portion of our operations through our
subsidiaries, which may affect our ability to make payments on the notes
A significant portion of our operations is conducted through our
subsidiaries. We anticipate that this portion could increase in the future if
our vertical market strategy is successful. As a result, our cash flow and our
ability to service our debt, including the notes, depend upon the earnings of
our subsidiaries. In addition, we depend on the distribution of earnings,
loans or other payments by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the notes. Our subsidiaries are
not required to provide us with funds for our payment obligations, whether by
dividends, distributions, loans or other payments. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could be
subject to statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries' earnings and
business considerations.
A trading market for the notes may not develop
The notes are a new issue of securities for which there is currently no
active trading market. If the notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the financial
condition and the prospects of our company and other factors beyond our
control, including general economic conditions. Although the underwriters have
advised us that they intend to make a market in the notes, they are not
obligated to do so and may
23
<PAGE>
discontinue market making at any time without notice. Their market-making
activity will be subject to the limitations imposed by the securities laws. We
cannot guarantee that the market for the notes will be maintained. Also, we do
not intend to apply for listing of the notes on any securities exchange. The
trading price of the notes will decline if there ceases to be an active
trading market for them.
Officers and directors and their affiliates will continue to have
substantial control over us after the offerings
Upon completion of our concurrent offering of common stock, our executive
officers and directors and their affiliates will beneficially own
approximately 51% of the shares of common stock. As a result, our officers,
directors and their affiliates will have the ability to influence the election
of our board of directors and the outcome of corporate actions requiring
stockholder approval. This concentration of ownership may have the effect of
delaying or preventing a change in control of Ventro. See "Principal
Stockholders."
We expect the price of our common stock to continue to be volatile
The market price of our common stock has fluctuated significantly since our
initial public offering and may continue to fluctuate significantly in
response to a number of factors, some which are beyond our control, including:
. quarterly variations in our operating results;
. changes in estimates of our financial performance by securities
analysts;
. changes in market valuation of Internet commerce companies generally;
. announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. loss of a major customer, supplier or strategic partner, or failure to
complete a sale of our purchasing solution to a significant customer;
. additions or departures of any of our key personnel;
. future sales of our common stock; and
. stock market price and volume fluctuations, which are particularly
common among highly volatile securities of Internet companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources, which could have a negative effect on
our business, results of operations and financial condition.
The trading market price of our stock may decline as a result of
substantial sales of our common stock after the offering
Sales of a substantial number of shares of our common stock after the
offering could negatively affect the market price of our common stock and
could impair our ability to raise capital through the sale of additional
equity securities. Upon completion of this offering and our concurrent common
stock offering, we will have 46,003,563 shares of common stock outstanding.
The 8,625,000 shares sold in our initial public offering, the 2,357,697 of the
shares issued in connection with our acquisition of Promedix, the 1,825,000
shares sold in the concurrent offering of our common stock under a separate
prospectus and the shares issuable upon conversion of the notes, will be
freely tradable without restriction or further registration under the federal
securities laws unless purchased by our "affiliates" as that term is defined
in Rule 144. Of the remaining 33,195,866 shares of common stock outstanding
upon completion of the offering approximately 26,294,782 will be subject to
lock up agreements restricting their resale, 5,651,153 shares will be
"restricted securities" as that term is defined in Rule 144 and 1,249,931
shares issued in connection with our acquisition of SpecialtyMD have
restrictions on their resale.
24
<PAGE>
Stockholders holding in the aggregate approximately 56% of the outstanding
common stock have executed lock-up agreements that limit their ability to sell
common stock. These stockholders and option holders have agreed not to sell or
otherwise dispose of any shares of common stock for a period of at least 90
days after the date of this prospectus without the prior written approval of
Morgan Stanley & Co. Incorporated. When the lock-up agreements expire, these
shares and the shares underlying the options will become eligible for sale, in
some cases only pursuant to the volume, manner of sale and notice requirements
of Rule 144. For a further discussion of the shares that will be freely
tradable after the date of this prospectus, please see "Shares Eligible for
Future Sale."
Anti-takeover provisions may adversely effect the combined company's stock
price and make it more difficult for a third party to acquire Ventro
Provisions of our charter documents may have the effect of delaying or
preventing a change in control of Ventro or its management. These include
provisions:
. eliminating the ability of stockholders to take actions by written
consent;
. limiting the ability of stockholders to raise matters at a meeting of
stockholders without giving advance notice; and
. granting our board of directors authority to issue up to 2,500,000
shares of preferred stock and to fix the rights, preferences, privileges
and restrictions, including voting rights, of these shares without any
further vote or action by the stockholders.
25
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in
this prospectus include forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements include, but are not limited
to, statements concerning:
. Third parties and their statements relating to the growth of Internet
users and e-commerce;
. The size of the life sciences research products, fluids processing and
medical products market;
. The anticipated benefits and risks of our strategic partnerships,
business relationships and acquisitions;
. The anticipated size or trends of the vertical market segments in which
we compete and the anticipated competition in these markets; and
. Our future capital requirements and our ability to satisfy our capital
needs.
In some cases, you can identify forward-looking statements by terminology
such as "may," "might," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "projects,"
"potential," or "continue" or the negative of these terms or other comparable
terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, growth rates,
levels of activity, performance or achievements. A description of risks that
could cause our results to vary appears under the caption "Risk Factors" and
elsewhere in this prospectus. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
We are under no duty to update any of the forward-looking statements after the
date of this prospectus to conform these statements to actual results.
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the notes are estimated to be
approximately $291.0 million after deducting the estimated underwriting
discounts and commissions and the estimated offering expenses. In addition, we
expect to receive net proceeds of $286.8 million from the concurrent sale of
the common stock, which are being offered under a separate prospectus, based
on an assumed public offering price of $220.00 per share, after deducting the
estimated underwriting discounts and commissions and the estimated offering
expenses.
We intend to use the net proceeds for general corporate purposes, including
working capital to fund anticipated operating losses, expenses associated with
our advertising campaigns, brand-name promotions and other marketing efforts
and capital expenditures. We have not yet determined the expected use of these
proceeds. The amounts and timing of these expenditures will vary depending on
a number of factors, including the amount of cash generated by operations,
competitive and technological developments and the rate of growth, if any, of
our business. We also could use a portion of the net proceeds to acquire or
invest in complementary businesses, technologies, products or services. The
amounts that we actually expend for working capital and other general
corporate purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash we generate
from operations. Our management will have broad discretion in the application
of the net proceeds. Pending these uses, we intend to invest the net proceeds
from this offering in short-term, interest-bearing, investment-grade
securities.
PRICE RANGE OF COMMON STOCK
Our common stock was traded on the Nasdaq National Market under the symbol
"CMDX" starting on July 27, 1999 and has been traded under the current symbol
"VNTR" since March 1, 2000. Prior to that time, there was no public market for
our common stock.
<TABLE>
<CAPTION>
Common
Stock
Price
-------------
High Low
----- ----
<S> <C> <C>
Year Ended December 31, 1999
Third Quarter (from July 27, 1999).......................... $ 34 7/8 $15 1/8
Fourth Quarter.............................................. 143 29 7/16
Year Ending December 31, 2000
First Quarter (through March 3, 2000)....................... 243 1/2 72
</TABLE>
On March 3, 2000, the last reported sales price of our common stock on the
Nasdaq National Market was $220.00 per share. As of December 31, 1999, there
were approximately 12,000 stockholders of record of our common stock.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception and do not expect to pay any cash dividends in the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business.
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<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999 on an actual, pro forma and pro forma as adjusted basis:
. The actual column sets forth our actual capitalization as of December
31, 1999 without any adjustments for subsequent or anticipated events;
. The pro forma column reflects our capitalization as of December 31,
1999, with adjustments to give effect to (1) the issuance of 10,775,588
shares of common stock related to the acquisition of Promedix and (2)
the issuance of 1,095,212 shares of common stock related to the
acquisition of SpecialtyMD; and
. The pro forma as adjusted column further reflects our pro forma
capitalization, with adjustments to give effect to (1) the receipt of
the net proceeds from the sale by us of the notes, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses and (2) the receipt of the net proceeds from the sale of our
shares of common stock in a concurrent offering under a separate
prospectus, at an assumed public offering price of $220.00 per share,
after deducting estimated underwriting discounts and commissions and
estimated offering expenses. See "Use of Proceeds."
The information below should be read in conjunction with our financial
statements, and other financial information included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
% convertible subordinated notes due 2007... $ -- $ -- $ 300,000
Other long term debt.......................... 494 494 494
-------- -------- ----------
Total long-term debt, net of current
portion..................................... 494 494 300,494
Stockholders' equity:
Preferred stock, 2,500 authorized, no shares
issued or outstanding, actual and as
adjusted..................................... -- -- --
Common stock, $.0002 par value; 175,000 shares
authorized, 32,763 shares issued and
outstanding, actual; 175,000 shares
authorized, 44,634 shares issued and
outstanding, pro forma; 175,000 shares
authorized, 46,004 shares issued and
outstanding, as adjusted(1).................. 7 9 9
Additional paid-in capital.................... 189,842 608,317 895,154
Deferred compensation......................... (6,380) (6,380) (6,380)
Notes receivable from stockholders............ (985) (985) (985)
Accumulated deficit........................... (57,465) (57,465) (57,465)
-------- -------- ----------
Total stockholders' equity................... 125,019 543,496 830,333
-------- -------- ----------
Total capitalization......................... $125,513 $543,990 $1,130,827
======== ======== ==========
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1999, the
following table excludes:
. the issuance of 12,500 shares of common stock related to exercise of
options granted under our 1999 Directors' Stock Plan subsequent to
December 31, 1999 and prior to February 10, 2000;
. the repurchase of 28,386 shares of common stock subsequent to December
31, 1999 and prior to February 10, 2000;
. 5,277,952 shares of our common stock issuable on exercise of options
outstanding as of February 10, 2000, with a weighted average exercise
price of $29.16;
. 197,178 shares of our common stock issuable upon the exercise of
warrants outstanding as of February 10, 2000 with a weighted average
exercise price of $4.94 per share;
. 5,549,685 additional shares of our common stock subject to options
reserved for issuance under our stock plans; and
. the shares of common stock issuable upon conversion of the notes.
See "Management--Employee Stock Plans" and Note 10 of Notes to Financial
Statements.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement
of operations data for the period from inception (September 4, 1997) through
December 31, 1997 and for the years ended December 31, 1998 and 1999, and the
consolidated balance sheet data at December 31, 1998 and 1999, have been
derived from audited consolidated financial statements included elsewhere in
this prospectus. The consolidated balance sheet data as of December 31, 1997
is derived from audited financial statements not appearing in this prospectus.
The historical results are not necessarily indicative of the operating results
expected in the future. See Note 2 of Notes to our consolidated financial
statements for an explanation of the determination of the shares used in
computing basic and diluted net loss per share.
<TABLE>
<CAPTION>
Period from
September 4,
1997
(Inception) Year Ended
Through December 31,
December 31, -----------------
1997 1998 1999
------------ ------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues.................................. $ -- $ 29 $ 30,840
Cost of revenues.............................. -- 22 29,306
------ ------- --------
Gross profit.................................. -- 7 1,534
Operating expenses:
Research and development.................... 197 3,439 17,734
Sales and marketing......................... 86 3,247 23,024
General and administrative.................. 121 1,745 10,352
Amortization of deferred stock-based
compensation............................... -- 372 1,992
------ ------- --------
Total operating expenses...................... 404 8,803 53,102
------ ------- --------
Operating loss................................ (404) (8,796) (51,568)
Interest expense.............................. -- (2) (168)
Interest and other income..................... -- 310 3,163
------ ------- --------
Net loss...................................... $ (404) $(8,488) $(48,573)
====== ======= ========
Basic and diluted net loss per share.......... $ (.24) $ (4.79) $ (3.17)
====== ======= ========
Weighted average common shares outstanding--
basic and diluted............................ 1,704 1,772 15,322
====== ======= ========
<CAPTION>
As of December 31,
------------------------------
1997 1998 1999
------------ ------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................. $1,346 $ 5,990 $103,095
Working capital............................... 1,116 4,489 82,130
Total assets.................................. 1,728 8,168 163,933
Long-term debt and capital lease obligations,
net of current portion....................... 6 -- 494
Total liabilities............................. 280 1,820 38,914
Total stockholders' equity.................... 1,448 6,348 125,019
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Ventro Corporation, formerly known as Chemdex Corporation, is a leading
builder and operator of vertical marketplace companies that enter into
transactions with enterprises, buyers and suppliers, enabling them to
streamline business processes, enhance productivity and reduce costs. Ventro
marketplace companies offer e-commerce solutions consisting of extensive
online marketplaces, electronic procurement, the systems integration needed to
interface with third party and back office systems and comprehensive services
and support. We were created in February 2000 to leverage the assets and
expertise from our Chemdex life sciences business.
We are currently operating or developing four Ventro marketplace companies
that are either wholly-owned by us or in which we own a minority interest.
Chemdex is a division of Ventro and is a leading provider of e-commerce
solutions to the life sciences research products market. Promedix, a wholly-
owned subsidiary of Ventro, will address the specialty medical products
marketplace. We have a joint venture with Tenet to form a new company called
Broadlane, which will provide e-commerce solutions for the high-volume,
hospital and medical supplies market, initially focusing on commodity hospital
supplies. Finally, we and DuPont formed Industria Solutions to provide e-
commerce solutions for the fluid processing industry. Broadlane and Industria
Solutions are currently in the development stage. We are a minority
shareholder in each of Broadlane and Industria Solutions.
Ventro acquired Promedix and SpecialtyMD on February 10, 2000. The
acquisitions will be accounted for under the purchase method of accounting.
The acquisition costs of Promedix and SpecialtyMD are estimated to be $325.3
million and $107.7 million, respectively. The intangible assets acquired in
the Promedix and SpecialtyMD acquisitions are estimated at $323.8 million and
$107.9 million, respectively. In addition, we expect to record $13.1 million
of compensation expense based on the 15 month vesting schedule of restricted
stock issued as part of the SpecialtyMD acquisition. The intangible assets
will be amortized over two to three years and the amortization expense is
estimated to be approximately $144.4 million per year, beginning February 10,
2000. Promedix had no revenue and a loss from continuing operations of $12.1
million for 1999. SpecialtyMD had $31,000 of revenue and a net loss of $4.3
million for 1999.
Net revenues consist primarily of product sales to customers and charges to
customers for outbound freight. Under most of our supplier agreements we are
acting as a principal in purchasing products from our suppliers and reselling
them to our customers so that we recognize net revenues equal to the amount
paid by our customers and cost of revenues equal to the amount we pay to our
suppliers for these products. Under our principal-based agreements, we are
responsible for selling the products, collecting payment from customers,
ensuring that the shipment reaches customers and processing returns. In
addition, we take title to products upon shipment and bear the risk of loss
for collection, delivery and merchandise returns from customers. Some of our
agreements with our suppliers treat us as an agent of the supplier, in which
case we receive a percentage fee on product sales. We recognize revenue from
product sales, net of any discounts, and from fees under agency-based supplier
agreements, when the products are shipped to customers. Products are shipped
directly to customers by suppliers based on customer deliver date
specifications.
30
<PAGE>
Results of Operations
The following table sets forth, for 1999, items from our consolidated
statement of operations expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Net revenues....................................................... 100 %
Cost of revenues................................................... 95
----
Gross profit....................................................... 5
Operating expenses:
Research and development......................................... 58
Sales and marketing.............................................. 75
General and administration....................................... 33
Amortization of deferred stock-based compensation................ 6
----
Total operating expenses........................................ 172
----
Operating loss..................................................... (167)
Interest expense................................................... (1)
Interest income and other.......................................... 10
----
Net loss........................................................... (158)%
====
</TABLE>
Comparison of the Years Ended December 31, 1999 and 1998
Net Revenues. Net revenues increased to $30.8 million for 1999 from $29,000
for 1998. The increase in sales volume is primarily due to the increase in our
customer base and increased market acceptance of our procurement solution.
In the future, the level of our net revenues will depend on a number of
factors including, but not limited to, the:
. number of customers we are able to obtain;
. frequency of our customer's purchases;
. quantity and mix of products our customers purchase;
. quantity of the types of products we are able to offer for sale;
. price we charge for our products;
. amount we charge for shipping;
. extent of sales incentives we offer;
. level of customer returns we experience;
. seasonality that we may experience; and
. number of vertical marketplaces we enter.
Cost of Revenues. Cost of revenues increased to $29.3 million for 1999 from
$22,000 for 1998. Cost of revenues consists primarily of the costs of
acquiring products from our suppliers for sale to our customers and shipping
costs related to product purchased. During 1999, cost of revenues in absolute
dollars, increased consistent with the significant increases in revenues. Our
gross margin for 1999 was approximately 5%. Cost of revenues as a percentage
of net revenues will fluctuate based on a number of factors, including, but
not limited to, the following:
. the cost of our products and purchase discounts that we negotiate with
individual suppliers;
. our pricing strategy relative to the cost of our products;
31
<PAGE>
. the mix of products our customers purchase; and
. our price strategy for shipping relative to the cost of shipping.
Operating Expenses
Research and Development. Research and development expenses increased by
$14.3 million to $17.7 million for 1999 from $3.4 million for 1998. Research
and development expenses consist of personnel and other expenses associated
with developing, updating and enhancing the software used for the Chemdex
Marketplace. Our research and development expenses have increased each quarter
since inception, primarily due to increased staffing and associated costs
related to the design, development and maintenance of the Chemdex Marketplace,
as well as content and design expenses.
We expect that research and development expenses will increase in absolute
dollars in the future as we:
. continue to enhance and improve our Internet-based purchasing solution;
. add increasing amounts of supplier data to our databases;
. develop and introduce new solutions and services; and
. integrate our Internet-based purchasing system with our customers' and
suppliers' systems.
Sales and Marketing. Sales and marketing expenses increased by $19.8
million to $23.0 million for 1999 from $3.2 million for 1998. Sales and
marketing expenses consist primarily of advertising and promotion in support
of the development of our marketing strategy, payroll and related expenses for
personnel engaged in supplier relations, enterprise sales activities,
enterprise account management and amortization expenses related to our VWR and
BIO agreements. Sales and marketing expenses have increased since inception as
we have continued to expand our sales and marketing efforts primarily with
relation to our corporate marketing and branding strategy associated with our
name change. We expect sales and marketing expenses to increase in absolute
dollars as we continue to pursue our vertical market strategy and promote our
brands. In connection with our strategic relationship with VWR, Ventro issued
2,538,405 shares of common stock valued at $13.9 million. The fair value of
the stock is being amortized, on a straight-line basis, into sales and
marketing expense over four years, the estimated useful life of this
intangible asset.
General and Administrative. General and administrative expenses increased
by $8.6 million to $10.4 million for 1999 from $1.8 million for 1998. General
and administrative expenses consist primarily of administrative personnel
salaries, fees for professional services, travel and corporate facility
expenses. General and administrative expenses have increased primarily as a
result of the addition of finance and administrative personnel, costs of
leasing additional office space to support our growth and expenses related to
increased professional service fees. We expect our general and administrative
expenses to increase in absolute dollars as we expand our staff and incur
additional costs related to the anticipated growth of our business.
Amortization of Deferred Stock Based Compensation. We have recorded
aggregate deferred stock based compensation of $8.7 million in connection with
some of the stock options we granted through December 31, 1999. For 1998 and
1999, we expensed $372,000 and $2.0 million, respectively, related to the
amortization of deferred stock based compensation. The deferred stock based
compensation amounts are being amortized over the vesting period of the stock
options which is generally four years.
Interest Expense. Interest expense increased to $168,000 for 1999 from
$2,000 for 1998. Interest expense consists primarily of interest related to
financed equipment and other financing arrangements. We expect interest to
increase with the issuance of the notes we are offering.
32
<PAGE>
Interest Income and Other. Interest income and other, net increased by
$2.9 million to $3.2 million for 1999 from $310,000 for 1998. Interest income
and other, net has been derived primarily from earnings on investments in cash
equivalents and short-term investments. Interest during the second half of
1999 increased significantly due to increased cash, cash equivalents and
short-term investments resulting from the net proceeds of our initial public
offering on July 27, 1999.
Provision for Income Taxes. We incurred net losses and accordingly did not
record a provision for income taxes for any of the periods presented. At
December 31, 1999, we had federal and state net operating loss carryforwards
of approximately $54.0 million and $54.0 million, respectively. These net
operating loss carryforwards will expire at various dates beginning in 2002
through 2019 if not utilized. Certain future changes in our share ownership,
as defined in the Tax Reform Act of 1986 and similar state provisions, may
restrict the utilization of carryforwards. A valuation allowance has been
recorded for the entire deferred tax asset as a result of uncertainties
regarding the realization of the asset due to our lack of earnings history.
Comparison of the Period from September 4, 1997 (inception) through
December 31, 1997 to the year ended December 31, 1998
From September 4, 1997, the date of our inception, through November 1998,
Ventro was in the development stage and had only nominal net revenues, cost of
revenues and operating expenses. As a result, our results of operations for
the period from September 4, 1997 to December 31, 1997 were immaterial.
Therefore, we believe that a comparison of the period from September 4, 1997
to December 31, 1997 to any period of 1998 is not meaningful.
33
<PAGE>
Quarterly Results of Operations
The following tables present our unaudited quarterly consolidated results
of operations for the eight quarters ended December 31, 1999. We have prepared
this information on a basis consistent with our audited consolidated financial
statements and, in the opinion of management, includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the results for these periods. The results of operations for
any particular quarter are not indicative of the results for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
June Sept. Dec. Mar. Sept.
Mar. 31, 30, 30, 31, 31, June 30, 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- ------- ------- ------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues................. $ -- $ 3 $ -- $ 26 $ 165 $ 2,906 $ 8,490 $ 19,279
Cost of revenues............. -- -- -- 22 156 2,753 8,086 18,311
----- ------- ------- ------- ------- -------- -------- --------
Gross profit................. -- 3 -- 4 9 153 404 968
Operating expenses:
Research and development.... 364 414 1,026 1,635 2,293 3,462 5,643 6,336
Sales and marketing......... 219 297 710 2,021 3,188 5,224 6,903 7,709
General and administrative.. 190 422 489 644 1,015 3,611 2,572 3,154
Amortization of stock based
deferred compensation...... 22 44 104 202 352 547 546 547
----- ------- ------- ------- ------- -------- -------- --------
Total operating expenses.. 795 1,177 2,329 4,502 6,848 12,844 15,664 17,746
----- ------- ------- ------- ------- -------- -------- --------
Operating loss.............. (795) (1,174) (2,329) (4,498) (6,839) $(12,691) (15,260) (16,778)
Interest and other income,
net........................ 2 70 136 100 30 186 1,261 1,518
----- ------- ------- ------- ------- -------- -------- --------
Net loss.................... $(793) $(1,104) $(2,193) $(4,398) $(6,809) $(12,505) $(13,999) $(15,260)
===== ======= ======= ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Net Revenues
-------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues............................. 100% 100% 100% 100%
Cost of revenues......................... 95 95 95 95
------ ---- ---- ---
Gross profit............................. 5 5 5 5
Operating expenses:
Research and development................ 1,390 119 67 33
Sales and marketing..................... 1,932 180 81 40
General and administrative.............. 615 124 31 16
Amortization of deferred stock-based
compensation........................... 213 19 6 3
------ ---- ---- ---
Total operating expenses.............. 4,150 442 185 92
------ ---- ---- ---
Operating loss.......................... (4,145) (437) (180) (87)
Interest, other income, net............. 18 6 15 8
------ ---- ---- ---
Net loss................................ (4,127)% (431)% (165)% (79)%
====== ==== ==== ===
</TABLE>
Net revenues increased in each quarter beginning with the quarter ended
December 31, 1998, primarily due to the increase in our customer base and
increased market acceptance of our procurement solution.
Gross margins have fluctuated during the four quarters of 1999 from 4.8% to
5.8%. Gross margins will fluctuate based on a number of factors, including,
but not limited to, the following:
. the cost of our products and purchase volume discounts that we are able
to obtain from suppliers;
. our pricing strategy relative to the cost of our products;
. the mix of products our customers purchase; and
. our price strategy for shipping relative to the cost of shipping.
34
<PAGE>
Operating expenses increased in each of the last eight quarters primarily
due to increased headcount and additional costs related to the growth of our
business.
We believe that quarter-to-quarter comparisons of our operating results
will not be meaningful. You should not rely on our results for any quarter as
an indication of our future performance. Our operating results in future
quarters may be below public market analysts' or investors' expectations,
which would likely cause the price of our common stock to fall.
Liquidity and Capital Resources
Prior to our initial public offering in July 1999, we funded our operations
primarily by the private sale of our equity securities, through which we
raised approximately $45.0 million. In July 1999, we completed the initial
public offering of our common stock and realized net proceeds from the
offering of approximately $117.4 million. As of December 31, 1999, our
principal sources of liquidity included approximately $103.1 million of cash,
cash equivalents and short-term investments and $4.1 million in equipment
financing arrangements.
Net cash used in operating activities totaled $41.3 million and $6.8
million for the year ended December 31, 1999 and 1998, respectively. The net
cash used in operating activities during these periods was primarily due to
our net losses, which were partially offset by non-cash charges of
depreciation and amortization of deferred compensation, amortization of
intangible assets, and increases in accounts payable, accrued expenses and
accrued compensation.
Net cash used in investing activities totaled $90.5 million for 1999. We
had cash purchases of $9.3 million of computer equipment, computer software,
office furniture and leasehold improvements during 1999. In addition, during
1999 we had net purchases of $81.2 million of short-term investments. Net cash
used in investing activities for 1998 was $1.6 million and primarily related
to purchases of computer equipment, and office furniture.
Net cash provided by financing activities was $147.7 million for the fiscal
year end December 31, 1999 and $13.0 million for 1998. Net cash from financing
activities during 1998 resulted primarily from the sale of preferred stock.
Net cash provided by financing activities during 1999 resulted primarily from
the sale of preferred stock and proceeds from our initial public offering.
Following the consummation of this offering, we will have a ratio of long-
term debt to total pro forma capitalization (including the acquisitions of
Promedix and SpecialtyMD) at December 31, 1999 of approximately 26.6%, 29.4%
if the underwriters' over-allotment option is exercised in full. As a result
of this additional indebtedness, our principal and interest payment
obligations will increase substantially. The degree to which we will be
leveraged could materially and adversely affect our ability to obtain
financing for working capital, acquisitions or other purposes and could make
us more vulnerable to industry downturns and competitive pressures. We will
require substantial amounts of cash to fund scheduled payments of principal
and interest on our indebtedness, including the notes, future capital
expenditures and any increased working capital requirements. If we are unable
to meet our cash requirements out of cash flow from operations, we cannot
assure you that we will be able to obtain alternative financing.
We currently anticipate that cash, cash equivalents and short-term
investments at December 31, 1999, together with our equipment lease lines,
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 future periods through public or private financing,
or other arrangements to fund our operations and potential acquisitions, if
any, over a long-term basis until we achieve profitability, if ever. Any
additional financing, if needed, might not be available on reasonable terms or
at all. Failure to raise capital when needed could seriously harm our business
and results of operations. If additional funds are raised through the issuance
of equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences
or privileges senior to our common stock.
35
<PAGE>
Year 2000
To date, we have not experienced any year 2000 related problems with our
internally developed software or our third-party supplied software and
computer systems, and we are not aware of any failure of our systems or of our
third-party suppliers to be year 2000 compliant that could impact our business
or operations.
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging Activities, which we will be required to adopt for the
year ending December 31, 2001. This statement establishes a new model for
accounting for derivatives and hedging activities. FAS 133 establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. Because we
currently hold no derivative financial instruments and do not currently engage
in hedging activities, adoption of FAS 133 is expected to have no material
impact on our financial condition or results of operations.
Based on generally accepted accounting principles, we include in our net
revenues the gross revenues from sales of products and related shipping fees,
net of discounts and provisions for sales returns and other allowances as we
are acting as a principal in purchasing products from our suppliers and
reselling them to our customers. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101--Revenue Recognition in
Financial Statements, which summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In addition, the Emerging Issues Task Force may prepare new guidance in this
area. If any guidance is proposed and subsequently implemented, these
initiatives may limit the ability of Internet businesses to include in
revenues the gross value of product sales between buyers and sellers. We
cannot predict at this time whether any initiatives will be proposed or
adopted or whether they will require us to change our method of recognizing
revenues for financial reporting purposes. If we are required to change our
accounting policies, we may in the future report substantially lower revenues,
and we may be required to restate the results from earlier periods. This could
cause the market price of our common stock to fall significantly.
36
<PAGE>
BUSINESS
Overview
We are a leading builder and operator of vertical business-to-business e-
commerce marketplace companies. Our platform of enabling technologies and
operating capabilities allows us to rapidly enter new markets while realizing
economies of scale. Our solutions benefit suppliers by permitting them to
lower sales and marketing costs as well as to improve inventory management and
product delivery. Customers enjoy a significantly enhanced purchasing system
that provides access to a broad range of basic and specialized products,
increased flexibility and a reduction in the cost of the procurement process.
We created Ventro in February 2000 to expand the scope of our marketplace
companies by leveraging the assets and experience that we gained in building
and operating Chemdex, our marketplace for life sciences research products. In
addition to Chemdex, we currently operate or are developing three additional
Ventro marketplaces: Promedix, for the specialty medical products market;
Broadlane, for the high-volume, hospital and medical supplies market; and
Industria Solutions, for the fluid processing market.
Industry Background
The Internet
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing how businesses communicate and share
information. According to International Data Corporation, the number of
commercial users employing the Internet in the normal course of operations is
expected to expand from 82 million at the end of 1999 to 250 million in 2003.
Forrester Research projects total business-to-business sales will increase
from $406 billion at the end of 2000 to $2.7 trillion in 2004. The growing use
of Internet-based solutions by firms has resulted in reduced barriers to entry
and the expansion of related opportunities, causing a considerable increase in
business-to-business e-commerce focused companies.
Traditional Procurement Processes
Purchasing methods in many industries are inefficient and costly. From the
perspective of purchasers, product orders are handled through an internal,
paper-based purchasing process that requires manual preparation of a purchase
order and written approval by a purchasing manager as well as manual order
tracking, billing and collection. As a result, purchasing activities are not
effectively controlled and monitored, preventing the firm from taking full
advantage of volume discounts or other benefits. In addition, for many
industries, fragmentation of suppliers and highly specialized product
offerings increase the time required to search for and compare products. In
many instances, customers may not even be aware of products that would suit
their needs.
From the perspective of suppliers, traditional purchasing methods present a
number of challenges in reaching customers with product information. In
fragmented markets, suppliers cannot cost-effectively manage frequent updates
and distribution of time-sensitive information. While some suppliers have
developed Internet websites to communicate with individual customers, few have
invested the significant time and money required to establish an effective e-
commerce channel. Small suppliers may have limited resources available to
support the growing challenge of marketing and selling to fragmented,
worldwide markets.
In contrast to these traditional approaches, business-to-business e-
commerce solutions frequently automate or otherwise change workflows or
processes that are fundamental to a company's operations by replacing paper-
based transactions with electronic communications. A business-to-business e-
commerce solution, however, must often be integrated with an enterprise's
existing information systems, a process that can be complex, time-
37
<PAGE>
consuming and, in some instances, expensive. Finally, personnel throughout the
enterprise must be trained to use the solution. Consequently, selection and
implementation of a business-to-business e-commerce solution represents a
significant commitment of capital, resources and time, which may make the cost
of switching high.
Business-to-Business E-commerce Markets
We believe the best e-commerce business-to-business market solutions will
be readily implemented and maintained while enabling multiple suppliers and
customers to conduct transactions in a cost-effective manner. To effectively
address the needs of customers and suppliers, it is important that the
solution also offer a neutral and fair marketplace with full catalog
descriptions of products and retail product pricing information.
Compared to traditional purchasing methods, we believe vertical e-commerce
marketplaces offer significant advantages and provide a much more flexible
medium in which to interact. For customers and suppliers, these marketplaces
can offer significant cost and time savings by streamlining processes and
providing access to comprehensive, up-to-date information.
For customers, vertical marketplaces can provide more efficient purchasing
processes, greater control and a better understanding of purchasing behavior.
They do this by offering large product databases, which aggregate offerings
from hundreds of suppliers in easy-to-use and searchable formats. In addition,
they provide applications that reduce the number of steps in the procurement
process while helping to enforce an enterprise's procurement policies. These
attributes allow customers to better understand their purchasing behavior to
take advantage of price discounts associated with specific purchasing volumes.
The customer also has more control and better information throughout the
procurement process through online status reports, shipment tracking, training
and better access to professional services.
For suppliers, vertical marketplaces can provide an additional method of
distribution at potentially lower costs. Suppliers may be able to reach a
broad base of customers aggregated in the online marketplace, who are not
practical to reach through traditional sales channels. Suppliers can also
become more efficient in communicating up-to-date pricing and product
description information to the marketplace at a lower cost than traditional
methods. Vertical marketplaces can also lower costs through simplified billing
and collection, improved order fulfillment and inventory management.
The Ventro Solution
We provide a secure, Internet-based solution that enables us to buy
products from suppliers and resell them to customers while streamlining
business processes, increasing productivity and reducing costs throughout the
supply chain. Our companies employ a robust database architecture, advanced
search engines and transaction software that enable users to easily identify,
locate and purchase the products they need. We have entered into agreements
with leading companies in each of the Ventro marketplaces, including VWR,
Tenet Healthcare and DuPont. With our strategic relationships with Ariba,
Commerce One, Concur Technologies, IBM, and SAP, we offer customers and
suppliers the ability to directly connect their enterprise software to the
marketplace. This extensive system integration provides a key competitive
advantage for Ventro companies, as customers and suppliers can directly link
their front and back offices to the Ventro marketplace and increase the
automation of their procurement and order fulfilment processes. We also
provide professional and implementation services to enable market participants
to take full advantage of our operating capabilities.
38
<PAGE>
Growth Strategy
We intend to build and operate leading vertical business-to-business e-
commerce marketplace companies. In order to achieve this objective, our
strategy consists of the following:
Leverage Our Platform. We intend to leverage our technology architecture,
operating capability and marketplace experience from our Chemdex Marketplace
to create vertical markets in a variety of industries. We have created a
scalable and adaptable technology architecture and established a substantial
operating capability, including transaction processing and customer service.
We believe this platform allows us to rapidly enter targeted vertical markets
and provides customers and suppliers with substantial benefits over
traditional procurement methods. In order to optimize our technology
architecture and operating capability, and to promote widespread adoption of
our solution, we currently have, and intend to continue to pursue, strategic
relationships with industry leaders.
Be the Market Leader in the Most Attractive Markets. We target marketplaces
where we believe we can be the market leader. In addition, we have a
disciplined approach for identifying and entering only the most attractive
markets. Generally we target large, fragmented markets where we believe the
aggregation enabled by our vertical marketplace will provide significant value
to customers and suppliers. The purchasing decision for products within these
markets will also typically require a high level of information, which our
solution is specifically designed to provide.
Scale Operations Rapidly. We intend to rapidly grow our market share in
each new vertical marketplace that we develop. Because of the fixed cost of
technology and other infrastructure, we believe this expansion will provide us
economies of scale and help us quickly build a leadership position. We intend
to accelerate our entry into new markets by partnering with the leading
companies in the sector. We may initially enter a new vertical market by
acquiring companies with the necessary industry-specific expertise or by
establishing new companies that may be funded by us and by our industry,
strategic and financial partners. In all markets that we choose to enter, we
will seek to establish the leading brand.
Expand Internationally. We believe the international scope of the Internet,
the global reach of many of our customers and suppliers and the worldwide
demand for the products in markets we serve presents us with opportunities to
grow our marketplaces internationally. We intend to leverage our platform,
existing supplier relationships and marketplace expertise to expand first in
Europe, and later to other international markets where we believe there are
significant opportunities.
Markets
We continually evaluate opportunities in many vertical markets and are
currently pursuing opportunities in the following markets:
Life Sciences Research Products
According to the Laboratory Products Association, the North American life
sciences research products market was estimated to be approximately $9.4
billion in 1998. We believe there is also a significant opportunity in the
life sciences research products market outside of North America, particularly
in Europe and Japan. The growth in these markets is driven by increasing
research and development expenditures by pharmaceutical and biotechnology
companies as well as an increase in the level of research funding available
for grant by the National Institutes of Health, similar international
government agencies and private foundations. Research and development budgets
have been increasing as new discovery tools, such as genomics, combinatorial
chemistry and high-throughput screening are developed and utilized. These new
technologies allow researchers to experiment with thousands of chemical
compounds simultaneously, which requires extensive use of reagents and other
life sciences research products.
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The life sciences research products market is highly fragmented. There are
over 5,000 suppliers offering more than one million products, many of which
are highly specialized. Life sciences research products include reagents,
chemical compounds, specialty chemicals, consumables, research instruments and
other equipment. The primary purchasers and users of life sciences research
products are research scientists working in pharmaceutical and biotechnology
companies, and academic and research institutions.
Specialty and High Volume Medical Products
The global market for medical products exceeded $140 billion in 1998, with
a projected 6% to 7% annual growth rate. The U.S. accounts for approximately
40% of the total, or roughly $55 billion, according to the Medical &
Healthcare Marketplace Guide published by IDD Enterprises, 1998-1999.
Promedix focuses on the market for specialty medical products, which
represents approximately one-third of all healthcare purchases and which we
believe is not as well served by existing hospital group purchasing
organizations and industry distributors. Examples of specialty medical
products include surgical and laparoscopic instruments, blood and intravenous
filters, vascular access devices, and cardiac stents and catheters. Specialty
medical products are currently sold by a fragmented group of approximately
22,000 manufacturers and distributors, usually by telephone and fax, to
approximately 6,000 hospitals. Margins for these products vary significantly,
and we believe logistics are handled inefficiently.
Broadlane focuses on the high-volume, contracted products segment of the
market for healthcare products. This represents approximately two-thirds of
the $140 billion global market for medical products. These products are
generally purchased through group purchasing organizations in high volume
under contracts with one of five major distributors, usually in an electronic
fashion. Examples of these products include pharmaceuticals, X-ray film and
single-use surgical supplies.
Fluid Processing
The fluid processing market totals approximately $75 billion worldwide, and
includes companies from a broad range of industries, such as the chemical, oil
and gas, pulp and paper, power generation and pharmaceutical industries. This
market is highly fragmented, with over 2,000 manufacturers. Products used in
this market include pipes, valves, pumps, motors, compressors and other
materials and equipment required for processing fluids for industrial use.
These materials require detailed product information in order for buyers to
make informed purchasing decisions. Procurement of these products generally
falls into two categories: time sensitive purchases of products in connection
with an operating plant, often as a replacement for a key component that has
broken; and volume purchases in connection with construction or expansion of
an existing facility.
Ventro Marketplaces
We are currently operating or developing four Ventro marketplace companies
that we either wholly own or created through collaborations with leading
companies in specific industries. Chemdex is a leading provider of e-commerce
solutions to the life sciences research products market. Promedix was aquired
by Ventro in February 2000, and will address the specialty medical products
marketplace. We have entered into a joint venture with Tenet Healthcare, the
second largest U.S. for-profit hospital chain, to form a new company called
Broadlane, which will provide e-commerce solutions for the healthcare industry
initially focused on high volume, hospital and medical supplies. Industria
Solutions is a joint venture with DuPont to provide e-commerce solutions for
the fluid processing industry. The Promedix Marketplace is operational but has
not had any significant revenues to date and Broadlane and Industria Solutions
are currently in the development stage.
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The four marketplaces are described below in chronological order of their
creation. The description of the Chemdex Marketplace is the most detailed
since it accounts for substantially all of our revenue to date. Its
functionality and features are representative of those we expect to develop in
the other marketplaces.
Chemdex
Chemdex was the first Ventro marketplace company and is owned and operated
by Ventro. The Chemdex Marketplace utilizes a database of approximately
910,000 life sciences research stock keeping units, or SKUs, from over 2,200
suppliers. Chemdex has agreements with an additional 182 suppliers for
approximately 570,000 additional SKUs. As of February 29, 2000, Chemdex had
agreements to provide its purchasing solution to 95 enterprise customers and
had over 24,000 registered users.
To date, substantially all of our revenues have been derived from the
Chemdex Marketplace. The Chemdex Marketplace consists of a database of
approximately 1.5 million loaded and unloaded life sciences research products
and advanced search engine and transaction software that enable users to
easily identify, locate and purchase the products they need. Chemdex also
provides applications that enable its customers and suppliers to interface and
automate their information exchange with the Chemdex Marketplace. Chemdex also
provides professional and implementation services to enable its customers to
take full advantage of the capabilities of the Chemdex Marketplace. We believe
that the Chemdex business model, which is based on its buying products from
suppliers at a price discount negotiated with individual suppliers and
reselling products to customers, will further drive usage of the Chemdex
Marketplace. Moreover, our customer support and sales group helps customers
understand both the business and technical benefits of the Chemdex Marketplace
and provides customer education and training to increase user adoption.
The following chart summarizes the key services supported by the Chemdex
Marketplace and the features of these services.
<TABLE>
<CAPTION>
Services Supported Chemdex Features
- ----------------------------------------------------------------------------------------------
<C> <S> <C>
Enterprise . Purchasing system management . Interface to existing enterprise network
Customer and
ERP software
. Approval and purchase of life . Automated order approval process
sciences
research products . Summary invoicing and reporting
. Enforcement of business rules
. Enterprise specific pricing
. Comparative price/product shopping
- ----------------------------------------------------------------------------------------------
User . Identification, comparison and . One-stop shopping
purchase
of life sciences research products . Search engine to identify, locate and
compare products
. Current, detailed product information
. Automated order submission and status
. Recurring order form
- ----------------------------------------------------------------------------------------------
Supplier . Sale of life sciences research . Support integration with supplier sales
products order
flow
. Automated order submission and tracking
. Automated process for updating and adding
product/price information
. Customer support services
</TABLE>
How it works for the enterprise customer. The enterprise's interface with
the Chemdex Marketplace varies based upon the customer's existing information
technology systems. Our applications and services can be implemented as a
fully hosted stand-alone solution or can be integrated with existing systems
or other
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commercially available purchasing solutions. Our applications are designed to
be easily customized to match the workflow requirements and business rules of
the enterprise. We also provide access to the Chemdex Marketplace through our
website.
Our solution offers paperless automation, consolidation and monitoring of
the approval and invoicing process as well as the order placement and delivery
information for the enterprise. In addition to reducing the cost of
purchasing, our solution allows our enterprise customers to enforce their
particular business rules and aggregate purchases. Purchasing limits are most
often applied on an individual user or project basis, and the Chemdex
Marketplace interfaces with the enterprise's system to ensure compliance. The
Chemdex solution can be integrated with enterprise financial accounting
systems to further automate specific product purchase information and can
reflect enterprise specific pricing arrangements between the enterprise and
their underlying suppliers. We believe our purchasing solution requires
minimal investment of time and capital by our enterprise customers to install,
maintain and use. It has few support requirements beyond the initial
installation since the Chemdex Marketplace is entirely hosted on our servers,
and is accessible by standard browsers with all recurring product upgrades
managed and installed by us.
How it works for the user. Users within enterprises benefit from the
Chemdex Marketplace because it offers them convenient and easy one-stop
shopping. The typical user within a life science enterprise most often
interfaces with the Chemdex Marketplace by ordering specific products for
research experiments. If the user needs the same items on a regular basis, our
solution allows a user to personalize a list of "favorites" to facilitate
product selection and recurring orders. The Chemdex Marketplace also provides
robust product search capabilities that help users identify new products
needed to meet the specifications required for an experiment. Users access the
system with a password, and can easily process their recurring orders, as well
as orders for new
products. The system allows the user to identify the incremental shipping
costs for expedited processing, and provides for automated paperless
processing of an order once the product selection is complete. The user can
also track the status of individual orders within the system.
How it works for the supplier. We offer suppliers a cost-effective
opportunity to reach new customers by establishing or enhancing their Internet
presence and providing links to existing online or electronic catalogs.
Suppliers provide us with electronic versions of product catalogs, which we
convert into searchable data. This data is loaded into the Chemdex Marketplace
using a number of product loading algorithms. Our content engineering staff
then reviews the data to ensure proper classification for purposes of product
searches. The ability to process large volumes of complex catalog information
is an important core competency, which allows us to afford maximum flexibility
to our suppliers in loading data and updating information. We also provide
suppliers with the ability to readily update their product information to
include new product introductions or additional product details without being
limited by specific catalog publication cycles.
In many cases, the Chemdex Marketplace will appeal to suppliers as being
less costly than traditional distribution or representation arrangements. We
plan to provide tools to our suppliers that enable the online update and
modification of their product databases hosted on our servers, or to integrate
the Chemdex Marketplace directly with their systems. The Chemdex Marketplace
is neutral in that its search capability identifies products that meet the
researchers' search criteria, and provides an unbiased comparison of product
characteristics and pricing to allow the researcher to make a reasoned choice
based upon the information provided by suppliers.
Future Services. Chemdex anticipates that aggregated product purchasing and
sales information will ultimately be valuable to both suppliers and customers.
After accumulating significant historical data regarding buying patterns, we
intend to make non-confidential, aggregated information available to both
suppliers and customers as an additional service.
Promedix
We acquired Promedix in February 2000. The Promedix Marketplace provides
customers with the ability to purchase products from multiple specialty
medical product manufacturers with a single purchase order and
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offers integration capability with most of the major legacy systems currently
in use by healthcare institutions. We anticipate that the broad launch of the
Promedix Marketplace will occur in the second half of 2000. Promedix has also
entered into an eight-year agreement with Tenet under which Promedix will be
the exclusive business-to-business e-commerce supplier of specialty medical
products for entities where Tenet acts as a purchasing agent.
Broadlane
In December 1999, we and Tenet announced the formation of Broadlane to
provide business-to-business e-commerce solutions to the healthcare industry.
Broadlane will be an independent entity, with its own management team and
board of directors. Tenet, through its subsidiaries, owns and operates acute
care hospitals and provides numerous related health care services. Tenet will
provide Broadlane access to the existing buyer and supplier network of its
BuyPower group purchasing organization, which Tenet has advised us purchases
products for approximately 500 Tenet owned or affiliated hospitals. We are
licensing our technology to Broadlane for use within the healthcare industry
and will provide service and support functions at cost. Broadlane will offer
its e-commerce technology to other group purchasing organizations and their
members to support their own proprietary contracts. While Broadlane will
initially focus on the hospital market, it eventually plans to expand to the
long-term care and outpatient markets as well. Broadlane recently announced
the hiring of two key members of its management team, who were formerly
officers of Tenet. We have a minority equity interest in Broadlane.
Industria Solutions
In January 2000, we and DuPont announced the formation of Industria
Solutions, which focuses on the fluid processing market. Industria Solutions
will be an independent entity, with its own management team and board of
directors. We believe that DuPont will shift procurement of maintenance and
engineering materials to Industria Solutions over time. We are licensing our
technology to Industria Solutions for use within the fluid processing industry
and are providing service and support functions at cost. Industria Solutions
has also received funding from @Ventures, the venture capital arm of CMGI,
Inc., along with financial investments from DuPont, ourselves and IBM. We have
a minority equity interest in Industria Solutions.
Customers
Chemdex
Chemdex's target customers are pharmaceutical and biotechnology companies
and academic and research institutions. As of February 29, 2000, Chemdex had
entered into agreements to provide our purchasing solution to 95 enterprise
customers and had approximately 24,000 registered users. Sales to our top four
enterprise customers accounted for approximately 27%, 13%, 12% and 11%,
respectively, of our total revenue for 1999.
The following is a list of our largest customers as measured by revenue.
3M AHP
Biogen Bristol Meyer Squibb
DuPont Elan Pharmaceuticals
EOS Biotechnology Genentech
Genome Therapeutics Genzyme
Johnson & Johnson Maxygen
Monsanto Parke-Davis
Pharmacia Upjohn Proctor and Gamble
Rhone Poulenc Rorer Scios
Strominger Lab University of Rochester
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Chemdex also sells life sciences research products to registered users who
are not affiliated with enterprise customers through the Chemdex Marketplace
website. Because of the nature of some of the products we sell, we register
unaffiliated users of our website to ensure that they are associated with
pharmaceutical or biotechnology companies or academic or research
institutions.
Although we intend to increase our sales and marketing efforts for our
other marketplaces, we expect that we will continue to generate a substantial
majority of our revenue from the Chemdex marketplace. We also expect that we
will continue to generate a significant portion of our revenue from a limited
number of Chemdex customers for the foreseeable future. If we do not increase
the number of our customers, or if we lose any of our current customers or do
not generate as much revenue from them as we expect, our business would be
significantly harmed.
Promedix
Promedix has been testing the Promedix Marketplace in a controlled release
since August 1999, with five acute care hospitals. Promedix has not achieved
significant revenue to date.
Suppliers
Chemdex
We believe the value and benefit to our customers of our purchasing
solution is directly related to the breadth, depth and quality of products we
sell through our marketplaces. Through the Chemdex Marketplace, we currently
offer approximately 910,000 SKUs from approximately 2,200 suppliers. We have
agreements with an additional 182 suppliers for approximately 570,000
additional SKUs which we plan to add to the Chemdex Marketplace. The following
is a list of our most significant suppliers who have entered into agreements
as of February 29, 2000.
Amersham Pharmicia Bachem
Biotech BioWhittaker
Beckman Coulter CHEMICON International
Calbiochem Cole-Parmer
Clontech Laboratories Genome Systems
Eppendorf Scientific Greiner America
Forma Scientific HyClone
Hitachi Genetic Systems Molecular Probes
ICN Biomedicals Pierce Chemicals
Incyte Pharmaceuticals Savant E-C
PharMingen Thomas Scientific
Quidel Corporation United States Biologicals
We currently have 13 employees who are responsible for maintaining existing
relationships and establishing new relationships with suppliers.
Promedix
Promedix currently has relationships with approximately 500 specialty
medical product suppliers, representing over 325,000 SKUs.
Strategic Relationships
Through our relationships with industry leaders, we seek to optimize our
technology architecture and operating capability, promote the widespread
adoption of our system, and enable our marketplace companies to increase their
industry expertise and to reduce their time-to-market. The following is a
description of our key strategic relationships.
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Ventro
IBM. In November 1999, we entered into a strategic relationship with IBM to
provide Internet-based supply chain solutions to the pharmaceutical and
healthcare industries in the U.S. Under the terms of our alliance agreement,
we and IBM will collaborate and define an offering of products and services to
enable efficient supply chains for these industries. The alliance is intended
to accelerate the deployment of e-business applications by combining our
marketplace expertise with IBM's strengths in professional services and e-
business implementation and technology. The agreement also provides that we
will engage in joint sales and marketing activities for the combined offering.
This agreement is non-exclusive and has a term of two years, although it may
be terminated by either party at any time upon 30 days' prior notice.
MarketLink Programs. In November 1999, we introduced our MarketLink
Program, which is designed to provide a fully-configurable solution for large
enterprises that integrates online marketplaces with third-party business-to-
business e-commerce and ERP systems. We work with the industry's leading e-
commerce companies to provide the necessary integration between their systems
and the marketplaces of each of our companies. The program enables our vendors
of enterprise procurement applications and ERP systems to integrate with the
various Ventro marketplaces and provide enterprises with a complete e-commerce
solution. The current participants in the MarketLink Program are Ariba,
Commerce One, Concur Technologies, SAP and the Sun-Netscape Alliance.
Chemdex
VWR. In April 1999, we entered into a strategic relationship agreement with
VWR Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. VWR is one of the laboratory supply industry's
largest distributors. The agreement gives us the right to sell approximately
350,000 VWR-distributed SKUs to our customers through the Chemdex Marketplace
and Labpoint, a hosted, co-branded Internet purchasing solution for VWR's
existing and future customers that provides access to three categories of
products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third-party products).
With respect to sales of VWR core products, we act as an intermediary and
forward orders received through the Chemdex Marketplace to VWR for fulfillment
and customer service. We receive no fee for orders for VWR core products from
VWR's 40 largest customers and we receive a minimal fee for all other orders
for VWR core products forwarded to VWR. We are responsible for fulfillment and
customer service for all Chemdex core products and orders for third-party
products received from VWR customers through Labpoint. Under the terms of the
agreement, VWR provides support for the purchase of third-party products in
return for a fee which approximates VWR's costs incurred.
VWR and Chemdex jointly market VWR core products and Chemdex core products
to VWR's existing and new customers and jointly solicit several key existing
VWR suppliers to distribute, market and sell their products through Labpoint.
We believe the VWR strategic relationship will continue to enhance and broaden
the Chemdex Marketplace, and the availability of third-party products will
enable us to offer complete fulfillment capability to current and future VWR
customers through Labpoint. We believe the VWR strategic relationship will
facilitate adoption of the Chemdex Marketplace and Labpoint by VWR customers,
which include major U.S. pharmaceutical and biotechnology companies, and will
enable us to establish relationships with additional key suppliers and
customers.
As part of the strategic relationship, Jerrold Harris, the President and
Chief Executive Officer of VWR, joined our board. Jerrold Harris was
subsequently replaced by Paul Nowak, the current Chief Executive Officer
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of VWR. In addition, VWR received 2,538,405 shares of our common stock. VWR is
subject to contractual limits on their percentage ownership of our stock,
except in connection with the acquisition of our stock by specified companies.
BIO. In May 1999, we and Biotechnology Industry Organization, or BIO,
entered into a five-year, exclusive joint marketing agreement. As part of the
joint marketing agreement, we agreed to discount the fees we charge to BIO
members and contribute cash payments to a joint marketing fund, to be used in
connection with both parties' obligations under the joint marketing agreement.
In addition, we sold 187,500 shares of our common stock to BIO for a nominal
amount in consideration for BIO's participation in these joint marketing
activities.
Promedix and Broadlane
Tenet. Our strategic relationship with Tenet encompasses two Ventro
marketplaces. In December 1999, we and Tenet announced the formation of
Broadlane. Tenet will provide Broadlane access to the benefits of its existing
buyer and supplier contracts of its BuyPower organization, which serves as a
group purchasing organization for Tenet's hospitals and other members.
BuyPower, according to Tenet, manages over 400 vendor contracts that generate
more than $3 billion in annual purchases of total supplies, which are used by
Tenet as well as non-Tenet institutions, including 10 acute care hospitals,
531 non-acute facilities and approximately 45,000 physicians. Two key members
of Broadlane's management team were formerly officers of Tenet.
Concurrent with the formation of Broadlane, Tenet and Promedix entered into
an arrangement under which Promedix will be the exclusive supplier to entities
for which Tenet acts as a purchasing agent of business-to-business e-commerce
solutions for the purchase of specialty medical products for an eight-year
term.
We believe Tenet's network of customers and its purchasing power with
suppliers provide Broadlane and Promedix with an advantage in obtaining
critical mass within their respective marketplaces.
Industria Solutions
DuPont. In January 2000, we and DuPont announced the formation of Industria
Solutions. DuPont is one of the largest purchasers of maintenance and
engineering materials in the United States, and we believe that DuPont will
shift procurement of these materials to Industria Solutions over time. We
believe this purchasing power can provide Industria Solutions with the ability
to achieve scale rapidly. Industria Solutions will also benefit from DuPont's
industry expertise.
Technology
We have developed a purchasing solution that resides on our servers and is
accessible by standard browsers, requiring minimal software installation at
the customer site, and enabling rapid deployment of applications, enhancements
and updates. We call this a "marketplace" for each applicable vertical market.
For example, we refer to our solution for the life sciences industry as the
"Chemdex Marketplace." Our production data center is hosted at Exodus
Communication in Sunnyvale, California. This data center provides us with
conditioned space and high bandwidth Internet connectivity.
System Architecture. Our marketplaces include three layers of technology:
. Process and Communication Layer. This layer integrates our system with
our customers' client applications using Internet technology protocols
that can pass through an enterprise's network security wall, such as
http, ftp and EDI, to provide a seamless operation of the marketplace
and purchasing solution. This layer is implemented using standard web
servers, and supports standard Internet protocols such as http, ftp and
XML.
. Electronic Services Layer. This layer delivers all of our system's
functionality. The marketplace and purchasing solution uses existing and
proprietary software to deliver proprietary services including
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Internet catalog development and maintenance tools, search
functionality, workflow integration, product pricing and estimated
shipping, handling and freight charges.
. Enterprise Services Layer. This layer delivers some of the services
required to run our system, including financial services, development
and maintenance of the product master database, customer service systems
and the data warehouse. To meet our unique scale requirements for
product information management, we developed a proprietary data
warehouse system.
Customer Integration. Our purchasing solution can be configured and
integrated to meet an enterprise customer's needs, including:
. Customer View. The purchasing solution graphical user interface may be
tailored for each enterprise customer, allowing an enterprise customer
to select specific suppliers from our supplier list, and to customize
the user's view in accordance with business rules and policies
implemented by the purchasing department.
. Login and Authentication. For enterprises that do not have a single
authoritative directory services system enabling single login
functionality across the enterprise, our purchasing solution provides an
authoritative enterprise authentication and authorization list along
with the user roles, credit limits, and approval workflow. For
enterprises that have a single authoritative directory services system,
our purchasing solution directly integrates with the enterprise's
authoritative data source to maintain the current permitted user list,
and provides seamless access by the user and simple management for the
enterprise.
. Purchasing Application Integration. Our purchasing solution integrates
with commercial purchasing applications, such as Ariba, as well as
internally developed purchasing applications, through industry standard
protocols for Internet purchasing.
. Enterprise Specific Pricing. We have developed algorithms to support
enterprise specific pricing. This pricing can be implemented either by
(a) pricing contract tables that list specific prices or (b) direct
integration with the supplier systems to extract real time pricing and
availability information.
Search Services. Our search software leverages a combination of full text
search and relational technology to deliver a unique search tool customized to
a particular industry. For example, the search engine for the Chemdex
Marketplace is customized to 11 levels of specific search categories
associated with life sciences research products such as antibodies, enzymes,
or other compounds. Each of the product specific search levels also includes
parametric searching capabilities to search for products with specific
attributes, or ranges of attributes. Our acquisition of SpecialtyMD enhanced
our search capabilities by providing us with technology that more easily ties
specialized content to searches. This allows us to enable users to more
readily access relevant content, and to provide faster searches based upon the
parameters defined and the content accessed in prior searches.
Product Pricing Estimation. We have developed algorithms to estimate
shipping, handling and freight charges associated with any customer order.
These algorithms integrate customer requirements for shipping delivery time,
product weight, and product type, including requirements for hazardous
materials and product packaging such as blue ice. These algorithms provide
users of our marketplaces with estimated shipping, handling and freight cost,
and make appropriate decisions given their delivery timing requirements.
Workflow. We have developed simple workflow technology to implement each
enterprise customer's business rules and processes. These workflow rules
include credit limit checks, multilevel approval and e-mail based notification
of any order changes. This system streamlines the purchasing process by
automating approval routing, and enables real time customer service through
direct customer notification.
Technical Support. We offer technical support to respond to any customer
service disruption. In addition to off-the-shelf site instrumentation and
monitoring software, we have developed custom monitoring agents that measure
key application parameters. This software enables us to provide high quality
technical support.
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Marketing, Sales and Support
Ventro
Our marketing efforts for Ventro focus on building Ventro's brand identity.
We believe this will enhance our ability to enter into new vertical
marketplaces and partner with industry leaders. The goal of our marketing
efforts is to establish Ventro as the leading builder and operator of vertical
marketplace companies and as a technology leader.
Our marketing efforts address the attractiveness of business-to-business e-
commerce as an alternative to traditional methods, and the advantages in
particular of our solution. This educational process includes speaking
engagements and relationships with business press and industry analysts. We
believe the establishment of the Ventro brand will increase our ability to
enter into strategic relationships with industry leaders in attractive
vertical markets.
The Ventro marketing team supports our business development efforts with
respect to potential new vertical marketplaces, identifies key industry
players, evaluates the strengths of the target market, establishes a brand for
the new marketplace and launches marketing of the Ventro marketplace. We
anticipate that each of our marketplace companies will ultimately create its
own marketing teams.
Ventro Marketplace Companies
Chemdex and Promedix, have their own dedicated marketing efforts. We market
and sell the Chemdex Marketplace and the Promedix Marketplace and purchasing
solutions through a combination of our direct sales force, internal
telemarketing sales and strategic relationships with partners such as VWR,
Tenet and BIO. Since our potential customers and users fall within a defined
market segment, we are able to identify and target the purchasing decision
makers and potential users who will influence the decision to adopt a
purchasing solution.
