<PAGE>
As filed with the Securities and Exchange Commission on January 26, 2000
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COMMERX, INC.
(Exact name of registrant as specified in its charter)
Delaware 5162 36-4040449
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
350 North LaSalle Street, Suite 1000
Chicago, Illinois 60610
(312) 832-9330
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
TIM STOJKA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COMMERX, INC.
350 North LaSalle Street, Suite 1000
Chicago, Illinois 60610
(312) 464-7340
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES TO:
JOHN L. EISEL, ESQ. KEITH F. HIGGINS, ESQ.
CHARLES C. KIM, ESQ. Ropes & Gray
GEOFFREY C. COCKRELL, ESQ. One International Place
Wildman, Harrold, Allen & Dixon Boston, Massachusetts 02110
225 West Wacker Drive (617) 951-7000
Chicago, Illinois 60606-1229 (617) 951-7050 (fax)
(312) 201-2000
(312) 201-2555 (fax)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------
<CAPTION>
Proposed maximum
Title of each class of securities aggregate offering Amount of
to be registered price (1)(2) registration fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per share................. $100,000,000 $26,400
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</TABLE>
(1) Includes shares of common stock issuable upon exercise of the underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(o) of the Securities Act of
1933.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated January 26, 2000
Shares
Commerx, Inc.
[LOGO]
Common Stock
-----------
This is an initial public offering of shares of common stock of Commerx, Inc.
All of the shares of common stock are being sold by Commerx.
Prior to this offering, there has been no public market for the common stock.
Commerx anticipates that the public offering price will be between $ and
$ per share. Application has been made for quotation of the common stock
on the Nasdaq National Market under the symbol "CMRX".
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of our common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Initial public offering price........................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to Commerx................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Commerx at the initial public offering price less the underwriting
discount.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.
Merrill Lynch & Co.
Chase H&Q
Robertson Stephens
Prospectus dated , 2000
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
Front of Gatefold:
- -----------------
The front of the gatefold includes the following: Commerx logo appears at the
top of the page, followed by: "e-volved industrial marketplace solutions."
"Through the PlasticsNet.Com marketplace we have gained a first mover advantage
in the domestic e-commerce plastics industry."
"Next we'll focus on ways we can improve other industrial processing markets."
Inside Gatefold:
- ---------------
The first page of the inside gatefold includes:
At the top of the page there is a PlasticsNet.Com logo, with "a Commerx
marketplace" underneath.
Below the logo, the following paragraphs act as lead-off text to inside
gatefold. "PlasticsNet.Com, Commerx's flagship electronic marketplace for the
$400 billion domestic plastics industry, is changing the way plastics processors
and suppliers do business. PlasticsNet provides a secure, supplier-neutral,
buyer focused marketplace that streamlines the procurement of plastics products
and services."
Starting in the middle of the page and going down to the bottom there are four
PlasticsNet.Com screen shots, two across, with pull-out text boxes. Text
appears over the screen shots: "PlasticsNet.Com, Commerx's flagship vertical
marketplace."
The first screen shot appears on the left hand side of the page. This is the
home screen.
The following text appears as a pull-out text box from the home page screen:
"PlasticsNet.Com brings new efficiency to how plastics processors and suppliers
do business right from their desktops - making buying, selling, and finding
industry information as easy as a few clicks."
The next screen shot appears to the right of the home screen. This is the
procurement screen.
The following text appears as pull-out text box from the procurement page
screen: "The PlasticsNet.Com online procurement process enables buyers to order
multiple products from multiple suppliers with a single, consolidated purchase
order."
The next screen shot appears below the home screen. This is the auction screen.
The following text appears as a pull-out text box from the auction page screen:
"PlasticsNet.Com's auction functions help suppliers sell surplus inventory,
commodity resins, machinery and used equipment while providing attractive
pricing for buyers."
The last screen shot appears to the right of the auction screen and below the
procurement screen. This is the technical forum screen.
The following text appears as a pull-out text box from the technical forum
screen: "As an active online community for plastics professionals,
PlasticsNet.Com offers technical forums as a convenient venue to share expert
insights and discuss industry issues."
The second page of the gatefold includes:
At the top of the second page there is a headline that says: "The
PlasticsNet.Com Business Model." After the heading, the following diagram
appears at the top of the inside gatefold, illustrating the foundation on which
PlasticsNet.Com is built, and on which other vertical marketplaces could/would
be based. There may be a short text pull-out text box explaining this.
<PAGE>
The diagram is in the form of a box with "hosted procurement" across the top,
"suppliers" running down the left, "buyers" running down the right and "content
and community" across the bottom. Under each of these headings (except
content and community) there is text going down the page as shown below.
<TABLE>
<CAPTION>
Suppliers Hosted Procurement Buyers
- --------- ------------------ ------
<S> <C> <C>
* Direct materials * Custom catalogs * Small-to-medium sized enterprises
* Equipment * Auctions * Larger OEMs
* MRO * Contract pricing * End users
* Services * Workflow management
* Order tracking
* Reporting functions
Supply Chain Management
-----------------------
* Integration
* Technical services
* Online financing
</TABLE>
In the middle of the second page there is a headline: "A Look at How Commerx
Can Build on the PlasticsNet.Com Model"
Following the headline there is an illustration of a three dimensional "cube."
The bottom layer of the cube (width) lists: "Procurement", "Content/Community"
and "Supply Chain Management."
The height of the cube has text in vertical columns that lists various vertical
markets: "Plastics", "Industrial Processing Buyer Segment1", "Industrial
Processing Buyer Segment2" and "Industrial Processing Buyer Segment3."
The depth of the cube has text in horizontal rows that lists various geographic
markets: "United States", "Market Number 1", "Market Number 2", Market Number 3"
and "Market Number 4."
The following text appears at the bottom right of the inside gatefold:
Commerx/TM/ and PlasticsNet.Com/TM/ are registered trademarks of Commerx, Inc.
in the United States.
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights some of the important information in the
prospectus. It may not contain all of the information that is important to you.
You should read this summary together with the more detailed information about
us and our financial statements and related notes appearing elsewhere in this
prospectus.
Commerx, Inc.
Commerx creates business-to-business electronic marketplaces that enable
buyers and sellers in industrial processing markets to transact business on the
Internet. We target industrial processing markets characterized by large
numbers of buyers and sellers, high levels of fragmentation, inefficient supply
chains and large transaction volume. Our first marketplace is PlasticsNet.
PlasticsNet provides a secure, supplier-neutral, buyer-focused marketplace
that streamlines the procurement of plastics products and services. We
currently offer for sale on our procurement center over 30,000 plastics
products, or SKU's, from approximately 50 suppliers. We also have recently
signed strategic agreements with suppliers that provide us access to additional
products that we are currently adding to the PlasticsNet marketplace. These
agreements will provide us with over 1,000 direct materials products, such as
resins and additives, from a relationship with Ashland Inc. and over 400,000
maintenance, repair and operations, or MRO, products from a relationship with
MSC Industrial Direct Co. Inc. Our marketplace had approximately 73,000 user
sessions during December 1999 and currently has over 35,000 registered user
accounts. In 1999, Business Marketing, an Advertising Age publication, ranked
PlasticsNet as the fourth-best business-to-business Web site out of 300
surveyed in the U.S. based on a variety of criteria, including ease of
navigation, design, presentation of information and e-commerce capabilities.
The plastics industry, which we estimate represented over one trillion
dollars in annual product shipments worldwide in 1999, is one of the largest
manufacturing industries in the world. According to The Society of Plastics
Industry's latest available data, the plastics industry ranked fourth in U.S.
product shipments by dollar volume among top manufacturing industry groups in
1996. The plastics industry is characterized by a complex supply chain, a high
degree of fragmentation among buyers and sellers, large transaction volume and
a significant dependence on information exchange. As a result, traditional
information flows and purchasing methods are inefficient, costly and time
consuming. These dynamics create the need for a business-to-business e-commerce
solution that provides a marketplace for buyers and sellers of plastics
products and services.
Our solution, the PlasticsNet marketplace, enables buyers and sellers to
execute transactions on the Internet and provides the tools, content and
community to help them make more informed decisions. Through the PlasticsNet
marketplace, suppliers can cost-effectively provide current product offering
and pricing information to a large pool of buyers. In addition, buyers can
efficiently search for products, identify suppliers, compare product prices and
specifications, and complete a purchase.
We seek to capitalize upon our position as the first company to offer a
comprehensive Internet-based e-commerce solution to the plastics industry. Our
strategy is to gain market share aggressively by continuing to expand the
selection of plastics products, services and related content offered on our
marketplace. We will also continue to concentrate our efforts to attract new
participants and increase usage by current participants in our marketplace. We
intend to leverage our expertise and leadership in the plastics industry to
target other industrial processing and international markets that represent
significant business-to-business e-commerce opportunities.
3
<PAGE>
Corporate Information
We were incorporated in Illinois in July 1995 and reincorporated in
Delaware in December 1998. Our principal executive offices are located at 350
North LaSalle Street, Suite 1000, Chicago, Illinois 60610, and our telephone
number at that address is (312) 464-7340. Our address on the World Wide Web is
http://www.commerx.com, and the address of the PlasticsNet marketplace is
http://www.plasticsnet.com. References to our Web site do not incorporate by
reference the information contained at our Web site into this prospectus.
Unless otherwise indicated, this prospectus reflects a -for-one split of our
outstanding shares of common stock prior to the closing of this offering and
assumes the automatic conversion of all of our outstanding preferred stock into
shares of common stock upon the closing of this offering. This prospectus also
assumes no exercise of the underwriters' over-allotment option.
The Offering
<TABLE>
<S> <C>
Common stock offered by Commerx................... shares
Common stock to be outstanding after this
offering......................................... shares
Proposed Nasdaq National Market symbol............ "CMRX"
Use of proceeds................................... For working capital and general
corporate purposes. See "Use of
Proceeds".
</TABLE>
The number of shares to be outstanding excludes 4,058,875 shares of common
stock issuable upon exercise of options outstanding under our stock option plan
on December 31, 1999 at a weighted average exercise price of $1.32 per share
and 137,648 shares of common stock which will be issuable upon exercise of
warrants at a weighted average exercise price of $3.10 per share.
4
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data are derived from our financial
statements. You should read this summary financial information in conjunction
with our financial statements and the related notes. Pro forma per share data
reflect the conversion of all outstanding preferred stock into common stock,
even if the effect of the conversion is antidilutive. The pro forma balance
sheet data give effect to our issuance and sale of 3,128,732 shares of Series B
preferred stock in November and December 1999 for net proceeds of approximately
$36.9 million. The net proceeds include approximately $2.1 million that reflect
the November 1999 conversion of all management notes and accrued interest into
shares of Series B preferred. The pro forma balance sheet data also includes
the write-off of $185,747 of remaining management loan discounts, and the
conversion of all Series A and Series B preferred stock into 11,698,732 shares
of common stock upon the closing of this offering. The pro forma as adjusted
balance sheet data give effect to our sale of the shares of common stock in
this offering at an assumed initial public offering price of $ per share and
after deducting the estimated underwriting discounts and commissions and our
estimated offering expenses.
<TABLE>
<CAPTION>
July 1995
(inception) Nine Months Ended
through Year Ended December 31, September 30,
December 31, ---------------------------------- -----------------------
1995 1996 1997 1998 1998 1999
------------ ---------- ---------- ---------- ----------- ----------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenue............. $ 3 $ 53 $ 305 $ 375 $ 264 $ 833
Cost of revenue........... -- -- -- -- -- 426
---------- ---------- ---------- ---------- ---------- ----------
Gross profit.............. 3 53 305 375 264 407
Total operating expenses.. 302 955 1,081 2,367 1,364 8,507
---------- ---------- ---------- ---------- ---------- ----------
Net loss.................. $ (312) $ (952) $ (894) $ (2,178) $ (1,234) $ (8,080)
========== ========== ========== ========== ========== ==========
Historical basic and
diluted loss per common
share.................... $ (0.02) $ (0.06) $ (0.05) $ (0.13) $ (0.07) $ (1.09)
========== ========== ========== ========== ========== ==========
Pro forma loss per share
(unaudited).............. $ (0.15) $ (0.54)
========== ==========
Weighted average shares
used to compute
historical basic and
diluted loss per share... 16,950,000 16,950,000 16,950,000 16,897,835 16,950,000 7,430,000
Weighted average shares
used to compute pro forma
loss per share
(unaudited).............. 14,095,000 14,836,096
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
-------------------------
Pro
Pro Forma As
Actual Forma Adjusted
------- ------- --------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 1,800 $36,642 $
Working capital (deficit)............................. (3,035) 33,613
Total assets.......................................... 3,927 38,769
Long-term debt, net of current portion................ 997 997
Redeemable convertible preferred stock................ 7,010 --
Total stockholders' equity (deficit).................. (9,506) 34,152
</TABLE>
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risks before making an
investment decision. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment. You also
should refer to the other information appearing elsewhere in this prospectus,
including our financial statements and the related notes.
We have a limited operating history and face difficulties encountered by early
stage companies in new and rapidly evolving markets
We have only a limited operating history. We were formed in July 1995 and
have not yet generated a significant amount of revenue. For this reason it is
difficult to evaluate our business and our prospects. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development, particularly
companies engaged in new and rapidly evolving markets such as electronic
commerce, or e-commerce. In order to overcome these risks we must be able to,
among other things:
. establish and increase awareness of our PlasticsNet brand and strengthen
customer loyalty;
. attract and retain customers at a reasonable cost;
. attract a sufficient number of new suppliers to sell their products
through our electronic marketplace;
. reliably process transactions through our Web site;
. manage rapidly changing and expanding operations;
. maintain our current strategic relationships and develop new ones;
. implement and successfully execute our business and marketing strategy;
. provide superior customer service;
. respond effectively to competitive pressures and developments;
. continue to develop and enhance our technology and systems; and
. attract, retain and motivate qualified personnel.
Because of our limited operating history and the early stage of development
of our market, we have limited insight into trends that may emerge and affect
our business. We cannot be certain that our business strategy will be
successful or that we will successfully address these risks.
We have a history of losses that may continue in the future
We incurred net losses of $952,000 in 1996, $894,000 in 1997, $2.2 million
in 1998 and $8.1 million in the nine months ended September 30, 1999. As of
September 30, 1999 we had an accumulated deficit of $12.4 million, and we
expect to continue to incur losses on a quarterly basis through the foreseeable
future. We expect these losses to increase significantly from current levels.
We believe that our business depends on our ability to significantly increase
revenue. If our revenue fails to grow at anticipated rates or our operating
expenses increase without a commensurate increase in our revenue, or we fail to
adjust operating expense levels accordingly, the imbalance between revenue and
operating expenses will negatively impact our business, revenue, results of
operations and financial condition.
The unpredictability of our quarterly revenue may negatively affect the trading
price of our common stock
As a result of our limited operating history in e-commerce and the emerging
nature of the markets in which we compete, we may be unable to accurately
forecast our revenue. If our
6
<PAGE>
revenue for a quarter falls below our expectations and we are not able to
quickly reduce our spending in response, our operating results for that quarter
would be harmed. We currently intend to increase substantially our operating
expenses to develop new service offerings, fund increased sales and marketing,
enter into strategic relationships with new suppliers and further develop our
technology and transaction-processing systems. To the extent these expenses
precede or are not subsequently followed by increased revenue, our operating
results will fluctuate and net losses in a given quarter may be greater than
expected.
As a result of the foregoing factors, our annual or quarterly operating
results may be below the expectations of securities analysts and investors,
which would adversely affect the trading price of our common stock.
We expect that our gross margins will be low and if we are not able to increase
the dollar volume of transactions made through our online site, we will not be
able to generate an operating profit
Our transaction-based model is a low margin model. Unexpected costs or
expenses we incur would substantially affect our ability to achieve or maintain
operating profits. In order to meet our expected earnings targets, we must
increase the dollar volume of transactions on our marketplace. We can achieve
this either by generating significantly higher and continuously increasing
levels of traffic to our online site, or by increasing the percentage of
visitors to our online site who purchase plastics products, or through some
combination of the two. We must also increase the number of repeat purchasers
of plastics products through our online site. In addition, we must deliver a
high level of customer service and a full array of products and services in
order to attract users with demographic characteristics valuable to
advertisers. Although we have implemented strategies designed to accomplish
these objectives, we cannot assure you that these strategies will be effective
in increasing the dollar volume of products purchased through our online site.
The failure to do so would likely have a material adverse effect on our
operating margins.
If we do not build a critical mass of suppliers and buyers, we will not be able
to increase our product offerings and draw more suppliers and buyers
Our business model depends in large part on our ability to build a critical
mass of products and suppliers. To attract and maintain suppliers, we must
build a critical mass of buyers. However, buyers must perceive value in our
electronic marketplace, 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 buyers to the PlasticsNet marketplace, we will not be
able to benefit from any network effect where the value to each participant in
the PlasticsNet marketplace increases with the addition of each new
participant. As a result, the overall value of the PlasticsNet marketplace
would be harmed, which would negatively affect our revenue.
We depend on suppliers to provide the products that we sell in our marketplace
Our future success depends in large part upon our ability to offer and
deliver a broad base of plastics products. To do so, we rely on independent
suppliers, manufacturers and distributors. We carry no inventory and rely
exclusively on rapid fulfillment of orders from these suppliers. We have
contracts or arrangements with our suppliers that do not guarantee the
availability of products, do not establish guaranteed prices and do not provide
for the continuation of particular pricing practices. We have not established
alternative sources for all of the products we sell in the PlasticsNet
marketplace in the event a supplier is unwilling or unable to supply the type
and quantity of product requested by buyers or us. Our contracts with our
suppliers typically do not restrict them from selling products to other buyers.
We cannot assure you that our current suppliers will continue to sell products
to us on
7
<PAGE>
current terms or that we will be able to establish new or extend current supply
relationships to ensure acquisitions of products in an efficient manner on
acceptable commercial terms. Our ability to establish relationships with
reputable suppliers and to obtain adequate products from those suppliers at
competitive prices and the ability of the suppliers to deliver these products
to buyers are critical to our success. If we are unable to satisfy any of these
elements or are unable to develop and maintain relationships with suppliers
that will allow us to obtain sufficient quantities of products on acceptable
commercial terms, our business, operating results and financial condition would
be materially adversely affected.
We rely on our suppliers to deliver defect-free plastics products to buyers
in the PlasticsNet marketplace in a professional, safe and timely manner. If
our suppliers do not deliver quality products to buyers in a professional, safe
and timely manner, then our service will not meet expectations and our
reputation and brand will be damaged. In addition, deliveries that are non-
conforming or late could expose us to liability or result in decreased adoption
and use of our electronic marketplace, which could have a negative effect on
our business, results of operations and financial condition.
Our strategic supplier relationships, on which we expect to be dependent for
the foreseeable future, are subject to cancellation and may deter other
suppliers from developing relationships with us
We recently entered into certain strategic supplier agreements. The extent
to which our operations are integrated with these suppliers and the potential
financial impact on us of these strategic relationships make us very dependent
on these suppliers for the foreseeable future. In addition, some of our
agreements with these suppliers are not exclusive and have a limited term. We
cannot be certain that these strategic suppliers will not enter into similar
relationships with one or more of our competitors or that they will renew our
agreements at the end of their terms.
In addition, our current or future strategic supplier relationships 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 supplier relationships may deter
other suppliers from entering into agreements with us.
To the extent that we are perceived to favor one supplier over another, we may
not be viewed as a neutral marketplace
The plastics products market consists of a complex set of relationships
among suppliers, distributors and buyers. To the extent that our buyers or
suppliers perceive that we favor one supplier over another, they may lose
confidence in the PlasticsNet marketplace as a fair and neutral marketplace and
choose alternative solutions. The fact that we maintain relationships with some
suppliers, but not others, and the fact that some of these suppliers are
stockholders, may compromise the perception that we provide a neutral and
unbiased marketplace for plastics 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 attract and retain
buyers. This would reduce revenue and therefore have a negative impact on our
business, results of operations and financial condition.
It takes a long time to increase the use of our marketplace by buyers, which
could negatively affect our revenue growth and make it difficult to predict our
revenue and results of operations
A key element of our strategy is to promote our marketplace directly to
plastics processors. To succeed we must integrate our electronic marketplace
with the purchasing and information technology infrastructure of our buyers.
Because we offer a new method of industrial purchasing, the time it takes to
sell our electronic marketplace is long and we expect to devote significant
sales, marketing and management resources to the sales process without any
assurance that a buyer
8
<PAGE>
will use the PlasticsNet marketplace. We must generally educate buyers and
potential buyers about the use and benefits of our electronic marketplace. The
sale and implementation of our electronic marketplace are subject to delays due
to buyers' 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 buyers integrate our
marketplace with their internal systems, we may not increase our revenue if the
employees responsible for purchasing plastics products do not use the
PlasticsNet marketplace.
Our business model is unproven and may not be successful
Our business-to-business e-commerce model is based on the development of
the PlasticsNet marketplace for the purchase and sale of plastics products over
the Internet. This business model is new and unproven. 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 a marketplace with broad market
acceptance by our buyers, suppliers, users and strategic partners. We cannot be
certain that business-to-business commerce on the Internet generally, or our
marketplace, services and brand in particular, will achieve broad market
acceptance. For example, plastics processors may continue purchasing products
through their existing channels and may not adopt an electronic marketplace
because of their comfort with existing purchasing habits and direct supplier
relationships. The costs and resources required to switch purchasing methods,
the need for products not offered through the PlasticsNet marketplace, security
and privacy concerns, or general reluctance to use technology or the Internet
may also deter or discourage some companies.
If we do not succeed in establishing and strengthening the PlasticsNet brand,
we will not attract as many buyers and suppliers to our site
We believe that establishing, maintaining and enhancing the PlasticsNet
brand is a critical aspect of our efforts to attract and expand our online
traffic. Promotion of the PlasticsNet brand will depend largely on our success
in providing a high-quality online experience supported by a high level of
customer service, which cannot be assured. In addition, to attract and retain
online users and suppliers, and to promote and maintain the PlasticsNet brand
in response to competitive pressures, we may find it necessary to increase
substantially our financial commitment to creating and maintaining strong brand
loyalty among buyers. If we are unable to provide high-quality online services
or customer support, or otherwise fail to promote and maintain our brand, or if
we incur excessive expenses in an attempt to promote and maintain our brand,
our business, operating results and financial condition would be materially
adversely affected.
If we are not able to integrate the PlasticsNet marketplace with buyers'
information technology systems, we may be unsuccessful in winning these buyers
We may incur significant expense to integrate our electronic marketplace
with buyers' purchasing systems and business rules, and to maintain this
integration as our buyers' purchasing systems and our own marketplace
technologically evolve. Failure to provide this integration may delay or
altogether dissuade buyers from using our electronic marketplace, which could
negatively affect our revenue and, therefore, have a material adverse effect on
our business, results of operations and financial condition.
We may not be able to implement new technologies acquired from third parties
We will be integrating new technology into our electronic marketplace that
will include significant enhancements to the exchange capabilities and search
technology of our marketplace. Enhancing and introducing new technology into
our electronic marketplace involve numerous technical challenges and
substantial personnel resources, and often take many months to complete. We
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cannot be certain that we will be successful at enhancing or integrating new
technologies into our electronic marketplace on a timely basis, or in
accordance with our objectives. In addition, we cannot be certain that, once
integrated, the new technologies or our electronic marketplace will function as
expected. If we are unable to enhance and integrate new technologies into our
electronic marketplace on a timely basis, buyers may discontinue use of the
PlasticsNet marketplace or we may experience difficulty attracting new buyers,
which could adversely affect our business, revenue, financial condition and
results of operations. In addition, our electronic marketplace is complex and,
despite testing and quality control procedures, new technology that we
integrate with the marketplace may contain undetected errors or "bugs" when
first introduced. Any inability to deliver quality services on a timely basis
could have a negative effect on our business, revenue, financial condition and
results of operations.
New service introductions may be unsuccessful and thus negatively impact our
business
We plan to introduce new and expanded services to our customers and to
enter into new relationships with third parties in order to generate additional
revenue, attract more customers and respond to competition. We cannot assure
you that we will be able to offer these services in a cost-effective or timely
manner or that any of these efforts will be successful. Furthermore, any new
service that is not favorably received by our customers could damage our
reputation or our brand name. Expansion of services in this manner will also
require significant additional expense and development and may strain
management, financial and operational resources. Inability to generate revenue
from expanded services sufficient to offset their cost could have a material
adverse effect on our business, operating results and financial condition.
We will need to manage the growth of our business effectively in order to meet
customer and investor expectations
We have rapidly and significantly expanded our operations and expect to
continue to do so. This growth has placed, and we expect will continue to
place, significant demands on our sales, marketing, managerial, operational,
financial and other resources. If we cannot manage our growth effectively, it
is likely that our revenue and results of operations will not meet customer and
investor expectations.
We expect to hire a significant number of new employees to support our
business. Our current information systems, procedures and controls may not
continue to support our operations and may hinder our ability to exploit the
market for selling products to the plastics industry. In addition, we
anticipate requiring additional space to accommodate our growth in the next
three months. We could experience interruptions to our business if we relocate
to new facilities. Even after we implement our new system and relocate to new
facilities, our personnel, systems, procedures, controls and facilities may be
inadequate to support our future operations.
Because we bear the risk of collection, the failure to collect on product sales
would adversely affect our liquidity
Since we take title to many of the products that we sell, we bear the risk
of loss of revenue from the sale of these products if a buyer does not pay for
a product. While our suppliers may indemnify us if a product is defective, we
ultimately bear the risk of collection on all buyer accounts.
Our plan to expand into international sales and operations will require
significant management attention; and if we fail to execute this strategy,
eventually our growth will be limited, and our operating results will be harmed
In order to enter international markets, we plan to establish international
operations, hire additional personnel and establish relationships with
additional suppliers and strategic partners. This
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expansion will require significant management attention and financial resources
and could have a negative impact on our business. We cannot assure you that we
will be able to create or sustain international demand for our electronic
marketplace. In addition, our international business may be subject to a
variety of risks, including applicable government regulation, difficulties in
collecting international accounts receivable, the introduction of non-tariff
barriers and higher duty rates. Currency fluctuations, price controls,
potential adverse tax consequences and difficulties in enforcement of
contractual obligations may also present problems.
Our plan to expand by offering additional marketplaces in other industries will
require significant management attention, and if we fail to execute this
strategy, eventually our growth will be limited and our operating results will
be harmed
In order to create new marketplaces in industries other than plastics, we
plan to hire additional personnel and establish relationships with additional
suppliers and strategic partners. This expansion will require significant
management attention and financial resources and could have a negative impact
on our business. The members of our management team have spent most of their
careers working in the plastics industry and have significant expertise in that
industry. We cannot assure you that we will be able to successfully recruit
skilled managers with expertise and business relationships in other industries
to implement our plan to introduce additional marketplaces. Nor can we assure
you that without such expertise and industry relationships our current
management team will be able to create successful marketplaces in other
industries.
If others use domain names that are similar to ours, traffic to our site could
be affected, and we could lose revenue
We currently hold the Internet domain names "Commerx.Com" and
"PlasticsNet.Com". Domain names generally are regulated by Internet regulatory
bodies. The regulation of domain names in the United States and in foreign
countries is subject to change. Regulatory bodies could establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may not acquire or
maintain the "Commerx.Com" or "PlasticsNet.Com" domain names in all of the
countries in which we conduct business. The relationships among regulations
governing domain names and laws protecting trademarks and similar proprietary
names are unclear. Therefore, we could be unable to prevent third parties from
acquiring domain names that are similar to ours, or that infringe or otherwise
decrease the value of our trademarks and other proprietary rights. Also, there
are risks that in the future third parties could prevent us from continuing to
use one or more of our domain names.
If we lose our key personnel, we may have difficulty managing our business
effectively in a rapidly changing market
Our performance is substantially dependent 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. Our failure to
successfully manage our personnel requirements would have a negative effect on
our business, revenue, 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. 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 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 Tim
Stojka, our Chairman and Chief Executive Officer, would have a detrimental
effect on our business. Mr. Stojka is one of our co-founders and is responsible
for our vision and future direction.
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Our market is highly competitive, and if we are unable to compete effectively,
our business will not grow
E-commerce is new, rapidly evolving and intensely competitive, and we
expect competition to intensify in the future. Barriers to entry are minimal,
and current and new competitors can launch new sites at a relatively low cost.
In addition, the wholesale plastics industry in general is intensely
competitive. We compete primarily with traditional plastics supply distributors
and direct material suppliers who sell most products via direct sales forces
and mail order catalogs and have broad product lines. They normally have
experience with direct marketing, established brand names and both fulfillment
and operations capacity. Traditionally, the distribution channels have been
based on strong interpersonal relationships, which we may not be able to
replace with our online marketplace.
General Electric, a major supplier in the plastics industry, has also
developed Polymerland, a resin distribution and online sales arm for its
products and the products of other suppliers. Polymerland is a substantial
competitor of the PlasticsNet marketplace. As the market for online plastics
products services grows, other companies, including other established suppliers
and distributors, are expected to develop online services that compete with our
marketplace. In addition, technology companies, such as Internet software and
enterprise software providers, are developing or offering purchasing solutions
that directly link suppliers with buyers in the plastics industry. Furthermore,
there are several existing and emerging vertical Internet marketplaces that
currently serve or could expand their offerings to compete in the plastics
industry. We cannot assure you that we will be able to compete successfully
against current and future competitors, and competitive pressures faced by us
may have a material adverse effect on our business, operating results and
financial condition.
There has been no prior market for our common stock and we expect the price of
our common stock to be volatile
Prior to this offering, you could not buy or sell our common stock publicly
and an active public market for our common stock may not develop or be
sustained after the offering. Although the initial public offering price will
be determined based on several factors, the market price after the offering may
decline from the initial offering price. The market price of our common stock
may fluctuate significantly in response to a number of factors, some of 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 buyer, supplier or strategic partner;
. 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.
If the Internet does not continue to grow as a medium for commerce, our
business plan will fail
Our long-term viability is substantially dependent upon the development of
the Internet as an effective medium of commerce, especially for the purchase of
plastics products. This development
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depends upon a number of factors including continued growth in the number of
users, concerns about transaction security, continued development of the
necessary technological infrastructure, development of enabling technologies,
uncertain and increasing government regulation and the development of
complementary services and products.
Use of the Internet as a means of effecting business transactions is at an
early stage of development. For us to be successful, businesses must accept and
utilize novel ways of conducting business and exchanging information.
Convincing businesses to buy and sell plastics products online may be
particularly difficult, as these businesses have historically relied on
traditional distribution channels. We cannot assure you that acceptance and use
of the Web will continue to develop or that a sufficiently broad base of
businesses will adopt, and continue to use, the Internet and commercial online
services as a medium of commerce.
Growth in the demand for our electronic marketplace and services depends on
the adoption of e-commerce and Internet solutions by plastics industry
participants, who must accept 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 by participants in
the plastics industry.
The Internet may not prove to be a viable commercial marketplace for the
plastics industry for a number of reasons, including:
. inadequate development of the necessary infrastructure for Internet-
based communications by plastics processors;
. security and confidentiality concerns of buyers 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 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 electronic marketplace
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
and its users 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 buyers experience frequent outages or delays on the Internet, the
adoption or use of our electronic marketplace may grow more slowly than we
expect or even decline. Our ability to increase the speed and reliability of
our electronic marketplace is limited by and depends upon the reliability of
both the Internet and the internal networks of our existing and potential
buyers. As a result, if improvements in the infrastructure supporting both the
Internet and the internal networks of buyers are not made in a timely fashion,
we may experience difficulty obtaining new buyers or maintaining our existing
buyers. Either of these could reduce our potential revenue and have a negative
impact on our business, results of operations and financial condition.
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If Internet security concerns hinder the adoption of e-commerce, the
development of our marketplace will also be impeded
Concern about the security of the transmission of confidential information
over public networks is a significant barrier to electronic commerce and
communication. Advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments could result in compromises or
breaches of Internet security systems that protect proprietary information. If
any well-publicized compromises of security were to occur, they could
substantially reduce the use of the Internet for commerce and communications.
Anyone who circumvents our security measures could misappropriate
proprietary information or cause interruptions in our services or operations.
Our activities involve the storage and transmission of proprietary information,
such as confidential buyer and supplier specifications. The Internet is a
public network, and data is sent over this network from many sources. In the
past, computer viruses have been distributed and have rapidly spread over the
Internet. Computer viruses could be introduced into our systems or those of our
clients or suppliers, which could disrupt our electronic marketplace or make it
inaccessible to our clients or suppliers. We may be required to devote
significant capital and other resources to protect against the threat of, or to
alleviate problems caused by, security breaches and the introduction of
computer viruses. Our security measures may be inadequate to prevent security
breaches or combat the introduction of computer viruses, either of which may
result in loss of data, increased operating costs, litigation and possible
liability.
System failure or delay may cause interruption and disruption of our services
Our revenue depends on the number of suppliers and processors who use our
marketplace to purchase and sell plastics products. Accordingly, the
satisfactory performance, reliability and availability of our online site,
transaction-processing systems and network infrastructure are critical to our
operating results, as well as our ability to attract and retain buyers and
suppliers and to maintain adequate customer service levels. Substantially all
of our computer and communications systems are located in either Chicago or
Oakbrook, Illinois. Our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, break-
ins and similar events. Despite our implementation of network security
measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and confirm
buyer purchases. Any system interruptions that result in the unavailability of
our online site or reduced performance of the transaction system would reduce
the volume of sales and the attractiveness of our service offerings. This could
have a material adverse effect on our business, operating results and financial
condition.
Any substantial increase in the volume of traffic or the number of
transactions processed through our Web site will require us to expand and to
upgrade further our technology, transaction-processing systems and network
infrastructure. We cannot assure you that these upgrades will prevent
unanticipated system disruptions, slower response times or degradation in
levels of customer service. Our insurance policies may not adequately
compensate us for any issues that may arise due to any failures or
interruptions in our systems.
We cannot assure you that our transaction-processing systems and network
infrastructure will be able to accommodate increases in traffic in the future.
In general, we may not be able to project accurately the rate or timing of
these increases or successfully upgrade our systems and infrastructure to
accommodate future traffic levels on our online site. In addition, we cannot
assure you that we will be able to, in a timely manner, effectively upgrade and
expand our transaction-processing systems or successfully integrate any newly
developed or purchased modules with our existing systems. Any inability to do
so could have a material adverse effect on our business, operating results and
financial condition.
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The failure of computer systems and software products to be Year 2000 compliant
could negatively impact our business
We have been able to build our internal business systems with Year 2000
compliance in mind and to date have not suffered any disruptions in our systems
due to the inability to properly process dates after December 31, 1999.
However, we cannot assure you that our systems or the technology we license
from third-party vendors for certain equipment and software included within our
systems are Year 2000 compliant. In addition, buyers' and suppliers' internal
operating systems and other software applications must operate effectively for
them to use our electronic marketplace. Further, if suppliers' internal
operating systems and software applications are not compliant, they may not be
able to supply high quality products to buyers in a timely manner.
Additionally, some of our suppliers have informed us that they have experienced
Year 2000-related difficulties. Failure of our internal computer systems, or of
third-party equipment or software, or of systems maintained by our suppliers to
operate properly with regard to the Year 2000 and thereafter could require us
to incur significant unanticipated expenses to remedy any problems. This could
have a material adverse effect on our customers, which could have a material
adverse effect on our business, financial condition and results of operations.
Regulation or taxation of the Internet or transacting business over the
Internet may inhibit the growth of our electronic marketplace
Due to the increasing popularity and use of the Internet and of e-commerce,
it is possible that governments in the U.S. and abroad may adopt a number of
taxes, laws and regulations with particular applicability to the Internet and
e-commerce transactions. Governments may adopt taxes and enact legislation
applicable to us in areas such as content, product distribution and 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 may be regulated in the future.
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,
inhibit e-commerce and reduce the number of transactions on our marketplace,
increase our cost of doing business or increase our legal exposure. Any of
these factors could have a negative effect on our business, revenue, results of
operations and financial condition.
We are subject to government regulation applicable to suppliers that exposes us
to potential liability and negative publicity
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard information notices to purchasers, record keeping and
licensing 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 the government requires us to
have our own licenses. For example, if we are held to be a seller or a
distributor of products because we took legal title to the products, we may
have 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. In addition, we are unable to verify that
our suppliers have in the past complied, or will in the future comply, with
applicable governmental regulatory requirements, or that their actions satisfy
all governmental or other legal requirements that may be applicable to our
sales. We could be fined or exposed to civil or criminal liability, including
monetary fines and injunctions, and we potentially could receive negative
publicity if we or our suppliers have not met or are not meeting applicable
governmental regulatory requirements. We do not maintain any reserve for
potential liabilities resulting from government regulation.
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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
based on the nature, use or merchantability of the products that we sell and
distribute utilizing the Internet. This includes claims for breach of warranty,
product or environmental liability, misrepresentation, violation of
governmental regulations and other commercial claims. In particular, during
periods where we hold title to products or are otherwise liable for the
disposition or transfer of the products, 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 buyer and return by the buyer to the
supplier. In some instances, we pass through the manufacturers' warranties on
the products we distribute; however, those warranties are generally limited in
terms of scope and liability. Although we maintain commercial general liability
insurance, including products liability and completed operations liability, our
insurance may not cover some claims, penalties or spills. It is also subject to
policy limits and exclusions, and may not 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. While we attempt to limit our liability to
buyers in our contracts, some object to limits on liability and these
contractual provisions may not absolve us of liability.
We also seek to obtain insurance coverage and indemnification from our
suppliers against some of these claims; however, the scope of the
indemnification is limited. All of our suppliers may not agree to indemnify us.
In addition, we are generally not in a position to monitor our suppliers'
activities. Therefore, we are exposed to liability and risk for these claims.
We may be sued for information and products retrieved from the Web
As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. These claims have been brought, and sometimes
successfully pressed, against online services. We do not and cannot practically
screen all of the content generated by our users on the bulletin board system
on our online site, and we could be exposed to liability with respect to that
content. We could also be subjected to claims based upon the content that is
accessible from PlasticsNet through links to other Web sites or through content
and materials that members may post in chat rooms or bulletin boards. Although
we carry general liability insurance, our insurance may not cover claims of
these types or may not be adequate to indemnify us for all liability that may
be imposed. Any imposition of liability, particularly liability that is not
covered by insurance or is in excess of insurance coverage, could have a
material adverse effect on our reputation and our business, operating results
and financial condition.
Protection of our intellectual property is limited and uncertain
Our intellectual property is important to our business. We seek to protect
our intellectual property through trademark and copyright law, trade secret
protection and confidentiality or license agreements with our employees,
buyers, suppliers and others. We cannot assure you that our means of protecting
our intellectual property rights in the United States or abroad will be
adequate or that others, including our competitors, will not use our
proprietary technology without our consent.
We have registered trademarks in the United States for "PlasticsNet" and
"Commerx, Inc." and have filed a trademark application for "PlasticsNet.Com".
However, we cannot guarantee that this trademark application will be granted or
that our registered trademarks will be upheld. If we are unable to secure or
maintain registration of these marks, we may be required to change the names
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of our Web sites, stop using these marks to identify our brand or change our
domain name, all of which could cause confusion to current and potential buyers
and suppliers or disrupt our business. In addition, any name change could cause
confusion to potential investors, which could cause the value of our stock to
decline.
Furthermore, litigation may be necessary to enforce our intellectual
property rights, to protect our trade secrets, to determinate the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of resources and could harm our business, operating results and
financial condition.
In the future, we may license certain of our intellectual property, such as
trademarks or copyrighted material, to third parties. While we would attempt to
ensure that any licensees maintain the quality and value of our brand, we
cannot ensure that they would refrain from actions which might diminish this
quality and value.
If others assert that our technology infringes their intellectual property
rights, resolving the dispute could divert our management team and financial
resources
Recently, many patents have been granted in the United States involving
business methods relating to e-commerce. We may be subject to claims that one
or more of the business methods on our marketplace infringe patents held by
others. The defense of any claims of infringement made against us by third
parties could involve significant legal costs and require our management to
divert time from our business operations. Either of these consequences of an
infringement claim could have a material adverse effect on our operating
results. If we are unsuccessful in defending any claims of infringement, we may
be forced to obtain licenses or pay royalties to continue to use our
technology. We may not be able to obtain any necessary licenses on commercially
reasonable terms or at all. If we fail to obtain necessary licenses or other
rights, or if these licenses are costly, our operating results may suffer
either from reductions in revenue through our inability to serve clients or
from increases in costs to license third-party technology.
If software and content that we license from third parties is not available, we
may not be able to provide the services on our marketplace
We rely on third parties to provide us with software and hardware, for
which we pay fees. This software has been readily available, and to date we
have not paid significant fees for its use. These third parties may increase
their fees significantly or refuse to license their software or provide their
hardware to us. While other vendors may provide the same or similar technology,
we cannot be certain that we can obtain the required technology on favorable
terms, if at all. If we are unable to obtain required technology at a
reasonable cost, our growth prospects and operating results may be harmed
through impairment of our ability to conduct business or through increased
cost.
We also intend to continue to license certain content for our Web site from
third parties, including content which is integrated with internally-developed
content and used on our Web site to provide key services. We cannot ensure that
third parties will continue to license this content to us on commercially
reasonable terms or that we will be able to successfully integrate third party
content. Licensing content from third parties exposes us to risks associated
with the assimilation of new content, the diversion of resources from the
development of our content, the inability to generate revenue from new content
sufficient to offset associated acquisition costs and the maintenance of
uniform, appealing content. The inability to obtain any of these licenses could
delay site development or services until we can identify, license and integrate
equivalent content. Any delays in site development or services could have a
material adverse effect on our business, operating results and financial
condition.
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Officers and directors and their affiliates will continue to have substantial
control over us after the offering
Upon completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately % of the
shares of common stock ( % if the underwriters exercise the over-
allotment option in full). 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.
We may require additional capital for our operations
We currently anticipate that the net proceeds of the offering, together
with 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 18 months. We may need to raise additional
funds in the future in order to develop new or enhanced services, to respond to
competitive pressures or to acquire complementary businesses, technologies or
services. If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced. 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 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, revenue, financial condition and results of
operations.
Other companies may have difficulty acquiring us, even if doing so would
benefit our stockholders, due to provisions of our corporate charter and bylaws
and Delaware law
Provisions in our Certificate of Incorporation, in our Bylaws and under
Delaware law could make it more difficult for other companies to acquire us,
even if doing so would benefit our stockholders. Our Certificate of
Incorporation and Bylaws contain the following provisions, among others, which
may inhibit an acquisition of our company by a third party:
. a staggered Board of Directors, where stockholders elect only a minority
of the Board each year;
. undesignated preferred stock, which the Board of Directors may set the
terms of and issue without stockholder approval;
. advance notification procedures for matters to be brought before
stockholder meetings;
. a limitation on who may call stockholder meetings; and
. a prohibition on stockholder action by written consent.
We are also subject to provisions of Delaware law that prohibit us from
engaging in any business combination with any "interested stockholder," meaning
generally a stockholder who beneficially owns more than 15% of our stock, for a
period of three years from the date this person became an interested
stockholder, unless various conditions are met, such as approval of the
transaction by our board. This could have the effect of delaying or preventing
a change in control.
Our management has broad discretion over how to use the proceeds of this
offering; we may not use the proceeds in ways that help our business succeed
We estimate that our net proceeds from this offering will be $ million,
at an assumed initial public offering price of $ per share after deducting
estimated underwriting discount and offering
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expenses. Our primary purposes in making this offering are to increase our
working capital, create a public market for our common stock, facilitate our
future access to the public capital markets and increase our visibility in the
marketplace. We have no specific plans for the net proceeds of this offering
other than working capital and general corporate purposes. Accordingly, our
management will have broad discretion as to how to apply the net proceeds of
this offering. If we fail to use these proceeds effectively, our business may
not grow and our revenue and net income may decline.
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, we will have
shares of common stock outstanding or subject to currently exercisable options
( shares if the underwriters' over-allotment option is
exercised in full). The shares sold in this offering
( shares if the underwriters' over-allotment option is
exercised in full) 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. The remaining
shares of common stock outstanding upon completion of the
offering will be "restricted securities" as that term is defined in Rule 144.
Stockholders holding approximately % of the outstanding common stock
and options to purchase common stock exercisable within 180 days after the date
of this prospectus 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 180 days after the date of this prospectus without the prior written
approval of Goldman Sachs. 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.
You will suffer immediate and substantial dilution in the book value of your
investment
The initial public offering price per share will significantly exceed our
net tangible book value per share. If we were to liquidate immediately after
the offering, investors purchasing shares in this offering would receive a per
share amount of tangible assets net of liabilities that would be less than the
initial public offering price per share. Investors purchasing shares in this
offering will suffer dilution of $ per share from their investment.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue" or
the negative of these terms or other comparable terminology. These statements
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different than those expressed or implied by
these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. 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.
19
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares being
offered will be approximately $ million, at an assumed initial public
offering price of $ per share, after deducting the estimated underwriting
discount and offering expenses payable by us. If the underwriters exercise
their over-allotment option in full, we estimate that the net proceeds to us
from the sale of the shares being offered will be approximately $ million.
The principal purposes of this offering are to increase our working
capital, create a public market for our common stock, facilitate our future
access to the public capital markets and increase our visibility in the
marketplace. We have no specific plans for the net proceeds of this offering
other than general corporate purposes and working capital, and our use of these
proceeds will be in the discretion of our management. Pending deployment of the
net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the authorization of additional common
and preferred stock and our issuance and sale of 3,128,732 shares of
Series B preferred in November and December 1999 for net proceeds of
approximately $36.9 million. The net proceeds include approximately $2.1
million that reflect the November 1999 conversion of all management
notes and accrued interest into shares of Series B preferred. The pro
forma balance sheet data also includes the write-off of $185,747 of
remaining management loan discounts, and the conversion of all Series A
and Series B preferred stock into 11,698,732 shares of common stock upon
the closing of this offering.
. on a pro forma basis as adjusted to reflect our issuance and sale of
shares of common stock in this offering at an assumed initial
public offering price of $ per share and after deducting the
estimated underwriting discount and offering expenses, and the
application of the net proceeds as described in "Use of Proceeds".
None of the amounts reflects 3,820,500 shares of common stock issuable upon
exercise of options outstanding under our stock option plan as of September 30,
1999 at a weighted average exercise price of $0.84 per share or 137,648 shares
of common stock, which will be issuable upon the exercise of warrants at a
weighted average exercise price of $3.10 per share.
You should read the table below along with our balance sheet as of
September 30, 1999 and the related notes to the financial statements, which are
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
----------------------------
Pro
Pro Forma As
Actual Forma Adjusted
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Notes payable, net of current portion............ $ 184 $ 184 $
Capital lease obligations, net of current
portion......................................... 813 813
-------- -------- ---
Long-term debt, net of current portion........... 997 997
Redeemable convertible Series A preferred stock,
$.001 par value per share, 8,682,858 shares
authorized, 8,570,000 shares issued and
outstanding actual and no shares issued and
outstanding pro forma or pro forma as adjusted.. 7,010 --
Stockholders' equity (deficit)
Convertible Series B preferred stock, $.001 par
value per share, 3,218,021 authorized, no
shares issued or outstanding actual, pro forma
or pro forma as adjusted....................... -- --
Common stock, $.001 par value per share;
20,000,000 shares authorized, 7,430,000 shares
issued and outstanding actual; 19,128,732
shares issued and outstanding pro forma;
shares issued and outstanding pro forma as
adjusted....................................... 7 19
Deferred compensation........................... (592) (592)
Additional paid-in capital...................... 3,495 47,352
Accumulated deficit............................. (12,416) (12,627)
-------- -------- ---
Total stockholders' equity (deficit).......... (9,506) 34,152
-------- -------- ---
Total capitalization (deficit)................ $ (1,499) $ 35,149 $
======== ======== ===
</TABLE>
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, was
approximately $ million, or per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities and then divided by the total number of
shares of common stock outstanding on December 31, 1999 after giving effect to
the conversion of all shares of outstanding Series A and Series B preferred
stock effective as of the closing of this offering. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the pro
forma as adjusted net tangible book value per share of common stock immediately
after the completion of this offering. After giving effect to the sale of the
shares of common stock offered by us at an assumed initial public
offering price of $ per share, and after deducting the estimated
underwriting discount and estimated offering expenses payable by us, our pro
forma as adjusted net tangible book value on December 31, 1999 would have been
approximately $ million, or $ per share of common stock. This
represents an immediate increase in pro forma as adjusted net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors purchasing shares of common stock. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share before this
offering................................................... $
Increase per share attributable to new investors............
--------
Adjusted pro forma net tangible book value per share after
this offering................................................
--------
Dilution per share to new investors........................... $
========
</TABLE>
The following table summarizes on a pro forma as adjusted basis, after
giving effect to the differences between the existing stockholders and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid by investors and the average price per share
paid by existing stockholders and by new investors at an assumed initial
offering price of $ per share before deducting estimated underwriting
discount and offering expenses:
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Price
-------------- -------------- Per
Number Percent Amount Percent Share
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors.............................