Our sales and marketing approach is designed to help customers and
suppliers understand both the business and technical benefits of these
marketplaces and purchasing solutions, and to promote user adoption through
one-on-one education and training. Our field sales force focuses on large
pharmaceutical and biotechnology companies, large academic and research
institutions for Chemdex, and hospitals, acute care facilities and healthcare
professionals for Promedix. Our telephone sales group focuses on small
biotechnology companies, smaller research institutions, and smaller healthcare
facilities. We are building an experienced professional services organization
to facilitate the successful deployment of our purchasing solution, including
integration with any enterprise resource planning software and customization
with the enterprise's business rules. We intend to expand our direct sales
force and professional services organization and to establish additional sales
offices domestically and internationally. Competition for sales personnel is
intense, and we may not be able to attract, assimilate or retain additional
qualified personnel in the future.
We conduct a variety of marketing programs to educate our target market,
create awareness and attract customers to our marketplaces. To achieve these
goals, we leverage our existing customer base and engage in marketing
activities such as seminars, direct mailings, trade shows, speaking
engagements and web site marketing. We also conduct comprehensive public
relations programs that include establishing and maintaining relationships
with key trade press, business press and industry analysts. In addition, we
engage in marketing programs within our enterprise customers to educate,
convert and train users and purchasing agents to use our marketplaces for
their product orders.
We believe that we can establish and maintain long-term relationships with
our customers and suppliers, and encourage repeat visits and purchases by our
customers if, among other things, we have good account management, customer
support and service. Our customer support and service personnel handle general
customer inquiries and basic technical questions, answer customer questions
about the ordering process and investigate the status of orders, shipments and
payments. We have automated some of the tools used by our customer support and
service staff, such as tracking screens that let our support staff track a
transaction by any of a variety of
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information sources. At any time in the purchasing process, a customer can
access our support staff by fax or e-mail by following prompts located
throughout our web site or by calling our call center through our toll-free
telephone line.
As of February 15, 2000, we employed 123 individuals in our worldwide sales
and marketing group. These individuals are located at Chemdex headquarters,
Promedix headquarters, new customer sites, and in six regional offices, five
in the U.S. and one in the United Kingdom.
Research and Development
Our development organization is focused on developing and enhancing our
enterprise purchasing solution, developing applications for and supporting our
marketplaces, and maintaining and improving our technology, infrastructure and
database. The development group is supported by our quality assurance group.
As February 29, 2000, our research and development group was comprised of 134
employees responsible for software and system development and quality
assurance. We anticipate that we will be expanding our research and
development group to further develop our technology architecture and to
support new Ventro marketplace companies. Our agreements with Broadlane and
Industria Solutions provide that we will support their development and
enhancement of their respective purchasing solutions. In return, these
companies will reimburse us for our fully-burdened cost in providing this
support.
Research and development expenses were $197,000 in the period from
inception through December 31, 1997, $3.4 million in 1998 and $17.7 million in
1999. To date, substantially all software development costs have been expensed
as incurred. We believe that continued significant investments in research and
development are required to remain competitive.
Proprietary Rights and Licensing
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect the proprietary aspects of our
technology. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. Finally, we
seek to avoid disclosure of our intellectual property by requiring employees
and consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source
code.
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. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business operating
results.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability
to license the infringed technology, our business and operating results would
be significantly harmed.
Competition
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. Barriers to entry are
relatively insubstantial. We believe that the critical success factors for
companies seeking to create Internet business-to-business e-commerce solutions
include the following:
. quality and reliability of the Internet purchasing solution;
. breadth and depth of product offerings;
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. brand recognition;
. installed base of customers; and
. ease of use and convenience.
We face competition from four main areas: other companies with e-commerce
offerings, traditional suppliers and distributors in vertical marketplaces,
companies that have developed their own purchasing solutions and enterprise
software companies that offer, or may develop, alternative purchasing
solutions. We could face further competition in the future from traditional
suppliers and distributors that enter into business-to-business e-commerce
over the Internet either on their own or by partnering with other companies.
Traditional enterprise software companies, such as SAP, IBM and Oracle, could
in the future develop and offer a competitive purchasing solution that our
customers could customize to link to their suppliers. Additionally, emerging
enterprise software companies such as Ariba and Commerce One offer purchasing
solutions that could be customized to link to suppliers within particular
industries. E-commerce sites such as VerticalNet, ProcureNet and Industry.Net
may also indirectly compete with us in any individual vertical marketplace.
Companies primarily focused on creating Internet purchasing solutions for
the life sciences industry include SciQuest.com and Anderson Unicom Group,
Inc. Traditional suppliers and distributors including Sigma Aldrich Corp.,
Fisher Scientific International, Inc., Merck KGaA Darmstaadt and VWR currently
sell life sciences research products through paper catalogs and web sites.
Within the healthcare products industry, Promedix's principal competitors
are large regional distributors such as Tri-anim and Primesource Surgical,
which represent products in several sub-specialities. Many manufacturers who
sell directly also have rudimentary e-commerce sites for their own products.
Indirect competitors of Promedix are large commodity distributors and group
purchasing organizations or GPOs. The largest medical distributor--Allegiance
Healthcare--has released an e-commerce site called ASAP E-Comm, designed to
sell the commodity products that Allegiance represents. Premier, Inc., the
largest group purchasing organization, has released Premier Select, a site
targeted to the physician and long-term care market, that contains only those
products that Premier has contracted with manufacturers to sell. Our principal
Internet competitors are NeoForma, Medibuy, MedAssets and to a lesser extent
Cimtek Medical and mrn.com. Specialty medical products are also sold in
limited quantities by smaller Internet companies, like Surgical911.com, and by
consumer-oriented sites, like Medsite.
Our current and potential competitors may develop superior Internet
purchasing solutions that achieve greater market acceptance than our solution.
Many of our existing and potential competitors, including large traditional
distributors, have longer operating histories in the life sciences research
products market, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
Such competitors can undertake more extensive marketing campaigns for their
brands, products and services, adopt more aggressive pricing policies and make
more attractive offers to customers, potential employees, distribution
partners, commerce companies and third-party suppliers.
In addition, substantially all of our prospective customers have
established long-standing relationships with some of our competitors or
potential competitors. Accordingly, we cannot be certain that we will be able
to expand our customer list and user base, or retain our current customers. We
may not be able to compete successfully against our current or future
competitors and competition could have a material adverse effect on our
business, results of operations and financial condition.
Government Regulation
In addition to regulations applicable to businesses generally, we are or
may be subject to direct regulation by governmental agencies listed below,
which includes numerous laws and regulations generally applicable to the
chemical, pharmaceutical, controlled substances, human and biological
reagents, medical and in vitro devices, nuclear chemical businesses, and
environmental spills, as well as U.S. import and export controls and import
controls of other countries.
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We have been and intend to continue relying upon our suppliers to
appropriately package and label and maintain records on the products according
to local, state and federal laws. We have been and also intend to continue
relying upon suppliers, and purchasers, if necessary, to hold all appropriate
licenses and approvals. We rely on the suppliers' regulatory staff to confirm
that the purchasers also have the appropriate governmental licenses and
permits and expertise needed to order, receive and use any regulated products.
We are unable to verify the accuracy of our suppliers' regulatory staff
determinations and their decisions whether or not to ship a product to a
purchaser.
Our reliance on suppliers' regulatory due diligence assessment of
purchasers and the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if we are held to need our own
licenses. For example, if we are held by governmental agencies to be a seller
or a distributor of regulated products, for example, because we took legal
title, we may have inadvertently violated some governmental regulations by not
having the appropriate license or permit and may be subject to potentially
severe civil or criminal penalties and fines for each offense. A review of our
sales to date found that they were generally made to academic or commercial
purchasers and not to individuals. As described below, our suppliers have
indicated to us that they regularly check the requisite licenses of
purchasers. These facts could minimize the potential severity of any civil or
criminal penalties and fines that could be imposed on us for these sales.
We intend to continue to investigate our sales of regulated products and
have discussed with some governmental regulatory agencies whether these sales
required us, in addition to our suppliers, to obtain a license or permit. We
intend to continue to pursue these discussions. We may also seek clarification
of whether our prior sales of these products will subject us to any
governmental, civil or criminal penalties, including monetary fines and
injunctions or other enforcement action. No assurance can be given by us that
any penalties or fines will not result in a material adverse effect on our
business, results of operations, or financial condition. In addition, we may
discover that we had inadvertently sold other regulated products without a
requisite license or permit or failed to fully comply with other local, state,
or federal laws governing these sales.
In addition to reviewing our past sales, during the period from May through
July, 1999, we conducted interviews with those suppliers that accounted for
approximately 75% of prior sales. These suppliers were chosen as they are a
representative cross-section of our suppliers that we believe may sell
regulated products. Beginning in February of this year we updated and expanded
those interviews by conducting additional discussions with our six suppliers
in Canada. In both the domestic and foreign supplier interviews, we asked if
they verify that the purchasers have the necessary federal licenses before
making shipments and if they comply with applicable labeling and packaging
requirements. We also asked the suppliers whether they were aware of any
diversions or chemical spills, or of any past, pending, or threatened fines,
violations, penalties, litigation, complaints or investigations regarding
their shipment of products to our customers. In the course of these
discussions, the suppliers informed us that they have appropriate licenses and
permits, and they routinely, as a matter of practice, verify whether the
purchasers have the relevant licenses or permits, and comply with labeling and
packaging requirements. The suppliers also indicated that they are not aware
of any diversions, or past, pending or threatened fines, violations,
penalties, litigation, complaints, proceedings or investigations regarding
their shipment of products to our customers. However, some suppliers have had
small spills and been subject to fines for these spills and for failure to
provide information on hazards or health risks presented by products, but they
could not identify whether orders to Chemdex customers were involved.
Furthermore, we are unable to verify the accuracy of suppliers' statements
that they have in the past complied, or will in the future comply, with laws
applicable to these sales. In addition, we did not conduct investigations of
all suppliers in the Chemdex database, and we do not have any current plans to
do so. We could be significantly fined or exposed to significant civil or
criminal liability, or suffer negative publicity, if these licensing,
packaging, labeling, informational and other regulatory requirements have not
been fully met by our suppliers or by us directly.
During the period from May through July 1999, we also reviewed the list of
products in our current database to identify any products for which we may
need a license or permit to sell. We identified approximately 14,000 of those
products that may be regulated, and we have evaluated their status. They have
either been removed
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from our database, or been flagged so that we will not in the future sell
them, but instead will refer the purchasers of these flagged products directly
to suppliers. In some instances, we have sought or may in the future seek
appropriate licenses or registrations enabling us to return certain products
to the inventory. We cannot be sure that all regulated products requiring us
to have a license to sell have been removed from, or flagged in the database.
In addition, new products that require us to obtain governmental licenses or
permits may be inadvertently added to our database. However, we have
instituted new quality control procedures to routinely screen our growing
database, as well as increase the scrutiny of new products proposed to be
added to the database to eliminate those products for which we are required to
have licenses or permits to sell or distribute. Alternatively, we will
continue to apply for appropriate licenses, registrations, and exemptions, in
some instances, so certain products may be returned to the inventory. A
regulatory compliance officer has recently been hired to oversee these
matters, as well as the overall compliance of Ventro.
Regarding sales by Promedix, the company currently relies on suppliers to
meet the various regulatory requirements applicable to the sale of these
products, including specialty medical products regulated by the U.S. Food &
Drug Administration, or FDA. We have not verified that those suppliers have
met all regulatory requirements, or that their compliance is adequate or
sufficient to meet all governmental requirements. We could be subject to
significant penalties or fines, or significant civil or criminal liability, as
well as potential negative publicity, if these requirements have not been
fully met by these suppliers, by Promedix, or by us directly. We could also be
subjected to these fines and liabilities, as well as product and revenue loss
and recall costs, if the products are improperly manufactured, used, or
otherwise do not perform as expected. The events described above could have a
material adverse impact on our business, revenues, results of operations, and
financial condition.
The packaging, labeling, supply, sale, and distribution of medical devices
for clinical use are subject to direct governmental agency regulation, which
include the FDA laws and regulations generally applicable to medical supplies
and healthcare businesses, as well as U.S. export controls and import controls
of other countries, and including controls on the use and distribution of some
specialty medical products. FDA laws and regulations include requirements that
distributors of medical devices establish and maintain device complaint
records for any written, electronic, or oral complaint received pertaining to
such distributed medical devices. FDA laws and regulations also include the
requirement that distributors maintain records of distribution of certain
medical devices and provide reports to device manufacturers for the purpose of
tracking device distribution. Promedix continues to rely on suppliers to
obtain and report device complaints to FDA, but it may also be required to do
so itself. Promedix continues to rely on the due diligence of its suppliers to
confirm that purchasers hold all appropriate licenses needed to order, receive
and use medical devices and also that such purchasers are complying with
product labeling requirements and they are not otherwise diverting or using
such medical devices for purposes other than those set forth in any product
labeling.
Any failure to comply with applicable FDA laws and regulations could
subject us to civil and/or criminal liability. Regarding compliance with the
various statutory and regulatory requirements that relate to our involvement
in the sale of specialty medical products, there are, to our knowledge,
currently no investigations, inquiries, citations, fines, or allegations of
violations or noncompliance pending by government agencies or by third parties
against Promedix or us. It is possible that there may be investigations or
allegations in the future. We are currently reviewing applicable FDA
requirements with regard to present and continuing compliance, particularly
concerning various licensing and sales issues. There is a risk that FDA may
not accept Promedix's reliance on its suppliers to satisfy any or all of FDA's
requirements for device distributors, and the risk that any noncompliance may
occur in the future is currently unknown. As we expand our offering to other
products, we may be subject to additional government regulation. Although any
potential impact on us for noncompliance cannot be established, it could have
a material adverse impact on our business, financial condition and results of
operations, result in adverse publicity, and could result in civil or criminal
penalties and liabilities.
Under the terms of our agreement with VWR, VWR provides support for the
purchase of third-party, off-catalogue, products, where purchasers may order
products not listed in our database. A review of products
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previously sold under this arrangement is underway, but has not yet been
completed. The type and nature of these products cannot be anticipated. To
help avoid inadvertent future sales of products for which we would be required
to hold governmental licenses or permits, we are in the process of putting
limitations on VWR off-catalogue sales by removing certain regulated
categories of compounds and implementing a screening process to prevent
ordering of regulated products for which appropriate licenses and permits are
not available. For purchases of those products, we intend to refer the
purchaser directly to the suppliers, so that we are not involved in their
sale. We cannot be sure that we may not inadvertently sell or cause to be sold
and shipped products for which governmental licenses or permits are required.
We have also relied on our suppliers to comply with applicable local, state
and federal laws regarding the labeling and the dissemination of information
on any products sold that may be hazardous or present a health threat to the
user. If these suppliers have failed, or fail in the future, to adequately
comply with labeling and information dispensing requirements of local, state
or federal laws, then we may be held legally responsible, since we briefly
held title to these products, and could be subject to governmental penalties
or fines, as well as private lawsuits to enforce these laws.
Finally, we have relied upon our suppliers to obtain appropriate approvals
for products regulated by the FDA and to comply with the requirements relating
to those approvals and products. The failure to obtain or comply with those
approvals, or other failures by the products themselves, or the failure of
Promedix or Chemdex to keep regulatory records required by the FDA, such as
complaint files, could result in costly product recalls, significant fines and
judgments, civil and criminal liabilities, and negative publicity.
We intend to offer for sale products only to qualified purchasers. Unless
we have the necessary licenses, permits, authorizations, and approvals, or an
exemption or exclusion applies, we do not intend to offer for sale or cause to
be sold products that are, for example:
. prescription or over-the-counter human or animal drugs that are
regulated by the FDA;
. radioactive materials that are regulated by the Nuclear Regulatory
Commission or state and local governmental authorities unless we have
appropriate licenses or permits;
. biological products intended for the treatment of humans or animals, and
that are regulated respectively by the FDA and U.S. Department of
Agriculture, or USDA;
. pathogenic bacteria or viruses that may introduce any contagious or
infectious disease of man or animal and which are regulated by the
Centers for Disease Control and Prevention and USDA as Select Agents;
. controlled substances that are regulated by the Drug Enforcement Agency
and whose distribution requires a registration;
. products to be imported or exported (no products are currently exported)
that are regulated by the U.S. Department of Commerce or other
regulatory agencies;
. explosive materials for which a license, permit, or authorization is
required under Bureau of Alcohol, Tobacco and Firearms regulations; and
. ozone-depleting substances that are subject to production and
importation bans under the Federal Clean Air Act and the Montreal
protocol.
. certain polychlorinated biphenyls and asbestos-containing materials.
We intend to continue to sell products for which we do not need a license,
permit, authorization, or approval, or for which an exemption or exclusion
applies, and will seek to comply, either directly or through our supplier,
with applicable local, state and federal laws and regulations governing the
sale, packaging and labeling of these products, dispensing of information on
health risks and hazards about a chemical, and recordkeeping concerning these
products. However, our suppliers and we may inadvertently fail to comply with
applicable laws in the
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future. Noncompliance could have a materially adverse impact on our business,
and on our results of operations and financial condition because of civil or
criminal penalties and fines and negative publicity.
For sales of VWR core products under our agreement with VWR and under
agreements with a limited number of other suppliers, we act as a sales agent.
In these situations, we do not take title to, or have possession of these
suppliers' products. We rely on VWR and these other suppliers to comply with
all applicable local, state and federal laws. Although we are acting as a
sales agent for these suppliers and do not take legal title to, or possession
of, these products, we may still be held liable if we cause to be sold
regulated products to purchasers who lack required licenses to use, store and
receive these products and if the suppliers of these products have failed to
adequately comply with local, state or federal laws.
Researchers and others who are not affiliated with an enterprise customer
may register to purchase through our websites. Although we require
unaffiliated users to provide information about themselves, we do not
independently verify the accuracy of this information. Because we do not
generally meet unaffiliated users in person or visit their work sites, we are
even less able to gauge whether they have appropriate storage facilities,
permits or licenses, compared to enterprise customers with whom we generally
have some direct contact or knowledge of their reputations. Therefore, we
cannot be sure that we will not inadvertently sell, or cause to be sold or
delivered, products for which the purchasers lack appropriate local, state or
federal licenses or permits or expertise or experience to handle or use these
products. We may also be subject to significant civil or criminal penalties,
fines or monetary judgments as well as negative publicity, if purchasers
misuse or spill, or injure themselves or third parties with the products
purchased from us.
We are unaware of any current investigations, inquiries, citations, fines,
or allegations of violations or noncompliance pending by government agencies
or by third parties against us. It is possible that there may be
investigations or allegations we are not aware of or future investigations or
allegations. We are continually reviewing applicable requirements with regard
to past, present and continuing compliance, particularly concerning various
licensing and sales issues. The risk that any noncompliance may be discovered
in the future is currently unknown. Although any potential impact on us for
noncompliance cannot currently be established, it could result in significant
civil or criminal penalties, including monetary fines and injunctions, for
noncompliance and negative publicity, and have a material adverse impact on
our business, revenues, results of operations and financial condition.
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted or interpreted in the
United States and abroad with particular applicability to the Internet. It is
also possible, in addition to the above-listed examples of existing laws and
regulations, as well as new tax laws and regulations, that new laws and
regulations may be adopted or interpreted by the United States and foreign
governments, to address the sale and distribution of products utilizing the
Internet. In addition, it is possible that governments will enact legislation
that may be applicable to us in areas such as content, product distribution,
network security, encryption and the use of key escrow, data and privacy
protection, electronic authentication or "digital" signatures, illegal and
harmful content, access charges and re-transmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation, personal privacy, product
liability and environmental protection, as well as the necessity for
governmental permits, labeling, certifications and the need to supply
information to relevant parties, is uncertain. Most of these laws were adopted
before the widespread use and commercialization of the Internet and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Any export or import restrictions, new legislation or
regulation or governmental enforcement of existing regulations may limit the
growth of the Internet, increase our cost of doing business, or increase our
legal exposure. Any of these factors could have a negative effect on our
business, revenues, results of operations and financial condition.
Employees
As of February 15, 2000, we had 354 full-time employees, including 134 in
research and development, 123 in supplier relations, sales and marketing, 25
in professional services and customer support and 72 in general
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and administrative functions. We also employ independent contractors to
support our engineering, marketing, sales and support, and administrative
organizations.
Facilities
Our executive, administrative and operating offices are located in
approximately 94,000 square feet of leased office space located in Mountain
View, California under a lease expiring in February, 2005. We also have
approximately 10,000 square feet in Palo Alto, California pursuant to a lease
that expires in March 2003. In addition, we have approximately 63,000 square
feet in Salt Lake City, Utah, under two leases expiring in November 2000 and
October, 2005. We also maintain sales offices in Ann Arbor, Michigan,
Princeton, New Jersey, and the United Kingdom.
Legal Proceedings
Ventro is not a party to any legal proceedings which, if adversely decided,
would reasonably be expected to have a materially adverse effect on the
financial condition of the corporation.
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MANAGEMENT
Directors and Executive Officers
Set forth below is information regarding the directors and executive
officers of Ventro as of March 1, 2000.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David P. Perry............ 31 President, Chief Executive Officer and Director
Pierre V. Samec........... 36 Chief Information Officer
Robin A. Abrams........... 48 Chief Operating Officer
James G. Stewart.......... 47 Chief Financial Officer and Assistant Secretary
Neil E. de Crescenzo...... 38 President and General Manager, Chemdex
John Thorpe............... 50 President and General Manager, Ventro Europe
J. Barrie Keiser.......... 38 President and General Manager, Promedix
James S. Wambach.......... 46 Vice President, Worldwide Sales
David A. Weber............ 46 Vice President, Supplier Relations
Martha D. Greer........... 46 Vice President, Marketing
William C. Klintworth,
Jr. ..................... 48 Director
Charles R. Burke.......... 57 Director
Brook H. Byers............ 54 Chairman of the Board
Jonathan D. Callaghan..... 31 Director
Paul J. Nowak............. 45 Director
John A. Pritzker.......... 46 Director
Naomi O. Seligman......... 66 Director
L. John Wilkerson......... 56 Director
</TABLE>
David P. Perry co-founded Ventro in September 1997 and has served as our
President, Chief Executive Officer and a director since September 1997. From
December 1995 to April 1997, he co-founded and served in various positions,
including Chief Executive Officer, of Virogen, Inc., a biotechnology company.
Mr. Perry has also held various positions at Exxon Corporation, including as a
Refinery Operations Supervisor from January 1994 to May 1995, a financial
analyst from March 1993 to January 1994, a project manager from September 1992
to March 1993 and an engineer from September 1990 to March 1992. Mr. Perry
holds an M.B.A. from Harvard University and a B.S. in chemical engineering from
the University of Tulsa.
Pierre V. Samec joined us as our Chief Information Officer in July 1998.
Prior to joining us, Dr. Samec held various positions at Charles Schwab and
Co., Inc., a financial services company, including as its Senior Vice
President, Retail Technology from February 1998 to July 1998, its Vice
President, Software Engineering from July 1996 to January 1998 and its Vice
President and Architect from January 1996 to June 1996. From August 1993 to
December 1995 Dr. Samec also served as the Vice President, Software Engineering
of Quintus Corporation, a software company, Dr. Samec holds an engineering
degree from Ecole des Mines de Paris and an M.S. and Ph.D. in geophysics from
Stanford University.
Robin A. Abrams has served as our Chief Operating Officer since June 1999.
Prior to joining Ventro, Ms. Abrams served as the President of Palm Computing
Inc. and the Senior Vice President of 3Com Corporation from February 1999 to
June 1999. Ms. Abrams served as the President of VeriFone Inc., a secure
payment systems company and a subsidiary of Hewlett-Packard, from March 1998 to
February 1999, and as the Vice President of the Americas of VeriFone from
February 1997 to March 1998. From June 1996 to February 1997, Ms. Abrams was
the Senior Vice President of Apple Computer, Inc. and the President of Apple
Americas, and from December 1994 to June 1996, Ms. Abrams served as the Vice
President and General Manager of Apple Asia. Ms. Abrams holds a B.S. in
political science and history and a J.D. from the University of Nebraska.
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James G. Stewart joined us as our Chief Financial Officer in February 1999.
Previously, Mr. Stewart served as the Chief Financial Officer of CN
Biosciences, Inc., a chemical manufacturing and distribution company, from
June 1995 to March 1999, and the President of CN Corporation, the principal
operating division of CN Biosciences, Inc., from March 1998 to March 1999.
From April 1994 to April 1995, Mr. Stewart served as the Chief Financial
Officer of Fightertown Entertainment, Inc., a virtual reality entertainment
company. From November 1988 to April 1994, Mr. Stewart held various positions
at Verteq, Inc., a semiconductor equipment company, including most recently as
its Chief Financial Officer. Mr. Stewart was formerly an Audit Partner of
Arthur Young & Co. Mr. Stewart holds a B.S. in business from the University of
Southern California.
Neil E. de Crescenzo has served as our President and General Manager of
Chemdex since January 2000. Prior to joining us, Mr. de Crescenzo served as
Global Services Executive for IBM Global Services from August 1999 to December
1999. Mr. de Crescenzo served as Director of Global Strategy for IBM
Corporation's Public Sector business unit from January 1999 until August 1999,
and as Director of Global Marketing and Business Development for IBM
Corporation's Global Healthcare business unit from October 1996 until January
1999. From October 1994 to October 1996, Mr. de Crescenzo was a principal with
New Health Ventures, an operating unit of Blue Cross Blue Shield of
Massachusetts. Mr. de Crescenzo holds a B.A. in political science from Yale
University.
John Thorpe joined us in March 2000 as the President and General Manager of
Ventro Europe. Prior to joining Ventro, Mr. Thorpe held various positions at
GE Information Systems and was the Corporate Vice President and President of
Europe, the Middle East and Africa from 1997 to 1999, where he sat on the GE
Chief Executives Council for Europe. Mr. Thorpe served as the Managing
Director of International Network Services, a provider of solutions for
complex enterprise networks, from 1994 to 1995. Mr. Thorpe holds a B.A in
Business Studies from Portsmouth University, England.
J. Barrie Keiser joined us as the President of Promedix in February 2000.
Prior to joining us, Mr. Keiser served as the President and General Manager of
Promedix from August 1999 to February 2000. Prior to joining Promedix, Mr.
Keiser served as the Corporate Vice President of Allegiance Healthcare, a
provider of health-care products and cost-management services from July 1996
to August 1999. Mr. Keiser served as the Vice President, Integrated
Distributions Services of Baxter International from October 1994 to July 1996.
From April 1991 to October 1994, Mr. Keiser served as the Vice President,
General Manager of ValueLink Business Center. Mr. Keiser holds a B.S. from
Indiana University.
James S. Wambach has served as our Vice President, Worldwide Sales since
September 1998. Prior to joining us, Mr. Wambach served as the Senior Vice
President of North American Sales Operations of Forte Software, Inc., a
software company from January 1997 to June 1998. From January 1990 to December
1996, Mr. Wambach served in various positions at Sybase, Inc., a software
products and services company, including most recently as its Vice President
and General Manager from October 1995 to December 1996. Prior to that time,
Mr. Wambach has served in various positions at Oracle Corporation, a database
management and business applications company. Mr. Wambach holds a B.S. in
business administration from Ohio State University.
David A. Weber joined us in February 1999 as our Vice President, Supplier
Relations. Prior to joining us, Mr. Weber served as the Vice President,
Marketing at Amersham Pharmacia Biotech, a scientific services and tools
company, from October 1997 to February 1999. He also served as the Vice
President, Direct Marketing from May 1995 to October 1997 and as Area Director
from 1990 to 1995, of Pharmacia Biotech, a division of Pharmacia & Upjohn,
Inc. Mr. Weber holds a B.S. in biochemistry from Rutgers University.
Martha D. Greer joined us as our Vice President, Marketing in January 1999.
Previously, she served as Vice President, Merchandise Management of Onsale,
Inc., an online seller of computers and computer-related products, from
January 1997 to November 1998. Dr. Greer was employed as an independent
consultant from January to December 1996. From November 1992 to January 1996,
Dr. Greer served in various positions at PC Connection, a computer direct
marketing company, including as its Vice President, Product Management from
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September 1994 to January 1996, as its Vice President, Marketing from
September 1993 to September 1994, as its Director, Marketing from May 1993 to
September 1993 and as its Director, Business Development from November 1992 to
May 1993. Dr. Greer holds a B.A. in linguistics from Macalester College and a
Ph.D. in experimental psychology from Harvard University.
William C. Klintworth, Jr. has served as a director of Ventro since
February 2000. Mr. Klintworth served as Chairman and director of Promedix and
its Chief Executive Officer since January 1999. Prior to that, from May to
October 1998, he served as the Chief Development and Acquisition Officer of
HTD Corporation, a national medical specialty distribution company. From April
1997 to May 1998, he served as Chief Executive Officer of Triad Medical, a
medical products distributor. He served as Chief Executive Officer of Medical
Companies Alliance, a medical products distributor until March 1997. Mr.
Klintworth holds a B.S. in business administration from Southern Methodist
University.
Charles R. Burke has served as a director of Ventro since January 1998. Dr.
Burke has served as the President of Monument Partners, Inc., a consulting
firm, since January 1998. From January 1994 to December 1997, he served as the
Chief Executive Officer of Research Biochemicals Incorporated, a research
reagent supply company. Dr. Burke is also a director of Endogen, Inc. Dr.
Burke holds an A.B. in Chemistry from Cornell University, a M.A. with honors
in biology from Colgate University and a Ph.D. in biochemistry from the
University of Illinois.
Brook H. Byers has served as a director of Ventro since May 1998 and as
Chairman of the Board since March 1999. Mr. Byers is a general partner of
Kleiner Perkins Caufield & Byers, a venture capital firm which he joined in
1977. He was the founding president and chairman of four lifesciences
companies: Hybritech Inc., IDEC Pharmaceuticals Corporation, InSite Vision
Inc. and Ligand Pharmaceuticals Inc. Mr. Byers currently serves as a director
of drugstore.com and a number of privately-held technology companies. Mr.
Byers serves on the Board of Directors of the University of California, San
Francisco Foundation and the California Healthcare Institute. Mr. Byers holds
a B.S. in electrical engineering from Georgia Institute of Technology and an
M.B.A. from the Stanford Graduate School of Business.
Jonathan D. Callaghan has served as a director of Ventro since September
1997. Mr. Callaghan has been a general partner of CMG@Ventures, a venture
capital firm, since September 1997. Previously, from June 1991 to June 1995,
Mr. Callaghan was an associate of Summit Partners, a venture capital firm. Mr.
Callaghan also serves as a director of Vicinity Corporation. Mr. Callaghan
holds a B.A. in government from Dartmouth College and an M.B.A. with
distinction from Harvard University.
Paul J. Nowak has served as a director of Ventro since November 1999. Mr.
Nowak has served as the President and Chief Executive Officer of VWR
Scientific Products since August 1999. He also serves as a director of VWR.
Mr. Nowak has worked at VWR in various capacities for over 22 years, most
recently as Executive Vice President of Sales and Marketing from January 1998
to August 1999, as Senior Vice President of Sales from July 1995 to January
1998, and as Senior Vice President of Operations from January 1995 to July
1995.
John A. Pritzker has served as a director of Ventro since March 1998. Since
1988, Mr. Pritzker has served as President of the Red Sail Companies, sports,
retail and entertainment companies which he founded, Mandara Spa LLC, a spa
company which he founded, and Hyatt Ventures, Inc., a venture capital firm.
Mr. Pritzker served as a Divisional Vice President of Hyatt Hotels and Resorts
from 1984 to 1988. Mr. Pritzker served as director of Ticketmaster Group, Inc.
for five years. He holds an A.A. from Menlo College.
Naomi O. Seligman has served as a director of Ventro since June 1999. Ms.
Seligman is a co-founder and has served as a senior partner of the Research
Board, Inc., an information technology research group, since 1975. Ms.
Seligman currently serves as a director of The Dun and Bradstreet Corporation.
Ms. Seligman holds a B.A. in economics with high honors from Vassar College
and an M.B.A. from the London School of Economics.
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L. John Wilkerson has served as a director of Ventro since March 1999. Dr.
Wilkerson is a co-founder and has been a general partner of Galen Associates,
a venture capital firm, since May 1990, and has been a consultant to The
Wilkerson Group, a health care products consulting firm, since May 1996.
Previously, Dr. Wilkerson served as a Vice President of Smith Barney. He is
currently a director of British Biotech Plc, Stericycle, Inc. and TheraTX,
Incorporated. Dr. Wilkerson holds a B.S. in plant science from Utah State
University and an M.S. and Ph.D. in economics from Cornell University.
Board of Directors
Directors are elected annually at the annual meeting of our stockholders
and serve for the term for which they are elected and until their successors
are duly elected and qualified. Our bylaws currently provide for a board of
directors comprised of ten directors.
Board Committees
Ventro's board of directors has an audit committee and a compensation
committee. The audit committee of the board of directors consists of Messrs.
Burke and Wilkerson. The audit committee reviews Ventro's financial statements
and accounting practices and makes recommendations to the board of directors
regarding the selection of independent auditors. The compensation committee of
the Board of Directors consists of Messrs. Burke, Byers and Callaghan. The
compensation committee makes recommendations to the board of directors
concerning salaries and incentive compensation for Ventro's officers and
employees and administers Ventro's employee benefit plans. Mr. Byers is
chairman of the compensation committee.
Director Compensation
None of our directors are paid any fee or other compensation for acting as
a director, although directors are reimbursed for reasonable expenses incurred
in attending board or committee meetings. Directors who are employees of
Ventro are eligible to participate in Ventro's 1998 Stock Plan and participate
in Ventro's 1999 Employee Stock Purchase Plan.
In February 1998, we granted Charles Burke an option to purchase 7,500
shares of common stock under the 1998 Stock Plan at an exercise price of $.10
per share in February 1998 and in July 1998, an additional option to purchase
17,500 shares of common stock under the 1998 Stock Plan at an exercise price
of $.15 per share. These options vest over a four-year period. In July 1999,
we granted Messrs. Byers, Callaghan and Pritzker, Drs. Burke and Wilkerson and
Ms. Seligman 12,500 stock options each under the 1999 Directors' Stock Plan at
an exercise price of $15.00 a share. These options are fully vested. In
November 1999, we granted Mr. Nowak 12,500 options under the 1999 Directors'
Stock Plan at an exercise price of $56.50 a share. Mr. Nowak's options are
fully vested.
1999 Directors' Stock Plan
Our 1999 Directors' Stock Plan was adopted by the board of directors in May
1999 and was approved by the stockholders in July 1999. A total of 250,000
shares of common stock has been reserved for issuance under the Directors'
Plan. The Directors' Plan provides for the grant of nonstatutory stock options
to nonemployee directors of Ventro. The Directors' Plan is designed to work
automatically without administration; however, to the extent administration is
necessary, it will be performed by the board of directors. To the extent
conflicts of interests arise, it is expected that they will be addressed by
abstention of any interested director from both deliberations and voting
regarding matters in which this director has a personal interest.
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<PAGE>
The Directors' Plan provides that each person who is or becomes a
nonemployee director of Ventro will be granted a nonstatutory stock option to
purchase 12,500 shares of common stock on the date on which the optionee first
becomes a nonemployee director of Ventro. On the date of our annual
stockholders meeting, each of our nonemployee directors will be granted an
additional option to purchase 5,000 shares of common stock if, on that date,
he or she has served on our board of directors for at least six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one non-employee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, and each option is
exercisable, during the lifetime of the optionee, only by the optionee. The
Directors' Plan provides that each option granted under the Directors' Plan
shall vest and become exercisable in full immediately upon grant of the
option. If a nonemployee director ceases to serve as a director for any reason
other than death or disability, he or she may, but only within 90 days after
the date he or she ceases to be a director of Ventro, exercise options granted
under the Directors' Plan. If he or she does not exercise the option within
this 90 day period, this option shall terminate. The exercise price of all
stock options granted under the Directors' Plan shall be equal to the fair
market value of a share of Ventro's common stock on the date of grant of the
option. Options granted under the Directors' Plan have a term of ten years.
In the event of a sale of all or substantially all of our assets, our
merger with or into another corporation or any other reorganization of Ventro
in which more than 50% of our shares entitled to vote are exchanged, each
nonemployee director shall have the right to exercise each option immediately
prior to completion of the transaction. The board of directors may amend or
terminate the Directors' Plan; provided, however, that these actions may not
adversely affect any outstanding option. We will obtain stockholder approval
for any amendment to the extent required by applicable law. If not terminated
earlier, the Directors' Plan will have a term of ten years.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time since our
formation been one of our officers or employees. None of our executive
officers currently serves or in the past has served as a member of the board
of directors or the compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee.
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Executive Compensation
The following table sets forth information concerning compensation earned
in the fiscal year ended December 31, 1999 paid to our Chief Executive Officer
and our next four most highly compensated executive officers who were serving
as executive officers as of December 31, 1999. All options granted by the
board of directors prior to February 16, 1999 allowed for early exercise
subject to our right to repurchase. The number of securities underlying
options in the "Long-Term Compensation" column includes securities issued upon
the exercise of options subject to our right to repurchase at cost.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Number of
Securities
Salary Underlying
Name and Principal Position Year ($) Bonus Options (#)
--------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
David P. Perry............................... 1999 $192,551 $ -- --
President, Chief Executive Officer 1998 98,375 20,000 --
and Director 1997 14,088 -- --
David A. Weber............................... 1999 333,839 50,000 --
Vice President, Supplier Relations 1998 -- -- 200,000
1997 -- -- --
Pierre V. Samec.............................. 1999 235,060 100,000 75,000
Chief Information Officer 1998 83,333 150,000 225,000
1997 -- -- --
Martha D. Greer.............................. 1999 197,441 125,000 235,000
Vice President, Marketing 1998 -- -- --
1997 -- -- --
James S. Wambach............................. 1999 201,929 100,000 --
Vice President, Worldwide Sales 1998 47,584 50,000 225,000
1997 -- -- --
</TABLE>
Ms. Robin Abrams, our Chief Operating Officer, commenced employment with us
in June 1999. Ms. Abrams' salary on an annualized basis for 1999 was $300,000,
which does not include a signing bonus of $50,000 paid upon commencement of
employment with us or any quarterly cash bonuses of $20,000 payable upon the
achievement of performance goals.
Mr. Neil de Crescenzo, our President and General Manager, Ventro Life
Sciences, commenced employment with us in January 2000. Mr. de Crescenzo's
salary on an annualized basis for 2000 will be $275,000, which does not
include a signing bonus of $350,000 or an annual bonus of $150,000.
Stock Options
The following table sets forth information concerning the grant of stock
options to our Chief Executive Officer and our next four most highly
compensated executive officers, during the fiscal year ended December 31,
1999. The individual grants consist of options granted pursuant to our 1998
Stock Plan. We granted options to purchase 3,579,032 shares of common stock to
employees and consultants. The exercise price per share of each option was
equal to the fair market value of common stock on the date of grant as
determined by the board of directors. In determining the fair market value of
the common stock on each grant date, the board of directors considered, among
other things, our absolute and relative levels of revenues and operating
results, the state of our technology development, increases in operating
expenses and the intensely competitive nature of our markets and the
appreciation of stock values of generally comparable companies. The potential
realizable value is based on the assumption that our common stock appreciates
at the annual rate shown, compounded annually, from the date of
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<PAGE>
grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect
Ventro's projections or estimates of future stock price growth. Potential
realizable values are computed by:
. multiplying the number of shares of common stock subject to a given
option by $111.00, the closing price per share of our common stock on
the Nasdaq National Market on December 31, 1999;
. assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
. subtracting from that result the total option exercise price.
Option Grants in Fiscal Year ended December 31, 1999
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Number of --------------------------------- Value At Assumed
Securities % of Annual Rates of Stock
Underlying Total Options Price Appreciation
Options Granted to Exercise Expiration for Option Term
Granted Employees in Price ---------- -----------------------
Name (#) Fiscal Year ($/Sh) Date 5% 10%
---- ---------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- --% $ -- -- $ -- $ --
David A. Weber.......... 200,000 5.6 1.50 2/8/09 35,861,461 57,281,083
Pierre V. Samec......... 75,000 2.1 5.00 4/26/09 13,185,548 21,217,906
Martha D. Greer......... 225,000 6.6 1.50 1/27/09 40,344,143 64,441,218
10,000 .3 5.00 4/26/09 1,758,073 2,829,054
James S. Wambach........ -- -- -- -- -- --
</TABLE>
Mr. Samec was granted an additional option to purchase 75,000 shares of
common stock on February 1, 2000 pursuant to our 1998 Stock Plan at an
exercise price per share of the option is $90.75.
Ms. Abrams was granted an option to purchase 250,000 shares of common stock
on June 25, 1999 pursuant to our 1998 Stock Plan at an exercise price per
share of $10.00.
Mr. deCrescenzo was granted an option to purchase 190,000 shares of common
stock on January 6, 2000 pursuant to our 1998 Stock Plan at an exercise price
per share of $91.00.
Exercise of Options and Year-End Values
The following table sets forth information concerning the exercise of stock
options during 1999 by our Chief Executive Officer and our next four most
highly compensated executive officers, and the fiscal year-end value of
unexercised options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired on December 31, 1999 (#) at December 31, 1999 ($)
Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- $ -- -- -- $ -- $ --
David A. Weber.......... 200,000 300,000 -- -- -- --
Pierre V. Samec......... -- -- -- 75,000 -- 7,950,000
Martha D. Greer......... 225,000 337,500 -- 10,000 -- 1,060,000
James S. Wambach........ -- -- -- -- -- --
</TABLE>
62
<PAGE>
Employee Stock Plans
1998 Stock Plan
General. Our 1998 Stock Plan provides for the granting of stock options and
stock purchase rights to eligible employees, officers, directors, including
non-employee directors and consultants of Ventro. Stock options granted under
the 1998 Stock Plan may be either "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code or nonstatutory stock options,
which are options not intended to qualify as incentive stock options. Stock
purchase rights granted under the 1998 Stock Plan allow a recipient to
purchase shares of common stock directly from Ventro. Incentive stock options
may be granted to employees, officers and employee directors of Ventro and
nonstatutory stock options and stock purchase rights may be granted to
employees, officers, directors and consultants.
As of February 10, 2000, an aggregate of 11,357,881 shares of common stock
had been reserved for issuance under the 1998 Stock Plan. As of February 10,
2000, 5,277,952 shares of common stock were issuable upon the exercise of
outstanding options granted under the 1998 Stock Plan at a weighted average
exercise price of $24.72. 2,161,996 shares of common stock have been issued
upon exercise of options or pursuant to stock purchase rights at exercise or
purchase prices ranging between $0.10 and $91.00, net of repurchases, and
5,424,685 shares of common stock remained available for future issuance under
the 1998 Stock Plan. The 1998 Stock Plan was originally adopted by the board
of directors in January 1998 and approved by the stockholders in March 1998.
The 1998 Stock Plan was amended by our board of directors in April 1999 to
increase the total number of shares reserved for issuance by 1,500,000 shares.
In May 1999, the board of directors amended the 1998 Stock Plan to increase
the total number of shares reserved for issuance by 1,250,000 shares plus an
automatic annual increase on the first day of each of January 1, 2000, 2001,
2002, 2003 and 2004 equal to the lesser of 1,250,000 shares, 3% of our
outstanding common stock on the last day of the preceding fiscal year or a
lesser number determined by our board of directors. In February 2000, the 1998
Stock Plan was amended to increase the total number of shares reserved for
issuance by 4,250,000 shares to an aggregate of 11,357,881 shares. Unless
terminated earlier by our Board of Directors, the 1998 Stock Plan will
terminate in January 2008.
Stock options granted under the 1998 Stock Plan may not have a term of more
than ten years and generally remain exercisable for a period of three months
following termination of the optionee's employment or consulting relationship
with Ventro, with longer periods applying in the event this termination occurs
as a result of death or disability. The exercise price of all incentive stock
options must be at least equal to the fair market value of the common stock at
the time of grant, except in the case of incentive stock options granted to
persons owning stock that represents more than 10% of the total combined
voting power of all classes of the outstanding capital stock of Ventro, in
which case the exercise price must equal at least 110% of the fair market
value of the common stock at the time of grant. The exercise price of
nonstatutory stock options will be determined by the administrator, except
that for grants to certain of our executive officers, the exercise price must
be at least 100% of the fair market value if the option is intended to qualify
as performance-based compensation under tax rules. Options granted under the
1998 Stock Plan are generally subject to vesting at a rate of 25% at the end
of the first year and 2.083% of the original number of shares subject to the
option per month thereafter. The Administrator has the authority to grant
options which are exercisable prior to vesting, in which case the unvested
portion of the exercised shares are subject to a right of repurchase in favor
of Ventro at the optionee's original cost. Options granted under the 1998
Stock Plan are generally not transferable, although the administrator has the
discretion to allow limited transferability of nonstatutory stock options. In
the event of the sale of all or substantially all of Ventro's assets or a
merger or consolidation of Ventro with or into another corporation where the
successor corporation issues its securities to our stockholders, each
outstanding option or stock purchase right shall be assumed or an equivalent
option or stock purchase right shall be substituted by the successor
corporation. If the successor corporation refuses to do an assumption or
substitution, each outstanding option and stock purchase right shall terminate
upon completion of the transaction. In the event of a proposed dissolution or
liquidation of Ventro, each outstanding option or stock purchase right granted
under the 1998 Stock Plan shall terminate. The administrator has the authority
to amend or terminate the 1998 Stock Plan provided that no action that impairs
the rights of any holder of an outstanding option may be taken without the
holders' consent. In addition, stockholder approval will be obtained for any
amendment to the extent required by applicable law.
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In addition to stock options, the administrator may issue stock purchase
rights under the 1998 Stock Plan to employees, directors and consultants. The
administrator determines the number of shares, price, term and condition and
restrictions related to a grant of stock purchase rights.
The purchase price of common stock purchased pursuant to stock purchase
rights granted under the 1998 Stock Plan will be the price determined by the
administrator. These shares of common stock are generally subject to a right
of repurchase in favor of Ventro at the holder's original purchase price,
which generally lapses at a rate of 25% percent at the end of the first year
and 2.083% of the original number of shares per month thereafter.
Administration. The 1998 Stock Plan may be administered by the Board of
Directors or a committee appointed by the Board of Directors to administer the
1998 Stock Plan. The administrator has the authority to grant options and
stock purchase rights and to determine the terms of these awards, provided
these grants are not inconsistent with the terms of the 1998 Stock Plan. In no
event, however, may an individual receive option and stock purchase right
grants for more than 5,000,000 shares under the 1998 Stock Plan in any fiscal
year. Decisions of the administrator are final and binding on all 1998 Stock
Plan participants.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by the board of directors
in May 1999 and was approved by the stockholders in July 1999. A total of
750,000 shares of common stock was initially reserved for issuance under the
Purchase Plan, as well as an automatic annual increase on January 1, 2000,
2001, 2002, 2003 and 2004 equal to the lesser of 200,000 shares, .5% of our
outstanding common stock on the last day of the immediately preceding year or
a lesser number of shares determined by the board of directors. The Purchase
Plan was amended in February 2000 to increase the number of shares reserved
for issuance by 300,000 shares of common stock to an aggregate of 1,213,814
shares.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, is implemented by a series of overlapping offering periods of
approximately 24 months' duration, with new offering periods (other than the
first offering period) commencing on February 1st and August 16th of each
year. Each offering period generally consists of four consecutive purchase
periods of six months' duration, at the end of which an automatic purchase is
made by the participant. The initial offering period began on July 26, 1999
and ends on August 15, 2001; the initial purchase period ends on February 10,
2000. The Purchase Plan is administered by the compensation committee of the
board of directors, which is comprised of Messrs. Byers and Callaghan and Dr.
Burke, outside directors of Ventro who are not eligible to participate in the
Purchase Plan. Employees, including officers and employee directors, of
Ventro, or of any majority-owned subsidiary designated by the board of
directors, are eligible to participate in the Purchase Plan if they are
employed by us or any majority-owned subsidiary for at least 20 hours per week
and more than five months per year. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, which may not
exceed 20% of an employee's compensation, at a price equal to the lower of 85%
of the fair market value of our common stock at the beginning of each offering
period or at the end of each purchase period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment. If not
terminated earlier, the Purchase Plan will have a term of 20 years.
An employee cannot be granted an option under the Purchase Plan if
immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock or stock of our subsidiaries, or if
this option would permit an employee to purchase stock under the Purchase Plan
at a rate that exceeds $25,000 of fair market value of this stock for each
calendar year in which the option is outstanding. In addition, no employee may
purchase more than 1,250 shares of common stock under the Purchase Plan in any
one purchase period. If the fair market value of the common stock on a
purchase date is less than the fair market value at the beginning of the
offering period, each participant in that offering period shall automatically
be withdrawn from the offering period as of the end of the purchase date and
re-enrolled in the new twenty-four month offering period beginning on the
first business day following the purchase date. In the event of our merger
with or into another corporation or a sale of all or
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<PAGE>
substantially all of our assets, each right to purchase stock under the
Purchase Plan will be assumed or an equivalent right substituted by the
successor corporation. However, the board of directors will shorten any
ongoing offering period so that participants' rights to purchase stock under
the Purchase Plan are exercised prior to the transaction in the event the
successor corporation refuses to assume each purchase right or to substitute
an equivalent right of the successor corporation. The board of directors has
the power to amend or terminate the Purchase Plan as long as the action does
not adversely affect any outstanding rights to purchase stock thereunder.
However, the board of directors may amend or terminate the Purchase Plan or an
offering period even if it would adversely affect outstanding options in order
to avoid our incurring adverse accounting charges.
Limitation of Liability and Indemnification Matters
As permitted by the Delaware General Corporation Law, we have included in
our certificate of incorporation a provision to eliminate the personal
liability of our officers and directors for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors,
respectively, subject to exceptions. In addition, our bylaws provide that we
are required to indemnify our officers and directors, including under
circumstances in which indemnification would otherwise be discretionary, and
we are required to advance expenses to our officers and directors as incurred
in connection with proceedings against them for which they may be indemnified.
We have entered into indemnification agreements with our officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require us, among other
things, to indemnify our officers and directors against liabilities that may
arise by reason of their status or service as officers and directors, other
than liabilities arising from willful misconduct of a culpable nature, to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. We have also obtained directors'
and officers' liability insurance.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of Ventro in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
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RELATED PARTY TRANSACTIONS
Equity Transactions
In March 1999 and April 1999, we issued and sold 5,299,951 shares of our
Series C preferred stock at a price of $5.716 per share, including:
. 1,749,474 shares to entities affiliated with Galen Associates, an entity
with which Dr. Wilkerson, a director of Ventro, is affiliated;
. 393,631 shares to entities affiliated with Kleiner Perkins Caufield &
Byers, an entity with which Mr. Byers, a director of Ventro, is
affiliated;
. 393,631 shares to Warburg, Pincus Ventures L.P., an entity with which
Mr. Lewis, a former director of Ventro, is affiliated;
. 393,631 shares to The Bay City Capital Fund I, L.P., an entity with
which Mr. Pritzker, a director of Ventro, is affiliated;
. 6,997 shares to Dr. Burke; and
. other private investors.
All of the outstanding shares of Series C preferred stock converted into
common stock upon consummation of Ventro's initial public offering in July
1999.
In addition, in March 1999, we issued warrants to purchase a total of
49,999 shares of common stock at an exercise price of $5.20 per share to
entities affiliated with Galen Associates, an entity with which Dr. Wilkerson,
one of our directors, is affiliated.
In March 1999, we entered into a strategic relationship agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. The agreement gives us the right to offer
approximately 350,000 VWR core products to our customers through the Chemdex
Marketplace. We are jointly developing with VWR a hosted, co-branded Internet
purchasing solution for VWR's existing and future customers that will provide
access to VWR core products, Ventro core products and products that are not
distributed by either VWR or Ventro, but are purchased from third parties. In
connection with the strategic relationship agreement, VWR transferred to us
information concerning VWR customers who purchased products from third party
suppliers outside VWR's primary product offering and, in exchange, we issued
2,538,405 shares of common stock valued at $13.9 million to VWR. VWR also
entered into a standstill agreement limiting its ownership in us to 10% of our
outstanding securities, including outstanding options and warrants. This
percentage can be exceeded if any one company from a specified list of
companies acquires more than 10% of our outstanding securities, including
outstanding options and warrants. Mr. Nowak, one of our directors of Ventro,
is President and Chief Executive Officer of VWR.
Agreements with Executive Officers and Directors
In January 1999, we entered into a Separation Agreement with Scott
Waterhouse. Mr. Waterhouse previously served as our Vice President, Supplier
Relations. Under this agreement, Mr. Waterhouse received severance benefits
upon the termination of his employment with Ventro.
Some of our officers, including Ms. Abrams, Ms. Greer, Mr. Samec, Mr.
Wambach and Mr. Weber, will receive six months of accelerated vesting of stock
then held in the event of their termination without cause. In addition, in the
event of a termination with or without cause, Ms. Greer will receive the
greater of six months of then-current salary or $100,000, Ms. Abrams and Mr.
Samec will receive six months of then-current salary,
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<PAGE>
Mr. Stewart and Mr. Weber will receive the greater of six months of then-
current salary or an amount equal to salary for 15 months less the time we
employed them, and Mr. Wambach will receive the greater of six months of then-
current salary or $87,500. If Mr. Stewart is terminated without cause or
resigns due to pressing family concerns prior to March 2001, his stock will
vest in an amount equal to what he would have vested had he been employed
through February 2001.
In addition, we have entered into change of control agreements with Ms.
Abrams, Ms. Greer, Mr. de Crescenzo, Mr. Perry, Mr. Samec, Mr. Stewart, Mr.
Wambach, Mr. Weber and our other employees, where the shares held by these
employees shall become fully vested if (a) we are merged into another entity
or sold and (b) this employee is terminated by the surviving entity without
cause within twelve months of the closing of the transaction. Ventro has also
entered into a change of control agreement with Dr. Burke, under which any
options subject to vesting or shares subject to a right of repurchase by us
then held by Dr. Burke will become fully vested upon the closing of a merger
in which more than 50% of the total voting power of Ventro is transferred or a
sale of all or substantially all of our assets in a complete liquidation or
dissolution of Ventro.
Since inception, from time to time we have issued and sold shares of its
common stock and granted options to purchase common stock to its employees,
directors and consultants.
The following executive officers have executed full-recourse promissory
notes in the amounts set forth after their names in connection with their
purchases of shares of Ventro's common stock:
<TABLE>
<CAPTION>
Principal
Name Amount Rate Date
---- --------- ---- --------
<S> <C> <C> <C>
Martha D. Greer..................................... $337,455 4.71% 02/26/99
Pierre V. Samec..................................... 33,705 5.12 10/21/98
James S. Wambach.................................... 33,705 4.64 01/22/99
David A. Weber...................................... 299,970 4.71 02/26/99
</TABLE>
These notes become due in April 2000. They bear interest at the lowest rate
allowed under federal tax law to avoid the imputation of interest, compounded
annually.
Except for the forgiveness of $10,000 promissory note held by Mr. Perry,
the related transactions were on terms that are no more favorable than those
that would have been agreed upon by third parties on an arm's length basis.
Other Transactions
On January 24, 2000, we and DuPont announced the formation of a new
company, Industria Solutions, Inc., that will provide business-to-business e-
commerce solutions to the fluid processing market. Industria Solutions, will
receive initial cash funding of approximately $30 million, including
approximately $10 million from CMG@Ventures. Jon Callaghan is the general
partner of CMG@Ventures as well as a director of Ventro. CMGI@Ventures
beneficially owns 7,769,807 shares, or approximately 17.4%, of our common
stock.
In January 1999, we purchased 1,886,792 shares of preferred stock of Cognia
Corporation for the total purchase price of $1,000,000. Cognia Corporation is
engaged in the business of developing a business-to-business web enterprise
focusing on content, information and services directed to the medical
community and the pharmaceutical industry. Dr. Wilkerson is a director of
Cognia as well as a director of Ventro. Mr. Wilkerson and Galen Associates
hold 2,440,000 shares of common stock and preferred stock of Cognia.
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PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of Ventro's common stock as of February 10, 2000 by:
. each person who is known by us to own beneficially 5% or more of our
common stock;
. each of our directors;
. our chief executive officer and each of our four other most highly
compensated executive officers who were serving as executive officers as
of December 31, 1999; and
. all directors and executive officers as a group.
The following tables set forth as of February 10, 2000, information with
respect to the beneficial ownership of our common stock. The percentage of our
shares beneficially owned before to the offering is based on 44,633,563 shares
of common stock outstanding as of February 10, 2000. The percentage of our
shares beneficially owned after the offering are based on 46,003,563 shares of
common stock outstanding and assumes that we complete the concurrent offering
of shares of common stock that we and the selling stockholders are offering
under a separate prospectus. Unless otherwise indicated, the address for each
stockholder named below is c/o Ventro Corporation, 1500 Plymouth Street,
Mountain View, CA 94043. Entries denoted by an asterisk represent an amount
less than 1%.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Before Owned After
Offerings Offerings
----------------- -----------------
Officers, Directors and 5% Stockholders: Number Percent Number Percent
- ---------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Entities affiliated with Kleiner Perkins
Caufield & Byers(1)...................... 3,072,797 6.9% 3,072,797 6.7%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Warburg, Pincus
Ventures(2).............................. 3,060,297 6.9 3,060,297 6.6
466 Lexington Avenue
New York, New York 10017-3147
The Bay City Capital Fund I, L.P.(3)...... 2,795,018 6.3 2,795,018 6.1
750 Battery Street
San Francisco, CA 94104
Entities affiliated with CMG@Ventures(4).. 7,769,807 17.4 7,795,507 16.9
3000 Alpine Road
Menlo Park, CA 94028
VWR Scientific Products Corporation....... 2,538,405 5.7 2,538,405 5.5
1310 Goshen Parkway
West Chester, PA 19380
Entities affiliated with Galen
Associates(5)............................ 1,799,473 4.0 1,799,473 3.9
610 Fifth Avenue, 5th Floor
Rockefeller Center
New York, NY 10020
David P. Perry(6)......................... 1,725,854 3.9 1,605,854 3.4
David A. Weber(7)......................... 204,084 * 204,084 *
Pierre V. Samec(8)........................ 225,141 * 192,347 *
Martha D. Greer(9)........................ 216,250 * 216,250 *
James S. Wambach(10)...................... 229,250 * 229,250 *
William C. Klintworth, Jr................. 2,497,311 5.6 2,377,311 5.0
Charles R. Burke(11)...................... 75,284 * 75,284 *
Brook H. Byers(12)........................ 3,072,797 6.9 3,072,797 6.7
Jonathan D. Callaghan(13)................. 7,795,507 17.5 7,795,507 16.9
Paul J. Nowak(14)......................... 2,569,652 5.8 2,569,652 5.6
John A. Pritzker(15)...................... 2,814,385 6.3 2,814,385 6.1
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Beneficially Owned
Before Offerings After Offerings
------------------ ------------------
Number Percent Number Percent
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Naomi Seligman(16)...................... 17,500 *% 17,500 *%
L. John Wilkerson(17)................... 1,811,973 4.1 1,811,973 3.8
All executive officers and directors as
a group (18 persons)(18)............... 23,364,666 52.2 23,058,759 50.0
</TABLE>
- --------
(1) Represents:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.;
. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P.; and
. 159,135 shares held by KPCB VIII Founders Fund, L.P.
The general partner of Kleiner Perkins Caufield & Byers VIII, L.P. and KPCB
VIII Founders Fund is KPCB VIII Associates. The general partner of KPCB
Life Sciences Zaibatsu Fund II, L.P. is KPCB VII Associates. Brook H.
Byers, a director of Ventro, is a general partner of the Kleiner Perkins
Caufield & Byers funds. Mr. Byers disclaims beneficial ownership of the
shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB Life
Sciences Zaibatsu Fund II, L.P. and KPCB VIII Founders Fund, L.P., except
to the extent of his pecuniary interest in these entities arising from his
general partnership interest in these funds.
(2) Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus
Ventures, L.P., which is managed by E.M. Warburg, Pincus & Co., LLC.
Lionel I. Pincus is the managing partner of Warburg, Pincus & Co. and the
managing member of E. M. Warburg, Pincus & Co., LLC, and may be deemed to
control both entities.
(3) Certain trusts for the benefit of the lineal descendants of Nicholas J.
Pritzker, deceased, including John A. Pritzker, a director of Ventro, are
indirect investors in The Bay City Capital Fund I, L.P. Mr. Pritzker
disclaims any beneficial ownership in the shares held by The Bay City
Capital Fund I, L.P., except for 6,867 shares. Of the shares reported,
certain individuals, including Mr. Pritzker, have beneficial ownership of
60,397 shares. Subsequent to February 10, 2000 Bay City Capital
distributed 640,000 shares.
(4) Represents:
. 2,715,157 shares held by CMG@Ventures II, LLC;
. 3,036,648 shares held by @Ventures III LP;
. 911,033 shares held by @Ventrues Foreign Fund III LP;
. 1,005,871 shares held by CMG@Ventures III, LLC; and
. 101,098 shares held by @Ventures Investors LLC.
Johnathan D. Callaghan, a general partner of CMG@Ventures is a director of
Ventro. Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC except to the extent of his pecuniary interest in
these entities arising from his general partnership interest in these
funds.
(5) Represents:
. 1,598,260 shares and a warrant to purchase 45,678 shares of common stock
exercisable within 60 days of February 10, 2000 held by Galen Partners
III, L.P.;
. 144,670 shares and a warrant to purchase 4,134 shares of common stock
exercisable within 60 days of February 10, 2000 held by Galen Partners
International III, L.P.; and
. 6,544 shares and a warrant to purchase 187 shares of common stock
exercisable within 60 days of February 10, 2000 held by Galen Employee
Fund III, L.P.
Dr. Wilkerson, a co-founder of Galen Associates and a director of Ventro,
disclaims beneficial ownership of the shares held by Galen Partners III,
L.P., Galen Partners International III, L.P., and Galen Employee Fund III,
L.P., except to the extent of his pecuniary interest in these entities
arising from his general partnership interest in these funds.
(6) Represents:
. 1,719,854 shares held by Mr. Perry; and
. 6,000 shares held by the 1999 David P. Perry Irrevocable Trust.
Includes 107,866 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of employment with Ventro.
(7) Include 150,000 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of employment with Ventro.
(8) Includes 140,625 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of his employment with Ventro.
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<PAGE>
(9) Includes 164,063 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of employment with Ventro.
(10) Includes 150,000 shares subject to repurchase by Ventro as of February
10, 2000 in the event of a termination of employment with Ventro.
(11) Represents:
. 14,011 shares held by Mr. Burke subject to repurchase by Ventro within
60 days of February 10, 2000 and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Includes 14,011 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of employment with Ventro.
(12) Represents:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.;
. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P.;
. 159,135 shares held by KPCB VIII Founders Fund, L.P.; and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Mr. Byers, a Senior Partner of Kleiner Perkins Caufield & Byers, disclaims
beneficial ownership of the shares held by Kleiner Perkins Caufield & Byers
VIII, L.P., KPCB Life Sciences Zaibastsu Fund II, L.P. and KPCB VIII
Founders Fund, L.P., except to the extent of his pecuniary interest in
these entities arising from his general partnership interest in these
funds.
(13) Represents:
. 2,715,157 shares held by CMG@Ventures II, LLC;
. 3,036,648 shares held by @Ventures III LP;
. 911,033 shares held by @Ventrues Foreign Fund III LP;
. 1,005,871 shares held by CMG@Ventures III, LLC;
. 101,098 shares held by @Ventures Investors LLC; and
. 25,700 shares held by Mr. Callaghan, a General Partner of CMG@Ventures
and a director of Ventro.
Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC, except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
(14) Represents:
. 2,538,405 shares held by VWR Scientific Products Corporation, of which
Mr. Nowak is the President and Chief Executive Officer; and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Mr. Nowak disclaims beneficial ownership of the shares held by VWR
Scientific Products Corporation, except to the extent of his pecuniary
interest therein.
(15) Includes 2,097,121 shares held by The Bay City Capital Fund I, L.P.
Certain trusts for the benefit of the lineal descendants of Nicholas J.
Pritzker, deceased, including John A. Pritzker, a director of Ventro, are
indirect investors in The Bay City Capital Fund I, L.P. Mr. Pritzker
disclaims any beneficial ownership in the shares held by The Bay City
Capital Fund I, L.P., except for 6,867 shares held directly by Mr.
Pritzker. Also includes 12,500 shares issuable under stock options that
are currently exercisable or exercisable within 60 days of February 10,
2000. Subsequent to February 10th Bay City Capital distributed 640,000
shares.
(16) Includes 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
(17) Represents:
. 1,799,473 shares held by entities affiliated with Galen Associates, an
entity with which Dr. Wilkerson is affiliated; and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Dr. Wilkerson disclaims beneficial ownership of the shares held by entities
affiliated with Galen Associates, except to the extent of his pecuniary
interest in these entities arising from his general partnership interest in
these funds.
(18) Includes 135,936 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000. Includes
712,554 shares subject to repurchase by Ventro as of February 10, 2000 in
the event of a termination of employment with Ventro.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this document, our authorized capital stock consists of
175,000,000 shares of common stock, $.0002 par value, and 2,500,000 shares of
undesignated preferred stock, $.0002 par value. The following description of
our capital stock is only a summary and may be more completely understood by
reading our certificate of incorporation and bylaws and the provisions of
applicable Delaware law.
Common Stock
As of February 10, 2000, there were 44,633,563 shares of our common stock
outstanding that were held of record by approximately 12,000 stockholders.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefore at
times and in amounts as the Board of Directors may determine. Each stockholder
is entitled to one vote for each share of common stock held on all matters
submitted to a vote of the stockholders. Cumulative voting is not provided for
in Ventro's amended and restated certificate of incorporation, which means
that the majority of the shares voted can elect all of the directors then
standing for election. The common stock is not entitled to preemptive rights
and is not subject to conversion or redemption. Upon the occurrence of a
liquidation, dissolution or winding-up, the holders of shares of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights of any outstanding
preferred stock. There are no sinking fund provisions applicable to the common
stock. The outstanding shares of common stock are, and the shares of common
stock to be issued upon completion of this offering will be, fully paid and
non-assessable.
Preferred Stock
The board of directors has the authority, within the limitations and
restrictions in the amended and restated certificate of incorporation, to
issue 2,500,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of any series, without further vote
or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of Ventro
without further action by the stockholders. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including voting rights, of the holders of common
stock. In some circumstances, this issuance could have the effect of
decreasing the market price of the common stock. Ventro currently has no plans
to issue any shares of preferred stock.
Options
As of February 10, 2000, options to purchase a total of 5,277,952 shares of
our common stock were outstanding, and up to 5,549,685 additional shares of
common stock may be subject to options granted in the future under the 1998
Stock Plan.
Warrants
As of February 10, 2000, we had the following outstanding warrants:
warrants to purchase a total of 49,999 shares of common stock at an exercise
price of $5.20 that are held by entities affiliated with Galen Associates;
warrants to purchase a total of 25,000 shares of common stock at an exercise
price of $15.00 that are held by Alza Corporation; a warrant to purchase
105,000 shares of common stock at an exercise price of $1.50 that is held by
Comdisco, Inc. and warrants to purchase an aggregate of 17,179 shares of
common stock at an exercise price of $10.55 held by ten individual former
investors in SpecialtyMD. All of the warrants contain standard anti-dilution
provisions.
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<PAGE>
DESCRIPTION OF NOTES
We will issue the notes under an indenture to be dated as of 2000,
between Ventro and State Street Bank and Trust Company of California, N.A., as
trustee. You may request a copy of the indenture from the trustee.
The following description is a summary of the material provisions of the
notes and the indenture. It does not purport to be complete. This summary is
subject to and is qualified by reference to all the provisions of the
indenture, including the definitions of certain terms used in the indenture.
The indenture is filed as an exhibit to the registration statement of which
this prospectus is a part. Wherever particular provisions or defined terms of
the indenture or form of note are referred to, these provisions or defined
terms are incorporated in this prospectus by reference.
As used in this "Description of Notes" section, references to "Ventro,"
"we," "our" or "us" refers solely to Ventro Corporation and not its
subsidiaries.
General
The notes will be general unsecured obligations of Ventro. Our payment
obligations under the notes will be subordinated to our senior indebtedness as
described under "--Subordination of Notes." The notes are convertible into
common stock as described under "--Conversion of Notes." The notes will be
limited to $300,000,000 aggregate principal amount ($345,000,000 aggregate
principal amount if the underwriters' over-allotment option is fully
exercised). The notes will be issued only in denominations $1,000 and
multiples of $1,000. The notes will mature on , 2007 unless earlier
converted or redeemed at our option or redeemed at your option upon a
fundamental change.
We are not subject to any financial covenants under the indenture. In
addition, we are not restricted under the indenture from paying dividends,
incurring debt, including senior indebtedness, or issuing or repurchasing our
securities.
You are not afforded protection in the event of a highly leveraged
transaction or a change in control of Ventro under the indenture except to the
extent described below under "--Redemption at Option of the Holder."
We will pay interest on and of each year, beginning , 2000 to record
holders at the close of business on the preceding and , as the case may be,
except:
. interest payable upon redemption will be paid to the person to whom
principal is payable, unless the redemption date is an interest payment
date; and
. as set forth in the next sentence.
In case you convert your note, or any portion of your note, into common
stock during the period after any record date but prior the next interest
payment date either:
. we will not be required to pay interest on the interest payment date if
the note, or any portion of the note, has been called for redemption on
a redemption date that occurs during this period;
. we will not be required to pay interest on the interest payment date if
the note, or any portion of the note, is to be redeemed in connection
with a fundamental change on a repurchase date that occurs during this
period; or
. if otherwise, any note, or any portion of the note, not called for
redemption that is submitted for conversion during this period must also
be accompanied by an amount equal to the interest due on the interest
payment date on the converted principal amount, unless at the time of
conversion there is a default in the payment interest on the notes. See
"--Conversion of Notes."
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We will maintain an office in the Borough of Manhattan, the City of New
York for the payment of interest, which shall initially be an office or agency
of the trustee.
We may pay interest either:
. by check mailed to your address as it appears in the note register,
provided that if you are a holder with an aggregate principal amount in
excess of $2.0 million, you shall be paid, at your written election, by
wire transfer in immediately available funds; or
. by transfer to an account maintained by you in the United States.
However, payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, will be made by wire transfer of immediately
available funds to the account of DTC or its nominee. Interest will be
computed on the basis of a 360-day year composed of 12 30-day months.
Form, Denomination and Registration
The notes will be issued:
. in fully registered form;
. without interest coupons; and
. in denominations of $1,000 principal amount and integral multiples of
$1,000.
Global Note, Book-Entry Form
The notes will be evidenced by one or more global notes. We will deposit
the global note or notes with DTC and register the global notes in the name of
Cede & Co. as DTC's nominee. Except as set forth below, a global note may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Holders of these notes may hold their interests in a global note directly
through DTC if such holder is a participant in DTC, or indirectly through
organizations that are participants in DTC, which we refer to as participants.
Transfers between participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearing house funds. The
laws of some states require that certain persons take physical delivery of
securities in definitive form. As a result, the ability to transfer beneficial
interests in the global note to such persons may be limited.
Holders of these notes who are not participants may beneficially own
interests in a global note held by DTC only through participants, or certain
banks, brokers, dealers, trust companies and other parties that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly, which we refer to as indirect participants. So long as Cede & Co.,
as the nominee of DTC, is the registered owner of a global note, Cede & Co.
for all purposes will be considered the sole holder of such global note.
Except as provided below, owners of beneficial interests in a global note
will:
. not be entitled to have certificates registered in their names;
. not receive physical delivery of certificates in definitive registered
form; and
. not be considered holders of the global note.
We will pay interest on and the redemption price of a global note to Cede &
Co., as the registered owner of the global note, by wire transfer of
immediately available funds on each interest payment date or the redemption or
repurchase date, as the case may be. Neither we, the trustee nor any paying
agent will be responsible or liable:
. for the records relating to, or payments made on account of, beneficial
ownership interests in a global note; or
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. for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the principal amount represented by a
global note as shown on the records of DTC, unless DTC has reason to believe
that it will not receive payment on the payment date. Payments by participants
to owners of beneficial interests in the principal amount represented by a
global note held through participants will be the responsibility of the
participants, as is now the case with securities held for the accounts of
customers registered in "street name."
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing its interest.
Neither Ventro, the trustee, registrar, paying agent nor conversion agent
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. DTC has advised us that it will take
any action permitted to be taken by a holder of notes, including the
presentation of notes for exchange, only at the direction of one or more
participants to whose account with DTC interests in the global note are
credited, and only in respect of the principal amount of the notes represented
by the global note as to which the participant or participants has or have
given such direction.
DTC has advised us that it is:
. a limited purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
. a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants.
Participants include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the participants or
their representatives, together with other entities, own DTC. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of
interests in a global note among participants. However, DTC is under no
obligation to perform or continue to perform these procedures, and may
discontinue these procedures at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
by us within 90 days, we will issue notes in certificated form in exchange for
global notes.
Conversion of Notes
You may convert your note, in whole or in part, into common stock of Ventro
at any time through the final maturity date of the notes, subject to prior
redemption of the notes. If we call notes for redemption, you may convert the
notes only until the close of business on the business day prior to the
redemption date unless we fail to pay the redemption price. If you have
submitted your notes for redemption upon a fundamental change, you may convert
your notes only if you withdraw your election to exercise your redemption
option in accordance with the terms of the indenture. You may convert your
notes in part as long as this part is $1,000 principal amount or an integral
multiple of $1,000. If any notes not called for redemption are converted after
a record date for any interest payment date and prior to the next interest
payment date, the notes must be accompanied by an amount equal to the interest
payable on the interest payment date on the converted principal amount unless
a default exists at the time of conversion.
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The initial conversion price for the notes is $ per share of common
stock, subject to adjustment as described below. We will not issue fractional
shares of common stock upon conversion of notes. Instead, we will pay cash
equal to the market price of the common stock on the business day prior to the
conversion date. Except as described below, you will not receive any accrued
interest or dividends upon conversion.
To convert your note into common stock you must:
. complete and manually sign the conversion notice on the back of the note
or facsimile of the conversion notice and deliver this notice to the
conversion agent;
. surrender the note to the conversion agent;
. if required, furnish appropriate endorsements and transfer documents;
. if required, pay all transfer or similar taxes; and
. if required, pay funds equal to interest payable on the next interest
payment date.
The date you comply with these requirements is the conversion date under the
indenture.
We will adjust the conversion price, as described in the indenture, if any
of the following events occur:
(1) we issue common stock as a dividend or distribution on our common
stock;
(2) we issue to all holders of common stock certain rights or warrants to
purchase our common stock;
(3) we subdivide or combine our common stock;
(4) we distribute to all common stockholders capital stock, evidences of
indebtedness or assets, including securities but excluding:
. rights or warrants listed in (2) above;
. dividends or distributions of common stock listed in (1) above; and
. cash distributions listed in (5) below;
(5) we distribute cash, excluding any quarterly cash dividend on our common
stock to the extent that the aggregate cash dividend per share of
common stock in any quarter does not exceed the greater of:
. the amount per share of common stock of the next preceding quarterly
cash dividend on the common stock to the extent that the preceding
quarterly dividend did not require an adjustment of the conversion
price pursuant to this clause (5), as adjusted to reflect
subdivisions or combinations of the common stock; and
. 3.75% of the average of the last reported sale price of the common
stock during the ten trading days immediately prior to the
declaration date of the dividend, and excluding any dividend or
distribution in connection with the liquidation, dissolution or
winding up of Ventro.
If an adjustment is required to be made under this clause (5) as a result of
a distribution that is a quarterly dividend, the adjustment would be based
upon the amount by which the distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded pursuant to this clause
(5). If an adjustment is required to be made under this clause (5) as a
result of a distribution that is not a quarterly dividend, the adjustment
would be based upon the full amount of the distribution;
(6) we or one of our subsidiaries makes a payment in respect of a tender
offer or exchange offer for our common stock to the extent that the
cash and value of any other consideration included in the payment per
share of common stock exceeds the current market price per share of
common stock on the trading day next succeeding the last date on which
tenders or exchanges may be made pursuant to such tender or exchange
offer; and
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(7) someone other than us or one of our subsidiaries makes a payment in
respect of a tender offer or exchange offer in which, as of the closing
date of the offer, our board of directors is not recommending rejection
of the offer. The adjustment referred to in this clause (7) will only
be made if:
. the tender offer or exchange offer is for an amount that increases
the offeror's ownership of common stock to more than 25% of the
total shares of common stock outstanding, and
. the cash and value of any other consideration included in the
payment per share of common stock exceeds the current market price
per share of common stock on the business day next succeeding the
last date on which tenders or exchanges may be made pursuant to the
tender or exchange offer.
However, the adjustment referred to in this clause (7) will generally not
be made if as of the closing of the offer, the offering documents disclose
a plan or an intention to cause us to engage in a consolidation or merger
of Ventro or a sale of all or substantially all of our assets.
In the event that we adopt a stockholder rights plan, the rights plan will
provide that upon conversion of the notes, you will receive, in addition to
the common stock issuable upon such conversion, the rights which would have
attached to the shares of common stock if the rights had not become separated
from the common stock.
In the event of:
. any reclassification of our common stock; or
. a consolidation, merger or combination involving Ventro; or
. a sale or conveyance to another person of the property and assets of
Ventro as an entirety or substantially as an entirety,
which holders of common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, holders of
notes will generally be entitled thereafter to convert their notes into the
same type of consideration received by common stock holders immediately prior
to one of these types of events.
You may in certain situations be deemed to have received a distribution
subject to United States federal income tax as a dividend in the event of any
taxable distribution to holders of common stock or in main other situations
requiring a conversion price adjustment. See "Certain Federal Income Tax
Considerations."
We may from time to time reduce the conversion price for a period of at
least 20 days if our board of directors has made a determination that this
reduction would be in our best interests. Any such determination by our board
will be conclusive. We would give holders at least 15 days' notice of any
reduction in the conversion price. In addition, we may reduce the conversion
price if our board of directors deems it advisable to avoid or diminish any
income tax to holders of common stock resulting from any stock or rights
distribution. See "Certain Federal Income Tax Considerations."
We will not be required to make an adjustment in the conversion price
unless the adjustment would require a change of at least 1% in the conversion
price. However, we will carry forward any adjustments at are less than 1%
percent of the conversion price. Except as described above in this section, we
will not adjust the conversion price for any issuance of our common stock or
convertible or exchangeable securities rights to purchase our common stock or
convertible or exchangeable securities.
Optional Redemption by Ventro
The notes are not entitled to any sinking fund. At any time on or after
, 2003, we may redeem the notes for cash in whole or in part at the
following prices expressed as a percentage of the principal amount:
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
Beginning on , 2003 and ending on , 2004............ %
Beginning on , 2004 and ending on , 2005............ %
Beginning on , 2005 and ending on , 2006............ %
Beginning on , 2006 and ending on , 2007............ %
</TABLE>
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and 100% at , 2007. In each case, we will pay interest to, but excluding,
the redemption date. If the redemption date is an interest payment date,
interest shall be paid to the record holder on the relevant record date. We
are required to give notice of redemption by mail to holders not more than 60
but not less than 30 days prior to the redemption date.
If less than all of the outstanding notes are to be redeemed, the trustee
shall select the notes to be deemed in principal amounts of $1,000 or integral
multiples of $1,000 by lot, pro rata or by another method the trustee
considers fair and appropriate. If a portion of your notes is selected for
partial redemption and you convert a portion of your notes, the converted
portion shall be deemed to be of the portion selected for redemption.
We may not redeem the notes if we have failed to pay any interest or
premium on the notes and such failure to pay is continuing. We will issue a
press release if we redeem the notes.
Redemption at Option of the Holder
If a fundamental change occurs prior to , 2007, you may require us to
redeem your notes, in whole or in part, on a repurchase date that is 30 days
after the date of our notice of the fundamental change. The notes will be
redeemable in multiples of $1,000 in principal amount.
We shall redeem the notes at a price equal to 100% of the principal amount
to be redeemed, plus accrued interest to, but excluding, the repurchase date.
If the repurchase date is an interest payment date, will pay interest to the
record holder on the relevant record date.
We will mail to all record holders a notice of the fundamental change
within 30 days after the occurrence of the fundamental change. We are also
required to deliver to the trustee a copy of the fundamental change notice. If
you elect to redeem your notes, you must deliver to us or our designated
agent, on or before the 30th day after the date of our fundamental change
notice, your redemption notice and any notes to be redeemed, duly endorsed for
transfer. We will promptly pay the redemption price for notes surrendered for
redemption following the repurchase date.
A "fundamental change" is any transaction or event in connection with which
all or substantially all of our common stock shall be exchanged for, converted
into, acquired for or constitute solely the right to receive, consideration,
whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise, which is not all or substantially all common stock listed on, or
that will be listed on or immediately after the transaction or event on, a
United States national securities exchange, or approved for quotation on the
Nasdaq National Market or any similar United States system of automated
dissemination of quotations of securities prices.
We will comply with any applicable provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act in the event of a fundamental
change.
These fundamental change redemption rights could discourage a potential
acquiror of Ventro. However, this fundamental change redemption feature is not
the result of management's knowledge of any specific effort to obtain control
of Ventro by means of a merger, tender offer or solicitation, or part of a
plan by management to adopt a series of anti-takeover provisions. The term
"fundamental change" is limited to certain specified transactions and may not
include other events that might adversely affect our financial condition. Our
obligation to offer to redeem the notes upon a fundamental change would not
necessarily afford you protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving Ventro.
We may be unable to redeem the notes in the event of a fundamental change.
If a fundamental change were to occur, we may not have enough funds to pay the
redemption price for all tendered notes. We may, in the future, enter into
certain transactions, including certain recapitalizations of Ventro, that
would not constitute a fundamental change, but that would increase the amount
of indebtedness, including senior indebtedness,
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outstanding at that time. Further, payment of the redemption price on the
notes may be subordinated to the prior payment of senior indebtedness as
described under "Subordination of Notes" below. Any future credit agreements
or other agreements relating to our indebtedness may contain provisions
prohibiting redemptions of the notes, or expressly prohibiting the repurchase
of the notes upon a fundamental change or may provide that a fundamental
change constitutes an event of default under that agreement. If a fundamental
change occurs at a time when we are prohibited from purchasing or redeeming
notes, we could seek the consent of our lenders to redeem the notes or could
attempt to refinance this debt. If we do not obtain a consent, we could not
purchase or redeem the notes. Our failure to redeem tendered notes would
constitute an event of default under the indenture, which might constitute a
default under the terms of our other indebtedness. In these circumstances, or
if a fundamental change would constitute an event of default under our senior
indebtedness, the subordination provisions of the indenture would restrict
payments to the holders of notes or result in acceleration of the payment of
other indebtedness of Ventro at the time outstanding as a result of cross-
default provisions.
Subordination of Notes
Payment on the notes will, to the extent provided in the indenture, be
subordinated in right of payment to the prior payment in full of all of our
senior indebtedness. Upon any payment or distribution of our assets to
creditors upon any dissolution, winding up, liquidation, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceeding, the payment of the principal of,
or premium, if any, interest, and liquidated damages, if any, on the notes
will be subordinated in right of payment to the prior payment in full in cash
or other payment satisfactory to the holders of senior indebtedness. In the
event of any acceleration of the notes because of an event of default, the
holders of any outstanding senior indebtedness would be entitled to payment in
full of all senior indebtedness in cash or other payment satisfactory to the
holders of senior indebtedness obligations before the holders of the notes are
entitled to receive any payment or distribution. We are required under the
indenture to promptly notify holders of senior indebtedness if payment of the
notes is accelerated because of an event of default.
We may not make any payment on the notes if:
. a default in the payment of designated senior indebtedness occurs and is
continuing beyond any applicable period of grace (called a "payment
default"); or
. a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of designated
senior indebtedness to accelerate its maturity and the trustee receives
a notice of such default (called a "payment blockage notice") from us or
any other person permitted to give such notice under the indenture
(called a "non-payment default").
We may and shall resume payments and distributions on the notes:
. in case of a payment default, upon the date on which such default is
cured or waived or ceases to exist; and
. in case of a non-payment default, the earlier of the date on which such
nonpayment default is cured or waived or ceases to exist or 179 days
after the date on which the payment blockage notice is received, if the
maturity of the designated senior indebtedness has not been accelerated.
No new period of payment blockage may be commenced pursuant to a payment
blockage notice unless 365 days have elapsed since the initial effectiveness
of the immediately prior payment blockage notice. No non-payment default that
existed or was continuing on the date of delivery of any payment lockage
notice shall be the basis for any later payment blockage notice.
By reason of this subordination, in the event of our bankruptcy,
dissolution or reorganization, holders of senior indebtedness may receive
more, ratably, and holders of the notes may receive less, ratably, than our
other creditors. The notes are also subordinated by operation of law to all
indebtedness and other liabilities, including trade payables, of our
subsidiaries.
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The notes are exclusively obligations of Ventro. A significant portion of
our operations is conducted through our subsidiaries. We anticipate that this
portion could increase in the future if our vertical market strategy is
successful. As a result, our cash flow and our ability to service our debt,
including the notes, depend upon the earnings of our subsidiaries. In
addition, we depend on the distribution of earnings, loans or other payments
by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the notes. Our subsidiaries are
not required to provide us with funds for our payment obligations, whether by
dividends, distributions, loans or other payments. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could be
subject to statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries' earnings and
business considerations.
As of December 31, 1999, we had approximately $ million of senior
indebtedness outstanding, and our subsidiaries had $ million of debt and
other liabilities outstanding. Neither we nor our subsidiaries are prohibited
under the indenture from incurring debt, including senior indebtedness. We may
from time to time incur additional debt, including senior indebtedness. Our
subsidiaries may also from time to time incur other additional debt and
liabilities.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the notes. The
trustee's claims for these payments will generally be senior to those of
noteholders in respect of funds collected or held by the trustee.
"indebtedness" means:
(1) all indebtedness, obligations and other liabilities for borrowed money,
including overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or
advances from banks, whether or not evidenced by notes or similar
instruments, or evidenced by bonds, debentures, notes or similar
instruments, whether or not the recourse of the lender is to the whole
of the assets of the person or to only a portion of the assets, or
obligations in respect of deferred and unpaid purchase price of assets
or property;
(2) reimbursement obligations and other liabilities, contingent or
otherwise, with respect to letters of credit, bank guarantees or
bankers' acceptances;
(3) all obligations and other liabilities, contingent or otherwise, in
respect of leases required in conformity with generally accepted
accounting principles to be accounted for as capitalized lease
obligations on our balance sheet;
(4) all obligations and other liabilities, contingent or otherwise, under
any lease or related document in connection with the lease of real
property which provides that we are contractually obligated to purchase
or cause a third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property to the lessor
and our obligations under the lease or related document to purchase or
to cause a third party to purchase the leased property;
(5) all obligations, contingent or otherwise, with respect to an interest
rate or other swap, cap or collar agreement or other similar instrument
or agreement or foreign currency hedge, exchange, purchase or similar
agreement;
(6) all direct or indirect guaranties or similar agreements, and
obligations or liabilities, contingent or otherwise, to purchase,
acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of others of the type
described in (1) through (5) above;
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(7) any indebtedness or other obligations described in (1) through (5)
above secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by us, regardless of
whether the indebtedness or other obligation has been assumed by us;
and
(8) any deferrals, renewals, extensions, refinancings and refundings of, or
amendments, modifications or supplements to, any indebtedness,
obligation or liability of the kind described in (1) through (7) above.
Notwithstanding anything to the contrary in the foregoing, indebtedness
shall not include any indebtedness of or amounts owed by any person for
compensation to employees, or for goods, services or materials purchased in
the ordinary course of business.
"senior indebtedness" means the principal of, premium, if any, interest,
including any interest accruing under bankruptcy or similar proceeding,
whether or not a claim for post-petition interest is allowable as a claim in
such proceeding, and rent payable on or in connection with, or other amounts
due on our current or future indebtedness, whether outstanding on the date of
the indenture or thereafter created, incurred, assumed, guaranteed or in
effect guaranteed by us, including any deferrals, renewals, extensions,
refundings, amendments, modifications or supplements to the above. However,
senior indebtedness does not include:
. indebtedness that expressly provides that it shall not be senior in
right of payment to the notes or expressly provides that it is on the
same basis or junior to the notes;
. our indebtedness to any of our majority-owned subsidiaries; and
. the notes.
"designated senior indebtedness" shall mean senior indebtedness that
expressly provides that the senior indebtedness shall be "designated senior
indebtedness" for purposes of the indenture, subject to any limitations that
the instrument or agreement may place on the right of senior indebtedness to
exercise the rights of designated senior indebtedness; and
Events of Default; Notice and Waiver
The following will be events of default under the indenture:
. we fail to pay principal or premium, if any, upon redemption or
otherwise on the notes, whether or not the payment is prohibited by
subordination provisions;
. we fail to comply with any of our other agreements in the notes or the
indenture upon the receipt by us of notice of such default by the
trustee or by holders of not less than 25% in aggregate principal amount
at maturity of the notes then outstanding and our failure to cure the
default within 60 days after our receipt of notice of the default;
. we default for 30 days in payment of any installment of interest on the
notes; or
. certain events involving bankruptcy, insolvency or reorganization of
Ventro or any of its subsidiaries.
The trustee may withhold notice to the holders of the notes of any default,
except defaults in payment of principal, premium, if any, or interest on the
notes. However, the trustee must consider it to be in the interest of the
holders of the notes to withhold this notice.
If an event of default occurs and continues, the trustee or the holders of
at least 25% in principal amount of the outstanding notes may declare the
principal, premium, if any, on the outstanding notes to be immediately due and
payable. In the case of certain events of bankruptcy or insolvency involving
Ventro, the principal, premium, if any, on the notes will automatically become
due and payable. However, if we cure all defaults, except the nonpayment of
principal, premium, interest or liquidated damages, if any, that became due as
a result of the acceleration, and meet certain other conditions, with certain
exceptions, this declaration may be cancelled and
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the holder of a majority of the principal amount of outstanding notes may
waive these past defaults. Payments of principal, premium, or interest on the
notes that are not made when due will accrue interest at the annual rate of
% from the required payment date.
The holders of a majority of outstanding notes will have the right to
direct the time, method and place any proceedings for any remedy available to
the trustee, subject to limitations specified in the indenture.
No holder of the notes may pursue any remedy under the indenture, except in
the case of a default in the payment of principal, premium or interest on the
notes, unless:
. the holder has given the trustee written notice of an event of default;
. the holders of at least 25% in principal amount of outstanding notes
make a written request, and offer reasonable indemnity, to the trustee
to pursue the remedy;
. the trustee does not receive an inconsistent direction from the holders
of a majority in principal amount of the notes; and
. the trustee fails to comply with the request within 60 days after
receipt.
Modification of the Indenture
The consent of the holders of a majority in principal amount of the
outstanding notes is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder each outstanding
note if it would:
. extend the fixed maturity of any note;
. reduce the rate or extend the time for payment of interest of any note;
. reduce the principal amount at maturity of any note;
. reduce any amount payable upon redemption of any note;
. adversely change our obligation to redeem any note upon a fundamental
change;
. impair or affect the right of a holder to institute suit for payment on
any note;
. change the currency in which any note is payable;
. impair the right of a holder to convert any note into common stock
subject to the terms set forth in the indenture;
. modify the subordination provisions of the indenture in a manner adverse
to the holder of the notes; or
. reduce the percentage of notes required for consent to any modification
of the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of notes.
Taxation of Notes
See "Certain Federal Income Tax Considerations" for a discussion of certain
federal tax aspects that will apply to holders of notes.
Information Concerning the Trustee
We have appointed State Street Bank and Trust Company of California, N.A.,
the trustee under the indenture, as paying agent, conversion agent, note
registrar and custodian for the notes. The trustee or its affiliates may
provide banking and other services to us in the ordinary course of their
business.
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The indenture contains certain limitations on the rights of the trustee, as
long as it or any of its affiliates remains our creditor, to obtain payment of
claims in certain cases or to realize on certain property received on any
claim as security or otherwise. The trustee and its affiliates will be
permitted to engage in other transactions with us. However, if the trustee or
any affiliate continues to have any conflicting interest and a default occurs
with respect to the notes, the trustee must eliminate such conflict or resign.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of some U.S. federal income tax considerations
relating to the purchase, ownership and disposition of the notes and common
stock into which the notes may be converted, but does not purport to be a
complete analysis of all the potential tax considerations relating to the
notes. This summary is based on laws, regulations, rulings and decisions now
in effect, all of which are subject to change or differing interpretation,
possibly with retroactive effect. Except as specifically discussed below with
regard to Non-U.S. Holders, as defined below, this summary applies only to
beneficial owners that will hold notes and common stock into which notes may
be converted as "capital assets" within the meaning of Section 1221 of the
Internal Revenue Code of 1986, or the "Code" and who, for U.S. federal income
tax purposes, are:
(1) individual citizens or residents of the U.S.;
(2) corporations, partnerships or other entities created or organized in
or under the laws of the U.S. or of any political subdivision thereof
unless, in the case of a partnership, Treasury Regulations otherwise
provide;
(3) estates, the incomes of which are subject to U.S. federal income
taxation regardless of the source of such income or;
(4) trusts subject to the primary supervision of a U.S. court and the
control of one or more U.S. persons, which we refer to as "U.S.
Holders."
Persons other than U.S. Holders, which we refer to as "Non-U.S. Holders" are
subject to special U.S. federal income tax considerations, some of which are
discussed below. This discussion does not address tax considerations
applicable to an investor's particular circumstances or to investors that may
be subject to special tax rules, such as:
. banks;
. holders subject to the alternative minimum tax;
. tax-exempt organizations;
. insurance companies;
. foreign persons or entities, except to the extent specifically set forth
below;
. dealers in securities or currencies, persons that will hold notes as a
position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes; or
. persons deemed to sell notes or common stock under the constructive sale
provisions of the Code.
This summary discusses the tax considerations applicable to initial purchasers
of the notes who purchase the notes at their "issue price" as defined in
Section 1273 of the Code and does not discuss the tax considerations
applicable to subsequent purchasers of the notes. We have not sought any
ruling from the Internal Revenue Service, or the IRS, or an opinion of counsel
with respect to the statements made and the conclusions reached in the
following summary. We cannot assure you that the IRS will agree with these
statements and conclusions. In addition, the IRS is not precluded from
successfully adopting a contrary position. This summary does not consider the
effect of the federal estate or gift tax laws or the tax laws, except as set
forth below with respect to Non-U.S. Holders, of any applicable foreign,
state, local or other jurisdiction.
Investors considering the purchase of notes should consult their own tax
advisors with respect to the application of the United States federal tax laws
to their particular situations as well as any tax consequences arising under
the federal estate or gift tax rules or under the laws of any state, local or
foreign taxing jurisdiction or under any applicable tax treaty.
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U.S. Holders
Taxation of Interest
Interest paid on the notes will be included in the income of a U.S. Holder
as ordinary income at the time it is treated as received or accrued, in
accordance with such holder's regular method of accounting for U.S. federal
income tax purposes. Under Treasury Regulations, the possibility of an
additional payment under a note may be disregarded for purposes of determining
the amount of interest income to be recognized by a holder in respect of such
note, or the timing of such recognition, if the likelihood of the payment, as
of the date the notes are issued, is remote. A holder may require us to redeem
any and all of his notes in the event of a fundamental change. We believe that
the likelihood of a liquidated damages payment with respect to the notes is
remote and do not intend to treat this possibility as affecting the yield to
maturity of any note. Similarly, we intend to take the position that a
"fundamental change" is remote under the Treasury Regulations, and likewise do
not intend to treat the possibility of a "fundamental change" as affecting the
yield to maturity of any note. In the event either contingency occurs, it
would affect the amount and timing of the income that must be recognized by a
U.S. Holder of notes. We cannot assure you that the IRS will agree with these
positions.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange, other than a conversion, or redemption of a note,
a U.S. Holder generally will recognize capital gain or loss equal to the
difference between (1) the amount of cash proceeds and the fair market value
of any property received on the sale, exchange or redemption, except to the
extent this amount is attributable to accrued interest income not previously
included in income, which will be taxable as ordinary income, or is
attributable to accrued interest that was previously included in income, which
amount may be received without generating further income, and (2) the holder's
adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note
generally will equal the cost of the note to the holder. This capital gain or
loss will be long-term capital gain or loss if the U.S. Holder's holding
period in the note is more than one year at the time of sale, exchange or
redemption. Long-term capital gains recognized by some non-corporate U.S.
Holders, including individuals, will generally be subject to a maximum rate of
tax of 20%. The deductibility of capital losses is subject to limitations.
Conversion of the Notes
A U.S. Holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock except with respect to cash received in
lieu of a fractional share of common stock. A U.S. Holder's tax basis in the
common stock received on conversion of a note will be the same as the holder's
adjusted tax basis in the note at the time of conversion, reduced by any basis
allocable to a fractional share interest, and the holding period for the
common stock received on conversion will generally include the holding period
of the note converted. However, a U.S. Holder's tax basis in shares of common
stock considered attributable to accrued interest generally will equal the
amount of the accrued interest included in income, and the holding period for
the shares shall begin on the date of conversion.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of
common stock generally will result in capital gain or loss, measured by the
difference between the cash received for the fractional share and the holder's
adjusted tax basis in the fractional share.
Dividends
Distributions, if any, made on the common stock after a conversion
generally will be included in the income of a U.S. Holder as ordinary dividend
income to the extent of our current or accumulated earnings and profits.
Distributions in excess of our current and accumulated earnings and profits
will be treated as a return of capital to the extent of the U.S. Holder's
basis in the common stock and thereafter as capital gain.
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Holders of convertible debt instruments such as the notes may, in some
circumstances, be deemed to have received distributions of stock if the
conversion price of these instruments is adjusted. Adjustments to the
conversion price made pursuant to a bona fide reasonable adjustment formula
that has the effect of preventing the dilution of the interest of the holders
of the debt instruments, however, will generally not be considered to result
in a constructive distribution of stock. Some of the possible adjustments
provided in the notes, including, without limitation, adjustments in respect
of taxable dividends to stockholders of Ventro, will not qualify as being
pursuant to a bona fide reasonable adjustment formula. If these adjustments
are made, the U.S. Holders of notes will be deemed to have received
constructive distributions payable as dividends to the extent of our current
and accumulated earnings and profits even though they have not received any
cash or property as a result of these adjustments. In some circumstances, the
failure to provide for an adjustment may result in taxable dividend income to
the U.S. Holders of common stock.
Sale of Common Stock
Upon the sale or exchange of common stock, a U.S. Holder generally will
recognize capital gain or loss equal to the difference between (1) the amount
of cash and the fair market value of any property received on the sale or
exchange and (2) the U.S. Holder's adjusted tax basis in the common stock.
This capital gain or loss will be long-term capital gain or loss if the U.S.
Holder's holding period in common stock is more than one year at the time of
the sale or exchange. Long-term capital gains recognized by some non-corporate
U.S. Holders, including individuals, will generally be subject to a maximum
rate of tax of 20%. A U.S. Holder's basis and holding period in common stock
received upon conversion of a note are determined as discussed above under
"Conversion of the Notes." The deductibility of capital losses is subject to
limitations.
Special Tax Rules Applicable to Non-U.S. Holders
In general, subject to the discussion below concerning backup withholding:
(a) Payments of principal or interest on the notes by us or any paying
agent to a beneficial owner of a note that is a Non-U.S. Holder will not be
subject to U.S. withholding tax, provided that, in the case of interest,
(1) the Non-U.S. Holder does not own, actually or constructively, 10% or
more of the total combined voting power of all classes of stock of
Ventro entitled to vote within the meaning of Section 871(h)(3) of the
Code,
(2) the Non-U.S. Holder is not a "controlled foreign corporation" with
respect to which we are a "related person" within the meaning of the
Code,
(3) the Non-U.S. Holder is not a bank receiving interest described in
Section 881 (c)(3)(A) of the Code, and
(4) the certification requirements under Section 871(h) or Section 881(c)
of the Code and related Treasury Regulations, discussed below, are
satisfied;
(b) A Non-U.S. Holder of a note or common stock will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other
disposition of such note or common stock unless
(1) the Non-U.S. Holder is an individual who is present in the U.S. for 183
days or more in the taxable year of sale, exchange or other
disposition, and certain conditions are met,
(2) the gain is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the U.S. and, if certain U.S. income
tax treaties apply, is attributable to a U.S. permanent establishment
maintained by the Non-U.S. Holder,
(3) the Non-U.S. Holder is subject to Code provisions applicable to some
U.S. expatriates, or
(4) in the case of common stock held by a person who holds more than 5% of
such stock, we are or have been, at any time within the shorter of the
five-year period preceding the sale or other disposition or
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the period such Non-U.S. Holder held the common stock, a U.S. real
property holding corporation, or a USRPHC for U.S. federal income tax
purposes.
We do not believe that we are currently a USRPHC or that we will become one in
the future;
(c) Interest on notes not excluded from U.S. withholding tax as described
in (a) above and dividends on common stock after conversion generally will be
subject to U.S. withholding tax at a 30% rate, except where an applicable tax
treaty provides for the reduction or elimination of such withholding tax.
To satisfy the certification requirements referred to in (a)(4) above,
Sections 871(h) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that either (1) the beneficial owner of a note
must certify, under penalties of perjury, to us or our paying agent, as the
case may be, that the owner is a Non-U.S. Holder and must provide the owner's
name and address, and U.S. taxpayer identification number, or TIN, if any, or
(2) a securities clearing organization, bank or other financial institution
that holds customer securities in the ordinary course of its trade or
business, which we refer to as a "Financial Institution," and holds the note
on behalf of the beneficial owner must certify, under penalties of perjury, to
us or our paying agent, as the case may be, that the certificate has been
received from the beneficial owner and must furnish the payor with a copy
thereof. Such requirement will be fulfilled if the beneficial owner of a note
certifies on IRS Form W-8 or successor form, under penalties of perjury, that
it is a Non-U.S. Holder and provides its name and address or any Financial
Institution holding the note on behalf of the beneficial owner files a
statement with the withholding agent to the effect that it has received such a
statement from the beneficial owner and furnishes the withholding agent with a
copy of the statement.
Treasury Regulations effective for payments made after December 31, 2000,
will provide alternative methods for satisfying the certification requirements
described above and below, subject to grandfathering provisions. These new
regulations also require, in the case of notes held by a foreign partnership,
that (1) the certification be provided by the partners rather than by the
foreign partnership and (2) the partnership provide certain information,
including a TIN. A look-through rule will apply in the case of tiered
partnerships.
If a Non-U.S. Holder of a note or common stock is engaged in a trade or
business in the U.S. and if interest on the note, dividends on the common
stock, or gain realized on the sale, exchange or other disposition of the note
or common stock is effectively connected with the conduct of the trade or
business (and, if certain tax treaties apply, is attributable to a U.S.
permanent establishment maintained by the Non-U.S Holder in the U.S.), the
Non-U.S. Holder, although exempt from U.S. withholding tax (provided that the
certification requirements discussed in the next sentence are met), will
generally be subject to U.S. federal income tax on such interest, dividends or
gain on a net income basis in the same manner as if it were a U.S. Holder. In
lieu of the certificate described above, such a Non-U.S. Holder will be
required, under currently effective Treasury Regulations, to provide us with a
properly executed IRS Form 4224 or successor form in order to claim an
exemption from withholding tax. In addition, if such Non-U.S. Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30%,
or any lower rate provided by an applicable treaty, of its effectively
connected earnings and profits for the taxable year, subject to adjustment.
U.S. Federal Estate Tax
A note held by an individual who at the time of death is not a citizen or
resident of the U.S., as specially defined for U.S. federal estate tax
purposes, will not be subject to U.S. federal estate tax if the individual did
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of Ventro and, at the time of the individual's
death, payments with respect to the note would not have been effectively
connected with the conduct by such individual of a trade or business in the
U.S. Common stock held by an individual who at the time of death is not a
citizen or resident of the U.S., as specially defined for U.S. federal estate
tax purposes, will be included in such individual's estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty otherwise applies.
Non-U.S. Holders should consult with their tax advisors regarding U.S. and
foreign tax consequences with respect to the notes and common stock.
86
<PAGE>
Backup Withholding and Information Reporting
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments pursuant to the terms of a note or common stock to a U.S. Holder that
is not an "exempt recipient" and that fails to provide certain identifying
information, such as the holder's TIN, in the manner required. Generally,
individuals are not exempt recipients, whereas corporations and some other
entities are exempt recipients. Payments made in respect of a note or common
stock must be reported to the IRS, unless the U.S. holder is an exempt
recipient or otherwise establishes an exemption.
In the case of payments of interest on a note to a Non-U.S. Holder,
Treasury Regulations provide that backup withholding and information reporting
will not apply to payments with respect to which either requisite
certification has been received or an exemption has otherwise been
established, provided that neither Ventro nor a paying agent has actual
knowledge that the holder is a U.S. Holder or that the conditions of any other
exemption are not in fact satisfied.
Dividends on the common stock paid to Non-U.S. Holders that are subject to
U.S. withholding tax, as described above, generally will be exempt from U.S.
backup withholding tax but will be subject to certain formation reporting.
Payments of the proceeds of the sale of a note or common stock to or
through a foreign office of a U.S. broker or a foreign office of a broker that
is a U.S. related person are currently subject to certain information
reporting requirements, unless the payee is an exempt recipient or the broker
has evidence in its records that the payee is a Non-U.S. Holder and no actual
knowledge that the evidence is false and certain other conditions are met.
Temporary Treasury Regulations indicate that these payments are not currently
subject to backup withholding.
Under current Treasury Regulations, payments of the proceeds of a sale of a
note or common stock to or through the U.S. office of a broker will be subject
to information reporting and backup withholding unless the payee certifies
under penalties of perjury as to his or her status as a Non-U.S. Holder and
satisfies certain other qualifications (and no agent of the broker who is
responsible for receiving or viewing such statement has actual knowledge that
it is incorrect) and provides his or her name and address or the payee
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
holder of a note or common stock will be allowed as a refund or credit against
such holder's U.S. federal income tax provided that the required information
is furnished to the IRS in a timely manner.
As noted above, new regulations will generally be applicable to payments
made after December 31, 2000. In general, these new regulations do not
significantly alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
reliance standards: Under these new regulations, special rules apply which
permit the shifting of primary responsibility for withholding to certain
financial intermediaries acting on behalf of beneficial owners. A holder of a
note or common stock should consult with its tax advisor regarding the
application of the backup withholding rules to its particular situation, the
availability of an exemption therefrom, the procedure for retaining such an
exemption, if available, and the impact of these new regulations on payments
made with respect to notes or common stock after December 31, 2000.
The preceding discussion of certain United States federal income tax
considerations is for general information only and is not tax advice.
Accordingly, each prospective investor should consult its own tax advisor as
to the particular U.S. federal, state and local tax consequences of
purchasing, holding and disposing of the notes and common stock of Ventro. Tax
advisors should also be consulted as to the U.S. estate and gift tax
consequences and the foreign tax consequences of purchasing, holding and
disposing of the notes and common stock of Ventro, as well as the consequences
of any proposed change in applicable laws.
87
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated March , 2000, the underwriters, for whom Morgan Stanley &
Co. Incorporated, FleetBoston Robertson Stephens Inc., Chase Securities Inc.
and Deutsche Bank Securities Inc. are acting as representatives, have
severally agreed to purchase, and we have agreed to sell to them, $300,000,000
aggregate principal amount of the notes at a purchase price of % of the
principal amount thereof, plus accrued interest, if any, from , 2000
to the date of payment and delivery. After the initial offering of the notes,
the offering price and other selling terms may from time to time be varied by
the representatives.
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the notes are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
notes offered in this prospectus, other than the notes covered by the
underwriters' over-allotment option described below, if any are taken.
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to an additional
$45,000,000 principal amount of the notes solely for the purpose of covering
over-allotments, if any. The underwriters may exercise this option solely for
the purpose of covering over-allotments, if any, made in connection with the
offering of the notes. To the extent this option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of the additional principal amount at
maturity of notes as the principal amount at maturity of the notes to be
purchased by the underwriters pursuant to the underwriting agreement bears to
the aggregate principal amount at maturity of notes to be purchased by all
underwriters pursuant to the underwriting agreement.
The underwriting agreement provides that we will indemnify the underwriters
against certain liabilities under the Securities Act.
The underwriters have advised us that they presently intend to make a
market in the notes as permitted by applicable laws and regulations. The
underwriters are not obligated, however, to make a market in the notes and any
market making may be discontinued at any time at the sole discretion of the
initial purchasers. Accordingly, no assurance can be given as to the liquidity
of, or trading markets for, the notes.
Ventro, each of its executive officers and directors and certain
significant stockholders (who, as of December 31, 1999, owned an aggregate of
approximately million shares of common stock) have agreed that they will
not (a) 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, lend, 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, or (b) enter into any swap or
other arrangement that transfers to another person, in whole or in part, any
of the economic consequences of ownership of the common stock, whether any
transaction described in clause (a) or (b) above is to be settled by delivery
of common stock or other securities, in cash or otherwise, for a 90-day period
after the date of the final prospectus related to this offering, without the
prior written consent of Morgan Stanley & Co. Incorporated, except that we
may, without such consent, (1) issue the notes or the common stock issuable
upon conversion of the notes on other notes outstanding on the date hereof and
(2) grant options or issue stock upon the exercise of outstanding stock
options pursuant to our stock option plans.
In order to facilitate the offering of the notes and the common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the notes of the common stock. Specifically, the
underwriters may over-allot in connection with the offering, creating a short
position in the notes for their own account. In addition, to cover over-
allotments or to stabilize the price of the notes and common stock, the
underwriters may bid for, and purchase, the notes or shares of common stock in
the open market. Finally, the underwriters may reclaim selling concessions
allowed to any underwriter or a dealer for distributing the notes in the
offering, if the underwriters repurchase previously distributed notes in
transactions to cover underwriter short
88
<PAGE>
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the notes and the common stock
above independent market levels. The underwriters are not required to engage
in these activities, and may end any of these activities at any time.
Some of the underwriters have engaged in transactions with and performed
various investment banking and other services for us in the past, and may do
so from time to time in the future.
89
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule as of December 31, 1998 and 1999, and for
the period from September 4, 1997 (inception) through December 31, 1997 and
for each of the two years in the period ended December 31, 1999, as set forth
in their report. We've included our financial statements and schedule 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.
Ernst & Young LLP, independent auditors, have audited Promedix's financial
statements as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999, as set forth in their report. Promedix's
financial statements are included in this prospectus and elsewhere in the
registration statement on Form S-1 in reliance on Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited SpecialtyMD's
financial statements as of December 31, 1998 and 1999 and for the period from
May 27, 1998 (inception) through December 31, 1998 and the year ended December
31, 1999, as set forth in their report. SpecialtyMD's financial statements are
included in this prospectus and elsewhere in the registration statement on
Form S-1 in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective September 2, 1998, Ernst & Young LLP was engaged as Ventro's
independent auditors and replaced other auditors who were dismissed as its
independent accountants on the same date. The decision to change auditors was
approved by Ventro's Board of Directors on September 2, 1998. Prior to
September 2, 1998, Ventro's former auditors issued a report on the period from
September 4, 1997 (inception) to December 31, 1997. The report of Ventro's
former auditors did not contain an adverse opinion or disclaimer of opinion
qualified or modified as to any uncertainty, audit scope or accounting
principle. In connection with the audit for the period from September 4, 1997
(inception) through December 31, 1997 and through September 2, 1998, there
were no disagreements with Ventro's former auditors on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
our former auditors, would have caused them to make reference thereto in their
report on the financial statements for such period. Ventro's former auditors
have not audited or reported on any of the financial statements or information
included in this prospectus. Prior to September 2, 1998, Ventro had not
consulted with Ernst & Young LLP on items that involved Ventro's accounting
principles or the form of audit opinion to be issued on our financial
statements.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Ventro by Davis Polk & Wardwell, Menlo Park, California. The underwriters have
been represented by Fenwick & West LLP, Palo Alto, California.
90
<PAGE>
WHERE TO FIND ADDITIONAL INFORMATION
Ventro files reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of these reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission:
<TABLE>
<CAPTION>
Judiciary Plaza Citicorp Center Seven World Trade Center
<S> <C> <C>
450 Fifth Street, N.W. 500 West Madison Street 13th Floor
Room 1024 Suite 1400 New York, New York 10048
Washington, D.C. Chicago, Illinois 60661
</TABLE>
Copies of these materials also can be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities
and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange
Commission maintains a website that contains reports, proxy statements and
other information regarding Ventro. The address of the Securities and Exchange
Commission website is http://www.sec.gov.
This prospectus does not contain all of the information set forth in the
registration statement because certain parts of the registration statement are
omitted as provided by the rules and regulations of the Securities and
Exchange Commission. You may inspect and copy the registration statement at
any of the addresses listed above.
91
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Combined Condensed Financial Statements
Summary.................................................................... F-2
Balance Sheet.............................................................. F-4
Statement of Operations.................................................... F-5
Notes to Financial Statements.............................................. F-6
Ventro Corporation
Report of Independent Auditors............................................. F-13
Consolidated Balance Sheets................................................ F-14
Consolidated Statements of Operations...................................... F-15
Consolidated Statements of Cash Flows...................................... F-16
Consolidated Statements of Stockholders' Equity............................ F-17
Notes to Consolidated Financial Statements................................. F-18
Promedix.com, Inc.
Report of Independent Auditors............................................. F-32
Balance Sheets............................................................. F-33
Statements of Operations................................................... F-34
Statements of Common Shareholders' Equity (Deficit)........................ F-35
Statements of Cash Flows................................................... F-36
Notes to Financial Statements.............................................. F-37
SpecialtyMD.com, Inc.
Report of Independent Auditors............................................. F-45
Balance Sheets............................................................. F-46
Statements of Operations................................................... F-47
Statement of Stockholders' Deficit......................................... F-48
Statements of Cash Flows................................................... F-49
Notes to Financial Statements.............................................. F-50
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
SUMMARY
The Ventro pro forma financial statements are based upon information set forth
in this prospectus and assumptions included in the accompanying notes.
The following unaudited pro forma combined financial information for Ventro
Corporation ("Ventro") gives effect to Ventro's acquisitions of Promedix.com
Inc. ("Promedix") and SpecialtyMD.com Corporation ("SpecialtyMD") through
mergers and exchanges of shares. The Promedix exchange ratio was determined by
dividing 12,057,298, the number of shares of Ventro common stock issued as a
result of this merger, by the number of shares of Promedix capital stock
outstanding (including all common stock and preferred stock) and the number of
shares of Promedix capital stock issuable upon exercise of outstanding
options, warrants and subordinated convertible notes to purchase Promedix
capital stock as of the closing date. The SpecialtyMD exchange rate was
determined by dividing 1,249,931, the number of shares of Ventro common shares
to be issued as a result of the merger by the number of shares of SpecialtyMD
capital stock (including all common stock, preferred stock, stock options and
warrants) outstanding. In addition, the pro forma financial statements give
effect to (i) the repayment and conversion of Promedix's subordinated
convertible notes, (ii) the sale of Promedix Series C preferred stock, (iii)
the completion of the sale of Pro Med Co. and (iv) the conversion of
Promedix's and SpecialtyMD's redeemable convertible preferred stock to common
stock.
The Unaudited Pro Forma Combined Condensed Statements of Operations for the
year ended December 31, 1999 reflects these transactions as if they had taken
place on January 1, 1999. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to these transactions as if they had taken place on
December 31, 1999.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Ventro's historical results of operations for 1999, with Promedix historical
results of operations for the year ended December 31, 1999 and SpecialtyMD
historical results of operations for the year ended December 31, 1999.
The Ventro/Promedix and the Ventro/SpecialtyMD mergers were consummated on
February 10, 2000, and will be accounted for under the purchase method of
accounting. Accordingly, Ventro's cost to acquire Promedix is calculated to be
$325,272,000 using a Ventro common stock price of $26.125 per share, which is
the average of the closing price per share during the period beginning three
days before and ending three days after September 21, 1999, the day the merger
was announced. Ventro's cost to acquire SpecialtyMD was calculated to be
$107,706,000 using a Ventro common stock price of $93.48 per share, which is
the average of the closing price per share during the period beginning three
days before and ending three days after December 13, 1999, the day the merger
was announced. The costs to acquire Promedix and SpecialtyMD was allocated to
the assets acquired and liabilities assumed according to their respective fair
values, with the excess purchase price being allocated to goodwill. The
purchase price allocations and adjustments made in connection with the
development of the Ventro Pro Forma Financial Statements are made pursuant to
an independent valuation of the assets and liabilities of the respective
companies.
The $323,807,000 pro forma excess of purchase price over net tangible assets
acquired from Promedix as of December 31, 1999 is being amortized over a
period of two to three years at a rate of $108,269,000 per year. Goodwill is
being amortized over a three-year life which Ventro believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
The $107,855,000 pro forma excess of purchase price over net tangible
SpecialtyMD assets acquired as of December 31, 1999 is being amortized over a
period of two to three years at a rate of $36,102,000 per year. Goodwill is
being amortized over a three-year life which Ventro believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
F-2
<PAGE>
The Ventro Pro Forma Financial Statements should be read in conjunction with
the related notes included in this document and the audited financial
statements and notes of Ventro, Promedix and SpecialtyMD included elsewhere in
this document.
The Ventro Pro Forma Financial Statements are not necessarily indicative of
what the actual financial results of the combined company would have been had
the transactions described above taken place on January 1, 1999, nor do they
purport to indicate results of future operations.
F-3
<PAGE>
VENTRO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Ventro
Ventro Promedix SpecialtyMD Adjustments Pro Forma
-------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 21,934 $ 312 $ 1,138 $ 5,000 (8) $ 28,384
-- (9)
Restricted cash........ -- -- 138 -- 138
Short-term
investments........... 81,161 -- -- -- 81,161
Accounts receivable,
net................... 12,414 -- 56 -- 12,470
Other current assets... 5,041 96 12 -- 5,149
Net current assets of
discontinued
operations............ -- 2,404 -- (2,404)(10) --
-------- -------- ------- -------- --------
Total current assets.. 120,550 2,812 1,344 2,596 127,302
Property and equipment,
net.................... 10,264 1,864 201 -- 12,329
Intangible and other
assets................. 33,119 61 36 323,807 (1) 445,378
107,855 (13)
(10,500)(12)
(4,000)(21)
(3,667)(11)
(1,333)(20)
Net non-current assets
of discontinued
operations............. -- 1,096 -- (1,096)(10) --
-------- -------- ------- -------- --------
Total assets.......... $163,933 $ 5,833 $1,581 $413,662 $585,009
======== ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 8,373 $ 718 $ 190 $ -- $ 9,281
Accrued compensation... 3,958 448 -- -- 4,406
Accrued expenses....... 25,720 1,036 162 -- 26,918
Deferred revenue....... -- -- 45 -- 45
Current portion of long
term liabilities...... 369 3,667 1,333 (3,667)(11) 369
(1,333)(20)
Subordinated
convertible notes..... -- 5,000 -- (5,000)(2) --
-------- -------- ------- -------- --------
Total current
liabilities.......... 38,420 10,869 1,730 (10,000) 41,019
Long term debt.......... 494 -- -- -- 494
Preferred stock......... -- 3,738 4,201 (3,738)(3) --
(4,201)(14)
Stockholders' equity:
Common stock........... 189,849 23,290 4,762 291,481 (4) 608,326
98,944 (15)
Deferred compensation.. (6,380) (15,745) (4,189) 15,745 (7) (6,380)
4,189 (17)
Notes receivable from
stockholders.......... (985) -- -- -- (985)
Accumulated deficit.... (57,465) (16,319) (4,923) 16,319 (5) (57,465)
4,923 (18)
-------- -------- ------- -------- --------
Total stockholders'
equity............... 125,019 (8,774) (4,350) 431,601 543,496
-------- -------- ------- -------- --------
Total liabilities and
stockholders'
equity............... $163,933 $ 5,833 $ 1,581 $413,662 $585,009
======== ======== ======= ======== ========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-4
<PAGE>
VENTRO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Ventro
Ventro Promedix SpecialtyMD Adjustments Pro Forma
-------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 30,840 $ -- $ 31 $ -- $ 30,871
Cost of revenues........ 29,306 -- -- 333 (6) 30,539
900 (16)
-------- -------- ------- --------- ---------
Gross profit.......... 1,534 -- 31 (1,233) 332
Operating Expenses:
Research and
development.......... 17,734 679 1,348 600 (6) 20,600
239 (16)
Sales and marketing... 23,024 1,933 1,458 1,200 (6) 27,723
108 (16)
General and
administrative....... 10,352 4,192 1,136 200 (6) 31,465
5,104 (16)
10,481 (19)
Amortization of
goodwill............. -- -- -- 105,936 (6) 135,688
29,752 (16)
Amortization of
deferred
compensation......... 1,992 5,013 352 -- 7,357
-------- -------- ------- --------- ---------
Total operating
expenses............. 53,102 11,817 4,294 153,620 222,833
-------- -------- ------- --------- ---------
Operating loss.......... (51,568) (11,817) (4,263) (154,853) (222,501)
Interest expenses....... (168) (348) (81) -- (597)
Interest income and
other, net............. 3,163 92 16 -- 3,271
-------- -------- ------- --------- ---------
Loss from continuing
operations............. $(48,573) $(12,073) $(4,328) $(154,853) $(219,827)
======== ======== ======= ========= =========
Basic and diluted loss
per share from
continuing operations.. $ (3.17) $ (3.46) $ (1.43) $ (10.96)
======== ======== ======= =========
Weighted average number
of shares outstanding.. 15,322 3,492 3,019 20,050
======== ======== ======= =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The Ventro Pro Forma Statements are based upon the financial statements of
Ventro, Promedix, and SpecialtyMD, combined and adjusted to give effect to:
(i) Ventro's acquisition of Promedix capital stock through a merger, (ii) the
repayment and conversion of Promedix's subordinated convertible notes, (iii)
conversion of Promedix's redeemable convertible preferred stock to common
stock, (iv) the sale of Promedix Series C preferred stock on February 9, 2000,
(v) the completion of the sale of Pro Med Co., (vi) Ventro's acquisition of
SpecialtyMD capital stock through a merger, and (vii) the conversion of
SpecialtyMD's convertible preferred stock to common stock.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to these
transactions as if they had taken place on December 31, 1999 and reflects the
total purchase costs of the fair value of assets and liabilities based on an
independent valuation. The Unaudited Pro Forma Combined Condensed Statements
of Operations for 1999 reflect these transactions as if they had taken place
on January 1, 1999.