----- ------ ------ ------ ------
Totals.................................. 100.0% 100.0%
===== ====== ====== ======
</TABLE>
The preceding tables exclude 4,058,875 shares of common stock issuable upon
exercise of options outstanding under our stock option plan on December 31,
1999 at a weighted average exercise price of $1.32 per share and 137,648 shares
of common stock which will be issuable upon exercise of warrants at a weighted
average exercise price of $3.10 per share. To the extent outstanding options
and warrants are exercised, there will be further dilution to new investors.
22
<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes. We have derived
the statement of operations data for the years ended December 31, 1996, 1997
and 1998 and the nine months ended September 30, 1999, and the balance sheet
data as of December 31, 1996, 1997 and 1998 and September 30, 1999 from our
financial statements that have been audited by PricewaterhouseCoopers LLP. We
have derived all other data in this table from unaudited financial statements.
We believe the unaudited results shown in the table below include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information. Operating results for
the nine months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for all of 1999.
<TABLE>
<CAPTION>
July 1995
(inception) Nine Months Ended
through Year Ended December 31, September 30,
December 31, ------------------------------------- ----------------------------
1995 1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- ----------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue..................... $ 3 $ 53 $ 305 $ 375 $ 264 $ 833
Cost of revenue............. -- -- -- -- -- 426
----------- ----------- ----------- ----------- ----------- ----------
Gross profit................ 3 53 305 375 264 407
Operating expenses:
Sales and marketing........ 68 331 451 577 318 2,643
Information technology..... 78 336 274 515 298 2,344
Production and operations.. -- 129 139 140 113 849
General and
administrative............ 156 159 217 1,135 635 2,284
Amortization of deferred
stock compensation........ -- -- -- -- -- 387
----------- ----------- ----------- ----------- ----------- ----------
Total operating expenses. 302 955 1,081 2,367 1,364 8,507
----------- ----------- ----------- ----------- ----------- ----------
Loss from operations........ (299) (902) (776) (1,992) (1,100) (8,100)
Interest income (expense),
net........................ (13) (50) (118) (186) (134) 20
----------- ----------- ----------- ----------- ----------- ----------
Net loss.................... $ (312) $ (952) $ (894) $ (2,178) $ (1,234) $ (8,080)
=========== =========== =========== =========== =========== ==========
Historical basic and diluted
loss per common share...... $ (0.02) $ (0.06) $ (0.05) $ (0.13) $ (0.07) $ (1.09)
=========== =========== =========== =========== =========== ==========
Pro forma loss per share.... $ (0.15) $ (0.54)
=========== ==========
Weighted average shares used
to compute historical basic
and diluted loss per share
........................... 16,950,000 16,950,000 16,950,000 16,897,835 16,950,000 7,430,000
Weighted average shares used
to compute pro forma net
loss per share ............ 14,095,000 14,836,096
</TABLE>
Potentially dilutive common shares have been excluded from the shares used
to compute earnings per share in each loss year because their inclusion would
be antidilutive. Pro forma loss per share data reflect the conversion of all
outstanding preferred stock into common stock, even if the effect of the
conversion is antidilutive.
The following pro forma balance sheet data give effect to our issuance and
sale of 3,128,732 shares of Series B preferred in November and December 1999
for net proceeds of approximately $36.9 million. The net proceeds include
approximately $2.1 million that reflects the November 1999 conversion of all
management notes and accrued interest into shares of Series B preferred. The
pro forma balance sheet data also includes the write-off of $185,747 of
remaining management loan discounts, and the conversion of all Series A and
Series B preferred stock into 11,698,732 shares of common stock upon the
closing of this offering.
<TABLE>
<CAPTION>
As of
As of December 31, September 30, 1999
-------------------------------- --------------------
1995 1996 1997 1998 Actual Pro Forma
----- ------- ------- ------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 249 $ -- $ 52 $ 3,303 $ 1,800 $ 36,642
Working capital
(deficit).............. (195) (1,168) (2,066) 2,531 (3,035) 33,613
Total assets............ 363 123 186 3,752 3,927 38,769
Long-term debt, net of
current portion........ -- -- -- -- 997 997
Redeemable convertible
preferred stock........ -- -- -- 5,010 7,010 --
Total stockholders'
equity (deficit)....... (112) (1,065) (1,958) (2,073) (9,506) 34,152
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our financial statements and
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that include risks and uncertainty. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, such as those set forth under "Risk
Factors" and elsewhere in this prospectus.
Overview
Commerx is a provider of business-to-business e-commerce solutions for
vertical, industrial processing markets. Our first marketplace is PlasticsNet,
a secure, supplier-neutral, buyer-focused marketplace on the Internet that is
used for the procurement of plastics products and services. We began developing
the PlasticsNet marketplace in 1995 with the goal of establishing the first
Internet-based e-commerce marketplace for the plastics industry.
From inception through March 1999, we were a development-stage enterprise
and did not have significant revenue. Our operating activities during this
period related primarily to designing and developing the PlasticsNet community,
building our corporate infrastructure, establishing relationships with
suppliers of plastics products and services and raising capital. From September
1995 through March 1999, we derived revenue primarily from fees for services
for the creation and production of advertising on our Web site. We began
conducting transactions on our marketplace in April 1999, and we intend to
continue developing the site's functionality and service offerings.
We have generated nominal revenue to date, and our ability to generate
significant revenue is uncertain. We have incurred significant losses since
inception and, as of September 30, 1999, we had an accumulated deficit of
approximately $12.4 million. We currently anticipate our losses to increase in
the future and cannot assure you that we will achieve or sustain profitability.
From inception, we have increased our level of spending to build our
corporate infrastructure, develop the PlasticsNet marketplace and attract an
experienced management team. We intend to increase our marketing, sales,
technology, administrative and other operating expenses as required to continue
to build the PlasticsNet marketplace, as well as to enter other vertical
industrial processing markets and expand into international markets. We
anticipate that these expenses could significantly precede any revenue
generated by our increased spending.
Revenue
From inception through March 1999, we derived our revenue solely from fees
paid for establishing and maintaining supplier business centers and other
advertising content on the PlasticsNet marketplace. We contract for the
establishment and renewal of business centers generally on an annual basis and
recognize revenue equally over each of the twelve months. Other advertising
revenue, such as banner ads, is contracted generally on a quarterly basis, and
we recognize revenue equally over each of the three months of the agreement. We
expect that both of these sources of revenue will continue to grow, but will
account for a smaller share of our total revenue in the future. Historically,
we have collected substantially all of our accounts receivable for advertising
services; however, we provide an allowance for doubtful accounts.
Beginning in the second quarter of 1999, we began generating transactional
revenue, derived from the sale of plastics products to buyers through our
Internet-based e-commerce marketplace. By the end of 1999, we derived revenue
predominantly from sales of products on our marketplace. Under the majority of
our current supplier agreements, we act as the principal by purchasing products
from suppliers and reselling them to buyers. We recognize revenue at the time
of title
24
<PAGE>
transfer, which is typically at the time of shipment. Suppliers ship products
directly to buyers based on their delivery specifications. Under these
principal-based agreements, we are responsible for selling products, collecting
payment, ensuring that shipments reach buyers and processing returns. We take
title to products upon shipment and bear the risk of loss for collection,
delivery and product returns. We provide an allowance for sales returns, which
have been inconsequential to date. We also provide an allowance for doubtful
accounts, but have not deemed any transaction-based receivables uncollectable
to date.
We also intend to engage in agency transactions where we will neither take
title to products nor bear the risk of loss for collection or product returns.
Under these agency-based transactions, we will recognize revenue equal to a
percentage of the purchase price of products sold at the time the products are
shipped to the buyer. We have not had any agency transactions to date, but
these transactions may ultimately constitute an important part of our business.
We also intend to provide information technology, fulfillment and
consulting services, such as integrated procurement technology services that
are required to integrate buyers' and suppliers' systems with the PlasticsNet
marketplace. We will recognize service revenue upon complete fulfillment or
degree of completion of the service.
We exclude revenue and related expenses resulting from barter transactions
from our financial records.
During the year ended December 31, 1999, Endura Plastics, Inc. accounted
for approximately 23% of our revenue, National Plastics Network accounted for
approximately 20% of our revenue, and Borneo, Inc. accounted for approximately
14% of our revenue. The percentage of our revenue generated by each of these
buyers is expected to decline in 2000.
Cost of Revenue
Cost of revenue varies widely depending upon the type of transaction.
Advertising revenue does not have associated direct costs of sales; therefore,
gross profit is equal to revenue. When we act as the principal in a procurement
transaction, our cost of revenue consists of the cost of acquiring products
from our distributors and suppliers for sale to our buyers. When we act as an
agent, transactional revenue does not have associated direct costs of sales.
The cost of revenue for consulting services will include personnel costs that
we will incur in providing these services. We anticipate earning higher gross
profit as we build our agency and service revenue; however, we expect our
overall gross profit as a percent of revenue will decrease as we derive a
larger percentage of our revenue from principal-based transactions on our
marketplace.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll, benefits and travel expenses for employees engaged in our sales and
marketing activities and for our advertising and promotion activities. Sales
and marketing expenses have increased since inception as we have expanded our
sales and marketing efforts. We expect that sales and marketing expenses will
increase significantly in future periods as we hire additional sales and
marketing personnel to drive user adoption among buyers and sellers in the
plastics industry, develop our branding strategy and pursue new vertical and
international markets.
Information Technology. Information technology expenses consist primarily
of payroll, benefits, consultant fees and various communication expenses
associated with developing, maintaining and enhancing the PlasticsNet
marketplace. Increased information technology spending has resulted from
additional staffing and associated costs incurred to enhance the features,
content and functionality of the PlasticsNet marketplace. Research and
development expenditures are expensed as incurred. Software development costs
are required to be capitalized when a product's technological feasibility
25
<PAGE>
has been established either by completion of a detailed program design or a
working model of the product and ending when a product is available for general
release to consumers. To date, attainment of technological feasibility and
general release of our products have substantially coincided. As a result, we
have not capitalized any software development costs. We believe that continued
spending on product development is critical to achieving success, and therefore
expect product development costs to increase in future periods.
Production and Operations. Production and operations expenses consist
primarily of payroll, benefits and consulting fees that are incurred to provide
integration, content management and order management services to users of the
PlasticsNet marketplace. We expect these costs to increase as our user base
grows and our services expand within the domestic plastics industry as well as
to other vertical industrial markets and geographic markets.
General and Administrative. General and administrative expenses consist
primarily of payroll, benefits and professional service fees. We allocate
overhead costs pro rata to each functional department. We expect general and
administrative expenses to increase in future periods to support our expanded
operations and the expenses of being a public company.
Stock-Based Compensation. Stock-based compensation expense consists of
expense related to employee stock option grants issued with exercise prices
lower than the deemed fair value of the underlying shares at the time of grant.
We amortize stock-based compensation for employee stock options on an
accelerated basis over the vesting period of each individual award.
Results of Operations
Due to our limited operating history, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as an indication of future performance.
Nine Months Ended September 30, 1998 and 1999
Revenue
Total revenue increased 216% from $264,000 in the nine months ended
September 30, 1998 to $833,000 in the same period during 1999. This increase
reflects an increase in advertising revenue of 47% from $264,000 to $388,000.
In addition, transaction revenue was $445,000 for the nine months ended
September 30, 1999.
Quarterly Revenue Analysis
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31, June 30, September 30,
1999 1999 1999
--------- -------- -------------
(in thousands)
<S> <C> <C> <C>
Transaction revenue:
Principal-based.............................. $ -- $112 $333
Agency-based................................. -- -- --
------ ---- ----
Total transaction revenue...................... -- 112 333
Advertising and other revenue.................. 112 134 142
------ ---- ----
Total revenue.................................. $ 112 $246 $475
====== ==== ====
</TABLE>
26
<PAGE>
Cost of Revenue
During the nine months ended September 30, 1999, cost of revenue increased
from zero to $426,000 due to the introduction of principal-based transaction
revenue. We expect that cost of revenue will increase in future periods due to
increases in principal-based transaction volume through our procurement center.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 718% from
$318,000 for the nine months ended September 30, 1998 to $2.6 million for the
same period in 1999. The increase reflects continued investment in sales and
marketing activities and growth in staffing levels that increased from three as
of September 30, 1998 to 23 as of September 30, 1999.
Information Technology. Information technology expenses increased 672% from
$298,000 for the nine months ended September 30, 1998 to $2.3 million for the
same period in 1999. The increase is primarily attributable to higher costs
associated with staffing levels that increased from three as of September 30,
1998 to 15 as of September 30, 1999 and consulting fees related to Web site
development and system integration.
Production and Operations. Production and operations expenses increased
651% from $113,000 for the nine months ended September 30, 1998 to $849,000 for
the same period in 1999. The increase is primarily attributable to higher costs
associated with staffing levels that increased from two as of September 30,
1998 to 13 as of September 30, 1999 and consulting fees.
General and Administrative. General and administrative expenses increased
262% from $635,000 for the nine months ended September 30, 1998 to $2.3 million
for the same period in 1999. This increase is primarily attributable to the
addition of personnel in the areas of human resources, finance and executive
management that increased from three as of September 30, 1998 to 15 as of
September 30, 1999 to support the growth of our business in the current period
and in future years. Overhead costs, including rent, depreciation, utilities
and recruiting costs, increased 524% from $109,000 in the nine months ended
September 30, 1998 to $680,000 in the same period in 1999.
Amortization of Deferred Compensation. In connection with the grant of
options under our employee stock option plan in March 1999, we recorded
aggregate deferred compensation expense of $979,000 for options granted during
the nine months ended September 30, 1999. We are amortizing the deferred
compensation expense over the full vesting period of the stock options. We
amortized approximately $387,000 during the nine months ended September 30,
1999.
Other Income (Expense), net
Other expense decreased 71% from $133,000 for the nine months ended
September 30, 1998 to $39,000 for the same period in 1999, reflecting lower
interest expense on related party obligations. Interest income of $59,000 for
the nine months ended September 30, 1999 represented interest income earned on
invested funds received from the December 1998 financing.
Years Ended December 31, 1996, 1997 and 1998
Revenue and Gross Profit
Total revenue increased 475% from $53,000 in 1996 to $305,000 in 1997 and
23% to $375,000 in 1998. The increase in revenue from 1996 to 1998 is primarily
attributable to the increase in advertisers on our site. Advertising, including
the development of supplier business centers, was our sole source of revenue
through March 1999. Since all of our revenue during this time period was
derived from advertising fees, our gross profit is equal to revenue.
27
<PAGE>
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 36% from
$331,000 in 1996 to $451,000 in 1997 and 28% to $577,000 in 1998. The increase
from 1996 to 1998 resulted primarily from continued investment in sales and
marketing activities and increased staffing levels as our business developed.
Information Technology. Information technology expenses decreased 18% from
$336,000 in 1996 to $274,000 in 1997 and increased 88% to $515,000 in 1998. The
decrease from 1996 to 1997 was primarily due to a decrease in consulting costs
incurred during 1996 in connection with launching the PlasticsNet Web site. The
increase from 1997 to 1998 primarily relates to higher costs associated with
increased staffing levels, consulting fees and software costs in support of
enhancing the features, content and functionality of the PlasticsNet
marketplace.
Production and Operations. Production and operations expenses increased 8%
from $129,000 in 1996 to $139,000 in 1997 and increased to $140,000 in 1998.
Production and operations costs were primarily related to graphics content
development for our Web site from 1996 to 1998.
General and Administrative. General and administrative expenses increased
36% from $159,000 in 1996 to $217,000 in 1997 and increased 407% to $1.1
million in 1998. The increase from 1996 to 1998 was primarily due to increased
consulting fees, recruiting fees associated with increased staffing levels and
legal fees.
Other Income (Expense), net
Other expense increased 136% from $50,000 in 1996 to $118,000 in 1997 and
increased 58% to $186,000 in 1998. The increases in all periods were generated
from interest expense incurred on an increasing loan balance from a related
party.
Income Taxes
On December 27, 1998, in connection with a private placement of preferred
stock, we were required to change our corporate tax status from an S-
Corporation to a C-Corporation, which subjected us to federal and state
corporate income taxes. At December 31, 1998, we recorded a deferred tax asset
and, as a result of uncertainties regarding the realization of the assets due
to our lack of earnings history, also recorded a full valuation allowance. See
Note 8 of Notes to Financial Statements.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily through
operating loans from a related party and from the private sale of our equity
securities. We used related party advances as our primary source of funding
from inception through December 1998, at which time substantially all of the
outstanding balances were extinguished, except for approximately $100,000,
which we repaid in November 1999. Since December 1998, we have raised net
proceeds through the private sale of our equity securities of approximately
$38.9 million. We have also financed our operations through secured equipment
lease financing and an unsecured note. At September 30, 1999, our principal
sources of liquidity included approximately $1.8 million of cash and cash
equivalents, $1.0 million of available credit line with a commercial bank and
$300,000 of equipment financing arrangements.
We had outstanding loans from related parties of approximately $1,970,000
as of December 31, 1997 and approximately $93,000 as of December 31, 1998. As
of September 30, 1999 we had approximately $1.1 million outstanding under the
equipment financing arrangements, $300,000 outstanding on a three-year note due
to a financing company and $2.0 million outstanding on six-
28
<PAGE>
month, convertible notes due to certain officers of the company. Subsequent to
September 30, 1999, we raised approximately $36.9 million in net proceeds from
the private sale of our Series B preferred stock, after conversion of the six-
month notes referenced above.
Net cash used in operating activities was $900,000 in 1996, $800,000 in
1997, $1.6 million in 1998 and $5.6 million for the nine months ended September
30, 1999. Net cash used in operating activities primarily resulted from
personnel, consulting and overhead costs.
Net cash used in investing activities was $41,000 in 1996, $32,000 in 1997,
$144,000 in 1998 and $388,000 for the nine months ended September 30, 1999. We
have made substantial investments in computer equipment, computer software,
office furniture and leasehold improvements, primarily through the financing
lease agreements referenced above.
Net cash provided by financing activities was $700,000 in 1996, $900,000 in
1997, $5.0 million in 1998 and $4.5 million for the nine months ended September
30, 1999. Net cash from financing activities was initially derived from
operating loans from a related party and thereafter from the sale of our
preferred stock and convertible notes. We currently anticipate that the net
proceeds from this offering, together with our current cash, cash equivalents
and equipment lease line, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 18 months.
However, we may need to raise additional funds in future periods through public
or private financings, 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 activities, 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 we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage of ownership of our stockholders will be further diluted.
Furthermore, these equity securities might have rights, preferences or
privileges senior to our common stock.
29
<PAGE>
Quarterly Results of Operations
The following table presents our unaudited quarterly operating results for
the four quarters in the twelve months ended September 30, 1999. You should
read the following table together with our financial statements and related
notes in this prospectus. We have prepared this unaudited information on the
same basis as the audited financial statements. This table includes all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating
results for the quarters presented. You should not draw any conclusions about
our future results from the operating results of any quarter.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
------------ --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue.................... $ 111 $ 112 $ 246 $ 475
Cost of revenue............ -- -- 106 320
------ -------- -------- --------
Gross profit............... 111 112 140 155
------ -------- -------- --------
Operating expenses:
Sales and marketing....... 259 406 781 1,456
Information technology.... 217 396 628 1,320
Production and
operations............... 27 121 273 455
General and
administrative........... 500 504 632 1,148
Amortization of deferred
stock compensation....... -- 190 96 101
------ -------- -------- --------
Total operating
expenses............... 1,003 1,617 2,410 4,480
------ -------- -------- --------
Operating loss............. (892) (1,505) (2,270) (4,325)
Other income (expense),
net....................... (52) 26 13 (19)
------ -------- -------- --------
Net loss................... $ (944) $ (1,479) $ (2,257) $ (4,344)
====== ======== ======== ========
<CAPTION>
Three Months Ended
-------------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
------------ --------- -------- -------------
As a Percentage of Revenue:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................... 100% 100% 100% 100%
Cost of revenue............ -- -- 43 67
------ -------- -------- --------
Gross profit............... 100 100 57 33
------ -------- -------- --------
Operating expenses:
Sales and marketing....... 233 362 318 306
Information technology.... 196 354 255 278
Production and
operations............... 24 108 111 96
General and
administrative........... 451 450 257 242
Amortization of deferred
stock compensation....... -- 170 39 21
------ -------- -------- --------
Total operating
expenses............... 904 1,444 980 943
------ -------- -------- --------
Operating loss............. (804) (1,344) (923) (910)
Other income (expense),
net....................... (46) 23 6 (4)
------ -------- -------- --------
Net loss................... (850)% (1,321)% (917)% (914)%
====== ======== ======== ========
</TABLE>
30
<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. In order to
distinguish 21st century dates from 20th century dates, the date code field
must be modified to distinguish between 21st and 20th century dates. As a
result, many companies upgraded or replaced their software and computer systems
in order to comply with these Year 2000 requirements. The use of software and
computer systems that are not Year 2000 compliant could result in system
failures or miscalculations resulting in disruptions of operations, including
among other things, a temporary inability to process transactions, send
invoices or engage in normal business activities.
We have been able to build our internal business systems with Year 2000
compliance in mind and, as a result, to date we have not suffered any
disruptions in our systems following December 31, 1999. In addition, to date,
we have not been made aware that any of our technology or communications
vendors have suffered disruptions in their systems; however, some of our
suppliers have informed us that they have experienced Year 2000-related
difficulties. Failure of our internal computer systems, third-party equipment
or software, or systems maintained by our suppliers to operate properly with
regard to the Year 2000 could require us to incur significant unanticipated
expenses to remedy any problems.
Market Risk
All of our revenue recognized to date has been denominated in United States
dollars and is primarily from buyers in the United States. We intend to
establish foreign subsidiaries in the future. We have not yet had any revenue
from international transactions. In the future, a portion of the revenue we
derive from international operations may be denominated in foreign currencies.
As a result, our operating results could become subject to significant
fluctuations based upon changes in the exchange rates of those currencies in
relation to the United States dollar. Furthermore, to the extent that we engage
in international sales denominated in United States dollars, an increase in the
value of the United States dollar relative to foreign currencies could make our
services less competitive in international markets. Although currency
fluctuations are currently not a material risk to our operating results, we
intend to continue to monitor our exposure to currency fluctuations and, when
appropriate, use financial hedging techniques to minimize the effect of these
fluctuations in the future. We cannot assure you that exchange rate
fluctuations will not harm our business in the future. We do not currently
utilize any derivative financial instruments or derivative commodity
instruments.
Our interest income is sensitive to changes in the general level of United
States interest rates, particularly since the majority of our investments are
in short-term instruments. Borrowings under our existing credit lines are also
interest rate sensitive, since the interest rate charged by our bank varies
with changes in the prime rate of lending. We believe, however, that we are
currently not subject to material interest rate risk.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133,
which is effective, as amended, for all quarters in fiscal years beginning
after June 15, 2000, establishes accounting and reporting standards for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. As we do not currently engage
in derivative or hedging activities, we do not expect the adoption of this
standard to have a significant impact on our consolidated financial statements.
31
<PAGE>
BUSINESS
Company Overview
Commerx creates business-to-business electronic marketplaces that enable
buyers and sellers in industrial processing markets to transact business on the
Internet. We target industrial processing markets characterized by large
numbers of buyers and sellers, high levels of fragmentation, inefficient supply
chains and large transaction volume. Our first marketplace is PlasticsNet.
PlasticsNet provides a secure, supplier-neutral, buyer-focused marketplace
that streamlines the procurement of plastics products and services. The
PlasticsNet marketplace enables buyers and sellers to execute transactions on
the Internet and provides the tools, content and community to help them make
more informed decisions. Through the PlasticsNet marketplace, sellers can cost-
effectively provide current pricing and product information to a large pool of
buyers. In addition, buyers can efficiently search for products, identify
suppliers, compare product prices and specifications, and complete a purchase.
Led by a management team with extensive experience in the plastics, industrial
processing and technology industries, PlasticsNet has emerged as a leading
business-to-business electronic marketplace for the procurement of plastics.
We currently offer for sale on our procurement center over 30,000 plastics
products, or SKU's, from approximately 50 suppliers. We also have recently
signed strategic agreements with suppliers that provide us access to additional
products that we are currently adding to the PlasticsNet marketplace. These
agreements will provide us with over 1,000 direct materials products, such as
resins and additives, from a relationship with Ashland Inc. and over 400,000
maintenance, repair and operations, or MRO, products from a relationship with
MSC Industrial Direct Co. Inc. Our marketplace had approximately 73,000 user
sessions during December 1999 and currently has over 35,000 registered user
accounts. In 1999, Business Marketing, an Advertising Age publication, ranked
PlasticsNet as the fourth-best business-to-business Web site out of 300
surveyed in the U.S. based on a variety of criteria, including ease of
navigation, design, presentation of information and e-commerce capabilities.
Industry Background
Growth of Business-to-Business Internet Commerce
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing how businesses and individuals
communicate, share information and conduct commerce. Initially, the growth of
the Internet created opportunities for conducting business-to-consumer and
consumer-to-consumer e-commerce. More recently, the widespread adoption of
intranets, the acceptance of the Internet as a business communications
platform, and increased and secure bandwidth have created a foundation for
business-to-business e-commerce. This offers the potential for organizations to
increase revenue, streamline complex business processes and supply chains,
reduce costs and improve productivity. According to Forrester Research,
Internet-based business-to-business e-commerce is expected to grow from $109
billion in 1999 to $1.3 trillion in 2003, accounting for more than 90% of the
dollar value of e-commerce in the United States by 2003.
The dynamics of business-to-business e-commerce relationships differ
significantly from those of other e-commerce relationships. Business-to-
business e-commerce solutions frequently automate or otherwise impact workflows
or processes that are fundamental to business operations by replacing various
paper-based transactions with electronic communications. These solutions are
most effective when integrated with a company's existing information systems, a
process that can be complex and time consuming, often requiring personnel to be
trained to use the solution. Consequently, selection
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<PAGE>
and implementation of a business-to-business e-commerce solution represents a
significant commitment by an enterprise. However, because business transactions
are typically recurring and non-discretionary, we believe the lifetime value of
a business-to-business e-commerce customer is substantial.
As business-to-business e-commerce continues to grow, industry-specific or
"vertical" marketplaces are achieving increasing acceptance. These vertical
marketplaces bring together buyers, sellers, and information in open, online
marketplaces that automate complex business processes and supply chains. We
believe business-to-business e-commerce marketplaces are most likely to be
successful in industries characterized by:
. large numbers of buyers and sellers,
. a high degree of fragmentation among buyers, sellers or both,
. complex supply chains,
. significant dependence on information exchange,
. large transaction volume, and
. large product selection.
The Plastics Industry Supply Chain
The plastics industry, which we estimate represented over one trillion
dollars in annual product shipments worldwide in 1999, is one of the largest
manufacturing industries in the world. According to The Society of Plastics
Industry's latest available data, the plastics industry ranked fourth in U.S.
product shipments by dollar volume among top manufacturing industry groups in
1996. We estimate that the domestic shipments related to the U.S. plastics
industry, including products, services and other activities, reached over $400
billion in 1999.
The plastics industry supply chain is comprised of suppliers, plastics
processors and original equipment manufacturers ("OEMs") as illustrated below.
[SUPPLY CHAIN CHART]
Based on our extrapolations of publicly available data, we estimate that the
1999 domestic supplier-to-plastics processor segment of the plastics industry
supply chain represented over a $100 billion market. We also estimate that the
domestic plastics processor-to-OEM market represented over a $190 billion
market in 1999. We believe that both of these segments represent opportunities
for e-commerce solutions.
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<PAGE>
At the base of the supply chain are an estimated 6,000 companies that
supply plastics processors with the following materials, equipment, supplies
and services:
. Direct Materials. Direct materials such as resins and additives are used
in the production of plastics components and parts. Resins, which are
shipped as small plastic pellets, include polycarbonates, polyetheylene,
polyvinyl chloride and polypropylene. Additives, such as colorants and
antioxidants, affect the appearance and other characteristics of
plastics products.
. Processing Equipment. Processing equipment is used in the production of
plastic components and parts. Examples of processing equipment include
injection and blow molding machines, process controls, chillers,
software and information systems, and molding systems.
. Industrial Supplies. Maintenance, repair and operations, or MRO,
supplies include items such as cutting tools, mold-cleaning compounds,
mold materials, drills, abrasives and office supplies.
. Services. Typical services provided by suppliers include product design,
mold building and die cut stamping.
Suppliers have traditionally used multiple distribution channels, including
direct sales, distributors and brokers, to distribute these different products
to plastics processors.
. Direct Sales. Suppliers currently sell large bulk quantities of products
directly to plastics processors. Direct sales arrangements include both
spot purchases and contracts for repetitive scheduled purchases, such as
railcar or truckload quantities, over a specific period of time.
Suppliers typically maintain their own sales forces to facilitate these
direct sales.
. Distributors. Plastics processors generally purchase smaller direct
material lots and MRO supplies through distributors. For example,
distributors often divide bulk quantities of resin into smaller lots for
shipment.
. Brokers. Brokers and commissioned representatives act as agents in the
sale of a variety of product categories, such as resins and new and used
equipment. Unlike distributors, brokers and commissioned representatives
do not typically carry inventory or break larger lots for shipment.
Although direct materials, equipment and supplies are sold through each of
these distribution channels, the concentration of sales through each channel
varies by product. In general, we believe the majority of direct materials are
sold through the direct sales forces of manufacturers and through distributors;
processing equipment is sold both directly and through brokers; and industrial
supplies are sold through distributors.
Plastics processors are the primary purchasers of these direct materials,
equipment, supplies and services. These plastics processors are usually
specialized, medium- to small-sized companies that manufacture a large variety
of interim components under specifications from OEMs. The interim plastics
components are then sold directly to these OEMs. We believe that the number of
plastics processors has grown substantially in recent years as OEMs have
outsourced an increasing amount of their plastics component manufacturing.
OEMs are traditionally medium- to large-sized companies that manufacture a
broad selection of end products across a wide range of industries, including:
. Automotive: bumpers, wheel covers and mirror cases
. Building and construction: pipe fittings, siding and flooring
. Consumer electronics: computers, cellular phones and compact discs
34
<PAGE>
. Household goods: kitchen appliances, power tools, major appliances and
utensils
. Packaging: packaging materials and food wraps
We also define OEMs to include commercial end users and retailers that purchase
finished plastics products made by plastics processors for resale or use within
their businesses. These plastics products are usually simpler products such as
plastic cups or straws that do not require any additional assembly.
Inefficiencies in the Traditional Plastics Industry Supply Chain
The traditional purchasing methods in the plastics industry are
inefficient, costly and time consuming for both the buyers and sellers of
plastics products and services. The current plastics market environment,
particularly in the supplier-to-plastics processor segment, is characterized by
the following limitations:
Fragmented Market of Suppliers. The fragmentation of the supplier base
creates inefficiencies for buyers. Currently, there are approximately 6,000
suppliers of direct materials, machinery, equipment and supplies for plastics
processors in the United States. The large number of suppliers makes it
cumbersome for buyers to determine which suppliers are offering the best
products and prices. In addition, none of these suppliers is able to offer the
full spectrum of products and services that plastics processors need.
Consequently, plastics processors must seek out and purchase from multiple
suppliers.
Fragmented Market of Buyers. The fragmentation of the buyer base creates
inefficiencies for suppliers. Of the estimated 20,000 plastics processors in
the United States, approximately 15,000 are smaller molders with annual sales
of less than $10 million. Due to the large number of plastics processors and
their relatively small size, it is difficult for suppliers to locate potential
customers and provide them with relevant product and pricing information.
Additionally, we believe suppliers have recently scaled back their direct sales
forces and have become primarily focused on serving their larger plastics
processor customers. As a result, we believe suppliers are searching for more
effective and efficient means to service the fragmented community of buyers.
Inefficient Information Management Processes. Product orders are
traditionally handled through internal, paper-based purchasing processes that
require manual preparation of purchase orders and manual order tracking,
billing and reporting. These paper-based systems are cumbersome and time
consuming and make it difficult for buyers to obtain information relating to
product availability, pricing and shipment. In addition, plastics processors
often must submit multiple purchase orders to multiple suppliers, resulting in
higher costs and difficulty tracking orders. Buyers often lack the resources or
expertise to streamline these processes. While some suppliers have developed
Web sites to communicate with individual buyers, few have invested the
significant time and money required to establish an effective e-commerce
channel with their customer base. We believe many suppliers will prefer to
outsource these processes, allowing them to focus on their core competencies.
Regional Nature of the Global Plastics Industry. The fragmented and
inefficient nature of the plastics industry at a global level often hinders
buyers and suppliers from accessing the opportunities that exist outside their
domestic markets. We believe the primary reason is the difficulty buyers and
suppliers encounter in obtaining reliable, timely information about product
availability and market information across regions and national borders. In
addition, inefficiencies in distribution make it difficult for suppliers to
cost-effectively market and distribute their products internationally.
Need for a Business-to-Business e-Commerce Solution in the Plastics Industry
The fragmentation and supply chain complexities of the plastics industry
create the need for a business-to-business e-commerce solution that provides a
vertical marketplace for the buyers and
35
<PAGE>
suppliers of plastics products and services. Buyers need a solution that
provides increased and unbiased access to a large number of suppliers, valuable
information about plastics products and services, simplified order processing
and fulfillment, and reduced procurement costs. Suppliers of plastics products
need a solution that provides increased exposure to a large number of potential
buyers, incremental sales, reduced costs of sales, improved forecasting methods
and working capital efficiencies. Both buyers and suppliers need a solution
that provides a fair and neutral marketplace for procurement and an
information-rich community for the exchange of product knowledge.
The PlasticsNet Solution
Our solution, the PlasticsNet marketplace, provides a secure, supplier-
neutral, buyer-focused marketplace that streamlines the procurement of plastics
products and services. The PlasticsNet marketplace enables buyers and sellers
to execute transactions on the Internet and provides the tools, content and
community to help them make more informed decisions. Through the PlasticsNet
marketplace, suppliers can cost-effectively provide current product offering
and pricing information to a large pool of buyers. In addition, buyers can
efficiently search for products, identify suppliers, compare product prices and
specifications, and complete a purchase.
Benefits to Buyers
Reduced Transaction Costs and Order Simplicity. Our solution automates
manual, paper-based business processes, allowing buyers to purchase products
online. Using our marketplace, buyers are able to purchase multiple items from
multiple suppliers with a single purchase order sent electronically to
PlasticsNet. These features benefit the buyer by reducing the administrative
effort and expense of evaluating and managing multiple suppliers.
Accurate and Detailed Product Information. We provide buyers with single-
source, Web-based access to an accurate, detailed and current catalog of
specifications and pricing information for over 30,000 products from
approximately 50 suppliers. This information is organized in a detailed
directory that provides quick and convenient access to product information. In
addition, we provide buyers with the tools to compare and contrast supplier
prices and specifications.
Integration with Existing Business Processes. We have designed our
marketplace to integrate with buyers' business processes and business rules.
For example, companies can assign spending limits to individuals within their
organizations. We also have the ability to route selected purchase orders to an
individual's managing supervisor for approval. In addition, once our
marketplace has been integrated with a buyer's information systems, a purchase
order entered anywhere within the buyer's system may be modified and submitted
directly to our marketplace without unnecessary re-entry of data.
Buyer Customization. Our marketplace allows buyers to customize their
interface to include their own purchasing information, preferred suppliers and
pre-negotiated pricing from suppliers. System customization allows buyers to
streamline product sourcing and order processing to ensure that they receive
the best price for a given product. The PlasticsNet marketplace also provides
buyers with reporting capabilities that allow them to review details of
previous purchases. Access to this historical information allows buyers to make
purchasing decisions more effectively in the future.
High-Quality Technical Content. We provide technical information on the
PlasticsNet marketplace, such as timely industry information and discussion
groups. In addition, we give buyers access to material data sheets and product
specifications that are useful for comparing and understanding products.
36
<PAGE>
Benefits to Suppliers
Reduced Transaction and Administrative Costs. Suppliers are able to post
their products and related specifications on our online catalog, which can
significantly reduce the costs of maintaining, updating, publishing and
distributing paper-based catalogs. The PlasticsNet marketplace also allows
suppliers to receive and process orders online, thereby reducing costs
associated with order processing and tracking, accounts receivable collection
and customer service. Furthermore, we provide an Internet-based e-commerce
solution that is designed to reduce the need for suppliers to develop and
maintain their own online ordering systems.
Increased Access to Pool of Qualified Buyers. The PlasticsNet marketplace
provides suppliers with access to a large pool of potential buyers. Registered
buyers provide us with all relevant purchasing information for efficient
execution of transactions. We then qualify buyers by performing credit checks
and establishing business rules. By having access to this pool of qualified
buyers, suppliers can more effectively target their sales efforts. As more
buyers register on the PlasticsNet marketplace, we expect this benefit will
continue to grow.
Efficient Marketing and Distribution. Suppliers have traditionally used
multiple distribution channels designed to meet diverse customer needs. The
PlasticsNet marketplace allows suppliers to market and distribute different
types of products, including standard catalog items, negotiated items, and
limited supply products, through a single marketplace. We believe this enables
suppliers to reduce the complexity and cost of their distribution systems. In
addition, suppliers are able to market surplus direct materials and used
processing equipment, helping them to manage their inventory more efficiently.
Furthermore, by outsourcing many sales functions to PlasticsNet, suppliers are
able to shift their existing sales organizations and personnel to other market
segments or customer bases.
Targeted, Cost-effective Advertising Opportunity. We offer individual
suppliers the opportunity to market their products by creating and maintaining
customized, branded "business centers" on our marketplace. These business
centers typically contain product information, services offerings and company
profiles, and allow suppliers to reach a targeted audience of potential buyers
in a cost-effective fashion. Over 230 industry suppliers currently maintain
business centers on our marketplace.
Strategy
Our objectives are to be the leading electronic marketplace for the
plastics industry and to use that leadership position to target other vertical
industrial processing markets. Our strategy to achieve these objectives
includes the following key elements:
Capitalize On First Mover Advantage. We plan to capitalize fully upon our
position as the first company to offer a comprehensive Internet-based e-
commerce solution to the plastics industry. We intend to gain market share
aggressively by continuing to expand the selection of plastics products,
services and related content offered through our Web site. We have established
strategic relationships with several industry-leading participants, including
Ashland, MSC, Van Dorn Demag and Schneider Logistics. We are continuing to
pursue other key strategic alliances around the world that we believe will
allow us to increase our market share. Additionally, as more suppliers use the
PlasticsNet marketplace, we believe buyers will increasingly view our
marketplace as a primary point of contact with a broad array of plastics
suppliers. We also believe that once participants become integrated into our e-
commerce solution, its ongoing benefits and the costs of switching to an
alternative buying solution will encourage them to continue to use our
marketplace.
Accelerate User Adoption. We will continue to concentrate our efforts on
attracting new participants to our marketplace through a targeted sales and
marketing effort. Our sales strategy
37
<PAGE>
includes an initially high degree of personal contact with both buyers and
suppliers to explain the benefits of the PlasticsNet marketplace. In addition,
our sales team works closely with our implementation team to assist new buyers
and sellers with fully integrating our solution into their existing systems.
Our marketing campaign will include event sponsorships, advertising in trade
publications and participation in trade shows and industry conferences. In
addition, we will continue to drive user adoption and awareness of the
PlasticsNet marketplace by leveraging the relationships, reputation and
expertise of members of both our management team and our advisory board. We
believe that these focused efforts will continue to lead to increased use of
our marketplace offerings and services.
Enhance Technology and Service Offerings. We intend to continue to enhance
the technology and service offerings available on our marketplace. These
enhancements will include increasing the functionality of our procurement
center, further enabling our participants to integrate their systems with our
marketplace and providing integrated supply chain services. For example, we
believe that there is a large market opportunity for providing technology and
integrated supply chain management functions on an outsourced or hosted basis.
Plastics processors often do not have the resources to purchase or develop
sophisticated electronic systems needed to effectively manage inventory,
production planning, logistics and other supply chain operations. We are
currently developing the technologies needed to host many of these capabilities
on the PlasticsNet marketplace.
Expand into the Plastics Processor-to-OEM Market Segment. We believe that
the approximately $190 billion plastics processor-to-OEM segment represents a
large market opportunity. We intend to become the preferred place for OEMs to
purchase plastics products by leveraging many of the same procurement solutions
and technical and integrated supply chain services that we currently provide in
the supplier-to-plastics processor segment. In addition, we intend to focus our
efforts on developing solutions for the complex sourcing and ordering processes
specific to the OEM segment. For example, OEMs expend significant resources
procuring plastic parts and interim components. OEMs typically must design
plastic parts, send out requests for quotations to plastics processors and
coordinate the delivery and integration of these parts with their own
production schedules. We intend to offer a variety of functions and services to
make the parts procurement process more efficient, including online material
selection, online project development, forecasting and order management.
Equally important, we intend to drive and develop user participation by
leveraging our existing relationships with plastics processors and by further
developing our relationships with OEMs.
Pursue New Vertical Markets. We believe that many industrial processing
markets provide significant e-commerce growth opportunities. We intend to
target those markets characterized by complex supply chains, a high degree of
fragmentation among buyers and sellers, large transaction volumes and a
significant dependence on information exchange. We believe that we are well
positioned for these opportunities given our experience in creating the
PlasticsNet marketplace. For example, conducting e-commerce in these industrial
processing markets will require technologies and procurement functions similar
to those that we have already developed. These include catalog content
management, online ordering, consolidated invoicing and shipment tracking. As
we develop marketplaces for these industrial processing markets, a key part of
our strategy includes forming strategic relationships with suppliers of direct
materials in these industries. In addition, we will continue to hire management
team members with the requisite industry-specific knowledge, experience and
relationships needed to execute our strategy effectively.
Pursue New Geographies. Currently, U.S. domestic plastics products
shipments make up less than half of the estimated one trillion dollar plastics
opportunity worldwide. Furthermore, the fragmented and inefficient nature of
the plastics industry hinders buyers and suppliers from effectively accessing
international markets. We intend to leverage our established reputation,
technology and strategic relationships to penetrate this large international
market opportunity. In addition, we will continue to hire individuals with the
requisite knowledge, experience and relationships in these new geographic
markets.
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<PAGE>
The PlasticsNet Marketplace
Our PlasticsNet marketplace consists of a broad database of approximately
30,000 plastics products and search engine capabilities that enable users to
easily identify, locate and purchase the products they need. Both buyers and
suppliers access the PlasticsNet marketplace using standard Internet
connections and browsers. We also provide implementation services that help our
customers take full advantage of the capabilities of the PlasticsNet
marketplace. In addition, our customer support and sales force help customers
understand both the business and technical benefits of the PlasticsNet
marketplace and, when necessary, provide one-on-one education and training to
increase user adoption.
The PlasticsNet marketplace currently offers three services:
The PlasticsNet Marketplace
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C>
Procurement Center .Currently offers over 30,000 products.
.Launched in April 1999.
. Provides the opportunity to buy and sell catalog items and
access pricing information online.
- -----------------------------------------------------------------------------------------------
Auction Exchange . Currently offers over 350 products.
. Launched in July 1999.
. Provides an online auction and exchange forum for
excess inventory, commodity and off-grade resins and
used equipment.
- -----------------------------------------------------------------------------------------------
Technical Resources and Content . Launched in 1995.
. Currently offers discussion groups, material data sheets,
events calendar, supplier directories, job listings and
educational and training resources.
</TABLE>
Procurement Center
The PlasticsNet procurement center is the transactional component that
enables plastics processors to buy direct materials, processing equipment, MRO
supplies and services directly from our growing online marketplace of catalog
items.
Once registered as a PlasticsNet user, a buyer can search for products from
the online catalog, place product orders and choose a preferred method of
payment. Upon order acceptance, the PlasticsNet marketplace automatically sends
an e-mail to the buyer advising that the order has been received and is being
processed. Our system then automatically generates a purchase order that is
sent to each listed supplier. Upon receipt of the order, suppliers provide
fulfillment information to us, enabling the buyer to track order and shipment
status through the procurement center at any time during the fulfillment
process.
Once the shipment occurs, the functions we perform depend on whether we act
as a principal or an agent in the transaction. We recognize revenue and related
costs at the time the invoice is generated, which coincides with shipment. In a
principal role, we purchase products from suppliers and resell them to buyers,
taking responsibility for invoicing, accounts receivable and customer service,
while suppliers take responsibility for shipping and fulfillment. In an agency
role, which we have not undertaken to date, we would bring buyers and sellers
together, facilitate transaction processing and earn revenue from commissions
based on transaction value.
We have designed the procurement center so that it can be customized for
buyer-specific requirements, such as pre-negotiated price agreements with
suppliers, and tools that enable online
39
<PAGE>
work flow procedures. In addition to our current features, we are working with
leading software and systems integration firms to continue enhancing the
capabilities of our procurement center.
Auction Exchange
We provide an online auction exchange where sellers can offer surplus
inventory, commodity resins, off-grade resins, machinery and used equipment.
Over 350 products are currently offered for sale on the auction exchange.
In a typical auction sale, suppliers establish the asking price of the
product and provide us with a schedule of price discounts to be implemented
according to the length of time the product remains on the auction. We then
post the item on our auction exchange, where buyers can view the product's
specifications and current asking price, but do not have access to the schedule
of price discounts. The auction remains open as long as the product is
available, or until the seller terminates the auction. When a buyer decides to
purchase an item through the auction exchange, invoicing and fulfillment occur
in the same manner as in transactions executed through the procurement center.
We act as either principal or agent in auction transactions, depending on the
type of product sold or the specifics of the transaction.
In response to demand from our market participants, we are currently
expanding the auction capabilities and purchasing alternatives available in our
marketplace. Through software licensing agreements with third-party providers,
we are implementing software applications that will enable dynamic auctions,
reverse auctions and bid/ask exchanges. We intend to integrate these
applications into our order processing system to provide buyers and sellers
with a complete transactional services solution.
Technical Resources and Content
We have created an information-rich site geared toward technical resources
for the plastics industry, including the following areas:
Technical Discussion Groups. In technical discussion groups, plastics
industry participants can communicate with peers and access the collective
knowledge of their professional community. These discussion groups cover a
broad range of technical topics.
Industry Information and Education. The PlasticsNet marketplace
features a broad range of industry information and content. Through
relationships with industry-leading publications, we are able to provide
users with access to "how to" articles, industry news and other features.
For example, our strategic relationship with Injection Molding Magazine
allows us to provide users with direct access to the magazine's database
of articles. In addition, we have developed an education center where
users have access to over 495 educational resources including information
on seminars and in-plant training sessions, as well as videos, books, and
CD-ROMs. Through the calendar of events and bulletin board sections, users
may both post events and receive up-to-date information on upcoming
industry expositions and conferences.
"Your Office". "Your Office" enables buyers to create customized Web
sites located on the PlasticsNet marketplace with buyer-specific displays,
supplier and products listings, news links and buyer profile information.
For suppliers, "Your Office" provides administrative features and access
to a secure area in which they can receive inquiries and requests for
product information and pricing.
Career Center. The career center allows users to post and explore job
opportunities in the plastics industry. Since the career center opened in
May 1999, participants have posted over 800 plastics-related jobs.
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Future Service Offerings
We plan on adding the following value-added services that will provide
additional revenue and profit opportunities:
Financing. We plan to offer buyers on the PlasticsNet marketplace the
opportunity to finance purchases online. This service will permit buyers
purchasing equipment through the PlasticsNet marketplace to use our
financing service to electronically contact financial institutions and
make arrangements for financing buyers' equipment purchases. We believe
our online financing services will substantially reduce the time required
to process the financing of an equipment purchase.
Logistics. We are in the process of developing a complete online
logistics management service through our strategic relationship with
Schneider Integrated Logistics, a leading logistics provider. These
services will enable plastics processors to make shipping arrangements on
the PlasticsNet marketplace for the delivery of outbound shipments of
finished components to OEMs as well as products purchased through our
procurement center. While this service will initially be available only in
domestic markets, we are working with Schneider and other logistics
providers to offer these logistics services worldwide. Our online
logistics service will include shipping cost information, the ability to
track deliveries and electronic delivery verification.
Integrated Supply Chain Services. We believe there is a large market
for providing outsourced supply and inventory management services hosted
on the PlasticsNet marketplace. Plastics processors often do not have the
resources to purchase or develop sophisticated electronic systems needed
to effectively manage inventory, production planning, logistics and other
supply chain operations. We are currently implementing the technologies
needed to host many of these capabilities on the PlasticsNet marketplace.
Participants in Our Marketplace
The PlasticsNet marketplace allows visitors, buyers and sellers to obtain
information and procure equipment, materials and services for the production of
plastics.
Visitors. Visitors have free access to all of the product and supplier
information on the PlasticsNet marketplace. They can also access all of the
content and community functions and technical information that we offer.
Currently we have over 35,000 registered users from over 6,400 companies and
145 countries. Our goal is to convert these registered users into buyers in the
PlasticsNet marketplace.
Buyers. Once registered and qualified, potential buyers are able to use our
marketplace to make purchases from our selection of products. To date,
approximately 50 buyers have purchased products on our marketplace.