On September 21, 1999, Ventro and Promedix entered into an Agreement and Plan
of Merger, as amended as of December 21, 1999 pursuant to which 12,057,298
shares of Ventro common stock was issued in exchange for the shares of
Promedix capital stock (including all common stock and preferred stock)
outstanding and issuable upon exercise of outstanding options, warrants and
subordinated convertible notes to purchase Promedix capital stock as of the
date of the merger. The merger is being accounted for using the purchase
method of accounting. Accordingly, Ventro's cost to acquire Promedix is
calculated to be $325,272,000 using a Ventro common stock price of $26.125 per
share, which is the average of the closing price per share during the period
beginning three days before and ending three days after September 21, 1999,
the day the merger was announced. On December 10, 1999, Ventro entered into an
agreement to acquire SpecialtyMD pursuant to which 1,249,931 shares of Ventro
common stock was issued in exchange for the shares of SpecialtyMD capital
stock (including all common stock and preferred stock as converted)
outstanding and issuable upon exercise of outstanding options and warrants to
purchase SpecialtyMD capital stock as of the closing date. The merger is being
accounted for using the purchase method of accounting. Ventro's cost to
acquire SpecialtyMD is calculated to be $107,706,000 assuming a Ventro common
stock price of $93.48 per share, which is the average of the closing price per
share during the period beginning three days before and ending three days
after December 13, 1999, the day the merger was announced. Both the
Ventro/Promedix merger and the SpecialtyMD acquisition were approved on
February 10, 2000.
The costs to acquire Promedix and SpecialtyMD are being allocated to the
assets acquired and liabilities according to their respective fair values,
with the excess purchase price being allocated to goodwill. The fair values of
the acquired assets and liabilities is based upon an independent valuation.
The pro forma excess of purchase price over net tangible assets acquired as of
February 10, 2000 is being amortized over two to three years at a rate of
$144,371,000 per year. Goodwill is being amortized over a three-year life
which Ventro believes is responsive to the rapid rate of change in the
Internet industry and is consistent with other recent mergers of a comparable
nature.
The Ventro Pro Forma Financial Statements should be read in conjunction with
the related notes included in this document and the audited financial
statements and notes of Ventro, Promedix, and SpecialtyMD included elsewhere
in this document.
The Ventro Pro Forma Financial Statements are not necessarily indicative of
what the actual financial results of the combined company would have been had
the transactions described above taken place on January 1, 1999 or December
31, 1999 nor do they purport to indicate results of future operations.
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
1. Below is a table of the acquisition cost, purchase price allocation and
annual amortization of the intangible assets acquired from Promedix (dollars
in thousands):
<TABLE>
<CAPTION>
Years of Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Acquisition Cost:
Purchase Price....................... $314,772
Acquisition Expenses................. 10,500
--------
Total Acquisition Cost.............. $325,272
========
Purchase Price Allocation:
Net tangible assets of Promedix at
December 31, 1999 after repayment
and conversion of subordinated
convertible notes................... $ (7,273)
Conversion of redeemable preferred
stock............................... 3,738
Sale of Series C stock subsequent to
December 31, 1999................... 5,000
--------
Pro forma net tangible assets of
Promedix at December 31, 1999....... 1,465
Intangible assets acquired:
Assembled workforce.................. 2,000 2 $ 1,000
Customer relationships............... 1,900 3 $ 633
Supplier relationships............... 2,100 3 $ 700
Goodwill............................. 317,807 3 $105,936
--------
Total............................... $325,272
========
</TABLE>
The unaudited pro forma combined condensed financial statements give effect to
the following pro forma adjustments:
Application of purchase accounting to the Promedix merger, reflecting the
acquisition cost noted above and the issuance of Ventro common stock.
Components of the acquisition cost reflect the following:
<TABLE>
<CAPTION>
Promedix Ventro Fair Value
Shares Shares (in thousands)
--------- ---------- --------------
<S> <C> <C> <C>
Outstanding shares.................... 7,664,672 9,693,304 $253,238
Sales of Series C preferred stock .... 176,429 223,125 5,829
Stock options......................... 1,013,511 1,281,710 33,260
Warrants.............................. 333,334 421,558 11,013
Subordinated convertible notes........ 346,020 437,601 11,432
--------- ---------- --------
Totals.............................. 9,533,966 12,057,298 $314,772
========= ========== ========
</TABLE>
. Acquisition of Promedix capital stock through an exchange of 1.2647
shares of Ventro common stock for each share of Promedix capital stock
or approximately 9,693,304 shares of Ventro common stock in the
aggregate. The purchase price was based upon approximately 9,693,304
Ventro shares, multiplied by a per share price of $26.125, the average
of the closing price per share during the period beginning three days
before and ending three days after September 21, 1999, the day the
merger was announced. The merger agreement provides for the merger of
Promedix with a wholly-owned subsidiary of Ventro, resulting in Promedix
becoming a wholly-owned subsidiary of Ventro.
. Conversion of approximately 176,429 shares of Promedix Series C
preferred stock related to Tenet Healthcare Corporation's investment in
Promedix subsequent to December 31, 1999, or approximately 223,125
shares of Ventro common stock, after giving effect to the 1.2647
exchange ratio in the merger. The purchase price was based upon a Ventro
common stock price of $26.125 multiplied by the 223,125 shares.
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
. Conversion of approximately 1,013,511 outstanding and unexercised
options exercisable for shares of Promedix common stock into options
exercisable for an aggregate of approximately 1,281,710 shares of Ventro
common stock having the same terms and conditions as the Promedix
options, after giving effect to the 1.2647 exchange ratio in the merger.
The fair value of the options assumed is based on the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Chemdex common stock closing price on September 21,
1999, the day the merger was announced, and three days prior and
subsequent to such date......................................... $26.125
Expected years until exercise.................................... 4
Expected stock volatility........................................ 100%
Risk free interest rate.......................................... 6%
Expected dividend rate........................................... --
</TABLE>
. Exercise of warrants to purchase 333,334 shares of Promedix's preferred
stock through the retirement of $500,000 of subordinated convertible
notes, or approximately 421,558 shares of Ventro common stock, after
giving effect to the 1.2647 exchange ratio in the merger. The purchase
price was based upon a Ventro common stock price of $26.125 multiplied
by the 421,558 shares.
. Conversion of approximately $1,000,000 of subordinated convertible notes
into 346,020 shares of Promedix preferred stock or approximately 437,601
shares of Ventro common stock, after giving effect to the 1.2647
exchange ratio in the merger. The purchase price was based upon Ventro
common stock share price of $26.125 multiplied by the 437,601 shares.
Components of the purchase price allocation listed above and reflected in
the Ventro Pro Forma Financial Statements include the following:
Tangible assets of Promedix to be acquired principally include cash,
current and other assets and property and equipment. Liabilities of
Promedix assumed in the Promedix merger principally include accounts
payable, accrued compensation and accrued expenses.
The value of customer and supplier relationships was derived by
attributing historical costs incurred, excluding technology development
costs, to each of the two respective relationships based upon Promedix
management's estimation of proportionate resources that had been
devoted to the development of each of the respective relationships. The
analysis yielded a valuation of approximately $4,000,000. The asset is
being amortized on a straight line basis over a three year period.
The value of the assembled workforce was derived by estimating the
costs to replace the existing employees, including recruiting and
hiring costs and training costs for each category of employee. The
analysis yielded a valuation of approximately $2,000,000 for the
assembled workforce. The asset is being amortized on a straight line
basis over a two year period.
The goodwill allocation is approximately $317,807,000. Amortization of
goodwill will occur over three years. Ventro believes that a three-year
life is responsive to the rapid rate of change in the Internet industry and
is consistent with other recent mergers of a comparable nature.
2. Promedix repaid $3,500,000 of the $5,000,000 subordinated convertible notes
from proceeds received from the sale of Pro Med Co. In addition, $1,000,000 of
the subordinated convertible notes was converted to 346,020 shares of Promedix
preferred stock, and $500,000 of the subordinated convertible notes was used
to pay for the exercise of the warrants to purchase 333,334 shares of Promedix
preferred stock.
3. The pro forma adjustment to "Redeemable convertible preferred stock"
reflects the conversion of Promedix's redeemable convertible preferred stock
($3,738,000) to common stock.
F-8
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
4. The pro forma adjustment to "Common stock" reflects the conversion of
redeemable convertible preferred stock to Promedix common stock ($3,738,000),
the conversion of $1,000,000 of the subordinated convertible notes to
preferred stock, exercise of Promedix warrants for 333,334 shares of Promedix
preferred and a $500,000 reduction in the subordinated convertible notes to
pay for the exercise price of the warrants, the sale of Promedix Series C
preferred stock for $5,000,000, and the issuance of Ventro common stock
($314,772,000) and the elimination of Promedix common stock ($33,528,000).
5. The pro forma adjustment to "Accumulated deficit" reflects the elimination
of Promedix's accumulated deficit.
6. The pro forma adjustment is for the amortization of goodwill, customer and
supplier relationships and assembled workforce.
7. The pro forma adjustment is to eliminate deferred compensation related to
Promedix stock options.
8. Promedix sold 176,429 shares of Series C preferred stock on February 9,
2000 for $5,000,000.
9. Promedix received $3,500,000 of proceeds on the sale of Pro Med Co.
Promedix is repaying $3,300,000 of the subordinated convertible notes and is
offsetting $200,000 of notes receivable from officers of Pro Med Co. against
the subordinated convertible notes.
10. The pro forma adjustment is for the elimination of the net assets of
discontinued operations.
11. The pro forma adjustment is to eliminate the note receivable and payable
between Ventro and Promedix.
12. The pro forma adjustment is to eliminate the Ventro deferred acquisition
charges for Promedix.
13. Below is a table of the acquisition cost, purchase price allocation and
annual amortization of the intangible assets acquired from SpecialtyMD
(dollars in thousands):
<TABLE>
<CAPTION>
Years of Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Acquisition Cost:
Purchase Price..................... $ 103,706
Acquisition Expenses............... 4,000
---------
Total Acquisition Cost............ $ 107,706
=========
Purchase Price Allocation:
Net tangible assets of SpecialtyMD
at December 31, 1999.............. $ (4,350)
Conversion of redeemable preferred
stock............................. 4,201
---------
Pro forma net tangible assets of
SpecialtyMD at December 31, 1999.. (149)
Intangible assets acquired:
Assembled workforce................ 900 2 $ 450
Developed Technology............... 2,700 3 $ 900
Non-compete agreements............. 15,000 3 $ 5,000
Goodwill........................... 89,255 3 $29,752
---------
Total............................. $ 107,706
=========
</TABLE>
F-9
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma combined condensed financial statements give effect to
the following pro forma adjustments:
Application of purchase accounting to the SpecialtyMD merger, reflecting the
estimated acquisition cost noted above and the issuance of Ventro common
stock. Components of the estimated acquisition cost reflect:
The purchase price is determined as follows:
<TABLE>
<CAPTION>
SpecialtyMD Ventro Fair Value
Shares Shares (in thousands)
----------- --------- --------------
<S> <C> <C> <C>
Outstanding shares................ 9,243,253 954,914 $ 89,265
Restricted stock subject to
repurchase....................... 1,358,000 140,298 13,101
Stock options..................... 1,331,583 137,540 12,835
Warrants.......................... 166,310 17,179 1,606
---------- --------- --------
12,099,146 1,249,931 116,807
Less shares contingent on
service.......................... (1,358,000) (140,298) (13,101)
---------- --------- --------
Totals........................ 10,741,146 1,109,633 $103,706
========== ========= ========
</TABLE>
. Conversion of SpecialtyMD capital stock through an exchange of 0.1033
shares of Ventro common stock for each share of SpecialtyMD outstanding
shares of common stock or approximately 954,914 shares of Ventro common
stock in the aggregate. The purchase price was based upon the
approximately 954,914 Ventro shares, multiplied by a per share price of
$93.48, the average of the closing price per share during the period
beginning three days before and ending three days after December 13,
1999, the day the merger was announced. The merger agreement provides
for the merger of SpecialtyMD with a wholly-owned subsidiary of Ventro,
resulting in SpecialtyMD becoming a wholly-owned subsidiary of Ventro.
. Conversion of approximately 1,358,000 shares of SpecialtyMD restricted
common stock subject to repurchase for an aggregate of approximately
140,298 shares of Ventro restricted common stock subject to repurchase,
under the same terms and conditions under the SpecialtyMD shares, after
giving effect to the 0.1033 exchange ratio in the merger. The fair value
of assumed shares of restricted stock subject to repurchase is based on
the Black-Scholes option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Ventro common stock closing price on December 13, 1999,
the day the merger was announced, and three days prior and
subsequent to such date.......................................... $93.48
Expected years until repurchase right lapse....................... 4
Expected stock volatility......................................... 100%
Risk free interest rate........................................... 6%
Expected dividend rate............................................ --
</TABLE>
F-10
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
. Conversion of approximately 1,331,583 outstanding and unexercised
options exercisable for shares of SpecialtyMD common stock into options
exercisable for an aggregate of approximately 137,540 shares of Ventro
common stock having the same terms and conditions as the SpecialtyMD
options, after giving effect to the 0.1033 exchange ratio in the merger.
The fair value of the options assumed is based on the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Ventro common stock closing price on December 10, 1999,
the day the merger was announced, and three days prior and
subsequent to such date.......................................... $93.48
Expected years until exercise..................................... 4
Expected stock volatility......................................... 100%
Risk free interest rate........................................... 6%
Expected dividend rate............................................ --
</TABLE>
. Conversion of approximately 166,310 outstanding and unexercised warrants
for shares of SpecialtyMD Series B preferred stock into warrants
exercisable for an aggregate of approximately 17,179 shares of Ventro
common stock having the same terms and conditions as the SpecialtyMD
warrants, after giving effect to the 0.1033 conversion ratio. The fair
value of the warrants assumed is based on the Black-Scholes option
pricing model using the following assumptions.
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Ventro common stock closing price on December 10, 1999,
the day the merger was announced, and three days prior and
subsequent to such date.......................................... $93.48
Expected years until exercise..................................... 10
Expected stock volatility......................................... 100%
Risk free interest rate........................................... 6.6%
Expected dividend rate............................................ --
</TABLE>
. Under EITF 95-8, "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in an Purchase Business
Combination," this arrangement is, in substance, compensation for post-
combination services rather than additional purchase price. The
President and Vice President of Business Development of SpecialtyMD are
exchanging 1,358,000 shares of outstanding common stock for 140,298
shares of Ventro common stock that will be subject to a repurchase
option in favor of Ventro in the event of termination of employment. The
repurchase option will be released over a fifteen-month period.
Components of the purchase price allocation listed above and reflected in
the Ventro Pro Forma Statements include the following:
Tangible assets of SpecialtyMD to be acquired principally include cash,
current and other assets and property and equipment. Liabilities of
SpecialtyMD assumed in the SpecialtyMD merger principally include
accounts payable and accrued expenses.
The value of the developed technology was derived by attributing
historical costs incurred, for all existing technology, taking into
account risks related to the characteristics and applications of the
technology, future markets, and assessments of the life cycle stage of
technology based upon SpecialtyMD management's estimation of
proportionate resources that had been devoted to the development of the
technology. The analysis yielded a valuation of approximately
$2,700,000 for technology which has reached technological feasibility
and therefore was capitalizable. The asset is being amortized on a
straight line basis over a three year period.
The value of the assembled workforce was derived by estimating the
costs to replace the existing employees, including recruiting and
hiring costs and training costs for each category of employee.
F-11
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The analysis yielded a valuation of approximately $900,000 for the
assembled workforce. The asset is being amortized on a straight line
basis over a two year period.
The value of the non-compete agreement was derived from a discounted
cash flow valuation with and without non-compete agreements. The
analysis yielded a valuation of approximately $15,000,000 which is
being amortized over a three year period.
The goodwill allocation is approximately $89,255,000. Amortization of
goodwill will occur over three years. Ventro believes that a three-year
life is responsive to the rapid rate of change in the Internet industry
and is consistent with other recent mergers of a comparable nature.
14. The pro forma adjustment to "Redeemable convertible preferred stock"
reflects the conversion of SpecialtyMD's redeemable convertible preferred
stock ($4,201,000) to common stock.
15. The pro forma adjustment to "Common stock" reflects the conversion of
redeemable convertible preferred stock to SpecialtyMD common stock
($4,201,000), the issuance of Ventro common stock ($103,706,000) and the
elimination of SpecialtyMD common stock ($8,963,000), includes the
redeemable preferred stock converted into common stock.
16. The pro forma adjustment is for the amortization of goodwill, developed
technology, non-compete agreements and assembled workforce.
17. The pro forma adjustment is to eliminate deferred compensation related
to SpecialtyMD stock options.
18. The pro forma adjustment to "Accumulated deficit" reflects the
elimination of SpecialtyMD's accumulated deficit.
19. The pro forma adjustment is to record the compensation expense related
to the vesting of the restricted stock over the 15 month period the
repurchase option lapses beginning January 1, 1999.
20. The pro forma adjustment is to eliminate the note receivable and
payable between Ventro and SpecialtyMD.
21. The pro forma adjustment is to eliminate the Ventro deferred
acquisition charges for SpecialtyMD.
F-12
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ventro Corporation
We have audited the accompanying consolidated balance sheets of Ventro
Corporation (formerly "Chemdex Corporation") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for the years ended December 31, 1999 and 1998 and for the
period from inception (September 4, 1997) through December 31, 1997. 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 consolidated financial position of Ventro
Corporation at December 31, 1998 and 1999, and the results of its operations
and its cash flows for the years ended December 31, 1998 and 1999 and for the
period from inception (September 4, 1997) through December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young
LLP
San Jose, California
February 7, 2000, except for
Note 18, as to which the date is
February 10, 2000 and
Note 19, as to which the date is March 1, 2000
F-13
<PAGE>
VENTRO CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 21,934 $ 5,990
Short-term investments.................................... 81,161 --
Accounts receivable, net of allowances for doubtful
accounts of $664 and $2 in 1999 and 1998, respectively... 12,414 32
Other current assets...................................... 5,041 287
-------- -------
Total current assets.................................... 120,550 6,309
Property and equipment, net................................. 10,264 1,558
Intangible and other assets, net............................ 33,119 301
-------- -------
Total assets............................................ $163,933 $ 8,168
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 8,373 $ 543
Accrued compensation...................................... 3,958 512
Accrued expenses.......................................... 25,720 760
Current obligations under capital lease................... -- 5
Current portion of notes payable.......................... 369 --
-------- -------
Total current liabilities............................... 38,420 1,820
Notes payable, less current portion......................... 494 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, 2,500 authorized; none outstanding....... -- --
Convertible preferred stock, $.0002 par value; none and
34,075 shares authorized as of December 31, 1999 and
1998; none and 11,446 shares issued and outstanding as of
December 31, 1999 and 1998............................... -- 2
Common stock, $.0002 par value; 175,000 shares authorized
as of December 31, 1999; 32,763 and 3,922 shares issued
and outstanding as of December 31, 1999 and 1998......... 7 1
Additional paid-in capital................................ 189,842 18,379
Deferred compensation..................................... (6,380) (2,992)
Notes receivable from stockholders........................ (985) (150)
Accumulated deficit....................................... (57,465) (8,892)
-------- -------
Total stockholders' equity.............................. 125,019 6,348
-------- -------
Total liabilities and stockholders' equity............ $163,933 $ 8,168
======== =======
</TABLE>
See accompanying notes to the financial statements.
F-14
<PAGE>
VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
Inception
(September 4,
December 31, 1997) through
----------------- December 31,
1999 1998 1997
-------- ------- -------------
<S> <C> <C> <C>
Net revenues.................................. $ 30,840 $ 29 $ --
Cost of revenues.............................. 29,306 22 --
-------- ------- ------
Gross profit................................ 1,534 7 --
Operating expenses:
Research and development(1)................. 17,734 3,439 197
Sales and marketing(2)...................... 23,024 3,247 86
General and administrative(3)............... 10,352 1,745 121
Amortization of deferred stock based
compensation............................... 1,992 372 --
-------- ------- ------
Total operating expenses.................. 53,102 8,803 404
-------- ------- ------
Operating loss................................ (51,568) (8,796) (404)
Interest expense.............................. (168) (2) --
Interest income and other, net................ 3,163 310 --
-------- ------- ------
Net loss...................................... $(48,573) $(8,488) $ (404)
======== ======= ======
Basic and diluted net loss per share.......... $ (3.17) $ (4.79) $(0.24)
======== ======= ======
Weighted average shares of common stock used
in computing basic and diluted net loss per
share........................................ 15,322 1,772 1,704
======== ======= ======
</TABLE>
- --------
(1) Excluding $737,000 and $138,000 in amortization of deferred stock based
compensation in 1999 and 1998, respectively.
(2) Excluding $916,000 and $171,000 in amortization of deferred stock based
compensation in 1999 and 1998, respectively.
(3) Excluding $339,000 and $63,000 in amortization of deferred stock based
compensation in 1999 and 1998, respectively.
See accompanying notes to the financial statements.
F-15
<PAGE>
VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
Inception
Year Ended (September 4,
December 31, 1997) through
------------------ December 31,
1999 1998 1997
--------- ------- -------------
<S> <C> <C> <C>
Operating activities:
Net loss..................................... $ (48,573) $(8,488) $ (404)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 1,749 301 7
Amortization of deferred compensation and
fair value of warrants..................... 4,884 372 --
Loss on disposition of property and
equipment.................................. -- 8 --
Issuance of common stock for services....... 637 -- --
Changes in operating assets and liabilities:
Accounts receivable........................ (12,382) (32) --
Other current assets....................... (4,124) (244) (43)
Other assets............................... (19,712) (240) (67)
Accounts payable........................... 7,830 361 182
Accrued compensation....................... 3,446 480 32
Accrued expenses........................... 24,960 706 54
--------- ------- ------
Net cash used in operating activities...... (41,285) (6,776) (239)
--------- ------- ------
Investing activities:
Sales of short-term investments.............. 20,410 6,593 --
Purchases of short-term investments.......... (101,571) (6,593) --
Purchases of property and equipment.......... (9,323) (1,614) (256)
Proceeds on sale of property and equipment... -- 25 --
Purchase of other assets..................... -- -- (10)
--------- ------- ------
Net cash used in investing activities...... (90,484) (1,589) (266)
--------- ------- ------
Financing activities:
Principal payments on capital lease
obligations................................. (5) (7) (1)
Principal payments on notes payable.......... (269) -- --
Net proceeds from issuance of preferred
stock....................................... 30,198 12,975 1,851
Issuance of common stock..................... 117,405 41 1
Payments of stockholders' notes receivable... 9 -- --
Proceeds from exercise of options............ 375 -- --
--------- ------- ------
Net cash provided by financing activities.. 147,713 13,009 1,851
--------- ------- ------
Net increase in cash and cash equivalents.... 15,944 4,644 1,346
Cash and cash equivalents at beginning of
period...................................... 5,990 1,346 --
--------- ------- ------
Cash and cash equivalents at end of period... $ 21,934 $ 5,990 $1,346
========= ======= ======
Supplemental disclosures of noncash
activities:
Issuance of shares in exchange for
stockholders' notes receivable, net......... $ 844 $ 150 $ --
========= ======= ======
Equipment purchased under capital lease or
note payable................................ $ 1,132 $ -- $ 13
========= ======= ======
Issuance of common stock for intangible
assets...................................... $ 15,692 $ -- $ --
========= ======= ======
Issuance of warrants......................... $ 936 $ -- $ --
========= ======= ======
Supplemental disclosures of cash flow
information:
Cash paid for interest....................... $ 117 $ 3 $ --
========= ======= ======
Cash paid for taxes.......................... $ -- $ 2 $ --
========= ======= ======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock Common Stock Additional Total
--------------- ------------- Paid-In Deferred Notes Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Receivable Deficit Equity
------- ------ ------ ------ ---------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
preferred stock at
$0.6994 per share, net
of issuance costs...... 2,696 $ 1 -- $ -- $ 1,850 $ -- $ -- $ -- $ 1,851
Issuance of common stock
to founders on
incorporation.......... -- -- 2,570 1 -- -- -- -- 1
Net loss................ -- -- -- -- -- -- -- (404) (404)
------- ---- ------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1997................... 2,696 1 2,570 1 1,850 -- -- (404) 1,448
Issuance of Series A
preferred stock at
$0.6994 per share, net
of issuance costs...... 100 -- -- -- 45 -- -- -- 45
Issuance of Series B
preferred stock at
$1.50 per share, net of
issuance costs......... 8,650 1 -- -- 12,929 -- -- -- 12,930
Exercise of stock
options, net of
repurchases............ -- -- 1,352 -- 191 -- (150) -- 41
Deferred compensation
relating to stock
options................ -- -- -- -- 3,364 (3,364) -- -- --
Amortization of deferred
compensation relating
to stock options....... -- -- -- -- -- 372 -- -- 372
Net loss................ -- -- -- -- -- -- -- (8,488) (8,488)
------- ---- ------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1998................... 11,446 2 3,922 1 18,379 (2,992) (150) (8,892) 6,348
Issuance of Series C
preferred stock at
$5.716 per share, net
of issuance costs...... 5,300 1 -- -- 30,197 -- -- -- 30,198
Conversion of preferred
shares into common
stock upon Initial
Public Offering........ (16,746) (3) 16,746 3 -- ---- -- -- --
Issuance of shares upon
Initial Public
Offering, net of
issuance costs......... -- -- 8,625 2 117,403 -- -- -- 117,405
Issuance of common
stock.................. -- -- 2,726 1 15,691 -- -- -- 15,692
Exercise of stock
options, net of
repurchases............ -- -- 744 -- 1,856 -- (844) -- 1,012
Deferred compensation
relating to stock
options................ -- -- -- -- 5,380 (5,380) -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- 1,992 -- -- 1,992
Issuance of warrants.... -- -- -- -- 936 -- -- -- 936
Payment on notes
receivable............. -- -- -- -- -- -- 9 -- 9
Net loss................ -- -- -- -- -- -- -- (48,573) (48,573)
------- ---- ------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1999................... -- $ -- 32,763 $ 7 $189,842 $(6,380) $(985) $(57,465) $125,019
======= ==== ====== ==== ======== ======= ===== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. Description of Business
Ventro Corporation ("the Company," "Ventro" or "we"), formerly known as
Chemdex Corporation, is a leading builder and operator of vertical marketplace
companies that transact with enterprises, buyers and suppliers to enable them
to streamline business processes, enhance productivity and reduce costs.
Ventro marketplace companies offer complete e-commerce solutions consisting of
extensive online marketplaces, electronic procurement, the systems integration
needed to interface with third party and back office systems, and
comprehensive services and support. Ventro was incorporated as Chemdex
Corporation in Delaware on September 4, 1997. Ventro was created in February
2000 to leverage the corporate assets originally developed in our Chemdex life
sciences business.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include all the accounts of the Company
and those of its wholly-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
Net revenues includes gross revenues from sales of products and related
shipping fees, net of discounts and provisions for sales returns and other
allowances. We generally refund all or a portion of the selling price,
including related shipping fees, if applicable, in the event the customer is
not satisfied with the product purchased Sales returns and allowances have not
been significant to date.
Ventro generally acts as a principal when we purchase products from suppliers
and resell them to customers. Our products are shipped directly to customers
using third party carriers. Under principal based agreements, we obtain and
validate a customers order, purchase the product from a manufacturer or
supplier at a negotiated price, arrange for shipment of products, establish
the total purchase price of our products and shipping fees, collect payment
from customers, ensure that products reach customers, and process returns. In
addition, we contractually take title to products upon shipment and bear the
risk of loss for collection, delivery and product returns from customers.
To date, an insignificant amount of our revenue is derived from agreements
with supplies for which we act as an agent and simply facilitate a customer's
order. Under agency based agreements with suppliers and distributors, we
recognize a percentage share of revenues generated when products are shipped
to customers.
For 1999 sales to four significant customers accounted for approximately 27%,
13%, 12% and 11%, respectively. There were no sales to customers outside the
United States since inception through December 31, 1999.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management
determines the appropriate classification of debt and equity securities at the
time of purchase and re-evaluates such designation as of each balance sheet
date. Marketable securities are
F-18
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
classified as available-for-sale and are carried at fair value with material
unrealized gains and losses, if any, included in stockholders' equity.
Realized gains and losses on available-for-sale securities are included in
interest income.
Capitalized Software
The Company expenses costs related to the research and development of new
software products and enhancements to existing software products as incurred
until technological feasibility (in the form of a working model) of the
product has been established, at which time such costs are capitalized,
subject to expected recoverability. To date, Ventro has not capitalized any
development costs related to software products since the time period between
technological feasibility and general release of a product has not been
significant and related costs incurred during that time period have not been
material.
Internal Use Software
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued SOP 98-1, Accounting for Costs of Computer Software Developed or
Obtained for Internal Use, ("SOP 98-1"). SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use, including the requirements to capitalize specified costs and
amortization of these costs. The Company adopted SOP 98-1 on January 1, 1999.
Property and Equipment
Ventro records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of three to five
years. Property under capital leases is depreciated over the lesser of the
useful lives of the assets or lease term.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation
expense is recognized over the vesting period based on the difference, if any,
on the date of grant between the deemed fair value for accounting purposes of
the Company's stock and the exercise price on the date of grant. The Company
accounts for stock issued to non-employees in accordance with the provisions
of SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.
Advertising Costs
Advertising costs are charged to expense when incurred. Advertising expense
was $5,465,000 and $787,000 for the years ended December 31, 1999 and 1998,
respectively. No advertising expense was incurred for the period from
September 4, 1997 (inception) through December 31, 1997.
Accumulated Other Comprehensive Income
SFAS No. 130 Reporting Comprehensive Income, establishes standards of
reporting and display of comprehensive income and its components of net income
(loss) and "Other Comprehensive Income" in a full set of general purpose
financial statements. "Other Comprehensive Income" refers to revenues,
expenses, gains and losses that are not included in net income (loss) but
rather are recorded directly in stockholders' equity. Comprehensive loss is
the same as net loss.
F-19
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Segment Information
During the year ended December 31, 1998 we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131"). FAS 131 changes the way companies report
selected segment information in annual financial statements and requires
companies to report selected segment information in interim financial reports
to stockholders.
Ventro operates solely in one operating segment, the development and marketing
of an online marketplace for the purchase and sale of products and, therefore
there is no impact to Ventro's financial statements of adopting FAS 131.
Net Loss Per Share
Net loss per share is presented in accordance with the requirements of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128) which requires dual presentation of basic earnings per share ("EPS") and
diluted EPS.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares and potentially
dilutive shares outstanding during the period. If Ventro had reported net
income, diluted earnings per share would have included the shares used in the
computation of basic net loss per share as well as an additional 2.1 million,
0.5 million and no common share equivalent related to the outstanding options
and warrants (determined using the treasury stock method) for the period ended
December 31, 1999 and 1998, and the period from inception (September 4, 1997)
through December 31, 1997, respectively. These options and warrants could
potentially dilute basic earnings per share in the future but have not been
included in the computation of diluted net loss per share as the impact would
have been antidilutive for the periods presented.
The following table presents the calculation of basic and diluted net loss per
common share as of December 31 (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Net loss............................................ $(48,573) $(8,488) $ (404)
======== ======= ======
Basic and diluted:
Weighted-average shares of common stock
outstanding...................................... 17,446 3,243 2,570
Less: weighted-average common shares subject to
repurchase....................................... (2,124) (1,471) (866)
-------- ------- ------
Weighted-average shares used in computing basic and
diluted net loss per common share.................. 15,322 1,772 1,704
======== ======= ======
Basic and diluted net loss per common share......... $ (3.17) $ (4.79) $(0.24)
======== ======= ======
</TABLE>
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
Because the Company does not currently hold any derivative instruments and
does not engage in hedging activities, the Company expects the adoption of
SFAS No. 133 will not have a material impact on its financial position,
results of operations or cash flows. The Company will be required to adopt
SFAS No. 133 in 2001 in accordance with SFAS No. 137, which delayed the
required implementation of SFAS No. 133 for one year.
F-20
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
3. Concentration of Credit Risk and Other Risks
Financial instruments that potentially subject Ventro to credit risk consist
primarily of uninsured cash and cash equivalents. Cash and cash equivalents
are deposited with a federally insured commercial bank in the United States.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Ventro analyzes the need for reserves for
potential credit losses and records reserves when necessary. These losses have
been within management's expectations. To date, the Company has not had
significant write-offs of bad debt.
4. Investments
The following is a summary of available for sale securities as of December 31,
1999 (in thousands):
<TABLE>
<S> <C>
Commercial paper.................................................. $52,441
Corporate notes................................................... 28,720
-------
Total short-term investments.................................... $81,161
=======
</TABLE>
5. Property and Equipment
Property and equipment consisted of the following as of December 31, (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Computer equipment and purchased software................. $ 6,751 $1,042
Furniture and equipment................................... 951 299
Purchased software........................................ 2,746 456
Leased equipment and software............................. 1,145 13
Leasehold improvements.................................... 706 34
------- ------
12,299 1,844
Less accumulated depreciation and amortization............ (2,035) (286)
------- ------
$10,264 $1,558
======= ======
</TABLE>
6. Intangible and Other Assets
Intangible and other assets were comprised of the following as of December 31,
(in thousands):
<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
Deposits and other............................................... $ 512 $301
VWR related intangible, net of accumulated amortization of $2,318
in 1999 ........................................................ 11,592 --
BIO related intangible, , net of accumulated amortization of $267
in 1999......................................................... 1,515 --
Notes receivable from Promedix and Specialty MD.................. 5,000 --
Deferred acquisition costs....................................... 14,500 --
------- ----
Total intangible and other assets.............................. $33,119 $301
======= ====
</TABLE>
F-21
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
7. Accrued Expenses
Accrued expenses were comprised of the following as of December 31, (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
Accrued acquisition costs.................................... $14,500 $ --
Accrued marketing expenses................................... 2,630 200
Other accrued liabilities.................................... 8,590 560
------- ----
Total accrued expenses..................................... $25,720 $760
======= ====
</TABLE>
8. Commitments and Contingencies
Ventro leases its office facilities under non-cancelable operating leases
expiring through 2005. Minimum annual operating lease commitments as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000.............................................................. $ 4,607
2001.............................................................. 4,910
2002.............................................................. 5,048
2003.............................................................. 5,199
2004.............................................................. 4,123
Thereafter........................................................ 703
-------
Total minimum lease payments.................................... $24,590
=======
</TABLE>
In November 1999, the Company entered in a new facilities sublease agreement
for its former headquarters. The sublease term commenced on December 1, 1999
and will end on December 31, 2003. Sublease receipts for the Company will be
received on an escalating basis with the total future minimum sublease
receipts amounting to approximately $4,580,000 over the lease term. The
sublease receipts are not included in the above table.
Rental expense for the years ended December 31, 1999 and 1998 and for the
period from inception through December 31, 1997, was $1,488,000, $343,000 and
$14,000, respectively.
In August 1999, the Company established three letters of credit to secure our
facility rental agreement with a lending company for $160,000, $625,000, and
$1,875,000. The $160,000 letter of credit expires on August 16, 2000. The
$625,000 and $1,875,000 letters of credit are automatically renewed each July
31 until they expire on July 31, 2004.
The Company was and continues to be involved in certain legal matters.
Although litigation is subject to inherent uncertainties and the ultimate
outcome of these proceedings cannot be determined at this time, management,
including internal counsel, does not believe that the ultimate outcome will
have a material adverse effect on Ventro's financial position or overall
trends in results of operations.
9. Financing Arrangements
In January 1999, Ventro entered into a $3,000,000 equipment lease line
agreement with a financial institution for a term of 48 months, with interest
imputed at 13.02% per year. At December 31, 1998 and 1999, Ventro had no
outstanding borrowings under the equipment lease line.
In February 1999, Ventro entered into a financing arrangement in the amount of
$1,132,000 for the purchase of certain computer software and related support.
This arrangement provides for 12 equal quarterly payments of the financed
amount commencing May 1, 1999, with interest imputed at 13.24% per year.
F-22
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
As of December 31, 1999, aggregate future minimum payments under the one
financing agreement which has been drawn upon are (in thousands):
<TABLE>
<S> <C>
2000................................................................ $ 369
2001................................................................ 369
2002................................................................ 125
-----
Total Payments.................................................... 863
Less Current portion................................................ (369)
-----
Long-term portion................................................... $ 494
=====
</TABLE>
10. Stockholders' Equity
Preferred Stock
The Board of Directors has the authority, within the limitations and
restrictions in the amended and restated certificate of incorporation, to
issue 2,500,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of any series, without further vote
or action by the stockholders.
Warrants
In January 1999, in connection with an equipment lease line, Ventro issued a
fully vested warrant that entitles the holder to purchase 105,000 shares of
the Ventro's Series B preferred stock at an exercise price of $1.50 per share.
This warrant is exercisable through January 2006. The fair value of this
warrant, approximately $353,000 is being expensed as a cost of financing over
the four year period of the lease line. The fair value of this warrant was
calculated using the Black-Scholes option pricing model.
In March 1999, Ventro issued a fully vested, non-forfeitable warrant in
exchange for consulting services. The warrant entitles the holder to purchase
49,999 shares of Ventro's common stock at an exercise price of $5.20 per
share. This warrant is exercisable through July 27, 2001. The fair value of
this warrant, approximately $208,000, was expensed over the six month period
of the consulting agreement. The fair value of this warrant was calculated
using the Black-Scholes option pricing model.
In July 1999, the Company issued a fully-vested, non-forfeitable warrant that
entitles the holder to purchase 25,000 shares of Ventro's common stock at an
exercise price of $15.00 per share, in connection with a lease agreement. This
warrant is exercisable until July 2004. The fair value of this warrant,
approximately, $375,000, is being expensed over the term of the lease. The
fair value of this warrant was calculated using the Black-Scholes option
pricing model.
Common Stock
As of December 31, 1999 and 1998, 1,514,000 and 1,943,000 shares,
respectively, were subject to repurchase. The stock vests over a period of
four years.
On July 27, 1999 the Company completed an initial public offering in which it
sold 7,500,000 shares of common stock, at $15.00 per share. On August 17,
1999, the underwriters' exercised their over-allotment option to
F-23
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
purchase an additional 1,125,000 shares. The Company received $117.4 million
in proceeds, net of underwriting discounts, commissions and other offering
costs. Upon the closing of the offering, all of the Company's preferred stock,
par value $.0002 per share, automatically converted into an aggregate of
16,745,593 shares of Common Stock.
Stock Option Plans
1998 Stock Plan
General. Our 1998 Stock Plan provides for the granting of stock options and
stock purchase rights to eligible employees, officers, directors, including
non-employee directors, and consultants of Ventro. Stock options granted under
the 1998 Stock Plan may be either "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, or non-
statutory stock options, which are options not intended to qualify as
incentive stock options. Stock purchase rights granted under the 1998 Stock
Plan allow a recipient to purchase shares of common stock directly from
Ventro. Incentive stock options may be granted to employees, officers and
employee directors of Ventro and nonstatutory stock options and stock purchase
rights may be granted to employees, officers, directors and consultants.
As of December 31, 1999, 2,693,000 shares of common stock were issuable upon
the exercise of outstanding options granted under the 1998 Stock Plan at a
weighted average exercise price of $17.30. For the fiscal year ended December
31, 1999, 839,000 shares of common stock have been issued upon exercise of
options or pursuant to stock purchase rights at exercise or purchase prices
ranging between $1.50 and $66.50, net of repurchases, and 1,241,766 shares of
common stock remained available for future issuance under the 1998 Stock Plan.
The 1998 Stock Plan was originally adopted by the Board of Directors in
January 1998 and approved by the stockholders in March 1998. In May 1999 the
Board of Directors authorized an automatic annual increase on the first day of
each of our fiscal years beginning in 2000, 2001, 2002, 2003, and 2004 equal
to the lesser of 1,250,000 shares, 3% of our outstanding common stock on the
last day of the preceding fiscal year or a lesser number determined by our
Board of Directors. Unless terminated earlier by our Board of Directors, the
1998 Stock Plan will terminate in January 2008.
1999 Directors' Stock Plan
Our 1999 Directors' Stock Plan was adopted by the Board of Directors in May
1999 and was approved by the stockholders in July 1999. The directors' Plan
provides for the grant of nonstatutory stock options to non-employee directors
of Ventro.
The Directors' Plan provides that each person who is or becomes a non-employee
director of Ventro will be granted a non-statutory stock option to purchase
12,500 shares of common stock on the later of the date on which the optionee
first becomes a non-employee director of Ventro or the effective date of the
registration statement for this offering. Thereafter, on the date of Ventro's
Annual Stockholders Meeting each year, each non-employee director of Ventro
will be granted an additional option to purchase 5,000 shares of common stock
if, on that date, he or she has served on Ventro's Board of Directors for at
least six months.
The Directors' Plan provides that each option granted under the directors'
Plan shall vest and become exercisable in full immediately upon grant of the
option. The exercise price of all stock options granted under the Directors'
Plan shall be equal to the fair market value of a share of Ventro's common
stock on the date of grant of the option. Options granted under the Directors'
Plan have a term of ten years.
F-24
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The Board of Directors may amend or terminate the Directors' Plan; provided,
however, that none of these actions may not adversely affect any outstanding
option. The Company will obtain stockholder approval for any amendment to the
extent required by applicable law. If not terminated earlier, the Directors'
Plan will have a term of ten years.
As of December 31, 1999 100,000 shares of common stock were issuable upon the
exercise of outstanding options granted under the 1999 Stock Plan at a
weighted average exercise price of $20.19 per share. During 1999 25,000 shares
of common stock were exercised at a weighted average exercise price of $15.00
per share. As of December 31, 1999, 125,000 shares of common stock remained
available for future issuance under the 1999 Directors' Stock Plan.
1999 Employee Stock Purchase Plan
Ventro's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors in May 1999 and was approved by the stockholders in July 1999. A
total of 750,000 shares of common stock was initially reserved for issuance
under the purchase plan, as well as an automatic annual increase on the first
day of each of Ventro's fiscal years beginning in 2000, 2001, 2002, 2003 and
2004 equal to the lesser of 200,000 shares, or 1/2% of Ventro's outstanding
common stock on the last day of the immediately preceding fiscal year. No
shares have been issued under the 1999 Employee Stock Purchase Plan as of
December 31, 1999.
The Purchase Plan permits eligible employees to purchase common stock through
payroll deductions. Employees may end their participation in the offering at
any time during the offering period, and participation end automatically on
termination of employment. If not terminated earlier, the Purchase Plan will
have a term of 20 years.
Accounting for Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation."
For purposes of the SFAS No. 123 disclosure, the fair value of all grants made
prior to the Company's initial public offering in July 1999, the fair value of
these options was determined using the minimum value method, which assumes no
volatility. The fair value for the options granted subsequent to the Company's
initial public offering was estimated at the date of grant using a Black-
Scholes option pricing model. The fair value of the Company's stock based
awards was estimated assuming no expected dividends and the following
weighted-average assumptions: expected life of four years, risk-free interest
rate of 6.66% and volatility of 1.0.
F-25
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
If SFAS No.123 were used to account for the Company's stock based compensation
programs, the pro forma net loss per share would be as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Period from
Inception
Years Ended (September 4,
December 31, 1997) through
----------------- December 31,
1999 1998 1997
-------- ------- -------------
<S> <C> <C> <C>
Net loss:
As reported............................. $(48,573) $(8,488) $(404)
Pro forma............................... $(52,114) $(8,495) $(404)
Basic and diluted net loss per share:
As reported............................. $ (3.17) $ (.85) $ --
Pro forma............................... $ (3.40) $ (.85) $ --
</TABLE>
Stock option activity for all our stock plans was as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998
----------------- -----------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.......... 509 --
Granted................................... 3,579 $14.28 1,979 $0.16
Exercised................................. (1,142) $ 1.40 (1,419) $0.12
Canceled.................................. (153) $ 6.40 (51) $0.12
------ ------
Outstanding at end of period................ 2,793 $17.40 509 $0.14
====== ======
Exercisable at end of period................ 119 509
====== ======
</TABLE>
The following table summarizes information about stock options outstanding as
of December 31, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------- ----------------------
Weighted-
Average
Remaining Weighted- Weighted-
Range of Number Contractual Average Number Average
Exercise of Life Exercise of Exercise
Prices Shares (years) Price Shares Price
------------- ------ ----------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$ 1.50-5.00 925 9.24 $ 3.43 16 $ 2.13
$10.00 904 9.45 $10.00 3 $10.00
$15.00-33.875 736 9.75 $28.79 88 $15.00
$56.50 12 9.86 $56.50 12 $56.50
$66.50 216 9.92 $66.50 -- --
----- ---
2,793 9.50 $17.40 119 $17.47
===== ===
</TABLE>
F-26
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
11. Deferred Stock-based Compensation
The Company recorded deferred compensation for options granted in fiscal year
ended December 31, 1998 and 1999, for the difference at the option grant date
between the exercise price and the fair value of the common stock underlying
the options in accordance with FASB Interpretation No. 28. As of December 31,
1999 the Company had recorded aggregate deferred stock compensation of $ 8.7
million. The deferred stock compensation is being amortized over the vesting
periods of the stock options. The Company recognized a total of $ 2.0 million
and $400,000 in stock compensation expense during the year ended December 31,
1999 and 1998, respectively. The total charges to be recognized in future
periods from amortization of deferred stock compensation as of December 31,
1999 are anticipated to be approximately (in millions), $2.2, $2.2, $1.8 and
$0.2, for 2000, 2001, 2002 and 2003, respectively.
12. Employee Savings and Retirement Plan
Ventro has a 401(k) Plan that allows eligible employees to contribute up to
15% of their salary, subject to annual limits. Under the plan, eligible
employees may defer a portion of their pretax salaries but not more than
statutory limits. Ventro may make discretionary contributions to the plan
based on profitability as determined by the Board of Directors. Ventro did not
make any contributions to the plan during the years ended December 31, 1999
and 1998.
13. Income Taxes
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the federal statutory rate of
35% is due to net operating losses having a valuation allowance, due to past
operating results and uncertainties regarding Ventro's future results of
operations. Accordingly, there is no provision for income taxes for the years
ended December 31, 1999 and December 31, 1998 and for the period from
September 4, 1997 (inception) through December 31, 1997.
As of December 31, 1999, Ventro had federal and state net operating loss
carryforwards of approximately $54.0 million and $54.0 million, respectively.
Ventro also had federal and state research credit carryforwards of
approximately $0.7 million and $0.6 million, respectively. The net operating
loss and research credit carryforwards will expire at various dates beginning
in 2002 through 2019, if not utilized. The net operating loss carryforwards
differ from the accumulated deficit primarily as a result of certain reserves
and accruals not currently deductible for tax purposes. Utilization of the net
operating losses and credits 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 net operating losses and credits before
utilization. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Ventro's deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
As of December
31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 21,500 $ 3,000
Research credit carryforwards......................... 1,100 200
Reserves and accruals................................. 300 300
-------- -------
Total deferred tax assets........................... 22,900 3,500
Valuation allowance..................................... (22,900) (3,500)
-------- -------
Net deferred tax assets............................. $ -- $ --
======== =======
</TABLE>
F-27
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Under FAS 109, Accounting for Income Taxes, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Based upon the weight of available evidence, which includes Ventro's
historical operating performance, the reported net losses for the period from
inception through December 31, 1997 and for the years ended December 31, 1998
and December 31, 1999, and the uncertainties regarding Ventro's future results
of operations, a full valuation allowance has been provided against its net
deferred tax assets. It is not more likely than not that the deferred tax
assets will be realized. The valuation allowance increased by $19,400,000
during 1999 and $3,327,000 during 1998.
14. Agreement with VWR
In March 1999, Ventro entered into a strategic relationship agreement with
VWR, which was consummated in April 1999, pursuant to which Ventro and VWR
agreed to market jointly VWR laboratory products using the Chemdex
Marketplace. The term of the agreement is four years.
The agreement gives Ventro the right to offer approximately 350,000 VWR-
distributed products to Ventro customers and both parties agreed to jointly
develop an online purchasing solution for VWR's existing customers. In
connection with the strategic relationship agreement, VWR transferred to
Ventro information concerning VWR customers who purchased products from third
party suppliers outside VWR's primary product offering and Ventro issued
2,538,405 shares of common stock valued at $13.9 million to VWR. The Company
intends to use this information to expand sales of its purchasing solution to
these customers and facilitate adoption of the Chemdex Marketplace by these
customers and suppliers. The fair value of the common stock of $13.9 million
was allocated to the customer list and is being amortized into sales and
marketing expense over four years, the estimated useful life of the intangible
asset.
15. Agreement with Biotechnology Industry Organization ("BIO")
In May 1999, the Biotechnology Industry Organization selected Ventro as its
preferred supplier of e-commerce purchasing solutions. As a result, the
Company entered into a five-year, exclusive joint marketing agreement with
BIO. As part of the joint marketing agreement, Ventro will discount the fees
it charges to BIO members for its solution and will contribute cash payments
to a joint marketing fund, to be used in conjunction with both parties'
obligations under the joint marketing agreement. In addition, the Company sold
188,000 shares of its common stock to BIO for a nominal amount in
consideration for BIO's participation in these marketing activities. BIO has
the right to use a portion of the cash payments and any proceeds it receives
from the sale of the common stock for the benefit of its members and the
biotechnology industry. The charge for BIO marketing activities will be
expensed to sales and marketing as incurred. The Company recorded the
difference between the nominal amount per share price paid by BIO for the
purchase of our common stock and the fair value as of May 11, 1999, which is
approximately $1.8 million as an intangible asset, which is being amortized
ratably over the five-year term of the joint agreement.
16. Investment in Broadlane with Tenet Healthcare Corporation
On December 13, 1999, Ventro and Tenet Healthcare Corporation ("Tenet")
announced the formation of Broadlane, to provide business-to-business e-
commerce solutions to the healthcare industry. Broadlane is an independent
entity, with its own management team and board of directors. Tenet, through
its subsidiaries, owns and operates acute care hospitals and numerous related
health care services. In exchange for 76% ownership of Broadlane's capital
stock Tenet will provide Broadlane access to the benefits of its existing
buyer and supplier contracts of its BuyPower organization, which serves as a
group purchasing organization for Tenet's hospitals
F-28
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
and other members. In exchange for 24% ownership of Broadlane's capital stock,
Ventro will license its technology to Broadlane for use within the healthcare
industry and provide service and support functions at cost. As the licensed
technology has no recorded value on Ventro's financial statements, it
initially will have no recorded value on Broadlane's financial statements. In
addition, IBM has entered into a strategic alliance with Broadlane in which
IBM Global Services will provide implementation, integration and e-commerce
services to Broadlane's customers and suppliers.
Broadlane will offer its e-commerce technology to other group purchasing
organizations and their members to support their own proprietary contracts.
While Broadlane will initially focus on the hospital market, Broadlane
eventually plans to expand its e-commerce solution to the long-term care and
outpatient markets as well.
In December, 1999 Promedix.com ("Promedix") (see Note 18) and Tenet Healthcare
Corporation agreed to enter into an agreement whereby, Promedix will be the
exclusive provider to Tenet of e-commerce solutions for the purchase of
specialty medical products.
17. Related Party Transactions
VWR's former president and Chief Executive Officer is a director of the
Company. In addition, VWR owns 2,538,405 shares of common stock of the
Company. VWR and Ventro jointly market VWR core products and Ventro core
products to VWR's existing and new customers and jointly solicit several key
existing VWR suppliers. VWR currently performs some of the billing and cash
collection functions for the sale of jointly marketed products until these
functions can be transitioned to Ventro. With respect to sales of VWR core
products, Ventro act's as an intermediary and forward orders received through
the Chemdex Marketplace to VWR for fulfillment and customer service. The
Company receives no fee for orders for VWR core products from VWR's 40 largest
customers and the Company receives a minimal fee for all other orders for VWR
core products forwarded to VWR. Ventro is responsible for fulfillment and
customer service for all Ventro core product and orders for third party
products received from VWR customers through the Chemdex Marketplace. Under
the terms of the agreement, VWR provides support for the purchase of third
party products in return for a fee which approximates VWR's costs incurred. As
of December 31, 1999 the Company had accounts payable of $7.6 million owed to
VWR.
CMGI and/or its affiliates beneficially own 2,740,857 shares of Ventro common
stock, representing approximately 8.4% of the outstanding Ventro common stock,
and 3,997,000 shares of Promedix (see Note 18) preferred stock, representing
approximately 23.7% of the outstanding Promedix capital stock. Following
consummation of the merger with Promedix, CMGI and its affiliates will
beneficially own approximately 17.5% of the outstanding Ventro common stock.
Jonathon D. Callaghan is a general partner of CMGX @ Ventures, a CMGI
affiliate, and is a member of both the Ventro board of directors and the
Promedix Board of Directors.
18. Business Combinations
Promedix
On September 22, 1999 the Company entered into a definitive agreement to
acquire Promedix, a provider of e-commerce solutions for healthcare purchasing
professionals. Promedix is a privately held Company based in Salt Lake City,
Utah. Promedix links buyers and suppliers of specialty medical products,
providing healthcare professionals with a one-stop shop for product research,
purchase and order fulfillment through relationships with distributors and
manufacturers. Under the terms of the agreement, Ventro issued 12.1 million
shares of its common stock for all of the outstanding preferred and common
stock of Promedix based on an exchange ratio of
F-29
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
1.2647 shares of Promedix for 1.0000 shares of Ventro. The transaction will be
accounted for as a purchase. The purchase was executed on February 10, 2000.
Under the transaction, Ventro recorded approximately $2.0 million for
assembled workforce, $1.9 million for customer relationships, $2.1 million for
supplier relationships, with the remaining $319.3 million of the purchase
price allocated to goodwill, net tangible and intangible assets. A valuation
specialist used the Company's management estimates to establish the amount of
assembled workforce, customer relationships, and supplier relationships
recorded. Intangible assets of $323.8 million will be amortized ratably over a
two to three year period.
SpecialtyMD
On December 10, 1999 the Company entered into a definitive agreement to
acquire SpecialtyMD, a provider of a range of comprehensive search and content
functions which will add an interactive component to Ventro's e-commerce
procurement solutions. Under the terms of the agreement, Ventro will issue 1.1
million shares of its common stock for all of the outstanding common stock of
SpecialtyMD based on an exchange ratio of 0.1033 shares of SpecialtyMD for
1.0000 shares of Ventro. The transaction will be accounted for as a purchase.
The purchase was executed on February 10, 2000. Under the transaction, Ventro
recorded approximately $0.9 million for assembled workforce, $2.7 million for
developed technology, $15.0 million related to non-compete agreements, with
the remaining $89.1 million of the purchase price allocated to goodwill, net
tangible and intangible assets. A valuation specialist used the Company's
management estimates to establish the amount of assembled workforce, developed
technology, and non-compete agreements recorded. Intangible assets of
$107.9 million will be amortized ratably over a two to three year period.
Pro Forma. The following unaudited pro forma results of operations for fiscal
1999 and 1998 are as if the acquisition of Promedix and SpecialtyMD had
occurred at the beginning of each period presented. The pro forma information
has been prepared for comparative purposes only and is not indicative of what
operating results would have been if the acquisition had taken place at the
beginning of each period presented or of future operating results.
<TABLE>
<CAPTION>
1999 1998
--------- --------
(In thousands,
except per share
data, unaudited)
<S> <C> <C>
Net revenues.......................................... $ 30,871 43
Loss from continuing operations....................... $(219,827) (163,910)
Basic and diluted loss per share from continuing
operations........................................... $ (10.96) (29.71)
</TABLE>
19. Subsequent events
Formation of Industria
On January 24, 2000, Ventro, DuPont, IBM and CMGI @ Ventures announced the
formation of Industria Solutions, Inc (Industria)., a new business-to-business
e-commerce company in the worldwide fluid processing market. For a cash
investment of $5.0 million, as well as the contribution of technology, Ventro
will own 40% of Industria. The investment will be accounted for using the
equity method.
Formation of Ventro
On February 22, 2000, Chemdex announced the formation of Ventro as a leading
builder and operator of business-to-business vertical marketplace companies.
Ventro became a publicly traded company that incorporated Chemdex, Promedix
and Specialty MD's assets, with a new stock symbol, VNTR, which became
F-30
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
effective on March 1, 2000. Ventro was created to leverage the corporate
assets originally developed by Chemdex across multiple vertical marketplaces.
Stock Option Plans
On February 10, 2000 the shareholders approved a 4,250,000 share increase to
the 1998 Employee Stock Plan and a 300,000 share increase to the 1999 Employee
Stock Purchase Plan.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Promedix.com, Inc.
We have audited the accompanying balance sheets of Promedix.com, Inc. as of
December 31, 1999 and 1998, and the related statements of operations, common
shareholders' 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 generally accepted auditing
standards. 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 Promedix.com, Inc. 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 generally accepted accounting principles.
/s/ Ernst & Young LLP
Salt Lake City, Utah
February 11, 2000
F-32
<PAGE>
PROMEDIX.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 312,248 $3,002,148
Other current assets................................ 95,352 30,000
Net current assets of discontinued operations....... 2,404,511 --
------------ ----------
Total current assets.............................. 2,812,111 3,032,148
Property and equipment, net........................... 1,864,266 2,252
Other assets.......................................... 60,893 --
Net non-current assets of discontinued operations..... 1,095,489 --
------------ ----------
Total assets...................................... $ 5,832,759 $3,034,400
============ ==========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 717,668 $ 10,944
Accrued compensation................................ 447,736 786
Accrued liabilities................................. 1,028,893 17,526
Other current liabilities........................... 7,076 2,000
Short-term debt..................................... 3,666,667 --
Subordinated convertible notes...................... 4,999,835 --
------------ ----------
Total current liabilities......................... 10,867,875 31,256
Commitments
Preferred stock--series A............................. 3,738,057 3,001,597
Common shareholders' equity (deficit):
Common stock; $.0001 value; 25,000,000 and
15,500,000 shares authorized, respectively;
3,546,250 and 3,446,250 issued and outstanding,
respectively....................................... 355 345
Additional paid in capital.......................... 23,290,499 133,306
Deferred compensation............................... (15,744,712) --
Accumulated deficit................................. (16,319,315) (132,104)
------------ ----------
Total shareholders' equity (deficit).............. (8,773,173) 1,547
------------ ----------
Total liabilities and shareholders' equity
(deficit)...................................... $ 5,832,759 $3,034,400
============ ==========
</TABLE>
See accompanying notes.
F-33
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1999 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
Revenues................................... $ -- $ 14,034 $ 197,249
Cost of revenues........................... -- 1,100 55,542
------------ --------- ---------
Gross profit............................... -- 12,934 141,707
Operating expenses:
Sales and marketing...................... 1,933,053 -- 30,596
General and administrative............... 4,192,237 73,236 246,306
Research and development................. 679,037 -- --
Amortization of deferred compensation.... 5,012,816 -- --
------------ --------- ---------
Total operating expenses................... 11,817,143 73,236 276,902
------------ --------- ---------
Loss from operations....................... (11,817,143) (60,302) (135,195)
Other income (expense):
Interest expense......................... (347,741) -- (316)
Interest income.......................... 87,920 398 100
Other income (expense)................... 3,538 -- (5,465)
------------ --------- ---------
Loss from continuing operations............ (12,073,426) (59,904) (140,876)
Discontinued operations:
Income from Pro Med Co., net of income
tax of $10,000.......................... 5,116 -- --
Loss on disposal of Pro Med Co........... (4,118,901) -- --
Extraordinary gain......................... -- 86,204 --
------------ --------- ---------
Net income (loss).......................... $(16,187,211) $ 26,300 $(140,876)
============ ========= =========
Basic net income (loss) per share:
Loss from continuing operations.......... $ (3.46) $ (0.02) $ (0.10)
Discontinued operations.................. (1.18) -- --
Extraordinary gain....................... -- 0.03 --
------------ --------- ---------
Net income (loss).......................... $ (4.64) $ 0.01 $ (0.10)
============ ========= =========
Diluted net income (loss) per share:
Loss from continuing operations.......... $ (3.46) $ (0.01) $ (0.10)
Discontinued operations.................. (1.18) -- --
Extraordinary gain....................... -- 0.01 --
------------ --------- ---------
Net income (loss).......................... $ (4.64) $ -- $ (0.10)
============ ========= =========
Weighted average number of shares
outstanding:
Basic.................................... 3,492,346 2,696,228 1,379,988
Diluted.................................. 3,492,346 6,693,028 1,379,988
</TABLE>
See accompanying notes.
F-34
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF COMMON SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
--------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1996................... 1,000,000 $100 $ 9,900 $ -- $ -- $ 10,000
Issuance of stock for
cash and other........ 1,100,760 110 109,966 -- -- 110,076
Net loss............... -- -- -- -- (140,876) (140,876)
--------- ---- ----------- ------------ ------------ ------------
Balances at December 31,
1997................... 2,100,760 210 119,866 -- (140,876) (20,800)
Issuance of stock for
cash and other........ 1,357,570 136 13,439 -- -- 13,575
Accretion of preferred
stock................. -- -- -- -- (17,528) (17,528)
Cancellation of common
stock................. (12,080) (1) 1 -- -- --
Net income............. -- -- -- -- 26,300 26,300
--------- ---- ----------- ------------ ------------ ------------
Balance of December 31,
1998................... 3,446,250 345 133,306 -- (132,104) 1,547
Issuance of stock for
cash.................. 100,000 10 9,990 -- -- 10,000
Deferred compensation
relating to stock
options............... -- -- 21,401,278 (21,401,278) -- --
Forfeiture of non-
vested stock options.. -- -- (643,750) 643,750 -- --
Amortization of
deferred compensation
relating to stock
options............... -- -- -- 5,012,816 -- 5,012,816
Issuance of warrants
for Pro Med Co. ...... -- -- 2,389,675 -- -- 2,389,675
Net loss............... -- -- -- -- (16,187,211) (16,187,211)
--------- ---- ----------- ------------ ------------ ------------
Balance at December 31,
1999................... 3,546,250 $355 $23,290,499 $(15,744,712) $(16,319,315) $ (8,773,173)
========= ==== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-35
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1999 1998 1997
------------ ---------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................ $(16,187,211) $ 26,300 $(140,876)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation........................... 342,830 749 749
Amortization of deferred compensation.. 5,012,816 -- --
Non-cash legal expense................. 711,460 -- --
Non-cash interest expense.............. 312,645 -- --
Loss on disposal of discontinued
operations............................ 4,118,901 -- --
Income from discontinued operations.... (5,116) -- --
Forgiveness of debt.................... -- (86,204) --
Changes in operating assets and
liabilities:
Accounts receivable.................... -- 16,668 (16,668)
Other current assets................... (65,352) (30,000) 10,000
Other assets........................... (60,893) -- --
Accounts payable....................... 706,724 (2,256) 13,200
Accrued liabilities.................... 430,210 10,290 7,236
Accrued compensation................... 1,028,107 786 --
Other liabilities...................... 5,076 -- --
------------ ---------- ---------
Net cash used in operating
activities.......................... (3,649,803) (63,667) (126,359)
Investing activities:
Investment in subsidiary............... (536,920) -- --
Purchases of property and equipment.... (2,204,844) -- (3,750)
------------ ---------- ---------
Net cash used in investing
activities.......................... (2,741,764) -- (3,750)
Financing activities:
Borrowings on short-term notes......... 3,666,667 68,044 20,160
Net proceeds from issuance of preferred
stock................................. 25,000 2,984,069 --
Proceeds from issuance of common
stock................................. 10,000 13,575 110,076
------------ ---------- ---------
Net cash provided by financing
activities.......................... 3,701,667 3,065,688 130,236
------------ ---------- ---------
Net increase (decrease) in cash and cash
equivalents............................. (2,689,900) 3,002,021 127
Cash and cash equivalents at beginning of
year.................................... 3,002,148 127 --
------------ ---------- ---------
Cash and cash equivalents at end of
year.................................... $ 312,248 $3,002,148 $ 127
============ ========== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest.............................. $ 35,096 $ -- $ 316
Non cash investing and financing
activities:
Investment in subsidiary--subordinated
convertible note payable.............. $ 2,120,855 $ -- $ --
Investment in subsidiary--value
ascribed to warrants.................. $ 2,389,675 $ -- $ --
Deferred compensation associated with
issuance of stock options............. $ 21,401,278 $ -- $ --
</TABLE>
See accompanying notes.
F-36
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Description of Business
Promedix.com, Inc. ("Promedix") (originally named MCA HealthPages, Inc.) was
incorporated on December 20, 1996. During 1997, Promedix pursued a strategy of
providing web design and hosting services for specialty medical equipment
manufacturers. This strategy was terminated in early 1998, and Promedix then
began pursuing its present e-commerce activities.
Promedix is a provider of e-commerce solutions to the specialty medical
products market. Promedix enables health care enterprises and suppliers to
efficiently buy and sell specialty medical products through the Promedix
marketplace, a secure, Internet-based solution.
Promedix's e-commerce business is currently in development. During this
period, operating activities relate primarily to the design and development of
Promedix's online marketplace and corporate infrastructure and the
establishment of relationships with suppliers and customers. Promedix has
incurred operating losses to date and had an accumulated deficit of
approximately $16.3 million at December 31, 1999. Promedix's activities have
been primarily financed through private placements of equity securities.
On February 10, 2000, Promedix was acquired by Ventro Corporation ("Ventro")
(see Note 11).
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
During 1998 and 1997, revenues consisted primarily of service and renewal fees
charged to medical manufacturers which utilized the company's website design
and hosting services, which were recorded as revenues when the services were
provided.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less at
the time of acquisition. Promedix's cash and cash equivalents, as of December
31, 1999 and 1998, consisted primarily of cash and money market funds held by
federally insured financial institutions in the United States, and had
carrying values which approximated fair value.
Property and Leasehold Improvements
Promedix records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of five to ten
years.
Advertising Costs
Costs of advertising are expensed the first time the advertising takes place.
Advertising costs in 1999 were approximately $330,000. No significant
advertising costs were incurred in 1998 or 1997.
F-37
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
Promedix has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB Opinion No. 25"), and related
interpretations in accounting for its employee stock options and adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25, when
the exercise price of Promedix's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Earnings Per Share
Basic earnings per share is computed using the weighted average number of
shares outstanding. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for the incremental shares
attributed to outstanding stock options, warrants and convertible securities.
Because of the net loss, the computation of basic and diluted earnings per
share is the same for the years ended December 31, 1999 and 1997. The
incremental shares used for 1998 was 3,996,800 related to the assumed
conversion of preferred stock.
3. Acquisition and Disposal of Pro Med Co.
On May 18, 1999, Promedix acquired all the outstanding stock of Pro Med Co.
for $5,047,450 consisting of (i) $500,192 in cash (ii) $4,999,835 in face
amount of convertible subordinated promissory notes (discounted $2,878,980 to
reflect the value assigned to the warrants and the non-interest bearing period
of the notes) and (iii) warrants to purchase 333,334 shares of Promedix Series
B-1 preferred stock, valued at $2,389,675 for accounting purposes. Promedix
also incurred $36,728 in direct costs relating to the acquisition. The
acquisition was accounted for as a purchase. The purchase price was allocated
based on estimated fair values of the assets and liabilities acquired and
resulted in goodwill of $2,725,067.
On November 9, 1999, in connection with the pending merger of Promedix with
Ventro, Promedix agreed to sell all of the outstanding shares of capital stock
of Pro Med Co. to a third party for $3,500,000. Certain of Promedix's
stockholders own a minority interest in such third party. The sale was
completed on January 25, 2000.
The assets and liabilities of Pro Med Co. as of December 31, 1999 are
reflected in the accompanying balance sheet on a net basis as either current
or non-current assets of discontinued operations based on the original
classification of the related accounts. The following table summarizes the
significant assets and liabilities of Pro Med Co. as of December 31, 1999:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 2,467,339
Inventory........................................................ 1,827,742
Goodwill......................................................... 880,243
Accounts payable................................................. (1,170,593)
Line of credit................................................... (650,021)
Other assets and liabilities, net................................ 145,290
-----------
Total net assets of discontinued operations.................... $ 3,500,000
===========
</TABLE>
The operations of Pro Med Co. for the period from May 19, 1999 through
December 31, 1999 are reported as discontinued operations and includes
goodwill amortization of $292,258. Pro Med Co. had sales of $13,495,020 for
the same period.
F-38
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The reported loss on disposal of discontinued operations includes goodwill
impairment totaling $1,552,566 and the reversal of the remaining discount of
$2,566,335 on the subordinated convertible notes which were satisfied in full,
concurrent with the sale of Pro Med Co., on January 25, 2000.
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Lives -------------------
in years 1999 1998
------------- ---------- -------
<S> <C> <C> <C>
Computer hardware and software............... 5 $1,811,666 $ --
Furniture and fixtures....................... 5 263,917 3,750
Leasehold improvements....................... life of lease 133,011 --
---------- -------
2,208,594 3,750
Less-accumulated depreciation................ (344,328) (1,498)
---------- -------
Property and equipment, net.................. $1,864,266 $ 2,252
========== =======
</TABLE>
5. Commitments and Contingencies
Promedix leases computer equipment and building space. The following is a
schedule of future minimum rental payments under non-cancellable operating
leases at December 31, 1999.
<TABLE>
<S> <C>
2000.............................................................. $360,000
2001.............................................................. 56,615
2002.............................................................. 39,228
2003.............................................................. 26,152
2004.............................................................. --
</TABLE>
Rental expense for the years ended December 31, 1999, 1998 and 1997 was
$191,630, $825 and $13,500, respectively.
On January 24, 2000, Promedix signed an operating lease agreement for office
space commencing in May 2000. The future minimum rental payments are
approximately as follows: 2000--$420,000; 2001--$1,020,000; 2002--$1,050,000;
2003--$1,080,000 and 2004--$1,100,000.
Promedix has entered into agreements during 1999 with two companies to provide
public relations and advertising services for payments of approximately
$26,000 per month. These agreements are cancelable by either party with 60
days notice.
A claim against Promedix was filed on February 8, 2000 alleging breach of
contract, breach of the implied covenant of good faith and fair dealing, and
unjust enrichment. The plaintiff seeks to impose a constructive trust on
intellectual property and specific performance relating to the issuance of
stock warrants. Promedix believes the claim is unfounded and plans to
vigorously defend it. Management believes that resolution of the claim will
not have a materially adverse effect on the financial condition of the
Company.
Promedix is subject to legal actions arising from the normal conduct of its
business. Management believes resolution of any potential claim related to
such action will not have a material effect on Promedix's financial position
or results of operations.
6. Financing Arrangements
In connection with the Ventro merger, Ventro agreed to provide Promedix a $10
million line of credit. The loan bears interest at 9% and is secured by
substantially all of Promedix's assets. The outstanding balance is due
F-39
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 2000. At December 31, 1999, $3,666,667 was outstanding and
$6,333,333 was unused and available, under the line of credit.
In May 1999, in connection with the acquisition of Pro Med Co., Promedix
issued subordinated convertible promissory notes in the aggregate amount of
$4,999,835. These notes were due December 31, 2005, bore interest at 8%
beginning September 2000 and were secured by the common stock of Pro Med Co.
The notes were issued with an original discount of $2,878,980 to reflect the
value assigned to the warrants issued in connection with the Pro Med Co.
acquisition and the non-interest bearing period of the notes. These notes were
satisfied in full on January 25, 2000, as follows:
<TABLE>
<S> <C>
Exercise of warrants to purchase 333,334 shares of Series B-1
convertible preferred stock................................... $ 500,000
Conversion into 346,020 shares of Series B-2 convertible
preferred stock............................................... 1,000,000
Offset against notes recievable from officers of Pro Med Co.... 200,000
Funds to note holders.......................................... 3,299,835
----------
Total outstanding amount satisfied........................... $4,999,835
==========
</TABLE>
7. Stockholder's Equity
Convertible Preferred Stock
Convertible preferred stock at December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
Shares Issued and
Shares Outstanding
Authorized December 31,
Liquidation December 31, -------------------
Preference 1999 1998 1999
----------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Series A........................ $0.751 4,030,089 3,996,800 4,030,089
Series B-1...................... $1.500 333,334 -- --
Series B-2...................... $2.890 346,020 -- --
Series C........................ $28.34 1,000,000 -- --
</TABLE>
The Series A, Series B-1 and Series B-2 preferred stock is redeemable at the
option of the holders on or after December 29, 2004, in an amount equal to
$0.751 per share for the Series A, $1.50 per share for the Series B-1 and
$2.89 per share for the Series B-2 preferred stock.
Series A, B-1, B-2 and C preferred stock is convertible, at the option of the
holder, into one share of common stock, subject to certain adjustments for
dilutive issuances. Any outstanding shares of Series A, B-1, B-2 and C
preferred stock automatically convert into common stock upon a firm commitment
underwritten public offering of Promedix's common stock with gross proceeds to
Promedix of at least $10,000,000 and a per share price of at least $5.257.
Holders of Series A, B-1, B-2 and C preferred stock are entitled to receive
dividends only when declared by the Board of Directors out of legally
available funds. No dividends have been declared or accrued as of December 31,
1999.
Series A, B-1, B-2 and C preferred stock are entitled to receive, upon a
Liquidating Event, an amount per share equal to the issuance price, plus all
declared but unpaid dividends. The remaining assets and funds, if any, shall
be distributed among the holders of Series A, B-1, B-2 and C preferred stock
and common stock pro rata based on the number of shares of common stock held
by each (assuming conversion of all such Series A, B-1,
F-40
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
B-2 and C preferred stock). If any assets remain after the holders of Series
A, B-1, B-2 and C preferred stock have received an aggregate of $0.751, $1.50,
$2.89 and $28.34 per share, the remaining assets will be distributed to the
holders of the common stock pro rata based on the number of shares common
stock held by each.
During 1999, for legal services provided, Promedix issued 33,289 shares of
Series A preferred stock at the liquidation value. As a result, Promedix
recorded legal fees of $711,460 for the difference between the liquidation
value and the deemed fair value on the date of issuance.
In May 1999, in connection with the acquisition of Pro Med Co., Promedix
issued fully vested warrants that entitled the holder to purchase 333,334
shares of the Series B-1 preferred stock at an exercise price of $1.50 per
share. These warrants were exercised on January 25, 2000. Also, on January 25,
2000, $1,000,000 of convertible promisory notes issued by Promedix in
connection with the acquisition of Pro Med Co., were converted into 346,020
shares of Series B-2 preferred stock.
On February 9, 2000, Promedix issued 176,429 shares of its Series C preferred
stock for $28.34 per share.
Common Stock
Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends from legally available funds when
and if declared by the Board of Directors, subject to the prior rights of
holders of Series A, B-1, B-2 and C preferred stock.
At December 31, 1999, common stock was reserved for future issuance as
follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock............................. 4,030,089
Conversion of Series B-1 preferred stock........................... 333,334
Conversion of Series B-2 preferred stock........................... 346,020
Conversion of Series C preferred stock............................. 1,000,000
Stock Option Plan.................................................. 1,770,000
</TABLE>
During the first quarter of 1999, Promedix adjusted its capital structure to
effect a 10:1 stock split and to change its capital stock from no par value to
$.0001 per share par value. The impact of these adjustments has been applied
retroactively to all periods presented.
During 1998, a stockholder requested that Promedix cancel its 12,080 shares of
Promedix common stock. Accordingly, these shares have been removed from
Promedix's outstanding shares.
Stock Option Plan
In December 1998, the Board of Directors adopted the 1998 Stock Plan (the
"1998 Plan") for issuance of common stock to eligible participants. The Plan
provides for the granting of incentive stock options and non-qualified stock
options. Incentive stock options and non-qualified stock options may be
granted under the 1998 Plan at prices not less than 100% and 85% of the fair
value at the date of grant, or at prices not less than 110% for individuals
owning more than 10% of the combined voting power of all classes of stock at
the date of grant. Options generally vest over four years, with 25% vesting
after one year and the remaining 75% vesting ratability over the remaining 36
months. Unexercised options generally expire ten years after the grant date.
F-41
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Activity under the 1998 Stock Plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------
Weighted-
Shares Average
Available Number of Price per Exercise
for Grant Shares Share Price
---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Authorized.............. 1,870,000
Granted................. (1,413,511) 1,413,511 $.10-$105.75 $6.26
Exercised............... -- (100,000) $ .10 $ .10
Forfeitures............. 22,750 (22,750) $.10-$ 15.00 $1.16
---------- ---------
Balance at December 31,
1999................... 479,239 1,290,761 $.10-$105.75 $6.52
========== =========
</TABLE>
At December 31, 1999, there are 25,500 options currently exercisable at a
weighted-average exercise price of $1.00.
In connection with the grant of share options to employees through December
31, 1999, Promedix recorded deferred compensation of $21,401,278 for the
aggregate differences between the exercise price of options at the various
grant dates and deemed fair value of the common shares subject to these
options. Such amount is included as a reduction of stockholders' equity and is
being amortized on a straight-line vesting method over the option vesting
periods, which are generally four years. The compensation expense of
$5,012,816 through December 31, 1999 relates to the options awarded to
employees in all operating expense categories.
If Promedix had elected to recognize compensation cost based on the fair value
of the options granted at the grant date as prescribed by SFAS No. 123, the
1999 net loss and loss per share would have been increased to the pro forma
amounts indicated below.
<TABLE>
<S> <C>
Net loss--as reported......................................... $16,187,211
Net loss--pro forma........................................... $17,984,807
Basic and diluted loss per share--as reported................. $4.64
Basic and diluted loss per share--pro forma................... $5.15
</TABLE>
The weighted-average fair value at date of grant and the weighted-average
exercise price was $15.98 and $7.27, respectively. The fair value of each
option grant was estimated on the date of grant using the minimum value
option-pricing model assuming a weighted-average risk-free interest rate of
5.23% and expected life of 2.26 years.
8. Employee Savings and Retirement Plan
Beginning May 1999, Promedix has a 401(K) plan that allows eligible employees
to contribute up to 15% of their salary, subject to annual limits. Under the
Plan, eligible employees may defer a portion of the pretax salaries but not
more than statutory limits. Promedix made $9,200 in contributions in 1999.
9. Income Taxes
As of December 31, 1999 Promedix had federal and state net operating loss
carry-forwards of approximately $6,510,000 which will expire through 2019 if
not utilized.
As a result of the acquisition by Ventro, utilization of the net operating
losses may be subject to a substantial annual limitation due to the ownership
change limitations provided by the internal Revenue Code of 1986, as
F-42
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
amended, and similar state provisions. The annual limitation may result in the
expiration of net operating losses before utilization. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Significant components of the Promedix deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
----------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 2,428,000 $ 41,880
Compensation expense................................ 1,870,000 --
Reserves and accruals............................... 97,000 --
Other............................................... 33,000 --
----------- --------
Total deferred tax assets......................... 4,428,000 41,880
Deferred tax liabilities:
Depreciation........................................ (28,000) (180)
----------- --------
Net deferred tax asset................................ 4,400,000 41,700
Valuation Allowance................................... (4,400,000) (41,700)
----------- --------
Net deferred tax assets............................... $ -- $ --
=========== ========
</TABLE>
Under FAS 109, Accounting for Income Taxes, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Based upon the weight of available evidence, which includes
Promedix's historical operating performance, the reported net losses for the
years ended December 31, 1999, 1998 and 1997, and the uncertainties regarding
Promedix's future results of operations, a full valuation allowance has been
provided against its net deferred tax assets.
10. Related Party Transactions
Pro Med Co. has an aggregate of $200,000 in principal amount of notes
receivable from two of its officers. The notes bear interest at 9.5%, are
unsecured and were paid in full on January 25, 2000. The total amount due,
including interest, at December 31, 1999, was $222,147 and is included in net
current assets of discontinued operations in the accompanying balance sheet.
During 1998 and 1997, certain shareholders provided services and advanced
funds to Promedix to meet certain operating requirements. The value of these
advances and services totaled $13,575 in 1998 and $65,684 in 1997. These
advances were converted to common stock during each of the respective years.
During 1998 and 1997, Medical Companies Alliance, Inc. and/or its affiliates
("MCA") advanced funds to Promedix to pay certain operating and development
expenses. The total of these advances was $20,160 and $86,204 through December
31, 1997 and September 30, 1998, respectively. This debt was forgiven by MCA
in September 1998, and the gain is reflected as an extraordinary item in the
accompanying statements of operations.
11. Ventro Merger and Related Transactions
On September 21, 1999, Promedix entered into an agreement involving the merger
of a wholly-owned subsidiary of Ventro, with and into Promedix. This
transaction closed on February 10, 2000 and Promedix became a wholly-owned
subsidiary of Ventro pursuant to the Agreement and Plan of Merger by and among
F-43
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Ventro, the acquisition subsidiary and Promedix. In the merger, each
outstanding share of Promedix common stock was converted into and represented
the right to receive Ventro common stock based on an exchange ratio.
Each outstanding option to purchase Promedix common stock was converted into
an option to purchase shares of Ventro common stock in accordance with the
same exchange ratio. The exchange ratio was determined by dividing 12,057,298,
the maximum number of shares of Ventro common stock to be issued as a result
of this merger by the number of shares of Promedix capital stock outstanding
(including all common stock, preferred stock, stock options and warrants) and
the number of shares of Promedix capital stock subjected to options to
purchase Promedix capital stock outstanding as of the closing date.
In connection with its agreement with Ventro, Promedix agreed to sell all of
the outstanding shares of capital stock of Pro Med Co. to a third party.
Pursuant to these agreements, effective with the sale of Pro Med Co. on
January 25, 2000, all options to purchase Promedix common stock held by the
officers of Pro Med Co. were reduced by two-thirds and such remaining options
became immediately vested. All options to purchase Promedix common stock held
by all other employees of Pro Med Co. were reduced by one-half and such
remaining options became immediately vested.
F-44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SpecialtyMD.com Corporation
We have audited the accompanying balance sheets of SpecialtyMD.com Corporation
(a development stage company) (the "Company") as of December 31, 1998 and
1999, and the related statements of operations, stockholders' deficit, and
cash flows for the period from inception (May 27, 1998) through December 31,
1998, the year ended December 31, 1999, and the period from inception (May 27,
1998) through 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 SpecialtyMD.com Corporation
(a development stage company) as of December 31, 1998 and 1999, and the
results of its operations and its cash flows for the period from inception
(May 27, 1998) to December 31, 1998, the year ended December 31, 1999, and the
period from inception (May 27, 1998) through December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 10, 2000
F-45
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 886,099 $ 1,138,278
Restricted cash...................................... -- 137,914
Accounts receivable.................................. -- 56,206
Prepaid expense and other:
Prepaid expenses and other assets................... -- 7,382
Deposits current.................................... 4,193 4,193
--------- -----------
Total current assets............................... 890,292 1,343,973
Property and equipment, net............................ 45,753 201,212
Long-term deposits..................................... -- 36,000
--------- -----------
Total assets....................................... $ 936,045 $ 1,581,185
========= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Deferred revenue..................................... $ -- $ 44,583
Note payable......................................... -- 1,333,333
Accounts payable..................................... 28,543 190,154
Accrued liabilities.................................. 9,217 115,629
Deferred rent........................................ -- 45,960
--------- -----------
Total current liabilities.......................... 37,760 1,729,659
Series A redeemable convertible preferred stock, $0.001
par value, 3,050,000 shares authorized; 3,000,000 and
3,050,000 shares issued and outstanding at
December 31, 1998 and 1999, respectively.............. 1,469,694 1,492,085
Series B redeemable convertible preferred stock, $0.001
par value, 5,000,000 shares authorized; 2,522,333
shares issued and outstanding at December 31, 1998 and
1999, respectively.................................... -- 2,709,186
Stockholders' deficit:
Common stock, $0.001 par value, 22,000,000 shares
authorized, 5,150,000 and 5,106,379 shares issued
and outstanding at December 31, 1998 and 1999,
respectively........................................ 5,150 5,106
Additional paid-in capital........................... 17,946 4,757,265
Deferred compensation................................ -- (4,189,592)
Deficit accumulated during the development stage..... (594,505) (4,922,524)
--------- -----------
Total stockholders' deficit........................ (571,409) (4,349,745)
--------- -----------
Total liabilities and stockholders' deficit...... $ 936,045 $ 1,581,185
========= ===========
</TABLE>
See accompanying notes.
F-46
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
inception inception
(May 27, 1998) (May 27, 1998)
through through
December 31, December December 31,
1998 31, 1999 1999
-------------- ----------- --------------
<S> <C> <C> <C>
Revenue............................ $ -- $ 30,535 $ 30,535
Operating expenses:
Research and development......... 374,006 1,348,278 1,722,284
Marketing and business
development..................... 7,936 1,457,408 1,465,344
General and administrative....... 222,278 1,135,486 1,357,764
Amortization of deferred
compensation.................... -- 352,391 352,391
--------- ----------- -----------
Total operating expenses....... 604,220 4,293,563 4,897,783
--------- ----------- -----------
Loss from operations............... (604,220) (4,263,028) (4,867,248)
Interest income.................... 10,576 18,241 28,817
Interest expense................... -- (81,344) (81,344)
--------- ----------- -----------
Other income (expense)............. 10,576 (63,103) (52,527)
--------- ----------- -----------
Loss before provision for income
taxes............................. (593,644) (4,326,131) (4,919,775)
Provision for income taxes......... 861 1,888 2,749
--------- ----------- -----------
Net loss........................... $(594,505) $(4,328,019) $(4,922,524)
========= =========== ===========
Net loss per share:
Basic and diluted net loss....... $ (0.21) $ (1.43) $ (1.86)
========= =========== ===========
Weighted-average number of shares
outstanding:
Basic and diluted................ 2,829,651 3,018,628 2,639,794
========= =========== ===========
</TABLE>
See accompanying notes.
F-47
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
----------------- Paid-In Deferred Development Stockholders'
Shares Amount Capital Compensation Stage Deficit
--------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash............... 5,050,000 $5,050 $ -- $ -- $ -- $ 5,050
Issuance of common stock
options for services... -- -- 13,046 -- -- 13,046
Issuance of common stock
upon exercise of stock
options................ 100,000 100 4,900 -- -- 5,000
Net loss................ -- -- -- -- (594,505) (594,505)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31,
1998................... 5,150,000 5,150 17,946 -- (594,505) (571,409)
Issuance of common stock
options for services... -- -- 87,330 -- -- 87,330
Issuance of common stock
upon exercise of stock
options................ 660,825 661 53,511 -- -- 54,172
Repurchase of common
stock.................. (704,446) (705) (1,714) -- -- (2,419)
Deferred compensation
relating to options.... -- -- 4,541,983 (4,541,983) -- --
Amortization of deferred
compensation relating
to stock options....... -- -- -- 352,391 -- 352,391
Issuance of warrants for
promissory notes....... -- -- 58,209 -- -- 58,209
Net loss................ -- -- -- -- (4,328,019) (4,328,019)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31,
1999................... 5,106,379 $5,106 $4,757,265 $(4,189,592) $(4,922,524) $(4,349,745)
========= ====== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-48
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
inception inception
(May 27, 1998) (May 27, 1998)
through through
December 31, December 31, December 31,
1998 1999 1999
------------- ------------ -------------
<S> <C> <C> <C>
Operating activities
Net loss available to common
stockholder........................ $ (594,505) $(4,328,019) $(4,922,524)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred
compensation nonemployees......... -- 87,330 87,330
Noncash transaction--interest
paid.............................. -- 22,969 22,969
Accretion of discount on notes
associated with warrants.......... -- 58,209 58,209
Depreciation....................... 2,552 38,528 41,080
Amortization of deferred
compensation...................... 352,391 352,391
(Increase) decrease in operating
assets and liabilities:
Accounts receivable............... -- (56,206) (56,206)
Prepaid expenses.................. -- (5,219) (5,219)
Change in restricted cash......... -- (137,914) (137,914)
Employee receivable............... -- (2,163) (2,163)
Accounts payable.................. 28,543 161,611 190,154
Accrued liabilities............... 9,217 106,412 115,629
Accrued interest payable.......... -- -- --
Deferred revenue.................. -- 44,583 44,583
Deferred rent..................... -- 45,960 45,960
---------- ----------- -----------
Net cash used in operating
activities...................... (554,193) (3,611,528) (4,165,721)
Investing activities
Purchase of property and equipment.. (48,305) (193,987) (242,292)
Deposits............................ (4,193) (36,000) (40,193)
---------- ----------- -----------
Net cash used in investing
activities...................... (52,498) (229,987) (282,485)
Financing activities
Proceeds from issuance of Series B
redeemable convertible preferred
stock.............................. -- 2,686,217 2,686,217
Proceeds from issuance of Series A
redeemable convertible preferred
stock, net of issuance costs....... 1,469,694 22,391 1,492,085
Proceeds from issuance of common
stock.............................. 23,096 51,753 74,849
Note payable........................ -- 1,333,333 1,333,333
---------- ----------- -----------
Net cash provided by financing
activities...................... 1,492,790 4,093,694 5,586,484
Change in cash and cash equivalent.. 886,099 252,179 1,138,278
Cash and cash equivalents, at
beginning of period................ -- 886,099 --
---------- ----------- -----------
Cash and cash equivalents, at end
of period....................... $ 886,099 $ 1,138,278 $ 1,138,278
========== =========== ===========
Supplemental disclosures
Cash paid for interest.............. $ -- $ 166 $ 166
========== =========== ===========
Cash paid for taxes................. $ 861 $ 1,888 $ 2,749
========== =========== ===========
Noncash transactions
Preferred stock issued for accrued
interest on convertible notes...... $ -- $ 22,969 $ 22,969
========== =========== ===========
</TABLE>
See accompanying notes.
F-49
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998) through December 31, 1998 and 1999)
1. Description of the Business and Basis of Presentation
The Company
SpecialtyMD.com Corporation ("Specialty" or the "Company") (originally named
Healthcare Transaction Systems, Inc.) was incorporated on May 27, 1998. During
1998, Specialty pursued a strategy of providing data and tools for supply
chain reengineering in clinical areas such as Cardiology and Orthopedics. This
strategy was terminated in early 1999, and Specialty then began pursuing its
present deep clinical product content activities.
Specialty is a provider of deep clinical and product content to clinicians in
physician preference product areas. Specialty enables clinicians, suppliers,
and providers to exchange timely clinical information regarding products,
procedures, and techniques through a portfolio of specialty-specific web sites
under the SpecialtyMD.com brand. Specialty-specific web sites carry content
from the latest clinical conferences, outcomes studies, and clinical trial
information along with vendor-sponsored, on-line symposia, user groups, and
training. Specialty also provides on-line training to vendor's sales and
marketing organizations and provides tools that enable healthcare providers to
efficiently standardize on product usage and best practices.
Specialty's business is currently in development. During this period,
operating activities relate primarily to the design and development of
Specialty's web site, corporate infrastructure, and the establishment of
relationships with suppliers, physicians, and other partners. Specialty's
activities have been financed through private placements of convertible debt
and redeemable convertible preferred securities.
On December 10, 1999, Specialty signed a definitive agreement pursuant to
which all of its outstanding preferred stock, common stock, and stock options
and warrants will be acquired by Ventro Corporation ("Ventro"). Closing of the
transaction is expected to occur by February 2000. In the merger, each
outstanding share of common stock of the Company, assuming the conversion of
all outstanding preferred stock of the Company converts into Common Stock,
will be converted into and represent the right to receive Chemdex common stock
based on an exchange ratio. The exchange ratio shall equal the quotient
obtained by dividing 1,250,000, the number of shares given in consideration by
Ventro, by the number of shares of the Company's common stock, preferred stock
(as if converted), stock options, and stock warrants outstanding or subject to
issuance upon exercise of the Company's options immediately prior to the
effective date of the Agreement Plan of Merger. Each outstanding option and
warrant to purchase the Company's common stock will be converted into an
option or warrant, respectively, to purchase shares of Ventro common stock in
accordance with the same exchange ratio.
In connection with the proposed Ventro merger, Ventro agreed to provide the
Company a $4 million secured promissory note drawable ratably beginning within
five days of the execution of the Agreement and Plan of Merger, January 15,
2000 and February 15, 2000 of which $1,333,333 is outstanding as of
December 31, 1999. The note bears interest at 9% and is secured by
substantially all of the Company's assets. The outstanding balance is due on
December 31, 2000.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-50
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
Market and Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the
United States.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents. Cash equivalents consist
primarily of cash and money market funds held by financial institutions and
had carrying values which approximate fair value.
For purposes of the statement of cash flows, cash consists of amounts on
deposit with commercial banks in checking and interest bearing accounts
available on demand.
Fair Value of Financial Instruments
The carrying value of receivables, accounts payable and accrued expenses
approximates the fair value of these financial instruments at December 31,
1998 and 1999.
Property and Equipment
Property and equipment consists of furniture, computer and office equipment,
and software which are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, generally 3 to 5 years.
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Organization Costs
Organization costs amounting to $13,656 for the period from May 27, 1998
through December 31, 1998 were expensed as incurred. There were no such costs
for the year ending December 31, 1999.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options, as discussed in
Note 8. This election was made because the alternative fair value accounting
provided for under FAS No. 123, "Accounting for Stock-Based Compensation,"
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
F-51
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
Per Share Data
Basic and diluted net income (loss) per share have been calculated using the
weighted-average common shares outstanding during the periods in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), issued by the Financial Accounting Standards Board. The Company
has excluded all outstanding stock options and shares subject to repurchase by
the Company from the calculation of diluted loss per share because these
securities are antidilutive for all periods presented.
Recent Accounting Pronouncements
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). There are no material components of other
comprehensive income (loss) and, accordingly, the comprehensive income (loss)
is the same as net income (loss) for all periods presented.
Derivatives
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 1999. Management
of the Company does not anticipate that the adoption of the new Statement will
have a significant effect on results of operations or the financial position
of the Company.
3. Accounts Receivable
Accounts receivable are shown net of allowance for doubtful accounts. The
allowance was nil for 1999 and 1998.
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful -----------------
Lives 1998 1999
--------- ------- --------
(In
years)
<S> <C> <C> <C>
Furniture and office equipment.................. 3-5 $ -- $ 19,413
Computer equipment and software................. 3 48,305 222,879
------- --------
48,305 242,292
Less accumulated depreciation................... (2,552) (41,080)
------- --------
Property and equipment, net..................... $45,753 $201,212
======= ========
</TABLE>
F-52
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
5. Operating Leases
The Company leases certain real property under noncancelable operating lease
agreements. The following is a schedule of minimum rental commitments under
operating lease agreements:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
2000.......................................................... $ --
2001.......................................................... 491,400
2002.......................................................... 553,300
2003.......................................................... 561,300
2004.......................................................... 187,600
----------
$1,793,600
==========
</TABLE>
Total rental expense under operating leases was $11,009 and $254,448 for the
period from inception (May 27, 1998) through December 31, 1998 and the year
ended December 31, 1999, respectively.
The Company also rents certain equipment under operating lease commitments
with terms of not more than a year.
6. Financing Arrangements
On April 2, 1999, the Company entered into convertible promissory notes with
Zilkha Venture Partners ("ZVP"), Staenberg Private Capital, LLC ("SPC"), C&H
Investments ("C&H"), and Nathaniel de Rothschild (together the "Investors")
for an aggregate amount of $500,000 with interest compounding annually at 7.5%
and a maturity date of December 31, 1999. Under the terms of the notes, the
investors converted the principal balance and accrued interest into 80,734
Series B redeemable convertible preferred shares upon closing of that stock
issuance on September 10, 1999. Warrants to purchase 80,734 shares of the
Company's Series B redeemable convertible preferred stock were issued in
conjunction with the issuance of these notes. Both the convertible promissory
notes and the underlying warrants were exercisable at $1.09 per share of
Series B redeemable convertible preferred stock.
On June 14, 1999, the Company entered into an irrevocable standby letter of
credit with Silicon Valley Bank for $112,000 with an expiration of July 1,
2000.
On June 23, 1999, the Company entered into convertible promissory notes with
ZVP and SPC for an aggregate of $400,000 with interest compounding annually at
7.5% and a maturity date of December 31, 1999. Under the terms of the notes,
the notes automatically were converted into Series B preferred stock on
September 10, 1999 upon closing of that stock issuance and the notes were
canceled. The number of shares issued upon conversion of the notes was 64,588
which equaled the aggregate amount of principal and interest outstanding under
the notes at the time of conversion at a value of $1.09 per share. Warrants to
purchase 64,588 shares of the Company's Series B preferred stock were issued
in conjunction with the issuance of these notes.
On July 1, 1999, the Company entered into convertible promissory notes with
ZVP, SPC, Zafaruzzaman Shaikh, and Audrey MacLean for an aggregate of $100,000
with interest compounding annually at 7.5% and a maturity date of December 31,
1999. Under the terms of the notes, the notes were automatically converted
into Series B
F-53
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
redeemable convertible preferred stock on September 10, 1999 upon closing of
that stock issuance and the notes were cancelled. The number of shares issued
upon conversion of the notes was 275,229 which equaled the aggregate amount of
principal and interest outstanding under the notes at the time of conversion
at a value of $1.09 per share. Warrants to purchase 16,147 shares of the
Company's Series B redeemable convertible preferred stock at $1.09 per share
were issued in conjunction with the issuance of these notes.
On August 27, 1999, the Company entered into convertible promissory notes with
ZVP and Audrey MacLean for an aggregate of $30,000 with interest compounding
annually at 7.5% and a maturity date of December 31, 1999. Under the terms of
the notes, the notes were automatically converted into Series B preferred
stock on September 10, 1999 upon the closing of that stock issuance and the
notes were canceled. The number of shares issued upon conversion of the notes
was 27,523 which equaled the aggregate amount of principal and interest
outstanding under the notes at the time of conversion at a value of $1.09 per
share. Warrants to purchase 4,844 shares of the Company's Series B preferred
stock were issued in conjunction with the issuance of these notes. Both the
convertible promissory notes and the underlying warrants were exercisable at
$1.09 per share of Series B redeemable convertible preferred stock.
7. Redeemable Convertible Preferred Stock
The Company is authorized to issue 3,050,000 and 5,000,000 shares of Series A
and B redeemable convertible preferred stock ("preferred stock"),
respectively.
Each holder of shares of preferred stock shall be entitled to the number of
votes equal to the number of shares of common stock into which their shares
could be converted.
Series A and B preferred stock is redeemable at the option of at least a
majority of the holders of the then outstanding preferred stock in three equal
annual installments beginning on August 1, 2003.
Series A and B preferred stock is convertible, at the option of the holder,
automatically by an affirmative election of the holders of at least a majority
of the outstanding preferred stock, or upon a firmly underwritten public
offering of the Company's common stock with gross proceeds of at least
$10,000,000 and a per share price of at least $3.27. Series A and B preferred
stock is convertible into the number of shares of common stock that is equal
to the original purchase price divided by the conversion price which is
subject to certain adjustments for stock splits, combinations, and other
dilutive issuances.
Holders of the Series A and B preferred stock are entitled to receive annual
dividends of $0.05 per share and $0.109 per share, respectively (adjusted for
stock splits, combinations, reorganizations, and the like) out of any assets
at the time legally available when, and if, declared by the board of
directors. No dividends have been declared by the board of directors at
December 31, 1998 or 1999.
Series A and B preferred stockholders are entitled to receive upon a
liquidating event an amount per share equal to the issuance price plus any and
all declared but unpaid dividends. The remaining assets and funds, if any,
shall be distributed pro rata among the holders of the Series A preferred
stock and common stock based on the number of shares of common stock held by
each (assuming conversion of all Series A preferred stock). If any assets
remain after the holders of the Series A preferred stock have received $1.50
per share plus any declared but unpaid dividends, and after the Series B
preferred stockholders have received their preference, the remaining assets
will be distributed to the holders of the common stock.
F-54
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
During the period from July 31, 1998 through April 1, 1999, the Company issued
3,050,000 shares of Series A redeemable convertible preferred stock with a par
value of $0.001 per share at a per share price of $0.50, less issuance costs
of approximately $33,000, of which $30,300 was incurred in 1998 and $2,700 in
1999.
On September 10, and September 27, 1999, the Company entered into the Series B
Redeemable Convertible Preferred Stock Purchase Agreement. Under the terms of
the Agreement, the Company authorized 5,000,000 shares of the Company's Series
B preferred stock with a par value of $0.001 per share. During the
September 10, 1999 and September 27, 1999 closings, an aggregate of 2,320,499
and 201,834 shares were issued, respectively. In conjunction with the issuance
of the Series B preferred stock, an aggregate of $1,030,000 of promissory
notes and accrued interest were converted to Series B preferred stock and the
notes canceled. The price per share of all Series B preferred stock was $1.09,
less issuance costs of approximately $40,000 and discount which has been
charged to interest expense as of the date of conversion ("Series B Preferred
Stock Warrants") of $58,209. On September 10, 1999, the Company had issued
50,000 shares of Series A redeemable convertible preferred stock for a
promissory note from Zilkha Venture Partners of $25,000. The promissory note
has been reflected as a reduction to Series A redeemable convertible preferred
stock in the accompanying financial statements. The Series A preferred stock
was issued at a discount of $25,000 due to the fact that the fair market value
of the stock at the time was $1.09 per share versus the 0.50 issuance price.
The discount has been fully amortized in the accompanying financial statements
as the stock was immediately convertible into shares of the Company's common
stock.
Redeemable convertible preferred stock issuances through December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Redeemable Convertible Preferred Stock
-----------------------------------------
Series A Stock B
Liquidation -------------------- --------------------
Preference Shares Amount Shares Amount
----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of Series A on:
July 31, 1998......... $0.50 1,700,000 $ 850,000 -- $ --
August 4, 1998........ $0.50 300,000 150,000 -- --
September 15, 1998.... $0.50 200,000 100,000 -- --
September 18, 1998.... $0.50 100,000 50,000 -- --
November 3, 1998...... $0.50 550,000 275,000 -- --
November 13, 1998..... $0.50 50,000 25,000 -- --
December 17, 1998..... $0.50 100,000 50,000 -- --
--------- ---------- --------- ----------
Balance at December 31,
1998................... 3,000,000 1,500,000 -- --
Issuance of Series A on $0.50
September 10, 1999.... $0.50 50,000 25,000 -- --
Issuance of Series B on:
September 10, 1999.... $1.09 -- -- 2,320,499 2,529,344
September 27, 1999.... $1.09 -- -- 201,834 220,000
--------- ---------- --------- ----------
Balance at December 31,
1999................... 3,050,000 $1,525,000 2,522,333 $2,749,344
========= ========== ========= ==========
</TABLE>
The Company incurred issuance costs of approximately $30,300 in 1998 and
approximately $43,200 in 1999 related to the Series A and B redeemable
convertible preferred stock.
F-55
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
8. Stockholders' Equity
Common Stock
The Company is authorized to issue 22,000,000 shares of common stock. Holders
of common stock are entitled to one vote per share on all matters to be voted
upon by the stockholders of the Company.
The Company issued 4,025,555 shares of common stock which is subject to
repurchase until vested; vesting for advisors and founders stock subject to
repurchase is ratable over a three- to four-year period. For all other stock,
vesting with respect to 25% occurs on the first anniversary of the issuance
date, with the balance vesting ratably over a period of three years as
specified in the purchase agreements. At December 31, 1998 and 1999,
approximately 2,561,348 and 1,841,915 shares, respectively, were subject to
repurchase at their original issuance price.
Stock-Based Compensation
Pro forma information regarding net income is required under FAS 123 and is
calculated as if the Company had accounted for its employee stock options
granted during the period from inception (May 27, 1998) through December 31,
1999 under the fair value method of FAS 123. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of the Black-
Scholes option pricing model, even though such model was developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. The Black-Scholes model also requires subjective assumptions,
including future stock price volatility and expected time to exercise, which
greatly affect the calculated values.
<TABLE>
<S> <C>
Risk-free interest rate.......................................... 6.0%
Expected option life............................................. 10 years
Expected volatility.............................................. 1.0
Expected dividends............................................... none
</TABLE>
As discussed above, the option valuation models used under FAS 123 were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected life of the option. Because the Company's employee stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimates, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
On July 10, 1998, the board of directors adopted the 1998 Stock Option Plan
for issuance of common stock to eligible participants.
Under the 1998 Stock Option Plan, nonqualified options to purchase common
shares were granted to certain officers, employees, and independent
consultants of the Company. Incentive stock options were granted only to
employees as prescribed by the plan. Certain options issued to independent
contractors and employees are exercisable immediately upon the optionee
entering into a Restricted Stock Purchase Agreement. The options have a
contractual life of 10 years unless the optionee owns stock representing more
than 10% of the voting power of all classes of stock of the Company, in such
situation the options will have a contractual life of five years.
F-56
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
The Company's stock option activity and related information for the period
from inception (May 27, 1998) through December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding--inception (May 27, 1998) -- --
Granted.......................................... 850,000 $0.05
Exercised........................................ (100,000) $0.05
Canceled......................................... (59,375) $0.05
--------- -----
Outstanding--December 31, 1998..................... 690,625 $0.05
Granted.......................................... 1,567,100 $0.09
Exercised........................................ (650,225) $0.06
Canceled......................................... (116,834) $0.06
Expired.......................................... (4,166) $0.05
--------- -----
Outstanding--December 31, 1999..................... 1,486,500 $0.06
========= =====
</TABLE>
Weighted-average remaining contractual life of the outstanding options is 9.07
years
As of December 31, 1998 and 1999, there were 187,500 and 219,708 options,
respectively, that were exercisable.
In connection with the grant of options to employees through December 31,
1999, the Company recorded deferred compensation of $4,541,983 for the
aggregate differences between the exercise price of options at their dates of
grant and deemed fair value for accounting purposes of the common shares
subject to these options and common shares subject to repurchase. Such amount
is included as a reduction of stockholders' equity and is being amortized on a
graded vesting method over the option vesting periods, which range from
immediately to 24 months. The compensation expense of $352,391 through
December 31, 1999 relates to the options awarded to employees in all operating
expense categories.
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized, on a graded vesting method over the options'
vesting periods. The Company's pro forma results are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
Net loss:
As reported....................................... $(594,505) $(4,328,019)
Pro forma......................................... $(594,505) $(8,517,611)
Basic and diluted net loss per share:
As reported....................................... $ (0.21) $ (1.43)
Pro forma......................................... $ (0.21) $ (2.82)
</TABLE>
Series B Convertible Preferred Stock Warrants
In 1999, in conjunction with the issuance of convertible promissory notes to
ZVP, SPC, Nathaniel de Rothschild, C&H, Audrey MacLean, and Zafaruzzaman
Shaikh, the Company issued fully vested warrants that entitle the
F-57
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
above holders to purchase an aggregate of 166,310 shares of Series B preferred
stock at an exercise price of $1.09 per share. The notes were issued with an
original discount of $58,209 which reflects the estimated fair value of the
warrants calculated through the use of the Black-Scholes option pricing model.
This amount has been reflected as interest expense and as an increase in
additional paid-in capital in the December 31, 1999 financial statements. The
warrants have a contractual life of 10 years.
9. Income Taxes
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $4,900,000. The net operating loss
carryforwards will expire in 2018.
Utilization of the net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of the net operating loss before utilization.
As of December 31, 1999, the Company had deferred tax assets of approximately
$200,000. Based upon the weight of available evidence, which includes the
Company's historical operating performance, the reported net loss from
inception (May 27, 1998) through December 31, 1999, and uncertainties
regarding the Company's future results of operation, a full valuation
allowance has been provided against its deferred tax assets.
10. Commitments and Contingencies
Restricted cash consists of balances required to be held as restricted by
vendors for certain leasing transactions.
The Company has entered into an exclusive license agreement dated as of June
30, 1998 with RightWorks, Inc. which provides for payment by the Company of
certain license and maintenance fees for the use of RightWorks, Inc.'s
software. The license fees range from $25,000 for the first six-month period
to $750,000 for the sixth six-month period. The Company has not and does not
intend to exercise any license rights granted, in which case payment
obligations will not be incurred.
The Company has entered into an agreement with Globix Corporation, dated
September 9, 1999, for the provision of Internet access, products, and
services. Under the agreement, Globix will bill monthly based upon the number
of users and the range of services to be provided.
11. Subsequent Events
On February 10, 2000, the proposed Ventro merger was consummated as described
in Note 1 to the financial statements.
In connection with the Ventro merger, Ventro agreed to provide the Company a
$4 million secured promissory note drawable ratably beginning within five days
of the execution of the Agreement and Plan of Merger, January 15, 2000 and
February 15, 2000. The note bears interest at 9% and is secured by
substantially all of the Company's assets. The outstanding balance is due on
December 31, 2000. In January, the Company drew the second installment of this
secured promissory note in the amount of $1,333,333.
In connection with the Ventro merger, certain shares of common stock held by
directors of the Company which currently are subject to restrictions vested
immediately upon the occurrence of the merger. The result of this
F-58
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
accelerated vesting will be a charge to compensation expense of $46,800 that
has been recorded as deferred compensation as of December 31, 1999.
12. Impact of Year 2000 (Unaudited)
As a result of the planning and implementation efforts, the Company
experienced no significant disruptions in mission critical information
technology and noninformation technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the Year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
F-59
<PAGE>
[LOGO OF VENTRO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Ventro in connection with
the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................. $ 91,080
NASD filing fee.................................................. 30,500
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 250,000
Accounting fees and expenses..................................... 325,000
Blue Sky qualification fees and expenses......................... 10,000
Transfer Agent and Registrar fees................................ 25,000
Trustee fee...................................................... 25,000
Miscellaneous fees and expenses.................................. 43,420
----------
Total.......................................................... $1,000,000
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "Delaware 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
indemnification for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article Seven of Ventro's Certificate of Incorporation
(Exhibit 3.1 hereto) and Article VI of Ventro's Bylaws (Exhibit 3.3 hereto)
provide for indemnification of Ventro's directors, officers, employees and
other agents to the maximum extent permitted by Delaware Law. In addition,
Ventro has entered into Indemnification Agreements (Exhibit 10.1 hereto) with
its officers and directors. The Underwriting Agreement (Exhibit 1.1) also
provides for cross-indemnification among Ventro and the Underwriters with
respect to some matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since inception (September 1997), Ventro has sold and issued the following
securities:
1. On September 25, 1997, Ventro issued and sold 2,570,000 shares of its
common stock at a price of $0.02 per share to four individuals, including
1,905,854 shares of common stock to David Perry, 635,285 shares of common
stock to Jeffrey S. Leane, 25,700 shares of common stock to Jon Callaghan and
3,161 shares of common stock to Marc Kaschke. The issuance of the securities
was deemed to be exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering. Based on representations made to Ventro by the
investors, information supplied by Ventro to the investors and the
relationship between Ventro and the investors, all investors had adequate
access to information about Ventro. In addition, based on representations made
to Ventro by the investors, the investors were able to bear the financial risk
of their investment. The investors 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 securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
2. On September 25, 1997, Ventro issued and sold 800,800 shares of its
Series A Preferred Stock at a price of $.694 per share to a total of 4
purchasers, including CMG@Ventures II, LLC (formerly CMG@Ventures, L.P.),
II-1
<PAGE>
an entity with which Mr. Callaghan, a director of Ventro, is affiliated, a
partnership affiliated with Mr. Swanson, a director of Ventro, Mr. Kaschke and
Stanford University. On December 23, 1997 and March 23, 1998, Ventro issued
and sold 1,994,850 shares of its Series A Preferred Stock at a price of $.694
per share to The Bay City Capital Fund I, L.P., Mr. Burke, a director of
Ventro, CMG@Ventures, Kevin Bove, Mr. Kaschke, John Rodakis, Jeffrey Y. Suto
and VLG Investments 1998. The issuance of the securities was deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as transactions by an issuer not involving any public
offering. Based on representations made to Ventro by the investors,
information supplied by Ventro to the investors and the relationship between
Ventro and the investors, the investors were accredited investors within the
meaning of Rule 501 of Regulation D under the Securities Act and were able to
bear the financial risk of their investment. The investors 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 securities. Ventro did not make any offer to sell
the securities by means of any general solicitation or general advertising
within the meaning of Rule 502 of Regulation D under the Securities Act.
3. On May 15, 1998, Ventro issued and sold 8,649,992 shares of its Series B
Preferred Stock at a price of $1.50 per share to entities affiliated with
Kleiner Perkins Caufield & Byers, an entity with which Mr. Byers is
affiliated, Warburg, Pincus Ventures L.P., an entity with which Mr. Lewis is
affiliated, CMG@Ventures II, LLC, an entity with which Mr. Callaghan, a
director of Ventro, is affiliated, The Bay City Capital Fund I, L.P., an
entity with which Mr. Pritzker is affiliated, Mr. Burke, a partnership
affiliated with Mr. Swanson, Bove Family Living Trust, Scott Glenn, John
Rodakis, Jan and Lotte Leschly, Josh Olshansky, Kenneth Olshansky, Summerbell-
Kosnik Living Revocable Trust, Mr. Suto, Steven J. Tonsfeldt, VLG Investments
1998, Scott Waterhouse and John Young. The issuance of the securities was
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. Based on representations made to Ventro by the investors,
information supplied by Ventro to the investors and the relationship between
Ventro and the investors, all investors had adequate access to information
about Ventro. Based on representations made to Ventro by the investors, the
investors were accredited investors within the meaning of Rule 501 of
Regulation D under the Securities Act and were able to bear the financial risk
of their investment. The investors 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 securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
4. On January 20, 1999, Ventro issued a warrant to purchase 105,000 shares
of Series B Preferred Stock at an exercise price of $1.50 per share to
Comdisco, Inc. in consideration for and in connection with a Master Lease
Agreement dated as of January 20, 1999. The issuance of the securities was
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as a transaction by an issuer not involving
any public offering. Based on representations made to Ventro by the investor,
information supplied by Ventro to the investor and the relationship between
Ventro and the investor, the investor had adequate access to information about
Ventro. In addition, based on representations made to Ventro by the investor,
the investor was an accredited investor within the meaning of Rule 501 of
Regulation D under the Securities Act and was able to bear the financial risk
of its investment. The investor represented its intention 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 securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
5. On March 1, 1999, Ventro issued warrants to purchase a total of 49,999
shares of common stock at an exercise price of $5.20 per share to entities
affiliated with Galen Associates in consideration for a consulting agreement.
The issuance of the securities was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. Based on
representations made to Ventro by the investors, information supplied by
Ventro to the investors and the relationship between Ventro and the investors,
all investors had adequate access to information about Ventro. In addition,
based on representations made to Ventro by the investors, the investors were
accredited investors within the meaning of Rule 501 of Regulation D under the
Securities Act and were able to bear the financial risk
II-2
<PAGE>
of their investment. The investors 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 securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
6. On March 5, 1999, Ventro entered into a Strategic Relationship Agreement
and a Common Stock Purchase Agreement with VWR Scientific Products
Corporation, pursuant to which Ventro issued 2,538,405 shares of Common Stock
valued at $13.9 million to VWR in consideration for the Strategic Relationship
Agreement and the transfer to Ventro of information concerning VWR customers.
The issuance of the securities was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. Based on
representations made to Ventro by the investor, information supplied by Ventro
to the investor and the relationship between Ventro and the investor, the
investor had adequate access to information about Ventro. In addition, based
on representations made to Ventro by the investor, the investor is an
accredited investor within the meaning of Rule 501 of Regulation D under the
Securities Act and was able to bear the financial risk of its investment. The
investor represented its 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 securities. Ventro did not
make any offer to sell the securities by means of any general solicitation or
general advertising within the meaning of Rule 502 of Regulation D under the
Securities Act.
7. On March 24, 1999 and April 30, 1999, Ventro issued and sold 5,299,951
shares of its Series C Preferred Stock at a price of $5.716 per share to Mr.
Burke, The Bay City Capital Fund I, L.P., CMG@Ventures II, LLC, Galen Employee
Fund III, L.P., Galen Partners III, L.P., Galen Partners International III,
L.P., Genentech, Inc., Kleiner Perkins Caufield & Byers VII, L.P., KPCB Life
Sciences Zaibatsu Fund II, L.P., KPCB VIII Founders Fund, L.P. Warburg, Pincus
Ventures L.P., Mr. Harris, Mr. Waterhouse and 125 other private investors. The
issuance of the securities was deemed to be exempt from registration under the
Securities Act in reliance on Rule 506 promulgated under Regulation D of the
Securities Act as transactions by an issuer not involving any public offering
within the meaning of Section 4(2).
8. On May 11, 1999, Ventro entered into a Common Stock Purchase Agreement
with Biotechnology Industry Organization, pursuant to which Biotechnology
Industry Organization purchased 187,500 shares of Common Stock at a price per
share of $.0002. The issuance of the securities was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as a transaction by an issuer not involving any public
offering. Based on representations made to Ventro by the investor, information
supplied by Ventro to the investor and the relationship between Ventro and the
investor, the investor had adequate access to information about Ventro. In
addition, based on representations made to Ventro by the investor, the
investor is an accredited investor within the meaning of Rule 501 of
Regulation D under the Securities Act and was able to bear the financial risk
of its investment. The investor represented its intention 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 securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
9. As of June 30, 1999, Ventro has granted stock options to purchase a
total 4,565,117 shares of common stock at exercise prices ranging from $.10 to
$10.00 per share to a total of approximately 180 employees, consultants and
directors pursuant to its 1998 Stock Plan. The issuances described were deemed
exempt from registration under the Securities Act in reliance upon Rule 701
promulgated under the Securities Act.
10. On February 19, 2000 Alza Corporation exercised their option to convert
their 25,000 outstanding warrants into shares of common stock at a price of
$15.00 per share.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Agreement and Plan of Merger dated September 21, 1999 by and among
Chemdex Corporation, Popcorn Acquisitions Corp. and Promedix.com,
Inc. (4)
2.2 Form of Certificate of Merger between Popcorn Acquisitions Corp. and
Promedix.com, Inc. (4)
2.3 Escrow Agreement for Chemdex/Promedix (4)
2.4 Agreement and Plan of Merger dated December 10, 1999 by and among
Chemdex Corporation, Spinach Acquisitions Corp. and SpecialtyMD.com
Corporation (4)
2.5 Form of Certificate of Merger between Spinach Acquisitions Corp. and
SpecialtyMD.com Corporation (4)
2.6 First Amendment to Agreement and Plan of Merger dated as of December
21, 1999 by and among Chemdex Corporation, Popcorn Acquisitions Corp.
and Promedix.com, Inc. (4)
2.7 Escrow Agreement for Ventro/SpecialtyMD (4)
2.8 Form of Certificate of Merger between Chemdex Corporation and Ventro
Corporation
3.1 Amended and Restated Certificate of Incorporation of Chemdex (1)
3.2 Amended and Restated Bylaws of Chemdex (1)
4.1 Specimen of Ventro Common Stock Certificate
4.2 Third Amended and Restated Investors' Rights Agreement dated March 24,
1999 (1)
4.3 Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement (1)
4.4 Form of Indenture between Ventro Corporation and State Street Bank and
Trust Company of California, N.A.