Sellers. Currently, there are approximately 50 active suppliers offering
their products on our marketplace covering a majority of the product categories
in the plastics industry. In 1999 the largest suppliers on the PlasticsNet
marketplace, based on the dollar volume of products shipped, include:
. A-Top Polymers . JSE Plastics
. Ashland's General Polymers Division . Marvin Halpren Plastics
. BP Amoco . Matrix Polymers
. Eastman Chemical . National Plastics Network
. Jim Palmer Associates . Washington Penn Plastics
These companies represent various supplier segments including direct materials
and new and used equipment.
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<PAGE>
Advertisers. We currently host over 230 business centers where plastics
industry suppliers have set up their own sites within the PlasticsNet
marketplace. The business centers contain product and pricing information and
company profiles.
During the year ended December 31, 1999, Endura Plastics, Inc. accounted
for approximately 23% of our revenue, National Plastics Network accounted for
approximately 20% of our revenue, and Borneo, Inc. accounted for approximately
14% of our revenue. The percentage of our revenue generated by each of these
buyers is expected to decline in 2000.
Technology
The PlasticsNet marketplace can be accessed with a standard Internet
connection and browser. The architecture has been designed to be highly
scalable to accommodate the expected growth in transactions and other
offerings. Our electronic marketplace can be integrated into buyers' and
suppliers' internal systems in order to provide customized user interfaces,
compatibility with business rules and workflows, access to proprietary search
engine technologies and transaction automation and execution services.
The four layers of the PlasticsNet architecture are:
Presentation and Communication Layer. This layer is responsible for
rendering content and transmitting it to users' browsers based on standard
Internet protocols. Using these protocols, data can pass through an enterprise
firewall while supporting security standards such as Secure Sockets Layer and
digital certificates. This layer is implemented using standard Web servers.
Application Layer. This layer is responsible for executing our proprietary
business logic and functionality. We have combined commercially-available,
licensed software with proprietary software to provide a unique set of
applications including content aggregation, catalog searching, procurement,
auctions, discussion groups, e-mail newsletters, personalization, membership
directory and free home pages, custom reporting, lead generation and online
resources such as our career center, education center and supplier directory.
Data Layer. This layer is responsible for the storage and retrieval of
information via online transaction processing and online analytical processing.
One database contains our catalog information, and a separate data warehouse
aggregates our proprietary user activity tracking and demographic information.
Integration Layer. This layer is responsible for the electronic back-end
communications with our buyers, suppliers and vendors. It uses technologies and
protocols such as MQSeries, ANSI X.12 EDI, EDIFACT EDI and XML. Through this
layer, we can communicate data such as purchase orders, pricing and logistics
information.
We currently host our Web site from an Exodus data center in Oak Brook,
Illinois, which provides 24-hour systems support and connectivity to major
Internet backbones and provides bandwidth via redundant high-speed connections.
Sales and Marketing
Our sales approach is designed to help both buyers and suppliers understand
the business and technical benefits of the PlasticsNet marketplace. We have
developed a sales strategy for each group. Currently, we have 30 employees on
the sales and marketing team.
Buyer Side. Our buyer-side sales force is responsible for targeting
plastics processors and OEMs and focuses on explaining to buyers the benefits
of electronic procurement. The sales force then works closely with buyers to
define specific product requirements and implement customized solutions that
streamline buyers' procurement processes. Our buyer-side sales force is made up
of
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<PAGE>
industry specialists with extensive experience in selling materials and
services to plastics processors. We have organized a buyer advisory board made
up of leading experts in the plastics industry to advise us on the needs of
plastics processors.
Supplier Side. Our supplier-side sales force is responsible for targeting
the suppliers of direct materials, processing equipment, industrial supplies
and services. The sales force focuses on introducing leading industry suppliers
to the benefits of participating in the PlasticsNet marketplace, including
increased sales, reduced costs, and improved use of working capital. Our
supplier-side sales force is made up of industry specialists with extensive
experience in the plastics industry.
Once these buyers and sellers have become users of the PlasticsNet
marketplace, we believe that our marketplace will become an integral part of
buyers' procurement processes and suppliers' sales and distribution processes.
While our sales strategy initially involves a high degree of personal contact
by our sales force, we believe that over time we will be able to maintain these
relationships using the automated support functions of the PlasticsNet
marketplace and, therefore, reduce the amount of direct personal contact needed
by these established buyers and suppliers.
Our marketing strategy is designed to raise awareness of PlasticsNet among
all the different participants in the plastics industry. In particular, our
marketing campaigns aim to position PlasticsNet as the leading electronic
marketplace and information source for buyers and sellers in the plastics
industry. We are investing heavily in a marketing campaign that will include
print advertising in leading trade publications such as Plastics News, Modern
Plastics and Injection Molding Magazine, online marketing, buyer seminars
around the country, a direct mail campaign and a major presence at the National
Plastics Exposition, the industry's largest trade show, in June 2000.
Strategic Agreements
Ashland Distribution Company. In November 1999, we entered into a strategic
agreement with Ashland Distribution Company, a division of Ashland Inc., the
largest distributor of resins and additives in the United States. Under the
terms of this agreement, we are able to market and sell over 1,000 products of
Ashland's General Polymers Division to our buyers through our PlasticsNet
marketplace. These products include thermoplastic resins and additives
distributed by General Polymers. The initial term of this agreement expires
November 2002. Until November 2001, Ashland has agreed to make us its
exclusive, third party e-commerce solution for the sale of these products over
the Internet. In return, we have agreed to make Ashland our primary
distribution supplier of these resins and additives; however, our agreement
with Ashland does not prohibit us from selling any resin or additive product
that is:
. not available from Ashland,
. obtained by us directly from the producer of the resin and additive,
even if Ashland also distributes that product, or
. obtained by us from Channel Polymers, a plastics products distributor
owned by H. Muehlstein & Co.
Many of these products are currently available through our PlasticsNet
marketplace. We are jointly developing an Internet marketing program with
Ashland to expand the use of the PlasticsNet marketplace by Ashland's
customers. Ashland has invested in our Series B preferred stock.
Under the terms of this agreement, we will act as principal when selling
products distributed by Ashland. We will recognize revenue equal to the amount
paid by buyers and cost of revenue equal to the amount we pay to Ashland for
these products. We will be responsible for selling the products, collecting
payment, ensuring that the shipment reaches buyers and processing returns. We
will take
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<PAGE>
title to the products upon shipment and will bear the risk of loss for
collection, delivery and merchandise returns. Products will be sourced,
inventoried and shipped directly to our buyers by Ashland, based on buyer
delivery specifications.
MSC Industrial Direct Co. Inc. In November 1999, we entered into a
strategic agreement with MSC Industrial Direct Co. Inc., a leading provider of
MRO products, to become a non-exclusive, e-commerce solution for selling and
marketing all of MSC's approximately 400,000 commercial catalog products on the
Internet through our PlasticsNet marketplace. These products include industrial
supplies, electronic parts, safety products and metal cutting tools. We expect
to make these products available through the PlasticsNet marketplace in the
first half of 2000. The initial term of the agreement ends November 2000.
Under the MSC contract, we will act as principal by recognizing revenue and
cost of revenue in the same manner and accepting the same responsibilities as
under our strategic agreement with Ashland discussed above. MSC has invested in
our Series B preferred stock.
Schneider Logistics. In December 1999, we entered into a thirteen-month
agreement with Schneider Logistics, a subsidiary of Schneider National, Inc.,
one of the largest trucking and logistics companies in North America.
We are jointly developing with Schneider a complete online logistics
management service that will enable plastics processors to make shipping
arrangements on the PlasticsNet marketplace for the delivery of outbound
shipments of finished components to OEMs as well as inbound shipments of
products purchased through our procurement center. We believe that these
services, including real-time rate quotes, order tracking and delivery
confirmation over the Internet, will significantly reduce supply costs for
users of the PlasticsNet marketplace. We anticipate that the initial release
being developed for packaged freight will be available on the PlasticsNet
marketplace in the second quarter of 2000. Although initially Schneider's
services will be available only in domestic markets, we are working with
Schneider and other logistics providers to offer these logistics services
worldwide. We will earn fees for transactions in which participants select
shipping services on the PlasticsNet marketplace.
Our agreement with Schneider has an initial term expiring in January 2001
and prohibits Schneider from providing comparable services to any entity whose
primary business is to conduct electronic commerce in the plastics industry.
Competition
Business-to-business e-commerce is new, rapidly evolving and intensely
competitive, and we expect competition to intensify in the future. We face
competition from existing suppliers and distributors as well as other Internet
and e-commerce companies. We currently compete primarily with traditional
distributors of plastics products, as well as direct materials suppliers who
sell most products via direct sales forces and mail order catalogs. These
companies normally have experience with direct marketing, relationships with
direct materials manufacturers, and both fulfillment and operations
capabilities.
General Electric, a major supplier in the plastics industry, has developed
Polymerland, a resin distribution and online sales arm for its products and the
products of other suppliers. Polymerland is a substantial competitor of the
PlasticsNet marketplace. As the market for online plastics products services
grows, other companies, including other established suppliers and distributors,
are expected to develop online services that compete with our marketplace. In
addition, technology companies, such as Internet software and enterprise
software providers, are developing or offering purchasing solutions that
directly link suppliers with buyers in the plastics industry. Furthermore,
there are
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several existing and emerging vertical Internet marketplaces that currently
serve or could expand their offerings to compete in the plastics industry.
The principal competitive factors that affect our business are breadth of
products offered, supplier selection, depth of the pool of available buyers,
usefulness of service offerings, brand loyalty and strategic relationships. We
believe that we compete favorably with respect to each of these factors. If we
fail to effectively compete in any one of these areas, we may lose existing
and potential buyers and suppliers. This would have a material adverse effect
on our business and results of operations.
Facilities
Our corporate headquarters, a 14,700 square foot leased facility, is
located in Chicago, Illinois.
Intellectual Property
Our success and ability to compete will be affected by 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 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 and results of operations.
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 results of operations
would be significantly harmed.
Employees
As of December 31, 1999, we employed 100 people, including 30 in sales and
marketing, seven in business development, 28 in information technology, 22 in
operations/customer service, nine in finance and four in human resources and
administration.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of December 31, 1999.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- ----------
<S> <C> <C>
Tim J. Stojka (1)....... 33 Chairman of the Board and Chief Executive Officer
Nick J. Stojka (1)...... 28 Executive Vice President and Director
Jeffrey R. Garwood...... 38 Chief Operating Officer
David A. Dill........... 48 Senior Vice President, Chief Financial Officer
David P. Franco......... 43 Vice President, Supply Management
James T. Morelli........ 45 Vice President, Sales and Marketing
Christopher F. Lange.... 37 Vice President, Operations
Donald E. Figliulo...... 47 Vice President, General Counsel
Deborah A. Fell......... 32 Vice President, Human Resources
Christopher A. Borneman. 30 Chief Technology Officer
Kenneth A. Fox (2)...... 29 Director
Robert A. Pollan (3).... 38 Director
Timothy K. Ozark (2)(3). 50 Director
Charles W. Fritz (2)(3). 43 Director
</TABLE>
- --------
(1) Tim Stojka and Nick Stojka are brothers.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Tim J. Stojka co-founded Commerx in 1995 and has served as our Chairman and
Chief Executive Officer since our inception. From 1990 to 1998, Mr. Stojka
served as President and CEO of Fast Heat, Inc., a related party that is a
multinational manufacturing company serving the plastics industry. Mr. Stojka
serves as Chairman of the International Division of The Society of Plastics
Industry ("SPI") and has participated in three trade missions sponsored by the
U.S. Department of Commerce to promote the plastics industry worldwide. He is
the Vice Chairman of the Midwest Division of SPI and a member of its national
board, Operations Chairman of the National Plastics Exposition and treasurer of
the Chicago chapter of the Young President's Organization. Mr. Stojka is also
currently a director of divine interVentures, Inc.
Nick J. Stojka co-founded Commerx in 1995 and has served as Executive Vice
President and a director since our inception. Mr. Stojka is responsible for
leading our critical business development activities in new markets,
partnerships and business-to-business e-commerce systems. From May 1994 to June
1995, Mr. Stojka served as Director of Business Development at Fast Heat, Inc.,
a related party, where he was responsible for evaluating and leading expansion
and development opportunities in Fast Heat's core industrial markets through
the implementation of various supply chain and e-commerce initiatives.
Jeffrey R. Garwood has served as our Chief Operating Officer since July
1999. He is responsible for day-to-day operations of the PlasticsNet
marketplace. Prior to joining us, Mr. Garwood held a number of senior-level
management positions with General Electric Company from 1992 to July 1999, most
recently as General Manager of the Engineered Styrenic Resins Business Unit of
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GE Plastics. He also served as assistant to GE's vice chairman, in which
capacity he worked with several business units to develop and implement
globalization and customer service initiatives. Prior to his work with GE, Mr.
Garwood spent five years as a management consultant with McKinsey & Co. where
he held the position of Senior Engagement Manager, focusing on change
management strategies. He also worked as a project/process engineer in the
petrochemicals division of DuPont.
David A. Dill has served as our Senior Vice President and Chief Financial
Officer since August 1999 and is responsible for all financial activities.
Prior to joining us, from October 1995 to August 1999, Mr. Dill was the CFO of
WorldGate Communications, a publicly-traded company providing high-speed
Internet television services via cable. Prior to his position at WorldGate,
from July 1994 to October 1995, Mr. Dill was the Vice President of Finance for
the Communications Division of General Instrument Corporation. Mr. Dill began
his career in 1975 with International Business Machines and spent 19 years with
IBM and related companies. His executive positions at IBM included Controller
(Personal Systems Business) and Assistant General Manager, Finance and Planning
(RISC System/6000 Division). He previously spent two years as Vice President
and Controller for the ROLM Company, an IBM/Siemens joint venture. Prior to
joining ROLM, Mr. Dill held other executive positions with IBM, culminating in
his role as Director of Finance (Communications Systems Group).
David P. Franco has served as our Vice President, Supply Management since
April 1999. He is responsible for managing and developing our supply
relationships. Prior to joining us, from April 1998 to April 1999, Mr. Franco
held the position of Commercial Manager at the General Polymers Division of
Ashland Distribution Company. His responsibilities included business strategy
and supply plan development for base resin materials, including its trading
business. He was also Vice President of Sales for Transource Polymers of Long
Island, N.Y. and territory manager at the Chevron Polyethylene business group
from January 1998 to March 1998. From 1987 to January 1998, Mr. Franco held
various source management, business management and sales management positions
with Ashland in the Thermoplastics and Thermosett Plastic Distribution
Enterprises.
James T. Morelli has served as our Vice President, Sales and Marketing
since March 1999. He directs our efforts to recruit buyers for our PlasticNet
marketplace. Prior to joining us, from 1993 to March 1999, Mr. Morelli held
several management positions at AlliedSignal Corporation's Plastics Division,
including Director of Sales and Marketing for the Americas and, most recently,
as Managing Director for Europe. Prior to AlliedSignal, Mr. Morelli designed
and developed a global commercial organization for Warner Lambert Company's
Novon Division. Earlier, he held several management positions during his 15-
year career with General Electric Company, including northeast district
business manager for GE Plastics.
Christopher F. Lange has served as our Vice President, Operations since
June 1999. He is responsible for customer service, supply chain management and
content pricing management. Prior to joining us, from 1991 to June 1999, Mr.
Lange held several positions at Andersen Consulting, LLP, where he was
responsible for supply chain management and logistics consultation services
through oversight of the Global Corporate Transportation Management Practice
Area. From September 1997 to June 1999, he served as an Associate Partner.
Prior to Andersen Consulting, Mr. Lange founded several logistics-related
ventures including Lange Truck Lines Inc. and Lange Enterprises, an air freight
forwarder.
Donald E. Figliulo has served as our Vice President, General Counsel since
December 1999. He is responsible for managing our legal affairs. Prior to
joining us in December 1999, from 1991 through 1999, Mr. Figliulo was a partner
in the law firm of Wildman, Harrold, Allen & Dixon. Since 1978, Mr. Figliulo
has practiced corporate and securities law, concentrating on debt and equity
financing transactions, corporate governance matters, and mergers and
acquisitions.
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Deborah A. Fell has served as our Vice President, Human Resources since
November 1999. Prior to joining us, Mrs. Fell held a number of senior-level
human resource management positions within the packaging, consumer products and
retail industries. Most recently, from November 1995 to November 1999, Mrs.
Fell held several human resource positions at Algroup Lawson Mardon North
America. From December 1993 to November 1995, Mrs. Fell held positions with
Pepsico's Frito-Lay division, most recently as Area Human Resources Manager.
Previously, she was employed by Pearle Vision.
Christopher A. Borneman has served as our Chief Technology Officer since
January 1996. He is responsible for defining technology requirements and
processes that support our business strategy, as well as the development of
long-term technology strategies. Prior to joining us, from June 1994 to January
1996, Mr. Borneman held several positions, including most recently
Programmer/Analyst III, with Ameritech Library Services where he concentrated
on the development of Web server architecture for commercial use. He also held
multiple positions at Meridian Leasing Corporation, a computer leasing company,
where he led the development and implementation of the organization's
proprietary WAN database replication system. Previously, he was employed by
Dynatec Systems.
Kenneth A. Fox has served as a director since December 1998. He co-founded
and has been Managing Director of Internet Capital Group, Inc., a publicly-
traded Internet holding company, since its inception in March 1996 and served
as a director since February 1999. From 1994 to 1996, Mr. Fox served as
Director of West Coast Operations for Safeguard Scientifics, Inc., a publicly-
traded holding company and Technology Leaders II, L.P., a venture capital
partnership. In this capacity, Mr. Fox led the development of and managed the
west coast operations for these companies. Mr. Fox serves as a director of
Internet Capital Group, AUTOVIA Corporation, Bidcom, Inc., Deja.com, Inc.,
Entegrity Solutions Corporation, ONVIA.com, Inc. and Vivant! Corporation.
Robert A. Pollan has served as a director since December 1998. He has
served as Managing Director of Operations of Internet Capital Group, Inc. since
June 1998. Prior to joining Internet Capital Group, Mr. Pollan served as Chief
Technology Officer and Vice President of Business Development at General
Electric Capital Corporation from August 1995 to June 1998. During his tenure
at General Electric Capital Corporation, Mr. Pollan co-founded and served as
President of two supply chain ventures. He also led several acquisitions in
Europe, Asia and the United States. Mr. Pollan was co-founder and, from
September 1991 to July 1995, Managing Director of OFR, Ltd., an advisory firm
focused on the organizational and financial restructuring of industrial
enterprises in Central Europe. Mr. Pollan serves as a director of
CommerceQuest, Inc., EmployeeLife.com, Internet Commerce Systems, Inc., iParts,
Purchasing Solutions, Inc., United Messaging, Inc. and Universal Access, Inc.
Timothy K. Ozark has served as a director since November 1998. He is the
Chairman of AIM Financial Corporation, a mezzanine funding and leasing company
he founded in 1992. In addition, he is President and Chief Executive Officer of
TKO Finance Corporation, a lender to financial services and manufacturing
companies. Prior to his current positions, Mr. Ozark served in a variety of
executive roles. From 1984 to 1992, Mr. Ozark was President, Chief Executive
Officer and Director of Meridian Leasing Corporation. From 1980 to 1983, he was
Executive Vice President of Great American Management Services, a subsidiary of
American Financial Corporation. Prior to his tenure at Great American
Management, he held positions in marketing and management with IBM and ITEL
Corporation. Mr. Ozark also spent several years of distinguished service in the
United States Marine Corps as an officer. He currently serves on the boards of
directors for 1st Source Corporation and a number of privately held
corporations and is a member of the Board of Trustees for the University of
Chicago HospitalsHealth System.
Charles W. Fritz has served as a director since November 1998. He is the
founder of NeoMedia Technologies, Inc., a publicly-traded corporation providing
computer software and consulting services. Mr. Fritz has served as its Chief
Executive Officer and Chairman of the Board of Directors since August 1996.
From 1990 to August 1996, Mr. Fritz held various executive positions at Dev-Tek
Associates and Dev-Tek Migration, two companies he founded, which merged into
NeoMedia Technologies in August 1996.
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<PAGE>
Board Composition
Our Board of Directors currently consists of six members. Currently, each
director is elected for a period of one year at our annual meeting of
stockholders and serves until the next annual meeting or until his successor is
duly elected and qualified. Effective upon this offering, the Board will be
divided into three classes, with each class serving a staggered three-year
term. See "Description of Capital Stock--Anti-Takeover Provisions".
Board Committees
Our Board of Directors established the Audit Committee and the Compensation
Committee in September 1999. The Audit Committee reviews our financial
statements and accounting practices and makes recommendations to the Board of
Directors regarding the selection of independent accountants. It also reviews
the results and scope of audit and other services provided by our independent
accountants and reviews and evaluates our audit and control functions. The
Audit Committee currently consists of Messrs. Charles Fritz, Timothy Ozark and
Robert Pollan.
The Compensation Committee reviews and recommends to the Board of Directors
the compensation and benefits of all of our executive officers, administers our
stock option plan and establishes and reviews general policies relating to
compensation and benefits of our employees. The Compensation Committee
currently consists of Messrs. Kenneth Fox, Charles Fritz and Timothy Ozark.
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee has ever been an officer
or employee of Commerx. None of our executive officers serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving on our Board of Directors or Compensation
Committee.
Director Compensation
Our directors currently do not receive any cash compensation from us for
their services as members of the Board of Directors. We reimburse our directors
for travel and lodging expenses in connection with attendance at Board and
committee meetings. All of our directors, including non-employee directors, are
eligible to participate in our 1999 Combined Incentive and Non-statutory Stock
Option Plan. In March 1999, we granted options to purchase 100,000 shares of
common stock to both Mr. Fritz and Mr. Ozark.
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<PAGE>
Executive Compensation
The following table sets forth a summary of the compensation paid during
the fiscal year ended December 31, 1999 to our Chief Executive Officer and our
four other most highly compensated executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------
Long-Term
Compensation (Number
Name and Principal Other Annual of Securities Underlying
Positions Salary Bonus Compensation (1) Option Grants)
- ------------------ -------- ------- ---------------- ------------------------
<S> <C> <C> <C> <C>
Tim Stojka (2).......... $169,231 $50,769 $ -- 400,000
Chairman and Chief
Executive Officer
Nick Stojka............. 138,000 41,400 -- 400,000
Executive Vice
President
Jeffrey Garwood (3)..... 129,231 28,948 -- 400,000
Chief Operating
Officer
James Morelli (4)....... 144,742 21,711 23,339 (5) 200,000
Vice President, Sales
and Marketing
David Franco (6) ....... 101,814 25,454 75,066 (7) 140,000
Vice President, Supply
Management
</TABLE>
- --------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of these
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the named executive
officer for that year.
(2) Includes amounts paid from March 1999 through December 1999. Mr. Stojka's
base salary, on an annualized basis, for 1999 was $200,000.
(3) Includes amounts paid from July 1999 through December 1999. Mr. Garwood's
base salary on an annualized basis for 1999 was $300,000.
(4) Includes amounts paid from March 1999 through December 1999. Mr. Morelli's
base salary on an annualized basis for 1999 was $175,000.
(5) Other annual compensation for 1999 reflects a relocation allowance of
$12,962 and an automobile allowance of $10,377 for Mr. Morelli.
(6) Includes amounts paid from April 1999 through December 1999. Mr. Franco's
base salary on an annualized basis for 1999 was $145,000.
(7) Other annual compensation for 1999 reflects a relocation allowance of
$66,146 and an automobile allowance of $8,920 for Mr. Franco.
Option Grants in Last Fiscal Year
The following table provides summary information regarding stock options
granted to each of the executive officers named in the summary compensation
table above during 1999. Each of these options was granted pursuant to our 1999
Combined Incentive and Non-statutory Stock Option Plan and is subject to the
terms of that plan. These options were granted at an exercise price equal to
the fair market value or, for incentive stock options granted to Tim and Nick
Stojka, 110% of fair value, of our common stock as determined by our board of
directors on the date of grant, and generally vest over four years at the rate
of 25% of the shares subject to the options per year.
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We calculated the potential realizable value of options in the table
assuming the exercise price on the date of grant appreciates at the indicated
rate for the entire term of the option and that the option holder exercises his
option on the last day of its term at the appreciated price. All options listed
have a term of 10 years, except that the term of incentive stock options
granted to Tim and Nick Stojka have a term of five years from the date of
grant. We assumed stock price appreciation of 5% and 10% pursuant to the rules
of the Securities and Exchange Commission. We cannot assure you that our actual
stock price will appreciate over the applicable 10-year or 5-year option terms
at the assumed 5% and 10% levels or at any other rate.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
------------------------------------------ -----------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Per Expiration
Name Granted in 1999 Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tim Stojka.............. 303,030 6.54% $1.65 Sep-04 $ 138,141 $ 305,255
96,970 2.09 1.50 Sep-09 91,476 231,818
Nick Stojka............. 303,030 6.54 1.65 Sep-04 138,141 305,255
96,970 2.09 1.50 Sep-09 91,476 231,818
Jeffrey Garwood......... 400,000 8.63 0.75 Jul-09 188,668 478,123
James Morelli........... 200,000 4.32 0.50 Mar-09 62,889 159,374
David Franco............ 100,000 2.16 0.50 Mar-09 31,445 79,687
40,000 0.86 5.00 Dec-09 125,779 318,748
</TABLE>
Option Grants in the Fiscal Year Ended December 31, 1999
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the
officers named in the above summary compensation table. We have calculated the
value of in-the-money options based upon the estimated fair value of our shares
of $5.00 per share on December 17, 1999, the date of our last option grants. No
options were exercised by the persons named in the following table during the
1999 fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-money
Unexercised Options at Options at December 31,
December 31, 1999 1999
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Tim Stojka.................. 100,000 300,000 $340,909 $1,022,727
Nick Stojka................. 100,000 300,000 340,909 1,022,727
Jeffrey Garwood............. -- 400,000 -- 1,700,000
James Morelli............... -- 200,000 -- 900,000
David Franco................ -- 140,000 -- 450,000
</TABLE>
1999 Combined Incentive and Non-statutory Stock Option Plan
Our 1999 Combined Incentive and Non-statutory Stock Option Plan was adopted
in March 1999. We have reserved 5,500,000 shares of common stock for issuance
under this plan. The plan terminates in September 2009, unless terminated
sooner by our Board of Directors. The plan authorizes the award of options and
restricted stock purchase rights.
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<PAGE>
The plan is administered by the Compensation Committee of our Board of
Directors. The administrator has the authority to interpret the plan, to grant
awards and to make all other determinations necessary to administer the plan.
The plan provides for the grant of both incentive stock options, commonly
called ISOs, that qualify under Section 422 of the Internal Revenue Code, and
nonqualified stock options, commonly called NQSOs. ISOs may be granted only to
our employees or employees of a parent or subsidiary. NQSOs and restricted
stock purchase rights may be granted to our employees, directors and
consultants. Generally, the exercise price of ISOs must be at least equal to
the fair value of our common stock on the date of grant. Any grant of an ISO to
a holder of 10% or more of our outstanding shares of common stock must have an
exercise price of at least 110% of the fair value of our common stock on the
date of grant. The exercise price of NQSOs must be at least equal to 85% of the
fair value of our common stock on the date of grant. Options granted under the
plan have a maximum term of 10 years. Awards granted under the plan may not be
transferred other than to immediate family members or by will or by the laws of
descent and distribution. They generally also must be exercised during the
lifetime of the optionee and only by the optionee.
Options granted under the plan generally expire three months after the
termination of the optionee's service, except in the case of death or
disability, in which case the options generally may be exercised up to 12
months following the date of death or termination of service. If we are
dissolved or liquidated or have a "change in control" transaction, outstanding
awards may be assumed or substituted by the successor corporation, if any. If a
successor corporation does not assume or substitute the awards, the vesting of
the awards will be accelerated.
Limitation of Liability and Indemnification Matters
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our Certificate of Incorporation and Bylaws provide that we shall indemnify
our directors and executive officers and shall indemnify other officers and
employees and our agents to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in that capacity,
regardless of whether the Bylaws would permit indemnification. We have director
and officer liability insurance that covers these matters, including matters
arising under the Securities Act.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for judgments, fines, settlement amounts and expenses,
including attorneys' fees, incurred by any of these persons in any action or
proceeding,
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<PAGE>
including any action by or in the right of Commerx, arising out of that
person's services as a director or executive officer of ours, any subsidiary of
ours, or any other company or enterprise to which the person provides services
at our request. We believe that these provisions and agreements are necessary
to attract and retain qualified persons as directors and executive officers. We
are not aware of any pending or threatened litigation or proceeding that might
result in a claim for indemnification.
RELATED PARTY AND OTHER TRANSACTIONS
Sales of Stock to Insiders
We have received operating financing from our four initial shareholders,
Tim Stojka, Nick Stojka, Dean Stojka and John Stojka, in the aggregate amount
of $2.3 million, as evidenced by 200,000 shares of common stock issued at a
price of $1.00 per share and by four $518,270 demand notes in favor of the
above-mentioned shareholders. In November 1998, the above mentioned
shareholders each contributed their respective demand notes to us as additional
paid-in capital.
In December 1998 and June 1999, we issued and sold 8,570,000 shares of our
Series A preferred stock at a price of $1.05 per share, including:
. 476,000 shares to Tim Stojka, our Chairman and Chief Executive Officer
and one of our directors, in exchange for the surrender of 2,380,000
shares of our common stock;
. 476,000 shares to Nick Stojka, our Executive Vice President and one of
our directors, in exchange for the surrender of 2,380,000 shares of our
common stock;
. 476,000 shares to John Stojka, the brother of Tim Stojka and Nick
Stojka, and a holder of more than 5% of our voting securities, in
exchange for the surrender of 2,380,000 shares of our common stock;
. 476,000 shares to Dean Stojka, the brother of Tim Stojka and Nick
Stojka, and a holder of more than 5% of our voting securities, in
exchange for the surrender of 2,380,000 shares of our common stock; and
. 6,666,000 shares to Internet Capital Group, Inc., a holder of more than
5% of our voting securities, in consideration of cash payments of
$6,750,000 and the extinguishment of a note payable in the amount of
$250,000.
In November and December 1999, we issued and sold 3,128,732 shares of our
Series B preferred stock at a price of $12.43 per share, including:
. 1,035,969 shares to Internet Capital Group, a holder of more than 5% of
our voting securities;
. 229,284 shares to B2B Investors, an entity with which Tim Stojka is
affiliated;
. 201,126 shares to divine interVentures, an entity with which Tim Stojka
is affiliated;
. 81,463 shares to David Dill, our Chief Financial Officer;
. 48,853 shares to Jeffrey Garwood, our Chief Operating Officer;
. 20,366 shares to James Morelli, our Vice President, Sales and Marketing;
. 14,584 shares to David Franco, our Vice President, Supply Management;
. an aggregate of 1,493,087 shares to Capital Research and Management, MC
Capital, Mitsui & Co. (U.S.A.), Palantir Associates, Pivotal Asset
Management, California Bank & Trust, as trustee, Ashland Distribution
Company, Eastman Chemical Company, EP Partners, Huntsman
53
<PAGE>
Corporation, Mitsubishi International Corporation, MSC Industrial Direct
Co., H. Muehlstein & Co. and Hambrecht & Quist; and
. 4,000 shares to another party.
Each share of Series A preferred stock and Series B preferred stock will
convert into one share of common stock immediately prior to consummation of
this public offering.
In September 1999, we entered into six-month subordinated, convertible
borrowing agreements with the following officers of Commerx: David Dill, David
Franco, Jeffrey Garwood and James Morelli. Under the agreements, these
officers agreed to loan us a total of approximately $2.0 million. Each loan
was evidenced by a convertible promissory note. Upon the closing of the Series
B preferred stock offering, the notes, including all accrued interest,
automatically converted into shares of our Series B preferred stock at the
Series B preferred stock offering price of $12.43. Interest on the notes was
paid at the time of conversion of the note at an annual rate of prime plus 1%.
In connection with the debt financing, we also issued to each of the lenders
five-year warrants to purchase a total of 24,790 shares of our Series B
preferred stock at an exercise price of $12.43 per share. Upon consummation of
this offering, these warrants become null and void, and we must issue
replacement warrants to the holders on equitable terms.
Other Transactions
The Company and Fast Heat, Inc., an Illinois corporation, are related
entities. Fast Heat is owned in part by the Stojka family, including Tim
Stojka, Nick Stojka, Dean Stojka and John Stojka. From our inception through
December 1998, we have received operating financing in the aggregate of
$3,075,470 from Fast Heat. These operating loans have taken the form of (i) a
revolving demand note bearing interest at a fluctuating annual rate between
8.0% and 8.5% and (ii) a short-term payable with interest in favor of Fast
Heat in the amount of $99,000 as of September 30, 1999 representing (A) our
prior years' payroll taxes paid by Fast Heat and not reimbursed by us and (B)
payment by Fast Heat of expenses related to our employee medical benefits in
1995 and 1996. The above mentioned short-term payable is included in our
financial statements as amounts "Due to Related Party." In December 1998, we
repaid the demand note, which at that time had an outstanding balance of
$1,264,752, and in November 1999, we repaid the long-term payable, which at
that time had an outstanding balance of $100,000.
Fast Heat and Fast Heat International, an affiliate of Fast Heat, have
guaranteed all of our obligations under our current office lease.
Internet Capital Group has guaranteed a one year $1.0 million loan on our
behalf. At the present time, there is no outstanding balance on that loan.
Since inception, we have from time to time issued and sold shares of our
common stock and granted options to purchase common stock to our employees,
directors and consultants.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership by the following persons of our common stock as of
December 31, 1999:
. each person or group of affiliated persons known by us to own
beneficially more than 5% of the outstanding shares of common stock;
. each of our directors;
. each of our executive officers named in the summary compensation table;
and
. all directors and executive officers as a group.
Percentage ownership in the following table is based on shares of common
stock outstanding as of December 31, 1999. Percentage ownership assumes
conversion of all shares of preferred stock outstanding as of December 31, 1999
into shares of common stock, which will occur immediately prior to the closing
of this offering.
We have determined beneficial ownership in the table in accordance with the
rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, we have deemed shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become exercisable
within 60 days of December 31, 1999, assuming that this offering occurs in that
60-day period, to be outstanding, but we have not deemed these shares to be
outstanding for computing the percentage ownership of any other person. To our
knowledge, except as set forth in the footnotes below, each stockholder
identified in the table possesses sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by that stockholder.
The address for each listed director and officer is c/o Commerx, Inc., 350
North LaSalle Street, Suite 1000, Chicago, Illinois 60610. The address of
Internet Capital Group, Inc. is 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, PA 19087. The address for Dean Stojka is 776 Oaklawn Avenue,
Elmhurst, IL 60126. The address for John Stojka is 2372 Vallejo, San Francisco,
CA 94123.
<TABLE>
<CAPTION>
Beneficial Ownership
---------------------------------------------------------
Number of Options Percent
and Warrants -----------------
Number of Exercisable by Before After
Name of Beneficial Owner Shares February 29, 2000 Total Offering Offering
- ------------------------ ---------- ----------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Internet Capital Group.. 7,701,969 -- 7,701,969 39.8%
Tim J. Stojka (1)....... 3,223,910 100,000 3,323,910 17.1
Nick J. Stojka.......... 2,793,500 100,000 2,893,500 14.9
Dean J. Stojka.......... 1,873,500 -- 1,873,500 9.7
John S. Stojka.......... 1,873,500 -- 1,873,500 9.7
Jeffrey R. Garwood...... 48,853 7,328 56,181 *
David P. Franco......... 14,584 2,188 16,772 *
James T. Morelli........ 20,366 3,055 23,421 *
Kenneth A. Fox (2)...... 7,701,969 -- 7,701,969 39.8
Robert A. Pollan........ -- -- -- *
Timothy K. Ozark........ 50,000 -- 50,000 *
Charles W. Fritz........ -- 50,000 50,000 *
All executive officers &
directors as a group
(14 persons) (2)....... 13,934,645 374,790 14,309,435 72.5
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 229,284 shares held by a limited liability company with which Tim
Stojka is affiliated and 201,126 shares held by a corporation with which
Tim Stojka is affiliated. Mr. Stojka disclaims beneficial ownership of
these shares.
55
<PAGE>
(2) Includes 7,701,969 shares held by Internet Capital Group, Inc. Kenneth Fox
is a Managing Director of Internet Capital Group. Mr. Fox disclaims
beneficial ownership of the shares held by Internet Capital Group, except
to the extent of his pecuniary interest therein.
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.001 par value per share. The
following description of our capital stock does not purport to be complete and
is subject to, and qualified in its entirety by, our Certificate of
Incorporation and Bylaws, which we have included as exhibits to the
registration statement of which this prospectus forms a part.
Common Stock
As of December 31, 1999, there were 19,369,232 shares of common stock and
preferred stock outstanding, held of record by 40 stockholders. These amounts
assume the conversion of all outstanding shares of preferred stock into common
stock, which is to occur immediately prior to the closing of this offering. In
addition, as of December 31, 1999, there were 4,058,875 shares of common stock
subject to outstanding options. Upon completion of this offering, there will be
shares of common stock outstanding, assuming no exercise of
outstanding stock options.
Each share of common stock entitles its holder to one vote on all matters
to be voted upon by stockholders. Subject to preferences that may apply to any
outstanding preferred stock, holders of common stock may receive ratably any
dividends that the Board of Directors may declare out of funds legally
available for that purpose. In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities and any liquidation preference of
preferred stock that may be outstanding. The common stock has no preemptive
rights, conversion rights or other subscription rights or redemption or sinking
fund provisions. All outstanding shares of common stock are fully paid and non-
assessable, and the shares of common stock that we will issue upon completion
of this offering will be fully paid and non-assessable.
Preferred Stock
As of December 31, 1999, we had two series of convertible preferred stock:
Series A and Series B. As of December 31, 1999, the number of outstanding
shares for each series of our preferred stock was:
. 8,570,000 shares of Series A; and
. 3,128,732 shares of Series B.
Immediately prior to the closing of this offering, all outstanding shares
of our preferred stock will be converted on a one-for-one basis into 11,698,732
shares of common stock. Thereafter, the Board of Directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to designate the rights,
preferences, privileges and restrictions of each series. The issuance of
preferred stock could have the effect of restricting dividends on the common
stock, diluting the voting power of the common stock, impairing the liquidation
rights of the common stock or delaying or preventing a change in control
without further action by the stockholders. We have no present plans to issue
any shares of preferred stock after the completion of this offering.
56
<PAGE>
Warrants
As of December 31, 1999, there were warrants outstanding to purchase
112,858 shares of Series A preferred stock and 24,790 shares of Series B
preferred stock. Upon the closing of this offering, all outstanding warrants
for the purchase of our Series A preferred stock will be automatically
converted into warrants to purchase 112,858 shares of common stock. The Series
A warrants may be exercised until three years from the date of the closing of
this offering. Upon the closing of this offering, all outstanding warrants for
the purchase of our Series B preferred stock will become null and void. Upon
the closing of this offering, these warrants require us to reissue warrants to
purchase common stock to the holders of these warrants on equitable terms. We
plan to reissue warrants for the purchase of 24,790 shares of common stock.
Registration Rights
Set forth below is a summary of the registration rights of the holders of
our Series A preferred stock and Series B preferred stock that convert into
common stock upon the closing of this offering.
Demand Registrations. At any time on or after December 29, 2001, the
holders of at least 40% of the common stock issuable upon conversion of the
Series A preferred stock may request us to register shares of common stock
having a gross offering price of at least $5 million. At any time on or after
January 1, 2002, the holders of at least 66 2/3% of the common stock issuable
upon conversion of the Series B preferred stock may request us to register
shares of common stock having a gross offering price of at least $12.5 million.
The demand registrations are subject to our right, upon advice of our
underwriters, to reduce the number of shares proposed to be registered. We will
be obligated to effect only two registrations pursuant to a request by holders
of registration rights for each series of preferred stock. If shares requested
to be included in a registration must be excluded due to limitations on the
number of shares to be registered on behalf of the selling shareholders
pursuant to the underwriters' advice, the shares registered on behalf of the
selling shareholders will be allocated among all holders of shares with rights
to be included in the registration on the basis of the number of shares with
these rights held by these shareholders.
Piggyback Registration Rights. The holders who have registration rights
have unlimited rights to require us to register a holder's shares when we
undertake a public offering (except for this offering), subject to the
discretion of the managing underwriter of the offering to decrease the amount
that holders may register.
Form S-3 Registrations. After we have qualified for registration on Form S-
3, which will not be available until at least 12 months after we become a
publicly-reporting company, holders of registration rights may request in
writing that we effect an unlimited number of registrations of their shares on
Form S-3. However, the gross offering price of the shares to be so registered
in each registration must exceed $1.0 million in the case of holders of Series
A preferred stock and exceed $2.0 million in the case of holders of Series B
preferred stock. If the registration is to be an underwritten public offering,
the underwriters may reduce for marketing reasons the number of shares to be
registered on behalf of all shareholders having the right to request inclusion
in that registration. We are not obligated to effect more than one registration
on Form S-3 for each series of preferred stock in any twelve-month period.
Transferability. The registration rights are transferable, provided that
the transfer may otherwise be effected in accordance with applicable securities
laws and the investor rights agreement, the transfer is to a person or entity
holding at least 50,000 shares of the same series of preferred stock or to an
affiliate of the transferor and the transferee agrees in writing to be bound by
the terms of the investor rights agreement.
Termination. The registration rights will terminate on the later of the
third anniversary of our initial public offering, the date on which the holder
may sell all of the holder's remaining shares in a
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<PAGE>
single three-month period pursuant to Rule 144 or the date on which the holder
may sell all of the holder's remaining shares pursuant to Rule 144(k).
Expenses. If these registration rights are exercised by holders of Series A
preferred stock, we will bear all registration expenses, other than
underwriting discounts and commissions, of two demand registrations, three S-3
registrations and all piggyback registrations. If these registration rights are
exercised by holders of Series B preferred stock, we will bear all registration
expenses, other than underwriting discounts and commissions, of two demand
registrations, all piggyback registrations and one S-3 registration per year.
Anti-Takeover Provisions
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates acquisitions of some Delaware corporations. In general, Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person becomes an interested stockholder, unless:
. our Board of Directors approved the business combination or the
transaction in which the person became an interested stockholder prior
to the time the person attained this status;
. upon consummation of the transaction that resulted in the person
becoming an interested stockholder, the person owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
. at or subsequent to the time the person became an interested
stockholder, our Board of Directors approved the business combination
and the stockholders, other than the interested stockholder, authorized
the transaction at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not
owned by the interested stockholder.
A "business combination" generally includes a merger, asset or stock sale
or other transaction with or caused by the interested stockholder. In general,
an "interested stockholder" is a person who, together with the person's
affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status did own, 15% or more of a
corporation's voting stock.
This statute could prohibit or delay mergers or other takeover or change-
in-control attempts with respect to Commerx and, accordingly, may discourage
attempts to acquire us.
Certificate of Incorporation and Bylaw Provisions
Our Certificate of Incorporation and Bylaws, to be effective upon the
closing of this offering, will divide the Board into three classes as nearly
equal in size as possible, with each class serving a three-year term. The terms
will be staggered, so that one-third of the Board will be elected each year.
The classification of the Board could have the effect of making it more
difficult for a third party to acquire control of us, because it would
typically take more than a year for a majority of the stockholders to elect a
majority of our Board. In addition, our Certificate of Incorporation and Bylaws
will provide that any action required or permitted to be taken by our
stockholders at an annual or special meeting may be taken only if it is
properly brought before the meeting, satisfies various advance notice
requirements and may not be taken by written consent in lieu of a meeting. The
Bylaws will also provide that special meetings of the stockholders may be
called only by the Board of Directors, the Chairman of the Board or the Chief
Executive Officer.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Chase Mellon
Shareholder Services, LLC, 85 Challenger Road, Overpeck Centre, Ridgefield
Park, New Jersey 07660.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Sales of substantial amounts
of our common stock in the public market after any restrictions on sale lapse
could adversely affect the prevailing market price of our common stock and
impair our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares of
common stock, outstanding options to purchase shares of common stock
and outstanding warrants to purchase shares of common stock, assuming
no additional option or warrant grants or exercises after December 31, 1999. Of
the shares sold in the offering, shares will be subject to
the lock-up agreements described below, assuming that we sell all shares
reserved under our directed share program to the entities or persons for whom
these shares have been reserved. We expect that the remaining
shares, plus any shares issued upon exercise of the underwriters' over-
allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act. In general, affiliates include officers,
directors and 10% or greater stockholders.
The remaining shares outstanding and shares subject
to outstanding options and warrants are "restricted securities" within the
meaning of Rule 144. Restricted securities may be sold in the public market
only if the sale is registered or if it qualifies for an exemption from
registration, such as those described in Rules 144, 144(k) or 701 promulgated
under the Securities Act, which are summarized below. Sales of restricted
securities in the public market, or the availability of these shares for sale,
could adversely affect the market price of the common stock.
Lock-Up Agreements
We and our directors, officers, and all of the holders of preferred stock
and certain holders of warrants, options and shares of common stock have
entered into lock-up agreements in connection with this offering. These lock-up
agreements generally provide that these holders will not offer, sell, contract
to sell, grant any option to purchase or otherwise dispose of our common stock
or any securities exercisable for or convertible into our common stock owned by
them for a period of 180 days after the date of this prospectus without the
prior written consent of Goldman Sachs. The lock-up agreements executed by our
employees, directors and other stockholders also cover any shares they may
acquire through our directed share program. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares
subject to lock-up agreements may not be sold until these agreements expire or
their restrictions are waived by Goldman Sachs. Assuming that Goldman Sachs
does not release any security holders from the lock-up agreements, the
following shares will be eligible for sale in the public market at the
following times:
. Beginning on the effective date of the registration statement of which
this prospectus forms a part, of the shares sold in
this offering, and additional shares not subject to lock-up
agreements and eligible for sale under Rule 144(k), will be immediately
available for sale in the public market.
. Beginning 180 days after the effective date, an additional
shares will be eligible for sale pursuant to Rule 144, Rule 144(k) and
Rule 701.
Rule 144
In general, under Rule 144 as currently in effect, after the expiration of
any applicable lock-up agreement, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; and
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<PAGE>
. the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
Rule 701
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written
compensatory plan or contract, to resell these shares in reliance upon Rule
144, but without compliance with certain restrictions. Rule 701 provides that
affiliates may sell their Rule 701 shares under Rule 144 ninety days after
effectiveness without complying with the holding period requirement and that
non-affiliates may sell these shares in reliance on Rule 144 ninety days after
effectiveness without complying with the holding period, public information,
volume limitation or notice requirements of Rule 144.
Employee Plans
We intend to file a registration statement under the Securities Act after
the effective date of this offering to register shares to be issued pursuant to
our employee benefit plans. As a result, any shares of common stock acquired
upon exercise of options or rights granted under the 1999 Combined Incentive
and Non-qualified Stock Option Plan will also be freely tradable in the public
market. However, shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of Rule
144, unless otherwise resaleable under Rule 701. As of December 31, 1999, we
had granted options to purchase 4,634,000 shares of common stock, of which
options to purchase 3,678,500 shares were not exercisable, 380,375 shares were
exercisable, 240,500 options had been exercised and 334,625 options were
returned to the option pool.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Commerx by Wildman, Harrold, Allen & Dixon, Chicago, Illinois. Legal matters
will be passed upon for the underwriters by Ropes & Gray, Boston,
Massachusetts.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and September 30,
1999, and for each of the three years in the period ending December 31, 1998,
and for the nine-month period ended September 30, 1999, included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
60
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act concerning the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement or its exhibits and
schedules. For further information about Commerx and our common stock, we refer
you to the registration statement and to its attached exhibits and schedules.
Statements made in this prospectus concerning the contents of any document are
not necessarily complete. With respect to each document filed as an exhibit to
the registration statement, we refer you to the exhibit for a more complete
description of the matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, NY 10048, and at 500 West Madison Street, Suite 1400, Chicago,
IL 60661. You may obtain information on the operation of these reference
facilities by calling the Commission at 1 (800) SEC-0330. You may obtain copies
of all or any part of our registration statement from the Commission upon
payment of prescribed fees. You may also inspect reports, proxy and information
statements and other information that we file electronically with the
Commission without charge at the Commission's Internet site,
http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants.
61
<PAGE>
UNDERWRITING
Commerx and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Hambrecht & Quist LLC and FleetBoston
Robertson Stephens Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ -----------
<S> <C>
Goldman, Sachs & Co...........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated............
Hambrecht & Quist LLC.........................................
FleetBoston Robertson Stephens Inc............................
-----------
Total.....................................................
===========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Commerx to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the underwriters by Commerx. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
<TABLE>
<CAPTION>
No Full
Paid by Commerx Exercise Exercise
--------------- -------- --------
<S> <C> <C>
Per share............................................... $ $
Total...................................................
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
Commerx and its directors, officers, all of the holders of preferred stock
and certain holders of warrants, options and shares of common stock have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives. See "Shares Eligible for Future Sale" for a discussion of
certain transfer restrictions.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be
negotiated among Commerx and the representatives of the underwriters. Among the
factors to be considered in determining the initial public offering price of
the shares, in addition to prevailing market conditions, are Commerx's
historical performance, estimates of Commerx's business potential and earnings
prospects, an assessment of Commerx's management and the consideration of the
above factors in relation to the market valuation of companies in related
businesses.