4.5* Form of note
5.1* Opinion of Davis Polk & Wardwell, as to the legality of the
Registrant's common stock being registered hereby
10.1 Form of Indemnification Agreement between Ventro and each of its
officers and directors (1)
10.2 Form of Change of Control Agreement between Ventro, each of its
officers and certain employees (1)
10.3 Change of Control Agreement between Ventro and Robert A. Swanson (1)
10.4 Change of Control Agreement between Ventro and Charles R. Burke (1)
10.5 1998 Stock Plan, as amended, and form of option agreement (4)
10.6 1999 Employee Stock Purchase Plan and form of subscription
agreement (4)
10.7 1999 Directors' Stock Plan (1)
10.8 Standard Office Lease dated June 11, 1998 between Ventro and Fabian
Partners II, a California General Partnership, as amended (1)
10.9 Master Lease Agreement dated January 20, 1999, as amended, between
Ventro and Comdisco, Inc. (1)
10.10 Starter Kit Loan and Security Agreement dated February 18, 1998
between Ventro and Imperial Bank (1)
10.11 Warrant Agreement to Purchase Shares of Series B Preferred Stock of
Ventro dated January 20, 1999 between Ventro and Comdisco, Inc. (1)
10.12 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners III, L.P. (1)
10.13 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners International III, L.P. (1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.14 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Employee Fund III, L.P. (1)
10.15 Electronic Commerce Agreement dated January 5, 1998 between Ventro
and Genentech, Inc. (1)
10.16 Standstill Agreement dated April 23, 1999 between Ventro and VWR
Scientific Products Corporation (1)
10.17 Strategic Relationship Agreement dated April 30, 1999 between Ventro
and VWR Scientific Products Corporation (1)
10.18 Joint Marketing Agreement dated May 11, 1999 between Ventro and
Biotechnology Industry Organization (1)
10.19 Payment Plan Agreement dated February 22, 1999 and related agreements
between Ventro and Oracle Credit Corporation (1)
10.20 Warrant Purchase Agreement dated July 27, 1999 between Ventro and
Alza Corporation (2)
10.21 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1000 Joaquin Road, Mountain View,
California. (4)
10.22 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1500 and 15550 Plymouth Street,
Mountain View, California. (4)
10.23 Voting Agreement dated September 21, 1999 between Ventro and certain
stockholders of Promedix.com, Inc. (4)
10.24 Employment Agreement dated September 21, 1999 between Ventro and
William Klintworth (4)
10.25 Change of Control Agreement dated September 21, 1999 between Ventro
and William Klintworth (4)
10.26 Affiliates Agreement dated September 21, 1999 between Ventro and
certain directors of Promedix.com, Inc. (4)
10.27 Secured Promissory Note and Agreement dated October 1, 1999 from
Promedix.com, Inc. to Ventro and related Security Agreement. (4)
10.28 Noncompetition Agreement dated September 21, 1999 between Ventro and
William Klintworth(4)
10.29 Employment Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi (4)
10.30 Employee Confidentiality and Inventions Agreement dated December 10,
1999 between Ventro and Ashfaq Munshi (4)
10.31 Change of Control Agreement dated December 10, 1999 between Ventro
and Ashfaq Munshi (4)
10.32 Noncompetition Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi (4)
10.33 Stock Restriction Agreement dated December 10, 1999 between Ventro
and Ashfaq Munshi (4)
10.34 Joint Venture Agreement dated as of December 10, 1999 by and between
Tenet Health System Medical, Inc. and Ventro Corporation (3)
10.35 Form of Tenet/Newco Agreement by and among Tenet Health System
Medical, Inc., Tendex, Inc., Promedix.com, Inc. and Ventro
Corporation (3)
10.36 Form of Ventro License and Services Agreement by and among Ventro
Corporation, Promedix.com, Inc., Tendex, Inc. and Tenet Health System
Medical, Inc. (3)
10.37 Form of warrant to purchase common stock of Healthcare Transaction
Systems, Inc.
12.01 Computation of Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of Ventro
23.1* Consent of Davis Polk & Wardwell with respect to the legality of
securities being registered (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Ventro
23.3 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Promedix
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.4 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Specialty MD
24.1 Power of Attorney (included on page II-7)
25.1* Statement of Eligibility and Qualification Under the Trust Indenture
Act of 1939 of a Corporation Designated to Act as Trustee on Form T-1
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August
16, 1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 8-K dated December 10, 1999, as filed with
the Commission on January 4, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Registration Statement on Form S-4 (File
No. 333-90727) filed with the Commission on January 4, 2000, as amended,
which Registration Statement was declared effective January 5, 2000.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
Schedule
Number Description
-------- -----------
<C> <S>
2.1 Ventro Valuation and Qualifying Accounts
</TABLE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements 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 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California, on March 6, 2000.
Ventro Corporation
By: /s/ David P. Perry__________
David P. Perry
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints David P. Perry and James G. Stewart
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, 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 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, 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 their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David P. Perry President, Chief Executive March 6, 2000
______________________________________ Officer and Director
David P. Perry (Principal Executive
Officer)
/s/ James G. Stewart Chief Financial Officer March 6, 2000
______________________________________ and Assistant Secretary
James G. Stewart (Principal Financial
Officer)
/s/ Charles R. Burke Director March 6, 2000
______________________________________
Charles R. Burke
/s/ Brook H. Byers Director March 6, 2000
______________________________________
Brook H. Byers
/s/ Jonathan D. Callaghan Director March 6, 2000
______________________________________
Jonathan D. Callaghan
/s/ Paul J. Nowak Director March 6, 2000
______________________________________
Paul J. Nowak
/s/ John A. Pritzker Director March 6, 2000
______________________________________
John A. Pritzker
/s/ Naomi O. Seligman Director March 6, 2000
______________________________________
Naomi O. Seligman
/s/ L. John Wilkerson Director March 6, 2000
______________________________________
L. John Wilkerson
</TABLE>
II-7
<PAGE>
VENTRO CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Amounts
Charged to
Balance Revenue, Write-offs Balance
Beginning Costs or and at End
of Year Expenses Recoveries of Year
--------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 31, 1999...... $ 2 $ 663 $ 1 $ 664
Year ended December 31, 1998...... $ -- $ 2 $ -- $ 2
Year ended December 31, 1997...... $ -- $ -- $ -- $ --
Sales Returns Reserve:
Year ended December 31, 1999...... $ -- $3,055 $ 117 $2,938
Year ended December 31, 1998...... $ -- $ -- $ -- $ --
Year ended December 31, 1997...... $ -- $ -- $ -- $ --
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger dated September 21, 1999 by and among
Ventro Corporation, Popcorn Acquisitions Corp. and Promedix.com,
Inc.(4)
2.2 Form of Certificate of Merger between Popcorn Acquisitions Corp. and
Promedix.com, Inc.(4)
2.3 Escrow Agreement for Ventro/Promedix(4)
2.4 Agreement and Plan of Merger dated December 10, 1999 by and among
Ventro Corporation, Spinach Acquisitions Corp. and SpecialtyMD.com
Corporation(4)
2.5 Form of Certificate of Merger between Spinach Acquisitions Corp. and
SpecialtyMD.com Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of December
21, 1999 by and among Ventro Corporation, Popcorn Acquisitions Corp.
and Promedix.com, Inc.(4)
2.7 Escrow Agreement for Ventro/SpecialtyMD(4)
2.8 Form of Certificate of Merger between Chemdex Corporation and Ventro
Corporation
3.1 Amended and Restated Certificate of Incorporation of Ventro(1)
3.2 Amended and Restated Bylaws of Ventro(1)
4.1 Specimen of Ventro Common Stock Certificate(1)
4.2 Third Amended and Restated Investors' Rights Agreement dated March 24,
1999(1)
4.3 Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement(1)
4.4 Form of Indenture between Ventro Corporation and State Street Bank and
Trust Company of California, N.A., as Trustee
4.5* Form of note
5.1* Opinion of Davis Polk & Wardwell as to the legality of the
Registrant's common stock being registered hereby
10.1 Form of Indemnification Agreement between Ventro and each of its
officers and directors(1)
10.2 Form of Change of Control Agreement between Ventro, each of its
officers and certain employees(1)
10.3 Change of Control Agreement between Ventro and Robert A. Swanson(1)
10.4 Change of Control Agreement between Ventro and Charles R. Burke(1)
10.5 1998 Stock Plan, as amended, and form of option agreement(4)
10.6 1999 Employee Stock Purchase Plan and form of subscription
agreement(4)
10.7 1999 Directors' Stock Plan(1)
10.8 Standard Office Lease dated June 11, 1998 between Ventro and Fabian
Partners II, a California General Partnership, as amended(1)
10.9 Master Lease Agreement dated January 20, 1999, as amended, between
Ventro and Comdisco, Inc.(1)
10.10 Starter Kit Loan and Security Agreement dated February 18, 1998
between Ventro and Imperial Bank(1)
10.11 Warrant Agreement to Purchase Shares of Series B Preferred Stock of
Ventro dated January 20, 1999 between Ventro and Comdisco, Inc.(1)
10.12 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners III, L.P.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.13 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners International III, L.P.(1)
10.14 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Employee Fund III, L.P.(1)
10.15 Electronic Commerce Agreement dated January 5, 1998 between Ventro and
Genentech, Inc.(1)
10.16 Standstill Agreement dated April 23, 1999 between Ventro and VWR
Scientific Products Corporation(1)
10.17 Strategic Relationship Agreement dated April 30, 1999 between Ventro
and VWR Scientific Products Corporation(1)
10.18 Joint Marketing Agreement dated May 11, 1999 between Ventro and
Biotechnology Industry Organization(1)
10.19 Payment Plan Agreement dated February 22, 1999 and related agreements
between Ventro and Oracle Credit Corporation(1)
10.20 Warrant Purchase Agreement dated July 27, 1999 between Ventro and Alza
Corporation(2)
10.21 Office Lease dated August 13, 1999 between Ventro and Alza Corporation
for space located at 1000 Joaquin Road, Mountain View, California.(4)
10.22 Office Lease dated August 13, 1999 between Ventro and Alza Corporation
for space located at 1500 and 15550 Plymouth Street, Mountain View,
California.(4)
10.23 Voting Agreement dated September 21, 1999 between Ventro and certain
stockholders of Promedix.com, Inc.(4)
10.24 Employment Agreement dated September 21, 1999 between Ventro and
William Klintworth(4)
10.25 Change of Control Agreement dated September 21, 1999 between Ventro
and William Klintworth(4)
10.26 Affiliates Agreement dated September 21, 1999 between Ventro and
certain directors of Promedix.com, Inc.(4)
10.27 Secured Promissory Note and Agreement dated October 1, 1999 from
Promedix.com, Inc. to Ventro and related Security Agreement.(4)
10.28 Noncompetition Agreement dated September 21, 1999 between Ventro and
William Klintworth(4)
10.29 Employment Agreement dated December 10, 1999 between Ventro and Ashfaq
Munshi(4)
10.30 Employee Confidentiality and Inventions Agreement dated December 10,
1999 between Ventro and Ashfaq Munshi(4)
10.31 Change of Control Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi(4)
10.32 Noncompetition Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi(4)
10.33 Stock Restriction Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi(4)
10.34 Joint Venture Agreement dated as of December 10, 1999 by and between
Tenet Health System Medical, Inc. and Ventro Corporation(3)
10.35 Form of Tenet/Newco Agreement by and among Tenet Health System
Medical, Inc., Tendex, Inc., Promedix.com, Inc. and Ventro
Corporation(3)
10.36 Form of Ventro License and Services Agreement by and among Ventro
Corporation, Promedix.com, Inc., Tendex, Inc. and Tenet Health System
Medical, Inc.(3)
10.37 Form of warrant to purchase common stock of Healthcare Transaction
Systems, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
12.01 Computation of Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of Ventro
23.1* Consent of Davis Polk & Wardwell, with respect to the legality of
securities being registered (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Ventro
23.3 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Promedix
23.4 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Specialty MD
24.1 Power of Attorney (included on page II-7)
25.1* Statement of Eligibility and Qualifications under the Trust Indenture
Act of 1939 of a Corporation Designed to Act as Trustee on Form T-1
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August
16, 1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 8-K dated December 10, 1999, as filed with
the Commission on January 4, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-4 (File No.
333-90727) filed with the Commission on January 4, 2000, as amended, which
Registration Statement was declared effective January 5, 2000.
<PAGE>
EXHIBIT 2.8
CERTIFICATE OF OWNERSHIP AND MERGER
Pursuant to Section 253 of the General Corporation Law of the State of
Delaware, the undersigned, the President of Chemdex Corporation (the "Company"),
a Delaware corporation, hereby certifies in connection with the merger of
Chemdex Corporation and Ventro Corporation that:
1. The Company owns all of the outstanding shares of Ventro Corporation, a
corporation organized under the laws of Delaware.
2. The Company, by the following resolutions of its Board of Directors,
duly adopted by written consent dated as of February 17, 2000, pursuant
to Section 141(f) of the General Corporation Law of the State of
Delaware, determined to merge Ventro into itself on the terms and
conditions set forth in such resolutions:
Merger Subsidiary: Ventro Corporation
--------------------------------------
RESOLVED, that the officers of the Company are authorized to form
Ventro ("Merger Sub") under the laws of the State of Delaware and upon
----------
its formation, to purchase all 1,000 shares of Merger Sub's Common
Stock in exchange for the aggregate amount of $.20.
RESOLVED FURTHER, that any director or officer of the Company, acting
pursuant to authority delegated by the Board of Directors, is hereby
authorized and directed to execute and deliver all documents and take
such additional actions as may be necessary or appropriate to organize
Merger Sub.
RESOLVED FURTHER, that the prior actions by the officers of the Company
in connection with the formation of Merger Sub are hereby approved,
adopted and ratified.
RESOLVED FURTHER, that the Company, as the sole stockholder of Merger
Sub, hereby approves the Merger and adopts and approves the Related
Documents, and all other subsidiary documents and agreements related
thereto.
Merger with Ventro Corporation
------------------------------
RESOLVED, that the Board of Directors of the Company believes that it
is in the best interests of the Company and its stockholders to merge
Merger Sub with and into the Company, with the Company surviving (the
"Merger") .
------
<PAGE>
RESOLVED FURTHER, that the Merger and all other related documents
contemplated thereby including, without limitation, the Certificate of
Merger attached as Exhibit A hereto and the Stock Purchase Agreement
---------
attached as Exhibit B hereto (collectively, the "Related Documents")
--------- -----------------
are hereby adopted and approved by the Board, provided, however, that
the officers of the Company are hereby authorized to make such changes
and amendments to such documents as they may deem necessary or
appropriate.
RESOLVED FURTHER, that the officers of the Company are hereby
authorized and directed to execute and deliver on behalf of the Company
the Related Documents and thereafter to cause the Company to perform
all of its obligations and duties with respect to such agreements.
RESOLVED FURTHER, that the prior actions by the officers of the Company
in connection with the Merger and the Related Documents are hereby
approved, adopted and ratified.
RESOLVED FURTHER, that there are hereby reserved from the Company's
authorized but unissued capital stock the maximum number of shares of
the Company's common stock as may be issuable upon consummation of the
Merger.
RESOLVED FURTHER, that, pursuant to the foregoing transactions, the
Company shall succeed to all of the rights, certificates, privileges,
powers, properties, franchises and assets of Merger Sub.
RESOLVED FURTHER, that for purposes of complying with state law, the
officers of the Company are authorized to irrevocably appoint the
Delaware Secretary of State as its Agent upon whom may be served any
notice, process or pleading in any suit, action or proceeding against
it in connection with the enforcement of any obligation arising from
the transactions contemplated by these resolutions, including any suit
or other proceeding to enforce the right of any stockholders as
determined in appraisal proceedings under Delaware General Corporation
Law.
RESOLVED FURTHER, that the officers of the Company are hereby
authorized and directed to execute and deliver all documents, file all
certificates and notifications with appropriate federal, state and
local authorities and take such additional actions as may be necessary
or appropriate to carry out the intent of the foregoing resolutions.
-2-
<PAGE>
Amendment of the Company's Certificate of Incorporation
-------------------------------------------------------
RESOLVED, that, upon the effectiveness of the merger, the name of the
Company shall be changed to "Ventro Corporation" and Article I of the
Amended and Restated Certificate of Incorporation of the Company shall
be amended to read as follows:
"The name of the corporation is Ventro Corporation (the
"Corporation")."
-----------
Chemdex Corporation has caused the Certificate to be signed by David P.
Perry, its President and Chief Executive Officer, this 17th day of February,
2000.
Chemdex Corporation
By: /s/ David P. Perry
----------------------
President
-3-
<PAGE>
EXHIBIT 4.4
VENTRO CORPORATION,
AS ISSUER,
and
[STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,]
AS TRUSTEE
INDENTURE
DATED AS OF_______________ ___, 2000
_____% CONVERTIBLE SUBORDINATED NOTES DUE 2007
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions............................................. 1
SECTION 1.02. Compliance Certificates and Opinions.................... 9
SECTION 1.03. Form of Documents Delivered to the Trustee.............. 9
SECTION 1.04. Acts of Holders of Securities........................... 10
SECTION 1.05. Notices, Etc., to Trustee and the Company............... 12
SECTION 1.06. Notice to Holders of Securities; Waiver................. 13
SECTION 1.07. Effect of Headings and Table of Contents................ 13
SECTION 1.08. Successors and Assigns.................................. 13
SECTION 1.09. Separability Clause..................................... 13
SECTION 1.10. Benefits of Indenture................................... 13
SECTION 1.11. Governing Law........................................... 14
SECTION 1.12. Legal Holidays.......................................... 14
SECTION 1.13. Conflict with Trust Indenture Act....................... 14
SECTION 1.14. Indenture and Securities Solely Corporate Obligations... 14
ARTICLE 2
SECURITY FORMS
SECTION 2.01. Forms Generally......................................... 15
SECTION 2.02. Form of Security........................................ 15
SECTION 2.03. Form of Election of Holder to Require Repurchase........ 23
SECTION 2.04. Form of Conversion Notice............................... 24
SECTION 2.05. Form of Certificate of Authentication................... 25
ARTICLE 3
THE SECURITIES
SECTION 3.01. Title and Terms......................................... 25
SECTION 3.02. Denominations........................................... 26
SECTION 3.03. Execution, Authentication, Delivery and Dating.......... 26
SECTION 3.04. Registration of Transfer and Exchange; Restrictions on
Transfer.............................................................. 28
SECTION 3.05. Temporary Securities.................................... 30
SECTION 3.06. Mutilated, Destroyed, Lost or Stolen Securities......... 30
SECTION 3.07. Payment of Interest; Interest Rights Preserved.......... 31
SECTION 3.08. Persons Deemed Owners................................... 33
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PAGE
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SECTION 3.09. Cancellation............................................ 33
SECTION 3.10. Computation of Interest................................. 33
SECTION 3.11. CUSIP Numbers........................................... 33
ARTICLE 4
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture................. 34
SECTION 4.02. Application of Trust Money.............................. 35
ARTICLE 5
REMEDIES
SECTION 5.01. Events of Default....................................... 35
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment...... 36
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee............................................................... 37
SECTION 5.04. Trustee May File Proofs of Claim........................ 38
SECTION 5.05. Trustee May Enforce Claims Without Possession of
Securities............................................................ 39
SECTION 5.06. Application of Money Collected.......................... 39
SECTION 5.07. Limitation on Suits..................................... 40
SECTION 5.08. Unconditional Right of Holders to Receive Principal,
Redemption Price, Fundamental Change Redemption Price
and Interest and to Convert........................................... 40
SECTION 5.09. Restoration of Rights and Remedies...................... 41
SECTION 5.10. Rights and Remedies Cumulative.......................... 41
SECTION 5.11. Delay or Omission Not Waiver............................ 41
SECTION 5.12. Control by Holders of Securities........................ 41
SECTION 5.13. Waiver of Past Defaults................................. 42
SECTION 5.14. Undertaking for Costs................................... 42
SECTION 5.15. Waiver of Stay, Extension and Usury Laws................ 42
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PAGE
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ARTICLE 6
THE TRUSTEE
SECTION 6.01. Certain Duties and Responsibilities........................ 43
SECTION 6.02. Notice of Defaults......................................... 44
SECTION 6.03. Certain Rights of Trustee.................................. 44
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities..... 45
SECTION 6.05. May Hold Securities, Act as Trustee Under Other
Indentures............................................................... 45
SECTION 6.06. Money Held in Trust........................................ 45
SECTION 6.07. Compensation and Reimbursement............................. 46
SECTION 6.08. Corporate Trustee Required; Eligibility.................... 46
SECTION 6.09. Resignation and Removal; Appointment of Successor.......... 47
SECTION 6.10. Acceptance of Appointment by Successor..................... 48
SECTION 6.11. Merger, Conversion, Consolidation or Succession to
Business................................................................. 48
SECTION 6.12. Authenticating Agents...................................... 49
SECTION 6.13. Disqualification; Conflicting Interest..................... 50
SECTION 6.14. Preferential Collection of the Claims Against the Company.. 50
ARTICLE 7
CONSOLIDATION, MERGER, TRANSFER OR LEASE
SECTION 7.01. The Company May Consolidate, Etc., Only on Certain Terms... 50
SECTION 7.02. Successor Substituted...................................... 51
ARTICLE 8
SUPPLEMENTAL INDENTURES
SECTION 8.01. Supplemental Indentures Without Consent of Holders of
Securities.............................................................. 51
SECTION 8.02. Supplemental Indentures with Consent of Holders of
Securities............................................................... 52
SECTION 8.03. Execution of Supplemental Indentures....................... 53
SECTION 8.04. Effect of Supplemental Indentures.......................... 53
SECTION 8.05. Reference in Securities to Supplemental Indentures......... 53
SECTION 8.06. Notice of Supplemental Indentures.......................... 53
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PAGE
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ARTICLE 9
MEETINGS OF HOLDERS OF SECURITIES
SECTION 9.01. Purposes for Which Meetings May Be Called................ 54
SECTION 9.02. Call, Notice and Place of Meetings....................... 54
SECTION 9.03. Persons Entitled to Vote at Meetings..................... 54
SECTION 9.04. Quorum; Action........................................... 54
SECTION 9.05. Determination of Voting Rights; Conduct and Adjournment
of Meetings............................................................ 55
SECTION 9.06. Counting Votes and Recording Action of Meetings.......... 56
ARTICLE 10
COVENANTS
SECTION 10.01. Payment of Principal, Redemption Price, Fundamental
Change Redemption Price and Interest................................... 56
SECTION 10.02. Maintenance of Offices or Agencies...................... 56
SECTION 10.03. Money for Security Payments to Be Held in Trust......... 57
SECTION 10.04. Corporate Existence..................................... 58
SECTION 10.05. Statement by Officers as to Default..................... 58
ARTICLE 11
REDEMPTION OF SECURITIES
SECTION 11.01. Right of Redemption..................................... 59
SECTION 11.02. Applicability of Article................................ 59
SECTION 11.03. Selection to Redeem; Notice to Trustee.................. 59
SECTION 11.04. Selection by Trustee of Securities to Be Redeemed....... 59
SECTION 11.05. Notice of Redemption.................................... 60
SECTION 11.06. Deposit of Redemption Price............................. 60
SECTION 11.07. Securities Payable on Redemption Date................... 61
SECTION 11.08. Securities Redeemed in Part............................. 61
SECTION 11.09. Conversion Arrangement on Call for Redemption........... 61
SECTION 11.10. No Sinking Fund......................................... 62
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PAGE
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ARTICLE 12
CONVERSION OF SECURITIES
SECTION 12.01. Conversion Privilege and Conversion Price.................. 62
SECTION 12.02. Exercise of Conversion Privilege........................... 63
SECTION 12.03. Fractions of Shares........................................ 64
SECTION 12.04. Adjustment of Conversion Price............................. 64
SECTION 12.05. Notice of Adjustments of Conversion Price.................. 72
SECTION 12.06. Notice of Certain Corporate Action......................... 72
SECTION 12.07. Company to Provide Common Stock............................ 73
SECTION 12.08. Taxes on Conversions....................................... 74
SECTION 12.09. Company Covenant as to Common Stock........................ 74
SECTION 12.10. Cancellation of Converted Securities....................... 74
SECTION 12.11. Effect of Reclassification, Consolidation, Merger or Sale.. 74
SECTION 12.12. Responsibility of Trustee for Conversion Provisions........ 75
ARTICLE 13
SUBORDINATION OF SECURITIES
SECTION 13.01. Agreement of Subordination................................. 75
SECTION 13.02. Payments to Holders........................................ 76
SECTION 13.03. Subrogation of Securities.................................. 79
SECTION 13.04. Authorization to Effect Subordination...................... 79
SECTION 13.05. Notice to Trustee.......................................... 80
SECTION 13.06. Trustee's Relation to Senior Indebtedness.................. 80
SECTION 13.07. No Impairment of Subordination............................. 81
SECTION 13.08. Article Applicable to Paying Agents........................ 81
SECTION 13.09. Senior Indebtedness Entitled to Rely....................... 81
SECTION 13.10. Certain Conversions Deemed Payment......................... 81
ARTICLE 14
REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDERS UPON A
FUNDAMENTAL CHANGE
SECTION 14.01. Right to Require Repurchase............................... 82
SECTION 14.02. Notices; Method of Exercising Repurchase Right, Etc....... 82
SECTION 14.03. Merger, Consolidation, Etc................................ 84
v
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PAGE
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ARTICLE 15
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 15.01. Company to Furnish Trustee Names and Addresses of
Holders........................................................... 85
SECTION 15.02. Trustee to Furnish Company Names and Addresses of
Holders........................................................... 85
SECTION 15.03. Preservation of Information........................ 85
SECTION 15.04. Reports by Trustee................................. 86
SECTION 15.05. Reports by Company................................. 86
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<PAGE>
INDENTURE, dated as of __________, 2000, among Ventro Corporation, a
Delaware corporation (herein called the "Company"), and [State Street Bank and
Trust Company of California, N.A.], as Trustee hereunder (herein called the
"Trustee").
RECITALS
The Company has duly authorized the creation of an issue of its _____%
Convertible Subordinated Notes due 2007 (herein called the "Securities") in an
aggregate principal amount not to exceed $345,000,000 (including any
underwriters' over-allotment option), and to provide therefor the Company has
duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when the Securities are
executed by the Company and authenticated and delivered hereunder, the valid
obligation of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE
W I T N E S S E T H:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, the Company and the Trustee mutually covenant and agree,
for the equal and proportionate benefit of all Holders of the securities as
follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
the United States, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation, other than for the purpose
of the definition of Indebtedness and Senior Indebtedness set forth herein; and
(c) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Act", when used with respect to any Holder of a Security, has the meaning
specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified
1
<PAGE>
Person. For the purposes of this definition, "control", when used with respect
to any specified Person, means the power to direct or cause the direction of
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.12 to act on behalf of the Trustee to authenticate Securities.
"Board Of Directors" or "Board" means either the board of directors of the
Company or any committee of that board empowered to act for it with respect to
this Indenture.
"Board Resolution" means a resolution duly adopted by the Board, a copy of
which, certified by the Secretary or an Assistant Secretary of the Company to
have been duly adopted by the Board and to be in full force and effect on the
date of such certification, shall have been delivered to the Trustee.
"Business Day", means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York or the
city in which the principal Corporate Trust Office is located are authorized or
obligated by law or executive order to close.
"Closing Price" has the meaning specified in Section 12.04(h)(i).
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" includes any stock or shares of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company; provided,
however, subject to the provisions of Section 12.11, shares issuable on
conversion of Securities shall include only shares of the class designated as
Common Stock of the Company at the date of this Indenture or shares of any class
or classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; provided,
further, however, that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
2
<PAGE>
"Company Notice" has the meaning specified in Section 14.02.
"Conversion Agent" means any Person authorized by the Company to convert
Securities in accordance with Article 12. The Company has initially appointed
the Trustee as its Conversion Agent, which shall maintain an office or agency in
the Borough of Manhattan, The City of New York, New York.
"Conversion Price" has the meaning specified in Section 12.01.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered
(which at the date of this Indenture is located at [633 West 5th Street, 12th
Floor, Los Angeles, California 90071]), except that with respect to presentation
of Securities for payment or for registration of transfer or exchange, such term
shall mean the office or agency of the Trustee at which at any particular time,
its corporate agency business shall be conducted.
"Corporation" means a corporation, company, including, without limitation,
a limited liability company, association, joint-stock company or business trust.
"Custodian" shall mean [State Street Bank and Trust Company of California,
N.A.], as custodian with respect to a Global Security, or any successor entity
thereto.
"Defaulted Interest" has the meaning specified in Section 3.07.
"Depositary" means, with respect to any Securities issued in whole or in
part in the form of one or more Global Securities, the clearing agency that is
registered under the Exchange Act and designated to act as Depositary for such
Securities, as contemplated by Section 3.04, or any successor clearing agency
registered under the Exchange Act as contemplated by Section 3.04.
"Designated Senior Indebtedness" means any particular Senior Indebtedness
in which the instrument creating or evidencing the same or the assumption or
guarantee thereof (or related agreements or documents to which the Company is a
party, as the case may be) expressly provides that such Senior Indebtedness
shall be "Designated Senior Indebtedness" for purposes of the Indenture
(provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to exercise
the rights of the Designated Senior Indebtedness).
"Dollar" or "U.S.$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"DTC" means The Depository Trust Company, a New York corporation.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended from time to time.
3
<PAGE>
"Fundamental Change" means the occurrence of any transaction or event in
connection with which all or substantially all of the Common Stock shall be
exchanged for, converted into, acquired for or constitute solely the right to
receive, consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock or shares which are (or, upon consummation of or immediately following
such transaction or event, will be) listed on a United States national
securities exchange or approved for quotation on the Nasdaq National Market or
any similar United States system of automated dissemination of quotations of
securities prices.
"Fundamental Change Redemption Date" has the meaning specified in Section
14.01.
"Fundamental Change Redemption Price" has the meaning specified in the form
of Security.
"Global Security" means any Security issued in the form set forth in
Section 2.02 and registered in the Note Register in the name of a Depositary or
a nominee thereof.
"Holder", when used with respect to any Security, means the Person in whose
name the Security is registered in the Note Register.
"Indebtedness" means, with respect to any Person, and without duplication,
(a) all indebtedness, obligations and other liabilities (contingent or
otherwise) of the Person for borrowed money (including obligations of the Person
in respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar instruments) or evidenced by
bonds, debentures, notes or similar instruments (whether or not the recourse of
the lender is to the whole of the assets of the Person or to only a portion
thereof) or obligations in respect of deferred and unpaid purchase price of
assets or property, (b) all reimbursement obligations and other liabilities
(contingent or otherwise) of the Person with respect to letters of credit, bank
guarantees or bankers' acceptances, (c) all obligations and liabilities
(contingent or otherwise) in respect of leases of the Person required, in
conformity with generally accepted accounting principles, to be accounted for as
capitalized lease obligations on the balance sheet of the Person and all
obligations and other liabilities (contingent or otherwise) under any lease or
related document (including a purchase agreement) in connection with the lease
of real property or improvements thereon which provides that the Person is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby guarantee a minimum residual value of the leased
property to the lessor and the obligations of the Person under such lease or
related document to purchase or to cause a third party to purchase such leased
property, (d) all obligations of the Person (contingent or otherwise) with
respect to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange, purchase or
similar instrument or agreement, (e) all direct or indirect guaranties or
similar agreements by the Person in respect of, and obligations or liabilities
(contingent or otherwise) of the Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another Person of the kind described in clauses
(a) through (d), (f) any indebtedness or other obligations described in clauses
(a) through (d) secured by any mortgage, pledge, lien or other encumbrance
existing on property
4
<PAGE>
which is owned or held by the Person, regardless of whether the indebtedness
or other obligation secured thereby shall have been assumed by the Person and
(g) any and all deferrals, renewals, extensions, refinancings and refundings
of, or amendments, modifications or supplements to, any indebtedness,
obligation or liability of the kind described in clauses (a) through (f).
Notwithstanding anything to the contrary in the foregoing, Indebtedness shall
not include any indebtedness of or amounts owed by any Person for compensation
to its employees, or for goods, services or materials purchased in the
ordinary course of its business.
"Indenture" means this Indenture as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this Indenture and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Indenture and any such supplemental indenture, respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Issuer Order" or "Issuer Request" means a written request or order signed
in the name of the Company by its Chairman of the Board, its Vice Chairman of
the Board, its Chief Executive Officer, its President or a Senior Vice President
or a Vice President, and by its principal financial officer, Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to
the Trustee.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption, exercise of the repurchase right set forth in Article 14 or
otherwise.
"Nasdaq National Market" means the electronic inter-dealer quotation system
operated by Nasdaq, Inc., a subsidiary of the National Association of Securities
Dealers, Inc.
"Non-Electing Share" has the meaning specified in Section 12.11.
"Note Register" has the meaning specified in Section 3.04.
"Note Registrar" has the meaning specified in Section 2.02. The Company has
initially appointed the Trustee as its Note Registrar for the purpose of
registering Securities and transfers and exchange of Securities as provided for
herein. The Trustee shall maintain an office or agency for such purposes in the
City of New York.
"Officer" means, with respect to the Company, the Chairman of the Board, a
Vice Chairman of the Board, the Chief Executive Officer, the President or a
Senior Vice President or a Vice President, the principal financial officer, the
Treasurer, or Assistant Treasurer, the Secretary or an Assistant Secretary.
"Officers' Certificate" means a certificate signed both (a) by the Chairman
of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President or a Senior Vice
5
<PAGE>
President or a Vice President and (b) by the principal financial officer,
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of independent counsel of
recognized standing who may be counsel for the Company and who shall be
reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for the payment or redemption of which money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) or set aside and segregated in trust
by the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities, provided that if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to Section 3.06 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company; and
(iv) Securities converted into Common Stock pursuant to Article 12;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities are present at a meeting of Holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such determination as to the
presence of a quorum or upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which a Responsible Officer of the
Trustee actually knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the Company
or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal, Redemption Price, Fundamental Change Redemption Price, or interest,
if any, on any Securities on behalf of the Company and, except as otherwise
specifically set forth herein, such term shall include the Company if it shall
act as its own Paying Agent. The Company has initially appointed the Trustee as
its Paying Agent, which shall maintain an office or agency in The City of New
York, New York.
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"Payment Blockage Notice" has the meaning specified in Section 13.02.
"Person" means any individual, corporation, partnership, joint venture,
association, trust, estate, unincorporated organization or government or any
agency or political subdivision thereof, and includes any successor of such
entity.
"Place of Conversion" has the meaning specified in Section 3.01.
"Place of Payment" has the meaning specified in Section 3.01.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Purchased Shares" has the meaning specified in Section 12.04(f).
"Record Date" means any Regular Record Date or Special Record Date.
"Redemption Date", when used with respect to any Security to be redeemed in
whole or in part, means the date fixed for such redemption as set forth in the
form of Security.
"Redemption Price", when used with respect to any Security to be redeemed,
means the applicable price referred to therein.
"Regular Record Date" for interest payable in respect of any Security on
any Interest Payment Date means the _________ or _________ (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
"Representative" means the (a) indenture trustee or other trustee, agent or
representative for any Senior Indebtedness or (b) with respect to any Senior
Indebtedness that does not have any such trustee, agent or other representative,
(i) in the case of such Senior Indebtedness issued pursuant to an agreement
providing for voting arrangements as among the holders or owners of such Senior
Indebtedness, any holder or owner of such Senior Indebtedness acting with the
consent of the required persons necessary to bind such holders or owners of such
Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness,
the holder or owner of such Senior Indebtedness.
"Responsible Officer", when used with respect to the Trustee, means any
officer in the Corporate Trust Office of the Trustee and also means, with
respect to a particular corporate trust matter, any other officer of the Trustee
to whom such matter is referred because of his knowledge and familiarity with
the particular subject.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals."
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"Securities Act" means the United States Securities Act of 1933, as amended
from time to time.
"Senior Indebtedness" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in such proceeding) and rent payable on or in
connection with, and all fees, costs, expenses and other amounts accrued or due
on or in connection with, Indebtedness of the Company, whether outstanding on
the date of this Indenture or thereafter created, incurred, assumed, guaranteed
or in effect guaranteed by the Company (including all deferrals, renewals,
extensions or refundings of, or amendments, modifications or supplements to, the
foregoing), unless in the case of any particular Indebtedness the instrument
creating or evidencing the same or the assumption or guarantee thereof expressly
provides that such Indebtedness shall not be senior in right of payment to the
Securities or expressly provides that such Indebtedness is "pari passu" or
"junior" to the Securities. Notwithstanding the foregoing, Senior Indebtedness
shall not include any Indebtedness of the Company to any Subsidiary of the
Company or any other entity in which the Company owns voting stock.
"Significant Subsidiary" means, as of any date of determination, a
Subsidiary of the Company, if as of such date of determination either (a) the
assets of such subsidiary equal 10% or more of the Company's total consolidated
assets as of the date of the Company's latest audited balance sheet or (b) the
total revenue of which represented 10% or more of the Company's consolidated
total revenue for the most recently completed fiscal year.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means, with respect to any Person, a corporation more than 50%
of the outstanding voting stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries, or by such Person and one or
more other Subsidiaries. For the purposes of this definition, "Voting Stock"
means stock or other similar interests in the corporation which ordinarily has
or have voting power for the election of directors, or persons performing
similar functions, whether at all times or only so long as no senior class of
stock or other interests has or have such voting power by reason of any
contingency.
"Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Trading Day" has the meaning specified in Section 12.04(h)(v).
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"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this Indenture was executed; provided, however, that in the
event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
The definitions of certain other terms are specified in Article 12 and
elsewhere in this Indenture.
SECTION 1.02. Compliance Certificates and Opinions. Upon any application
or request by the Company to the Trustee or any Paying Agent to take any action
under any provision of this Indenture, the Company shall furnish to the Trustee
or the Paying Agent, as the case may be, an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and if required hereunder, an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (excluding certificates provided for in
Section 10.05) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such individual, he or she has
made such examination or investigation as is necessary to enable him or
her, as the case may be, to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to the Trustee. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
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Any certificate or opinion of an Officer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such Officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which such certificate or opinion is based are erroneous. Any
such certificate or opinion of counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
Officer or Officers stating that the information with respect to such factual
matters is in the possession of the Company unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. Acts of Holders of Securities. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given or taken by Holders of Securities may be
embodied in and evidenced by (i) one or more instruments of substantially
similar tenor signed by such Holders in person or by agents or proxies duly
appointed in writing by such Holders, (ii) the record of Holders of Securities
voting in favor thereof, either in person or by proxies duly appointed in
writing, at any meeting of Holders of Securities duly called and held in
accordance with the provisions of Article 9 or (iii) a combination of such
instruments and any such record. Such action shall become effective when such
instrument or instruments or record or both are delivered to the Trustee and,
where it is hereby expressly required, to the Company. The Trustee shall
promptly deliver to the Company copies of all such instruments and records
delivered to the Trustee with a courtesy copy to the Company's counsel at the
address listed in Section 1.05 and if pertaining to any conversion notice, with
a courtesy copy to Company's common stock transfer agent at the address listed
in Section 1.05. Such instrument or instruments and record (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders of Securities signing such instrument or instruments and so
voting at such meeting. Proof of execution of any such instrument or of a
writing appointing any such agent or proxy, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and (subject to
Section 6.01) conclusive in favor of the Trustee and the Company if made in the
manner provided in this Section. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 9.06.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority.
(c) The principal amount and serial number of any Security held by any
Person, and the date of his holding the same, shall be proved by the Note
Register.
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(d) The fact and date of execution of any such instrument or writing and
the authority of the Person executing the same may also be proved in any other
manner which the Trustee or the Paying Agent deems sufficient; and the Trustee
or any Paying Agent may in any instance require further proof with respect to
any of the matters referred to in this Section 1.04.
(e) The Company may set any day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote on
any action, authorized or permitted by this Indenture to be given or taken by
Holders. Promptly and in any case not later than ten days after setting a record
date, the Company shall notify the Trustee, each Paying Agent and the Holders of
such record date. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such action, or, in the case of any
such vote, prior to such vote, the record date for any such action or vote shall
be the 30th day (or, if later, the date of the most recent list of Holders
required to be provided pursuant to Section 15.01) prior to such first
solicitation or vote, as the case may be. With regard to any record date, the
Holders on such date (or their duly appointed agents or proxies), and only such
Persons, shall be entitled to give or take, or vote on, the relevant action,
whether or not such Holders remain Holders after such record date.
Notwithstanding the foregoing, the Company shall not set a record date for, and
the provisions of this paragraph shall not apply with respect to, any notice,
declaration or direction referred to in the next paragraph.
Upon receipt by the Trustee from any Holder of (i) any notice of default or
breach referred to in Section 5.01(c), if such default or breach has occurred
and is continuing and the Trustee shall not have given such a notice to the
Company, (ii) any declaration of acceleration referred to in Section 5.02, if an
Event of Default has occurred and is continuing and the Trustee shall not have
given such a declaration to the Company, or (iii) any direction referred to in
Section 5.12, if the Trustee shall not have taken the action specified in such
direction, then a record date shall automatically and without any action by the
Company or the Trustee be set for determining the Holders entitled to join in
such notice, declaration or direction, which record date shall be the close of
business on the tenth day (or, if such day is not a Business Day, the first
Business Day thereafter) following the day on which the Trustee receives such
notice, declaration or direction. Promptly after such receipt by the Trustee,
and as soon as practicable thereafter, the Trustee shall notify the Company and
the Holders of any such record date so fixed. The Holders on such record date
(or their duly appointed agents or proxies), and only such Persons, shall be
entitled to join in such notice, declaration or direction, whether or not such
Holders remain Holders after such record date; provided that, unless such
notice, declaration or direction shall have become effective by virtue of
Holders of the requisite principal amount of Securities on such record date (or
their duly appointed agents or proxies) having joined therein on or prior to the
90th day after such record date, such notice, declaration or direction shall
automatically and without any action by any Person be canceled and of no further
effect. Nothing in this paragraph shall be construed to prevent a Holder (or a
duly appointed agent or proxy thereof) from giving, before or after the
expiration of such 90-day period, a notice, declaration or direction contrary to
or different from, or, after the expiration of such period, identical to, the
notice, declaration or direction to which such record date relates, in which
event a new record date in respect thereof shall be set pursuant to this
paragraph. In addition, nothing in this paragraph shall be construed to render
ineffective any notice, declaration or direction of the type referred to in this
paragraph given at any time to the Trustee and the Company by
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Holders (or their duly appointed agents or proxies) of the requisite principal
amount of Securities on the date such notice, declaration or direction is so
given.
(f) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Successor Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
(g) The provisions of this Section 1.04 are subject to the provisions of
Section 9.05.
SECTION 1.05. Notices, Etc., to Trustee and the Company. Any request,
demand, authorization, direction, notice, consent, election, waiver or Act of
Holders of Securities or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with,
(a) the Trustee in [Los Angeles, California] or the office or agency
of the Trustee in New York, New York by any Holder of Securities or by the
Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee and received at its
Corporate Trust Office, [633 West 5th Street, 12th Floor, Los Angeles,
California 90071], Attention: Corporate Trust Department - Ventro
Corporation ___% Convertible Subordinated Notes due 2007 (facsimile number
____________), or to or with the office or agency of the Trustee at [State
Street Bank and Trust Company, N.A., 61 Broadway, Concourse Level,
Corporate Trust Window, New York, New York 10006], Attention: Ventro
Corporation ___% Convertible Subordinated Notes due 2007. In addition, a
courtesy copy shall be sent to Trustee's counsel (which shall not
constitute notice to the Trustee): ____________________,
______________________________, Attention: _______________, Esq.
(facsimile number ____________) or
(b) the Company by the Trustee or any Paying Agent or by any Holder of
Securities shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing, mailed, first-class
postage prepaid, or telecopied and confirmed by mail, first-class postage
prepaid, or delivered by hand or overnight courier, addressed to the
Company at Ventro Corporation, 1500 Plymouth Street, Mountain View,
California 94043 (facsimile number: (650) __________), Attention: Chief
Financial Officer, or at any other address previously furnished in writing
to the Trustee by the Company. In addition, a courtesy copy shall be sent
to the Company's counsel (which shall not constitute notice to the
Company): ______________________________ (facsimile number (650)
__________), Attention: _______________, Esq. and if relating to a
conversion notice as described in Section 2.02, with a copy to Company's
common stock transfer agent, _______________________,
______________________________ (telephone number _______________).
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Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
SECTION 1.06. Notice to Holders of Securities; Waiver. Except as
otherwise expressly provided herein, where this Indenture provides for notice to
Holders of Securities of any event, such notice shall be sufficiently given to
Holders of Securities if in writing and mailed, first-class postage prepaid, to
each Holder of a Security affected by such event, at the address of such Holder
as it appears in the Note Register, not earlier than the earliest date and not
later than the latest date prescribed for the giving of such notice. Such notice
shall be conclusively deemed to have been given and received by Holders when
such notice is mailed, whether or not such Holder receives such notice.
In any case where notice to Holders of Securities is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder of a Security shall affect the sufficiency of such notice with
respect to other Holders of Securities given as provided above. In case by
reason of the suspension of or irregularities in regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification to Holders of Securities as shall be made with the
approval of the Trustee, which approval shall not be unreasonably withheld,
shall constitute a sufficient notification to such Holders for every purpose
hereunder.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Securities shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 1.07. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 1.08. Successors and Assigns. All covenants, stipulations,
promises and agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
SECTION 1.09. Separability Clause. In case any provision in this
Indenture or the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.10. Benefits of Indenture. Except as provided in the next
sentence, nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors and
assigns hereunder and the Holders of Securities, any benefit or legal or
equitable right, remedy or claim under this Indenture. The provisions of Article
13 are intended to be for the benefit of, and shall be enforceable directly by,
the holders of Senior Indebtedness.
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SECTION 1.11. Governing Law. THIS INDENTURE AND EACH SECURITY SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
THE UNITED STATES OF AMERICA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAWS.
SECTION 1.12. Legal Holidays. In any case where any due date for the
payment of interest or principal, Redemption Date, Fundamental Change Redemption
Date or Stated Maturity of any Security or the last day on which a Holder of a
Security has a right to convert his Security shall not be a Business Day at any
Place of Payment or Place of Conversion, as the case may be, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal, Redemption Price, Fundamental Change
Redemption Price, or delivery for conversion of such Security need not be made
at such Place of Payment or Place of Conversion, as the case may be, on or by
such day, but may be made on or by the next succeeding Business Day at such
Place of Payment or Place of Conversion, as the case may be, with the same force
and effect as if made on the Interest Payment Date, Redemption Date, Fundamental
Change Redemption Date, or at the Stated Maturity or by such last day for
conversion; provided, however, that in the case that payment is made on such
succeeding Business Day, no interest shall accrue on the amount so payable for
the period from and after such Interest Payment Date, Redemption Date,
Fundamental Change Redemption Date, Stated Maturity or last day for conversion,
as the case may be.
SECTION 1.13. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with a provision of the Trust Indenture Act that
is required under the Trust Indenture Act to be a part of and to govern this
Indenture, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be. Until such
time as this Indenture shall be qualified under the Trust Indenture Act, this
Indenture, the Company and the Trustee shall be deemed for all purposes hereof
to be subject to and governed by the Trust Indenture Act to the same extent as
would be the case if this Indenture were so qualified on the date hereof.
SECTION 1.14. Indenture and Securities Solely Corporate Obligations. No
recourse for the payment of the principal, Redemption Price, Fundamental Change
Redemption Price, or interest in respect of, any Security and no recourse under
or upon any obligation, covenant or agreement of the Company in this Indenture
or in any supplemental indenture or in any Security, or because of the creation
of any indebtedness represented thereby, shall be had against any incorporator,
stockholder, employee, agent, officer, or director or subsidiary, as such, past,
present or future, of the Company or of any successor corporations, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the
Securities.
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ARTICLE 2
SECURITY FORMS
SECTION 2.01. Forms Generally. The Securities shall be in substantially
the forms set forth in this Article, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the Securities Act and the Exchange Act, applicable
state securities law or the rules of any securities exchange, the Code, and the
treasury regulations under the Code, or as may, consistently herewith, be
determined by the Officers executing such Securities, as evidenced by their
execution thereof.
The Election of Holder to Require Repurchase shall be substantially in the
form set forth in Section 2.03. The Conversion Notice shall be in substantially
the form set forth in Section 2.04. The Trustee's certificate of authentication
shall be in substantially the form set forth in Section 2.05.
The Securities may be printed, lithographed, typewritten, mimeographed or
otherwise produced, as determined by the Officers executing such Security, as
evidenced by their execution thereof.
SECTION 2.02. Form of Security. [FORM OF LEGEND FOR GLOBAL SECURITY:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES)
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
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VENTRO CORPORATION
____% CONVERTIBLE SUBORDINATED NOTE DUE 2007
No. __________ U.S.$__________ principal amount
CUSIP NO. __________
Ventro Corporation, a Delaware corporation (herein called the "Company,"
which term includes any successor Person under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to_______________,
or registered assigns (the "Holder"), the principal sum of_____________ Dollars
($__________) on _____________, 2007 at the office or agency of the Company
maintained for that purpose in New York, New York, in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts, and to pay interest, semi-annually in
arrears on _________ and _________ in each year (each, an "Interest Payment
Date"), commencing _________, 2000 on said principal amount at maturity at the
rate of ____% per annum.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the _________ or _________ (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Except as
otherwise provided in the Indenture, any such interest not so punctually paid or
duly provided for ("Defaulted Interest") on an Interest Payment Date will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture. Payment of
interest on this Security may be made, at the option of the Company, by United
States Dollar check mailed to the address of the Person entitled thereto as such
address shall appear in the Note Register, or, upon written application by the
Holder to the Note Registrar setting forth wire instructions not later than the
relevant Record Date, by transfer to a United States Dollar account (such a
transfer to be made only to a Holder of an aggregate principal amount of
Securities in excess of U.S.$2,000,000 and only if such Holder shall have
furnished wire instructions in writing to the Trustee no later than 15 days
prior to the relevant payment date) maintained by the Holder with a bank in the
United States.
Reference is made to the further provisions of this Security set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal, Redemption Price, Fundamental Change Redemption Price and
interest, if any, in respect of the Securities to the prior payment in full of
all Senior Indebtedness as defined in the Indenture and provisions giving the
holder of this Security the right to convert this Security into Common Stock on
the terms and subject to the limitations referred to on the reverse hereof and
as more
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fully specified in the Indenture. Such further provisions shall for all
purposes have the same effect as though fully set forth at this place.
Capitalized terms used herein, including on the reverse hereof, and not
defined herein or on the reverse hereof shall have the respective meanings
given to such terms in the Indenture.
This Security shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their respective authorized signatories, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers under its corporate
seal.
Dated:
VENTRO CORPORATION
By: ____________________________________
Name:
Title:
Attest
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<PAGE>
[FORM OF REVERSE OF SECURITY]
This Security is one of a duly authorized issue of securities of the
Company designated as its "___% Convertible Subordinated Notes due 2007" (herein
called the "Securities"), limited in aggregate principal amount to U.S.
$345,000,000, including $45 million aggregate principal amount of Securities
that may be sold by the Company pursuant to the over-allotment option granted
under the Underwriting Agreement dated ____, 2000 among the Company, Morgan
Stanley & Co. Incorporated, FleeetBoston Robertson Stephens Inc., Chase
Securities Inc and Duetche Bank Securities, Inc., as representatives of the
several underwriters, issued and to be issued under and pursuant to an
Indenture, dated as of _________, 2000 (herein called the "Indenture"), among
the Company and ________________________, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The Securities are
issuable in the denomination of U.S.$1,000 and integral multiples thereof. As
provided in the Indenture and subject to the limitations therein set forth, the
Securities are exchangeable at the Corporate Trust Office of the Trustee, or the
office or agency of the Trustee, or at such other office or agency of the
Company as may be designated by it for such purpose, in The City of New York
(each a "Note Registrar").
No sinking fund is provided for the Securities. The Securities will not be
redeemable at the option of the Company prior to _________, 2003. At any time
on or after _________, 2003, and prior to maturity, the Securities are subject
to redemption at the option of the Company at any time, upon not less than 30
nor more than 60 days' notice to the Holders prior to the Redemption Date, in
whole or in part, at the following optional Redemption Prices (expressed as
percentages of the principal amount), together in each case with accrued
interest, to but excluding, the Redemption Date.
<TABLE>
<CAPTION>
Redemption Date Redemption
Price
- ------------------------------------------------------------------ ------------------
<S> <C>
Beginning on __________, 2003 and ending on __________, 2004 %
Beginning on __________, 2004 and ending on __________, 2005
Beginning on __________, 2005 and ending on __________, 2006
Beginning on __________, 2006 and ending on __________, 2007
</TABLE>
and 100% on __________, 2007; provided however, that if the date fixed for
redemption is on an Interest Payment Date, then the interest payable on such
date shall be paid to the Holder of record of the Security on the Regular Record
Date next preceding such Redemption Date. In the event of a redemption of less
than all of the Securities, the Company will not be required (a) to register the
transfer or exchange of Securities for a period of 15 days immediately preceding
the date notice is given identifying the serial numbers of the Securities called
for such redemption or (b) to register the transfer or exchange of any Security,
or portion thereof, called for redemption.
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<PAGE>
In any case where the due date for the payment of the principal, Redemption
Price, Fundamental Change Redemption Price, or interest, if any, in respect of,
any Security or the last day on which a Holder of a Security has a right to
convert his Security shall not be a Business Day, at any Place of Payment or
Place of Conversion, as the case may be, then payment of principal, Redemption
Price, Fundamental Change Redemption Price, or interest, if any, in respect of
such Security or delivery for conversion of such Security need not be made on or
by such date at such place but may be made on or by the next succeeding Business
Day at such Place of Payment or Place of Conversion, as the case may be, with
the same force and effect as if made on the date for such payment or the date
fixed for redemption or repurchase, or by such last day for conversion, and no
interest shall accrue on the amount so payable for the period after such date.
Subject to the provisions of the Indenture, the Holder hereof has the
right, at his option, at any time through the close of business on ____________,
2007, or, as to all or any portion hereof called for redemption, prior to the
close of business on the Business Day immediately preceding the date fixed for
redemption (unless the Company shall default in payment due upon redemption
thereof), to convert the principal hereof or any portion of such principal which
is $1,000 principal amount at maturity or a multiple thereof, into that number
of fully paid and nonassessable shares of Common Stock, as said shares shall be
constituted at the date of conversion, obtained by dividing the principal amount
of this Note or portion thereof to be converted by $______ (the "Conversion
Price") or such Conversion Price as adjusted from time to time as provided in
the Indenture, upon surrender of this Security, together with a conversion
notice as provided in the Indenture, to the Company at the office or agency of
the Company maintained for that purpose in New York, New York or ______________,
and, unless the shares issuable on conversion are to be issued in the same name
as this Security, duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by the holder or by his duly
authorized attorney. No adjustments in respect of accrued interest or dividends
will be made upon any conversion; provided, however, that if this Security shall
be surrendered for conversion during the period from, but excluding, a record
date for any interest payment date to, but excluding such Interest Payment Date,
this Security (unless it or the portion being converted shall have been called
for redemption on a Redemption Date which occurs during such period, or is to be
redeemed in connection with a Fundamental Change on a Fundamental Change
Redemption Date which occurs during such period) must be accompanied by an
amount, in New York Clearing House funds, equal to the interest payable on such
interest payment date on the principal amount at maturity being converted;
provided further, however that no such payment need be made if there shall exist
at the time of conversion a default in the payment of interest on the
Securities. No fractional shares will be issued upon any conversion, but an
adjustment in cash will be made, as provided in the Indenture, in respect of any
fraction of a share which would otherwise be issuable upon the surrender of any
Security or Securities for conversion.
If a Fundamental Change (as defined in the Indenture) occurs at any time on
or prior to ___________, 2007, each Holder shall have the right, at such
Holder's option, to require the Company to repurchase all of such Holder's
Securities at a price (the "Fundamental Change Redemption Price") equal to 100%
of the principal amount thereof, on the date (the "Fundamental Change Redemption
Date") (or if such date is not a Business Day, the next succeeding Business Day)
that is 45 days after notice thereof. In each case, the Company shall
20
<PAGE>
also pay accrued interest, if any, on such Securities to, but excluding, the
Fundamental Change Redemption Date; provided that if such Fundamental Change
Redemption Date is on an Interest Payment Date, then the interest payable on
such date shall be paid to the Holder of record of the Securities on the Regular
Record Date next preceding such Fundamental Change Redemption Date. The Company
shall mail to all holders of record of the Securities a notice of the occurrence
of a Fundamental Change and of the redemption right arising as a result thereof
on or before the 30th day after the occurrence of such Fundamental Change. For a
Security to be so repaid at the option of the Holder, the Trustee or any Paying
Agent must receive such Security with the form entitled "Option to Elect
Redemption Upon a Fundamental Change" on the reverse thereof duly completed,
together with such Securities duly endorsed for transfer, on or before the 30th
day after the date of such notice (or if such 30th day is not a Business Day,
the immediately preceding Business Day). All questions as to the validity,
eligibility (including time of receipt) and acceptance of any Security for
redemption shall be determined by the Company, whose determination shall be
final and binding.
[The following paragraph shall appear in each Security that is not a Global
Security:
In the event of redemption, repurchase or conversion of this Security in
part only, a new Security or Securities for the unredeemed, unrepurchased or
unconverted portion hereof will be issued in the name of the Holder hereof.]
In the event of a deposit or withdrawal of an interest in this Security,
including an exchange, transfer, redemption, repurchase or conversion of this
Security in part only, the Trustee, as Custodian of the Depositary, shall make
an adjustment on its records to reflect such deposit or withdrawal in accordance
with the rules and procedures of the Depositary.
The indebtedness evidenced by this Security and the obligations of the
Company under the Indenture are to the extent and in the manner provided in the
Indenture, expressly subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness (as defined in the Indenture),
whether outstanding on the date of the Indenture or thereafter incurred, and
this Security is issued subject to such provisions of the Indenture with respect
thereto. Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes.
If an Event of Default (as defined in the Indenture) shall occur and be
continuing, the principal of and accrued interest to the date of declaration,
may be declared due and payable, with the effect and subject to the conditions
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time (a) by the Company and the Trustee with the written consent of the
Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding (as defined in the Indenture), or (b) by the
adoption of a resolution, at a meeting of Holders of the Outstanding Securities
at which a quorum is present, by the Holders of at least a majority in aggregate
principal amount of the Securities at the time
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<PAGE>
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Successor
Security to this Security, whether or not notation of such consent or waiver is
made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless (a) such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, (b) the Holders of
not less than 25% in aggregate principal amount of the Securities Outstanding
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the Trustee reasonable
indemnity and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Securities Outstanding a direction
inconsistent with such request, and (c) shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal, Redemption Price,
Fundamental Change Redemption Price, or interest in respect hereof on or after
the respective due dates expressed herein or for the enforcement of the right to
convert this Security as provided in the Indenture.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal, Redemption Price, Fundamental
Change Redemption Price and interest, if any, in respect of this Security at the
times, places and rate, and in the coin or currency, herein prescribed or to
convert this Security as provided in the Indenture.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
The Securities are issuable in registered form without coupons in
denominations of $1,000 principal amount and any multiple thereof. As provided
in the Indenture and subject to certain limitations therein set forth, the
transfer of Securities is registrable on the Note Register (as defined in the
Indenture) upon surrender of a Security for registration of transfer (a) at the
Corporate Trust Office of the Trustee or at the office or agency of the Trustee
in the Borough of Manhattan or at such other office or agency of the Company as
may be designated by it for such purpose in the Borough of Manhattan, The City
of New York, or (b) subject to any laws or regulations applicable thereto and to
the right of the Company to terminate the appointment of any Note Registrar, at
the offices of the Note Registrars described herein or at such other offices or
agencies as the Company may designate, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed by, the Holder thereof or his attorney duly authorized
in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees by the Note Registrar. No service charge
shall
22
<PAGE>
be made for any such registration of transfer or exchange, but the Company may
require payment of a sum sufficient to recover any tax or other governmental
charge payable in connection therewith.
No recourse for the payment of the principal, Redemption Price, Fundamental
Change Redemption Price, or interest, if any, in respect of this Security, or
for any claim based hereon or otherwise in respect hereof, and no recourse under
or upon any obligation, covenant or agreement of the Company in the Indenture or
any indenture supplemental thereto or in any Security, or because of the
creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer or director or subsidiary,
as such, past, present or future, of the Company or of any successor
corporations, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of consideration for the issue
hereof, expressly waived and released.
Prior to due presentation of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered, as the owner thereof for all
purposes, whether or not such Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 2.03. Form of Election of Holder to Require Repurchase.
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(a) Pursuant to Section 14.01 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
(b) The undersigned hereby directs the Company to pay it or _______________
the Fundamental Change Redemption Price plus interest accrued to, but excluding,
the Fundamental Change Redemption Date, as provided in the Indenture.
Dated:____________________
________________________________________
________________________________________
Signature(s)
Principal amount to be repurchased: ____________________
Remaining principal amount following such repurchase: ______________
23
<PAGE>
Signature(s) must be guaranteed by a commercial bank or trust company or a
member firm of a major stock exchange with membership in an approved signature
guarantee medallion program pursuant to the Securities and Exchange Commission
Rule 17Ad-15 if shares of Common Stock are to be issued, or Securities to be
delivered, other than to or in the name of the registered
Holder._______________________. Signature Guaranteed
NOTICE: The signature to the foregoing Election must correspond to the name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
SECTION 2.04. Form of Conversion Notice.
CONVERSION NOTICE
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is an integral multiple of U.S.$1,000) below designated, into shares of
Common Stock of the Company in accordance with the terms of the Indenture
referred to in this Security, and directs that such shares, together with a
check in payment for any fractional shares and any Securities representing any
unconverted principal amount hereof, be delivered to and be registered in the
name of the undersigned unless a different name has been indicated below. If
shares of Common Stock or Securities are to be registered in the name of a
Person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Security.
Dated: ___________________
<TABLE>
<CAPTION>
<S> <C>
_________________________________________
_________________________________________
Signature(s)
If shares or Securities are to be registered If only a portion of the Security is to be
in the name of a Person other than the converted, please indicate:
Holder, please print such Person's name and
address: Principal amount to be converted:
- ------------------------------------------- U.S.$____________________
Name
___________________________________________
Address
___________________________________________
Social Security or other Taxpayer
Identification Number, if any
</TABLE>
24
<PAGE>
Signature(s) must be guaranteed by a commercial bank or trust company or a
member firm of a major stock exchange with membership in an approved signature
guarantee medallion program pursuant to the Securities and Exchange Commission
Rule 17Ad-15 if shares of Common Stock are to be issued, or Securities to be
delivered, other than to or in the name of the registered
Holder._______________________. Signature Guaranteed
SECTION 2.05. Form of Certificate of Authentication. The Trustee's
certificate of authentication shall be in substantially the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: _______________
[_________________________________], as
Trustee
By: ---------------------------------------
Authorized Signatory
ARTICLE 3
THE SECURITIES
SECTION 3.01. Title and Terms. The aggregate principal amount of
Securities which may be authenticated and delivered under this Indenture is
limited to U.S. $345,000,000, except for Securities authenticated and delivered
in exchange for, or in lieu of, other Securities pursuant to Section 3.04, 3.05,
3.06, 8.05, 11.08, 12.02 or 14.02(e).
The Securities shall be known and designated as the "____% Convertible
Subordinated Notes due 2007" of the Company. Their Stated Maturity shall be
__________, 2007 and they shall bear interest on their principal amount from
__________, 2000, payable semi-annually in arrears on __________ and __________
in each year, commencing __________, 2000, at the rate of _____% until the
principal, Redemption Price or Fundamental Change Redemption Price in respect
thereof is due; provided, however, that payments shall only be made on Business
Days as provided in Section 1.12.
The principal, Redemption Price, Fundamental Change Redemption Price, and
interest in respect of the Securities shall be payable as provided in the form
of Security set forth in Section 2.02 and the Fundamental Change Redemption
Price shall be payable at such places as are identified in the Company Notice
given pursuant to Section 14.02 (any city in which any Paying Agent is located
being herein called a "Place of Payment").
The Securities shall be redeemable at the option of the Company, in whole
or in part, and at the option of the Company as provided in Article 11 and in
the form of Security set forth in Section 2.02.
25
<PAGE>
The Securities shall be convertible as provided in Article 12 (any city in
which any Conversion Agent is located being herein called a "Place of
Conversion").
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article 13.
The Securities shall be subject to repurchase by the Company at the option
of the Holder as provided in Article 14.
SECTION 3.02. Denominations. The Securities shall be issuable in
registered form without coupons in denominations of $1,000 principal amount and
any multiple thereof. Every Security shall be dated the date of its
authentication, shall bear interest from the applicable date and shall be
payable on the dates specified on the face of the form of Security recited
above.
SECTION 3.03. Execution, Authentication, Delivery and Dating. The
Securities shall be executed on behalf of the Company, in each case by its
Chairman of the Board, its Vice Chairman of the Board, its Chief Executive
Officer, its President or one of its Senior Vice Presidents or one of its Vice
Presidents, under an impression of its corporate seal or a facsimile of its
corporate seal reproduced thereon attested by its Treasurer or one of its
Assistant Treasurers or Secretary or one of its Assistant Secretaries. Any such
signature may be manual or facsimile.
Securities bearing the manual or facsimile signature of an individual or
individuals who were at any time the proper officer or officers of the Company
shall bind the Company, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee or to its order for authentication (or to the Paying Agent), together
with an Issuer Order for the authentication and delivery of such Securities, and
the Trustee or an Authenticating Agent in accordance with such Issuer Order
shall authenticate and make available for delivery such Securities as in this
Indenture provided and not otherwise. In connection with any Issuer Order for
authentication, an Officers' Certificate and Opinion of Counsel pursuant to
Section 1.02 shall be required.
Each Security shall be dated the date of its authentication.
In authenticating the Securities and in accepting the additional
responsibilities under the Indenture in relation to such Securities, the Trustee
shall be entitled to receive and shall be fully protected in relying upon:
(a) A copy of the Board Resolution or Resolutions in or pursuant to
which the terms and form of the Securities were established, and if the
terms and form of such Securities are established by an Officers'
Certificate pursuant to general authorization of the Board of Directors,
such Officers' Certificate;
(b) an executed supplemental indenture, if any; and
26
<PAGE>
(c) an Opinion of Counsel stating that:
(i) the form or forms of such Securities have been established in
conformity with the provisions of this Indenture;
(ii) the terms of such Securities have been established in conformity
with the provisions of this Indenture;
(iii) such Securities, when completed by appropriate insertions and
executed and delivered by the Company to the Trustee for authentication in
accordance with this Indenture, authenticated and delivered by the Trustee
in accordance with this Indenture and issued by the Company in the manner
and subject to any conditions specified in such Opinion of Counsel, will
constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization and other similar laws of general
applicability relating to or affecting the enforcement of creditors' rights
and to general equitable principles and to such other qualifications as
such counsel shall conclude do not materially affect the rights of Holders
of such Securities;
(iv) all laws and requirements in respect of the execution and
delivery by the Company of such Securities and of the supplemental
indenture, if any, have been complied with and that authentication and
delivery of such Securities and the execution and delivery of the
supplemental indenture, if any, by the Trustee will not violate the terms
of the Indenture;
(v) the Company has the corporate power to issue such Securities, and
have duly taken all necessary corporate action with respect to such
issuance; and
(vi) the issuance of such Securities will not contravene the articles
of incorporation or by-laws of the Company or result in any violation of
any of the terms or provisions of any law or regulation or of any
indenture, mortgage or other agreement by which the Company are bound known
to such Counsel, which violation would have a material adverse effect on
the Company.
The Trustee shall not be required to authenticate and deliver any such
Securities if the issue of such Securities pursuant to this Indenture will
affect the Trustee's own rights, duties or immunities under the Securities and
this Indenture or otherwise in a manner which is not reasonably acceptable to
the Trustee.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or an Authenticating Agent by manual signature of an
authorized signatory, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder is entitled to the benefits of this Indenture.
Any Global Security shall represent such of the outstanding Securities as
shall be specified therein and shall provide that it shall represent the
aggregate amount of outstanding
27
<PAGE>
Securities from time to time endorsed thereon and that the aggregate amount of
outstanding Securities represented thereby may from time to time be increased or
reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a
Global Security to reflect the amount of any increase or decrease in the amount
of outstanding Securities represented thereby shall be made by the Trustee or
the Custodian, at the direction of the Trustee, in such manner and upon
instructions given by the holder of such Securities in accordance with this
Indenture. Payment of principal, Redemption Price, Fundamental Change Redemption
Price and interest, if any, in respect of any Global Security shall be made to
the Holder of such Global Security.
SECTION 3.04. Registration of Transfer and Exchange; Restrictions on
Transfer. (a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office and in any
other office or agency of the Company designated pursuant to Section 10.02
(including the office or agency of State Street Bank and Trust Company of
California, N.A., in the Borough of Manhattan, The City of New York) being
herein sometimes collectively referred to as the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Securities and of transfers of Securities.
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 10.02 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount and tenor
and bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, and subject to the further provisions of this
Section 3.04, Securities may be exchanged for other Securities of any authorized
denomination and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at any such office or agency maintained by the
Company pursuant to Section 10.02. Whenever any Securities are so surrendered
for exchange, and subject to the further provisions of this Section 3.04, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive. Every
Security presented or surrendered for registration of transfer or for exchange
shall (if so required by the Company or the Note Registrar) be duly endorsed, or
be accompanied by a written instrument of transfer in form satisfactory to the
Company and the Note Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and, subject to the other provisions of this Section 3.04, entitled to the
same benefits, under and subject to the same restrictions imposed by this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Except as provided in Section 3.06, no service charge shall be made to a
Holder for any registration of transfer or exchange of Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to
28
<PAGE>
Section 8.05, 11.08, 12.02 or 14.02(e) (other than, in the case of Securities,
where the Common Stock is to be issued or delivered in a name other than that of
the Holder of the Security) not involving any transfer and other than any stamp
and other duties, if any, which may be imposed in connection with any such
transfer or exchange by the United States or any political subdivision thereof
or therein, which shall be paid by the Company.
In the event of a redemption of the Securities in part, neither the Company
nor the Note Registrar will be required (a) to register the transfer of or
exchange of Securities for a period of 15 days immediately preceding the date
notice is given identifying the serial numbers of the Securities called for such
redemption or (b) to register the transfer of or exchange any Security, or
portion thereof, called for redemption.
(b) So long as the Securities are eligible for book-entry settlement with
the Depositary, or unless otherwise required by law, all Securities that are so
eligible may be represented by one or more Global Securities registered in the
name of the Depositary or the nominee of the Depositary, except as otherwise
specified below. The transfer and exchange of beneficial interests in any such
Global Security shall be effected through the Depositary in accordance with this
Indenture and the procedures of the Depositary therefor.
Except as provided below, beneficial owners of a Global Security shall not
be entitled to have certificates registered in their names, will not receive or
be entitled to receive physical delivery of certificates in definitive form and
will not be considered Holders of such Global Securities.
(c) Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in the second paragraph of Section 3.04(b) and in this
Section 3.04(c)), a Global Security may not be transferred as a whole or in part
except by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.
The Depositary shall be a clearing agency registered under the Exchange
Act. The Company initially appoints DTC to act as Depositary with respect to the
Global Securities. Initially, each Global Security shall be issued to the
Depositary, registered in the name of Cede & Co., as the nominee of the
Depositary, and deposited with the Custodian for Cede & Co.
If at any time the Depositary for a Global Security notifies the Company
that it is unwilling or unable to continue as Depositary for such Global
Security, the Company may appoint a successor Depositary with respect to such
Global Security. If a successor Depositary is not appointed by the Company
within ninety (90) days after the Company receives such notice, the Company will
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Securities, will authenticate and deliver,
definitive Securities, in aggregate principal amount equal to the Principal
Amount of such Global Security, in exchange for such Global Security.
If a definitive Security is issued in exchange for any portion of a Global
Security after the close of business at the office or agency where such exchange
occurs on any Record Date and
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before the opening of business at such office or agency on the next succeeding
Interest Payment Date, interest will not be payable on such Interest Payment
Date in respect of such Security, but will be payable on such Interest Payment
Date, subject to the provisions of Section 3.07, only to the Person to whom
interest in respect of such portion of such Global Security is payable in
accordance with the provisions of this Indenture.
Definitive Securities issued in exchange for all or a part of a Global
Security pursuant to this Section 3.04 shall be registered in such names and in
such authorized denominations as the Depositary, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct the Trustee.
Upon execution and authentication, the Trustee shall deliver such definitive
Securities to the Persons in whose names such definitive Securities are so
registered.
At such time as all interests in a Global Security have been redeemed,
repurchased, converted, canceled, exchanged for definitive Securities, or
transferred to a transferee who receives definitive Securities, such Global
Security shall, upon receipt thereof, be canceled by the Trustee in accordance
with standing procedures and instructions existing between the Depositary and
the Custodian. At any time prior to such cancellation, if any interest in a
Global Security is exchanged for definitive Securities, redeemed, converted,
repurchased or canceled, exchanged for definitive Securities in certificated
form or transferred to a transferee who receives definitive Securities therefor
or any definitive Security is exchanged or transferred for part of a Global
Security, the principal amount of such Security shall, in accordance with the
standing procedures and instructions existing between the Depositary and the
Custodian, be appropriately reduced or increased, as the case may be, and an
endorsement shall be made on such Global Security, by the Trustee or the
Custodian, at the direction of the Trustee, to reflect such reduction or
increase.
SECTION 3.05. Temporary Securities. Pending the preparation of definitive
Securities, the Company may execute and the Trustee or an Authenticating Agent
shall, upon the written request of the Company, authenticate and deliver
temporary Securities (printed or lithographed). Temporary Securities shall be
issuable in any authorized denomination, and substantially in the form of the
Securities in certificated form, but with such omissions, insertions and
variations as may be appropriate for temporary Securities, all as may be
determined by the Company. Every such temporary Security shall be executed by
the Company and authenticated by the Trustee or such Authenticating Agent upon
the same conditions and in substantially the same manner, and with the same
effect, as the definitive Securities. Without unreasonable delay the Company
will execute and deliver to the Trustee or such Authenticating Agent Securities
and thereupon any or all temporary Securities may be surrendered in exchange
therefor, at each office or agency maintained by the Company and the Trustee or
such Authenticating Agent shall authenticate and make available for delivery in
exchange for such temporary Securities an equal aggregate principal amount of
definitive Securities. Such exchange shall be made by the Company at its own
expense and without any charge therefor. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits and subject to
the same limitations under this Indenture as Securities authenticated and
delivered hereunder.
SECTION 3.06. Mutilated, Destroyed, Lost or Stolen Securities. If any
mutilated Security is surrendered to the Trustee or to a Note Registrar, the
Company shall execute, the Trustee or an Authenticating Agent shall authenticate
and the Trustee or Note Registrar shall
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deliver in exchange therefor a new Security of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
If there be delivered to the Company and either to the Trustee or to a Note
Registrar:
(a) evidence to their satisfaction of the destruction, loss or theft
of any Security, and
(b) such security or indemnity as may be satisfactory to the Company
and the Trustee and such Note Registrar to save each of them and any agent
of either of them harmless, then, in the absence of actual notice to the
Company, the Trustee or the Note Registrar that such Security has been
acquired by a bona fide purchaser, the Company shall execute, and upon its
request, the Trustee or an Authenticating Agent shall authenticate and the
Trustee or Note Registrar shall deliver in lieu of any such destroyed, lost
or stolen Security or in exchange for the Security, a new Security of like
tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion, but
subject to any conversion rights, may, instead of issuing a new Security, pay
such Security.
Upon the issuance of any new Security under this Section 3.06, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto (other than any
stamp and other duties, if any, which may be imposed in connection therewith by
the United States of America or any political subdivision thereof or therein,
which shall be paid by the Company) and any other expenses (including the fees
and expenses of the Trustee, any Paying Agent and any Note Registrar) connected
therewith.
Every new Security issued pursuant to this Section 3.06 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and such new Security shall be entitled to all the benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.
The provisions of this Section 3.06 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies of any Holder with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. Payment of Interest; Interest Rights Preserved. Interest on
any Security which is payable, and is punctually paid or duly provided for, on
any Interest Payment Date shall be paid to the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest except (i) that the
interest payable upon redemption (unless the date of redemption is an Interest
Payment Date) will be payable to the person to whom principal amount is payable
and (ii) as set forth in the next succeeding sentence. In the case of any
Security (or portion thereof) which is converted into Common Stock during the
period from, but excluding, a Regular Record Date to, but excluding, the next
succeeding Interest Payment Date either (i) if such Security (or portion
thereof) has been called for redemption on a Redemption Date which occurs during
such period, or is to be
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redeemed in connection with a Fundamental Change on a Fundamental Change
Redemption Date which occurs during such period, the Company shall not be
required to pay interest on such Interest Payment Date in respect of any such
Security (or portion thereof) except to the extent required to be paid upon
redemption of such Security or portion thereof pursuant to Section 11.07 or
Section 14.01 hereof or (ii) if otherwise, any Security (or portion thereof)
submitted for conversion during such period shall be accompanied by funds equal
to the interest payable on such succeeding Interest Payment Date on the
principal amount so converted in accordance with the provisions of Section 12.02
hereof, unless at the time of conversion there exists a default in the payment
of interest on the Securities. Interest may, at the option of the Company, be
paid by check mailed to the address of such person on the registry kept for such
purposes or by wire transfer in immediately available funds to an account
maintained by such person in the United States; provided that with respect to
any Holder with an aggregate principal amount at maturity equal to or in excess
of $2,000,000, at the request of such Holder in writing the Company shall pay
interest on such Holder's Securities by wire transfer in immediately available
funds.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security, and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon, the Trustee shall fix the Special Record Date
for the payment of such Defaulted Interest, which shall be not more than 15
days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of Securities at such Holder's address as it appears in the
Note Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following clause (b).
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(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.08. Persons Deemed Owners. Prior to due presentment of a
Security for registration of transfer, the Company or the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name such Security
is registered as the owner of such Security for the purpose of receiving payment
of principal, Redemption Price, Fundamental Change Redemption Price, and
(subject to Section 3.07) interest, if any, in respect of such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Note Registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests of a Security
in global form or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any Global Security, nothing
herein shall prevent the Company, the Trustee, or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by any Depositary, as a Holder, with respect to such
Global Security or impair, as between such Depositary and owners of beneficial
interests in such Global Security, the operation of customary practices
governing the exercise of the rights of such Depositary (or its nominee) as
Holder of such Global Security.
SECTION 3.09. Cancellation. All Securities surrendered for payment,
redemption, repurchase, registration of transfer or exchange or conversion
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee. All Securities so delivered to the Trustee shall be canceled promptly
by the Trustee. No Securities shall be authenticated in lieu of or in exchange
for any Securities canceled as provided in this Section 3.09. The Trustee shall
destroy all canceled Securities in accordance with applicable law and its
customary practices in effect from time to time.
SECTION 3.10. Computation of Interest. Interest on the Securities shall
be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 3.11. CUSIP Numbers. The Company in issuing Securities may use
"CUSIP" numbers (if then generally in use) in addition to serial numbers; if so,
the Trustee shall use such "CUSIP" numbers in addition to serial numbers in
notices of redemption and repurchase as a
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convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness of such CUSIP numbers either as
printed on the Securities or as contained in any notice of a redemption or
repurchase and that reliance may be placed only on the serial or other
identification numbers printed on the Securities, and any such redemption or
repurchase shall not be affected by any defect in or omission of such CUSIP
numbers. The Company will promptly notify the Trustee of any changes in the
"CUSIP" numbers.
ARTICLE 4
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture
shall, upon an Issuer Request, cease to be of further effect (except as to any
surviving rights of conversion, or registration of transfer or exchange, or
replacement of Securities herein expressly provided for and the Company's
obligations to the Trustee pursuant to Section 6.07), and the Trustee, at the
expense of the Company, shall execute proper instruments in form and substance
satisfactory to the Trustee acknowledging satisfaction and discharge of this
Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered (other
than (A) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 3.06 and (B)
Securities for whose payment money has theretofore been deposited with
the Trustee or the Paying Agent in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.03) have been
delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the Trustee
or the Paying Agent or its agent for cancellation (other than
Securities referred to in clauses (A) and (B) of clause (a)(i) above)
(A) have become due and payable, or
(B) will have become due and payable at their Stated
Maturity within one year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of clause (A), (B) or (C) above, has deposited
or caused to be deposited with the Trustee as trust funds (immediately
available to the Holders in the case of clause (A)) in trust for the
purpose an amount sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee for
cancellation, for the principal, Redemption Price and Fundamental Change
Redemption Price, and interest, if any, to the date of such deposit in the
case of Securities which have
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become due and payable or to the Stated Maturity, Redemption Date or
Fundamental Change Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07, the obligations of
the Company to any Authenticating Agent under Section 6.12 and, if money shall
have been deposited with the Trustee pursuant to clause (a)(ii) of this Section
4.01, the obligations of the Trustee under Section 4.02 and the last paragraph
of Section 10.03 shall survive. Funds held in trust pursuant to this Section are
not subject to the provisions of Article 13.
SECTION 4.02. Application of Trust Money. Subject to the provisions of
the last paragraph of Section 10.03, all money deposited with the Trustee
pursuant to Section 4.01 shall be held in trust and applied by it, in accordance
with the provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine to the Persons entitled thereto, of
the principal, Redemption Price, Fundamental Change Redemption Price, and
interest, if any, for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
All moneys deposited with the Trustee pursuant to Section 4.01 (and held by
it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon an Issuer Request.
ARTICLE 5
REMEDIES
SECTION 5.01. Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be occasioned by the provisions of Article
13 or be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment of the principal, Redemption Price, or
Fundamental Change Redemption Price, on any Security as and when the same
shall become due and payable, including at Maturity or in connection with
any redemption or repurchase, whether or not such payment is prohibited by
the subordination provisions of Article 13; or
(b) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period of 30
days, whether or not such payment is prohibited by the subordination
provisions of Article 13; or
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(c) default in the performance, or breach, of any covenant or warranty
of the Company, in this Indenture (other than a covenant or warranty a
default in the performance or breach of which is specifically dealt with
elsewhere in this Section), and continuance of such default or breach for a
period of 60 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(d) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable
bankruptcy, moratorium of payments, insolvency, reorganization or other
similar law or (ii) a decree or order adjudging the Company or any
Significant Subsidiary bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Significant Subsidiary
under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Significant Subsidiary or of substantially
all of the Company or Significant Subsidiary's property, as the case may
be, or ordering the winding up or liquidation of the Company or Significant
Subsidiary's affairs and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(e) the commencement by the Company or any Significant Subsidiary of a
voluntary case or proceeding under any applicable bankruptcy, moratorium of
payments, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent or to be
granted moratorium of payment, or the consent by the Company or any
Significant Subsidiary to the entry of a decree or order for relief in
respect of the Company or Significant Subsidiary, as the case may be, in an
involuntary case or proceeding under any applicable bankruptcy, moratorium
of payment, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy, moratorium of payment or insolvency
proceedings against the Company or any Significant Subsidiary, or the
filing by the Company or any Significant Subsidiary of a petition or
consent seeking reorganization or similar relief under any applicable law,
or the consent by the Company or any Significant Subsidiary to the filing
of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or Significant Subsidiary, as the case may
be, or of substantially all of the property of the Company or Significant
Subsidiary, as the case may be, or the making by the Company or any
Significant Subsidiary of an assignment for the benefit of creditors, or
the admission by the Company or any Significant Subsidiary in writing of
its inability to pay its debts generally as they become due, or the taking
of corporate action by the Company or any Significant Subsidiary in
furtherance of any such action; provided that a liquidation or winding up
of a Significant Subsidiary pursuant to applicable corporate law shall not
be deemed to be an Event of Default hereunder.
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SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default (other than an Event of Default specified in Section 5.01(d) or
(e) with respect to the Company) occurs and is continuing, then in every such
case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities may declare the principal of (and premium,
if any) and the interest accrued thereon to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by the Holders),
and upon any such declaration the same shall become immediately due and payable.
If an Event of Default specified in Section 5.01(d) or (e) occurs with respect
to the Company, the principal of (and premium, if any) and accrued interest on
all the Securities then Outstanding shall ipso facto become immediately due and
payable without any declaration or other Act of the Holders or any act on the
part of the Trustee.
At any time after such declaration of acceleration has been made and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article 5 provided, the Holders of a majority in
aggregate principal amount of the Outstanding Securities, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(a) The Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest on all Securities;
(ii) the principal, Redemption Price and Fundamental Change
Redemption Price in respect of any Securities which have become due
otherwise than by such declaration of acceleration and any interest
thereon at the rate borne by the Securities;
(iii) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities;
and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(b) all Events of Default, other than the nonpayment of the principal,
Redemption Price, Fundamental Change Redemption Price, or any interest, in
respect of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.13.
No rescission or annulment referred to above shall affect any subsequent
default or impair any right consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that, if
(a) default is made in the payment of any interest on any Security when it
becomes due and payable and such default continues for a period of 30 days, or
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(b) default is made in the payment of the principal, Redemption Price or
Fundamental Change Redemption Price, as and when the same shall become due and
payable, including at Maturity or in connection with any redemption or
repurchase,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for the principal, Redemption Price or Fundamental Change
Redemption Price, or interest, if any, with interest on the overdue principal,
Redemption Price and Fundamental Change Redemption Price and on any overdue
interest, to the extent permitted by law, at the rate borne by the Securities,
and in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, moratorium of
payments, reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or any other obligor upon the Securities or
the property of the Company or of such other obligor or the creditors of either,
the Trustee (irrespective of whether the principal, Redemption Price,
Fundamental Change Redemption Price, and any interest in respect of, the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal, Redemption Price,
Fundamental Change Redemption Price or interest in respect of the Securities)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of the principal,
Redemption Price, Fundamental Change Redemption Price and interest, if any,
owing and unpaid in respect of the Securities and take such other actions,
including participating as a member, voting or otherwise, of any official
committee of creditors appointed in such matter, and to file such other
papers or documents, in each of the foregoing cases, as may be necessary or
advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders of Securities
allowed in such judicial proceeding, and
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(b) to collect and receive any moneys or other property payable or
deliverable on any such claim and to distribute the same after deduction of
any amounts due the Trustee under Section 6.07;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Securities to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders of Securities to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder of a Security in any such proceeding;
provided, however, that the Trustee may, on behalf of such Holders, vote for the
election of a trustee in bankruptcy or similar official.
SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money collected by the
Trustee pursuant to this Article 5 shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal, Redemption Price, Fundamental Change Redemption
Price, or interest, upon presentation of the Securities and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
6.07;
SECOND: Subject to the provisions of Article 13, in case the
principal of the outstanding Securities shall not have become due and be
unpaid, to the payment of interest on the Securities in default in the
order of the maturity of the installments of such interest, with interest
(to the extent that such interest has been collected by the Trustee) upon
the overdue installments of interest at the rate borne by the Securities,
such payments to be made ratably to the persons entitled thereto;
THIRD: Subject to the provisions of Article 13, in case the
principal, Redemption Price or Fundamental Change Redemption Price and
interest, if any, in respect of the outstanding Securities shall have
become due, by declaration or otherwise, and be unpaid, to the payment of
the whole amount then owing and unpaid upon the Securities for principal,
Redemption Price, Fundamental Change Redemption Price and
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interest, if any, with interest on the overdue principal, Redemption Price
and Fundamental Change Redemption Price, and (to the extent that such
interest has been collected by the Trustee) upon overdue installments of
interest at the rate borne by the Securities; and in case such monies shall
be insufficient to pay in full the whole amounts so due and unpaid upon the
Securities, then to the payment of such aggregate principal, Redemption
Price, Fundamental Change Redemption Price and interest, if any, without
preference or priority of principal, Redemption Price or Fundamental Change
Redemption Price over interest, or of interest over principal, Redemption
Price or Fundamental Change Redemption Price or of any installment of
interest over any other installment of interest, or of any Security over
any other Security, ratably to the aggregate of such principal, Redemption
Price, Fundamental Change Redemption Price and accrued and unpaid interest;
FOURTH: Subject to the provisions of Article 13, to the payment of
the remainder, if any, to the Company or any other Person or Persons
lawfully entitled thereto.
SECTION 5.07. Limitation on Suits. No Holder of any Security shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to
be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 5.08. Unconditional Right of Holders to Receive Principal,
Redemption Price, Fundamental Change Redemption Price and Interest and to
Convert. Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is
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absolute and unconditional, to receive payment of the principal, Redemption
Price, Fundamental Change Redemption Price and accrued interest on such
Security, on or after the respective due dates expressed in such Security, and
to convert such Security in accordance with Article 12, and to institute suit
for the enforcement of any such payment and right to convert, and such rights
shall not be impaired without the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any
Holder of a Security has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders of Securities shall be
restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and such Holders shall
continue as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 3.06, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders of
Securities is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or any acquiescence therein.
Every right and remedy given by this Article 5 or by law to the Trustee or to
the Holders of Securities may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or (subject to the limitations contained
in this Indenture) by the Holders of Securities, as the case may be.
SECTION 5.12. Control by Holders of Securities. Subject to Section
6.03(f), the Holders of a majority in aggregate principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) The Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction;
(c) the Trustee need not take any action which might result in
personal liability or be unjustly prejudicial to the Holders of Securities
not consenting; and
(d) such direction shall be presented by such Holders to the Trustee
in a timely manner.
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SECTION 5.13. Waiver of Past Defaults. The Holders, either (a) through
the written consent of not less than a majority in aggregate principal amount of
the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting
of Holders of the Outstanding Securities at which a quorum is present, by the
Holders of not less than a majority in aggregate principal amount of Outstanding
Securities represented at such meeting, may on behalf of the Holders of all the
Securities waive any past default hereunder and its consequences, except (i) in
the payment of the principal, Redemption Price, Fundamental Change Redemption
Price or interest, if any, in respect of the Securities, (ii) a failure by the
Company to convert any Securities into Common Stock, or (iii) in respect of a
covenant or provision hereof which under Article 8 cannot be modified or amended
without the consent of the Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Security by his or her acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided that the provisions of this Section 5.14 shall not
apply to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in aggregate
principal amount at maturity of the Securities outstanding, or to any suit
instituted by any Holder for the enforcement of the payment of the principal,
Redemption Price, Fundamental Change Redemption Price and interest, if any, in
respect of any Security on or after the due date expressed in such Security or
to any suit for the enforcement of the right to convert any Security in
accordance with the provisions of Article 12.
SECTION 5.15. Waiver of Stay, Extension and Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension law or usury law or other law that
would prohibit or forgive the Company from paying all or any portion of its
obligations on the Securities as provided herein, wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
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ARTICLE 6
THE TRUSTEE
SECTION 6.01. Certain Duties and Responsibilities. (a) Except during the
continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture, but not to verify the
contents thereof.
(b) In case an Event of Default has occurred (which has not been cured or
waived and of which a Responsible Officer has actual knowledge), the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(i) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in aggregate principal amount of the
Outstanding Securities or such lesser percentage as provided in this
Indenture relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
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(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability has not been provided
to it.
SECTION 6.02. Notice of Defaults. Within 90 days after the occurrence of
any default hereunder as to which the Trustee has received written notice, the
Trustee shall give to all Holders of Securities, in the manner provided in
Section 1.06, notice of such default, unless such default shall have been cured
or waived; provided, however, that, except in the case of a default in the
payment of the principal, Redemption Price, Fundamental Change Redemption Price
or interest, if any, in respect of any Security, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors or Responsible Officers of
the Trustee in good faith determines that the withholding of such notice is in
the interest of the Holders. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default.
SECTION 6.03. Certain Rights of Trustee. Subject to the provisions of
Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate, other
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, coupon, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order, and any
resolution of the Board shall be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Securities pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice,
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request, direction, consent, order, bond, debenture, note, coupon, other
evidence of indebtedness or other paper or document, but the Trustee in its
sole discretion may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by agent or
attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(h) the permissive right of the Trustee to take or refrain from taking
any actions enumerated in this Indenture shall not be construed as a duty
and the Trustee shall not be answerable in such actions other than for its
own negligence, bad faith or willful misconduct in exercising any such
right; and
(i) the Trustee shall not be liable for any action taken, suffered or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by the Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. The
recitals contained herein and in the Securities (except the Trustee's
certificates of authentication) shall be taken as the statements of the Company,
and the Trustee or any Authenticating Agent assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture, of the Securities or of the Common Stock issuable
upon the conversion of the Securities. The Trustee or any Authenticating Agent
shall not be accountable for the use or application by the Company of Securities
or the proceeds thereof.
SECTION 6.05. May Hold Securities, Act as Trustee Under Other Indentures.
The Trustee, any Authenticating Agent, any Paying Agent, any Conversion Agent or
any other agent of the Company or the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company with the same rights it would have if it were not the Trustee,
Authenticating Agent, Paying Agent, Conversion Agent or such other agent.
The Trustee may become and act as trustee under other indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding in the same manner as if it were not
Trustee hereunder.
SECTION 6.06. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
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SECTION 6.07. Compensation and Reimbursement. The Company agrees,
(a) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except for any such expense,
disbursement or advance as may be attributable to its negligence, bad faith
or willful misconduct. The Trustee agrees to repay such expenses,
disbursements and advances attributable to its negligence, bad faith or
willful misconduct upon the entry of a final nonappealable determination
that the Trustee engaged in negligence, bad faith or willful misconduct;
and
(c) to indemnify the Trustee (and its directors, officers, employees
and agents) for, and to hold it harmless against, any loss, liability or
expense incurred without negligence, bad faith or willful misconduct on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the costs, expenses and reasonable attorneys' fees
of defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 5.01(d) or Section 5.01(e) in the case of
the Company, or any Significant Subsidiary, the expenses (including the
reasonable charges of its counsel) and the compensation for the services are
intended to constitute expenses of the administration under any applicable
Federal or state bankruptcy, insolvency or other similar law.
Any Paying Agent or Authenticating Agent appointed hereunder shall be
entitled to the benefits of Section 6.07(c) as if the indemnity set forth
therefor were specifically afforded to such Paying Agent or Authenticating
Agent.
The provisions of this Section shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee, any Paying Agent
or any Authenticating Agent, as the case may be. The obligations of the Company
under this Section to compensate the Trustee, to pay or reimburse the Trustee
for expenses, disbursements and advances and to indemnify and hold harmless the
Trustee shall constitute additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Indenture. As security for the performance
of such obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal, Redemption Price,
Fundamental Change Redemption Price, or interest with respect to particular
Securities.
SECTION 6.08. Corporate Trustee Required; Eligibility. There shall at all
times be a Trustee hereunder which shall be a Person that is eligible pursuant
to the Trust Indenture Act to
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act as such, having (or if the Trustee is a member of a bank holding company,
its bank holding company has) a combined capital and surplus of at least
U.S.$50,000,000, subject to supervision or examination by Federal or state
authority, in good standing. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article and a successor shall be
appointed pursuant to Section 6.09.
SECTION 6.09. Resignation and Removal; Appointment of Successor. (a) No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 6.10.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee required by
Section 6.10 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in aggregate principal amount of the Outstanding Securities, delivered
to the Trustee and the Company. If the instrument of acceptance by a successor
Trustee required by Section 6.10 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of removal, the removed Trustee
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(d) If at any time:
(i) the Trustee shall cease to be eligible under Section 6.08 and
shall fail to resign after written request therefor by the Company or by
any Holder of a Security who has been a bona fide Holder of a Security for
at least six months, or
(ii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case (i) the Company by Board Resolutions may remove the
Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been
a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by Board Resolutions,
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shall promptly appoint a successor Trustee and shall comply with the applicable
requirements of this Section and Section 6.10. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee shall be appointed by Act of the Holders of a majority in
aggregate principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 6.10, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner required by this Section and Section
6.10, any Holder of a Security who has been a bona fide Holder of a Security for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders of
Securities in the manner provided in Section 1.06. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 6.10. Acceptance of Appointment by Successor. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on the request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee (including the trust created by this Indenture), shall be the successor
of the Trustee hereunder, provided such corporation shall be otherwise eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities.
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SECTION 6.12. Authenticating Agents. The Trustee may appoint an
additional Authenticating Agent or Agents with respect to the Securities which
shall be authorized to act on behalf of the Trustee to authenticate Securities
issued upon exchange or substitution pursuant to this Indenture.
Securities authenticated by an Authenticating Agent shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder, and every reference in
this Indenture to the authentication and delivery of Securities by the Trustee
or the Trustee's certificate of authentication shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof, the District
of Columbia authorized under such laws to act as Authenticating Agent and
subject to supervision or examination by government or other fiscal authority.
If at any time an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section 6.12, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.12.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate agency or corporate trust business of an Authenticating Agent
(including the duties under this Indenture), shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section 6.12, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.12, the Trustee may appoint a successor
Authenticating Agent which shall be subject to acceptance by the Company. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 6.12.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 6.12 and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 6.07.
If an Authenticating Agent is appointed with respect to the Securities
pursuant to this Section 6.12, the Securities may have endorsed thereon, in
addition to or in lieu of the Trustee's certification of authentication, an
alternative certificate of authentication in the following form:
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This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: [ ]
---------------------------------
as Trustee
By [Authenticating Agent],as Authenticating
Agent
By:
-------------------------
Authorized Signatory
SECTION 6.13. Disqualification; Conflicting Interest. If the Trustee has
or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
SECTION 6.14. Preferential Collection of the Claims Against the Company.
If and when the Trustee shall be or become a creditor of the Company (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of Section 311 of the Trust Indenture Act regarding the collection of
claims against the Company (or any such other obligor).
ARTICLE 7
CONSOLIDATION, MERGER, TRANSFER OR LEASE
SECTION 7.01. The Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to any
other Person and shall not transfer and assign all its obligations of, and
position as, the issuer hereunder, except for a consolidation or merger in which
the Company is the surviving party, unless:
(a) the Person formed by such consolidation or into which the Company
is merged or which acquires by conveyance or transfer the properties and
assets of the Company substantially as an entirety, or to which obligations
of, and position as, the issuer hereunder are transferred and assigned (the
"Successor") (i) shall be a corporation, limited liability company,
partnership or trust organized and existing under the laws of, and resident
for tax purposes in, the United States of America or any political
subdivision thereof, and (ii) shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, due and punctual payment of the principal,
Redemption Price, Fundamental Change Redemption Price and interest, if any,
on all of the Securities and the performance of every covenant of this
Indenture and in the Securities on the part of the Company to be performed
or observed;
(b) immediately after giving effect to any such consolidation, merger,
conveyance, transfer or lease, or such transfer and assignment, no default
and no Event of Default shall have occurred and be continuing; and
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(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease, or such transfer and assignment, and such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with.
SECTION 7.02. Successor Substituted. Upon any consolidation, merger or
any conveyance, transfer or lease of the properties and assets of the Company
substantially as an entirety, or upon transfer and assignment of all obligations
of, and position as, the issuer hereunder, in accordance with Section 7.01, the
Successor shall succeed to and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
Successor had been named as the issuer herein. The Successor thereupon may
cause to be signed, and may issue either in its own name or in the name of
Ventro Corporation, any or all of the Securities issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Trustee; and, upon the order of the Successor instead of the Company and subject
to all the terms, conditions and limitations in this Indenture prescribed, the
Trustee shall authenticate and shall deliver any Securities which previously
shall have been signed and delivered by the officers of the Company to the
Trustee for authentication, and any Securities which the Successor thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All the
Securities so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Securities theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Securities had
been issued at the date of the execution hereof. In the event of any such
consolidation, merger, sale, conveyance or lease, the person named as the
"Company" in the first paragraph of this Indenture or any successor which shall
thereafter have become such in the manner prescribed in this Article 7 may be
dissolved, wound up and liquidated at any time thereafter and such person shall
be released from its liabilities as obligor and maker of the Securities and from
its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
ARTICLE 8
SUPPLEMENTAL INDENTURES
SECTION 8.01. Supplemental Indentures Without Consent of Holders of
Securities. Without the consent of any Holders of Securities, the Company, when
authorized by Board Resolutions, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto in form
satisfactory to the Trustee for any of the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants and obligations of
the Company herein and in the Securities as permitted by this Indenture; or
(b) to add to the covenants of the Company for the benefit of the
Holders of Securities, or to surrender any right or power herein conferred
upon the Company; or
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(c) to add any additional Events of Default; or
(d) to provide for the issuance under this Indenture of Securities in
coupon form (including Securities registrable as to principal only) and to
provide for exchangeability of such Securities with the Securities issued
hereunder in fully registered form and to make all appropriate changes for
such purpose; or
(e) to secure the Securities; or
(f) to provide for successor or additional trustees; or
(g) to make provision with respect to the conversion rights of Holders
of Securities pursuant to Section 12.11 or the repurchase rights of Holders
of Securities pursuant to Section 14.03; or
(h) to comply with the requirements of the Trust Indenture Act or the
rules and regulations of the Commission thereunder in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act,
as contemplated by this Indenture or otherwise; or
(i) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein or which
is otherwise defective, or to make any other provisions with respect to
matters or questions arising under this Indenture as the Company and the
Trustee may deem necessary or desirable, provided, such action pursuant to
this clause (i) shall not adversely affect the interests of the Holders of
Securities in any material respect.
Upon the receipt by the Trustee of an Issuer Request, accompanied by Board
Resolutions authorizing the execution of any such supplemental indenture, and
subject to and upon receipt by the Trustee of the Opinion of Counsel described
in Section 8.03 hereof, the Trustee shall join with the Company in the execution
of any supplemental indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations which
may be therein contained.
SECTION 8.02. Supplemental Indentures with Consent of Holders of
Securities. With either (a) the written consent of the Holders of not less than
a majority in aggregate principal amount of the Outstanding Securities, by the
Act of said Holders delivered to the Company and the Trustee, or (b) by the
adoption of a resolution, at a meeting of Holders of the Outstanding Securities
at which a quorum is present, by the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, the Company, when
authorized by Board Resolutions, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders of Securities under this
Indenture; provided, however, that no such supplemental indenture shall:
(i) extend the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the rate or extend the time of
payment of interest payable thereon, or reduce the principal thereof, or
reduce any amount payable upon
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redemption thereof, change the optional election of the Company to make
redemption of any Security or the obligation of the Company to pay the
Redemption Price upon such election pursuant to Article 11, or impair or
affect the right of any Holder to institute suit for the payment thereof,
or make the principal, Redemption Price, Fundamental Change Redemption
Price or interest, if any, in respect thereof payable in any coin or
currency other than that provided in the Securities, or, except as
permitted by Section 12.11, adversely affect the right to convert any
Security as provided in Article 12, or modify the provisions of this
Indenture with respect to the subordination of the Securities in a manner
adverse to the Holders of Securities, in any material respect, without the
consent of the Holder of each Security so affected, or
(ii) reduce the aforesaid percentage in aggregate principal amount of
the Outstanding Securities the consent of whose Holders is required for any
such supplemental indenture, without the consent of the Holder of each
Outstanding Security.
It shall not be necessary for any Act of Holders of Securities under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 8.03. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Sections
6.01 and 6.03) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture, and that such supplemental indenture has been duly
authorized, executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company enforceable against the Company in
accordance with its terms. The Trustee may, but shall not be obligated to, enter
into any such supplemental indenture which affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
SECTION 8.04. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article, this Indenture shall be modified
in accordance therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 8.05. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
so modified as to conform, in the opinion of the Company and the Trustee, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
SECTION 8.06. Notice of Supplemental Indentures. Promptly after the
execution by the Company and the Trustee of any supplemental indenture pursuant
to the provisions of Section 8.02, the Company shall give notice to all Holders
of Securities of such fact, setting forth in
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general terms the substance of such supplemental indenture, in the manner
provided in Section 1.06. Any failure of the Company to give such notice, or any
defect therein, shall not in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE 9
MEETINGS OF HOLDERS OF SECURITIES
SECTION 9.01. Purposes for Which Meetings May Be Called. A meeting of
Holders of Securities may be called at any time and from time to time pursuant
to this Article to make, give or take any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be made, given or taken by Holders of Securities.
SECTION 9.02. Call, Notice and Place of Meetings. (a) The Trustee may at
any time call a meeting of Holders of Securities for any purpose specified in
Section 9.01, to be held at such time and at such place in [Los Angeles,
California] or in the Borough of Manhattan, The City of New York, as the Trustee
shall determine. Notice of every meeting of Holders of Securities, setting forth
the time and the place of such meeting and in general terms the action proposed
to be taken at such meeting, shall be given, in the manner provided in Section
1.06, not less than 20 nor more than 90 days prior to the date fixed for the
meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or the
Holders of at least 10% in aggregate principal amount of the Outstanding
Securities shall have requested the Trustee to call a meeting of the Holders of
Securities for any purpose specified in Section 9.01, by written request setting
forth in reasonable detail the action proposed to be taken at the meeting, and
the Trustee shall not have made the first publication of the notice of such
meeting within 20 days after receipt of such request or shall not thereafter
proceed to cause the meeting to be held as provided herein, then the Company or
the Holders of Securities in the amount specified, as the case may be, may
determine the time and the place in the Borough of Manhattan, The City of New
York for such meeting and may call such meeting for such purposes by giving
notice thereof as provided in paragraph (a) of this Section.
SECTION 9.03. Persons Entitled to Vote at Meetings. To be entitled to
vote at any meeting of Holders of Securities, a Person shall be (a) a Holder of
one or more Outstanding Securities on the applicable record date, or (b) a
Person appointed by an instrument in writing as proxy for a Holder or Holders of
one or more Outstanding Securities by such Holder or Holders. The only Persons
who shall be entitled to be present or to speak at any meeting of Holders shall
be the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 9.04. Quorum; Action. The Persons entitled to vote a majority in
aggregate principal amount of the Outstanding Securities shall constitute a
quorum. In the absence of a quorum within 30 minutes of the time appointed for
any such meeting, the meeting shall, if convened at the request of Holders of
Securities, be dissolved. In any other case, the meeting may be adjourned for a
period of not less than 10 days as determined by the chairman of the meeting
prior to the adjournment of such meeting. In the absence of a quorum at any such
reconvened meeting, such reconvened meeting may be further adjourned for a
period not less than 10 days as determined by the chairman of the meeting prior
to the adjournment of such
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reconvened meeting (subject to repeated applications of this sentence). Notice
of the reconvening of any adjourned meeting shall be given as provided in
Section 9.02(a), except that such notice need be given only once not less than
five days prior to the date on which the meeting is scheduled to be reconvened.
Notice of the reconvening of an adjourned meeting shall state expressly the
percentage of the principal amount of the Outstanding Securities which shall
constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned for a
lack of a quorum, the Persons entitled to vote 25% in aggregate principal amount
of the Outstanding Securities at the time shall constitute a quorum for the
taking of any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a quorum
is present as aforesaid, any resolution and all matters (except as limited by
the proviso to Section 8.02) shall be effectively passed and decided if passed
or decided by not less than a majority in aggregate principal amount of the
Outstanding Securities represented and entitled to vote at such meeting.
Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not present or represented at the meeting. The
Trustee shall, in the name and at the expense of the Company, notify all the
Holders of Securities of any such resolutions or decisions pursuant to Section
1.06.
SECTION 9.05. Determination of Voting Rights; Conduct and Adjournment of
Meetings. (a) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders of Securities in regard to proof of the holding of Securities
and of the appointment of proxies and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of Securities shall
be proved in the manner specified in Section 1.04 and the appointment of any
proxy shall be proved in the manner specified in Section 1.04.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman (which may be the Trustee) of the meeting, unless the meeting shall
have been called by the Company or by Holders of Securities as provided in
Section 9.02(b), in which case the Company or the Holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall be
elected by vote of the Persons entitled to vote a majority in aggregate
principal amount of the Outstanding Securities represented at the meeting.
(c) At any meeting, each Holder of a Security or proxy shall be entitled to
one vote for each U.S.$1,000 principal amount of Securities held or represented
by him; provided, however, that no vote shall be cast or counted at any meeting
in respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding.
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The chairman of the meeting shall have no right to vote, except as a Holder of a
Security or proxy.
(d) Any meeting of Holders of Securities duly called pursuant to Section
9.02 at which a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority in aggregate principal amount of the Outstanding
Securities represented at the meeting, and the meeting may be held as so
adjourned without further notice.
SECTION 9.06. Counting Votes and Recording Action of Meetings. The vote
upon any resolution submitted to any meeting of Holders of Securities shall be
by written ballots on which shall be subscribed the signatures of the Holders of
Securities or of their representatives by proxy and the principal amounts and
serial numbers of the Outstanding Securities held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record, at least in
duplicate, of the proceedings of each meeting of Holders of Securities shall be
prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more Persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was given as provided in Section 9.02 and, if applicable, Section 9.04.
Each copy shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one such copy shall be delivered to
the Company and another to the Trustee to be preserved by the Trustee, the
latter to have attached thereto the ballots voted at the meeting. Any record so
signed and verified shall be conclusive evidence of the matters therein stated.
ARTICLE 10
COVENANTS
SECTION 10.01. Payment of Principal, Redemption Price, Fundamental Change
Redemption Price and Interest. The Company covenants and agrees that it will
duly and punctually pay the principal, Redemption Price, Fundamental Change
Redemption Price and interest, if any, in respect of the Securities in
accordance with the terms of the Securities and this Indenture. The Company will
deposit or cause to be deposited with the Trustee on or prior to the due date
for any installment of interest thereon or on the Stated Maturity of any
Security all payments so due, which payments shall be in immediately available
funds on the date of such due date or Stated Maturity, as the case may be.
SECTION 10.02. Maintenance of Offices or Agencies. The Company hereby
appoints the Corporate Trust Office of the Trustee in _________________ and the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York, as places where Securities may be presented or surrendered for payment,
where Securities may be surrendered for registration of transfer or exchange,
where Securities may be surrendered for conversion, and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served (which notices and demands shall be promptly forwarded by the
Trustee to the Company).
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The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents for any or all of
such purposes; provided, however, that until all of the Securities have been
delivered to the Trustee for cancellation, or moneys sufficient to pay the
principal, Redemption Price, Fundamental Change Redemption Price and interest,
if any, in respect of the Securities have been made available for payment and
either paid or returned to the Company pursuant to the provisions of Section
10.03, the Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented or surrendered for
payment and conversion, where Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee, and notice to the Holders in
accordance with Section 1.06, of the appointment or termination of any such
agents and of the location and any change in the location of any such office or
agency.
If at any time the Company shall fail to maintain any such required office
or agency, or shall fail to furnish the Trustee with the address thereof,
presentations and surrenders may be made and notices and demands may be served
on the office or agency of the Trustee in the Borough of Manhattan, the City of
New York.
SECTION 10.03. Money for Security Payments to Be Held in Trust. If the
Company shall act as its own Paying Agent, it will, on or before each due date
of the principal, Redemption Price, Fundamental Change Redemption Price or
interest, if any, in respect of any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the amounts so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and the Company will promptly notify
the Trustee of its action or failure so to act and of any failure by the Company
(or by any other obligor under the Securities) to make any payment of the
principal, Redemption Price, Fundamental Change Redemption Price or interest, if
any, in respect of the Securities when the same shall become due and payable.
Whenever there shall be one or more Paying Agents, the Company will, on or
prior to each due date of the principal, Redemption Price, Fundamental Change
Redemption Price or interest, if any, in respect of any Securities, deposit with
such Paying Agent a sum sufficient to pay such amounts so becoming due, such sum
to be held for the benefit of the Persons entitled to such principal, Redemption
Price, Fundamental Change Redemption Price or interest, if any, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of
their action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(a) hold all sums held by it for the payment of the principal,
Redemption Price, Fundamental Change Redemption Price or interest, if any,
in respect of Securities for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed of as
herein provided;
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(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of the
principal, Redemption Price, Fundamental Change Redemption Price or
interest, if any, in respect of the Securities, when the same shall be due
and payable; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Issuer
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal, Redemption Price,
Fundamental Change Redemption Price, or interest, if any, in respect of any
Security and remaining unclaimed for the earlier of ten days prior to the time
such money would escheat to the state or two years after such amount has become
due and payable shall be paid to the Company or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease.
SECTION 10.04. Corporate Existence. Subject to Article 7, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence.
SECTION 10.05. Statement by Officers as to Default. The Company will
deliver to the Trustee within 120 days after the end of each fiscal year of the
Company an Officers' Certificate stating that in the course of performance by
the signers of their duties as such officers of the Company they would normally
obtain knowledge of whether any default exists in the performance and observance
of any of the terms, provisions and conditions of this Indenture and whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture. Such Officers' Certificate shall further state, as to each such
officer signing such Certificate, to the best of the knowledge of such officer,
as of the date of such Officers' Certificate, (a) whether any such default
exists, (b) whether the Company during the preceding fiscal year kept, observed,
performed and fulfilled each and every covenant and obligation of the Company
under this Indenture and (c) whether there was any default in the performance
and observance of any of the terms, provisions or conditions of this Indenture
during such preceding fiscal year. If the officer or officers signing the
Officers' Certificate know of such a default, whether then existing or occurring
during such preceding fiscal year, the Officers' Certificate shall describe such
default and its status with particularity. The Company shall also promptly
notify the Trustee if the Company's fiscal year is changed so that the end
thereof is on any date other than the then current fiscal year end date.
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The Company will deliver to the Trustee, forthwith and in any event within
5 days after the Company become aware of any default in the performance or
observance of any covenant, agreement or condition contained in this Indenture,
or any Event of Default, an Officers' Certificate specifying with particularity
such default or Event of Default and further stating what action the Company has
taken, is taking or propose to take with respect thereto.
Any notice required to be given under this Section 10.05 shall be delivered
to the Trustee at its Corporate Trust Office.
ARTICLE 11
REDEMPTION OF SECURITIES
SECTION 11.01. Right of Redemption. The Company may not redeem the
Securities prior to __________, 2003. On or after that date, the Company may,
at its option, redeem all or from time to time any part of the Securities on any
date prior to maturity, upon notice as set forth in Section 11.05, and at the
optional Redemption Prices set forth in the form of Security set forth in
Section 2.02, together with accrued interest, if any, to, but excluding, the
Redemption Date.
SECTION 11.02. Applicability of Article. Redemption of Securities at the
election of the Company or otherwise, as permitted or required by any provision
of the Securities or this Indenture, shall be made in accordance with such
provision and this Article.
SECTION 11.03. Selection to Redeem; Notice to Trustee. The election of
the Company to redeem any Securities shall be evidenced by a Board Resolution.
In case of any redemption at the election of the Company of less than all of the
Securities, the Company shall, at least 45 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee in writing of such Redemption Date.
SECTION 11.04. Selection by Trustee of Securities to Be Redeemed. If
fewer than all the Securities are to be redeemed, the Trustee shall select, with
written notice to the Company, by lot, pro rata or by another manner as the
Trustee shall deem equitable and fair, the Securities or portions thereof (in
multiples of $1,000 principal amount) to be redeemed. If any Security selected
for partial redemption is converted in part after such selection, the converted
portion of such Security shall be deemed (so far as may be) to be the portion to
be selected for redemption. The Securities (or portions thereof) so selected
shall be deemed duly selected for redemption for all purposes hereof,
notwithstanding that any such Security is converted as a whole or in part before
the mailing of the notice of redemption.
Upon any redemption of less than all the Securities, the Company and the
Trustee may treat as outstanding any Securities surrendered for conversion
during the period of 15 days next preceding the mailing of a notice of
redemption and need not treat as outstanding any Security authenticated and made
available for delivery during such period in exchange for the unconverted
portion of any Security converted in part during such period.
The Trustee shall promptly notify the Company and each Note Registrar in
writing of the securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
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For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 11.05. Notice of Redemption. Notice of redemption shall be given
in the manner provided in Section 1.06 to the Holders of Securities to be
redeemed not less than 30 nor more than 60 days prior to the Redemption Date,
and such notice shall be irrevocable. The Company shall also publish a notice of
such redemption at least once in each of Bloomberg Business News, Dow Jones News
(DJN) and Reuter Financial Report in the City of New York (or if any such
publications are not then published, such other publications in the City of New
York of comparable circulation as may be determined by the Company) at least 30
and not more than 60 days prior to the date fixed for redemption.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all Outstanding Securities are to be redeemed, the
aggregate principal amount of Securities to be redeemed and the aggregate
principal amount of Securities which will be outstanding after such partial
redemption,
(d) that on the Redemption Date the Redemption Price and interest
accrued to, but excluding, the Redemption Date will be paid as specified in
said notices, and that on and after said date interest thereon or on the
portions thereof to be redeemed, will cease to accrue,
(e) the Conversion Price then in effect, the date on which the right
to convert the Securities to be redeemed will terminate and the places
where such Securities, may be surrendered for conversion, and
(f) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any.
In case of a partial redemption, the notice shall specify the serial and
CUSIP numbers (if any) and the portions thereof called for redemption and that
transfers and exchanges may occur on or prior to the Redemption Date.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name of and at the expense of the Company. Notice of
redemption of Securities to be redeemed at the election of the Company received
by the Trustee shall be given by the Trustee to each Paying Agent in the name of
and at the expense of the Company.
SECTION 11.06. Deposit of Redemption Price. By 10:00 a.m. (New York time)
on any Redemption Date of the Securities, the Company shall deposit with the
Trustee or with the
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Paying Agent so directed by the Trustee (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 10.03) an
amount of money (which shall be in immediately available funds on such
Redemption Date) sufficient to pay the Redemption Price of, and accrued interest
on, all the Securities which are to be redeemed on that date other than any
Securities called for redemption on that date which have been converted prior to
the date of such deposit.
If any Security (or portion thereof) called for redemption is converted,
any money deposited with the Trustee or with a Paying Agent or so segregated and
held in trust for the redemption of such Security shall (subject to any right of
the Holder of such Security, if a Security, or any Predecessor Security, to
receive interest as provided in the last paragraph of Section 3.07) be paid to
the Company on Issuer Request as soon as administratively practicable after the
Trustee receives such Issuer Request or, if then held by the Company, shall be
discharged from such trust.
SECTION 11.07. Securities Payable on Redemption Date. If notice of
redemption has been given as above provided, the Securities or portions of
Securities with respect to which such notice has been given shall, unless
theretofore converted into Common Stock pursuant to the terms hereof, become due
and payable on the date and at the place or places stated in such notices at the
applicable Redemption Price, together with interest accrued to, but excluding,
the Redemption Date, and on and after said date (unless the Company shall
default in the payment of such Securities at the Redemption Price, together with
interest accrued to, but excluding, said date). Interest on the Securities or
portions of Securities so called for redemption shall cease to accrue and such
Securities shall cease after the Redemption Date to be convertible into Common
Stock and, except as provided in Sections 6.06 and 10.03, to be entitled to any
benefit or security under this Indenture, and the Holders thereof shall have no
right in respect of such Securities except the right to receive the Redemption
Price thereof and unpaid interest to, but excluding, the Redemption Date. Upon
surrender of any Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price together with
accrued and unpaid interest to, but excluding, the Redemption Date; provided,
however, that installments of interest shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such on the
relevant Record Date according to their terms and the provisions of Section
3.07.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal, Redemption Price and, to the extent
permitted by applicable law, interest, if any, in respect thereof shall, until
paid, bear interest from the Redemption Date at the rate borne by the Security
and such Security shall remain convertible into Common Stock until the
Redemption Price shall have been paid or duly provided for.
SECTION 11.08. Securities Redeemed in Part. Any Security which is to be
redeemed only in part shall be surrendered at an office or agency of the Company
designated for that purpose pursuant to Section 10.02 (with, if the Company or
the Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and make available for delivery to
the Holder of such Security without service charge, a new Security or
Securities, of any authorized
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denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
SECTION 11.09. Conversion Arrangement on Call for Redemption. In
connection with any redemption of Securities, the Company may arrange for the
purchase and conversion of any Securities by an agreement with one or more
investment bankers or other purchasers (the "Purchasers") to purchase such
securities by paying to the Trustee in trust for the Holders, on or before the
Redemption Date, an amount not less than the applicable Redemption Price,
together with interest accrued to, but excluding, the Redemption Date, of such
Securities. Notwithstanding anything to the contrary contained in this Article,
the obligation of the Company to pay the Redemption Price, together with
interest accrued to, but excluding, the Redemption Date, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
Purchasers. If such an agreement is entered into (a copy of which shall be filed
with the Trustee 3 days prior to the Redemption Date), any Securities called for
redemption that are not duly surrendered for conversion by the Holders thereof
may, at the option of the Company, be deemed, to the fullest extent permitted by
law, and consistent with any agreement or agreements with such Purchasers, to be
acquired by such Purchasers from such Holders and (notwithstanding anything to
the contrary contained in Article 12) surrendered by such Purchasers for
conversion, all as of immediately prior to the close of business on the
Redemption Date (and the right to convert any such Securities shall be extended
though such time), subject to payment of the above amount as aforesaid. At the
direction of the Company, the Trustee shall hold and dispose of any such amount
paid to it to the Holders in the same manner as it would monies deposited with
it by the Company for the redemption of Securities. Without the Trustee's prior
written consent, no arrangement between the Company and such Purchasers for the
purchase and conversion of any Securities shall increase or otherwise affect any
of the powers, duties, responsibilities or obligations of the Trustee as set
forth in this Indenture, and the Company agrees to indemnify the Trustee from,
and hold it harmless against, any loss, liability or expense arising out of or
in connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such Purchasers, including the costs and
expenses, including reasonable legal fees, incurred by the Trustee in the
defense of any claim or liability arising out of or in connection with the
exercise or performance of any of its powers, duties, responsibilities or
obligations under this Indenture.
SECTION 11.10. No Sinking Fund. The Securities shall not be entitled to
the benefit of any sinking fund.