62
<PAGE>
Commerx has applied for quotation of its common stock on the Nasdaq
National Market under the symbol "CMRX".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to other underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of that underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
In addition, at the request of Commerx, the underwriters have reserved, at
the initial public offering price, up to shares of common stock for
sale to directors, employees and other persons that have a relationship with
Commerx. The number of shares available for sale to the general public will be
reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as other shares offered hereby. There can be no assurance that any of the
reserved shares will be so purchased.
Hambrecht & Quist LLC acted as a placement agent for Commerx in connection
with the private placement of shares of Commerx's Series B preferred stock in
November and December 1999. Commerx paid customary placement fees to Hambrecht
& Quist LLC for such services. Commerx paid a portion of the fee in shares of
Series B preferred stock at the private placement price of $12.43 per share.
Hambrecht & Quist LLC received a total of $1,593,636 and 20,823 shares and
agree with Commerx not to sell, transfer, assign, pledge or hypothecate any
such shares within one year after this offering.
Commerx estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1.2 million.
Commerx has agreed to indemnify the underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
63
<PAGE>
COMMERX, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants...................................... F-1
Financial Statements:
Balance Sheets as of December 31, 1997 and 1998 and September 30,
1999................................................................ F-2
Statements of Operations for the years ended December 31, 1996, 1997
and 1998 and the nine months ended September 30, 1998 (unaudited)
and 1999............................................................ F-3
Statements of Changes in Stockholders' Deficit for the years ended
December 31, 1996, 1997 and 1998 and the nine months ended September
30, 1999............................................................ F-4
Statements of Cash Flows for the years ended December 31, 1996, 1997
and 1998 and the nine months ended September 30, 1998 (unaudited)
and 1999............................................................ F-5
Notes to Financial Statements........................................ F-6
</TABLE>
64
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Commerx, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Commerx, Inc. at
December 31, 1997, 1998 and September 30, 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 and for the nine months ended September 30, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
December 28, 1999
F-1
<PAGE>
COMMERX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31, As of September 30, 1999
------------------------ -------------------------
1997 1998 Actual Pro Forma
----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 52,162 $ 3,302,954 $ 1,799,915 $ 36,642,209
Trade accounts
receivable (net of
allowance of $12,800 at
December 31, 1997, $0
at December 31, 1998
and $26,363 at
September 30, 1999)..... 13,098 20,127 459,249 459,249
Other current assets..... 13,851 22,436 132,508 132,508
----------- ----------- ----------- ------------
Total current assets... 79,111 3,345,517 2,391,672 37,233,966
----------- ----------- ----------- ------------
Property and equipment,
net of accumulated
depreciation............. 107,209 206,026 1,307,003 1,307,003
Other assets (includes
security deposit of
$200,000 at December 31,
1998 and September 30,
1999).................... -- 200,000 228,180 228,180
----------- ----------- ----------- ------------
Total assets........... $ 186,320 $ 3,751,543 $ 3,926,855 $ 38,769,149
=========== =========== =========== ============
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable......... $ 3,163 $ 364,116 $ 1,476,226 $ 1,476,226
Due to related party..... 217,309 92,713 98,776 98,776
Accrued expenses......... 85,204 177,166 1,281,589 1,281,589
Deferred revenue......... 91,182 180,909 355,321 355,321
Notes payable--
stockholders............ 1,747,920 -- 1,806,062 --
Notes payable--current... -- -- 87,548 87,548
Obligation under capital
lease--current.......... -- -- 321,176 321,176
----------- ----------- ----------- ------------
Total current
liabilities........... 2,144,778 814,904 5,426,698 3,620,636
----------- ----------- ----------- ------------
Notes payable--noncurrent. -- -- 183,673 183,673
Obligation under capital
lease.................... -- -- 813,259 813,259
----------- ----------- ----------- ------------
Total liabilities...... 2,144,778 814,904 6,423,630 4,617,568
----------- ----------- ----------- ------------
Commitments and
contingencies (Note 9)...
Redeemable convertible
Series A preferred stock,
$.001 par value per
share, redeemable at
$1.05 per share,
8,682,858 shares
authorized; 6,665,428
(1998), 8,570,000
(September 30, 1999) and
zero (pro forma) shares
issued and outstanding
(aggregate liquidation
preference of $1.05 per
share)................... -- 5,009,520 7,009,520 --
Stockholders' (deficit)
equity:
Convertible Series B
preferred stock, $0.001
par value per share,
3,218,021 shares
authorized; zero shares
issued and outstanding
(aggregate liquidation
preference of $12.43
per share).............. -- -- -- --
Common stock, no par
value as of December
31, 1997 and $.001 as
of December 31, 1998
and September 30, 1999,
20,000,000 shares
authorized, 16,950,000
(1997) and 7,430,000
(December 31, 1998 and
September 30, 1999) and
19,128,732 (pro forma),
shares issued and
outstanding............. 200,000 7,430 7,430 19,129
Deferred compensation.... -- -- (592,262) (592,262)
Additional paid-in
capital................. -- 2,256,130 3,495,053 47,352,058
Accumulated deficit...... (2,158,458) (4,336,441) (12,416,516) (12,627,344)
----------- ----------- ----------- ------------
Total stockholders'
(deficit) equity...... (1,958,458) (2,072,881) (9,506,295) 34,151,581
----------- ----------- ----------- ------------
Total liabilities and
stockholders'
(deficit) equity...... $ 186,320 $ 3,751,543 $ 3,926,855 $ 38,769,149
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
COMMERX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Transaction............ $ -- $ -- $ -- $ -- $ 445,300
Advertising and other.. 52,770 305,125 375,037 263,568 388,179
----------- ----------- ----------- ----------- -----------
Total revenue........ 52,770 305,125 375,037 263,568 833,479
Cost of revenue......... -- -- -- -- 426,209
----------- ----------- ----------- ----------- -----------
Gross margin............ 52,770 305,125 375,037 263,568 407,270
Operating expenses:
Sales and marketing.... 330,474 451,448 577,324 317,645 2,643,483
Information
technology............ 335,530 273,939 514,946 298,001 2,343,712
Production and
operations............ 129,359 138,652 140,161 112,984 849,117
General and
administrative........ 159,231 216,937 1,134,764 635,426 2,284,448
Amortization of
deferred stock
compensation.......... -- -- -- -- 386,713
----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 954,594 1,080,976 2,367,195 1,364,056 8,507,473
----------- ----------- ----------- ----------- -----------
Operating loss.......... (901,824) (775,851) (1,992,158) (1,100,488) (8,100,203)
Other income (expense):
Interest income........ -- -- -- -- 59,147
Interest expense....... (50,337) (118,022) (185,825) (133,210) (39,019)
----------- ----------- ----------- ----------- -----------
Total other income
(expense)........... (50,337) (118,022) (185,825) (133,210) 20,128
----------- ----------- ----------- ----------- -----------
Net loss................ $ (952,161) $ (893,873) $(2,177,983) $(1,233,698) $(8,080,075)
=========== =========== =========== =========== ===========
Basic and diluted net
loss per share......... $ (0.06) $ (0.05) $ (0.13) $ (0.07) $ (1.09)
=========== =========== =========== =========== ===========
Weighted average shares
used in calculation of
basic and diluted net
loss per share......... 16,950,000 16,950,000 16,897,835 16,950,000 7,430,000
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (0.15) $ (0.54)
=========== ===========
Weighted average shares
used in calculation of
pro forma basic and
diluted net loss per
share (unaudited)...... 14,095,000 14,836,096
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
COMMERX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock
-------------------- Unamortized Additional Total
Number Carrying Stock Paid-In Accumulated Stockholders'
of Shares Value Compensation Capital Deficit Deficit
---------- -------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... 16,950,000 $200,000 $ -- $ -- $ (312,424) $ (112,424)
Net loss................ -- -- -- -- (952,161) (952,161)
---------- -------- --------- ---------- ------------ -----------
Balance at December 31,
1996................... 16,950,000 200,000 -- -- (1,264,585) (1,064,585)
Net loss................ -- -- -- -- (893,873) (893,873)
---------- -------- --------- ---------- ------------ -----------
Balance at December 31,
1997................... 16,950,000 200,000 -- -- (2,158,458) (1,958,458)
Conversion of
shareholder notes and
accrued interest to
donated capital........ -- -- -- 2,073,080 -- 2,073,080
Conversion of common
stock, no par to $0.001
par value common stock. -- (183,050) -- 183,050 -- --
Exchange of common stock
for redeemable
convertible Series A
preferred stock........ (9,520,000) (9,520) -- -- -- (9,520)
Net loss................ -- -- -- -- (2,177,983) (2,177,983)
---------- -------- --------- ---------- ------------ -----------
Balance at December 31,
1998................... 7,430,000 7,430 -- 2,256,130 (4,336,441) (2,072,881)
Stock compensation
recognized............. -- -- 386,713 -- -- 386,713
Issuance of common stock
options................ -- -- (978,975) 978,975 -- --
Issuance of Series A
preferred stock
warrants............... -- -- -- 73,823 -- 73,823
Issuance of Series B
preferred stock
warrants............... -- -- -- 186,125 -- 186,125
Net loss................ -- -- -- -- (8,080,075) (8,080,075)
---------- -------- --------- ---------- ------------ -----------
Balance at September 30,
1999................... 7,430,000 $ 7,430 $(592,262) $3,495,053 $(12,416,516) $(9,506,295)
========== ======== ========= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
COMMERX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
---------- ---------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (952,161) $ (893,873) $ (2,177,983) $(1,233,698) $(8,080,075)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation......... 21,068 28,152 45,627 28,047 220,325
Interest expense on
shareholder notes... -- -- 225,160 133,210 6,063
Amortization of debt
discount............ -- -- -- -- 8,362
Amortization of
compensation
expense............. -- -- -- -- 386,713
Changes in operating
assets and
liabilities:
Increase in
accounts
receivable........ (10,625) (2,473) (7,029) (39,786) (439,122)
(Increase) decrease
in other current
assets............ 22,341 (4,914) (8,585) 4,914 (110,072)
Increase in other
non-current
assets............ -- -- (200,000) -- (28,180)
Increase (decrease)
in accounts
payable........... (66,137) (15,298) 360,953 214,375 1,112,110
Increase in accrued
expenses.......... 24,438 60,503 91,962 40,560 1,104,423
Increase in
deferred revenue.. 69,511 21,671 89,727 148,038 174,412
---------- ---------- ------------ ----------- -----------
Net cash used by
operations............. (891,565) (806,232) (1,580,168) (704,340) (5,645,041)
---------- ---------- ------------ ----------- -----------
Cash flows from
investing activities:
Acquisition of plant,
property, and
equipment............. (41,189) (32,298) (144,444) (88,767) (388,506)
---------- ---------- ------------ ----------- -----------
Net cash used in
investing activities... (41,189) (32,298) (144,444) (88,767) (388,506)
---------- ---------- ------------ ----------- -----------
Cash flows from
financing activities:
Bank overdraft......... 8,507 (8,507) -- -- --
Proceeds from
shareholder notes..... 400,000 1,047,920 100,000 100,000 1,991,809
Gross proceeds from
related party......... 275,539 -- 1,175,404 734,323 --
Repayments to related
party................. -- (148,721) (1,300,000) -- --
Gross proceeds from
issuance of note
payable............... -- -- -- -- 300,000
Repayments of note
payable............... -- -- -- -- (15,325)
Obligations under
capital lease......... -- -- -- -- 254,024
Proceeds from sale of
redeemable
convertible Series A
preferred stock....... -- -- 5,000,000 -- 2,000,000
---------- ---------- ------------ ----------- -----------
Net cash provided from
financing activities... 684,046 890,692 4,975,404 834,323 4,530,508
---------- ---------- ------------ ----------- -----------
Net increase (decrease)
in cash................ (248,708) 52,162 3,250,792 41,216 (1,503,039)
Cash and cash
equivalents at
beginning of period.... 248,708 -- 52,162 52,162 3,302,954
---------- ---------- ------------ ----------- -----------
Cash and cash
equivalents at end of
period................. $ -- $ 52,162 $ 3,302,954 $ 93,378 $ 1,799,915
========== ========== ============ =========== ===========
Supplemental cash flow
information:
Interest paid.......... $ 25,636 $ 32,817 $ 45,868 $ -- $ 7,545
Non-cash financing
activities:
Conversion of
shareholder notes and
interest to
additional paid-in
capital............... $ -- $ -- $ 2,073,080 $ -- $ --
Exchange of common
stock for redeemable
convertible Series A
preferred stock ...... -- -- 9,520 -- --
Estimated fair value
of warrants--recorded
as debt discount...... -- -- -- -- 259,948
Equipment required
under capital lease... -- -- -- -- 932,796
Incentive plan stock
option issuances...... -- -- -- -- 978,975
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
COMMERX, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Organization
Commerx, Inc. ("Commerx" or the "Company") was formed as an Illinois
corporation in July 1995 and was subsequently reorganized as a Delaware
corporation in December 1998. All shares in the Illinois Corporation were
converted to the Delaware Corporation at a ratio of one to one.
Commerx is an Internet commerce company facilitating electronic business-
to-business commerce through the development and management of marketplaces for
industrial processing markets. Currently, the Company operates one marketplace,
PlasticsNet, which serves the plastics industry.
In 1996, 1997, 1998 and 1999, the Company derived its revenue from the
establishment and maintenance of supplier business centers (commercial
storefronts) on PlasticsNet along with advertising revenue. The Company also
earned fees from the production of advertising content. Additionally, in the
second quarter of 1999, the Company began deriving revenue from procurement
transactions through its Internet site.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company's accompanying interim financial statements for the nine months
ended September 30, 1998 and the related notes have not been audited. However,
they have been prepared in conformity with the accounting principles stated in
the audited financial statements of the years ended December 31, 1996, 1997 and
1998 and for the nine-month period September 30, 1999 and include all
adjustments, which were of a normal and recurring nature, which in the opinion
of management are necessary to present fairly the financial position of the
Company and results of operations and cash flows for the periods presented. The
operating results for the interim periods are not necessarily indicative of
results expected for the full years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Advertising revenue is contracted generally on a quarterly basis and
recognized equally over each of the three months in the quarter. Business
center set-ups and renewals are contracted generally on an annual basis and
recognized ratably over twelve months.
Transaction revenue consists primarily of product sales to buyers and
charges to buyers for outbound freight. Commerx acts as a principal when
purchasing products from suppliers and reselling them to buyers. Products are
shipped directly to buyers by suppliers based on buyers' delivery date
specifications. Under principal-based agreements, Commerx is responsible for
selling products, collecting payment from buyers, ensuring that the shipment
reaches buyers and processing returns. In addition, Commerx takes title to
products upon shipment and bears the risk of loss for collection, delivery and
product returns from buyers. Commerx provides an allowance for sales returns,
which has been insignificant to date, at the time of sale. Commerx recognizes
revenue from product sales when products are shipped to our buyers. Shipping
and handling costs are recorded as costs of revenue.
F-6
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company's accounts receivable are derived from
revenue earned from customers located primarily in the United States and are
denominated in U.S. dollars. Management believes its credit policies are
prudent and reflect normal industry terms and business risk.
At December 31, 1996, three customers accounted for approximately 39.2%,
13.3% and 12.6% of the accounts receivable balance. At December 31, 1997, the
Company had four customers that accounted for 29.0%, 19.3%, 19.3% and 15.4% of
the accounts receivable balance. At December 31, 1998, five customers accounted
for approximately 26.0%, 17.0%, 12.2%, 12.0% and 11.7% of the accounts
receivable balance. At September 30, 1999, 38.2% and 20.2% of the Company's
accounts receivable were due from two customers.
During 1996 one customer accounted for 32.7% of the Company's revenue.
During 1997, there were no customers that accounted for 10% or greater of the
Company's revenue. During 1998 one customer accounted for 20.0% of the
Company's revenue. For the period ending September 30, 1999, two customers
accounted for 32.8% and 10.9% of the Company's revenue.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease obligations are carried
at cost, which approximates their fair value because of the short-term maturity
of these instruments. The carrying value for all long-term debt outstanding at
the end of all periods presented approximates fair value where fair value is
based on market prices for the same or similar debt and maturities.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon estimated useful lives of three years for
computer software and equipment and five years for furniture and fixtures and
other equipment. Maintenance and repair charges are expensed as incurred.
F-7
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was
$112,340, $28,420 and $69,421 for the years ended December 31, 1996, 1997 and
1998, respectively, and $51,962 and $531,528 for the nine-month periods ended
September 30, 1998 and 1999, respectively.
Product Development Costs
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's Web sites. Product
development costs are expensed as incurred. The software development cost
components of product development costs are required to be capitalized
beginning when a product's technological feasibility has been established and
ending when a product is available for general release to customers. To date,
completion of a working model of the Company's products and the date of general
release have substantially coincided. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Additionally, development costs
associated with providing content for the Company's Web site are expensed as
incurred.
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" encourages, but does not require, companies to
record compensation cost for stock-based compensation at fair value. The
Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees" and its related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the fair value of a share of the Company's stock at
the date of the grant over the amount that must be paid to acquire the stock.
Income Taxes
Deferred tax assets and liabilities are recorded to reflect the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based upon the differences between the financial
statement and tax bases of assets and liabilities and for tax carryforwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
In December 1998, in connection with the private placement of preferred
stock (see Note 6), the Company was required to change its corporate status
from an S-Corporation to a C-Corporation and, therefore, is subject to federal
and state income taxes effective December 27, 1998. As a result of the
conversion in tax status, the Company has recorded deferred tax assets and
liabilities as of December 31, 1998 and as of September 30, 1999.
Pro Forma Information (unaudited)
The pro forma balance sheet as of September 30, 1999 presents the estimated
effects of several transactions that have occured subsequent to September 30,
1999 and will occur prior to the closing of the proposed initial public
offering, including (i) the issuance of Series B convertible preferred stock
("Series B"), (ii) the conversion of all management notes and accrued
F-8
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
interest as of November 19, 1999 into Series B preferred stock and (iii) the
conversion of all outstanding preferred stock into common stock. In conjunction
with these transactions, the pro forma information reflects: (i) the write-off
of $185,747 in remaining management loan discounts as of September 30, 1999,
(ii) the accrual of interest on the management notes for the period October 1,
1999 to November 19, 1999 and (iii) the application of $2,030,955 of financing
fees against the proceeds of the Series B preferred stock offering.
Net Loss Per Share
The Company computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"), and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, basic and diluted net loss per share
applicable to common stockholders is computed by dividing the net loss
applicable to common stockholders for the period by the weighted average number
of common shares outstanding for the period. The calculation of diluted net
loss per share excludes the number of shares of common stock issuable upon
exercise of employee stock options and warrants, and the shares of common stock
issuable upon the conversion of convertible preferred stock as the effect would
be antidilutive. Potential common shares consist of the incremental common
shares issuable upon the conversion of the redeemable convertible Series A
convertible preferred stock ("Series A") (using the incremental method) and
shares issuable upon the conversion of stock options and warrants (using the
treasury stock method). At September 30, 1999, Series A preferred stock was
convertible into 8,570,000 shares of common stock and options and warrants to
purchase 3,958,148 shares of common stock were outstanding. Pro forma basic and
diluted net loss per share have been calculated assuming the conversion of all
outstanding shares of preferred stock into common stock, as if the shares had
converted immediately upon their issuance. Refer to Note 10--Earnings per
share, for the reconciliation of the numerator and denominator of the basic and
diluted EPS computations.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Under SFAS 130, changes in net assets of an entity
resulting from transactions and other events and circumstances from non-owner
sources are reported in a financial statement for the period in which they are
recognized. Because there were no such changes, adoption of SFAS 130 did not
impact the financial statements of the Company.
Segment Reporting
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." The Company operates
as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
Recent Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The statement as amended is effective for fiscal years beginning after
June 15, 2000. As the Company does not have any derivative instruments or
hedging activities, SFAS No. 133 is not expected to have a material effect on
its financial results.
F-9
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Plant, property and equipment consists of the following at:
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1997 1998 1999
-------- --------- -------------
<S> <C> <C> <C>
Equipment under capital leases:
Furniture and fixtures.................. $ -- $ -- $ 270,059
Computer equipment...................... -- -- 662,737
Equipment................................. 11,155 36,461 105,693
Furniture and fixtures.................... 28,448 28,448 28,448
Computer software and equipment........... 125,434 244,572 563,847
-------- --------- ----------
165,037 309,481 1,630,784
Less: Accumulated depreciation............ (57,828) (103,455) (323,781)
-------- --------- ----------
$107,209 $ 206,026 $1,307,003
======== ========= ==========
</TABLE>
When property and equipment are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the account, and any gain
or loss is included in results of operations. Amounts expended for maintenance
and repairs are charged to expense as incurred.
As of September 30, 1999, the Company changed the estimated useful lives
for depreciation from 5 to 7 years to 3 to 5 years to better reflect the life
of the assets and to comply with industry standards. The effect of the change
in estimate was to increase the net loss by $113,142 for the nine-month period
ended September 30, 1999, or ($0.02) per share.
Depreciation expense for 1996, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 was $21,068, $28,152 and $45,627, and $28,047 and
$220,326, respectively. Accumulated amortization and amortization expense
related to property and equipment acquired under capital lease arrangements
during 1999 was $72,612 for the nine months ended September 30, 1999. Interest
expense relating to capital lease obligations totaled $24,592 for the nine
months ended September 30, 1999.
In June 1999, the Company has entered into master lease agreements with two
separate financing companies for the lease of office furniture and fixtures and
computer equipment used in its business. Each borrowing under the lease has a
two- to five-year term and is collateralized by the assets purchased. Equipment
obtained pursuant to these leases is capitalized and is included in property
and equipment on the balance sheet.
In connection with the aforementioned arrangements, the Company issued
warrants to purchase certain of its equity securities to the lessor (Note 7).
4. Notes Payable to Related Parties
Prior to the Series A Financing (Note 6), the Company had been funded
internally through shareholder notes and advances from related parties. Notes
payable due to shareholders were $1,747,920 at December 31, 1997. The notes
were due on demand and accrued interest at 8%. In November 1998, the Board of
Directors approved a resolution under which outstanding shareholder demand
notes were contributed to the Company as additional paid-in capital. The total
amount of capital contributed was $2,073,080 which was comprised of $1,847,920
of outstanding principal and $225,160 of accrued interest due on the respective
notes.
F-10
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
On September 28, 1999, the Company entered into six-month subordinated,
convertible borrowing agreements with certain officers of the Company under
which such individuals agreed to loan the company $1,991,809. These loans are
carried at $1,806,062, net of debt discounts. The notes are required to be paid
on the earlier of March 28, 2000 or the completion of the next round of
financing in which the Company receives proceeds of at least $15 million. The
principal and interest due on the notes were automatically converted into the
Company's Series B preferred stock at the Series B preferred stock offering
price of $12.43 per share upon the closing of the Series B preferred stock
offering. Interest is payable upon maturity or conversion of the note and
accrues at an annual rate of prime plus 1% (9.25% at September 30, 1999). In
the event of default, this rate increases to prime plus 3%. In connection with
the debt financing, the Company issued warrants to purchase shares of the
Company's Series B preferred stock (Note 6 and 7).
Additionally, the Company has recorded amounts due to a related party of
$217,309 and $92,713 as of December 31, 1997 and 1998, respectively, and
$98,776 as of September 30, 1999 (Note 11).
5. Notes Payable
On August 16, 1999, the Company entered into a borrowing agreement with a
third party under which the lender agreed to loan $300,000 to the Company for a
period of 30 months. Such loan is reflected net of $14,017 of debt discount.
The proceeds were to be used to finance the acquisition of fixed assets and for
working capital purposes. Interest payments are due on a monthly basis at an
annual interest rate of 8.75% and the note is due on February 1, 2002. On
February 1, 2002, a $51,000 balloon payment is due. In connection with the
borrowing, the Company also issued warrants to purchase shares of the Company's
Series A preferred stock (Note 7).
6. Convertible Preferred Stock
Redeemable Series A
In December 1998, the Company authorized the sale and issuance of up to
8,570,000 shares of Series A preferred stock. Subject to the first closing as
defined in the Series A preferred stock purchase agreement, the Company issued
4,761,428 shares to a certain investment group in exchange for $5,000,000. The
purchase price consists of cash payments totaling $4,750,000 and the conversion
of a note payable in the amount of $250,000 into Series A preferred stock.
Additionally, in December 1998, the Company issued 1,904,000 Series A
preferred stock to certain related party common stockholders in exchange for
9,520,000 shares of common stock. The related party common stockholders are
members of the Stojka family, including Tim and Nick Stojka (Note 11).
In June 1999, the Company issued 1,904,572 additional shares of Series A
preferred stock to the same investment group as the December 1998 financing for
$2,000,000. The transaction fulfilled the second closing as defined in the
Series A preferred stock purchase agreement.
Holders of Series A preferred stock are entitled to receive non-cumulative
dividends in preference to holders of common stock at the rate of 8% per share
per annum if and when declared by the Board of Directors. The holders of Series
A preferred stock shall have the right to convert
F-11
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
the Series A preferred stock into equal shares of common stock at the option of
the holder and have the right to that number of votes equal to the number of
shares of common stock issuable upon conversion of the Series A preferred
stock. All series of preferred stock and common stock are required to vote
together as a class except that holders of Series A preferred stock are
entitled to elect two representatives to the Board of Directors.
Additionally, the Series A preferred stock automatically converts into
common stock at the then applicable conversion rate in the event of either (i)
the completion of an initial public offering with aggregate offering proceeds
to the Company of at least $5,000,000 and a per share price to the public of at
least 2.5 times the purchase price of the Series A preferred stock or (ii) the
election of the holders of at least two-thirds of the outstanding Series A
preferred stock.
Upon written election of holders of two-thirds of the Series A preferred
stock, the Series A preferred stock is required to be redeemed to the extent of
one-third of the shares of Series A preferred on the fifth, sixth and seventh
anniversary dates of the closing. The redemption price of $1.05 is to be
adjusted for any stock dividends, contributions or splits plus any accrued, but
unpaid dividends.
The consent of a majority of the Series A preferred stock is required for
any action that authorizes or issues shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity
with the Series A preferred stock or that authorizes a merger, sale of
substantially all of the assets of the Company or a
recapitalization/reorganization of the Company.
Upon liquidation or dissolution, shareholders of Series A preferred stock
are to receive a distribution of available assets up to the sum of the original
purchase price plus any declared but unpaid dividends. This distribution has
preference over any distribution to common stockholders.
In November 1999, the Board of Directors authorized an increase in the
number of authorized shares of Series A preferred stock from 8,570,000 to
8,682,858.
Series B
In November 1999, the Board of Directors authorized the issuance of up to
3,218,021 shares of Series B preferred stock.
In November 1999, the Company issued 1,935,994 shares of Series B preferred
stock for gross proceeds of $23,900,000. The gross proceeds consist of cash
payments totaling $21,800,000 and the conversion of notes payable to
stockholders in the amount of $2,100,000. Of the total shares issued, 1,400,181
shares were to related parties.
Holders of Series B preferred stock are entitled to receive non-cumulative
dividends in preference to holders of common stock at the rate of $0.994 per
share per annum if and when declared by the Board of Directors. The holders of
Series B preferred stock shall have the right to convert the Series B preferred
stock into an equal number of shares of common stock at the option of the
holder and have the right to that number of votes equal to the number of shares
of common stock issuable upon conversion of the Series B preferred stock. All
series of preferred stock and common stock are required to vote together as a
class except that holders of Series B preferred stock and common stock vote
together as a class for the election of five members of the Company's Board of
Directors. As mentioned in Note 6, the remaining two members are elected by the
holders of Series A preferred stock voting as a separate class.
F-12
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Series B preferred stock automatically converts into common stock in the
event of either (i) the completion of an initial public offering with aggregate
offering proceeds to the Company of at least $15,000,000 and a per share price
to the public of at least 1.5 times the purchase price of the Series B
preferred stock or (ii) the election of the holders of at least two-thirds of
the outstanding Series B preferred stock to convert such shares.
The consent of a majority of the Series B preferred stock is required for
any action that authorizes or issues shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity
with the Series B preferred stock or that authorizes a merger, sale of
substantially all of the assets of the Company or a
recapitalization/reorganization of the Company. The consent of a majority of
the Series B preferred stock is also required for the Company to purchase,
redeem or otherwise acquire for value any of their common stock or to declare
or pay dividends or make any other distribution on account of the common stock.
Upon liquidation or dissolution, shareholders of Series B preferred stock
are to receive a distribution of available assets up to the sum of the original
purchase price plus any declared but unpaid dividends. This distribution has
preference over any distribution to common stockholders.
In connection with the closing of the first round of Series B preferred
stock financing in November 1999, the Company entered into an Investors' Rights
Agreement with certain investors who purchased shares of the Series B preferred
stock. The agreement grants to designated investors certain information rights,
registration rights, and rights of first offer as defined by the agreement.
Some of the rights are subject to minimal investment thresholds and some rights
may terminate upon the completion of an initial public offering by the Company.
Holders of Series B preferred stock have the right the convert the Series B
preferred stock into shares of common stock at a one-to-one ratio. To the
extent that the fair market value of common stock is deemed to exceed the
$12.43 offering price for the Series B preferred stock, a beneficial conversion
feature exists. A deemed dividend to the preferred shareholders will be
reflected in the fourth quarter of 1999 to the extent of any beneficial
conversion feature and would increase net loss available to common
shareholders.
Two of the 23 purchasers of Series B preferred stock have entered into
strategic agreements with the Company. To the extent that such relationships go
beyond that of an investor-investee relationship, the agreement will be
accounted for at fair value in accordance with SFAS 123 and will be capitalized
as deferred contract acquisition cost and amortized over the term of the
contract.
7. Common Stock, Options and Warrants
In December 1998, the Board of Directors approved an amendment to the
Company's certificate of incorporation which increased the number of authorized
shares of common stock from 500,000 with no par value to 20,000,000 with $.001
par value and also authorized the issuance of up to 8,570,000 shares of Series
A preferred stock. The change in par value did not affect any of the existing
rights of shareholders and has been recorded as an adjustment to additional
paid-in capital and common stock. The Company subsequently effected an 84.75-
to-1 stock split of the issued and outstanding common stock of the Company as
of December 22, 1998. All share information retroactively reflects the effect
of this split. The Company has reserved 8,570,000 shares of common stock for
issuance upon conversion of the Series A preferred stock.
In November 1999, the Board of Directors approved an amendment to the
Company's certificate of incorporation which increased the number of authorized
shares of common stock from 20,000,000 to 100,000,000.
F-13
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
In March 1999, the Company's Board of Directors adopted a Combined
Incentive and Non-statutory Stock Option Plan ("the Plan"). Under the Plan,
employees of the Company are granted incentive stock options to purchase common
stock at not less than the fair value on the date of grant. In the case of
grants of non-statutory stock options, options will be granted at a per share
price of no less than 85% of the fair market value on the date of grant.
Generally, the term of the options is 10 years from the initial grant date with
the options vesting over a four-year period. The Plan is administered by the
Compensation Committee of the Board of Directors. The total number of shares of
common stock that may be issued pursuant to options granted under the Plan is
4,000,000 (Note 14).
Deferred compensation was recorded during the nine-month period ended
September 30, 1999 in connection with the granting of stock options at exercise
prices that were less than the deemed fair value. Deferred compensation of
$978,975 is reflected as a separate component of stockholders' deficit and is
being amortized over a four-year time period using an accelerated methodology.
Compensation expense of $386,713 was recognized for the nine-month period ended
September 30, 1999.
Additionally, to the extent that the fair market value of common stock is
deemed to exceed the exercise price for options granted in the fourth quarter,
it is expected that a charge will be recorded for non-cash compensation
expense.
The following information relates to stock options outstanding as of
September 30, 1999:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
-------------------
Weighted
Average
Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding at beginning of period.................... -- --
Granted............................................... 3,973,500 $0.82
Exercised............................................. -- --
Forfeited/expired..................................... (153,000) 0.51
---------
Outstanding at end of period.......................... 3,820,500 $0.84
=========
</TABLE>
The weighted average fair value of options granted during the period was
$0.56.
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Outstanding Price
- -------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.50 1,807,500 8.80 $0.50 439,125 $0.50
0.75 1,090,000 9.96 0.75 -- 0.75
1.50 316,940 9.29 1.50 78,788 1.50
1.65 606,060 5.06 1.65 121,212 1.65
--------- -------
3,820,500 639,125
========= =======
</TABLE>
F-14
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation," upon establishing the Plan. As permitted by SFAS 123, the
Company continues to apply the accounting provisions of APB Opinion Number 25,
"Accounting for Stock Issued to Employees" with regard to the measurement of
compensation cost for options granted. The Company recognized $386,713 of
compensation expense for the period ended September 30, 1999 in conjunction
with grants made under its fixed stock option plans. Had expense been
recognized using the fair value method described in SFAS 123, the Company would
have reported the following results of operations using the Black-Scholes
option pricing model:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1999
-------------
<S> <C>
Pro forma net loss......................................... $(8,269,567)
Pro forma net loss per diluted share....................... $ (0.56)
</TABLE>
These costs may not be representative of the total effects on pro forma
reported income for future years. Factors that may also impact disclosures in
future years include the attribution of the awards to the service period, the
vesting period of stock options, timing of additional grants of stock option
awards and number of shares granted for future awards.
The assumptions utilized for calculating the estimated fair value of
options granted in accordance with SFAS 123 are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1999
-------------
<S> <C>
Annualized dividend yield................................... 0.0%
Risk free rate of return.................................... 5.5%
Expected option term (in years)............................. 7
Expected volatility......................................... 0.0%
</TABLE>
In connection with the lease agreement entered into in June 1999 (Note 3),
the Company granted the lessor warrants to purchase 91,429 shares of the
Company's Series A Preferred Stock at a price of $1.05 per share. These
warrants can be exercised at any time between the earlier of a period of seven
years from date of issuance or three years from the effective date of the
Company's initial public offering and expire at the earlier of seven years from
the date of issue or three years from the effective date of the Company's
initial public offering. The relative fair value of these warrants has been
recorded in the financial statements as stipulated by Accounting Principal's
Board Opinion No. 14 and equaled $59,806, which was recorded as debt discount
and is being amortized to interest expense over the term of the lease.
In connection with the note payable to a third party in August 1999 (Note
5), the Company granted the lender warrants to purchase 21,429 shares of the
Company's Series A preferred stock at a price of $1.05 per share. These
warrants can be exercised at any time before the earlier of a period of seven
years from date of issuance or three years from the effective date of the
Company's initial public offering and expire at the earlier of seven years from
the date of issue or three years from the effective date of the Company's
initial public offering. The relative fair value of these warrants has been
recorded in the financial statements as stipulated by Accounting Principal's
Board Opinion No. 14 and equaled $14,017, which was recorded as debt discount
and is being amortized to interest expense over the term of the note.
F-15
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
In connection with debt financing agreements entered into with related
parties in September 1999 (Note 4), the Company issued warrants to purchase
shares of Series B preferred stock. The total amount of Series B preferred
stock to be issued is equal to 15% of the principal amount of each lendor's
promissory note (24,790 shares). The warrants have an exercise price of $12.43
per share. The conversion price will be determined based upon the completion of
the December round of financing. The relative fair value of these warrants has
been recorded in the financial statements as stipulated by Accounting
Principles Board Opinion No. 14 and equaled $186,125 as of September 30, 1999
and has been recorded as debt discount. The discount is being amortized to
interest expense over the term of the note.
The term of the warrant agreement begins upon the closing of the private
placement of the Company's Series B preferred stock and ends on September 28,
2004. Additionally, upon the closing of the Company's initial public offering,
all outstanding warrants for the purchase of Series B preferred stock become
null and void. However, these warrants require that upon the closing of the
Company's initial public offering, the Company must issue replacement warrants
to purchase common stock to holders of these warrants on equitable terms.
8. Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the carrying amounts of assets and
liabilities and their respective tax bases using enacted tax rates in effect
for the year in which the differences are expected to reverse.
The components of the deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses............................. $ 209,267 $ 1,047,970
Deferred revenue............................. 68,745 135,022
Deferred compensation........................ -- 146,951
Net operating loss........................... -- 2,262,032
--------- -----------
Total deferred tax assets.................. 278,012 3,591,975
Less: valuation allowance.................... (251,364) (3,398,540)
--------- -----------
26,648 193,435
Deferred tax liabilities:
Accounts receivable.......................... 7,648 174,515
Book over tax basis depreciation............. 19,000 18,920
--------- -----------
Net deferred tax asset (liability)......... $ -- $ --
========= ===========
</TABLE>
The valuation allowance relates principally to deferred tax assets that the
Company estimates may not be realizable based upon available evidence. The
Company has generated a net operating loss carryforward of $6.0 million as of
September 30, 1999 that will expire beginning in 2019 for federal tax purposes.
Based on Internal Revenue Code regulations relating to changes in ownership of
the Company, utilization of the net operating loss carryforward may be subject
to annual limitations.
F-16
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Income tax benefit differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to losses before income tax expense as a result
of the following:
<TABLE>
<CAPTION>
Year Ended
December 27, Nine Months
1998 to Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Computed expected income tax benefit.......... $(740,514) $(2,747,225)
Increase (decrease) in tax benefit resulting
from:
Change in valuation allowance............... 325,462 3,073,078
State and local income taxes, net of federal
benefit.................................... (87,119) (323,203)
Loss allocated to S corporation income tax
year and other............................. 740,860 (2,650)
Effect of conversion from S corporation to C
corporation................................ (238,689) --
--------- -----------
Income tax benefit........................ $ -- $ --
========= ===========
</TABLE>
9. Commitments and Contingencies
During 1998, the Company leased space in Chicago, Illinois under an
operating lease. The lease called for minimum rent with an annual escalation.
The lease expired in October 1998.
The Company entered into a new operating lease, which commenced in January
1999 and expires on December 31, 2008. The lease calls for minimum rents with
an annual escalation.
Additionally, the Company entered into an operating lease for Internet data
services that commenced on June 30, 1999. The lease calls for monthly payments
of $7,150. The lease expires on November 3, 2000.
Total rental expense was $54,215, $57,696 and $88,747 during 1996, 1997 and
1998 and $44,229 and $185,156 for the nine-month periods ended September 30,
1998 and 1999.
The following is a schedule of future minimum rentals required for
operating leases that have remaining noncancelable lease terms in excess of one
year, as of December 31, 1998:
<TABLE>
<S> <C>
1999........................................................... $ 235,895
2000........................................................... 240,312
2001........................................................... 244,730
2002........................................................... 249,147
2003........................................................... 253,565
Thereafter..................................................... 1,334,085
----------
Total........................................................ $2,557,734
==========
</TABLE>
F-17
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Future payments under noncancelable capital lease agreements as of
September 30, 1999 are as follows:
<TABLE>
<S> <C>
1999.......................................................... $ 60,327
2000.......................................................... 438,163
2001.......................................................... 419,047
2002.......................................................... 335,411
2003 and thereafter........................................... 87,753
----------
1,340,701
Less amounts representing interest............................ (206,266)
----------
Net present value of minimum lease payments................... 1,134,435
Less current portion.......................................... (321,176)
----------
$ 813,259
==========
</TABLE>
On September 30, 1999, the Company signed an agreement with a third party
for the purchase of a software license to be used to support the business
activity of the Company. Subject to the terms of the agreement, the Company is
obligated to pay $25,000 of license fees by October 31, 1999 and $225,000 by
March 31, 2000.
10. Earnings Per Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires companies to provide a reconciliation of the numerator and denominator
of the basic and diluted EPS computations. The calculation below provides net
loss, weighted average common shares outstanding and the resultant net loss per
share for both basic and diluted EPS for the years ended December 31, 1996 and
1997 and 1998 and for the nine-month periods ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net (loss) income..... $ (952,161) $ (893,873) $(2,177,983) $(1,233,698) $(8,080,075)
========== ========== =========== =========== ===========
Denominator:
Weighted average
common shares........ 16,950,000 16,950,000 16,897,835 16,950,000 7,430,000
(Denominator for basic
calculation)
Weighted average
effect of dilutive
securities:
Convertible preferred
stock................ -- -- -- -- --
Stock options and
warrants............. -- -- -- -- --
---------- ---------- ----------- ----------- -----------
Denominator for
diluted calculation.. 16,950,000 16,950,000 16,897,835 16,950,000 7,430,000
========== ========== =========== =========== ===========
Earnings per share:
Basic................. $ (0.06) (0.05) $ (0.13) $ (0.07) $ (1.09)
========== ========== =========== =========== ===========
Diluted............... $ (0.06) (0.05) $ (0.13) $ (0.07) $ (1.09)
========== ========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
11. Related Party Transactions
The Company and Fast Heat, Inc. ("Fast Heat") are related parties through a
common group of shareholders which hold a substantial ownership interest in
both companies. Fast Heat is owned by the Stojka family, including Tim and Nick
Stojka, Chairman and Chief Executive Officer of the Company and Executive Vice-
President and Director of the Company, respectively. In 1998, Fast Heat
provided funding to the Company for operations. Additionally, Fast Heat and
Fast Heat International (an affiliate of Fast Heat) have guaranteed the
Company's obligations under the current office lease. At December 31, 1997 and
1998 amounts due to Fast Heat were $217,309 and $92,713, respectively. At
September 30, 1998 and 1999 amounts due to Fast Heat were $951,632 and $98,776.
The amount is due on demand and accrued interest at 8.0% in 1997 and at 8.5% in
1998 and 1999. The Company paid this obligation in full in November 1999.
In 1997 and 1998, the Company provided Internet related services to Fast
Heat. The amount of revenue earned for these services was $79,600 and $2,025
for the years ended December 31, 1997 and 1998 and $2,025 for the nine month
period ended September 30, 1998. No such services were performed in the nine-
month period ending September 30, 1999.
In 1996, 1997, 1998 and 1999 the Company provided bartered services for
print advertising and trade show benefits to an affiliated entity in exchange
for print advertising and certain trade show benefits. The Company has not
reflected these barter transactions in the financial statements.
12. Defined Contribution Savings Plan
The Company maintains a defined contribution 401(k) profit sharing plan
covering substantially all eligible employees meeting certain minimum age and
months of service requirements, as defined. Participants may make elective
contributions up to established limits. All amounts contributed by participants
and earnings on these contributions are fully vested at all times. The Plan
provides for matching and discretionary contributions by the Company. The
Company's expense for the defined contribution plan totaled $8,680 for the year
ended December 31, 1998, and $6,235 and $8,085 for the periods ended September
30, 1998 and 1999, respectively. The Company's expenses for 1996 and 1997 were
de minimis.
13. Financial Results and Liquidity
The Company has sustained significant net losses and negative cash flows
from operations since its inception. The Company's ability to meet its
obligations in the ordinary course of business is dependent upon its ability to
establish profitable operations or raise additional financing through public or
private equity financing, bank financing, or other sources of capital. During
December 1998 (as described in Note 6), the Company sold $5 million of
preferred stock and obtained a commitment for the purchase of an additional $2
million of preferred stock. In March 1999, the Company's Board of Directors
approved a resolution initiating the sale of preferred stock under this
commitment and the shares were issued in June 1999. In addition, in November
and December 1999, the Company sold $38.6 million of preferred stock to fund
planned expenditures for fiscal years 1999 and 2000. Management believes that
its current funds will be sufficient to enable the Company to meet its planned
expenditures for fiscal 2000.
14. Subsequent Events
In November 1999, the Company entered into a three-year supplier agreement
with a third party. According to the terms of the agreement, the Company will
serve as the supplier's exclusive third party e-commerce solution for the first
two years and the Company will market and sell specified
F-19
<PAGE>
COMMERX, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
products purchased from the supplier over the Internet using the Company's Web
site, PlasticsNet.Com.
In December 1999, the Company entered into a supplier agreement with a
third party. According to the terms of the agreement, the Company will serve as
the supplier's non-exclusive third party e-commerce solution and will market
and sell specified products purchased from the supplier over the Internet using
the Company's Web site, PlasticsNet.Com. The term of the agreement ends in one
year, but automatically renews each year unless either party terminates the
agreement.
Additionally, in December 1999, the Board of Directors of the Company
approved an increase in the total number of shares of common stock that may be
issued pursuant to options granted under the Combined Incentive and
Nonstatutory Stock Option Plan from 4,000,000 to 5,500,000.
In December 1999, the Company issued 1,192,738 shares of Series B preferred
stock in exchange for gross cash proceeds of $14,700,000.
F-20
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS]
The following text is included in a vertical timeline that will print the years
in bold, with corresponding copy adjacent.
1994 "Involved in the plastics industry from an early age, brothers Tim and
Nick Stojka realize that significant inefficiencies exist in the market and
develop an idea to change the way purchasing is done in the plastics industry"
1995 "The Stojka brothers launch Commerx (Latin for "commerce") and their
flagship marketplace, PlasticsNet.Com"
1996 "PlasticsNet.Com focuses on forming industry relationships and community
development"
1997 "Site evolves to include catalog aggregation, lead generation
opportunities; site visits increase continuously"
1998 "E-commerce architecture developed, investment received from Internet
Capital Group (ICG)"
1999 "E-commerce function launched, site becomes a leading neutral industry
marketplace for the plastics industry"
1999 "PlasticsNet.Com recognized as the #4 B2B Web site by Business Marketing,
an Advertising Age magazine"
2000 "Commerx continues to develop its marketplace solution, with future plans
to enter other verticals and expand internationally"
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Special Note Regarding Forward- Looking Statements........................ 19
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 32
Management................................................................ 46
Related Party and Other Transactions...................................... 53
Principal Stockholders.................................................... 55
Description of Capital Stock.............................................. 56
Shares Eligible for Future Sale........................................... 59
Legal Matters............................................................. 60
Experts................................................................... 60
Additional Information.................................................... 61
Underwriting.............................................................. 62
Index to Financial Statements............................................. 64
</TABLE>
----------------
Through and including , 2000 (the 25th day after the date of
this prospectus) all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Commerx, Inc.
Common Stock
----------------
[LOGO]
----------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
Chase H&Q
Robertson Stephens
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 26,400
NASD filing fee............................................... $ 10,500
Nasdaq National Market listing fee............................ $ 94,000
Printing...................................................... $ 200,000
Legal fees and expenses....................................... $ 300,000
Accounting fees and expenses.................................. $ 200,000
Blue sky fees and expenses.................................... $ 2,000
Transfer agent and registrar fees............................. $ 20,000
Miscellaneous................................................. $ 347,100
----------
Total..................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases) or (iv) for any transaction from which
the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the
Registrant may indemnify its other employees and agents as set forth in the
Delaware General Corporation Law, (iii) the Registrant is required to advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions and (iv) the rights
conferred in the Bylaws are not exclusive.
The Registrant intends to enter into Indemnification Agreements with each
of its directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification
set forth in the Registrant's Certificate of Incorporation and to provide
additional procedural protections. At present, there is no pending litigation
or proceeding involving a director, officer or employee of the Registrant
regarding which indemnification is sought, nor is the Registrant aware of any
threatened litigation that may result in claims for indemnification.
II-1
<PAGE>
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnification
Agreements entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain additional directors' and officers' liability insurance.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit
Document Number
-------- -------
<S> <C>
Form of Underwriting Agreement.................................. 1.1
Amended and Restated Articles of Incorporation of Commerx....... 3.1(b)
Bylaws of Commerx............................................... 3.2(b)
Form of Officer and Director Indemnity Agreement................ 10.5
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the period from January 1, 1997 through December 31, 1999, the
registrant has sold and issued the following securities:
1. In December 1998 and June 1999, the registrant issued 8,570,000 shares
of Series A preferred stock to five investors for consideration of a
cash payment of $6,750,000, the extinguishment of a note payable in
the amount of $250,000 and the exchange of 9,520,000 shares of common
stock.
2. In June 1999, the registrant issued a warrant to purchase 91,429
shares of Series A preferred stock at an exercise price of $1.05 per
share.
3. In August 1999, the registrant issued a warrant to purchase 21,429
shares of Series A preferred stock at an exercise price of $1.05 per
share.
4. In November and December 1999, the registrant issued 3,128,732 shares
of Series B preferred stock to 23 investors for an aggregate
consideration of $38,631,309.
5. In November 1999, the registrant issued a warrant to purchase 24,790
shares of Series B preferred stock at an exercise price of $12.43 per
share.
6. Since inception, the registrant has granted options to purchase an
aggregate of 4,634,000 shares of common stock to a number of its
employees, directors, officers and consultants. No consideration was
received by the registrant upon grant of any such option. As of
December 31, 1999, 240,500 options have been exercised.
The issuances of the above securities were intended to be exempt from
registration under the Securities Act in reliance on Section 4(2) thereof as
transactions by an issuer not involving any public offering. In addition,
certain issuances described in Item 6 were intended to be exempt from
registration under the Securities Act in reliance upon Rule 701 and/or Rule
4(2) promulgated under the Securities Act. The recipients of securities in each
such transaction represented their intentions to acquire the securities for
investment only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the share
certificates, warrants and options issued in such transactions. The registrant
believes that all recipients had adequate access, through their relationships
with the registrant, to information about the registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1(a) Amended and Restated Certificate of Incorporation (to be
replaced by 3.1(b) upon the closing of the offering)
3.1(b) Form of Amended and Restated Certificate of Incorporation (to
be effective upon the closing of the offering)*
3.2(a) By-laws (to be replaced by 3.2(b) upon the closing of the
offering)
3.2(b) Form of Amended and Restated Bylaws (to be effective upon the
closing of the offering)*
4.1 Specimen Stock Certificate*
4.2 Investor Rights Agreement dated December 28, 1998 between
registrant and the investors listed on Exhibit A thereto
4.3 Investor Rights Agreement dated November 19, 1999 between
registrant and the investors listed on Exhibit A thereto
4.4 Investor Rights Agreement dated December 30, 1999 between
registrant and the investors listed on Exhibit A thereto
4.5 Warrant Agreement to purchase Series A preferred stock of
registrant issued to Comdisco, Inc. dated June 8, 1999
4.6 Warrant Agreement to purchase Series A preferred stock of
registrant issued to Comdisco, Inc. dated July 23, 1999
4.7 Warrant to purchase Series B preferred stock of registrant
issued to David Dill dated September 28, 1999
4.8 Warrant to purchase Series B preferred stock of registrant
issued to Jeffrey Garwood dated September 28, 1999
4.9 Warrant to purchase Series B preferred stock of registrant
issued to James Morelli dated September 28, 1999
4.10 Warrant to purchase Series B preferred stock of registrant
issued to David Franco dated September 28, 1999
5.1 Opinion of Wildman, Harrold, Allen & Dixon regarding legality
of the securities being registered*
10.1 Amended and Restated 1999 Combined Incentive and Non-statutory
Stock Option Plan*
10.2 2000 Employee Stock Purchase Plan*
10.3 2000 Section 423 Stock Purchase Plan*
10.4 Office Lease dated as of November 1, 1998 between registrant
and WDI Realty Co.
10.5 Form of Officer and Director Indemnity Agreement
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Wildman, Harrold, Allen & Dixon (included in
Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
II-3
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule is included as part of this registration statement:
Schedule II--Valuation and Qualifying Accounts.
Other financial statement schedules have been omitted because they are
inapplicable or are not required under applicable provisions of Regulation S-X,
or because the information that would otherwise be included in such schedules
is contained in the registrant's financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<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 Chicago, State of
Illinois, on the 26th day of January, 2000.
COMMERX, INC.
/s/ Tim Stojka
By :_________________________________
Tim Stojka
Chairman and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears immediately below constitutes and appoints Tim Stojka or David Dill or
any of them, his or her true and lawful attorney-in-fact and agent, with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and any and all
additional registration statements pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, in connection with or related to the offering
contemplated by this Registration Statement and its amendments, if any, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorney-in-fact and agent
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
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his or her substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on January 26, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Tim Stojka Chairman and Chief Executive Officer
___________________________________________
Tim Stojka
/s/ Nick Stojka Executive Vice President, Director
___________________________________________
Nick Stojka
/s/ Jeffrey Garwood Chief Operating Officer
___________________________________________
Jeffrey Garwood
/s/ David Dill Chief Financial Officer
___________________________________________
David Dill
/s/ Kenneth Fox Director
___________________________________________
Kenneth Fox
/s/ Robert Pollan Director
___________________________________________
Robert Pollan
/s/ Timothy Ozark Director
___________________________________________
Timothy Ozark
/s/ Charles Fritz Director
___________________________________________
Charles Fritz
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Commerx, Inc.
Our audits of the financial statements referred to in our report dated
December 28, 1999 appearing in this Registration Statement on Form S-1 also
included an audit of the financial statement schedule. In our opinion, such
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
December 28, 1999
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1997, and 1998
and for the nine months ended September 30, 1998 and 1999
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------ -------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Beginning Balance................ $ -- $ -- $ 12,800 $ 12,800 $ --
Provisions for allowance......... -- 12,800 -- -- 26,363
Write-offs against the allowance. -- -- (12,800) (12,800) --
Ending Balance................... $ -- $12,800 $ -- $ -- $26,363
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1(a) Amended and Restated Certificate of Incorporation (to be
replaced by 3.1(b) upon the closing of the offering)
3.1(b) Form of Amended and Restated Certificate of Incorporation (to
be effective upon the closing of the offering)*
3.2(a) By-laws (to be replaced by 3.2(b) upon the closing of the
offering)
3.2(b) Form of Amended and Restated Bylaws (to be effective upon the
closing of the offering)*
4.1 Specimen Stock Certificate*
4.2 Investor Rights Agreement dated December 28, 1998 between
registrant and the investors listed on Exhibit A thereto
4.3 Investor Rights Agreement dated November 19, 1999 between
registrant and the investors listed on Exhibit A thereto
4.4 Investor Rights Agreement dated December 30, 1999 between
registrant and the investors listed on Exhibit A thereto
4.5 Warrant Agreement to purchase Series A preferred stock of
registrant issued to Comdisco, Inc. dated June 8, 1999
4.6 Warrant Agreement to purchase Series A preferred stock of
registrant issued to Comdisco, Inc. dated July 23, 1999
4.7 Warrant to purchase Series B preferred stock of registrant
issued to David Dill dated September 28, 1999
4.8 Warrant to purchase Series B preferred stock of registrant
issued to Jeffrey Garwood dated September 28, 1999
4.9 Warrant to purchase Series B preferred stock of registrant
issued to James Morelli dated September 28, 1999
4.10 Warrant to purchase Series B preferred stock of registrant
issued to David Franco dated September 28, 1999
5.1 Opinion of Wildman, Harrold, Allen & Dixon regarding legality
of the securities being registered*
10.1 Amended and Restated 1999 Combined Incentive and Non-statutory
Stock Option Plan*
10.2 2000 Employee Stock Purchase Plan*
10.3 2000 Section 423 Stock Purchase Plan*
10.4 Office Lease dated as of November 1, 1998 between registrant
and WDI Realty Co.
10.5 Form of Officer and Director Indemnity Agreement
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Wildman, Harrold, Allen & Dixon (included in
Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
<PAGE>
EXHIBIT 3.1(a)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
COMMERX, INC.
Commerx, Inc., a Corporation organized and existing under and by virtue of
the General Corporation Law of Delaware (the "Corporation") does hereby certify
as follows:
FIRST: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on December 14, 1998.
SECOND: The Amended and Restated Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
December 22, 1998.
THIRD: The second Amended and Restated Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the State of Delaware
on December 28, 1998.
FOURTH: The third Amended Certificate of the Corporation was filed with
the Secretary of State of the State of Delaware on October 13, 1999.
FIFTH: This fourth Amended and Restated Certificate of Incorporation has
been duly adopted by the Board of Directors of the Corporation in accordance
with the provisions of Section 242 and 245 of the General Corporation Law of the
State of Delaware.
SIXTH: This Amended and Restated Certificate of Incorporation was
approved by the written consent of stockholders holding at least a majority of
the outstanding Capital Stock of the Corporation pursuant to Section 228 of the
General Corporation Law of the State of Delaware.
SEVENTH: The provisions of the original Certificate of Incorporation of
this Corporation and any and all amendments thereto and restatements thereof,
are hereby amended and restated in their entirety to read as follows:
ARTICLE I
The name of the corporation is Commerx, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle, zip code 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
<PAGE>
The nature of the business or purpose to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock". The total number
of shares of Common Stock which this Corporation is authorized to issue is One
Hundred Million (100,000,000). The total number of shares of Preferred Stock
which this Corporation has authority to issue is Eleven Million Nine Hundred
Thousand Eight Hundred Seventy Nine (11,900,879). The Common Stock and the
Preferred Stock shall each have a par value of $0.001 per share.
Upon the effectiveness of the second Amended and Restated Certificate of
Incorporation dated December 28, 1998, each then outstanding share of this
Corporation's Common Stock was automatically converted into 84.75 shares of this
Corporation's Common Stock.
B. The Board of Directors has provided for the issuance of a (i) series
of 8,682,858 shares of Preferred Stock designated as "Series A Preferred Stock"
(the "Series A Preferred") and (ii) another series of 3,218,021 shares of
Preferred Stock designated as "Series B Preferred Stock (the "Series B
Preferred"). The rights, preferences, privileges and restrictions granted to or
imposed on the Common Stock, the Series A Preferred and Series B Preferred are
as follows:
1. Dividends. The holders of the Series A Preferred shall be
entitled to receive dividends at the rate of $0.084 per share (as adjusted for
any stock dividends, combinations or splits with respect to such shares) per
annum, payable out of any assets legally available therefor. Such dividends
shall be payable only when, as, and if declared by the Board of Directors and
shall be noncumulative. The holders of the Series B Preferred shall be entitled
to receive dividends at the rate of $0.994 per share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) per annum,
payable out of any assets legally available therefor. Such dividends shall be
payable only when, as, and if declared by the Board of Directors and shall be
noncumulative.
No dividends (other than those payable solely in the Common Stock of the
Corporation) shall be paid or declared on any Common Stock of the Corporation
during any fiscal year of the Corporation until dividends in the total amount of
$0.084 per share (as adjusted for any stock dividends, combinations, or splits
with respect to such shares) on the Series A Preferred and dividends in the
total amount of $0.994 per share (as adjusted for any stock dividends,
combinations, or splits with respect to such shares) on the Series B Preferred,
shall have been paid or declared and set apart during that fiscal year and no
dividends shall be paid on any share of Common Stock unless a dividend
(including the amount of any dividends paid pursuant to the above provisions of
this Section B.1) is paid with respect to all outstanding shares of Series A
Preferred and Series B Preferred in an amount for each such share of Series A
Preferred and Series B Preferred equal to or greater than the aggregate amount
of such dividends for all shares of Common Stock into which each such share of
Series A Preferred and Series B Preferred could then be converted.
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2. Liquidation Preference.
(a) Preference. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntarily or involuntarily (a
"Liquidation Event"), the holders of the Series A Preferred and the Series B
Preferred shall be entitled to receive prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock of the Corporation, an amount equal to $1.05 per share
and $12.43 per share, respectively, for each share of Series A and Series B
Preferred then so held, in each case as adjusted for any stock dividends,
combinations or splits with respect to such shares, plus a further amount equal
to all declared but unpaid dividends on such shares.
All of the preferential amounts to be paid to the holders of the Series A
and Series B Preferred under this Section 2 shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of funds of this Corporation to, the holders of
the Common Stock in connection with such liquidation, dissolution or winding up.
If, upon such liquidation, dissolution or winding up of the Corporation,
the assets and funds of the Corporation legally available for distribution are
insufficient to provide for the payment of the full aforesaid preferential
amount to the holders of the Series A Preferred and the Series B Preferred, such
assets and funds as are available shall be distributed ratably among the holders
of the Series A Preferred and the Series B Preferred in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
After the payment or the setting apart of payment of the full preferential
amounts to the holders of the Series A Preferred and the Series B Preferred, the
holders of the Common Stock and the Series A Preferred shall be entitled to
receive all remaining assets and funds of the Corporation ratably on a per-share
basis (in the case of the Series A Preferred based upon the number of shares of
Common Stock into which each share of the Series A Preferred is convertible)
until the aggregate amount received by the holders of Series A Preferred
pursuant to this Section 2 is an amount per share (as adjusted for any stock
dividends, combinations or stock splits with respect to such shares) equal to:
$3.15. After the holders of the Series A Preferred receive such aggregate
amount, all remaining assets of the corporation available for distribution shall
be distributed among the holders of shares of Common Stock pro rata based on the
number of shares of Common Stock held by each.
(b) Deemed Liquidation. A merger, consolidation or sale of all
or substantially all of the assets of the Corporation which will result in the
Corporation's stockholders immediately prior to such transaction not holding (by
virtue of such shares or securities issued solely with respect thereto) at least
50% of the voting power of the surviving, continuing or purchasing entity, shall
be deemed to be a liquidation, dissolution or winding up within the meaning of
this Section 2.
(c) Noncash Distributions. If any of the assets of the
Corporation are to be distributed other than in cash under this Section 2 or for
any purpose, then the Board of Directors of the Corporation shall promptly
engage independent competent appraisers to
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determine the value of the assets to be distributed to the holders of the Series
A Preferred, Series B Preferred or Common Stock. The Corporation shall, upon
receipt of such appraiser's valuation, give prompt written notice to each holder
of shares of the Series A Preferred, Series B Preferred or Common Stock of the
appraiser's valuation. Notwithstanding the above, any securities to be
distributed to the stockholders shall be valued as follows:
(i) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending three (3) business days prior to the closing; and
(iii) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Corporation and
the holders of not less than a majority of the outstanding shares of Series A
Preferred and Series B Preferred, voting together as a class, provided that if
the Corporation and the holders of a majority of the outstanding shares of
Series A Preferred and Series B Preferred are unable to reach agreement, then by
independent appraisal by an investment banker hired and paid by the Corporation,
but acceptable to the holders of a majority of the outstanding shares of Series
A Preferred and Series B Preferred.
3. Voting Rights.
(a) General. Except as set forth herein or as otherwise required
by law, the holder of each share of Common Stock issued and outstanding shall
have one vote for each share of Common Stock held by such holder, and the holder
of each share of Series A Preferred and Series B Preferred shall be entitled to
the number of votes equal to the number of shares of Common Stock into which
such share of Series A Preferred and Series B Preferred could be converted at
the record date for determination of the stockholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, such votes to be
counted together with all other shares of stock of the Corporation having
general voting power and not counted separately as a class. Holders of Common
Stock, Series A Preferred and Series B Preferred shall be entitled to notice of
any stockholders' meeting in accordance with the Bylaws of the Corporation.
Except as otherwise expressly provided herein, or as required by law, the
holders of Series A Preferred, Series B Preferred and Common Stock shall vote
together as a single class, and not as separate class or series on all matters
to come before the stockholders of the Corporation.
(b) Board of Directors. The authorized number of directors shall
be seven (7). The holders of the Series A Preferred, voting together as a single
class, shall be entitled to elect two directors. The remaining directors shall
be elected by the vote of the holders of a majority of the Common Stock and the
Series B Preferred, voting together as a class, and the holders of a majority of
the Series A Preferred, voting separately as a class. Any vacancies on the Board
of Directors shall be filled by vote of the holders of that class or series of
stock originally entitled to elect the director whose absence or resignation
created such vacancy.
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4. Conversion. The holders of the Series A Preferred and Series B
Preferred have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series A Preferred shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such share at the office of the Corporation or any transfer agent for the Series
A Preferred into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1.05 by the Series A Conversion Price, as
hereinafter provided, in effect at the time of the conversion. The price at
which shares of Common Stock shall be deliverable upon conversion of the Series
A Preferred (the "Series A Conversion Price") shall initially be $1.05 per share
of Common Stock. Such initial Series A Conversion Price shall be subject to
adjustment as hereinafter provided.
(ii) Each share of Series B Preferred shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such share at the office of the Corporation or any transfer agent for the Series
B Preferred into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $12.43 by the Series B Conversion Price, as
hereinafter provided, in effect at the time of the conversion. The price at
which shares of Common Stock shall be deliverable upon conversion of the Series
A Preferred (the "Series B Conversion Price") shall initially be $12.43 per
share of Common Stock. Such initial Series B Conversion Price shall be subject
to adjustment as hereinafter provided.
(b) Automatic Conversion.
(i) Each share of Series A Preferred shall automatically be
converted into shares of Common Stock at the then effective, applicable Series A
Conversion Price upon the earlier to occur of (A) immediately prior to the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of securities for the account of the Corporation to
the public at a price per share of Common Stock of not less than $2.625 per
share (subject to proportionate adjustment in the event of a stock split,
reverse stock split, reclassification or stock dividend) and an aggregate
offering price of not less than Five Million Dollars ($5,000,000) or (B) the
election of holders of at least two-thirds of the then outstanding Series A
Preferred to convert such shares into Common Stock.
(ii) Each share of Series B Preferred shall automatically be
converted into shares of Common Stock at the then effective, applicable Series B
Conversion Price upon the earlier to occur of (A) immediately prior to the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of securities for the account of the Corporation to
the public at a price per share of Common Stock of not less than $18.645 per
share (subject to proportionate adjustment in the event of a stock split,
reverse stock split, reclassification or stock dividend) and an aggregate
offering price of not less than Fifteen Million Dollars ($15,000,000) or (B) the
election of holders of at least two-thirds of the then outstanding Series B
Preferred to convert such shares into Common Stock.
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(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred or Series B
Preferred. In lieu of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective respective Conversion Price. Before any holder of Series A
Preferred or Series B Preferred shall be entitled to convert the same into full
shares of Common Stock and to receive certificates therefor, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred or Series B
Preferred and shall give written notice to the Corporation at such office that
he elects to convert the same. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A
Preferred or Series B Preferred, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred or Series B Preferred, to
be converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(d) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred and Series B Preferred such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred and
Series B Preferred; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series A Preferred or Series B Preferred, in
addition to such other remedies as shall be available to the holder of such
Series A Preferred or Series B Preferred, this Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
5. Adjustments To Conversion Price.
(a) Special Definitions. For purposes of this Section 5, the
following definitions shall apply:
(i) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(ii) "Original Issue Date" for the Series A Preferred or
Series B Preferred shall mean the date on which the first share of Series A
Preferred or Series B Preferred was issued.
(iii) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than the Series A Preferred or Series B Preferred)
or other securities directly or indirectly convertible into or exchangeable for
Common Stock.
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(iv) "Additional Shares Of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to subsection 5(c), deemed to be
issued) by the Corporation after the Original Issue Date, other than:
(A) shares of the Corporation's Common Stock issued
upon conversion of the Series A Preferred or Series B Preferred;
(B) shares of Common Stock issued to officers,
directors, employees of and consultants to the Corporation pursuant to stock
option plans approved by a majority of the members of the Board of Directors;
(C) as a dividend or distribution on Series A
Preferred or Series B Preferred or any event for which adjustment is made
pursuant to subsection 5(f) or 5(g) hereof;
(D) to any bank, equipment or real property lessor or
other similar institution if and to the extent that the transaction in which
such issuance is to be made is approved by the Corporation's Board of Directors;
or
(E) shares issued pursuant to or in connection with
any corporate partnership, joint venture, licensing or distribution arrangement
if and to the extent that the transaction in which such issuance is to be made
is approved by the Corporation's Board of Directors.
(b) No Adjustment of Conversion Price. No adjustment in the
Conversion Price of the Series A Preferred or Series B Preferred shall be made
in respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the applicable Conversion Price of
such series in effect on the date of and immediately prior to such issue.
(c) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number that
would result in an adjustment pursuant to clause (ii) below) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to subsection 5(g) hereof) of such Additional
Shares of Common Stock would be less than the applicable Conversion Price of the
Series A Preferred or Series B Preferred in effect on the date
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of and immediately prior to such issue, or such record date and provided further
that in any such case in which Additional Shares of Common Stock are deemed to
be issued:
(i) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(ii) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(iii) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(A) in the case of Convertible Securities or
Options, for Common Stock, the only Additional Shares of Common Stock issued
were shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(iv) no readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
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(v) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the manner provided in
clause (iii) above.
(d) Adjustment of Conversion Price of Preferred Stock Upon
Issuance of Additional Shares of Common Stock.
(i) In the event that after the Original Issue Date the
Corporation shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to subsection 5(c)) without
consideration or for a consideration per share less than the Conversion Price of
the Series A Preferred in effect on the date of and immediately prior to such
issue, then and in such event, such Conversion Price of the Series A Preferred
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price of the Series A
Preferred, by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price; and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued; and
provided further that, for the purposes of this subsection (d), all shares of
Common Stock issuable upon conversion of outstanding Series A Preferred and
outstanding Convertible Securities or exercise of outstanding Options shall be
deemed to be outstanding, and immediately after any Additional Shares of Common
Stock are deemed issued pursuant to subsection 5(c), such Additional Shares of
Common Stock shall be deemed to be outstanding.
(ii) In the event that after the Original Issue Date the
Corporation shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to subsection 5(c)) without
consideration or for a consideration per share less than the Conversion Price of
the Series B Preferred in effect on the date of and immediately prior to such
issue, then and in such event, such Conversion Price of the Series B Preferred
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price of the Series B
Preferred, by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price; and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued; and
provided further that, for the purposes of this subsection (d), all shares of
Common Stock issuable upon conversion of outstanding Series B Preferred and
outstanding Convertible Securities or exercise of outstanding Options shall be
deemed to be outstanding, and immediately after any Additional Shares of Common
Stock are deemed issued pursuant to subsection 5(c), such Additional Shares of
Common Stock shall be deemed to be outstanding.
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(e) Determination of Consideration. For purposes of this Section
5, the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(i) Cash and Property. Except as provided in clause (ii)
below, such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board; provided, however, that no value shall be
attributed to any services performed by any employee, officer or director of the
Corporation; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received with respect to such Additional Shares of Common
Stock, computed as provided in clauses (A) and (B) above, as determined in good
faith by the Board.
(ii) Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5(c), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(f) Adjustments for Stock Dividends, Subdivisions, Combinations
or Consolidations of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock dividend, stock split, or otherwise), into a
greater number of shares of Common Stock, the Series A Conversion Price and
Series B Conversion Price then in effect shall, concurrently with the
effectiveness of such subdivision, be proportionately decreased. In the
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event the outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of Common
Stock, the Series A Conversion Price and the Series B Conversion Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(g) Adjustments for Other Distributions. In the event the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities or assets of the Corporation other than
shares of Common Stock then and in each such event provision shall be made so
that the holders of Series A Preferred and Series B Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities or assets of the Corporation
which they would have received had their Series A Preferred and Series B
Preferred been converted into Common Stock on the date of such event and had
they thereafter, during the period from the date of such event to and including
the date of conversion, retained such securities or assets receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 5 with respect to the rights of the holders of
the Series A Preferred and Series B Preferred.
(h) Adjustments for Reclassification, Exchange and Substitution.
If the Common Stock issuable upon conversion of the Series A Preferred or Series
B Preferred shall be changed into the same or a different number of shares of
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), then and in each such event the holder of each share of
Series A Preferred or Series B Preferred shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization or reclassification
or other change by holders of the number of shares of Common Stock that would
have been subject to receipt by the holders upon conversion of the Series A
Preferred or Series B Preferred immediately before that change, all subject to
further adjustment as provided herein.
(i) No Impairment.
(i) Without the prior written consent of the holders of a
majority of the Series A Preferred, voting separately as a class or series, the
Corporation will not by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but will at all times in good faith
assist in the carrying out of all the provisions of Section 5 and in the taking
of all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred against impairment.
(ii) Without the prior written consent of the holders of a
majority of the Series B Preferred, voting separately as a class or series, the
Corporation will not by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid
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or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of all the provisions of Section 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series B Preferred against
impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to Section 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred or Series B Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred or Series B Preferred
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of
Series A Preferred or Series B Preferred.
6. Redemption.
(a) Upon receipt by the Corporation of the written request by
the holders of two-thirds of the then outstanding Series A Preferred that such
holders' shares be redeemed, the Corporation shall, to the extent it may
lawfully do so, redeem on a pro rata basis one-third (1/3) of the then
outstanding shares of Series A Preferred on each of the fifth, sixth and seventh
anniversaries of the date on which the first share of Series A Preferred was
issued (each payment date being referred to herein as a "Series A Redemption
Date"), by paying in cash therefor a sum per share equal to $1.05 per share of
Series A Preferred (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all declared but unpaid dividends on each such
share (the total amount of such payment is hereafter referred to collectively,
as the "Series A Redemption Price"). Written notice must be provided at least
sixty (60) days prior to the applicable Series A Redemption Date for the
redemption of shares of Series A Preferred in accordance with the subsection
immediately hereafter.
(b) At least thirty (30) days prior to each Series A Redemption
Date, after notice has been given by holders initiating a request for
redemption, written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Series A Preferred to be redeemed, at
the address last shown on the records of the Corporation for each holder,
specifying the number of shares to be redeemed from such holder, the applicable
Series A Redemption Date, the Series A Redemption Price, the place at which
payment may be obtained and calling upon such holder to surrender to the
Corporation, in the manner and at the price designated, his, her or its
certificate or certificates representing the shares to be redeemed (the "Series
A Redemption Notice"). Except as provided herein, on or after the applicable
Series A Redemption Date, each holder of Series A Preferred to be redeemed at
such time shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the price designated in the
Series A Redemption Notice, and thereupon the Series A Redemption Price of such
shares shall
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be payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled. In the event fewer than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(c) From and after the applicable Series A Redemption Date,
unless there shall have been a default in payment of the Series A Redemption
Price, all rights of the holders of shares of Series A Preferred designated for
redemption in the Series A Redemption Notice as holders of Series A Preferred
(except the right to receive the Series A Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares at such time, and such shares shall not thereafter be transferred on the
books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for redemption of
shares of Series A Preferred on either Series A Redemption Date are insufficient
to redeem the total number of shares of Series A Preferred to be redeemed on
each such date, those funds that are legally available will be used to redeem
the maximum possible number of such shares ratably among the holders of such
shares to be redeemed based upon their holdings of Series A Preferred. The
shares of Series A Preferred not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Series A Preferred, such funds will immediately be used to redeem the
balance of the shares that the Corporation has become obligated to redeem on
either Series A Redemption Date but that it has not redeemed.
(d) The Common Stock shall not be redeemable by the Corporation.
7. Notices Of Record Date. In the event that the Corporation shall
propose at any time:
(a) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(c) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up, then, in connection with each such event, the
Corporation shall send to the holders of the Series A Preferred and Series B
Preferred:
(i) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date
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on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (c) and (d)
above; and
(ii) in the case of the matters referred to in (c) and (d)
above, at least 20 days' prior written notice of the date when the same shall
take place (and specifying the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
8. Protective Provisions.
(a) In addition to any other rights provided by law, so long as
the Series A Preferred shall be outstanding, the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of such outstanding shares of Series A Preferred, voting
together as a single class:
(i) amend or repeal any provision of the Corporation's
Articles of Incorporation if such action would materially and adversely affect
the rights, preferences, or privileges of the Series A Preferred;
(ii) authorize or issue shares of any class of stock
having any preference or priority as to dividends or assets superior to, or on a
parity with the Series A Preferred;
(iii) pay or declare any dividend on any junior securities;
or
(iv) sell, convey, liquidate, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other Corporation (other than a wholly owned subsidiary
Corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of.
(b) In addition to any other rights provided by law, so long as
the Series B Preferred shall be outstanding, the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of such outstanding shares of Series B Preferred, voting
together as a single class:
(i) sell, convey, liquidate, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of, or effect any recapitalization, or any dissolution, liquidation or
winding-up of the Corporation;
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(ii) purchase, redeem or otherwise acquire for value (or
pay into or set aside as a sinking fund for such purpose) any of the Common
Stock; provided, that this provision will not apply to the purchase of shares of
Common Stock from the Corporation's directors, officers, employees, consultants
or advisers pursuant to agreements under which the Corporation has the option to
repurchase such shares upon the occurrence of certain events, including the
termination of employment by or service to the Corporation;
(iii) except as may be required herein, authorize or issue,
or obligate itself to issue, any other equity securities ranking senior to the
Series B Preferred Stock as to dividend or redemption rights, liquidation
preferences, conversion rights, voting rights or otherwise; or
(iv) declare or pay dividends or declare or make any other
distribution, direct or indirect (other than a dividend payable solely in shares
of Common Stock) on account of the Common Stock or set apart any sum for any
such purposes.
9. Limitations on Reissuance.
No share or shares of Series A Preferred or Series B Preferred acquired by
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued, and all such shares shall be cancelled, retired and eliminated from
the shares which the Corporation shall be authorized to issue.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE VII
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
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1. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
2. The Corporation shall indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil administrative or investigative, by reason
of the fact that he or she, or his or her testator or intestate is or was a
director or officer of the Corporation or any predecessor of the Corporation or
serves or served at any other enterprise as a director, officer or employee at
the request of the Corporation or any predecessor to the Corporation.
3. Neither any amendment nor repeal of this Article, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article, shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any action or proceeding accruing
or arising or that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Except as provided in Article IV above, the Corporation reserves the right
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
[the remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Efthimios Stojka, the Chief Executive Officer of the Corporation. The
signature below shall constitute the affirmation or acknowledgment, under
penalties of perjury, that the facts herein stated are true.
Dated: November 18, 1999.
COMMERX, INC.
/s/ Efthimios Stojka
-----------------------------
Efthimios Stojka
Chief Executive Officer
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Exhibit 3.2(a)
BY-LAWS
OF
COMMERX, INC.
ARTICLE I
Offices
SECTION 1.1. Registered Office. The registered office of the
-----------------
corporation in the State of Delaware shall be located at the Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle and
the name of its registered agent is Corporation Trust Company.
SECTION 1.2. Other Offices. The corporation may also have offices at
-------------
such other places both within or without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Meetings of Stockholders
SECTION 2.1. Annual Meeting. The annual meeting of the stockholders
--------------
shall be held at the principal office of the corporation on the first Monday in
August in each year, if not a legal holiday, or, if a legal holiday, then on the
next succeeding business day, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the
election of directors shall not be held on the day hereinbefore designated for
the annual meeting, or at any adjournment thereof, the Board of Directors shall
cause such election to be held at a special meeting of stockholders as soon
thereafter as convenient.
SECTION 2.2. Special Meetings. Except as otherwise prescribed by
----------------
statute, special meetings of the stockholders for any purpose or purposes, may
be called and the location thereof designated by the Chairman of the Board or by
the President and shall be called and the location thereof designated by the
Secretary at the request in writing by a majority of the Board of Directors or
by stockholders owning capital stock of the corporation having not less than
fifty percent (50%) of the total voting power. Such request shall state the
purposes of the proposed meeting.
SECTION 2.3. Place of Meetings. Each meeting of the stockholders for
-----------------
the election of directors shall be held at the principal office of the
corporation, unless the Board of Directors shall by resolution designate any
other place, within or without the State of Delaware, as the place of such
meeting. Meetings of stockholders for any other purpose may be held at such
place, within or without the State of Delaware, and at such time as shall be
determined pursuant to Section 2.2 and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
<PAGE>
SECTION 2.4. Notice of Meetings. Written or printed notice stating
------------------
the place and time of each annual or special meeting of the stockholders and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) days nor more than sixty (60) days
before the date of the meeting.
When a meeting is adjourned to another time or place, no notice of the
adjourned meeting other than an announcement at the meeting need be given unless
the adjournment is for more than thirty (30) days or a new record date is fixed
for the adjourned meeting after such adjournment.
SECTION 2.5. Stockholder List. At least ten (10) days before every
----------------
meeting of stockholders, a complete list of the stockholders entitled to vote at
such meeting, arranged in alphabetical order, and showing the address of each
such stockholder and the number of shares registered in the name of each such
stockholder, shall be prepared by the Secretary. Such list shall be open to
examination of any stockholder of the corporation during ordinary business
hours, for any purpose germane to the meeting, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 2.6. Quorum. The holders of capital stock of the corporation
------
having a majority of the voting power thereof, present in person or represented
by proxy, shall be requisite for, and shall constitute, a quorum at all meetings
of the stockholders of the corporation for the transaction of business, except
as otherwise provided by statute, the certificate of incorporation or these by-
laws. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat present
in person or represented by proxy shall have power to adjourn the meeting from
time to time until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
SECTION 2.7. Proxies. At every meeting of the stockholders, each
-------
stockholder having the right to vote thereafter shall be entitled to vote in
person or by proxy. Such proxy shall be appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three (3) years
prior to such meeting, unless such proxy provides for a longer period; and it
shall be filed with the Secretary of the corporation before, or at the time of,
the meeting.
SECTION 2.8. Voting. Unless the certificate of incorporation provides
------
otherwise, at every meeting of stockholders, each stockholder shall be entitled
to one (1) vote for each share of stock of the corporation entitled to vote
thereat and registered in the name of such stockholder on the books of the
corporation on the pertinent record date. When a quorum is present at any
meeting of the stockholders, the vote of the holders of a majority of the stock
having voting power which is present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which, by provision of the statutes, the certificate of incorporation or these
by-laws, a different vote is required, in which case such provision shall govern
and control the decision of such question. If the certificate of
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incorporation provides for more or less than one vote for any share on any
matter, every reference in these by-laws to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock.
SECTION 2.9. Voting of Certain Shares. Shares standing in the name
------------------------
of another corporation, domestic or foreign, and entitled to vote may be voted
by such officer, agent, or proxy as the by-laws of such corporation may
prescribe or, in the absence of such provision, as the Board of Directors of
such corporation may determine. Shares standing in the name of a deceased
person, a minor or an incompetent and entitled to vote may be voted by his
administrator, executor, guardian or conservator, as the case may be, either in
person or by proxy. Shares standing in the name of a trustee or receiver and
entitled to vote may be voted by such trustee or receiver either in person or by
proxy as provided by Delaware law. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
SECTION 2.10. Action Without Meeting. Unless otherwise restricted by
----------------------
the certificate of incorporation or these by-laws, whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action, the meeting and vote of stockholders may
be dispensed with if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented thereto in writing. Such consent shall be filed with the
minutes of proceedings of the stockholders and shall have the same force and
effect as a unanimous vote of stockholders.
SECTION 2.11. Treasury Stock. Shares of its own stock belonging to
--------------
the corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation is held by this
corporation, shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares for the purpose of
determining whether a quorum is present. Nothing in this section shall be
construed to limit the right of this corporation to vote shares of its own stock
held by it in a fiduciary capacity.
ARTICLE III
Directors
SECTION 3.1. Number and Election. The number of directors which
-------------------
shall constitute the whole board shall be five (5), but such number may be
increased to seven (7) by the Board of Directors. Directors shall be elected
annually by the stockholders as provided in Section 2.1 or in accordance with
Section 3.2 of these by-laws and each director elected shall hold office until
his successor is elected and qualified or until his death or resignation or
until he shall have been removed in the manner hereinafter provided. Directors
need not be residents of the State of Delaware or stockholders of this
corporation.
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SECTION 3.2. Resignations and Vacancies. Any director may resign at
--------------------------
any time by giving written notice to the Board of Directors or to the President.
Any such resignation shall take effect at the date of the receipt of such notice
or at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
If, at any other time than the annual meeting of the stockholders, any vacancy
occurs in the Board of Directors caused by resignation, death, retirement,
disqualification or removal from office of any director or otherwise, or any new
directorship is created by an increase in the authorized number of directors
elected by all of the stockholders having the right to vote as a single class,
by amendment of Section 3.1 of these by-laws, a majority of the directors then
in office, although less than a quorum, may choose a successor, or fill the
newly created directorship. [(If the corporation is to have classes of stock or
series thereof include the following sentence). Whenever the holders of any
class or classes of stock or series thereof are entitled to fill a vacancy in
the Board of Directors, a majority of the directors elected by such class or
classes or series thereof, or a sole remaining director so elected, may fill the
vacancy.] The director so chosen, by either all of the stockholders or a class
or series of stockholders, shall hold office until the next annual election of
directors by the stockholders and until his successor shall be duly elected and
qualified, unless sooner displaced.
SECTION 3.3. Removal. Any director may be removed, with or without
-------
cause, at any meeting of the stockholders, by the affirmative vote of the
holders of a majority of the stock of the corporation having voting power, and
the vacancy in the Board of Directors caused by such removal may be filled by
the stockholders at such meeting.
SECTION 3.4. Management of Affairs of Corporation. The property and
------------------------------------
business of the corporation shall be managed by, or under the direction of its
Board of Directors, which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by stockholders. In case the corporation shall transact any business or enter
into any contract with a director, or with any firm of which one or more of its
directors are members, or with any trust, firm, corporation or association in
which any director is a stockholder, director or officer or otherwise
interested, the officers of the corporation and directors in question shall be
severally under the duty of disclosing all material facts as to their interest
to the remaining directors promptly if and when such interested officers or such
interested directors in question shall become advised of the circumstances. In
the case of continuing relationships in the normal course of business such
disclosure shall be deemed effective, when once given, as to all transactions
and contracts subsequently entered into. All transactions or contracts involving
such interested officers or such interested directors shall be valid if the
transaction or contract is authorized in good faith by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum, or the material facts as to such officers' or
directors' relationship or interest and as to the transaction or contract are
disclosed or are known to the stockholders entitled to vote thereon, and the
transaction or contract is specifically approved in good faith by vote of the
stockholders.
SECTION 3.5. Dividends and Reserves. Dividends upon stock of the
----------------------
corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, in shares
of stock or otherwise in the form, and to the extent, permitted by law. The
Board of Directors may set apart, out of any funds of the
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corporation available for dividends, a reserve or reserves for working capital
or for any other lawful purpose, and also may abolish any such reserve in the
manner in which it was created.
SECTION 3.6. Regular Meetings. An annual meeting of the Board of
----------------
Directors shall be held, without other notice than this by-law, immediately
after, and at the same place as, the annual meeting of the stockholders. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Delaware, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 3.7. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board and shall be called by the
Secretary at the request of any director, to be held at such time and place,
either within or without the State of Delaware, as shall be designated by the
call and specified in the notice of such meeting; and notice thereof shall be
given as provided in Section 3.8 of these by-laws.
SECTION 3.8. Notice of Special Meetings. Except as otherwise
--------------------------
prescribed by statute, written or actual oral notice of the time and place of
each special meeting of the Board of Directors shall be given at least two (2)
days prior to the time of holding the meeting. Any director may waive notice of
any meeting.
SECTION 3.9. Quorum. At each meeting of the Board of Directors, the
------
presence of not less than a majority of the whole board shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or these by-laws. If a quorum shall not be
present at any meeting of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Unless otherwise restricted by the certificate of incorporation, any
member of the Board of Directors or of any committee designated by the Board may
participate in a meeting of the directors or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by means of such equipment shall constitute presence in person at such meeting.
SECTION 3.10. Presumption of Assent. Unless otherwise provided by
---------------------
statute, a director of the corporation who is present at a meeting of the Board
of Directors at which action is taken on any corporate matter shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as Secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 3.11. Action Without Meeting. Unless otherwise restricted by
----------------------
the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent thereto
is signed by all members of the board or of such committee, as the
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case may be, and such written consent is filed with the minutes of proceedings
of the board or committee.
SECTION 3.12. Presiding Officer. The presiding officer at any
-----------------
meeting of the Board of Directors shall be the Chairman of the Board President
or, in his absence, any other director elected chairman by vote of a majority of
the directors present at the meeting.
SECTION 3.13. Executive Committee. The Board of Directors may, by
-------------------
resolution passed by a majority of the number of directors fixed by these by-
laws, designate two or more directors of the corporation to constitute an
executive committee, which, to the extent provided in the resolution and by
Delaware law, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it.
SECTION 3.14. Other Committees. The Board of Directors may, by
----------------
resolution passed by a majority of the number of directors fixed by these by-
laws, designate such other committees as it may from time to time determine.
Each such committee shall consist of such number of directors, shall serve for
such term and shall have and may exercise, during intervals between meetings of
the Board of Directors, such duties, functions and powers as the Board of
Directors may from time to time prescribe.
SECTION 3.15. Alternates. The Board of Directors may from time to
----------
time designate from among the directors alternates to serve on one or more
committees as occasion may require. Whenever a quorum cannot be secured for any
meeting of any committee from among the regular members thereof and designated
alternates, the member or members of such committee present at such meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of such absent or disqualified member.
SECTION 3.16. Quorum and Manner of Acting Committees. The presence
--------------------------------------
of a majority of members of any committee shall constitute a quorum for the
transaction of business at any meeting of such committee, and the act of a
majority of those present shall be necessary for the taking of any action
thereafter, provided that no action may be taken by any such committee without
the favorable vote of members of the committee who are not officers or full-time
employees of the corporation at least equal to the favorable vote of members of
such committee who are officers or full-time employees of the corporation.
SECTION 3.17. Committee Chairman, Books and Records, Etc. The
------------------------------------------
Chairman of each committee shall be selected from among the members of the
committee by the Board of Directors.
Each committee shall keep a record of its acts and proceedings, and all
actions of each committee shall be reported to the Board of Directors at its
next meeting.
Each committee shall fix its own rules of procedure not inconsistent with
these by-laws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.
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SECTION 3.18. Fees and Compensation of Directors. Directors shall
----------------------------------
not receive any stated salary for their services as such; but, by resolution of
the Board of Directors, a fixed fee, with or without expenses of attendance, may
be allowed for attendance at each regular or special meeting of the board.
Members of the board shall be allowed their reasonable traveling expenses when
actually engaged in the business of the corporation. Members of any committee
may be allowed like fees and expenses for attending committee meetings. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 3.19. Reliance Upon Records. Every director of the
---------------------
corporation, or member of any committee designated by the Board of Directors
pursuant to authority conferred by Section 3.14 of these by-laws, shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the corporation by any of its officials, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by such committee, or in relying in
good faith upon other records of the corporation, including, without limiting
the generality of the foregoing, records setting forth or relating to the value
and amount of assets, liabilities and profits of the corporation or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared or paid or with which stock of the
corporation might lawfully be purchased or redeemed.
ARTICLE IV
Notices
SECTION 4.1. Manner of Notice. Whenever under the provisions of the
----------------
statutes, the certificate of incorporation or these by-laws notice is required
to be given to any stockholder, director or member of any committee designated
by the Board of Directors, it shall not be construed to require personal
delivery and such notice may be given in writing by depositing it, in a sealed
envelope, in the United States mails, air mail or first class, postage prepaid,
addressed (or by delivering it to a telegraph company, charges prepaid, for
transmission) to such stockholder, director or member either at the address of
such stockholder, director or member as it appears on the books of the
corporation or, in the case of such a director or member, at his business
address; and such notice shall be deemed to be given at the time when it is thus
deposited in the United States mails (or delivered to the telegraph company).
Such requirement for notice shall be deemed satisfied, except in the case of
stockholder meetings with respect to which written notice is mandatorily
required by law, if actual notice is received orally or in writing by the person
entitled thereto as far in advance of the event with respect to which notice is
given as the minimum notice period required by law or these by-laws.
SECTION 4.2. Waiver of Notice. Whenever any notice is required to be
----------------
given under the provisions of the statutes, the certificate of incorporation, or
these by-laws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before, at or after the time stated therein,
shall be deemed equivalent thereto. Attendance by a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be
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transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or committee of directors or committee of directors need
be specified in any written waiver of notice unless so required by statute, the
certificate of incorporation or these by-laws.
ARTICLE V
Officers
SECTION 5.1. Offices and Official Positions. The officers of the
------------------------------
corporation shall be a Chairman of the Board, President, one or more Vice
Presidents, a Secretary, a Treasurer, and such Assistant Secretaries, Assistant
Treasurers, and other officers as the Board of Directors shall determine. Any
two or more offices may be held by the same person. None of the officers need
be a director, a stockholder of the corporation or a resident of the State of
Delaware. The Board of Directors may from time to time establish, and abolish,
official positions within the divisions into which the business and operations
of the corporation are divided, pursuant to Section 6.1 of these by-laws, and
assign titles and duties to such positions. Those appointed to official
positions within divisions may, but need not, be officers of the corporation.
The Board of Directors shall appoint officers to official positions within a
division and may with or without cause remove from such a position any person
appointed to it. In any event, the authority incident to an official position
within a division shall be limited to acts and transactions within the scope of
the business and operations of such division.
SECTION 5.2. Election and Term of Office. The officers of the
---------------------------
corporation shall be elected annually by the Board of Directors at their first
meeting held after each regular annual meeting of the stockholders. If the
election of officers shall not be held at such meeting of the board, such
election shall be held at a regular or special meeting of the Board of Directors
as soon thereafter as may be convenient. Each officer shall hold office until
his successor is elected and qualified or until his death or resignation or
until he shall have been removed in the manner hereinafter provided.
SECTION 5.3. Removal and Resignation. Any officer may be removed,
-----------------------
either with or without cause, by a majority of the directors then in office at
any regular or special meeting of the board; but such removal shall be without
prejudice to the contract rights, if any, of such person so removed. Any
officer may resign at any time by giving written notice to the Board of
Directors, to the President or to the Secretary of the corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5.4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, or any other cause may be filled for the unexpired portion
of the term by the Board of Directors.
SECTION 5.5. Chairman of the Board. The Chairman of the Board shall
---------------------
be the Chief Policy Making Officer of the corporation and shall preside at all
meetings of the stockholders, the Board of Directors, or committees of the Board
of which he is a member. He shall perform such other duties and have such other
powers as may from time to time be assigned to him by the
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Board of Directors.
SECTION 5.6. President. The President shall be the Chief Executive
---------
Officer of the corporation and shall preside at all meetings of the
stockholders, the Board of Directors or any committee of the Board if he is a
member. He shall have the overall supervision of the business of the
corporation and shall direct the affairs and policies of the corporation,
subject to such policies and directions as may be determined by the Chairman of
the Board or provided by the Board of Directors. He shall have authority to
designate the duties and powers of other officers and delegate special powers
and duties to specified officers, so long as such designation shall not be
inconsistent with the statutes, these by-laws or action of the Board of
Directors. He shall also have power to execute, and shall execute, deeds,
mortgages, bonds, contracts or other instruments of the corporation except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors or by the President to some other officer or agent of the
corporation. The President may sign with the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, certificates for shares of
stock of the corporation the issuance of which shall have been duly authorized
by the Board of Directors, and shall vote, or give a proxy to any other person
to vote, all shares of the stock of any other corporation standing in the name
of the corporation. The President in general shall have all other powers and
shall perform all other duties which are incident to the chief executive office
of a corporation or as may be prescribed by the Board of Directors from time to
time.
SECTION 5.7. Vice Presidents. In the absence of the President, or in
---------------
the event of his inability or refusal to act, the Vice Presidents in order of
their rank as fixed by the Board of Directors or, if not ranked, the Vice
President designated by the Board of Directors or the President, shall perform
all duties of the President and, when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties, not inconsistent
with the statutes, these by-laws, or action of the Board of Directors, as from
time to time may be prescribed for them, respectively, by the Board of Directors
or the President. Any Vice President may sign, with the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer, certificates
for shares of stock of the corporation the issuance of which shall have been
duly authorized by the Board of Directors.
SECTION 5.8. Secretary. The Secretary shall: (a) keep the minutes of the
---------
meetings of the stockholders, the Board of Directors and committees of
directors, in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these by-laws, or as
required by law; (c) have charge of the corporate records and of the seal of the
corporation; (d) affix the seal of the corporation or a facsimile thereof, or
cause it to be affixed, to all certificates for shares prior to the issue
thereof and to all documents the execution of which on behalf of the corporation
under its seal is duly authorized by the Board of Directors or otherwise in
accordance with the provisions of these by-laws; (e) keep a register of the post
office address of each stockholder, director and committee member which shall
from time to time be furnished to the Secretary by such stockholder, director or
member; (f) sign with the President, or a Vice President, certificates for
shares of stock of the corporation, the issuance of which shall have been duly
authorized by resolution of the Board of Directors; (g) have general charge of
the stock transfer books of the corporation; and (h) in general, perform all
9
<PAGE>
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors. He
may delegate such details of the performance of duties of his office as may be
appropriate in the exercise of reasonable care to one or more persons in his
stead, but shall not thereby be relieved of responsibility for the performance
of such duties.
SECTION 5.9. Treasurer. The Treasurer shall: (a) be responsible to the
---------
Board of Directors for the receipt, custody and disbursement of all funds and
securities of the corporation; (b) receive and give receipts for moneys due and
payable to the corporation from any source whatsoever and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositories as shall from time to time be selected in accordance with the
provisions of Section 7.4 of these by-laws; (c) disburse the funds of the
corporation as ordered by the Board of Directors or the President or as
otherwise required in the conduct of the business of the corporation; (d) render
to the President or the Board of Directors, upon request, an account of all his
transactions as Treasurer and on the financial condition of the corporation; and
(e) in general, perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President,
by the Board of Directors or these by-laws. He may sign, with the President, or
a Vice President, certificates for shares of stock of the corporation, the
issuance of which shall have been duly authorized by resolution of the Board of
Directors. He may delegate such details of the performance of duties of his
office as may be appropriate in the exercise of reasonable care to one or more
persons in his stead, but shall not thereby be relieved of responsibility for
the performance of such duties. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum, and with such surety or sureties, as the Board of Directors shall
determine.
SECTION 5.10. Assistant Treasurers and Assistant Secretaries. The
----------------------------------------------
Assistant Treasurers and Assistant Secretaries shall perform all functions and
duties which the Secretary or Treasurer, as the case may be, may assign or
delegate; but such assignment or delegation shall not relieve the principal
officer from the responsibilities and liabilities of his office. In addition,
an assistant secretary or an assistant treasurer, as thereto authorized by the
Board of Directors, may sign with the President, or a Vice President,
certificates for shares of the corporation, the issuance of which shall have
been duly authorized by resolution of the Board of Directors; and the Assistant
Secretaries and Assistant Treasurers shall, in general, perform such duties as
shall be assigned to them by the Secretary or the Treasurer respectively, or by
the President or by the Board of Directors. The Assistant Treasurers shall, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums, and with such surety or sureties, as the Board of
Directors shall determine.
SECTION 5.11. Salaries. The salaries of the officers shall be fixed
--------
from time to time by the Board of Directors or by such officer as it shall
designate for such purpose or as it shall otherwise direct. No officer shall be
prevented from receiving a salary or other compensation by reason of the fact
that he is also a director of the corporation.
ARTICLE VI
Divisions
10
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SECTION 6.1. Divisions of the Corporation. The Board of Directors
----------------------------
shall have the power to create and establish such operating divisions of the
corporation as they may from time to time deem advisable.
SECTION 6.2. Official Positions Within a Division. The President may
------------------------------------
appoint individuals, whether or not they are officers of the corporation, to,
and may, with or without cause, remove them from, official positions established
within a division, but not filled by the Board of Directors. (See also Section
5.1 of these by-laws.)
ARTICLE VII
Contracts, Loans, Checks and Deposits
SECTION 7.1. Contracts and Other Instruments. The Board of Directors
-------------------------------
may authorize any officer or officers agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the corporation, or of any division thereof, and such authority may be general
or confined to specific instances.
SECTION 7.2. Loans. No loans shall be contracted on behalf of the
-----
corporation, or any division thereof, and no evidence of indebtedness shall be
issued in the name of the corporation, or any division thereof, unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 7.3. Checks, Drafts, Etc. All checks, demands, drafts or
-------------------
other orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation, or any division thereof, shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall from time to time be authorized by the Board of Directors.
SECTION 7.4. Deposits. All funds of the corporation, or any division
--------
thereof, not otherwise employed shall be deposited from time to time to the
credit of the corporation in such banks, trust companies or other depositories
as the Board of Directors may select.
ARTICLE VIII
Certificates of Stock and Their Transfer
SECTION 8.1. Certificates of Stock. The certificates of stock of the
---------------------
corporation shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of the
corporation as they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
If any stock certificate is signed (a) by a transfer agent or an assistant
transfer agent or (b) by a transfer clerk acting on behalf of the corporation
and a registrar, the signature of any officer of the corporation may be
facsimile. In case any such officer whose facsimile signature has thus been
used on any such certificate shall cease to be such officer, whether because of
death, resignation or otherwise, before such certificate has been delivered by
the corporation, such certificate may nevertheless be delivered by the
corporation, as though the person whose facsimile signature has been used
11
<PAGE>
thereon had not ceased to be such officer. All certificates properly
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be issued to evidence transferred shares until the former
certificate for at least a like number of shares shall have been surrendered and
canceled and the corporation reimbursed for any applicable taxes on the
transfer, except that in the case of a lost, destroyed or mutilated certificate
a new one may be issued therefore upon such terms, and with such indemnity (if
any) to the corporation, as the Board of Directors may prescribe specifically or
in general terms or by delegation to a transfer agent for the corporation.
SECTION 8.2. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors in individual cases, or by general resolution or by delegation to the
transfer agent, may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 8.3. Transfers of Stock. Upon surrender to the corporation
------------------
or the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, and upon payment of applicable taxes with respect to such
transfer, and in compliance with any restrictions on transfer applicable to the
certificate or shares represented thereby of which the corporation shall have
notice and subject to such rules and regulations as the Board of Directors may
from time to time deem advisable concerning the transfer and registration of
certificates for shares of capital stock of the corporation, the corporation
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. Transfers of shares shall
be made only on the books of the corporation by the registered holder thereof or
by his attorney or successor duly authorized as evidenced by documents filed
with the Secretary or transfer agent of the corporation.
SECTION 8.4. Restrictions on Transfer. Any stockholder may enter
------------------------
into an agreement with other stockholders or with the corporation providing for
reasonable limitation or restriction on the right of such stockholder to
transfer shares of capital stock of the corporation held by him, including,
without limiting the generality of the foregoing, agreements granting to such
other stockholders or to the corporation the right to purchase for a given
period of time any of such shares on terms equal to terms offered such
stockholders by any third party. Any such limitation or restriction on the
transfer of shares of this corporation must be set forth on certificates
representing shares of capital stock and notice thereof may be otherwise given
to the corporation or the transfer agent, in which case the corporation or the
transfer agent shall not be required to transfer such shares upon the books of
the corporation without receipt of satisfactory evidence of compliance with the
terms of such limitation or restriction.
SECTION 8.5. No Fractional Share Certificates. Certificates shall not
--------------------------------
be issued representing fractional shares of stock.
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<PAGE>
SECTION 8.6. Fixing Record Date. The Board of Directors may fix in
------------------
advance a date, not exceeding sixty (60) days, nor less than ten (10) days,
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining any consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, or adjournment thereof, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, or to give
such consent, and in such case such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be entitled to notice
of, and to vote at, such meeting and any adjournment thereof, or to vote at,
such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the corporation after any such record date fixed as
aforesaid.
SECTION 8.7. Stockholders of Record. The corporation shall be
----------------------
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE IX
Indemnification
SECTION 9.1. In General. Each person who at any time is or shall
----------
have been a director, officer, employee or agent of this corporation, or is or
shall have been serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, and his heirs, executors and administrators, shall be
indemnified by this corporation in accordance with and to the full extent
permitted by the Delaware General Corporation Law as in effect at the time of
adoption of this by-law or as amended from time to time. The foregoing right of
indemnification shall not be deemed exclusive of any other rights to which a
person seeking indemnification may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise. If authorized by the
Board of Directors, the corporation may purchase and maintain insurance on
behalf of any person to the full extent permitted by the Delaware General
Corporation Law as in effect at the time of the adoption of this by-law or as
amended from time to time.
ARTICLE X
General Provisions
SECTION 10.1. Fiscal Year. The fiscal year of the corporation shall
-----------
begin on January 1 of each year and end on December 31 the next succeeding
calendar year.
SECTION 10.2. Seal. The corporate seal shall have inscribed thereon
----
the name of the corporation, and the words "CORPORATE SEAL" and "DELAWARE"; and
it shall otherwise be in the form approved by the Board of Directors. Such seal
may be used by causing it, or a
13
<PAGE>
facsimile thereof, to be impressed or affixed or otherwise reproduced.
ARTICLE XI
Amendments
SECTION 11.1. In General. Any provision of these by-laws may be
----------
altered, amended or repealed from time to time by the affirmative vote of a
majority of the stock having voting power present in person or by proxy at any
annual meeting of stockholders at which a quorum is present, or at any special
meeting of stockholders at which a quorum is present, if notice of the proposed
alteration, amendment or repeal be contained in the notice of such special
meeting, or by the affirmative vote of a majority of the directors then
qualified and acting at any regular or special meeting of the board; provided,
however, that the stockholders may provide specifically for limitations on the
power of directors to amend particular by-laws and, in such event, the
directors' power of amendment shall be so limited; and further provided that no
reduction in the number of directors shall have the effect of removing any
director prior to the expiration of his term of office.
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<PAGE>
EXHIBIT 4.2
COMMERX, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is made and entered into
as of December 28, 1998 by and among Commerx, Inc., a Delaware corporation (the
"Company"), and the persons listed on Exhibit A hereto (each individually an
"Investor" and, collectively, the "Investors").
RECITALS
WHEREAS, the Company desires for the Investors to purchase shares of the
Company's Series A Preferred Stock pursuant to a Series A Preferred Stock
Purchase Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, as an inducement for the Investors to enter into the Purchase
Agreement, the Company and the Investors desire to enter into this Agreement.
1. RIGHTS OF INVESTORS.
The Company hereby grants to the Investors the information rights,
registration rights and rights of first offer (collectively the "Investor
Rights") contained herein. The Investors accept the Investor Rights, as
applicable, and agree to be bound by the obligations contained herein. The
Company hereby grants to the Common Stockholders certain registration rights
contained herein.
2. INFORMATION RIGHTS.
2.1 Financial Information. The Company will provide each Investor the
---------------------
following reports for so long as the Investor is a holder of a minimum of two
hundred and fifty thousand (250,000) shares of Registrable Securities (as
adjusted for combinations, stock dividends, subdivisions or split-ups):
(a) Annual Reports. As soon as practicable after the end of each
fiscal year, and in any event within ninety (90) days thereafter, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income, stockholders' equity
and cash flows of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited (without qualification as to scope) by
independent auditors of national standing selected by the Company.
(b) Monthly and Quarterly Reports. As soon as practicable after
the end of each month and fiscal quarter, and in any event within thirty (30)
days and forty-five (45) days, respectively, thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
period, consolidated statements of income, consolidated
<PAGE>
statements of changes in financial condition, a consolidated statement of cash
flow of the Company and its subsidiaries and a statement of stockholders' equity
for such period and for the current fiscal year to date, and setting forth in
each case in comparative form the figures for corresponding periods in the
previous fiscal year, and setting forth in comparative form the budgeted
figures, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year-end
audit adjustments, all in reasonable detail and signed by the principal
financial or accounting officer of the Company.
(c) Annual Budget. As soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a projected operating
budget and business plan for the next fiscal year, prepared on a monthly basis,
including balance sheets and sources and applications of funds statements for
such months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company.
2.2 Inspection. The Company shall permit each Investor at such
----------
Investor's expense to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information that it
reasonably considers to be a trade secret or similar confidential information.
2.3 Assignment of Rights. The rights granted pursuant to Sections
--------------------
2.1 and 2.2 may be assigned or otherwise conveyed by an Investor to (i) a
transferor or assignee who holds, subsequent to such transfer, not less than two
hundred and fifty thousand (250,000) shares of Registrable Securities; or (ii) a
subsidiary, wholly-owned entity, successor entity, parent, member or stockholder
of a Holder. Notwithstanding the foregoing, the rights granted pursuant to
Sections 2.1 and 2.2 may not be assigned or otherwise conveyed to a competitor
of the Company, as reasonably determined by the Board of Directors of the
Company. The Investor shall provide the Company with written notice of any
assignment or conveyance of the rights granted pursuant to Sections 2.1 and 2.2.
2.4 Termination of Certain Rights. The Company's obligations under
-----------------------------
Section 2.1 and 2.2 herein will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act") with
a sales price per share of Common Stock (as adjusted for combinations, stock
dividends, subdivisions or split-ups) of at least $2.625 and aggregate gross
proceeds to the Company of at least $5,000,000 (the "Company's Initial Public
Registration").
3. REGISTRATION RIGHTS.
3.1 Definitions.
-----------
(a) Exchange Act. The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended.
(b) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the
<PAGE>
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(c) Holder. For purposes of this Section 3, the term "Holder"
means any person owning of record Registrable Securities that have not been sold
to the public or pursuant to Rule 144 promulgated under the Securities Act or
any assignee of record of such Registrable Securities to whom rights under this
Section 3 have been duly assigned in accordance with this Agreement.
(d) Initiating Holder. The term "Initiating Holder" shall mean
any Holder or Holders who in the aggregate are Holders of not less than 40% of
the then outstanding Registrable Securities which have not been sold to the
public.
(e) Preferred Stock. The term "Preferred Stock" shall mean the
Series A Preferred Stock of the Company.
(f) Registrable Securities. The term "Registrable Securities"
means: (1) all shares of Common Stock issued or issuable pursuant to the
conversion of Series A Preferred Stock and any shares of the Common Stock of the
Company or other securities issued in connection with any stock split, stock
dividend, recapitalization or similar event relating to the foregoing; excluding
in all cases, however, any Registrable Securities sold by a person in a
transaction in which rights under this Section 3 are not assigned in accordance
with this Agreement or any Registrable Securities sold to the public or sold
pursuant to Rule 144 promulgated under the Securities Act.
(g) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(h) Registration Expenses. "Registration Expenses" shall mean
all expenses incurred by the Company in complying with Sections 3.2, 3.3 and 3.5
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and expenses of one counsel for all the Holders, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
(i) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.
(j) Selling Expenses. "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities.
3.2. Requested Registration.
----------------------
(a) Request for Registration by Initiating Holders. If the
Company shall receive from an Initiating Holder, at any time, a written request
that the Company effect any registration with respect to all or a part of the
Registrable Securities, the Company will:
<PAGE>
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders of Registrable
Securities; and
(ii) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 15 days after written notice from the Company is given
under Section 3.2(a)(i) above; provided, however, that the Company shall not be
obligated to effect, or take any action to effect, any such registration
pursuant to this Section 3.2(a):
(A) In any particular Jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder;
(B) After the Company has effected two (2) such
registrations pursuant to Section 3.2 and such registrations have been declared
or ordered effective and the sales of such Registrable Securities shall have
closed; or
(C) If the Registrable Securities requested by all
Holders to be registered pursuant to such request have an anticipated aggregate
offering price to the public of less than $5,000,000; or
(D) Prior to the date that is three years after the
date of this Agreement.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 3.2(b) below, include other
securities of the Company which are held by officers or directors of the
Company, or which are held by persons who, by virtue of agreements with the
Company, are entitled to include their securities in any such registration, but
the Company and such other holders shall have no absolute right to include any
of its securities in any such registration.
(b) Underwriting; Request by Initiating Holders. If the
Initiating Holders intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to Section 3.2(a) and the Company shall
include such information in the written notice referred to in Section 3.2(a). In
such event, the right of any Holder to include such Holder's Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such
<PAGE>
Holder) to the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company as
provided in Section 3.6(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders and reasonably acceptable to the
Company. Notwithstanding any other provision of Section 3.2, if the underwriter
advises the Company and the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in such
proportion (as nearly as practicable) among the Holders pro rata based on the
amount of Registrable Securities owned by each Holder.
(c) Notwithstanding the foregoing, if the Company shall furnish
to the Holders requesting the filing of a registration statement pursuant to
Section 3.2(a), a certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 90 days
after receipt of the request of the Initiating Holders; provided, however, that
the Company may not utilize this right more than once in any twelve (12)-month
period.
3.3 Piggyback Registrations.
-----------------------
(a) Notice. The Company shall notify all Holders of Registrable
Securities in writing at least 30 days prior to filing any registration
statement under the Securities Act for purposes of effecting a public offering
of securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding any registration statement relating to any employee benefit plan or a
corporate reorganization) and will afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall, within 15 days after receipt of the above-described notice
from the Company, so notify the Company in writing, and in such notice shall
inform the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(b) Underwriting. If a registration statement under which the Company
gives notice under Section 3.3 is for an underwritten offering, then the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder's Registrable Securities to be included in a registration
pursuant to this Section 3.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable
<PAGE>
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their Registrable Securities through such underwriting
shall enter into an underwriting agreement in customary form with the managing
underwriter or underwriter(s) selected for such underwriting. Notwithstanding
any other provision of this Agreement, if the managing underwriter(s)
determine(s) in good faith that marketing factors require a limitation of the
number of shares to be underwritten then the managing underwriter(s) may exclude
shares (including Registrable Securities) from the registration and the
underwriting, and the number of shares that may be included in the registration
and the underwriting shall be allocated, first, to the Company, second, to each
of the Holders of Registrable Securities requesting inclusion of their
Registrable Securities in such registration statement, to be allocated among all
Holders thereof pro rata based on the amount of Registrable Securities of the
Company owned by each Holder and third, to each of the other holders of the
Company's securities, other than the Holders requesting inclusion of their
Registrable Securities in such registration statement, to be allocated among
such other holders thereof pro rata based on the number of shares owned by each
such other holder; provided, however, that the right of the underwriters to
exclude shares (including Registrable Securities) from the registration and
underwriting as described above shall be restricted so that the number of
Registrable Securities included in any such registration is not reduced below
twenty-five percent (25%) of the shares included in the registration, except for
a registration relating to the Company's Initial. Public Registration from which
all Registrable Securities may be excluded. Any Registrable Securities excluded
or withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder,"
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
3.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with two demand registrations (pursuant to Section 3.2), all
piggyback registrations (pursuant to Section 3.3) and three S-3 registrations
(pursuant to Section 3.5) shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered.
3.5 Form S-3 Registration. In case the Company shall receive from one or
---------------------
more Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holders,
provided the number of shares requested to be sold would have an aggregate price
to the public of at least $1,000,000, then the Company will:
(a) Notice. Promptly give written notice of the proposed registration
and the Holder's request therefor, and any related qualification or compliance,
to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, use its best efforts to
effect such registration and all such qualifications and compliances as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of the Holder's Registrable
<PAGE>
Securities as are specified in such request together with all or such portion of
the Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request received by the Company within 15 days after
written notice from the Company is given under Section 3.5(a) above; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 3.5:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Company shall furnish to the Holders a certificate
signed by the President or Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for an
aggregate of not more than ninety (90) days after receipt of the request of the
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve (12)-month period;
(iii) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of `process in effecting such registration, qualification or compliance; or
(iv) if the Company has filed a registration statement on Form
S-3 relating to Registrable Securities within the twelve (12) months preceding
the request of the Holders.
Subject to the foregoing, the Company shall use its best efforts to file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 3.5 as soon as
practicable after receipt of the request the Holders for such registration.
3.6 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the distribution is completed, but not more than 180 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and all amendments and supplements thereto, and such other
documents as they may reasonably request
<PAGE>
in order to facilitate the disposition of the Registrable Securities owned by
them that are included in such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and, following such notification, promptly deliver to each Holder
copies of all amendments or supplements referred to in paragraphs (b) and (c) of
this Section 3.6.
(g) Furnish, at the request of any Holder registering Registrable
Securities, on the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters,
(i) an opinion, dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering addressed to the
underwriters, if any, and if there are no underwriters, to the Holders
requesting registration of Registrable Securities and (ii) a "comfort" letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters.
3.7 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 3.2, 3.3 or
3.5 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of Registrable Securities.
3.8 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.9 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under Sections 3.2, 3.3 or 3.5:
<PAGE>
(a) By the Company. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained or incorporated by reference in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
federal or state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, member, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this subsection 3.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished in writing
and expressly stated for use in connection with such registration by such
Holder, partner, member, officer, director, underwriter or controlling person of
such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
Holder will, if Registrable Securities held by such Holder are included in the
securities as to which such registration is being effected, indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter (as defined in the
Securities Act) and any other Holder selling securities under such registration
statement or any of such other Holder's partners, members, directors or officers
or any person who controls such underwriter or other Holder within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages
or liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, member, partner
or director, officer or controlling person of such underwriter or other Holder
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any
<PAGE>
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder by an instrument duly executed by such Holder and
stated to be specifically for use in such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder,
partner, member, officer, director or controlling person of such other Holder or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 3.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
payable in indemnity by a Holder under this Section 3.9(b) in respect of any
Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
Section 3.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under Section 3.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under Section 3.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under Section 3.9.
(d) Survival. The obligations of the Company and Holders under
Section 3.9 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
3.10 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees, members or partners of the Holder who agree
to be similarly bound) for up to 180 days following the date of the final
prospectus in connection with the registration statement of the Company filed
under the Securities Act; provided, however, that such agreement shall be
applicable only to the first such registration statement of the Company that
covers securities to be sold on its behalf to the public in an underwritten
offering but not to Registrable Securities sold pursuant to such registration
statement and provided, further, that each officer and director of the Company
also agrees to such restrictions.
<PAGE>
The provisions of this Section 3.10 shall be binding upon any transferee or
assignee of any Registrable Securities, whether or not such persons are entitled
to registration rights pursuant to Section 3.13.
3.11 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
the reporting requirements of the Exchange Act), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the Exchange Act).
3.12 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least 50% of the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder (a) to include such
securities in any registration filed under this Section 3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included, or (b) to make a demand registration to the Company.
3.13 Assignment of Registration Rights. The rights of a Holder under this
---------------------------------
Section 3 may be assigned by any Holder in connection with any transfer or
assignment by a Holder of Registrable Securities provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such transfer is effected in compliance with the restrictions on
transfer contained in the Agreement and in any other agreement between the
Company and the Holder, (iii) such assignee or transferee either holds
subsequent to such transfer not less than two hundred and fifty thousand
(250,000) shares of Registrable Securities or is a subsidiary, wholly-owned
entity, successor entity, parent, member or stockholder of a Holder, and (iv)
such
<PAGE>
other party agrees in writing with the Company to be bound by all of the
provisions of this Section 3.
3.14 Termination of Registration Rights. The registration rights granted
----------------------------------
pursuant to Section 3 will terminate as to any Holder upon the later to occur of
(a) such time as the Company and the Holder are satisfied that Rule 144(k) is
available for the resale by the then-current Holder of the Common Stock
underlying all of the Preferred Stock, (b) the one-year anniversary following
the effective date of the Company's Initial Public Registration or (c) such time
as a Holder has less than one percent shares of the outstanding Common Stock of
the Company (assuming conversion of all Preferred Stock into Common Stock) and
can sell all of its remaining Registrable Securities under Rule 144 during any
three (3)-month period.
4. RIGHT OF FIRST OFFER TO SUBSCRIBE TO NEW ISSUANCES.
4.1 General. The Company hereby grants to each Investor the right of
-------
first offer to purchase such Investor's pro rata share ("Pro Rata Share") of New
Securities (as defined in Section 4.2(a)) that the Company may, from time to
time, propose to sell and issue. Such Investor's Pro Rata Share, for purposes
of this right of first offer, is the ratio that the number of shares of Common
Stock (assuming conversion of all Preferred Stock and securities convertible
into Common Stock but not including options or warrants to acquire Common Stock)
held by such Investor bears to the total number of shares of Common Stock
outstanding immediately prior to the time of issuance of such New Securities
(assuming conversion into Common Stock of all outstanding Preferred Stock and
any other securities convertible into Common Stock but not including options or
warrants to acquire Common Stock). This right of first offer shall be subject
to the following provisions:
4.2 Certain Definitions. For the purposes of Section 4:
-------------------
(a) "New Securities" shall mean any Common Stock or any
Preferred Stock of the Company, whether or not now authorized, and any rights,
options, or warrants to purchase said Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into or
exchangeable for Common Stock or Preferred Stock; provided, however, that "New
Securities" does not include (i) securities issuable upon conversion of or with
respect to the Series A Preferred Stock or upon conversion of or with respect to
any other Preferred Stock subsequently issued; (ii) securities offered to the
public pursuant to a registration statement filed under the Securities Act;
(iii) securities issued pursuant to the acquisition of another unaffiliated
corporation by the Company by merger, purchase of substantially all of the
assets, or other reorganization whereby the Company owns not less than 50% of
the voting power of the surviving corporation; (iv) shares of the Company's
Common Stock (or related options or warrants) issued to employees, officers,
directors, consultants, or other persons performing services for the Company
(including, but not by way of limitation, distributors and sales
representatives) pursuant to any stock offering, plan, or arrangement approved
by a majority of the non-employee members of the Board of Directors of the
Company; (v) securities issued pursuant to or in connection with any corporate
partnership, joint venture or licensing arrangement with a non-affiliate or in
connection with an unaffiliated equipment lease financing or bank debt into
which the Company may enter; or (vi) shares of the
<PAGE>
Company's Common Stock or Preferred Stock issued in connection with any stock
split, stock dividend, or recapitalization by the Company.
4.3 Mechanics of Right.
------------------
(a) Notices, Pro Rata Rights. In the event that the Company
proposes to issue New Securities, it shall give each such Investor written
notice (the "First Notice") of its intention, describing the type of New
Securities, the price, and the general terms upon which the Company proposes to
issue the same. Within 20 days after receipt of the First Notice, the Investor
shall give the Company written notice (the "Investor Notice") of its intention
to purchase or obtain, at the price and on the terms specified in the Notice, a
number of shares equal to or less than its Pro Rata Share of the New Securities.
In addition, the Investor Notice shall state whether an Investor wishes to
purchase more than its Pro Rata Share of the New Securities. The Company shall
promptly give written notice to each Investor that purchases its Pro Rata Share
of the New Securities (a "Fully-Exercising Investor") of the amount of New
Securities, if any, that other Investors do not elect to purchase in response to
the First Notice (the "Second Notice"). Each Fully-Exercising Investor shall
notify the Company within 15 days of receipt of the Second Notice if it would
like to purchase any of the unsubscribed shares and indicate the maximum number
of unsubscribed shares it would like to purchase. The Company shall inform the
Fully-Exercising Investors of the total number of unsubscribed shares available
and provide the Fully-Exercising Investors with an allocation of the
unsubscribed shares based on the number of shares of Common Stock (assuming
conversion of all Preferred Stock into Common Stock) held by each Fully-
Exercising Investor.
(b) Company Right. To the extent that Investors fail to exercise
in full the right of first offer as provided in Section 4.3(a) hereof, the
Company shall have 90 days thereafter to sell (or enter into an agreement
pursuant to which the sale of New Securities covered thereby shall be closed, if
at all, within said 90-day period) the New Securities respecting which the
Investors' rights were not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's notice. In
the event the Company has not sold the New Securities within said 90-day period
(or sold and issued New Securities in accordance with the foregoing within 90
days from the date of said agreement), the Company shall not thereafter issue or
sell any New Securities, without first offering such securities to the Investors
in the manner provided above.
(c) No Impairment. An Investor's failure to exercise this right
of first offer on any issuance of New Securities shall not adversely affect the
Investor's right of first offer to purchase subsequent issuances of New
Securities.
4.4 Termination. The rights of first offer under this Section 4
-----------
shall not apply to and shall terminate upon the closing of the Company's Initial
Public Registration.
4.5 Assignment. The right of first offer granted under this Section 4
----------
is nonassignable except to another entity under common control with an Investor
or a successor to an Investor.
<PAGE>
5. AFFIRMATIVE COVENANTS OF THE COMPANY.
5.1 Proprietary Information Agreement. The Company shall require each
---------------------------------
person employed by the Company to execute a proprietary information
confidentiality and nondisclosure agreement in substantially the form attached
to the Purchase Agreement as Exhibit G and previously provided to counsel for
---------
the Investors.
5.2 Stock Option Plan. The Company shall set the aggregate number of
-----------------
shares of Common Stock reserved for issuance under all Company stock option
plans adopted by the Company in the future at 4,000,000 shares, or 20% of the
Company's post-financing capitalization. The aggregate number of shares
available under all such stock option plans shall not exceed 4,000,000 shares of
the Company's Common Stock without the consent of the Board of Directors,
including each such Director representing the Series A stockholders. All shares
of the Company's Common Stock issuable upon exercise of options or other
purchase rights granted by the Company after the Closing shall be subject to
vesting restrictions which shall lapse with respect to 25% of such shares at the
end of one year from the date of the related option grant and which shall lapse
with respect to 25% of such shares at the end of each year thereafter.
5.3 Key Man Life Insurance. The Company will use its best efforts to
----------------------
obtain and maintain life insurance, payable to the Company, on the lives of Tim
Stojka and Nick Stojka in the amount of $1,000,000 each.
5.4 Preservation of Small Business Stock Status. The Company shall
-------------------------------------------
not (a) make any purchases of its stock (other than repurchases of restricted
stock held by employees of the Company) during the one-year period following the
Closing Date having an aggregate value, when aggregated with the aggregate value
of stock purchased by it during the one-year period preceding the date hereof
(determined as of the date of each such purchase), exceeding 5% of the aggregate
value of all the Company's stock as of the start of such two-year period, (b)
fail to use at least 80% (by value) of its assets in the active conduct of one
or more qualified trades or businesses for substantially all of the five-year
period following the date hereof, or (c) cease to be a C corporation which is an
eligible corporation, as defined by Code Section 1202(e)(4).
5.5 Meetings of the Board of Directors. The Board of Directors of the
----------------------------------
Company shall meet no less frequently than once every six weeks.
5.6 Termination. The covenants contained in this Section 5 shall
-----------
terminate upon the closing of the Company's Initial Public Registration
(provided that such Initial Public Registration results in the conversion of all
outstanding shares of Series A Preferred pursuant to the Company's Amended and
Restated Certificate of Incorporation).
6. AFFIRMATIVE COVENANT OF INTERNET CAPITAL GROUP, LLC.
If and when the Company's Board of Directors determines to obtain a
commercial bank loan in an amount not to exceed $1,000,000, Internet Capital
Group, LLC, if requested by the Company's Board of Directors, will guarantee
such commercial bank loan.
<PAGE>
7. LEGENDS.
Each Investor understands that the share certificates evidencing any
Registrable Securities shall be endorsed with the following legends (in addition
to any legends required under applicable state securities laws):
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(c) Any legend required to be place thereon by any other
applicable state securities laws.
8. MISCELLANEOUS.
-------------
8.1 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and permitted transferees and
permitted assigns of the parties.
8.2 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware as applied to contracts made and to be
performed entirely within that state between residents of that state.
8.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
8.4 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
8.5 Stock Splits, etc. All share numbers used in this Agreement are
-----------------
subject to adjustment in the case of any stock split, reverse stock split,
combination or similar events.
8.6 Notices. Any notice required or permitted to be given to a party
-------
pursuant to the provisions of this Agreement will be in writing and will be
effective and or (i) the date of delivery by facsimile, or (ii) the business day
after deposit with a nationally-recognized courier or overnight service,
including Express Mail, for United States deliveries or (iii) five (5) business
<PAGE>
days after deposit in the United States mail by registered or certified mail for
United States deliveries. All notices not delivered personally or by facsimile
will be sent with postage and other charges prepaid and properly addressed to
the party to be notified at the address set forth below such party's signature
on this Agreement or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto. All notices for
delivery outside the United States will be sent by facsimile, or by nationally
recognized courier or overnight service. Any notice given hereunder to more
than one person will be deemed to have been given, for purposes of counting time
periods hereunder, on the date given to the last party required to be given such
notice. Notices to the Company will be marked to the attention of the Chief
Financial Officer.
8.7 Attorneys' Fees. If any action at law or in equity is necessary
---------------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
8.8 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the party against whom
enforcement of such amendment or waiver is sought; provided, however that with
respect to any Investor, the consent of the holders of more than 50% of the
Registrable Securities shall be sufficient to bind any and all Investors; and
provided, further, that where the amendment or waiver affects a right or creates
an obligation that is specific to a party named herein (whether an individual,
trust, partnership or corporation), the amendment or waiver of such right or
creation of such obligation shall require the consent of such party.
8.9 Severability. If any provision of this Agreement is held to be
------------
unenforceable under applicable law, then such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision was so excluded and shall be enforceable in accordance with its terms.
8.10 Entire Agreement. This Agreement, together with all Exhibits
----------------
hereto, constitute the full and entire understanding and agreement between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations, correspondence, agreements, understandings, duties or obligations
among the parties with respect to the subject matter hereof
8.11 Further Assurances. From and after the date of this Agreement,
------------------
upon the request of a party, the other parties shall execute and deliver such
instruments, documents or other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date first above written.
COMMERX, INC.
/s/ Tim Stojka
-----------------------------------
Tim Stojka, President
/s/ Nick Stojka
-----------------------------------
Nick Stojka, Secretary
INVESTORS
/s/ Tim Stojka
/s/ Nick Stojka
/s/ John S. Stojka
/s/ Dean Stojka
Internet Capital Group
By: /s/ Kenneth A. Fox
Title: Managing Director
<PAGE>
Exhibit A
Investors
Internet Capital Group, LLC
44 Montgomery Street, Suite 3705
San Francisco, CA 94104
Tim Stojka
Nick Stojka
Dean Stojka
John Steven Stojka
2
<PAGE>
EXHIBIT 4.3
COMMERX, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is made and entered into
as of November 19, 1999 by and among Commerx, Inc., a Delaware corporation (the
"Company"), and the persons listed on Exhibit A hereto (each individually an
---------
"Investor" and, collectively, the "Investors").
RECITALS
WHEREAS, the Company desires for the Investors to purchase shares of the
Company's Series B Preferred Stock pursuant to a Series B Preferred Stock
Purchase Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, as an inducement for the Investors to enter into the Purchase
Agreement, the Company and the Investors desire to enter into this Agreement.
1. RIGHTS OF INVESTORS.
The Company hereby grants to the Investors the information rights,
registration rights and rights of first offer (collectively the "Investor
Rights") contained herein. The Investors accept the Investor Rights, as
applicable, and agree to be bound by the obligations contained herein. The
Company hereby grants to the Common Stockholders certain registration rights
contained herein.
2. INFORMATION RIGHTS.
2.1 Financial Information. The Company will provide each Investor the
---------------------
following reports for so long as the Investor is a holder of a minimum of one
hundred thousand (100,000) shares of Registrable Securities (as adjusted for
combinations, stock dividends, subdivisions or split-ups):
(a) Annual Reports. As soon as practicable after the end of each
fiscal year, and in any event within ninety (90) days thereafter, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income, stockholders' equity
and cash flows of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited (without qualification as to scope) by
independent auditors of national standing selected by the Company.
(b) Monthly and Quarterly Reports. As soon as practicable after
the end of each month and fiscal quarter, and in any event within thirty (30)
days and forty-five (45) days, respectively, thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
period, consolidated statements of income, consolidated
<PAGE>
statements of changes in financial condition, a consolidated statement of cash
flow of the Company and its subsidiaries and a statement of stockholders' equity
for such period and for the current fiscal year to date, and setting forth in
each case in comparative form the figures for corresponding periods in the
previous fiscal year, and setting forth in comparative form the budgeted
figures, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year-end
audit adjustments, all in reasonable detail and signed by the principal
financial or accounting officer of the Company.
(c) Annual Budget. As soon as practicable, but in any event thirty
(30) days prior to the end of each fiscal year, a projected operating budget and
business plan for the next fiscal year, prepared on a monthly basis, including
balance sheets and sources and applications of funds statements for such months
and, as soon as prepared, any other budgets or revised budgets prepared by the
Company.
2.2 Inspection. The Company shall permit each Investor at such
----------
Investor's expense to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information that it
reasonably considers to be a trade secret or similar confidential information.
2.3 Assignment of Rights. The rights granted pursuant to Sections 2.1
--------------------
and 2.2 may be assigned or otherwise conveyed by an Investor to (i) a transferor
or assignee who holds, subsequent to such transfer, not less than one hundred
thousand (100,000) shares of Registrable Securities and which agrees in writing
to non-disclosure provisions with respect to the information; or (ii) a
subsidiary, wholly-owned entity, successor entity, parent, member or stockholder
of a Holder. Notwithstanding the foregoing, the rights granted pursuant to
Sections 2.1 and 2.2 may not be assigned or otherwise conveyed to a competitor
of the Company, as reasonably determined by the Board of Directors of the
Company. The Investor shall provide the Company with written notice of any
assignment or conveyance of the rights granted pursuant to Sections 2.1 and 2.2.
2.4 Termination of Certain Rights. The Company's obligations under
-----------------------------
this Section 2 will terminate upon the closing of the Company's initial public
offering of Common Stock pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Securities Act") with a sales price
per share of Common Stock (as adjusted for combinations, stock dividends,
subdivisions or split-ups) of at least $18.645 and aggregate gross proceeds to
the Company of at least $15,000,000 (the "Company's Initial Public
Registration").
3. REGISTRATION RIGHTS.
3.1 Definitions.
-----------
(a) Exchange Act. The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended.
<PAGE>
(b) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(c) Holder. For purposes of this Section 3, the term "Holder"
means any person owning of record Registrable Securities that have not been sold
to the public or pursuant to Rule 144 promulgated under the Securities Act or
any assignee of record of such Registrable Securities to whom rights under this
Section 3 have been duly assigned in accordance with this Agreement.
(d) Initiating Holder. The term "Initiating Holder" shall mean
any Holder or Holders who in the aggregate are Holders of not less than 66-2/3%
of the then outstanding Registrable Securities which have not been sold to the
public.
(e) Preferred Stock. The term "Preferred Stock" shall mean the
Series B Preferred Stock of the Company.
(f) Registrable Securities. The term "Registrable Securities"
means: (1) all shares of Common Stock issued or issuable pursuant to the
conversion of Series B Preferred Stock and any shares of the Common Stock of the
Company or other securities issued in connection with any stock split, stock
dividend, recapitalization or similar event relating to the foregoing; excluding
in all cases, however, any Registrable Securities sold by a person in a
transaction in which rights under this Section 3 are not assigned in accordance
with this Agreement or any Registrable Securities sold to the public or sold
pursuant to Rule 144 promulgated under the Securities Act.
(g) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(h) Registration Expenses. "Registration Expenses" shall mean all
expenses incurred by the Company in complying with Sections 3.2, 3.3 and 3.5
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and expenses of one counsel for all the Holders, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
(i) SEC. The term "SEC" or "Commission" means the U.S. Securities
and Exchange Commission.
(j) Selling Expenses. "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities.
<PAGE>
3.2. Requested Registration.
----------------------
(a) Request for Registration by Initiating Holders. If the
Company shall receive from an Initiating Holder, at any time, a written request
that the Company effect any registration with respect to all or a part of the
Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders of Registrable
Securities; and
(ii) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 15 days after written notice from the Company is given
under Section 3.2(a)(i) above; provided, however, that the Company shall not be
obligated to effect, or take any action to effect, any such registration
pursuant to this Section 3.2(a):
(A) In any particular Jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder;
(B) After the Company has effected two (2) such
registrations pursuant to Section 3.2 and such registrations have been declared
or ordered effective and the sales of such Registrable Securities shall have
closed; or
(C) If the Registrable Securities requested by all
Holders to be registered pursuant to such request have an anticipated aggregate
offering price to the public of less than $12,500,000; or
(D) Prior to January 1, 2002.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 3.2(b) below, include other
securities of the Company which are held by officers or directors of the
Company, or which are held by persons who, by virtue of agreements with the
Company, are entitled to include their securities in any such registration, but
the Company and such other holders shall have no absolute right to include any
of its securities in any such registration.
(b) Underwriting; Request by Initiating Holders. If the
Initiating Holders intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to Section 3.2(a) and the Company shall
include such information in the written notice referred to
<PAGE>
in Section 3.2(a). In such event, the right of any Holder to include such
Holder's Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
Section 3.6(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of Section 3.2, if the underwriter advises
the Company and the Initiating Holders in writing that marketing factors require
a limitation of the number of shares to be underwritten, then the Company shall
so advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all Holders
thereof, including the Initiating Holders, in such proportion (as nearly as
practicable) among the Holders pro rata based on the amount of Registrable
Securities owned by each Holder.
(c) Notwithstanding the foregoing, if the Company shall furnish to
the Holders requesting the filing of a registration statement pursuant to
Section 3.2(a), a certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 180 days
after receipt of the request of the Initiating Holders; provided, however, that
the Company may not utilize this right more than once in any twelve (12)-month
period.
3.3 Piggyback Registrations.
-----------------------
(a) Notice. The Company shall notify all Holders of Registrable
Securities in writing at least 30 days prior to filing any registration
statement under the Securities Act for purposes of effecting a public offering
of securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding any registration statement relating to any employee benefit plan or a
corporate reorganization) and will afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall, within 15 days after receipt of the above-described notice
from the Company, so notify the Company in writing, and in such notice shall
inform the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
<PAGE>
(b) Underwriting. If a registration statement under which the Company
gives notice under Section 3.3 is for an underwritten offering, then the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder's Registrable Securities to be included in a registration
pursuant to this Section 3.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter(s) determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, second, to each of the Holders of Registrable Securities requesting
inclusion of their Registrable Securities in such registration statement, to be
allocated among all Holders thereof pro rata based on the amount of Registrable
Securities of the Company owned by each Holder and third, to each of the other
holders of the Company's securities, other than the Holders requesting inclusion
of their Registrable Securities in such registration statement, to be allocated
among such other holders thereof pro rata based on the number of shares owned by
each such other holder; provided, however, that the right of the underwriters to
exclude shares (including Registrable Securities) from the registration and
underwriting as described above shall be restricted so that the number of
Registrable Securities included in any such registration is not reduced below
twenty-five percent (25%) of the shares included in the registration, except for
a registration relating to the Company's Initial Public Registration from which
all Registrable Securities may be excluded. Any Registrable Securities excluded
or withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder,"
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
3.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with two demand registrations (pursuant to Section 3.2), all
piggyback registrations (pursuant to Section 3.3) and one S-3 registration per
year (pursuant to Section 3.5) shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered.
3.5 Form S-3 Registration. In case the Company shall receive from Holders
---------------------
of 25% or more of the outstanding Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holders, provided the number of shares requested to be
sold would have an aggregate price to the public of at least $2,000,000, then
the Company will:
<PAGE>
(a) Notice. Promptly give written notice of the proposed registration
and the Holder's request therefor, and any related qualification or compliance,
to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, use its best efforts to
effect such registration and all such qualifications and compliances as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of the Holder's Registrable Securities as are specified in such
request together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
received by the Company within 15 days after written notice from the Company is
given under Section 3.5(a) above; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance
pursuant to this Section 3.5:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Company shall furnish to the Holders a certificate
signed by the President or Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for an
aggregate of not more than one hundred eighty (180) days after receipt of the
request of the Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12)-month period;
(iii) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of 'process in effecting such registration, qualification or compliance; or
(iv) if the Company has filed a registration statement on Form
S-3 relating to Registrable Securities within the twelve (12) months preceding
the request of the Holders.
Subject to the foregoing, the Company shall use its best efforts to file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 3.5 as soon as
practicable after receipt of the request the Holders for such registration.
3.6 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the distribution is completed, but not more than 180 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as
<PAGE>
may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and all amendments and supplements thereto, and such other
documents as they may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by them that are included in such
registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and, following such notification, promptly deliver to each Holder
copies of all amendments or supplements referred to in paragraphs (b) and (c) of
this Section 3.6.
(g) Furnish, at the request of any Holder registering Registrable
Securities, on the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters,
(i) an opinion, dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering addressed to the
underwriters, if any, and if there are no underwriters, to the Holders
requesting registration of Registrable Securities and (ii) a "comfort" letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters.
3.7 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 3.2, 3.3 or
3.5 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of Registrable Securities.
<PAGE>
3.8 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.9 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under Sections 3.2, 3.3 or 3.5:
(a) By the Company. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained or incorporated by reference in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
federal or state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, member, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this subsection 3.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished in writing
and expressly stated for use in connection with such registration by such
Holder, partner, member, officer, director, underwriter or controlling person of
such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
Holder will, if Registrable Securities held by such Holder are included in the
securities as to which such registration is being effected, indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter (as defined in the
Securities Act) and any other Holder selling securities under such registration
statement or any of
<PAGE>
such other Holder's partners, members, directors or officers or any person who
controls such underwriter or other Holder within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, member, partner or
director, officer or controlling person of such underwriter or other Holder may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder by an
instrument duly executed by such Holder and stated to be specifically for use in
such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, partner, member, officer,
director or controlling person of such other Holder or underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 3.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld; and
provided further, that the total amounts payable in indemnity by a Holder under
this Section 3.9(b) in respect of any Violation shall not exceed the net
proceeds received by such Holder in the registered offering out of which such
Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
Section 3.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under Section 3.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under Section 3.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under Section 3.9.
(d) Survival. The obligations of the Company and Holders under
Section 3.9 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
3.10 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
----------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees, members or partners of the Holder
<PAGE>
who agree to be similarly bound) for up to 180 days following the date of the
final prospectus in connection with the registration statement of the Company
filed under the Securities Act; provided, however, that such agreement shall be
applicable only to the first such registration statement of the Company that
covers securities to be sold on its behalf to the public in an underwritten
offering but not to Registrable Securities sold pursuant to such registration
statement or any shares purchased by the Holder in the underwritten offering or
on the open market following the effective date of the offering, and provided,
further, that each officer and director of the Company also agrees to such
restrictions.
The provisions of this Section 3.10 shall be binding upon any transferee or
assignee of any Registrable Securities, whether or not such persons are entitled
to registration rights pursuant to Section 3.13.
3.11 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
the reporting requirements of the Exchange Act), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the Exchange Act).
3.12 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least 50% of the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder (a) to include such
securities in any registration filed under this Section 3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included, or (b) to make a demand registration to the Company.
<PAGE>
3.13 Assignment of Registration Rights. The rights of a Holder under this
---------------------------------
Section 3 may be assigned by any Holder in connection with any transfer or
assignment by a Holder of Registrable Securities provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such transfer is effected in compliance with the restrictions on
transfer contained in the Agreement and in any other agreement between the
Company and the Holder, (iii) such assignee or transferee either holds
subsequent to such transfer not less than fifty thousand (50,000) shares of
Registrable Securities or is a subsidiary, wholly-owned entity, successor
entity, parent, member or stockholder of a Holder, and (iv) such other party
agrees in writing with the Company to be bound by all of the provisions of this
Section 3.
3.14 Termination of Registration Rights. The registration rights granted
----------------------------------
pursuant to Section 3 will terminate as to any Holder upon the later to occur of
(a) such time as the Company and the Holder are satisfied that Rule 144(k) is
available for the resale by the then-current Holder of the Common Stock
underlying all of the Preferred Stock, (b) the three-year anniversary following
the effective date of the Company's Initial Public Registration or (c) such time
as a Holder has less than one percent shares of the outstanding Common Stock of
the Company (assuming conversion of all Preferred Stock into Common Stock) and
can sell all of its remaining Registrable Securities under Rule 144 during any
three (3)-month period.
4. RIGHT OF FIRST OFFER TO SUBSCRIBE TO NEW ISSUANCES.
4.1 General. The Company hereby grants to each Investor the right of
-------
first offer to purchase such Investor's pro rata share ("Pro Rata Share") of New
Securities (as defined in Section 4.2(a)) that the Company may, from time to
time, propose to sell and issue. Such Investor's Pro Rata Share, for purposes
of this right of first offer, is the ratio that the number of shares of Common
Stock (assuming conversion of all Preferred Stock and securities convertible
into Common Stock but not including options or warrants to acquire Common Stock)
held by such Investor bears to the total number of shares of Common Stock
outstanding immediately prior to the time of issuance of such New Securities
(assuming conversion into Common Stock of all outstanding Preferred Stock and
any other securities convertible into Common Stock but not including options or
warrants to acquire Common Stock). This right of first offer shall be subject
to the following provisions:
4.2 Certain Definitions. For the purposes of Section 4:
-------------------
(a) "New Securities" shall mean any Common Stock or any Preferred
Stock of the Company, whether or not now authorized, and any rights, options, or
warrants to purchase said Common Stock or Preferred Stock, and securities of any
type whatsoever that are, or may become, convertible into or exchangeable for
Common Stock or Preferred Stock; provided, however, that "New Securities" does
not include (i) securities issuable upon conversion of or with respect to the
Series B Preferred Stock or the Series A Preferred Stock or upon conversion of
or with respect to any other Preferred Stock subsequently issued; (ii)
securities offered to the public pursuant to a registration statement filed
under the Securities Act; (iii) securities issued pursuant to the acquisition of
another unaffiliated corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns not less than 50% of the voting power of the surviving corporation; (iv)
shares of the Company's Common Stock (or related options or warrants) issued to
<PAGE>
employees, officers, directors, consultants, or other persons performing
services for the Company (including, but not by way of limitation, distributors
and sales representatives) pursuant to any stock offering, plan, or arrangement
approved by a majority of the non-employee members of the Board of Directors of
the Company; (v) securities issued pursuant to or in connection with any
corporate partnership, joint venture, licensing or distribution arrangement with
a non-affiliate or in connection with an unaffiliated equipment lease financing
or bank or similar institutional credit financing which the Company may enter;
or (vi) shares of the Company's Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, recapitalization by the Company
or other antidilution events set forth in Section 5 of the Company's Amended and
Restated Certificate of Incorporation.
4.3 Mechanics of Right.
------------------
(a) Notices, Pro Rata Rights. In the event that the Company
proposes to issue New Securities, it shall give each such Investor written
notice (the "First Notice") of its intention, describing the type of New
Securities, the price, and the general terms upon which the Company proposes to
issue the same. Within 20 days after receipt of the First Notice, the Investor
shall give the Company written notice (the "Investor Notice") of its intention
to purchase or obtain, at the price and on the terms specified in the Notice, a
number of shares equal to or less than its Pro Rata Share of the New Securities.
In addition, the Investor Notice shall state whether an Investor wishes to
purchase more than its Pro Rata Share of the New Securities. The Company shall
promptly give written notice to each Investor that purchases its Pro Rata Share
of the New Securities (a "Fully-Exercising Investor") of the amount of New
Securities, if any, that other Investors do not elect to purchase in response to
the First Notice (the "Second Notice"). Each Fully-Exercising Investor shall
notify the Company within 15 days of receipt of the Second Notice if it would
like to purchase any of the unsubscribed shares and indicate the maximum number
of unsubscribed shares it would like to purchase. The Company shall inform the
Fully-Exercising Investors of the total number of unsubscribed shares available
and provide the Fully-Exercising Investors with an allocation of the
unsubscribed shares based on the number of shares of Common Stock (assuming
conversion of all Preferred Stock into Common Stock) held by each Fully-
Exercising Investor.
(b) Company Right. To the extent that Investors fail to exercise
in full the right of first offer as provided in Section 4.3(a) hereof, the
Company shall have 90 days thereafter to sell (or enter into an agreement
pursuant to which the sale of New Securities covered thereby shall be closed, if
at all, within said 90-day period) the New Securities respecting which the
Investors' rights were not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's notice. In
the event the Company has not sold the New Securities within said 90-day period
(or sold and issued New Securities in accordance with the foregoing within 90
days from the date of said agreement), the Company shall not thereafter issue or
sell any New Securities, without first offering such securities to the Investors
in the manner provided above.
(c) No Impairment. An Investor's failure to exercise this right of
first offer on any issuance of New Securities shall not adversely affect the
Investor's right of first offer to purchase subsequent issuances of New
Securities.
<PAGE>
4.4 Termination. The rights of first offer under this Section 4 shall
-----------
not apply to and shall terminate upon the closing of the Company's Initial
Public Registration.
4.5 Assignment. The right of first offer granted under this Section 4
----------
is nonassignable except to another entity under common control with an Investor
or a successor to an Investor.
5. LEGENDS.
Each Investor understands that the share certificates evidencing any
Registrable Securities shall be endorsed with the following legends (in addition
to any legends required under applicable state securities laws):
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(c) Any legend required to be place thereon by any other
applicable state securities laws.
6. MISCELLANEOUS.
-------------
6.1 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and permitted transferees and
permitted assigns of the parties.
6.2 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Delaware as applied to contracts made and to be
performed entirely within that state between residents of that state.
6.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
6.4 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
<PAGE>
6.5 Stock Splits, etc. All share numbers used in this Agreement are
-----------------
subject to adjustment in the case of any stock split, reverse stock split,
combination or similar events.
6.6 Notices. Any notice required or permitted to be given to a party
-------
pursuant to the provisions of this Agreement will be in writing and will be
effective and or (i) the date of delivery by facsimile, or (ii) the business day
after deposit with a nationally-recognized courier or overnight service,
including Express Mail, for United States deliveries or (iii) five (5) business
days after deposit in the United States mail by registered or certified mail for
United States deliveries. All notices not delivered personally or by facsimile
will be sent with postage and other charges prepaid and properly addressed to
the party to be notified at the address set forth below such party's signature
on this Agreement or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto. All notices for
delivery outside the United States will be sent by facsimile, or by nationally
recognized courier or overnight service. Any notice given hereunder to more
than one person will be deemed to have been given, for purposes of counting time
periods hereunder, on the date given to the last party required to be given such
notice. Notices to the Company will be marked to the attention of the Chief
Financial Officer.
6.7 Attorneys' Fees. If any action at law or in equity is necessary to
---------------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.8 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the party against whom enforcement of such amendment
or waiver is sought; provided, however that with respect to any Investor, the
consent of the holders of more than 50% of the Registrable Securities shall be
sufficient to bind any and all Investors; and provided, further, that where the
amendment or waiver affects a right or creates an obligation that is specific to
a party named herein (whether an individual, trust, partnership or corporation),
the amendment or waiver of such right or creation of such obligation shall
require the consent of such party.
6.9 Severability. If any provision of this Agreement is held to be
------------
unenforceable under applicable law, then such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision was so excluded and shall be enforceable in accordance with its terms.
6.10 Entire Agreement. This Agreement, together with all Exhibits
----------------
hereto, constitute the full and entire understanding and agreement between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations, correspondence, agreements, understandings, duties or obligations
among the parties with respect to the subject matter hereof
6.11 Further Assurances. From and after the date of this Agreement,
------------------
upon the request of a party, the other parties shall execute and deliver such
instruments, documents or other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
<PAGE>
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date first above written.
COMMERX, INC.
/s/ Tim Stojka
-------------------------------------------------
Tim Stojka, President
/s/ Nick Stojks
-------------------------------------------------
Nick Stojka, Secretary
INVESTORS
CAPITAL RESEARCH AND MANAGEMENT COMPANY
on behalf of SMALLCAP World Fund, Inc.
By: /s/ Michael J. Downer
-------------------------------------------
Title: Michael J. Downer, Secretary
Address: 333 South Hope St., Fl., 55
Los Angeles, CA 90071
INTERNET CAPITAL GROUP, INC.
By: /s/ Ken Fox
-------------------------------------------
Title: Ken Fox, Managing Director
Address: 800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
<PAGE>
PIVOTAL PARTNERS, L.P.
By: /s/ Christopher Lord
------------------------------------
Title: Christopher Lord, Manager
Address: One Embarcadero Center, Suite 2300
San Francisco, CA 94111-3162
CHRISTOPHER LORD
/s/ /s/ Christopher Lord
-----------------------------------
Address: One Embarcadero Center, Suite 2300
San Francisco, CA 94111-3162
CALIFORNIA BANK & TRUST
AGENT FOR RALPH CECHETTINI IRA#1
By: /s/ illegible
------------------------------------
Title: Trust Officer
Address: 300 Lakeside Dr. 8/th/ Floor
Oakland, CA 94612
PALANTIR INVESTMENTS LDC
By: /s/ Glenn Doshay
-----------------------------------
Title: Glenn Doshay, Manager
Address: 6279 Via Campo Verde
Rancho Sante Fe, CA 92067
PALANTIR PARTNERS LP
By: /s/ Glenn Doshay
------------------------------------
Title: Glenn Doshay, General Partner
Address: 6279 Via Campo Verde
Rancho Sante Fe, CA 92067
<PAGE>
DIVINE INTERVENTURES, INC.
By: /s/ illegible
--------------------------------------------
Title: EVP and General Counsel
Address: 4225 Naperville Road
Lisle, IL 60532
B2B INVESTORS LLC
By: /s/ Tim Stojka
--------------------------------------------
Title: Tim Stojka, Manager
Address: Corporation Trust Center
1209 Orange Street
Wilmington, Delaware
DAVID DILL
/s/ David Dill
--------------------------------------------------
Address: 350 N. LaSalle Street, Suite 1000
Chicago, IL 60610
JIM MORELLI
/s/ Jim Morelli
--------------------------------------------------
Address: 350 N. LaSalle Street, Suite 1000
Chicago, IL 60610
JEFF GARWOOD
/s/ Jeff Garwood
-------------------------------------------------
Address: 350 N. LaSalle Street, Suite 1000
Chicago, IL 60610
<PAGE>
DAVE FRANCO
/s/ Dave Franco
-------------------------------------------------
Address: 350 N. LaSalle Street, Suite 1000
Chicago, IL 60610
<PAGE>
EXHIBIT A
---------
INVESTORS
Capital Research And Management Company
on behalf of SMALLCAP World Fund, Inc.
Internet Capital Group, Inc.
Pivotal Partners, L.P.
Christopher Lord
California Bank & Trust
Agent for Ralph Cechettini
IRA#1
Palantir Investments LDC
Palantir Partners LP
Divine Interventures, Inc.
B2B Investment, LLC
David Dill
Jim Morelli
Jeff Garwood
Dave Franco
<PAGE>
EXHIBIT 4.4
COMMERX, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is made and entered into
as of December 30, 1999 by and among Commerx, Inc., a Delaware corporation (the
"Company"), and the persons listed on Exhibit A hereto (each individually an
---------
"Investor" and, collectively, the "Investors").
RECITALS
WHEREAS, the Company desires for the Investors to purchase shares of the
Company's Series B Preferred Stock pursuant to a Series B Preferred Stock
Purchase Agreement of even date herewith (the "Purchase Agreement"); and
WHEREAS, as an inducement for the Investors to enter into the Purchase
Agreement, the Company and the Investors desire to enter into this Agreement.
1. RIGHTS OF INVESTORS.
The Company hereby grants to the Investors the information rights,
registration rights and rights of first offer (collectively the "Investor
Rights") contained herein. The Investors accept the Investor Rights, as
applicable, and agree to be bound by the obligations contained herein. The
Company hereby grants to the Common Stockholders certain registration rights
contained herein.
2. INFORMATION RIGHTS.
2.1 Financial Information. The Company will provide each Investor
---------------------
the following reports for so long as the Investor is a holder of a minimum of
one hundred thousand (100,000) shares of Registrable Securities (as adjusted for
combinations, stock dividends, subdivisions or split-ups):
(a) Annual Reports. As soon as practicable after the end of each
fiscal year, and in any event within ninety (90) days thereafter, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income, stockholders' equity
and cash flows of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited (without qualification as to scope) by
independent auditors of national standing selected by the Company.
(b) Monthly and Quarterly Reports. As soon as practicable after
the end of each month and fiscal quarter, and in any event within thirty (30)
days and forty-five (45) days, respectively, thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
period, consolidated statements of income, consolidated
<PAGE>
statements of changes in financial condition, a consolidated statement of cash
flow of the Company and its subsidiaries and a statement of stockholders' equity
for such period and for the current fiscal year to date, and setting forth in
each case in comparative form the figures for corresponding periods in the
previous fiscal year, and setting forth in comparative form the budgeted
figures, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year-end
audit adjustments, all in reasonable detail and signed by the principal
financial or accounting officer of the Company.
(c) Annual Budget. As soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a projected operating
budget and business plan for the next fiscal year, prepared on a monthly basis,
including balance sheets and sources and applications of funds statements for
such months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company.
2.2 Inspection. The Company shall permit each Investor at such
----------
Investor's expense to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information that it
reasonably considers to be a trade secret or similar confidential information.
2.3 Assignment of Rights. The rights granted pursuant to Sections
--------------------
2.1 and 2.2 may be assigned or otherwise conveyed by an Investor to (i) a
transferor or assignee who holds, subsequent to such transfer, not less than one
hundred thousand (100,000) shares of Registrable Securities and which agrees in
writing to non-disclosure provisions with respect to the information; or (ii) a
subsidiary, wholly-owned entity, successor entity, parent, member or stockholder
of a Holder. Notwithstanding the foregoing, the rights granted pursuant to
Sections 2.1 and 2.2 may not be assigned or otherwise conveyed to a competitor
of the Company, as reasonably determined by the Board of Directors of the
Company. The Investor shall provide the Company with written notice of any
assignment or conveyance of the rights granted pursuant to Sections 2.1 and 2.2.
2.4 Termination of Certain Rights. The Company's obligations under
-----------------------------
this Section 2 will terminate upon the closing of the Company's initial public
offering of Common Stock pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Securities Act") with a sales price
per share of Common Stock (as adjusted for combinations, stock dividends,
subdivisions or split-ups) of at least $18.645 and aggregate gross proceeds to
the Company of at least $15,000,000 (the "Company's Initial Public
Registration").
3. REGISTRATION RIGHTS.
3.1 Definitions.
-----------
(a) Exchange Act. The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended.
2
<PAGE>
(b) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(c) Holder. For purposes of this Section 3, the term "Holder" means
any person owning of record Registrable Securities that have not been sold to
the public or pursuant to Rule 144 promulgated under the Securities Act or any
assignee of record of such Registrable Securities to whom rights under this
Section 3 have been duly assigned in accordance with this Agreement.
(d) Initiating Holder. The term "Initiating Holder" shall mean any
Holder or Holders who in the aggregate are Holders of not less than 66-2/3% of
the then outstanding Registrable Securities which have not been sold to the
public.
(e) Preferred Stock. The term "Preferred Stock" shall mean the Series
B Preferred Stock of the Company.
(f) Registrable Securities. The term "Registrable Securities" means:
(1) all shares of Common Stock issued or issuable pursuant to the conversion of
Series B Preferred Stock and any shares of the Common Stock of the Company or
other securities issued in connection with any stock split, stock dividend,
recapitalization or similar event relating to the foregoing; excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which rights under this Section 3 are not assigned in accordance with this
Agreement or any Registrable Securities sold to the public or sold pursuant to
Rule 144 promulgated under the Securities Act.
(g) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(h) Registration Expenses. "Registration Expenses" shall mean all
expenses incurred by the Company in complying with Sections 3.2, 3.3 and 3.5
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and expenses of one counsel for all the Holders, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
(i) SEC. The term "SEC" or "Commission" means the U.S. Securities and
Exchange Commission.
(j) Selling Expenses. "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities.
3
<PAGE>
3.2. Requested Registration.
----------------------
(a) Request for Registration by Initiating Holders. If the
Company shall receive from an Initiating Holder, at any time, a written request
that the Company effect any registration with respect to all or a part of the
Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders of Registrable
Securities; and
(ii) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 15 days after written notice from the Company is given
under Section 3.2(a)(i) above; provided, however, that the Company shall not be
obligated to effect, or take any action to effect, any such registration
pursuant to this Section 3.2(a):
(A) In any particular Jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder;
(B) After the Company has effected two (2) such
registrations pursuant to Section 3.2 and such registrations have been declared
or ordered effective and the sales of such Registrable Securities shall have
closed; or
(C) If the Registrable Securities requested by all
Holders to be registered pursuant to such request have an anticipated aggregate
offering price to the public of less than $12,500,000; or
(D) Prior to January 1, 2002.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 3.2(b) below, include other
securities of the Company which are held by officers or directors of the
Company, or which are held by persons who, by virtue of agreements with the
Company, are entitled to include their securities in any such registration, but
the Company and such other holders shall have no absolute right to include any
of its securities in any such registration.
(b) Underwriting; Request by Initiating Holders. If the
Initiating Holders intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to Section 3.2(a) and the Company shall
include such information in the written notice referred to
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in Section 3.2(a). In such event, the right of any Holder to include such
Holder's Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
Section 3.6(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of Section 3.2, if the underwriter advises
the Company and the Initiating Holders in writing that marketing factors require
a limitation of the number of shares to be underwritten, then the Company shall
so advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all Holders
thereof, including the Initiating Holders, in such proportion (as nearly as
practicable) among the Holders pro rata based on the amount of Registrable
Securities owned by each Holder.
(c) Notwithstanding the foregoing, if the Company shall
furnish to the Holders requesting the filing of a registration statement
pursuant to Section 3.2(a), a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for a period of not more
than 180 days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12)-month period.
3.3 Piggyback Registrations.
-----------------------
(a) Notice. The Company shall notify all Holders of Registrable
Securities in writing at least 30 days prior to filing any registration
statement under the Securities Act for purposes of effecting a public offering
of securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding any registration statement relating to any employee benefit plan or a
corporate reorganization) and will afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall, within 15 days after receipt of the above-described notice
from the Company, so notify the Company in writing, and in such notice shall
inform the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
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(b) Underwriting. If a registration statement under which the Company
gives notice under Section 3.3 is for an underwritten offering, then the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder's Registrable Securities to be included in a registration
pursuant to this Section 3.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter(s) determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, second, to each of the Holders of Registrable Securities requesting
inclusion of their Registrable Securities in such registration statement, to be
allocated among all Holders thereof pro rata based on the amount of Registrable
Securities of the Company owned by each Holder and third, to each of the other
holders of the Company's securities, other than the Holders requesting inclusion
of their Registrable Securities in such registration statement, to be allocated
among such other holders thereof pro rata based on the number of shares owned by
each such other holder; provided, however, that the right of the underwriters to
exclude shares (including Registrable Securities) from the registration and
underwriting as described above shall be restricted so that the number of
Registrable Securities included in any such registration is not reduced below
twenty-five percent (25%) of the shares included in the registration, except for
a registration relating to the Company's Initial Public Registration from which
all Registrable Securities may be excluded. Any Registrable Securities excluded
or withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder,"
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
3.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with two demand registrations (pursuant to Section 3.2), all
piggyback registrations (pursuant to Section 3.3) and one S-3 registration per
year (pursuant to Section 3.5) shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered.
3.5 Form S-3 Registration. In case the Company shall receive from Holders
---------------------
of 25% or more of the outstanding Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holders, provided the number of shares requested to be
sold would have an aggregate price to the public of at least $2,000,000, then
the Company will:
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(a) Notice. Promptly give written notice of the proposed registration
and the Holder's request therefor, and any related qualification or compliance,
to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, use its best efforts to
effect such registration and all such qualifications and compliances as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of the Holder's Registrable Securities as are specified in such
request together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
received by the Company within 15 days after written notice from the Company is
given under Section 3.5(a) above; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance
pursuant to this Section 3.5:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Company shall furnish to the Holders a certificate
signed by the President or Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for an
aggregate of not more than one hundred eighty (180) days after receipt of the
request of the Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12)-month period;
(iii) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of 'process in effecting such registration, qualification or compliance; or
(iv) if the Company has filed a registration statement on Form
S-3 relating to Registrable Securities within the twelve (12) months preceding
the request of the Holders.
Subject to the foregoing, the Company shall use its best efforts to file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 3.5 as soon as
practicable after receipt of the request the Holders for such registration.
3.6 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the distribution is completed, but not more than 180 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as
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<PAGE>
may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and all amendments and supplements thereto, and such other
documents as they may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by them that are included in such
registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and, following such notification, promptly deliver to each Holder
copies of all amendments or supplements referred to in paragraphs (b) and (c) of
this Section 3.6.
(g) Furnish, at the request of any Holder registering Registrable
Securities, on the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters,
(i) an opinion, dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering addressed to the
underwriters, if any, and if there are no underwriters, to the Holders
requesting registration of Registrable Securities and (ii) a "comfort" letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters.
3.7 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 3.2, 3.3 or
3.5 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of Registrable Securities.
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3.8 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.9 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under Sections 3.2, 3.3 or 3.5:
(a) By the Company. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained or incorporated by reference in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
federal or state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, member, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this subsection 3.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished in writing
and expressly stated for use in connection with such registration by such
Holder, partner, member, officer, director, underwriter or controlling person of
such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
Holder will, if Registrable Securities held by such Holder are included in the
securities as to which such registration is being effected, indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter (as defined in the
Securities Act) and any other Holder selling securities under such registration
statement or any of
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such other Holder's partners, members, directors or officers or any person who
controls such underwriter or other Holder within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, member, partner or
director, officer or controlling person of such underwriter or other Holder may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder by an
instrument duly executed by such Holder and stated to be specifically for use in
such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, partner, member, officer,
director or controlling person of such other Holder or underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 3.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld; and
provided further, that the total amounts payable in indemnity by a Holder under
this Section 3.9(b) in respect of any Violation shall not exceed the net
proceeds received by such Holder in the registered offering out of which such
Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
Section 3.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under Section 3.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under Section 3.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under Section 3.9.
(d) Survival. The obligations of the Company and Holders under
Section 3.9 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
3.10 "Market Stand-Off" Agreement. Each Holder hereby agrees that it shall
---------------------------
not, to the extent requested by the Company or an underwriter of securities of
the Company, sell or otherwise transfer or dispose of any Registrable Securities
or other shares of stock of the Company then owned by such Holder (other than to
donees, members or partners of the Holder
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who agree to be similarly bound) for up to 180 days following the date of the
final prospectus in connection with the registration statement of the Company
filed under the Securities Act; provided, however, that such agreement shall be
applicable only to the first such registration statement of the Company that
covers securities to be sold on its behalf to the public in an underwritten
offering but not to Registrable Securities sold pursuant to such registration
statement or any shares purchased by the Holder in the underwritten offering or
on the open market following the effective date of the offering, and provided,
further, that each officer and director of the Company also agrees to such
restrictions.
The provisions of this Section 3.10 shall be binding upon any transferee or
assignee of any Registrable Securities, whether or not such persons are entitled
to registration rights pursuant to Section 3.13.
3.11 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
the reporting requirements of the Exchange Act), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the Exchange Act).
3.12 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least 50% of the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder (a) to include such
securities in any registration filed under this Section 3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included, or (b) to make a demand registration to the Company.
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3.13 Assignment of Registration Rights. The rights of a Holder under this
---------------------------------
Section 3 may be assigned by any Holder in connection with any transfer or
assignment by a Holder of Registrable Securities provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such transfer is effected in compliance with the restrictions on
transfer contained in the Agreement and in any other agreement between the
Company and the Holder, (iii) such assignee or transferee either holds
subsequent to such transfer not less than fifty thousand (50,000) shares of
Registrable Securities or is a subsidiary, wholly-owned entity, successor
entity, parent, member or stockholder of a Holder, and (iv) such other party
agrees in writing with the Company to be bound by all of the provisions of this
Section 3.
3.14 Termination of Registration Rights. The registration rights granted
----------------------------------
pursuant to Section 3 will terminate as to any Holder upon the later to occur of
(a) such time as the Company and the Holder are satisfied that Rule 144(k) is
available for the resale by the then-current Holder of the Common Stock
underlying all of the Preferred Stock, (b) the three-year anniversary following
the effective date of the Company's Initial Public Registration or (c) such time
as a Holder has less than one percent shares of the outstanding Common Stock of
the Company (assuming conversion of all Preferred Stock into Common Stock) and
can sell all of its remaining Registrable Securities under Rule 144 during any
three (3)-month period.
4. RIGHT OF FIRST OFFER TO SUBSCRIBE TO NEW ISSUANCES.
4.1 General. The Company hereby grants to each Investor the right of
-------
first offer to purchase such Investor's pro rata share ("Pro Rata Share") of New
Securities (as defined in Section 4.2(a)) that the Company may, from time to
time, propose to sell and issue. Such Investor's Pro Rata Share, for purposes of
this right of first offer, is the ratio that the number of shares of Common
Stock (assuming conversion of all Preferred Stock and securities convertible
into Common Stock but not including options or warrants to acquire Common Stock)
held by such Investor bears to the total number of shares of Common Stock
outstanding immediately prior to the time of issuance of such New Securities
(assuming conversion into Common Stock of all outstanding Preferred Stock and
any other securities convertible into Common Stock but not including options or
warrants to acquire Common Stock). This right of first offer shall be subject to
the following provisions:
4.2 Certain Definitions. For the purposes of Section 4:
-------------------
(a) "New Securities" shall mean any Common Stock or any
Preferred Stock of the Company, whether or not now authorized, and any rights,
options, or warrants to purchase said Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into or
exchangeable for Common Stock or Preferred Stock; provided, however, that "New
Securities" does not include (i) securities issuable upon conversion of or with
respect to the Series B Preferred Stock or the Series A Preferred Stock or upon
conversion of or with respect to any other Preferred Stock subsequently issued;
(ii) securities offered to the public pursuant to a registration statement filed
under the Securities Act; (iii) securities issued pursuant to the acquisition of
another unaffiliated corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns not less than 50% of the voting power of the surviving corporation; (iv)
shares of the Company's Common Stock (or related options or warrants) issued to
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employees, officers, directors, consultants, or other persons performing
services for the Company (including, but not by way of limitation, distributors
and sales representatives) pursuant to any stock offering, plan, or arrangement
approved by a majority of the non-employee members of the Board of Directors of
the Company; (v) securities issued pursuant to or in connection with any
corporate partnership, joint venture, licensing or distribution arrangement with
a non-affiliate or in connection with an unaffiliated equipment lease financing
or bank or similar institutional credit financing which the Company may enter;
or (vi) shares of the Company's Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, recapitalization by the Company
or other antidilution events set forth in Section 5 of the Company's Amended and
Restated Certificate of Incorporation.
4.3 Mechanics of Right.
------------------
(a) Notices, Pro Rata Rights. In the event that the Company
proposes to issue New Securities, it shall give each such Investor written
notice (the "First Notice") of its intention, describing the type of New
Securities, the price, and the general terms upon which the Company proposes to
issue the same. Within 20 days after receipt of the First Notice, the Investor
shall give the Company written notice (the "Investor Notice") of its intention
to purchase or obtain, at the price and on the terms specified in the Notice, a
number of shares equal to or less than its Pro Rata Share of the New Securities.
In addition, the Investor Notice shall state whether an Investor wishes to
purchase more than its Pro Rata Share of the New Securities. The Company shall
promptly give written notice to each Investor that purchases its Pro Rata Share
of the New Securities (a "Fully-Exercising Investor") of the amount of New
Securities, if any, that other Investors do not elect to purchase in response to
the First Notice (the "Second Notice"). Each Fully-Exercising Investor shall
notify the Company within 15 days of receipt of the Second Notice if it would
like to purchase any of the unsubscribed shares and indicate the maximum number
of unsubscribed shares it would like to purchase. The Company shall inform the
Fully-Exercising Investors of the total number of unsubscribed shares available
and provide the Fully-Exercising Investors with an allocation of the
unsubscribed shares based on the number of shares of Common Stock (assuming
conversion of all Preferred Stock into Common Stock) held by each Fully-
Exercising Investor.
(b) Company Right. To the extent that Investors fail to exercise
in full the right of first offer as provided in Section 4.3(a) hereof, the
Company shall have 90 days thereafter to sell (or enter into an agreement
pursuant to which the sale of New Securities covered thereby shall be closed, if
at all, within said 90-day period) the New Securities respecting which the
Investors' rights were not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's notice. In
the event the Company has not sold the New Securities within said 90-day period
(or sold and issued New Securities in accordance with the foregoing within 90
days from the date of said agreement), the Company shall not thereafter issue or
sell any New Securities, without first offering such securities to the Investors
in the manner provided above.
(c) No Impairment. An Investor's failure to exercise this right
of first offer on any issuance of New Securities shall not adversely affect the
Investor's right of first offer to purchase subsequent issuances of New
Securities.
13
<PAGE>
4.4 Termination. The rights of first offer under this Section 4
-----------
shall not apply to and shall terminate upon the closing of the Company's Initial
Public Registration.
4.5 Assignment. The right of first offer granted under this Section
----------
4 is nonassignable except to another entity under common control with an
Investor or a successor to an Investor.
5. LEGENDS.
Each Investor understands that the share certificates evidencing any
Registrable Securities shall be endorsed with the following legends (in addition
to any legends required under applicable state securities laws):
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(c) Any legend required to be place thereon by any other applicable
state securities laws.
6. MISCELLANEOUS.
-------------
6.1 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and permitted transferees and
permitted assigns of the parties.
6.2 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware as applied to contracts made and to be
performed entirely within that state between residents of that state.
6.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
6.4 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
14
<PAGE>
6.5 Stock Splits, etc. All share numbers used in this Agreement are
-----------------
subject to adjustment in the case of any stock split, reverse stock split,
combination or similar events.
6.6 Notices. Any notice required or permitted to be given to a party
-------
pursuant to the provisions of this Agreement will be in writing and will be
effective and or (i) the date of delivery by facsimile, or (ii) the business day
after deposit with a nationally-recognized courier or overnight service,
including Express Mail, for United States deliveries or (iii) five (5) business
days after deposit in the United States mail by registered or certified mail for
United States deliveries. All notices not delivered personally or by facsimile
will be sent with postage and other charges prepaid and properly addressed to
the party to be notified at the address set forth below such party's signature
on this Agreement or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto. All notices for
delivery outside the United States will be sent by facsimile, or by nationally
recognized courier or overnight service. Any notice given hereunder to more than
one person will be deemed to have been given, for purposes of counting time
periods hereunder, on the date given to the last party required to be given such
notice. Notices to the Company will be marked to the attention of the Chief
Financial Officer.
6.7 Attorneys' Fees. If any action at law or in equity is necessary
---------------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.8 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the party against whom
enforcement of such amendment or waiver is sought; provided, however that with
respect to any Investor, the consent of the holders of more than 50% of the
Registrable Securities shall be sufficient to bind any and all Investors; and
provided, further, that where the amendment or waiver affects a right or creates
an obligation that is specific to a party named herein (whether an individual,
trust, partnership or corporation), the amendment or waiver of such right or
creation of such obligation shall require the consent of such party.
6.9 Severability. If any provision of this Agreement is held to be
------------
unenforceable under applicable law, then such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision was so excluded and shall be enforceable in accordance with its terms.
6.10 Entire Agreement. This Agreement, together with all Exhibits
----------------
hereto, constitute the full and entire understanding and agreement between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations, correspondence, agreements, understandings, duties or obligations
among the parties with respect to the subject matter hereof.
6.11 Further Assurances. From and after the date of this Agreement,
------------------
upon the request of a party, the other parties shall execute and deliver such
instruments, documents or other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
15
<PAGE>
The foregoing Investor Rights Agreement is hereby executed as of the date
set forth above.
<TABLE>
COMMERX, INC. EP PARTNERS
<S> <C>
By: /s/ David Dill By: Mark A. DiLillo
--------------- -------------------
David Dill Mark A. DiLillo
Title: Chief Financial Officer Title: Managing Partner
Address: 14881 Riverglen Drive
Novelty, Ohio 44072
ASHLAND, INC.
By: /s/ [illegible] MITSUI & CO. (U.S.A.), INC.
---------------------
By: /s/ [illegible]
Title: Administrative Vice President ---------------
Address: 50 E. RiverCenter Blvd. Title: General Partner
P.O. Box 391 Address: 200 Park Avenue
Covington, KY 41012-0391 New York, NY 10166-0130
EASTMAN CHEMICAL COMPANY MC CAPITAL INC.
By: /s/ James L. Chitwood By: /s/ Shunichi Maeda
----------------------- -------------------
James L. Chitwood Shunichi Maeda
Title: Sr. Vice President, Corp. Strategy Title: Shunichi Maeda, President & CEO
Address: 100 N. Eastman Road Address: 520 Madison Ave. 16F
Kingsport, TN 37660-5075 New York, NY 10022
MUEHLSTEIN HOLDING CORPORATION MITSUBISHI INTERNATIONAL CORPORATION
By: /s/ Ronald J. Restivo By: /s/ [illegible]
--------------------- ---------------
Ronald J. Restivo
Title: Chief Financial Officer Title: SVP & Group COO - Chemicals
Address: 800 Connecticut Avenue Address: 520 Madison Ave. 16F
Norwalk, CT 06854-1631 New York, NY 10022
MSC INDUSTRIAL DIRECT CO., INC. INTERNET CAPITAL GROUP, INC.
By: /s/ Shelley M. Boxer By: /s/ Henry Nassau
-------------------- ----------------
Shelley M. Boxer Henry Nassau
Title: Vice Pres. & CF0 Title: Managing Director - General Counsel
Address: MSC Industrial Direct Co., Inc. Address: 800 The Safeguard Building
75 Maxess Road 435 Devon Park Drive
Melville, NY 11747 Wayne, Pennsylvania 19087
HUNTSMAN FINANCIAL CORP.
By: /s/ [illegible]
---------------
Title: Vice President
Address: 500 Huntsman Way
Salt Lake City, Utah 84108
</TABLE>
<PAGE>
EXHIBIT A
---------
INVESTORS
Ashland, Inc.
Eastman Chemical Company
Muehlstein Holding Company
MSC Industrial Direct Co., Inc.
Huntsman Financial Corporation
EP Partners
Mitsui & Co. (U.S.A.), Inc.
MC Capital Inc.
Mitsubishi International Corporation
Internet Capital Group, Inc.
<PAGE>
EXHIBIT 4.5
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
-----------------
To Purchase Shares of the Series A Convertible Preferred Stock of
COMMERX, INC.
Dated as of June 8, 1999 (the "Effective Date")
WHEREAS, Commerx, Inc., a Delaware corporation (the "Company") has entered into
a Master Lease Agreement dated June 8, 1999, Equipment Schedule No. VL-1 and VL-
2 and VL-3 dated as of June 8, 1999, and related Summary Equipment Schedules
(collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the
`Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series A Convertible
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
-----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 91,429 fully paid and non-
assessable shares of the Company's Series A Convertible Preferred Stock
("Preferred Stock") at a purchase price of $1.05 per share (the "Exercise
Price"). The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
------------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) seven (7) years
or (ii) three (3) years from the effective date of the Company's initial public
offering, whichever is earlier.
If all of the Preferred Stock is converted into shares of Common Stock in
connection with a registration of the Company's Common Stock under the 1933 Act,
then this Warrant shall automatically become exercisable for that number of
shares of Common Stock equal to the number of shares of Common Stock that would
have been received if this Warrant had been exercised in full and the shares of
Preferred Stock received thereupon had been simultaneously converted into shares
of Common Stock immediately prior to such event, and the Exercise Price shall be
automatically adjusted to equal the amount obtained by dividing (i) the
aggregate Exercise Price of the shares of Preferred Stock for this which this
Warrant was exercisable immediately prior to such conversion, by (ii) the number
of shares of Common Stock for which this Warrant is exercisable immediately
after such conversion.
<PAGE>
3. EXERCISE OF THE PURCHASE RIGHTS.
--------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to
the Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial
public offering of the Company's Common Stock, and if
the Company's Registration Statement relating to such
public offering has been declared effective by the
SEC, then the fair market value per share shall be
the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the
offering and (y) the number of shares of Common Stock
into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in
connection with the Company's initial public
offering, and:
(a) if traded on a securities exchange, the fair
market value shall be deemed to be the product
of (x) the average of the closing prices over a
ten (10) day period ending three days before the
day the current fair market value of the
securities is being determined and (y) the
number of shares of Common Stock into which each
share of Preferred Stock is convertible at the
time of such exercise; or
(b) if actively traded over-the-counter, the fair
market value shall be deemed to be the product
of (x) the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar
system) over the ten (10) day period ending
three days before the day the current fair
market value of the securities is being
determined and (y) the number of shares
2
<PAGE>
of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or
the over-the-counter market, the current fair market
value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could
obtain from a willing buyer (not a current employee
or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as
determined in good faith by its Board of Directors
and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at
the time of such exercise, unless the Company shall
become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not
the surviving party, in which case the fair market
value of Preferred Stock shall be deemed to be the
value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant
to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
----------------------
(a) Authorization and Reservation of Shares. The Company will take the
---------------------------------------
necessary steps to increase the number of authorized Preferred Series A
Convertible Preferred Stock to accommodate this Warrant Agreement and the
Warrant Agreement Associated with the Comdisco Ventures $1.5 million lease to
Commerx of hardware and software. Commerx will reserve a sufficient number of
shares of its Preferred Stock to provide for the exercise of the rights to
purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
------------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
-------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
3
<PAGE>
7. WARRANTHOLDER REGISTRY.
-----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
------------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the *product thereof by the Exercise Price resulting
from such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Preferred Stock
purchasable hereunder shall have the benefit
4
<PAGE>
of the same antidilution rights applicable to such Preferred Stock as designated
in the Company's Charter, and the Company shall provide Warrantholder with all
notices and information at the time and to the extent it is required to do so to
the holders of the Preferred Stock
(f) Notice of Adjustments. If-. (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an'ini0al public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder (A)
at least twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (1) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights shall be duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to, acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loans and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loans and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
5
<PAGE>
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking ,of any other action in respect of any state,
Federal or other governmental authority or agency is. required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 20,000,000 shares of
Common Stock, of which 7,430,000 shares are issued and outstanding, and (B)
8,570,000shares of preferred stock, of which 8,570,000 shares are issued
and outstanding and are convertible into one share of Common Stock at $1.05
per share.
(ii) The Company has reserved (A) 4,000,000 shares of Common Stock for issuance
under its Stock Option Plan. Approximately1,900,000 shares have been
granted subject to certain conditions, at an average price of $0.50 per
share.
Internet Capital Group is in process of purchasing 1,904,572 shares of Series A
preferred Stock at $1.05 per share. The closing for the transaction is
tentatively scheduled for June 15, 1999. There are no other options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of the Company's capital
stock or other securities of the Company.
(e) Other Commitments to Register Securities. Except for Series A
----------------------------------------
Preferred stockholders, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(g) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
6
<PAGE>
(b) Private Issue. The Warrantholder understands (I) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth In this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (I) ft
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restiic6ons have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment. In addition, Warrantholder has an opportunity to make inquiries to
the Company regarding its business and financial affairs and such inquiries have
been answered to Warrantholder's satisfaction.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (I) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to -purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
----------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the
7
<PAGE>
"Transfer Notice"), at its principal offices and the payment to the Company of
all transfer taxes and other governmental charges imposed on such transfer. Such
transfers will be limited to persons or entities associated with Warrantholder.
12. MISCELLANEOUS.
--------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease
Administration, cc: Legal Department, Attention.: General Counsel, (and/or, if
by facsimile, (847) 518-5465 and (847)518-5088, and (ii) to the Company at 350
N. LaSalle St. Suite 1000, Chicago, IL 60610, Attention: Chief Financial Officer
(and/or if by facsimile, (312) 832-9351 or at such other address as any such
party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce Its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired. and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
8
<PAGE>
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d) of Section 9 above. The Company shall also supply
such other documents as the Warrantholder may from time to time reasonably
request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: COMMERX, INC.
By: /s/ Nick Stojka
Title: EVP and Director
Warrantholder: COMDISCO, INC.
By: /s/ James Labe
Title: President, Comdisco Ventures Division
9
<PAGE>
EXHIBIT I
---------
NOTICE OF EXERCISE
To:__________________________
(1) The undersigned Warrantholder hereby elects to purchase _____ shares of the
Series _____ Preferred Stock of __________, pursuant to the terms of the
Warrant Agreement dated the _____ day of __________, 19_____ (the "Warrant
Agreement") between ____________________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series _______ Preferred Stock of
___________________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement
(3) Please issue a certificate or certificates representing said shares of
Series _______ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
_______________________________
(Name)
_______________________________
(Address)
Warrantholder: COMDISCO, INC.
By:____________________________
Title:_________________________
Date:__________________________
10
<PAGE>
EXHIBIT II
----------
ACKNOWLEDGMENT OF EXERCISE
The undersigned ______________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase _____ shares of the Series
____ Preferred Stock of ______________, pursuant to the terms of the Warrant
Agreement, and further acknowledges that __________ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:_______________________________
Title:____________________________
Date:_____________________________
11
<PAGE>
EXHIBIT III
-----------
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
______________________________
(Please Print)
whose address is____________________________________________________
____________________________________________________________________
Dated:___________________________
Holders Signature:_______________
Holders Address:_________________
_________________________________
Signature Guaranteed:_________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement
12
<PAGE>
EXHIBIT 4.6
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Convertible Preferred Stock of
COMMERX, INC.
Dated as of July 23, 1999 (the "Effective Date")
WHEREAS, Commerx, Inc., a Delaware corporation (the "Company") has entered into
a Loan and Security Agreement as of June 8, 1999, and related Promissory Note
dated as of June 8, 1999, and related Summary Equipment Schedules (collectively,
the "Loans") with Comdisco, Inc., a Delaware corporation (the 'Warrantholder");
and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loans, the right to purchase shares of its Series A Convertible
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
-----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 21,429 fully paid and non-
assessable shares of the Company's Series A Convertible Preferred Stock
("Preferred Stock") at a purchase price of $1.05 per share (the "Exercise
Price"). The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
If all of the Preferred Stock is converted into shares of Common Stock in
connection with a registration of the Company's Common Stock under the 1933 Act,
then this Warrant shall automatically become exercisable for that number of
shares of Common Stock equal to the number of shares of Common Stock that would
have been received if this Warrant had been exercised in full and the shares of
Preferred Stock received thereupon had been simultaneously converted into shares
of Common Stock immediately prior to such event, and the Exercise Price shall be
automatically adjusted to equal the amount obtained by dividing (i) the
aggregate Exercise Price of the shares of Preferred Stock for this which this
Warrant was exercisable immediately prior to such conversion, by (ii) the number
of shares of Common Stock for which this Warrant is exercisable immediately
after such conversion.
2. TERM OF THE WARRANT AGREEMENT.
------------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) seven (7) years
or (ii) three (3) years from the effective date of the Company's initial public
offering, whichever is earlier.
<PAGE>
If all of the Preferred Stock is converted into shares of Common Stock in
connection with a registration of the Company's Common Stock under the 1933 Act,
then this Warrant shall automatically become exercisable for that number of
shares of Common Stock equal to the number of shares of Common Stock that would
have been received if this Warrant had been exercised in full and the shares of
Preferred Stock received thereupon had been simultaneously converted into shares
of Common Stock immediately prior to such event, and the Exercise Price shall be
automatically adjusted to equal the amount obtained by dividing (i) the
aggregate Exercise Price of the shares of Preferred Stock for this which this
Warrant was exercisable immediately prior to such conversion, by (ii) the number
of shares of Common Stock for which this Warrant is exercisable immediately
after such conversion.
3. EXERCISE OF THE PURCHASE RIGHTS.
--------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where:X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the
Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the
fair market value per share shall be the product of (x)
the initial "Price to Public" specified in the final
prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such
exercise;
(ii) if this Warrant is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the
average of the closing prices over a ten (10) day period
ending three days before the day the current fair
2
<PAGE>
market value of the securities is being determined and
(y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of
such exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the
average of the closing bid and asked prices quoted on the
NASDAQ system (or similar system) over the ten (10) day
period ending three days before the day the current fair
market value of the securities is being determined and
(y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of
such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the current fair market value of
Preferred Stock shall be the product of (x) the highest
price per share which the Company could obtain from a
willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of
shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise, unless
the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is
not the surviving party, in which case the fair market
value of Preferred Stock shall be deemed to be the value
received by the holders of the Company's Preferred Stock
on a common equivalent basis pursuant to such merger or
acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
----------------------
(a) Authorization and Reservation of Shares. The Company will take the
---------------------------------------
necessary steps to increase the number of authorized Preferred Series A
Convertible Preferred Stock to accommodate this Warrant Agreement and the
Warrant Agreement Associated with the Comdisco Ventures $1.5 million lease to
Commerx of hardware and software. Commerx will reserve a sufficient number of
shares of its Preferred Stock to provide for the exercise of the rights to
purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
------------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
3
<PAGE>
6. NO RIGHTS AS SHAREHOLDER.
-------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
-----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
------------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the *product thereof by the Exercise Price resulting
from such adjustment.
4
<PAGE>
(e) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Preferred Stock
purchasable hereunder shall have the benefit of the same antidilution rights
applicable to such Preferred Stock as designated in the Company's Charter, and
the Company shall provide Warrantholder with all notices and information at the
time and to the extent it is required to do so to the holders of the Preferred
Stock
(f) Notice of Adjustments. If-. (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an'ini0al public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder (A)
at least twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (1) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
---------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights shall be duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to, acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loans and this Warrant Agreement are
5
<PAGE>
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loans and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
----------------------
registration with, or taking ,of any other action in respect of any state,
Federal or other governmental authority or agency is. required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 20,000,000 shares of
Common Stock, of which 7,430,000 shares are issued and outstanding, and (B)
8,570,000shares of preferred stock, of which 8,570,000 shares are issued
and outstanding and are convertible into one share of Common Stock at $1.05
per share.
(ii) The Company has reserved (A) 4,000,000 shares of Common Stock for issuance
under its Stock Option Plan. Approximately 2,095,000 shares have been
granted subject to certain conditions, at prices ranging from $0.50 to
$0.75 per share.
Warrants were issued to Comdisco Inc on June 8, 1999 to subscribe to and
purchase 91,429 fully paid and non-assessable. shares of the Company's Series A
Convertible Preferred Stock at a purchase price of $1.05 per share. There are
no other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities of the Company.
(e) Other Commitments to Register Securities. Except for Series A Preferred
----------------------------------------
stockholders, the Company is not, pursuant to the terms of any other agreement
currently in existence, under any obligation to register under the 1933 Act any
of its presently outstanding securities or any of its securities which may
hereafter be issued.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(g) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
---------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder
6
<PAGE>
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (I) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth In this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (I) ft
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restiic6ons have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment. In addition, Warrantholder has an opportunity to make inquiries to
the Company regarding its business and financial affairs and such inquiries have
been answered to Warrantholder's satisfaction.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (I) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to -purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
7
<PAGE>
11. TRANSFERS.
----------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the 'Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer. Such transfers will be limited to persons or
entities associated with Warrantholder.
12. MISCELLANEOUS.
--------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease
Administration, cc: Legal Department, Attention.: General Counsel, (and/or, if
by facsimile, (847) 518-5465 and (847)518-5088, and (ii) to the Company at 350
N. LaSalle St. Suite 1000, Chicago, IL 60610, Attention: Chief Financial Officer
(and/or if by facsimile, (312) 832-9351 or at such other address as any such
party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce Its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
8
<PAGE>
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired. and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by a
----------
written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d) of Section 9 above. The Company shall also supply
such other documents as the Warrantholder may from time to time reasonably
request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: COMMERX, INC.
By: /s/ Nick Stojka
Title: EVP and Director
Warrantholder: COMDISCO, INC.
By: /s/ James Labe
Title: President, Comdisco Ventures Division
9
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:_______________________________
(1) The undersigned Warrantholder hereby elects to purchase _____ shares of the
Series _____ Preferred Stock of __________, pursuant to the terms of the
Warrant Agreement dated the _____ day of __________, 19_____ (the "Warrant
Agreement") between ____________________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series _______ Preferred Stock of
___________________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement
(3) Please issue a certificate or certificates representing said shares of
Series _______ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
____________________________
(Name)
____________________________
(Address)
Warrantholder: COMDISCO, INC.
By:_________________________
Title:______________________
Date:_______________________
10
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ________________, hereby acknowledge receipt of the "Notice
of Exercise" from Comdisco, Inc., to purchase _____ shares of the Series ____
Preferred Stock of ______________, pursuant to the terms of the Warrant
Agreement, and further acknowledges that __________ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:_____________________
Title:__________________
Date:___________________
11
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_______________________________
(Please Print)
whose address is____________________________________
____________________________________________________
Dated: _________________________
Holders Signature:______________
Holders Address:________________
________________________________
Signature Guaranteed:__________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement
12
<PAGE>
Exhibit 4.7
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE (TOGETHER, THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
Date: September 28, 1999
Commerx, Inc.
Series B Preferred Stock Purchase Warrant
Commerx, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for value received, David Dill (the "Holder"), or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
and from time to time during the period beginning on the closing of a private
placement of the Company's Series B Preferred Stock and ending on September 28,
2004, an aggregate number of fully paid and non-assessable shares of the
Company's Series B Preferred Stock at the "Purchase Price" (as hereinafter
defined), subject to the provisions of Paragraph 3 hereof, determined by a
fraction, the numerator of which is fifteen percent (.15) multiplied by
$1,000,000, plus accrued and unpaid interest under the Company's Convertible
Note issued to the holder concurrently with this Warrant, and the denominator of
which is the Purchase Price. "Purchase Price" shall mean the conversion price
of the Series B Preferred Stock as determined by paragraph 4 of the Convertible
Note. "Series B Preferred Stock" shall mean, unless the context otherwise
requires, the Series B Preferred Stock issued in accordance with a proposed
amendment to the Company's Certificate of Incorporation, which stock shall have
the rights and preferences substantially as set forth in the Term Sheet attached
hereto and which stock shall be convertible into the Company's Common Stock at
the applicable conversion price as determined by paragraph 4 of the Convertible
Note. Notwithstanding the foregoing, the Purchase Price and the number and
character of shares issuable under this Warrant are subject to adjustment as set
forth in Paragraph 3. If the Company consummates an initial public offering of
its common stock prior to exercise of this Warrant, then this Warrant shall be
null and void and the Company shall issue a replacement warrant for the purchase
of Common Stock on equitable terms. This Warrant and any replacement warrant is
herein called the "Warrant."
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant
shall be exercised by the holder hereof by surrendering this Warrant, with the
form of subscription at the end hereof duly executed by such holder, to the
Company at its office at 350 North LaSalle Street, Suite 1000, Chicago, Illinois
60610, or such other address as the Company may specify by written notice to the
registered holder hereof, accompanied by payment, in cash, by certified or
official bank check or by wire transfer of an amount equal to the Purchase Price
multiplied by the number of shares being purchased pursuant to such exercise of
the Warrant.
1.1. Partial Exercise. This Warrant may be exercised for less than
----------------
the full number of shares of Series B Preferred Stock, in which case the number
of shares receivable upon the exercise of this Warrant as a whole, and the sum
payable upon the exercise of this Warrant as a whole, shall be proportionately
reduced. Upon any such partial exercise, the Company at its expense will
forthwith issue to the holder hereof a new Warrant or Warrants of
<PAGE>
like tenor calling for the number of shares of Series B Preferred Stock as to
which rights have not been exercised, such Warrant or Warrants to be issued in
the name of the holder hereof or his nominee (upon payment by such holder of any
applicable transfer taxes).
1.2. Net Issue Exercise.
------------------
(1) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder that number of shares of the Company's Series B Preferred Stock computed
using the following formula:
X = Y(A-B)
------
A
Where
X. the number of shares of Series B Preferred Stock to be issued to
Holder.
Y. the number of shares of Series B Preferred Stock purchasable
under this Warrant.
A. the fair market value of one share of the Company's Series B
Preferred Stock.
B. the Purchase Price (as adjusted to the date of such
calculations).
(2) For purposes of this Section, the fair market value of one share
of the Company's Series B Preferred Stock shall be the applicable conversion
price of the Series B Preferred Stock.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus cash in lieu of any fractional share to which such holder would
otherwise be entitled. The Company agrees that the shares so purchased shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with the provisions of the Company's
Series B Preferred Stock.
If any event occurs as to which, in the opinion of the Board of Directors
of the Company, the provisions of the Company's Series B Preferred Stock
relating to anti-dilution and other adjustments are not strictly applicable or
if strictly applicable would not fairly protect the rights
<PAGE>
of the holder of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. The Company shall at all
times take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of this Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company
shall at all times reserve and keep available out of its authorized but unissued
stock, solely for the issuance and delivery upon the exercise of this Warrant
and other similar Warrants, such number of its duly authorized shares of Series
B Preferred Stock as from time to time shall be issuable upon the exercise of
this Warrant and all other similar Warrants at the time outstanding. All of the
shares of Series B Preferred Stock issuable upon exercise of this Warrant, when
issued and delivered in accordance with the terms hereof, will be duly
authorized, validly issued, fully-paid and non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. REGISTRATION RIGHTS. The shares of Series B Preferred Stock issuable
upon exercise of this Warrant and securities issued upon conversion of such
stock are subject to the registration rights granted to Series B Preferred
Stockholders.
9. NEGOTIABILITY. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Absent an effective registration statement under the Securities
Act of 1933, as amended (the "Act"), covering the disposition of this Warrant or
the shares of Series B Preferred Stock issued or issuable upon exercise hereof,
the holder will not sell or transfer any or all of such Warrant or shares, as
the case may be, without first providing the Company with an opinion of counsel
(which may be counsel for the Company) to the effect that such sale or
<PAGE>
transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Each certificate representing shares of Series B
Preferred Stock issued pursuant to this Warrant shall bear a legend in
substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS AND MAY BE TRANSFERRED
OR RESOLD ONLY IN COMPLIANCE WITH SUCH
SECURITIES LAWS.
Any certificate representing securities issued at any time in exchange or
substitution for any certificate bearing such legend (except a certificate
issued upon completion of a distribution under a registration statement covering
the securities represented) shall also bear such legend unless, in the opinion
of counsel to the Company, the securities represented thereby may be transferred
as contemplated by such holder without violation of the registration
requirements of the Act.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent itself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such, bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner
hereof for all purposes without being affected by any notice to the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall not
be entitled to any rights of a shareholder of the Company with respect to shares
for which this Warrant shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or conversion or
delivery of certificates for Series B Preferred Stock in a name other than that
of the registered holder of this Warrant or to issue or deliver any certificates
for Series B Preferred Stock upon the exercise of this Warrant until any and all
such taxes and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that no such tax or
charge is due.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is issued
and delivered by the Company on the basis of the following:
(a) Authorization and Delivery. This Warrant has been duly authorized
--------------------------
and executed by the Company and when delivered will be the valid and binding
obligation of the Company enforceable in accordance with its terms;
<PAGE>
(b) Rights and Privileges. The Company shall, as soon as practicable,
---------------------
use its best efforts to amend its Certificate of Incorporation to authorize the
issuance of a class of Series B Preferred Stock having the rights, preferences,
privileges and restrictions, substantially as set forth in the attached Term
Sheet; and
(c) Warrant Shares. The shares of Series B Preferred Stock to be
--------------
issued pursuant to this Warrant will be, upon proper exercise of this Warrant,
duly authorized and reserved for issuance by the Company and, when issued and
paid for in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable;
(d) No Inconsistency. The execution and delivery of this Warrant are
----------------
not, and the issuance of the shares of Series B Preferred Stock upon exercise of
this Warrant in accordance with the terms hereof will not be, inconsistent with
the Company's Certificate of Incorporation or by-laws, will not contravene any
law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of any other person.
11. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) The holder hereby represents and warrants to the Company that he
has substantial knowledge, skill and experience in making investment decisions
of the type represented by this Warrant and the shares issuable upon exercise of
this Warrant, that he is capable of evaluating the risk of its investment in
this Warrant and the shares issuable upon exercise of this Warrant and is able
to bear the economic risk of such investment, including the risk of losing the
entire investment, that it is acquiring this Warrant and the shares issuable
upon exercise of this Warrant for his own account, and that this Warrant and the
shares issuable upon exercise of this Warrant are being acquired by him for
investment and not with a present view to any distribution thereof in violation
of applicable securities law. If the holder should in the future decide to
dispose of any of this Warrant and the shares issuable upon exercise of this
Warrant, it is understood that it may so do only in compliance with the Act and
applicable state securities laws. The holder represents and warrants that he is
an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The holder understands that (i) this Warrant and the shares
issuable upon exercise of this Warrant have not been registered under the Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Act, (ii) this Warrant and the shares issuable upon exercise
of this Warrant must be held indefinitely unless a subsequent disposition
thereof is registered under the Act and applicable state securities laws or is
exempt from such registration (and, upon request, evidence satisfactory to the
Company is provided by such holder of the availability of such exemptions,
including, upon request, the delivery to the Company of opinions of counsel to
such holder, which opinions and counsel are satisfactory to the Company), and
(iii) this Warrant and the shares issuable upon exercise of this Warrant may
bear a legend to such effect.
<PAGE>
12. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Series
B Preferred Stock of the Company that may be subscribed for and purchased
hereunder.
13. MAILING OF NOTICES. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
14. HEADINGS. The headings in this War-rant are for purposes of reference
only, and shall not limit or otherwise affect the meaning hereof.
15. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
16. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company, by the undersigned thereunto duly
authorized, has duly executed this Warrant as of the date first written above.
COMMERX, INC.
By: /s/ Tim Stojka
Name: Tim Stojka
Title: Chief Executive Officer
ACCEPTED AS OF THE DATE HEREOF:
/s/ David Dill
--------------------------------------
Name: David Dill
<PAGE>
[To be signed only upon exercise of Warrant]
To__________________:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________ shares of Series B Preferred Stock of and herewith
makes payment of $_______ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to _____________, whose
address is ______________.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________ the right represented by the within Warrant to
purchase the _____ shares of the Series B Preferred Stock of __________________
to which the within Warrant relates, and appoints ____________ attorney to
transfer said right on the books of __________________________ with full power
of substitution in the premises.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
EXHIBIT 4.8
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE (TOGETHER, THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
Date: September 28, 1999
Commerx, Inc.
Series B Preferred Stock Purchase Warrant
Commerx, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for value received, Jeff Garwood (the "Holder"), or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
and from time to time during the period beginning on the closing of a private
placement of the Company's Series B Preferred Stock and ending on September 28,
2004, an aggregate number of fully paid and non-assessable shares of the
Company's Series B Preferred Stock at the "Purchase Price" (as hereinafter
defined), subject to the provisions of Paragraph 3 hereof, determined by a
fraction, the numerator of which is fifteen percent (.15) multiplied by
$600,000, plus accrued and unpaid interest under the Company's Convertible Note
issued to the holder concurrently with this Warrant, and the denominator of
which is the Purchase Price. "Purchase Price" shall mean the conversion price
of the Series B Preferred Stock as determined by paragraph 4 of the Convertible
Note. "Series B Preferred Stock" shall mean, unless the context otherwise
requires, the Series B Preferred Stock issued in accordance with a proposed
amendment to the Company's Certificate of Incorporation, which stock shall have
the rights and preferences substantially as set forth in the Term Sheet attached
hereto and which stock shall be convertible into the Company's Common Stock at
the applicable conversion price as determined by paragraph 4 of the Convertible
Note. Notwithstanding the foregoing, the Purchase Price and the number and
character of shares issuable under this Warrant are subject to adjustment as set
forth in Paragraph 3. If the Company consummates an initial public offering of
its common stock prior to exercise of this Warrant, then this Warrant shall be
null and void and the Company shall issue a replacement warrant for the purchase
of Common Stock on equitable terms. This Warrant and any replacement warrant is
herein called the "Warrant."
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant
shall be exercised by the holder hereof by surrendering this Warrant, with the
form of subscription at the end hereof duly executed by such holder, to the
Company at its office at 350 North LaSalle Street, Suite 1000, Chicago, Illinois
60610, or such other address as the Company may specify by written notice to the
registered holder hereof, accompanied by payment, in cash, by certified or
official bank check or by wire transfer of an amount equal to the Purchase Price
multiplied by the number of shares being purchased pursuant to such exercise of
the Warrant.
1.1. Partial Exercise. This Warrant may be exercised for less than
----------------
the full number of shares of Series B Preferred Stock, in which case the number
of shares receivable upon the exercise of this Warrant as a whole, and the sum
payable upon the exercise of this Warrant as a whole, shall be proportionately
reduced. Upon any such partial exercise, the Company at its expense will
forthwith issue to the holder hereof a new Warrant or Warrants of
<PAGE>
like tenor calling for the number of shares of Series B Preferred Stock as to
which rights have not been exercised, such Warrant or Warrants to be issued in
the name of the holder hereof or his nominee (upon payment by such holder of any
applicable transfer taxes).
1.2. Net Issue Exercise.
------------------
(1) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder that number of shares of the Company's Series B Preferred Stock computed
using the following formula:
X =Y(A-B)
------
A
Where
X. the number of shares of Series B Preferred Stock to be issued to
Holder.
Y. the number of shares of Series B Preferred Stock purchasable
under this Warrant.
A. the fair market value of one share of the Company's Series B
Preferred Stock.
B. the Purchase Price (as adjusted to the date of such
calculations).
(2) For purposes of this Section, the fair market value of one share
of the Company's Series B Preferred Stock shall be the applicable conversion
price of the Series B Preferred Stock.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus cash in lieu of any fractional share to which such holder would
otherwise be entitled. The Company agrees that the shares so purchased shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with the provisions of the Company's
Series B Preferred Stock.
If any event occurs as to which, in the opinion of the Board of Directors
of the Company, the provisions of the Company's Series B Preferred Stock
relating to anti-dilution and other adjustments are not strictly applicable or
if strictly applicable would not fairly protect the rights
<PAGE>
of the holder of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. The Company shall at all
times take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of this Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company
shall at all times reserve and keep available out of its authorized but unissued
stock, solely for the issuance and delivery upon the exercise of this Warrant
and other similar Warrants, such number of its duly authorized shares of Series
B Preferred Stock as from time to time shall be issuable upon the exercise of
this Warrant and all other similar Warrants at the time outstanding. All of the
shares of Series B Preferred Stock issuable upon exercise of this Warrant, when
issued and delivered in accordance with the terms hereof, will be duly
authorized, validly issued, fully-paid and non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. REGISTRATION RIGHTS. The shares of Series B Preferred Stock issuable
upon exercise of this Warrant and securities issued upon conversion of such
stock are subject to the registration rights granted to Series B Preferred
Stockholders.
9. NEGOTIABILITY. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Absent an effective registration statement under the Securities
Act of 1933, as amended (the "Act"), covering the disposition of this Warrant or
the shares of Series B Preferred Stock issued or issuable upon exercise hereof,
the holder will not sell or transfer any or all of such Warrant or shares, as
the case may be, without first providing the Company with an opinion of counsel
(which may be counsel for the Company) to the effect that such sale or
<PAGE>
transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Each certificate representing shares of Series B
Preferred Stock issued pursuant to this Warrant shall bear a legend in
substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS AND MAY BE TRANSFERRED
OR RESOLD ONLY IN COMPLIANCE WITH SUCH
SECURITIES LAWS.
Any certificate representing securities issued at any time in exchange or
substitution for any certificate bearing such legend (except a certificate
issued upon completion of a distribution under a registration statement covering
the securities represented) shall also bear such legend unless, in the opinion
of counsel to the Company, the securities represented thereby may be transferred
as contemplated by such holder without violation of the registration
requirements of the Act.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent itself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such, bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder of this Warrant as the absolute
owner hereof for all purposes without being affected by any notice to the
contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall
not be entitled to any rights of a shareholder of the Company with respect to
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or conversion or
delivery of certificates for Series B Preferred Stock in a name other than that
of the registered holder of this Warrant or to issue or deliver any certificates
for Series B Preferred Stock upon the exercise of this Warrant until any and all
such taxes and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that no such tax or
charge is due.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is issued
and delivered by the Company on the basis of the following:
(a) Authorization and Delivery. This Warrant has been duly
--------------------------
authorized and executed by the Company and when delivered will be the valid and
binding obligation of the Company enforceable in accordance with its terms;
<PAGE>
(b) Rights and Privileges. The Company shall, as soon as
---------------------
practicable, use its best efforts to amend its Certificate of Incorporation to
authorize the issuance of a class of Series B Preferred Stock having the rights,
preferences, privileges and restrictions, substantially as set forth in the
attached Term Sheet; and
(c) Warrant Shares. The shares of Series B Preferred Stock to be
--------------
issued pursuant to this Warrant will be, upon proper exercise of this Warrant,
duly authorized and reserved for issuance by the Company and, when issued and
paid for in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable;
(d) No Inconsistency. The execution and delivery of this Warrant are
----------------
not, and the issuance of the shares of Series B Preferred Stock upon exercise of
this Warrant in accordance with the terms hereof will not be, inconsistent with
the Company's Certificate of Incorporation or by-laws, will not contravene any
law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of any other person.
11. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) The holder hereby represents and warrants to the Company that he
has substantial knowledge, skill and experience in making investment decisions
of the type represented by this Warrant and the shares issuable upon exercise of
this Warrant, that he is capable of evaluating the risk of its investment in
this Warrant and the shares issuable upon exercise of this Warrant and is able
to bear the economic risk of such investment, including the risk of losing the
entire investment, that it is acquiring this Warrant and the shares issuable
upon exercise of this Warrant for his own account, and that this Warrant and the
shares issuable upon exercise of this Warrant are being acquired by him for
investment and not with a present view to any distribution thereof in violation
of applicable securities law. If the holder should in the future decide to
dispose of any of this Warrant and the shares issuable upon exercise of this
Warrant, it is understood that it may so do only in compliance with the Act and
applicable state securities laws. The holder represents and warrants that he is
an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The holder understands that (i) this Warrant and the shares
issuable upon exercise of this Warrant have not been registered under the Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Act, (ii) this Warrant and the shares issuable upon exercise
of this Warrant must be held indefinitely unless a subsequent disposition
thereof is registered under the Act and applicable state securities laws or is
exempt from such registration (and, upon request, evidence satisfactory to the
Company is provided by such holder of the availability of such exemptions,
including, upon request, the delivery to the Company of opinions of counsel to
such holder, which opinions and counsel are satisfactory to the Company), and
(iii) this Warrant and the shares issuable upon exercise of this Warrant may
bear a legend to such effect.
<PAGE>
12. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Series
B Preferred Stock of the Company that may be subscribed for and purchased
hereunder.
13. MAILING OF NOTICES. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
14. HEADINGS. The headings in this War-rant are for purposes of reference
only, and shall not limit or otherwise affect the meaning hereof.
15. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
16. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company, by the undersigned thereunto duly
authorized, has duly executed this Warrant as of the date first written above.
COMMERX, INC.
By: /s/ Tim Stojka
Name: Tim Stojka
Title: Chief Executive Officer
ACCEPTED AS OF THE DATE HEREOF:
/s/ Jeff Garwood
-------------------
Name: Jeff Garwood
<PAGE>
[To be signed only upon exercise of Warrant]
To__________________:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________ shares of Series B Preferred Stock of and herewith
makes payment of $_______ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to _____________, whose
address is ______________.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________ the right represented by the within Warrant to
purchase the _____ shares of the Series B Preferred Stock of __________________
to which the within Warrant relates, and appoints ____________ attorney to
transfer said right on the books of __________________________ with full power
of substitution in the premises.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
EXHIBIT 4.9
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE (TOGETHER, THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
Date: September 28, 1999
Commerx, Inc.
Series B Preferred Stock Purchase Warrant
Commerx, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for value received, Jim Morelli (the "Holder"), or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
and from time to time during the period beginning on the closing of a private
placement of the Company's Series B Preferred Stock and ending on September 28,
2004, an aggregate number of fully paid and non-assessable shares of the
Company's Series B Preferred Stock at the "Purchase Price" (as hereinafter
defined), subject to the provisions of Paragraph 3 hereof, determined by a
fraction, the numerator of which is fifteen percent (.15) multiplied by
$250,000, plus accrued and unpaid interest under the Company's Convertible Note
issued to the holder concurrently with this Warrant, and the denominator of
which is the Purchase Price. "Purchase Price" shall mean the conversion price
of the Series B Preferred Stock as determined by paragraph 4 of the Convertible
Note. "Series B Preferred Stock" shall mean, unless the context otherwise
requires, the Series B Preferred Stock issued in accordance with a proposed
amendment to the Company's Certificate of Incorporation, which stock shall have
the rights and preferences substantially as set forth in the Term Sheet attached
hereto and which stock shall be convertible into the Company's Common Stock at
the applicable conversion price as determined by paragraph 4 of the Convertible
Note. Notwithstanding the foregoing, the Purchase Price and the number and
character of shares issuable under this Warrant are subject to adjustment as set
forth in Paragraph 3. If the Company consummates an initial public offering of
its common stock prior to exercise of this Warrant, then this Warrant shall be
null and void and the Company shall issue a replacement warrant for the purchase
of Common Stock on equitable terms. This Warrant and any replacement warrant is
herein called the "Warrant."
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant
shall be exercised by the holder hereof by surrendering this Warrant, with the
form of subscription at the end hereof duly executed by such holder, to the
Company at its office at 350 North LaSalle Street, Suite 1000, Chicago, Illinois
60610, or such other address as the Company may specify by written notice to the
registered holder hereof, accompanied by payment, in cash, by certified or
official bank check or by wire transfer of an amount equal to the Purchase Price
multiplied by the number of shares being purchased pursuant to such exercise of
the Warrant.
1.1. Partial Exercise. This Warrant may be exercised for less than
----------------
the full number of shares of Series B Preferred Stock, in which case the number
of shares receivable upon the exercise of this Warrant as a whole, and the sum
payable upon the exercise of this Warrant as a whole, shall be proportionately
reduced. Upon any such partial exercise, the Company at its expense will
forthwith issue to the holder hereof a new Warrant or Warrants of
<PAGE>
like tenor calling for the number of shares of Series B Preferred Stock as to
which rights have not been exercised, such Warrant or Warrants to be issued in
the name of the holder hereof or his nominee (upon payment by such holder of any
applicable transfer taxes).
1.2. Net Issue Exercise.
------------------
(1) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder that number of shares of the Company's Series B Preferred Stock computed
using the following formula:
X =Y(A-B)
------
A
Where
X. the number of shares of Series B Preferred Stock to be issued to
Holder.
Y. the number of shares of Series B Preferred Stock purchasable
under this Warrant.
A. the fair market value of one share of the Company's Series B
Preferred Stock.
B. the Purchase Price (as adjusted to the date of such
calculations).
(2) For purposes of this Section, the fair market value of one share
of the Company's Series B Preferred Stock shall be the applicable conversion
price of the Series B Preferred Stock.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus cash in lieu of any fractional share to which such holder would
otherwise be entitled. The Company agrees that the shares so purchased shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with the provisions of the Company's
Series B Preferred Stock.
If any event occurs as to which, in the opinion of the Board of Directors
of the Company, the provisions of the Company's Series B Preferred Stock
relating to anti-dilution and other adjustments are not strictly applicable or
if strictly applicable would not fairly protect the rights
<PAGE>
of the holder of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. The Company shall at all
times take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of this Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company
shall at all times reserve and keep available out of its authorized but unissued
stock, solely for the issuance and delivery upon the exercise of this Warrant
and other similar Warrants, such number of its duly authorized shares of Series
B Preferred Stock as from time to time shall be issuable upon the exercise of
this Warrant and all other similar Warrants at the time outstanding. All of the
shares of Series B Preferred Stock issuable upon exercise of this Warrant, when
issued and delivered in accordance with the terms hereof, will be duly
authorized, validly issued, fully-paid and non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. REGISTRATION RIGHTS. The shares of Series B Preferred Stock issuable
upon exercise of this Warrant and securities issued upon conversion of such
stock are subject to the registration rights granted to Series B Preferred
Stockholders.
9. NEGOTIABILITY. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Absent an effective registration statement under the Securities
Act of 1933, as amended (the "Act"), covering the disposition of this Warrant or
the shares of Series B Preferred Stock issued or issuable upon exercise hereof,
the holder will not sell or transfer any or all of such Warrant or shares, as
the case may be, without first providing the Company with an opinion of counsel
(which may be counsel for the Company) to the effect that such sale or
<PAGE>
transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Each certificate representing shares of Series B
Preferred Stock issued pursuant to this Warrant shall bear a legend in
substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES
LAWS AND MAY BE TRANSFERRED OR RESOLD ONLY IN
COMPLIANCE WITH SUCH SECURITIES LAWS.
Any certificate representing securities issued at any time in exchange or
substitution for any certificate bearing such legend (except a certificate
issued upon completion of a distribution under a registration statement covering
the securities represented) shall also bear such legend unless, in the opinion
of counsel to the Company, the securities represented thereby may be transferred
as contemplated by such holder without violation of the registration
requirements of the Act.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent itself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such, bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner
hereof for all purposes without being affected by any notice to the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall not
be entitled to any rights of a shareholder of the Company with respect to shares
for which this Warrant shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or conversion or
delivery of certificates for Series B Preferred Stock in a name other than that
of the registered holder of this Warrant or to issue or deliver any certificates
for Series B Preferred Stock upon the exercise of this Warrant until any and all
such taxes and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that no such tax or
charge is due.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is issued
and delivered by the Company on the basis of the following:
(a) Authorization and Delivery. This Warrant has been duly authorized
--------------------------
and executed by the Company and when delivered will be the valid and binding
obligation of the Company enforceable in accordance with its terms;
<PAGE>
(b) Rights and Privileges. The Company shall, as soon as practicable,
---------------------
use its best efforts to amend its Certificate of Incorporation to authorize the
issuance of a class of Series B Preferred Stock having the rights, preferences,
privileges and restrictions, substantially as set forth in the attached Term
Sheet; and
(c) Warrant Shares. The shares of Series B Preferred Stock to be
--------------
issued pursuant to this Warrant will be, upon proper exercise of this Warrant,
duly authorized and reserved for issuance by the Company and, when issued and
paid for in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable;
(d) No Inconsistency. The execution and delivery of this Warrant are
----------------
not, and the issuance of the shares of Series B Preferred Stock upon exercise of
this Warrant in accordance with the terms hereof will not be, inconsistent with
the Company's Certificate of Incorporation or by-laws, will not contravene any
law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of any other person.
11. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) The holder hereby represents and warrants to the Company that he
has substantial knowledge, skill and experience in making investment decisions
of the type represented by this Warrant and the shares issuable upon exercise of
this Warrant, that he is capable of evaluating the risk of its investment in
this Warrant and the shares issuable upon exercise of this Warrant and is able
to bear the economic risk of such investment, including the risk of losing the
entire investment, that it is acquiring this Warrant and the shares issuable
upon exercise of this Warrant for his own account, and that this Warrant and the
shares issuable upon exercise of this Warrant are being acquired by him for
investment and not with a present view to any distribution thereof in violation
of applicable securities law. If the holder should in the future decide to
dispose of any of this Warrant and the shares issuable upon exercise of this
Warrant, it is understood that it may so do only in compliance with the Act and
applicable state securities laws. The holder represents and warrants that he is
an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The holder understands that (i) this Warrant and the shares
issuable upon exercise of this Warrant have not been registered under the Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Act, (ii) this Warrant and the shares issuable upon exercise
of this Warrant must be held indefinitely unless a subsequent disposition
thereof is registered under the Act and applicable state securities laws or is
exempt from such registration (and, upon request, evidence satisfactory to the
Company is provided by such holder of the availability of such exemptions,
including, upon request, the delivery to the Company of opinions of counsel to
such holder, which opinions and counsel are satisfactory to the Company), and
(iii) this Warrant and the shares issuable upon exercise of this Warrant may
bear a legend to such effect.
<PAGE>
12. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Series
B Preferred Stock of the Company that may be subscribed for and purchased
hereunder.
13. MAILING OF NOTICES. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
14. HEADINGS. The headings in this War-rant are for purposes of reference
only, and shall not limit or otherwise affect the meaning hereof.
15. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
16. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company, by the undersigned thereunto duly
authorized, has duly executed this Warrant as of the date first written above.
COMMERX, INC.
By: /s/ Tim Stojka
----------------------------
Name: Tim Stojka
Title: Chief Executive Officer
ACCEPTED AS OF THE DATE HEREOF:
/s/ Jim Morelli
---------------------------------
Name: Jim Morelli
<PAGE>
[To be signed only upon exercise of Warrant]
To__________________:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________ shares of Series B Preferred Stock of and herewith
makes payment of $_______ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to _____________, whose
address is ______________.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________ the right represented by the within Warrant to
purchase the _____ shares of the Series B Preferred Stock of __________________
to which the within Warrant relates, and appoints ____________ attorney to
transfer said right on the books of __________________________ with full power
of substitution in the premises.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
EXHIBIT 4.10
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE (TOGETHER, THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
Date: September 28, 1999
Commerx, Inc.
Series B Preferred Stock Purchase Warrant
Commerx, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for value received, David Franco (the "Holder"), or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
and from time to time during the period beginning on the closing of a private
placement of the Company's Series B Preferred Stock and ending on September 28,
2004, an aggregate number of fully paid and non-assessable shares of the
Company's Series B Preferred Stock at the "Purchase Price" (as hereinafter
defined), subject to the provisions of Paragraph 3 hereof, determined by a
fraction, the numerator of which is fifteen percent (.15) multiplied by
$179,179, plus accrued and unpaid interest under the Company's Convertible Note
issued to the holder concurrently with this Warrant, and the denominator of
which is the Purchase Price. "Purchase Price" shall mean the conversion price
of the Series B Preferred Stock as determined by paragraph 4 of the Convertible
Note. "Series B Preferred Stock" shall mean, unless the context otherwise
requires, the Series B Preferred Stock issued in accordance with a proposed
amendment to the Company's Certificate of Incorporation, which stock shall have
the rights and preferences substantially as set forth in the Term Sheet attached
hereto and which stock shall be convertible into the Company's Common Stock at
the applicable conversion price as determined by paragraph 4 of the Convertible
Note. Notwithstanding the foregoing, the Purchase Price and the number and
character of shares issuable under this Warrant are subject to adjustment as set
forth in Paragraph 3. If the Company consummates an initial public offering of
its common stock prior to exercise of this Warrant, then this Warrant shall be
null and void and the Company shall issue a replacement warrant for the purchase
of Common Stock on equitable terms. This Warrant and any replacement warrant is
herein called the "Warrant."
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant
shall be exercised by the holder hereof by surrendering this Warrant, with the
form of subscription at the end hereof duly executed by such holder, to the
Company at its office at 350 North LaSalle Street, Suite 1000, Chicago, Illinois
60610, or such other address as the Company may specify by written notice to the
registered holder hereof, accompanied by payment, in cash, by certified or
official bank check or by wire transfer of an amount equal to the Purchase Price
multiplied by the number of shares being purchased pursuant to such exercise of
the Warrant.
1.1. Partial Exercise. This Warrant may be exercised for less than
----------------
the full number of shares of Series B Preferred Stock, in which case the number
of shares receivable upon the exercise of this Warrant as a whole, and the sum
payable upon the exercise of this Warrant as a whole, shall be proportionately
reduced. Upon any such partial exercise, the Company at its expense will
forthwith issue to the holder hereof a new Warrant or Warrants of
<PAGE>
like tenor calling for the number of shares of Series B Preferred Stock as to
which rights have not been exercised, such Warrant or Warrants to be issued in
the name of the holder hereof or his nominee (upon payment by such holder of any
applicable transfer taxes).
1.2. Net Issue Exercise.
------------------
(1) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder that number of shares of the Company's Series B Preferred Stock computed
using the following formula:
X = Y(A-B)
------
A
Where
X. the number of shares of Series B Preferred Stock to be issued to
Holder.
Y. the number of shares of Series B Preferred Stock purchasable
under this Warrant.
A. the fair market value of one share of the Company's Series B
Preferred Stock.
B. the Purchase Price (as adjusted to the date of such
calculations).
(2) For purposes of this Section, the fair market value of one share
of the Company's Series B Preferred Stock shall be the applicable conversion
price of the Series B Preferred Stock.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus cash in lieu of any fractional share to which such holder would
otherwise be entitled. The Company agrees that the shares so purchased shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with the provisions of the Company's
Series B Preferred Stock.
If any event occurs as to which, in the opinion of the Board of Directors
of the Company, the provisions of the Company's Series B Preferred Stock
relating to anti-dilution and other adjustments are not strictly applicable or
if strictly applicable would not fairly protect the rights
<PAGE>
of the holder of this Warrant in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. The Company shall at all
times take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of this Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company
shall at all times reserve and keep available out of its authorized but unissued
stock, solely for the issuance and delivery upon the exercise of this Warrant
and other similar Warrants, such number of its duly authorized shares of Series
B Preferred Stock as from time to time shall be issuable upon the exercise of
this Warrant and all other similar Warrants at the time outstanding. All of the
shares of Series B Preferred Stock issuable upon exercise of this Warrant, when
issued and delivered in accordance with the terms hereof, will be duly
authorized, validly issued, fully-paid and non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. REGISTRATION RIGHTS. The shares of Series B Preferred Stock issuable
upon exercise of this Warrant and securities issued upon conversion of such
stock are subject to the registration rights granted to Series B Preferred
Stockholders.
9. NEGOTIABILITY. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Absent an effective registration statement under the Securities
Act of 1933, as amended (the "Act"), covering the disposition of this Warrant or
the shares of Series B Preferred Stock issued or issuable upon exercise hereof,
the holder will not sell or transfer any or all of such Warrant or shares, as
the case may be, without first providing the Company with an opinion of counsel
(which may be counsel for the Company) to the effect that such sale or
<PAGE>
transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Each certificate representing shares of Series B
Preferred Stock issued pursuant to this Warrant shall bear a legend in
substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS AND MAY BE TRANSFERRED
OR RESOLD ONLY IN COMPLIANCE WITH SUCH
SECURITIES LAWS.
Any certificate representing securities issued at any time in exchange or
substitution for any certificate bearing such legend (except a certificate
issued upon completion of a distribution under a registration statement covering
the securities represented) shall also bear such legend unless, in the opinion
of counsel to the Company, the securities represented thereby may be transferred
as contemplated by such holder without violation of the registration
requirements of the Act.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent itself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such, bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder of this Warrant as the absolute
owner hereof for all purposes without being affected by any notice to the
contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall
not be entitled to any rights of a shareholder of the Company with respect to
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or conversion or
delivery of certificates for Series B Preferred Stock in a name other than that
of the registered holder of this Warrant or to issue or deliver any certificates
for Series B Preferred Stock upon the exercise of this Warrant until any and all
such taxes and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that no such tax or
charge is due.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is issued
and delivered by the Company on the basis of the following:
(a) Authorization and Delivery. This Warrant has been duly
--------------------------
authorized and executed by the Company and when delivered will be the valid and
binding obligation of the Company enforceable in accordance with its terms;
<PAGE>
(b) Rights and Privileges. The Company shall, as soon as
---------------------
practicable, use its best efforts to amend its Certificate of Incorporation to
authorize the issuance of a class of Series B Preferred Stock having the rights,
preferences, privileges and restrictions, substantially as set forth in the
attached Term Sheet; and
(c) Warrant Shares. The shares of Series B Preferred Stock to be
--------------
issued pursuant to this Warrant will be, upon proper exercise of this Warrant,
duly authorized and reserved for issuance by the Company and, when issued and
paid for in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable;
(d) No Inconsistency. The execution and delivery of this Warrant are
----------------
not, and the issuance of the shares of Series B Preferred Stock upon exercise of
this Warrant in accordance with the terms hereof will not be, inconsistent with
the Company's Certificate of Incorporation or by-laws, will not contravene any
law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of any other person.
11. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) The holder hereby represents and warrants to the Company that he
has substantial knowledge, skill and experience in making investment decisions
of the type represented by this Warrant and the shares issuable upon exercise of
this Warrant, that he is capable of evaluating the risk of its investment in
this Warrant and the shares issuable upon exercise of this Warrant and is able
to bear the economic risk of such investment, including the risk of losing the
entire investment, that it is acquiring this Warrant and the shares issuable
upon exercise of this Warrant for his own account, and that this Warrant and the
shares issuable upon exercise of this Warrant are being acquired by him for
investment and not with a present view to any distribution thereof in violation
of applicable securities law. If the holder should in the future decide to
dispose of any of this Warrant and the shares issuable upon exercise of this
Warrant, it is understood that it may so do only in compliance with the Act and
applicable state securities laws. The holder represents and warrants that he is
an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The holder understands that (i) this Warrant and the shares
issuable upon exercise of this Warrant have not been registered under the Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Act, (ii) this Warrant and the shares issuable upon exercise
of this Warrant must be held indefinitely unless a subsequent disposition
thereof is registered under the Act and applicable state securities laws or is
exempt from such registration (and, upon request, evidence satisfactory to the
Company is provided by such holder of the availability of such exemptions,
including, upon request, the delivery to the Company of opinions of counsel to
such holder, which opinions and counsel are satisfactory to the Company), and
(iii) this Warrant and the shares issuable upon exercise of this Warrant may
bear a legend to such effect.
<PAGE>
12. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Series
B Preferred Stock of the Company that may be subscribed for and purchased
hereunder.
13. MAILING OF NOTICES. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
14. HEADINGS. The headings in this War-rant are for purposes of reference
only, and shall not limit or otherwise affect the meaning hereof.
15. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
16. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company, by the undersigned thereunto duly
authorized, has duly executed this Warrant as of the date first written above.
COMMERX, INC.
By: /s/ Tim Stojka
-------------------------------
Name: Tim Stojka
Title: Chief Executive Officer
ACCEPTED AS OF THE DATE HEREOF:
/s/ David Franco
------------------------------------
Name: David Franco
<PAGE>
[To be signed only upon exercise of Warrant]
To__________________:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________ shares of Series B Preferred Stock of and herewith
makes payment of $_______ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to _____________, whose
address is ______________.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________ the right represented by the within Warrant to
purchase the _____ shares of the Series B Preferred Stock of __________________
to which the within Warrant relates, and appoints ____________ attorney to
transfer said right on the books of __________________________ with full power
of substitution in the premises.
Dated:________________
__________________________________________________
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
<PAGE>
EXHIBIT 10.4
STANDARD GROSS OFFICE LEASE
350 NORTH LASALLE STREET
THIS LEASE Agreement, dated as of November 1, 1998, is entered into by and
between (i) WDI REALTY CO., a Michigan corporation (hereinafter referred to as
"Landlord"), and (ii) COMMERX, INC., an Illinois corporation (hereinafter
collectively referred to as "Tenant").
ARTICLE I
BASIC LEASE PROVISIONS AND TERM
1.01 Leased Premises. Landlord hereby leases to Tenant, and Tenant hereby
---------------
rents from Landlord, upon and subject to the terms, covenants, provisions and
conditions of this Lease, the premises consisting of approximately, 8,835
rentable square feet consisting of all of the rentable area on the 10th floor of
the Building, as hereinafter defined (the "Premises"), located at 350 North
LaSalle Street, Chicago, Illinois (the "Building"). The land upon which the
Building is located is more particularly described on Exhibit "A", annexed
------- ---
hereto and made a part hereof (the "Property"). The Premises are depicted on the
floor plan annexed hereto and made a part hereof as Exhibit "B".
------- ---
1.02 Commencement of Lease and Term of Lease. The term of this Lease
---------------------------------------
shall be for one hundred twenty (120) months, commencing on January 1, 1999 (the
"Commencement Date"), and ending on December 31, 2008 (the "Expiration Date"),
unless sooner terminated as otherwise provided in this Lease.
1.03 Tenant Option For Additional Lease Space. At any time prior to the
----------------------------------------
first anniversary of the Commencement Date, Tenant shall have the option, upon
written notice to Landlord, to lease from Landlord, the remaining portion of the
11th floor of the Building, or any additional portion thereof ("Additional Lease
Space"); provided, however, if Tenant does not elect to lease all of the
remaining portion of the 11th floor, the configuration and area of the
Additional Lease Space shall be subject to Landlord's reasonable approval so
that Landlord will be able to lease the balance of the 11th floor to a third
party. All provisions of this Lease shall remain applicable to the Additional
Lease Space, including the applicable Gross Rent Per Square Foot Rate together
with the annual adjustments for such Additional Lease Space and Additional Rent.
Upon the exercise of Tenant's option under this Section 1.03, Tenant shall
provide Landlord with plans and specifications for its proposed improvements of
the Additional Lease Space ("Additional Improvements"). Landlord will allow and
pay the actual cost thereof to the Tenant upon completion of the Additional
Improvements and governmental approval of same, the sum of up to $35.00 per
square foot for the cost and design of such Additional Improvements ("Additional
Improvement Allowance"). All costs in excess of such allowance for the design
and construction of the Additional Improvements shall be paid by Tenant. Tenant
shall provide Landlord with documentation reasonably satisfactory to Landlord of
the cost of the Additional Improvements including, but not limited to, lien
waivers and sworn statements. Tenant shall arrange for the completion of the
Additional Improvements which shall be made in accordance with the plans and
specifications submitted to, and approved by Landlord. Said Additional
<PAGE>
Improvements shall be completed by Tenant within 90 days from the exercise of
its option and the additional rental payments for the additional space shall
commence on the earlier of (i) 90 days from the exercise of such option or (ii)
actual occupancy. Landlord agrees to make interim disbursements of the
Additional Improvement Allowance in accordance with the provisions of Section
5.03 hereof.
1.04 Tenant Right of First Opportunity. At any time, from and after the
---------------------------------
first anniversary of the Commencement Date, but prior to the fifth anniversary
of the Commencement Date of this Lease, in the event Landlord proposes to rent
all or any remaining portion of the 11th floor of the Building ("Lease
Election"), Landlord shall send a notice to Tenant it proposes to lease the
space on the 11th floor of the Building ("Lease Election Notice") and the
material terms and conditions thereof. The Tenant shall have 15 days from the
receipt of the Lease Election Notice to serve written notice on the Landlord
that it elects to rent from Landlord, all of the remaining space on the 11th
floor of the Building. If Tenant fails to serve written notice to Landlord that
it elects to rent the remaining portion of the 1lth floor within such 15 day
period, such failure shall be deemed to be an election not to rent the remaining
portion of the 11th floor of the Building. If Tenant exercises such option, the
rental rate shall be the greater of (i) the rental rates set forth in Lease
Election Notice; or (ii) the then existing rate Tenant is paying under this
Lease subject to adjustments as provided herein, and the other conditions shall
be the same as in this Lease. The buildout allowance per square foot shall be
as set forth in Section 1.03. The lease term for such additional space shall be
co-terminus with this Lease term. The Tenant shall complete its buildout with
the same time frame and rental shall commence as set forth in Section 1.03.
1.05 Certain Lease Termination Rights. At any time after the fifth
--------------------------------
anniversary of the Commencement Date of this Lease, but prior to the eighth
anniversary of the Commencement Date of this Lease, Tenant shall have the right
to terminate this Lease ("Early Termination Option") subject to the satisfaction
of each of the following terms and conditions:
(i) Tenant delivers written notice to Landlord, at least six (6)
months prior to the proposed termination date, of its election to exercise its
Early Termination Option and the proposed termination date ("Termination
Notice");
(ii) At the time the Termination Notice is delivered to Landlord,
the Tenant then occupies at least one and one-half floors (13,253 rentable
square feet) of the Building;
(iii) Tenant certifies to Landlord, in good faith, that it requires
additional rental space such that it would necessitate Tenant occupying space on
three (3) different floors of the Building; and
(iv) Tenant delivers to Landlord with its Termination Notice a
certified check or bank check in the amount of the Early Termination Fee.
For the purposes of this Lease, the Early Termination Fee shall equal the
unamortized balance (amortized over the term of this Lease from date spent on a
straight line basis) of the Tenant Improvement Allowance for the Premises and,
if applicable, the Additional Improvements, plus all other transactional
expenses of Landlord in connection with this Lease or any modifications
2
<PAGE>
thereof or other agreements related thereto, including, but not limited to,
leasing brokerage fees and legal fees. Landlord shall provide Tenant with a
summary of such transactional costs upon request of Tenant.
1.06 Financial Statements.
--------------------
(a) It is acknowledged and agreed that Tenant is a relatively new
entity and does not currently have significant assets. Fast Heat International
and Fast Heat, Incorporated (collectively, "Fast Heat") are entities affiliated
with Tenant and have agreed to guaranty (the "Guaranty") all of the obligations
of Tenant under this Lease subject to Section 1.06(b) below.
(b) (i) Tenant shall annually, within 120 days after the expiration
of Tenant's fiscal year, provide to Landlord a financial statement of Tenant for
the most current fiscal year audited by a certified public accountant reasonably
acceptable to Landlord ("Financial Statement"). Except as otherwise provided
herein, in the event the net worth of Tenant exceeds $5,000,000 as disclosed by
the Financial Statement and as verified by Landlord's accountants ("Minimum Net
Worth Test"), Landlord agrees that, thereafter, in the event of a default under
this Lease, Landlord will have recourse against the Tenant only and shall not
look to any of the assets of Fast Heat to satisfy any of Tenant's obligations
hereunder.
(ii) Notwithstanding the foregoing, if any subsequent Financial
Statement discloses that Tenant's net worth has decreased to less than
$5,000,000 and Tenant does not meet the Minimum Net Worth Test, Fast Heat shall,
thereafter, be jointly and severally liable with Tenant for all of Tenant's
obligations under this Lease pursuant to the Guaranty ("Reinstatement"). In the
event a Reinstatement occurs for the first time, the Minimum Net Worth Test will
not be applied by Landlord until the second year following the Reinstatement.
In the event a Reinstatement occurs for the second time during the term of this
Lease, the provisions of Section 1.06(b)(i) shall terminate and Fast Heat shall
thereafter until the end of the term of the Lease be jointly and severally
liable for the obligations of Tenant pursuant to the terms of the Guaranty.
1.07 Temporary Space. From and after November 1, 1998 Landlord shall
---------------
provide to Tenant temporary space with the minimum of 4,000 square feet and the
maximum of 5,000 square feet on the 11" floor of the Building in an area
designated by Landlord ("Temporary Space"). Tenant shall be responsible for all
costs associated with Tenant's moving and occupancy of such Temporary Space.
Tenant shall not have to pay any rent to Landlord for such Temporary Space;
provided, however, except as otherwise provided herein, Tenant shall pay all (i)
costs for its electrical usage; (ii) after hour charges; and (iii) parking
expenses. Tenant agrees that it will, at its sole cost and expense, restore the
Temporary Space to the condition of the Temporary Space at the time of
occupancy. Notwithstanding anything in this Lease to the contrary, if Tenant
has not completed the Initial Improvements by the Commencement Date, the Tenant
shall pay all Rent due under this Lease from and after the Commencement Date.
Tenant's rights to use the Temporary Space shall terminate upon the completion
of the Initial Improvements and occupancy of the Premises, but in no event later
than February 1, 1999. Landlord agrees to not charge Tenant "after hours"
charges for up to one (1) day for moving into the Temporary Space and for up to
one (1) day for moving into the Premises.
3
<PAGE>
ARTICLE II
GROSS RENT AND GENERAL RENTAL PAYMENT PROVISIONS
2.01 Types of Rental Payments. The rents shall be and consist of (a)
------------------------
gross rent payable in monthly installments as set forth below in advance, on the
first day of each and every calendar month during the term of this Lease (the
"Gross Rent") and (b) any additional charges (the "Additional Rent"; and the
Gross Rent and Additional Rent are hereinafter collectively referred to as
"Rent") payable by Tenant to Landlord under the terms of this Lease; all to be
paid in lawful money of the United States to Landlord's agent, Tishman Real
Estate Management Company, 350 North LaSalle Street, Chicago, Illinois 60610, or
at such other place, as Landlord shall from time to time designate by notice to
Tenant.
2.02 Gross Rent. Subject to adjustment as provided herein, during the
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first twelve months of the term, Gross Rent shall be payable in monthly
installments of $19,657.88 which is based on the rate of $26.70 per square foot
per annum ("Gross Per Square Foot Rate"). Upon the first anniversary of the
Commencement Date of this Lease, and upon each anniversary thereafter, the Gross
Rent shall be adjusted as described below. Said Gross Rent and Additional Rent
shall be payable on or before the first day of each month commencing January 1,
1999 and continuing on the first day of each month thereafter until the
Expiration Date.
2.03 Gross Rent Adjustments. Commencing with the first anniversary of
----------------------
the Commencement Date, and upon each anniversary thereafter during the term of
this Lease, the Gross Rent shall be increased by an amount equal to $.50 per
square foot. The adjusted monthly installments of Gross Rent for the twelve
months succeeding any adjustment shall be determined by adding $.50 to the
initial Gross Rental Rate plus any prior adjustments, and multiply such rate by
the number of square feet in the Building being rented under this Lease and
dividing such amount by twelve (12).
2.04 Covenants Concerning Rental Payments. Tenant shall pay the Gross
------------------------------------
Rent and the Additional Rent promptly when due without notice or demand therefor
and without any abatement, deduction or set-off for any reason whatsoever
(except as specifically provided herein). No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the correct Gross Rent or
Additional Rent shall be deemed to be other than the payment on account, nor
shall any endorsement or statement on any check or letter accompanying any
payment be deemed an accord or satisfaction and Landlord may accept such payment
without prejudice to its right to recover the balance or pursue any other remedy
in this Lease or at law. If the Commencement Date occurs on a day other than the
first day of a calendar month, the Gross Rent for the partial calendar month, at
the commencement of the term of this Lease, shall be prorated on a per them
basis. Any payment of rent not made on the date that such payment is due shall
be subject to a one percent (1%) late payment fee to compensate Landlord for
Landlord's estimated costs associated with such delinquency. The above-described
late payment fee shall be immediately due and payable as Additional Rent
hereunder.
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2.05 Operating Expenses and Taxes.
----------------------------
(a) For the purpose of this Lease, the following terms have the
meanings set forth herein.
"Base Year For Operating Expense" shall mean the calendar year 1999.
"Base Year for Taxes" shall mean the calendar year 1999.
"Taxes" shall mean all ad valorem real property taxes and all
assessments at large levied upon or assessed with respect to the Building
imposed by any taxing authority having jurisdiction or any taxes or assessments
which shall be levied on the Building in lieu of or in addition to all or any
portion of any such real estate taxes or assessments. Should the State of
Illinois or any political subdivision thereof or any governmental authority
having jurisdiction thereof levy, assess or impose:
(i) a tax on the rents or other income received from the
Building, or
(ii) a license fee measured by the rents receivable by
Landlord from the Building, or
(iii) a tax, license or franchise fee imposed upon Landlord
which is otherwise measured by or based in whole or in part upon the
Building or any portion thereof,
either by way of substitution for the taxes levied or assessed against the tax
parcel, or in addition thereto, such tax, assessment or fee shall be deemed to
constitute a tax against the Building for the purpose of this Section, computed
as if the Building was the only property of Landlord subject thereto.
"Tenant's Pro Rata Share" shall mean that proportion of any increase
in the Operating Expenses (as hereinafter defined) for any calendar year over
the Base Year For Operating Expenses or any increase in the Taxes for any
calendar year over the Base Year for Taxes, as the case may be, as the total
number of rentable square feet of the Premises compares to the total number of
rentable square feet in the Building. At such time, if ever, any space is added
to the Premises pursuant to the terms of this Lease, Tenant's Pro Rata Share
shall be increased by the percentage calculated by dividing the number of
additional rentable square feet by the total number of rentable square feet in
the Building.
"Operating Expenses" shall:
(i) mean all operating expenses of any kind or nature (incurred
consistent with the operation of a Class A office building located in
the central business district in the City of Chicago) with respect to
the Building, except the Taxes, as determined in accordance with
generally accepted accounting principles and shall include, but not be
limited to, the cost of Building supplies; costs incurred in
connection with all energy sources for the common areas of the
Building such as
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propane, butane, natural gas, steam, electricity, solar energy and
fuel oil; the costs of water and sewer services; window washing;
janitorial services; general maintenance and normal repair of the
Building, including the heating and air conditioning systems of the
Building; landscaping maintenance; maintenance, repair, striping and
replacement of all parking areas furnished by Landlord for use by
tenants or their invitees of the Building; the cost of rubbish
removal, snow removal and service contracts for the elevator, HVAC and
alarm systems of the Building; the cost of such security guards and
protection services as may be deemed reasonably necessary by Landlord,
including, but not limited to, a 24 hour security guard; an
administration fee not to exceed 5% of the gross rentals payable to
Landlord by all tenants in the building; insurance in amounts and
coverages determined by Landlord, including fire and extended
coverage, rental interruption, sprinkler leakage, plate glass and
public liability insurance (but Tenant shall have no interest in such
insurance or the proceeds thereof); labor costs incurred in the
operation and maintenance of the Building, including wages and other
payments, costs to Landlord of Workers' Compensation and disability
insurance; payroll taxes, and welfare fringe benefits; professional
building management fees; legal, accounting, inspection and
consultation fees incurred in connection with the Building to the
extent required by any governmental authority or any other inspection
or consultation fees incurred in connection with the Building to the
extent required by any governmental authority or any other inspection
or consultation fees required for the normal prudent operation of the
Building and not normally the responsibility of the managing agent;
the cost of any capital improvements to the Building or of any
machinery or equipment installed in the Building which is made or
becomes operational, as the case may be, after the Commencement Date,
which costs shall be amortized over the useful life of the capital
improvement (as reasonably estimated by Landlord's accountant); and
all other common area costs and expenses and replacements relating to
the Building and all other charges properly allocable to the repair,
operation and maintenance of the Building in accordance with generally
accepted accounting principles. If Landlord selects an accrual
accounting basis for calculating Operating Expenses, Operating
Expenses shall be deemed to have been paid when such expenses have
accrued in accordance with generally accepted accounting principles.
(ii) Expressly exclude Landlord's income taxes; leasing commissions,
interest on debt or amortization payments on any mortgages or deeds of
trust and rental under any ground or underlying leases or lease;
advertising and promotional expenditures; and any other expense which
under generally accepted accounting principles would not be considered
a normal maintenance or operating expense, except as otherwise
specifically provided herein.
(b) It is hereby agreed that during each calendar year of the term of
this Lease, Tenant shall pay to Landlord (i) the amount of any excess of
Tenant's Pro