ARTICLE 12
CONVERSION OF SECURITIES
SECTION 12.01. Conversion Privilege and Conversion Price. Subject to and
upon compliance with the provisions of this Article, at the option of the Holder
thereof, the Holder of any Security is entitled at his option, at any time prior
to the close of business on __________, 2007, to convert the principal amount of
any such Security, or any portion of such principal amount which is $1,000 or a
multiple thereof, into that number of fully paid and nonassessable shares of
Common Stock obtained by dividing the principal amount of the Security or
portion thereof surrendered for conversion by the Conversion Price in effect at
such time, by surrender of the Security so to be converted in whole or in part
in the manner provided in Section 12.02.
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Such conversion right shall be subject, in the case of the conversion of any
Global Security, to any applicable book-entry procedures of the Depositary
therefor and the following sentence. In case a Security or portion thereof is
called for redemption or is delivered for repurchase, such conversion right in
respect of the Security or portion so called shall expire at the close of
business on the Business Day prior to the Redemption Date or the Fundamental
Change Redemption Date (as defined in Article 14), as the case may be, unless
the Company defaults in making the payment due upon redemption or repurchase, as
the case may be.
The Conversion Price shall be as specified in the forms of Security set
forth in Section 2.02, subject to adjustment as provided in this Article 12.
SECTION 12.02. Exercise of Conversion Privilege. Beneficial owners of
interests in a Global Security may exercise their right of conversion by
delivering to the Depositary the appropriate instruction form for conversion
pursuant to the Depositary's conversion program. To convert a definitive
Security into shares of Common Stock, a Holder must (a) complete and manually
sign the conversion notice in the form set forth in Section 2.03 on the back of
the definitive Security (or complete and manually sign a facsimile thereof) and
deliver such notice to the Trustee at the Corporate Trust Office of the Trustee
or the office or agency of [State Street Bank and Trust Company of California,
N.A.], in New York, New York or the office of any Conversion Agent, (b)
surrender the definitive Security to the Trustee at the Corporate Trust Office
of the Trustee or the office or agency of the [State Street Bank and Trust
Company of California, N.A.], in New York, New York or the office of any
Conversion Agent, (c) if required, furnish appropriate endorsements and transfer
documents, (d) if required, pay all transfer or similar taxes, and (e) if
required, pay funds equal to interest payable on the next Interest Payment Date.
The date on which all of the foregoing requirements have been satisfied is the
date of surrender for conversion. The Trustee shall promptly deliver to the
Company and the Company's Common Stock transfer agent notification of such
notice of conversion at the address described in Section 1.05.
Each Security surrendered for conversion will be converted into Common
Stock in registered form. Any Security or portion thereof surrendered for
conversion during the period from, but excluding, a record date for any Interest
Payment Date to, but excluding, such Interest Payment Date shall (unless such
Security or portion thereof being converted shall have been called for
redemption on a Redemption Date which occurs during such period, or is to be
redeemed in connection with a Fundamental Change on a Fundamental Change
Redemption Date which occurs during such period) be accompanied by payment, in
New York Clearing House funds of an amount equal to the interest otherwise
payable on such Interest Payment Date on the principal amount being converted;
provided, however, that no such payment need be made if there shall exist at the
time of conversion a default in the payment of interest on the Securities.
Except as provided above in this Section, no adjustment shall be made for
dividends on any shares issued upon the conversion of such Security as provided
in this Article.
The Company's delivery to the Holder of the number of shares of Common
Stock (and cash in lieu of fractions thereof, as provided in this Indenture)
into which a Security is convertible will be deemed to satisfy the Company's
obligation to pay the principal amount of the Security. The Common Stock is
treated as issued first in payment of accrued interest, and then in payment of
principal.
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Securities shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Securities for conversion, in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the shares of Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such Common Stock at
such time. As promptly as practicable on or after the conversion date, the
Company shall issue and deliver to the Trustee, for delivery to the Holder, a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 12.03.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. A Security may
be converted in part, but only if the principal amount of such Security to be
converted is any integral multiple of U.S.$1,000 and the principal amount of
such security to remain Outstanding after such conversion is equal to U.S.$1,000
or any integral multiple thereof.
SECTION 12.03. Fractions of Shares. No fractional shares of Common Stock
shall be issued upon conversion of any Securities. If more than one Security
shall be surrendered for conversion at one time by the same Holder, the number
of full shares which shall be issuable upon conversion thereof shall be computed
on the basis of the aggregate principal amount of the Securities (or specified
portions thereof) so surrendered. Instead of any fractional share of Common
Stock which would otherwise be issuable upon conversion of any Securities (or
specified portions thereof), the Company shall make an adjustment and payment in
respect of such fraction in cash at the current market value thereof, to be
completed at the close of business on the day of conversion.
SECTION 12.04. Adjustment of Conversion Price. The Conversion Price shall
be subject to adjustments from time to time as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator of which shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such determination.
If any dividend or distribution of the type described in this Section 12.04(a)
is declared but not so paid or made, the Conversion Price shall again be
adjusted to the Conversion Price which would then be in effect if such dividend
or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all holders of
its outstanding Common Stock entitling them (for a period expiring within 45
days after the date fixed for
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determination of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase Common Stock at a price per share less than the
Current Market Price (as defined in Section 12.04(h)(ii)) on the date fixed for
determination of stockholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date fixed for determination of stockholders entitled to receive such rights
or warrants by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding at the close of business on the date fixed for
determination of stockholders entitled to receive such rights and warrants plus
the number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Current Market Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
on the date fixed for determination of stockholders entitled to receive such
rights or warrants plus the total number of additional shares of Common Stock
offered for subscription or purchase. Such adjustment shall be successively made
whenever any such rights or warrants are issued, and shall become effective
immediately after the opening of business on the day following the date fixed
for determination of stockholders entitled to receive such rights or warrants.
To the extent that shares of Common Stock are not delivered after the expiration
of such rights or warrants, the Conversion Price shall be readjusted to the
Conversion Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery of only
the number of shares of Common Stock actually delivered. In the event that such
rights or warrants are not so issued, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such date
fixed for the determination of stockholders entitled to receive such rights or
warrants had not been fixed. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase Common Stock at less than such
Current Market Price, and in determining the aggregate offering price of such
Common Stock, there shall be taken into account any consideration received by
the Company for such rights or warrants, the value of such consideration, if
other than cash, to be determined by the Board of Directors.
(c) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased.
(d) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock of the Company
(other than any dividends or distributions to which Section 12.04(a) applies) or
evidences of its indebtedness or assets (including securities, but excluding any
rights or warrants referred to in Section 12.04(b), and excluding any dividend
or distribution (x) paid exclusively in cash or (y) referred to in Section
12.04(a) (any of the foregoing hereinafter in this Section 12.04(d) called the
"Distribution Securities")), then, in each such case, the Conversion Price shall
be reduced so that the same shall be equal to the price determined by
multiplying the Conversion Price in effect on the Distribution Record Date with
respect to such distribution by a fraction the numerator of which shall be the
Current Market Price per share of Common Stock on such Distribution Record Date
less the fair market value (as determined by the Board of Directors whose
determination shall be
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conclusive, and described in a resolution of the Board of Directors) on the
Distribution Record Date of the portion of the Distribution Securities so
distributed applicable to one share of Common Stock and the denominator of which
shall be the Current Market Price per share of Common Stock, such reduction to
become effective immediately prior to the opening of business on the day
following such Distribution Record Date; provided, however, that in the event
the then fair market value (as so determined) of the portion of the Distribution
Securities so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price per share of the Common Stock on the
Distribution Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Holder shall have the right to receive upon
conversion the amount of Distribution Securities such Holder would have received
had such Holder converted each Security on the Distribution Record Date. In the
event that such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such dividend or distribution had not been declared. If the Company's
Board of Directors determines the fair market value of any distribution for
purposes of this Section 12.04(d) by reference to the actual or when issued
trading market for any securities, it must in doing so consider the prices in
such market over the same period used in computing the Current Market Price of
the Common Stock.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of shares of Common Stock, shall be deemed not to have been
distributed for purposes of this Section 12.04 (and no adjustment to the
Conversion Rate under this Section 12.04 will be required) until the occurrence
of the earliest Trigger Event, whereupon such rights and warrants shall be
deemed to have been distributed and an appropriate adjustment (if any is
required) to the Conversion Price shall be made under this Section 12.04(d). If
any such right or warrant, including any such existing rights or warrants
distributed prior to the date of this Indenture, are subject to events, upon the
occurrence of which such rights or warrants become exercisable to purchase
different securities, evidences of indebtedness or other assets or different
amounts of any of the foregoing, or both, then the date of the occurrence of any
and each such event shall be deemed to be the date of distribution and record
date with respect to new rights or warrants with such rights (and a termination
or expiration of the existing rights or warrants without exercise by any of the
holders thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto that was counted
for purposes of calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 12.04 was made, (1) in the case of any such
rights or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted upon
such final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the per share redemption or repurchase price received by a holder or holders
of shares of Common Stock with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders of shares of
Common Stock as of the date of such redemption or repurchase, and (2) in the
case of such rights or warrants which shall have expired or been terminated
without exercise by any
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holders thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued.
Notwithstanding the foregoing, in the event that the Company shall
distribute rights or warrants to subscribe for additional shares of the Common
Stock (other than rights or warrants described in Section 12.04(b)), pro rata to
substantially all holders of Common Stock, the Company may, in lieu of making
any adjustment pursuant to this Section 12.04(d), make proper provision so that
each holder of a Security who converts such Security (or any portion thereof)
after the Distribution Record Date for such distribution shall be entitled to
receive upon such conversion, in addition to the shares of Common Stock issuable
upon such conversion (the "Conversion Shares"), a number of rights or warrants
to be determined as follows: (i) if such conversion occurs on or prior to the
date for the distribution to the holders of such rights or warrants of separate
certificates evidencing such rights or warrants (the "Distribution Date"), the
same number of rights or warrants to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled at the time of
such conversion in accordance with the terms and provisions of and applicable to
such rights or warrants; and (ii) if such conversion occurs after the
Distribution Date, the same number of rights or warrants to which a holder of
the number of shares of Common Stock into which the principal amount of the
Security so converted was convertible immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of, and applicable to such rights or warrants.
For purposes of this Section 12.04(d) and Sections 12.04(a) and (b), any
dividend or distribution to which this Section 12.04(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets or shares of
capital stock other than such shares of Common Stock or rights or warrants (and
any Conversion Price reduction required by this Section 12.04(d) with respect to
such dividend or distribution shall then be made) immediately followed by (2) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (and any further Conversion Price reduction required by Sections
12.04(a) and (b) with respect to such dividend or distribution shall then be
made), except (A) the Distribution Record Date of such dividend or distribution
shall be substituted as "the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution" and "the date fixed for
such determination" within the meaning of Sections 12.04(a) and (b) and (B) any
shares of Common Stock included in such dividend or distribution shall not be
deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 12.04(a).
In the event the Company implements a rights plan (a "Rights Plan"), each
share of Common Stock issued upon conversion of Securities pursuant to this
Article 12 shall be entitled to receive the appropriate number of rights, if
any, and the certificates representing the Common Stock issued upon such
conversion shall bear such legends, if any, in each case as provided by and
subject to their terms of the rights agreement related to the Rights Plan (the
"Rights Agreement") as in effect at the time of such conversion. If the rights
are separated from the Common Stock in accordance with the provisions of such
Rights Agreement such that the Holders of Securities would thereafter not be
entitled to receive any such rights in respect to the Common Stock issuable upon
conversion of such Securities, the Conversion Price will be
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adjusted as provided in this Section 12.04(d) on the separation date; provided
that if such rights expire, terminate or are redeemed by the Company, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such separation had not occurred. In lieu of any such
adjustment, the Company may amend the Rights Agreement to provide that upon
conversion of the Securities the Holders will receive, in addition to the Common
Stock issuable upon such conversion, the rights which would have attached to
such shares of Common Stock if the rights had not become separated from the
Common Stock pursuant to the provisions of the Rights Agreement.
(e) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding (x) any quarterly cash dividend on
the Common Stock to the extent that the aggregate cash dividend per share of
Common Stock in any quarterly period does not exceed the greater of (A) the
amount per share of Common Stock of the next preceding quarterly cash dividend
on the Common Stock to the extent that such preceding quarterly dividend did not
require any adjustment of the Conversion Price pursuant to this Section 12.04(e)
(as adjusted to reflect subdivisions or combinations of the Common Stock), and
(B) 3.75% of the arithmetic average of the Closing Prices (determined as set
forth in Section 12.04(h)) during the ten Trading Days immediately prior to the
date of declaration of such dividend, (y) any dividend or distribution in
connection with the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary and (z) any cash that is distributed as part of
a distribution requiring a Conversion Price adjustment pursuant to Section
12.04(d)), then, in such case, the Conversion Price shall be reduced so that the
same shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on such Distribution Record
Date by a fraction of which the numerator shall be the Current Market Price of
the Common Stock on the Distribution Record Date less the amount of cash so
distributed (and not excluded as provided above) applicable to one share of
Common Stock and the denominator shall be such Current Market Price of the
Common Stock, such increase to be effective immediately prior to the opening of
business on the day following the Distribution Record Date; provided, however,
that in the event the portion of the cash so distributed applicable to one share
of Common Stock is equal to or greater than the Current Market Price of the
Common Stock on the Distribution Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Holder shall have the
right to receive upon conversion the amount of cash such Holder would have
received had such Holder converted each Security on the Distribution Record
Date. In the event that such dividend or distribution is not so paid or made,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such dividend or distribution had not been declared.
If any adjustment is required to be made as set forth in this Section 12.04(e)
as a result of a distribution that is a quarterly dividend, such adjustment
shall be based upon the amount by which such distribution exceeds the amount of
the quarterly cash dividend permitted to be excluded pursuant hereto. If an
adjustment is required to be made as set forth in this Section 12.04(e) above as
a result of a distribution that is not a quarterly dividend, such adjustment
shall be based upon the full amount of the distribution.
(f) In case a tender or exchange offer made by the Company or any
subsidiary of the Company for all or any portion of the Common Stock shall
expire and such tender or exchange offer (as amended upon the expiration
thereof) shall require the payment to stockholders of consideration per share of
Common Stock having a fair market value (as determined by the
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Board of Directors, whose determination shall be conclusive and described in a
Board Resolution) that as of the last time (the "Expiration Time") tenders or
exchanges may be made pursuant to such tender or exchange offer (as it may be
amended) exceeds the Current Market Price of the Common Stock on the Trading Day
next succeeding the Expiration Time, the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the Expiration Time by a fraction of which
the numerator shall be the number of Common Stock outstanding (including any
tendered or exchanged shares) on the Expiration Time multiplied by the Current
Market Price of the Common Stock on the Trading Day next succeeding the
Expiration Time and the denominator shall be the sum of (x) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered or exchanged and
not withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of Common Stock outstanding (less any Purchased Shares) on
the Expiration Time and the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Time. In the event that the Company is obligated to purchase shares
pursuant to any such tender or exchange offer, but the Company is permanently
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such tender or exchange offer
had not been made.
(g) In case of a tender or exchange offer made by a Person other than the
Company or any Subsidiary of the Company for an amount which increases the
offeror's ownership of Common Stock to more than 25% of the Common Stock
outstanding and shall involve the payment by such Person of consideration per
share of Common Stock having a fair market value (as determined by the Board of
Directors, whose determination shall be conclusive, and described in a
resolution of the Board) at the last time (the "Tender Expiration Time") tenders
or exchanges may be made pursuant to such tender or exchange offer (as it shall
have been amended) that exceeds the Current Market Price per share of the Common
Stock on the Trading Day next succeeding the Tender Expiration Time, and in
which, as of the Tender Expiration Time the Board of Directors is not
recommending rejection of the offer, the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the Tender Expiration Time by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the Tender Expiration Time
multiplied by the Current Market Price of the Common Stock on the Trading Day
next succeeding the Tender Expiration Time and the denominator shall be the sum
of (x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Tender Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as the
"Accepted Purchased Shares") and (y) the product of the number of shares of
Common Stock outstanding (less any Accepted Purchased Shares) on the Tender
Expiration Time and the Current Market Price of the Common Stock on the Trading
Day next succeeding the Tender Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day following the
Tender Expiration Time. In the event
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that such Person is obligated to purchase shares pursuant to any such tender or
exchange offer, but such Person is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such tender or exchange offer had not been made. Notwithstanding the
foregoing, the adjustment described in this Section 12.04(g) shall not be made
if, as of the Tender Expiration Time, the offering documents with respect to
such offer disclose a plan or intention to cause the Company to engage in any
transaction described in Article 7.
(h) For purposes of this Section 12.04, the following terms shall have the
meaning indicated:
(i) "Closing Price" with respect to any securities on any day shall
mean the closing sale price, regular way, on such day or, in case no such
sale takes place on such day, the average of the reported closing bid and
asked prices, regular way, in each case on the New York Stock Exchange, or,
if such security is not listed or admitted to trading on such Exchange, on
the principal security exchange or quotation system in the United States on
which such security is quoted or listed or admitted to trading, or, the
average of the closing bid and asked prices of such security on the over-
the-counter market on the day in question as reported by the Nasdaq
National Market or a similar generally accepted reporting service, or if
not so available, in such manner as furnished by any New York Stock
Exchange member firm selected from time to time by the Board of Directors
for that purpose, or a price determined in good faith by the Board of
Directors or, to the extent permitted by applicable law, a duly authorized
committee thereof, whose determination shall be conclusive.
(ii) "Current Market Price" shall mean the average of the daily
Closing Prices per share of Common Stock for the ten consecutive Trading
Days immediately prior to the date in question; provided, however, that (A)
if the "ex" date (as hereinafter defined) for any event (other than the
issuance or distribution or Fundamental Change requiring such computation)
that requires an adjustment to the Conversion Rate pursuant to Section
12.04(a), (b), (c), (d), (e), (f) or (g) occurs during such ten consecutive
Trading Days, the Closing Price for each Trading Day prior to the "ex" date
for such other event shall be adjusted by multiplying such Closing Price by
the same fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (B) if the "ex" date for any
event (other than the issuance, distribution or Fundamental Change
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to Section 12.04(a), (b), (c), (d), (e), (f) or (g) occurs
on or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the Closing Price for each
Trading Day on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal of the
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event, and (C) if the "ex" date for the issuance,
distribution or Fundamental Change requiring such computation is prior to
the day in question, after taking into account any adjustment required
pursuant to clause (A) or (B) of this proviso, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted by adding thereto
the amount of any cash and the fair market value (as determined by the
Board of Directors in a manner consistent
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with any determination of such value for purposes of Section 12.04(d), (f)
or (g) whose determination shall be conclusive and described in a
resolution of the Board of Directors) of the evidences of indebtedness,
shares of capital stock or assets being distributed applicable to one share
of Common Stock as of the close of business on the day before such "ex"
date. For purposes of any computation under Section 12.04(f) or (g), the
Current Market Price of the Common Stock on any date shall be deemed to be
the average of the daily Closing Prices per share of Common Stock for such
day and the next two succeeding Trading Days; provided, however, that if
the "ex" date for any event (other than the tender or exchange offer
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to Section 12.04(a), (b), (c), (d), (e), (f) or (g) occurs
on or after the Expiration Time or Tender Expiration Time, as the case may
be, for the tender or exchange offer requiring such computation and prior
to the day in question, the Closing Price for each Trading Day on and after
the "ex" date for such other event shall be adjusted by multiplying such
Closing Price by the same fraction by which the Conversion Price is so
required to be adjusted as a result of such other event. For purposes of
this paragraph, the term "ex" date, (1) when used with respect to any
issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market from
which the Closing Price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(3) when used with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the Expiration Time or Tender Expiration Time, as the
case may be, of such offer.
(iii) "Fair Market Value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's length transaction.
(iv) "Distribution Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which the holders
of Common Stock have the right to receive any cash, securities or other
property or in which the Common Stock (or other applicable security) is
exchanged for or converted into any combination of cash, securities or
other property, the date fixed for determination of stockholders entitled
to receive such cash, securities or other property (whether such date is
fixed by the Board of Directors or by statute, contract or otherwise).
(v) "Trading Day" shall mean (x) if the applicable security is listed
or admitted for trading on the New York Stock Exchange or another national
security exchange, a day on which the New York Stock Exchange or another
national security exchange is open for business or (y) if the applicable
security is quoted on the Nasdaq National Market, a day on which trades may
be made on thereon or (z) if the applicable security is not so listed,
admitted for trading or quoted, any day other than a Saturday or Sunday or
a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
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(i) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(i)) would require an increase or decrease of at least one percent in such rate;
provided, however, that any adjustments which by reason of this paragraph (i)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(j) The Company may, at its option, make such reductions in the Conversion
Price as the Board deems advisable, in addition to those required by paragraphs
(a), (b), (c), (d), (e), (f) or (g) of this Section 12.04 in order to avoid or
diminish any income tax to any holders of Common Stock or rights to purchase
Common Stock resulting from any dividend or distribution on Common Stock (or
rights to acquire such shares) or from any event treated as such for income tax
purposes, resulting from any dividend or distribution of shares or issuance of
rights or warrants to purchase or subscribe for shares or from any event treated
as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to time
may reduce the Conversion Price by any amount for any period of time if the
period is (i) at least twenty (20) days, (ii) the reduction is irrevocable
during the period and (iii) the Board shall have made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. Whenever the Conversion Price is reduced pursuant to the
preceding sentence, the Company shall give notice of the increase to the Holders
of Securities in the manner provided in Section 1.06 at least fifteen (15) days
prior to the date the reduced Conversion Price takes effect, and such notice
shall state the reduced Conversion Price and the period during which it will be
in effect.
(k) No adjustment of the Conversion Price will result in zero or a negative
number.
SECTION 12.05. Notice of Adjustments of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Section 12.04 and shall prepare a certificate signed by the
President, Treasurer, Chief Financial Officer or Vice President of Finance
of the Company setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall promptly be filed with the Trustee and with each
Conversion Agent; and
(b) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall promptly be prepared and
as soon as practicable thereafter, such notice shall be provided by the
Company to all Holders in accordance with Section 1.06.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during
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normal business hours. Unless and until the Trustee shall receive such
certificate, it may assume without inquiry that the Conversion Price has not
been adjusted.
SECTION 12.06. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other distribution)
on all or substantially all of its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that would
require any adjustment pursuant to Section 12.04; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights, options or warrants to subscribe for or purchase
any shares of capital stock of any class or of any other rights that would
require any adjustment pursuant to Section 12.04; or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding Common Stock), or of
any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company or any significant subsidiary; or
(e) the Company or any Subsidiary of the Company shall commence a
tender offer for all or a portion of the Company's outstanding Common Stock
(or shall amend any such tender offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 10.02, and shall
cause to be provided to all Holders in accordance with Section 1.06, at least 20
days (or 10 days in any case specified in clause (a) or (b) above) prior to the
applicable record, expiration or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights, options or warrants, or, if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, options or warrants are to be
determined, (y) the date on which the right to make tenders under such tender
offer expires or (z) the date on which such reclassification, consolidation,
merger, share exchange, conveyance, transfer, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of shares of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, share exchange,
conveyance, transfer, sale, lease, dissolution, liquidation or winding up. If at
the time the Trustee shall not be the Conversion Agent, a copy of such notice
and any notice referred to in the following paragraph shall also forthwith be
filed by the Company with the Trustee.
The preceding paragraph to the contrary notwithstanding, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of Securities pursuant to Section 10.02, and shall cause to be
provided to all Holders in accordance with Section 1.06,
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notice of any tender offer by the Company or any subsidiary of the Company for
all or any portion of the Common Stock at or about the time that such notice of
tender offer is provided to the public generally (such notice to be sent to all
Holders within five days after receipt of such notice by the Trustee or
Conversion Agent from the Company).
SECTION 12.07. Company to Provide Common Stock. The Company shall ensure
that the Company has, free from preemptive rights, out of its authorized but
unissued Common Stock, the full number of shares of Common Stock for the purpose
of effecting the conversion of Securities.
SECTION 12.08. Taxes on Conversions. The Company will pay any and all
taxes and duties that may be payable in respect of the issue or delivery of
Common Stock on conversion of Securities pursuant hereto. The Company shall not,
however, be required to pay any tax or duty which may be payable in respect of
any transfer involved in the issue and delivery of Common Stock in a name other
than that of the Holder of the Security or Securities to be converted, and no
such issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax or duty, or has
established to the satisfaction of the Company that such tax or duty has been
paid.
SECTION 12.09. Company Covenant as to Common Stock. The Company covenants
that all Common Stock which may be delivered upon conversion of Securities, upon
such delivery, will have been duly authorized and validly issued and will be
fully paid and nonassessable and, except as provided in Section 12.08, the
Company will pay all taxes, liens and charges with respect to the issue thereof.
SECTION 12.10. Cancellation of Converted Securities. All Securities
delivered for conversion shall be delivered to the Trustee or its agent to be
canceled by or at the direction of the Trustee, which shall dispose of the same
as provided in Section 3.09.
SECTION 12.11. Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (a) any reclassification or change
of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 12.04(c) applies), (b) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (c) any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture) providing that such Security shall be
convertible into the kind and amount of shares of stock and other securities or
property or assets (including cash) receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance by a holder of a
number of shares of Common Stock issuable upon conversion of such Securities
(assuming, for such purposes, a sufficient number of authorized shares of Common
Stock available to convert all such Securities) immediately prior to such
reclassification, change,
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consolidation, merger, combination, sale or conveyance assuming such holder of
Common Stock is (i) not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or transfer was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person, and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance is not the same
for each share of Common Stock in respect of which such rights of election shall
not have been exercised ("Non-Electing Share")), then for the purposes of this
Section 12.11 the kind and amount of securities, cash or other property
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance for each Non-electing Share shall be deemed to
be the kind and amount so receivable per share by a plurality of the non-
electing shares. Such supplemental indenture shall provide for adjustments
which, for events subsequent to the effective date of such supplemental
indenture, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. The above provisions of this Section
12.11 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, combinations, sales or conveyances. Notice of the
execution of such a supplemental indenture shall be given by the Company to the
Holder of each Security as provided in Section 1.06 promptly upon such
execution.
Neither the Trustee, any Paying Agent nor any Conversion Agent shall be
under any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind or
amount of shares of stock or other securities or property or cash receivable by
Holders of Securities upon the conversion of their Securities after any such
reclassification, change, consolidation, merger, combination, sale or conveyance
or to any such adjustment, but may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, an
Opinion of Counsel with respect thereto, which the Company shall cause to be
furnished to the Trustee.
SECTION 12.12. Responsibility of Trustee for Conversion Provisions. The
Trustee and any Conversion Agent shall not at any time be under any duty or
responsibility to any Holder of Securities to determine whether any facts exist
which may require any adjustment of the Conversion Price, or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same, or whether a supplemental indenture need be entered into.
Neither the Trustee nor any Conversion Agent shall be accountable with respect
to the validity or value (or the kind or amount) of any Common Stock, or of any
other securities or property or cash, which may at any time be issued or
delivered upon the conversion of any Security; and it or they do not make any
representation with respect thereto. Neither the Trustee, subject to the
provisions of Section 6.01, nor any Conversion Agent shall be responsible for
any failure of the Company to make or calculate any cash payment or to issue,
transfer or deliver any Common Stock or share certificates or other securities
or property or cash upon the surrender of any Security for the purpose of
conversion; and the Trustee and any Conversion Agent shall not be responsible
for any failure of the Company to comply with any of the covenants of the
Company contained in this Article.
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ARTICLE 13
SUBORDINATION OF SECURITIES
SECTION 13.01. Agreement of Subordination. The Company covenants and
agrees, and each Holder of Securities issued hereunder by his acceptance thereof
likewise covenants and agrees, that all Securities shall be issued subject to
the provisions of this Article; and each Person holding any Security, whether
upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees to be bound by such provisions.
The payment of the principal, Redemption Price or Fundamental Change
Redemption Price, if any, and interest, if any, in respect of all Securities
(including, but not limited to, the Redemption Price with respect to the
Securities called for redemption in accordance with Article 11, or the
Fundamental Change Redemption Price with respect to Securities submitted for
repurchase in accordance with Article 14, as the case may be, as provided in
this Indenture) issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
prior payment in full in cash of all Senior Indebtedness, whether outstanding at
the date of this Indenture or thereafter incurred.
No provision of this Article 13 shall prevent the occurrence of any default
or Event of Default hereunder.
SECTION 13.02. Payments to Holders. No payment shall be made with respect
to the principal, Redemption Price, Fundamental Change Redemption Price, or
interest, if any, in respect of, the Securities by or on behalf of the Company
(including, but not limited to, the Redemption Price with respect to the
Securities to be called for redemption in accordance with Article 11 or the
Fundamental Change Redemption Price with respect to Securities submitted for
repurchase in accordance with Article 14, as the case may be, as provided in
this Indenture), except payments and distributions made by the Trustee as
permitted by the first or second paragraph of Section 13.05, if:
(a) a default in the payment of principal, premium, interest, rent or
other obligations due on any Designated Senior Indebtedness, has occurred
and is continuing (or, in the case of Designated Senior Indebtedness, for
which there is a period of grace, in the event of such a default that
continues beyond the period of grace, if any, specified in the instrument
or lease evidencing such Designated Senior Indebtedness), unless and until
such default shall have been cured or waived or shall have ceased to exist;
or
(b) a default (other than a payment default) on Designated Senior
Indebtedness of the Company occurs and is continuing that then permits
holders of such Designated Senior Indebtedness to accelerate its maturity
and the Trustee receives a notice of the default (a "Payment Blockage
Notice") from the Company, or a Representative of Designated Senior
Indebtedness of Company or a holder of Designated Senior Indebtedness of
the Company.
If the Trustee receives any Payment Blockage Notice pursuant to clause
(b) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section unless and until at least 365 days shall have
elapsed since the initial effectiveness
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of the immediately prior Payment Blockage Notice. No nonpayment default
that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee (unless such default was waived, cured or
otherwise ceased to exist and thereafter subsequently reoccurred) shall be,
or be made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Securities upon the earlier of:
(i) in the case of a payment default, the date upon which the
default is cured or waived or ceases to exist, or
(ii) in the case of a default referred to in clause (b) above,
the earlier of the date on which such default is cured or waived or
ceases to exist or 179 days after the date on which the applicable
Payment Blockage Notice is received by the Trustee if the maturity of
the applicable Designated Senior Indebtedness has not been accelerated
and no Payment Default with respect to any such Designated Senior
Indebtedness has occurred which has not been cured or waived (in which
case clause (i) shall instead be applicable),
unless this Article otherwise prohibits the payment or distribution at the time
of such payment or distribution (including without limitation, in the case of
default referred to in clause (b) above, as a result of a payment default with
respect to the applicable Designated Senior Indebtedness as a consequence of the
acceleration of the maturity thereof or otherwise).
Upon any payment by the Company, or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding-up or liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy, moratorium of
payments, insolvency, receivership or other proceedings, all amounts due or to
become due upon all Senior Indebtedness, shall first be paid in full in cash or
other payment satisfactory to the holders of such Senior Indebtedness, or
payment thereof in accordance with its terms provided for in cash or other
payment satisfactory to the holders of such Senior Indebtedness before any
payment is made on account of the principal, Redemption Price, Fundamental
Change Redemption Price, or interest, if any, in respect of the Securities
(except payments by the Company made pursuant to Article 4 from monies deposited
with the Trustee pursuant thereto prior to commencement of proceedings for such
dissolution, winding-up, liquidation or reorganization); and upon any such
dissolution or winding-up or liquidation or reorganization of the Company or
bankruptcy, insolvency, receivership or other proceeding, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the Holders or the Trustee
would be entitled, except for the provision of this Article, shall (except as
aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy,
moratorium of payments, liquidating trustee, agent or other Person making such
payment or distribution, or by the Holders or by the Trustee under this
Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
such Senior Indebtedness held by such holders, or as otherwise required by law
or a court order) or their Representative or Representatives, or to the trustee
or trustees under any indenture pursuant to which any
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instruments evidencing any such Senior Indebtedness may have been issued, as
their respective interests may appear, to the extent necessary to pay all such
Senior Indebtedness in full, in cash or other payment satisfactory to the
holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness,
before any payment or distribution is made to the Holders or to the Trustee.
For purposes of this Article, the words, "cash, property or securities"
shall not be deemed to include a payment or distribution of stock of the Company
as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this Article
with respect to the Securities to the payment of all Senior Indebtedness, which
may at the time be outstanding; provided that (i) such Senior Indebtedness is
assumed by the new corporation, if any, resulting from any reorganization or
readjustment, and (ii) the rights of the holders of such Senior Indebtedness
(other than leases which are not assumed by the Company or the new corporation,
as the case may be) are not, without the consent of such holders, altered by
such reorganization or readjustment. The merger of the Company into another
corporation or the liquidation or dissolution of the Company following the
conveyance or transfer of its property as an entirety, or substantially as an
entirety, to another corporation upon the terms and conditions provided for in
Article 7 shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 13.02 if such other corporation
shall, as a part of such merger, conveyance or transfer, comply with the
conditions stated in Article 7.
In the event of the acceleration of the Securities because of an Event of
Default, no payment or distribution shall be made to the Trustee or any Holder
of Securities in respect of the principal, Redemption Price, Fundamental Change
Redemption Price, or interest, if any, in respect of, the Securities by or on
behalf of the Company (including, but not limited to, the Redemption Price with
respect to the Securities called for redemption in accordance with Article 11 or
the Fundamental Change Redemption Price with respect to Securities submitted for
repurchase in accordance with Article 14, as the case may be, as provided in
this Indenture), except payments and distributions made by the Trustee as
permitted by the first or second paragraph of Section 13.05, until all Senior
Indebtedness, has been paid in full in cash or other payment satisfactory to the
holders of such Senior Indebtedness or such acceleration is rescinded in
accordance with the terms of this Indenture. If payment of the Securities is
accelerated because of an Event of Default, the Company shall promptly notify
holders of their Senior Indebtedness of the acceleration.
In the event that, notwithstanding the foregoing provisions, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Trustee or the
Holders of the Securities before all of the Senior Indebtedness, is paid in full
in cash or other payment satisfactory to the holders of such Senior
Indebtedness, or provision is made for such payment thereof in accordance with
its terms in cash or other payment satisfactory to the holders of their Senior
Indebtedness, such payment or distribution shall be held in trust for the
benefit of and shall be paid over or delivered to the holders of Senior
Indebtedness or their Representative or Representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
such Senior Indebtedness may have been issued, as their respective interests may
appear, as calculated by the Company, for
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application to the payment of all such Senior Indebtedness remaining unpaid to
the extent necessary to pay all such Senior Indebtedness in full in cash or
other payment satisfactory to the holders of such Senior Indebtedness, after
giving effect to any concurrent payment or distribution, or provision therefor,
to or for the holders of such Senior Indebtedness.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.07. This Section 13.02 shall be subject
to the further provisions of Section 13.05.
SECTION 13.03. Subrogation of Securities. Subject to the payment in full
in cash of all Senior Indebtedness, the Holders of the Securities shall be
subrogated to the extent of the payments or distributions made to the holders of
such Senior Indebtedness pursuant to the provisions of this Article (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to other indebtedness of the Company to substantially the
same extent as the Securities are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities applicable to the
Senior Indebtedness until the principal, Redemption Price, Fundamental Change
Redemption Price, and interest, if any, in respect of the Securities shall be
paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article 13, and no payment over
pursuant to the provisions of this Article 13, to or for the benefit of the
holders of Senior Indebtedness, by Holders of the Securities or the Trustee,
shall, as between the Company, its creditors other than holders of such Senior
Indebtedness, and the Holders of the Securities, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness. It is understood that
the provisions of this Article 13 are and are intended solely for the purposes
of defining the relative rights of the Holders of the Securities, on the one
hand, and the holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article 13 or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal, Redemption Price,
Fundamental Change Redemption Price and interest, if any, in respect of the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the
Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article 13 of the holders of Senior Indebtedness in
respect of cash, property or securities received upon the exercise of any such
remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article 13, the Trustee, subject to the provisions of Section 6.01, and the
Holders of the Securities shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person
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making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities, for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness of the
Company and other Indebtedness of the Company, the amount thereof or payable
thereon and all other facts pertinent thereto or to this Article 13.
SECTION 13.04. Authorization to Effect Subordination. Each Holder of a
Security by the Holder's acceptance thereof authorizes and directs the Trustee
on the Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article and appoints the
Trustee to act as the Holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in Section 5.04 hereof at least 30
days before the expiration of the time to file such claim, the holders of any
Senior Indebtedness or their Representatives are hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Securities.
SECTION 13.05. Notice to Trustee. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any Paying Agent of any fact known to the Company which would
prohibit the making of any payment of monies deposited by the Company to or by
the Trustee or any Paying Agent in respect of the Securities pursuant to the
provisions of this Article. Notwithstanding the provisions of this Article or
any other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment of monies deposited by the Company to or by the Trustee in respect of
the Securities pursuant to the provisions of this Article, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof at
the Corporate Trust Office from the Company (in the form of an Officers'
Certificate) or a Representative of Senior Indebtedness or of a holder or
holders of Senior Indebtedness or from any trustee thereof; and before the
receipt of any such written notice, the Trustee shall be entitled in all
respects to assume that no such facts exist; provided that if on a date not
fewer than two Business Days prior to the date upon which by the terms hereof
any such monies may become payable for any purpose (including, without
limitation, the payment of the principal, Redemption Price, Fundamental Change
Redemption Price, or interest, if any, in respect of any Security) the Trustee
shall not have received, with respect to such monies, the notice provided for in
this Section 13.05, then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies deposited by the Company and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such prior date.
Notwithstanding anything in this Article to the contrary, nothing shall
prevent any payment by the Trustee to the Holders of monies deposited with it
pursuant to Section 4.01, and any such payment shall not be subject to the
provisions of Section 13.01 or 13.02.
The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Representative or a Person representing himself to be a holder of
Senior Indebtedness (or a trustee on behalf of such holder) to establish that
such notice has been given by a Representative or a holder of Senior
Indebtedness or a trustee on behalf of any such holder or holders. In the event
that the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such Person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
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distribution and any other facts pertinent to the rights of such Person under
this Article 13, and if such evidence is not furnished the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
SECTION 13.06. Trustee's Relation to Senior Indebtedness. The Trustee in
its individual capacity shall be entitled to all the rights set forth in this
Article in respect of any Senior Indebtedness at any time held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Indebtedness shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not
be liable to any holder of Senior Indebtedness if it shall pay over or deliver
to Holders of Securities, the Company or any other Person money or assets to
which any holder of Senior Indebtedness shall be entitled by virtue of this
Article or otherwise.
SECTION 13.07. No Impairment of Subordination. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
SECTION 13.08. Article Applicable to Paying Agents. If at any time any
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article shall
(unless the context otherwise requires) be construed as extending to and
including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article in addition to or in
place of the Trustee; provided, however, that the first paragraph of Section
13.05 shall not apply to either of the Company or any Affiliate of the Company
if the Company or such Affiliate acts as Paying Agent.
SECTION 13.09. Senior Indebtedness Entitled to Rely. The holders of
Senior Indebtedness (including, without limitation, Designated Senior
Indebtedness) shall have the right to rely upon this Article 13, and no
amendment or modification of the provisions contained herein shall diminish the
rights of such holders unless such holders shall have agreed in writing thereto.
SECTION 13.10. Certain Conversions Deemed Payment. For the purposes of
this Article 13 only, (1) the issuance and delivery of junior securities upon
conversion of Securities in accordance with Article 12 shall not be deemed to
constitute a payment or distribution on
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account of the principal, Redemption Price, Fundamental Change Redemption
Price or interest, if any, in respect of Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash (except in satisfaction of fractional shares pursuant to
Section 12.02), property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of the
principal of such Security. For the purposes of this Section 13.10, the term
"junior securities" means (a) shares of any stock of any class of the Company
(including, without limitation, the Common Stock), or (b) securities of the
Company which are subordinated in right of payment to all Senior Indebtedness,
which may be outstanding at the time of issuance or delivery of such securities
to substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article. Nothing contained in this
Article 13 or elsewhere in this Indenture or in the Securities is intended to or
shall impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders, the right, which is absolute and unconditional, of
the Holder of any Security to convert such Security in accordance with Article
12.
ARTICLE 14
REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDERS UPON A
FUNDAMENTAL CHANGE
SECTION 14.01. Right to Require Repurchase. In the event that a
Fundamental Change shall occur at any time prior to __________, 2007, then each
Holder shall have the right, at the Holder's option, to require the Company to
repurchase, and upon the exercise of such right the Company shall repurchase,
all of such Holder's Securities, or any portion of the principal amount thereof
that is equal to U.S.$1,000 principal amount integral multiple thereof, on the
date (the "Fundamental Change Redemption Date") (or if such date is not a
Business Day, the next succeeding Business Day) that is 30 days after the date
of the Company Notice (as defined in Section 14.02) at the Fundamental Change
Redemption Price set forth in the form of Security. The Company shall also pay
accrued interest, if any, on such Securities to, but excluding, the Fundamental
Change Redemption Date; provided, however, that installments of interest on
Securities whose Stated Maturity is on or prior to the Fundamental Change
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such on the Regular Record Date
according to their terms and the provisions of Section 3.07. Such right to
require the repurchase of the Securities shall not continue after a discharge of
the Company from its obligations with respect to the Securities in accordance
with Article 4, unless a Fundamental Change shall have occurred prior to such
discharge. Whenever in this Indenture (including Sections 2.02, 3.01, 5.01(a)
and 5.08) there is a reference, in any context, to the principal of any Security
as of any time, such reference shall be deemed to include reference to the
Fundamental Change Redemption Price payable in respect of such Security to the
extent that such Fundamental Change Redemption Price is, was or would be so
payable at such time, and express mention of the Fundamental Change Redemption
Price in any provision of this Indenture shall not be construed as excluding the
Fundamental Change Redemption Price in those provisions of this Indenture when
such express mention is not made.
SECTION 14.02. Notices; Method of Exercising Repurchase Right, Etc. (a)
Unless the Company shall have theretofore called for redemption all of the
Outstanding Securities, on or before the 30th day after the occurrence of a
Fundamental Change, the Company or, at the request and expense of the Company,
the Trustee, shall give to all Holders of Securities, in the
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manner provided in Section 1.06, notice (the "Company Notice") of the occurrence
of the Fundamental Change and of the repurchase right set forth herein arising
as a result thereof. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
Each notice of a repurchase right shall state:
(i) the Fundamental Change Redemption Date,
(ii) the date by which the repurchase right must be exercised,
(iii) the Fundamental Change Redemption Price,
(iv) a description of the procedure which a Holder must follow to
exercise a repurchase right, and the place or places where such Securities
maturing after the Fundamental Change Redemption Date, are to be
surrendered for payment of the Fundamental Change Redemption Price and
accrued interest, if any,
(v) that on the Fundamental Change Redemption Date, the Fundamental
Change Redemption Price and accrued interest, if any, will become due and
payable to, but excluding, the Fundamental Change Redemption Date upon each
such Security designated by the Holder to be repurchased, and that interest
thereon shall cease to accrue on and after said date, and
(vi) the Conversion Price then in effect, the date on which the right
to convert the principal amount of the Securities to be repurchased will
terminate and the place or places where such Securities may be surrendered
for conversion.
No failure of the Company to give the foregoing notices or defect therein
shall limit any Holder's right to exercise a repurchase right or affect the
validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article are
inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the Trustee
or any Paying Agent on or before the 30th day after the date of the Company
Notice (or if such 30th day is not a Business Day, the immediately preceding
Business Day) the Security to be repurchased with the form entitled "Option to
Elect Redemption Upon a Fundamental Change" on the reverse thereof duly
completed, together with such Security duly endorsed for transfer.
Such written notice shall be irrevocable, except that the right of the
Holder to convert the Securities with respect to which the repurchase right is
being exercised shall continue until the close of business on the Business Day
prior to the Fundamental Change Redemption Date.
(c) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid to the Trustee or
the Paying Agent the Fundamental Change Redemption Price in cash, as provided
above, for payment to the Holder on the Fundamental Change Redemption Date
together with accrued and unpaid interest to the
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Fundamental Change Redemption Date payable with respect to the Securities as to
which their purchase right has been exercised; provided, however, that
installments of interest that mature on or prior to the Fundamental Change
Redemption Date shall be payable in cash, in the case of Securities, to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Regular Record Date.
(d) If any Security (or portion thereof) surrendered for repurchase shall
not be so paid on the Fundamental Change Redemption Date, the principal amount
of such Security (or portion thereof, as the case may be) shall, until paid,
bear interest to the extent permitted by applicable law from the Fundamental
Change Redemption Date at the rate of ____% per annum, and each Security shall
remain convertible into Common Stock until the principal of such Security (or
portion thereof, as the case may be) shall have been paid or duly provided for.
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Security so surrendered.
(f) All securities delivered for repurchase shall be delivered to the
Trustee, the Paying Agent or any other agents (as shall be set forth in the
Company Notice) to be canceled by or at the direction of the Trustee, which
shall dispose of the same as provided in Section 3.09.
(g) The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act to the extent then applicable in
connection with the redemption rights of Holders in the event of a Fundamental
Change.
SECTION 14.03. Merger, Consolidation, Etc. In the case of any merger,
consolidation, sale or transfer of all or substantially all of the assets of the
Company to which Section 12.11 applies, in which the Common Stock of the Company
is changed or exchanged as a result into the right to receive shares of stock
and other securities or property or assets (including cash) which includes
Common Stock of the Company or common stock of another Person that are, or upon
issuance will be, traded on a United States national securities exchange or
approved for trading on an established automated over-the-counter trading market
in the United States and such shares constitute at the time such change or
exchange becomes effective in excess of 50% of the aggregate fair market value
of such shares of stock and other securities, property and assets (including
cash) (as determined by the Company, which determination shall be conclusive and
binding), then the Company and the Person resulting from such merger or
consolidation or which acquires the properties or assets (including cash) of the
Company, as the case may be, shall execute and deliver to the Trustee a
supplemental indenture (which shall comply with the Trust Indenture Act as in
force at the date of execution of such supplemental indenture) modifying the
provisions of this Indenture relating to the right of Holders to cause the
Company to repurchase the Securities following a Fundamental Change, including
without limitation the applicable provisions of this Article and the definitions
of the Common Stock and Fundamental
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Change, as appropriate, and such other related definitions set forth herein as
determined in good faith by the Company and the Company (which determination
shall be conclusive and binding), to make such provisions apply in the event of
a subsequent Fundamental Change to the common stock and the issuer thereof if
different from the Company and the Common Stock of the Company (in lieu of the
Company and Common Stock of the Company).
ARTICLE 15
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 15.01. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after the Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders of Securities as of such Regular Record
Date, and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished;
provided, however, that no such list need be furnished so long as the Trustee is
acting as Note Registrar.
SECTION 15.02. Trustee to Furnish Company Names and Addresses of Holders.
The Trustee will furnish or cause to be furnished to the Company, or to
Company's counsel:
(a) within 10 days from the date of this Indenture, an updated Note
Register,
(b) semi-annually, not more than 15 days after the Regular Record
Date, an updated Note Register, in such form as the Company may reasonably
require, of the names and addresses of the Holders of Securities as of such
Regular Record Date, and
(c) at such other times as the Trustee may reasonably request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished; provided, however, that no
such list need be furnished so long as the Trustee is not acting as Note
Registrar.
SECTION 15.03. Preservation of Information. (a) The Trustee shall
preserve, in as current a form as is reasonably practicable, the names and
addresses of Holders contained in the most recent list furnished to the Trustee
as provided in Section 15.01, if any, and the names and addresses of Holders
received by the Trustee in its capacity as Note Registrar. The Trustee may
destroy any list furnished to it pursuant to Section 15.01 upon receipt of a new
list so furnished.
(b) If and when this Indenture has become qualified under the Trust
Indenture Act, the rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
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(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made hereunder.
SECTION 15.04. Reports by Trustee. (a) If and when this Indenture
becomes qualified under the Trust Indenture Act, the Trustee shall transmit to
Holders such reports concerning the Trustee and its actions under this Indenture
as may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto.
(b) If and when this Indenture becomes qualified under the Trust Indenture
Act, a copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 15.05. Reports by Company. If and when this Indenture becomes
qualified under the Trust Indenture Act, the Company shall file with the Trustee
and the Commission, and transmit to Holders, such information, documents and
other reports, and such summaries thereof, as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant to such
Act; provided that any such information, documents or reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 shall be filed with the Trustee within 15 days after the
same is so required to be filed with the Commission.
____________________________
This Indenture may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
VENTRO CORPORATION
By:_______________________________
Name:
Title:
[STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.], as Trustee
By:_______________________________
Name:
Title:
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EXHIBIT 10.37
No. W-001
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE NEW SECURITIES
OF HEALTHCARE TRANSACTION SYSTEMS, INC.
(Void after April 1, 2002)
This certifies that Zilkha Venture Partners, L.P. or its assigns (the
"Holder"), for value received, is entitled to purchase from HEALTHCARE
TRANSACTION SYSTEMS, INC., a Delaware corporation (the "Company"), having a
place of business at 75 Willow Road, Menlo Park, California 94025, that number
of fully paid and nonassessable shares of the capital stock of the Company as
provided for herein. This Warrant is one of a series of like Warrants (the
"Warrants") to be issued pursuant to the terms of that certain Note and Warrant
Purchase Agreement (the "Agreement") dated as of April 2, 1999 among the Company
and the other parties named therein. This Warrant is issued in conjunction with
a note (the "Note") issued by the Company pursuant to the Agreement on the date
hereof in the principal amount of $150,000.00 (the "Loan Amount").
During the Exercise Period (defined below) the Holder may purchase from the
Company that number of fully paid and nonassessable shares of the capital stock
of the Company ("New Securities") as shall equal (a) 17.6% multiplied by the
Loan Amount, divided by (b) the New Security Price (as defined below). The New
Securities shall be of the same class and series and have the same rights,
preferences and privileges as (i) the Series B Shares (as defined in the Note),
in the event the Note converts pursuant to Section 3 thereof or (ii) the Series
A Shares (as defined in the Note), in the event the Note converts pursuant to
either of Sections 4 or 5 thereof, or in the event the Note becomes due and
payable pursuant to Section 6 thereof. Unless otherwise defined in this
Warrant, capitalized terms used in this Warrant shall have the meaning indicated
in the Agreement and the Note. This Warrant shall be exercisable only during
the period (the "Exercise Period") commencing on the date that the Note shall be
either converted or repaid pursuant to Sections 3, 4, 5 or 6 of the Note and
ending at 5:00 p.m. (Pacific time) on the earlier of (i) the closing of the
initial public offering of the Company's Securities pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Initial Public
Offering"); or (ii) three (3) years from the date of this Warrant, such earlier
day being referred to herein as the "Expiration Date." To exercise this
Warrant, the Holder shall surrender to the Company at its principal office (or
at such other location as the Company may advise the Holder in writing) the
original Warrant, properly endorsed with the Form of Subscription attached
hereto duly filled in and signed, and shall pay in cash or by check the
aggregate New Security Price (as
<PAGE>
defined below), unless exercised as provided in Section 1.2 of this Warrant, for
the number of New Securities for which this Warrant is being exercised,
determined in accordance with the provisions hereof. The Company shall deliver
notice of any Initial Public Offering to the Holder at least 30 days prior to
the closing thereof. The New Security Price and the number of New Securities
purchasable hereunder are subject to adjustment as provided in Section 3 of this
Warrant.
This Warrant is subject to the following terms and conditions:
1.1 EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR NEW SECURITIES.
This Warrant is exercisable at the option of the holder of record hereof only
during the Exercise Period. The exercise price for this Warrant (the "New
Security Price") shall equal (i) the Financing Price (as defined in the Note),
in the event the Note converts pursuant to Section 3 thereof, (ii) the Bridge A
Price (as defined in the Note), in the event the Note converts pursuant to
Sections 4 or 5 thereof, or (iii) the Bridge A Price (as defined in the Note),
in the event the Note becomes due and payable pursuant to Section 6 thereof. The
Company agrees that the New Securities purchased under this Warrant shall be and
are deemed to be issued to the Holder hereof as the record owner of such New
Securities as of the close of business on the date on which this Warrant shall
have been surrendered, properly endorsed, the completed, executed Form of
Subscription delivered, and payment made for such New Securities. Certificates
for the New Securities so purchased, together with any other securities or
property to which the Holder hereof is entitled upon such exercise, shall be
delivered to the Holder hereof by the Company at the Company's expense within a
reasonable time after the rights represented by this Warrant have been so
exercised. In case of a purchase of less than all the New Securities which may
be purchased under this new Warrant, the Company shall cancel this Warrant and
execute and deliver a new Warrant or Warrants of like tenor for the balance of
the New Securities purchasable under the Warrant surrendered upon such purchase
to the Holder hereof within a reasonable time.
1.2 Net Issue Exercise. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's New
Securities is greater than the New Security Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of New Securities computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of New Securities to be issued to
the Holder
Y = the number of shares of New Securities purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at
the date of such calculation)
2.
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A = the fair market value of one share of the Company's New
Securities (at the date of such calculation)
B = New Security Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share of New
Securities shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its Common Stock the fair market value per share shall be the
product of (i) the per share offering price to the public of the Company's
initial public offering, and (ii) the number of shares of Common Stock into
which each share of New Securities is convertible at the time of such exercise.
2. NEW SECURITIES TO BE FULLY PAID; RESERVATION OF NEW SECURITIES. The
Company covenants and agrees that all New Securities which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the Exercise Period, the Company will at all times have authorized
and reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of New
Securities, or other securities and property, when and as required to provide
for the exercise of the rights represented by this Warrant. The Company will
take all such action as may be necessary to assure that such New Securities may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the New Securities may be listed; provided, however, that the Company
shall not be required to effect a registration under Federal or State securities
laws with respect to such exercise.
3. ADJUSTMENT OF NEW SECURITY PRICE AND NUMBER OF NEW SECURITIES. The New
Security Price and the number of New Securities purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3.
3.1 Subdivision or Combination of New Securities.
(a) If at any time or from time to time after the date of this
Warrant the Company shall subdivide its outstanding New Securities, the New
Security Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the New Securities of the
Company shall be combined into a smaller number of New Securities, the New
Security Price in effect immediately prior to such combination shall be
proportionately increased.
(b) Upon each adjustment of the New Security Price as provided
in Section 3.1(a) above, the Holder shall thereafter be entitled to purchase, at
the New Security Price resulting from such adjustment, the number of New
Securities (calculated to the nearest whole Security) obtained by multiplying
the New Security Price in effect immediately prior to such adjustment by the
number of New Securities purchasable pursuant hereto immediately prior
3.
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to such adjustment and dividing the product thereof by the New Security Price
resulting from such adjustment.
3.2 Reorganization, Reclassification, Consolidation, Merger or Sale.
Subject to the first paragraph above, if any recapitalization, reclassification
or reorganization of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets or other transaction shall be effected in such a
way that holders of New Securities shall be entitled to receive stock,
securities, or other assets or property (a "Reorganization") then, as a
condition of such Reorganization, lawful and adequate provisions shall be made
by the Company whereby the Holder hereof shall thereafter have the right to
purchase and receive (in lieu of the New Securities of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby) such shares of securities or other assets or property as may
be issued or payable with respect to or in exchange for a number of outstanding
New Securities equal to the number of New Securities immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby.
In the event of any Reorganization, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the New Security Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, in relation to any shares of securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument reasonably satisfactory in form and substance to the Holders of a
majority of the warrants to purchase New Securities then outstanding, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
3.3 Certain Events. If any change in the outstanding New Securities
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of New Securities available under the
Warrant, the New Security Price or the application of such provisions, so as to
protect such purchase rights as aforesaid. The adjustment shall be such as will
give the Holder of the Warrant upon exercise for the same aggregate New Security
Price the total number, class and kind of New Securities as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
3.4 Notices of Change.
(a) Immediately upon any adjustment in the number or class of
New Securities subject to this Warrant and of the New Security Price, the
Company shall give written
4.
<PAGE>
notice thereof to the Holder, setting forth in reasonable detail and certifying
the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least 10 business days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions. (c) The Company shall also give written notice to the Holder at
least 30 business days prior to the date on which a Reorganization shall take
place.
4. ISSUE TAX. The issuance of certificates for New Securities upon the
exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax (other than any applicable income taxes) in respect
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the then Holder of the
Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any New Securities issued or issuable
upon the exercise of any warrant in any manner which interferes with the timely
exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a member of the
Company or any other matters or any rights whatsoever as a member of the
Company. In the event the Company shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Company or
other persons, assets (excluding cash dividends) or options or rights, then, in
each such case for the purpose of this Section 6, upon exercise of this Warrant,
the Holder hereof shall be entitled to a proportionate share of any such
distribution as though such Holder was the holder of the number of shares of New
Securities of the Company into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of New Securities of the
Company entitled to receive such distribution.. No provisions hereof, in the
absence of affirmative action by the holder to purchase New Securities, and no
mere enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such Holder for the New Security Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by its creditors.
7. TRANSFERABILITY OF WARRANT. This Warrant may not be transferred or
assigned in whole or in part.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
New Securities issued upon exercise of this Warrant, shall survive the exercise
of this Warrant.
5.
<PAGE>
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the New Securities issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional New Securities shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
New Security, pay the holder entitled to such fraction a sum in cash equal to
such fraction multiplied by the then effective New Security Price.
6.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 2nd day of April, 1999.
HEALTHCARE TRANSACTION SYSTEMS, INC.
a Delaware corporation
By:_____________________________________
Title:__________________________________
ATTEST:
_________________________________
Secretary
7.
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: ___________
Healthcare Transaction Systems, Inc.
______________________________
______________________________
Attn: President
Ladies and Gentlemen:
[_] The undersigned hereby elects to exercise the warrant issued to it by
Healthcare Transaction Systems, Inc. (the "Company") and dated April 2,
1999, Warrant No. W-001 (the "Warrant") and to purchase thereunder
__________________________________ New Securities of the Company at a
purchase price of ______________________________ Dollars ($__________)
per Security or an aggregate purchase price of
______________________________ Dollars ($__________) (the "Purchase
Price").
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
_________________________________
By:______________________________
Title:___________________________
8.
<PAGE>
Exhibit 12.01
RATIO OF EARNING TO FIXED CHARGES
<TABLE>
<CAPTION>
Period from
Inception
December 31, September 4,
---------------- 1997 through
1999 1998 December 31, 1997
---- ---- -----------------
(ALL AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Earnings:
Net loss........................................ $(48,573) $(8,488) $(404)
Fixed charges................................... 168 2 __
-------- ------- -----
Total deficiency in earnings to cover
fixed charges............................. $(48,405) $(8,486) $(404)
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 7, 2000 (except for Note 18, as to which
the date is February 10, 2000 and Note 19, as to which the date is March 1,
2000) to the Registration Statement (Form S-1) and the related Prospectus of
Ventro Corporation for the registration of Convertible Subordinated Notes due in
2007 with the principal amount of $300,000,000 and the registration of 2,098,750
shares of common stock issuable upon conversion.
Our audits also included the financial statement schedule listed in Item
16(b) of this Registration Statement. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ Ernst & Young LLP
San Jose, California
March 5, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 11, 2000 on the financial statements of
Promedix.com, Inc. in the Registration Statement (Form S-1) and the related
Prospectus of Ventro Corporation for the registration of Convertible
Subordinated Notes due in 2007 with the principal amount of $300,000,000 and the
registration of shares of common stock issuable upon conversion.
/s/ Ernst & Young LLP
Salt Lake City, Utah
March 3, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 10, 2000, with respect to the financial
statements of SpecialtyMD.com Corporation included in the Registration Statement
(Form S-1) and the related Prospectus of Ventro Corporation for the registration
of Convertible Subordinated Notes due in 2007 with the principal amount of
$300,000,000 and the registration of shares of common stock issuable upon
conversion.
/s/ Ernst & Young LLP
Palo Alto, California
March 5, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21,934
<SECURITIES> 81,161
<RECEIVABLES> 13,078
<ALLOWANCES> (664)
<INVENTORY> 0
<CURRENT-ASSETS> 120,550
<PP&E> 12,299
<DEPRECIATION> (2,035)
<TOTAL-ASSETS> 163,933
<CURRENT-LIABILITIES> 38,420
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 125,012
<TOTAL-LIABILITY-AND-EQUITY> 163,933
<SALES> 30,840
<TOTAL-REVENUES> 30,840
<CGS> 29,306
<TOTAL-COSTS> 29,306
<OTHER-EXPENSES> 53,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (168)
<INCOME-PRETAX> (48,573)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,573)
<EPS-BASIC> (3.17)
<EPS-DILUTED> (3.17)
</TABLE>
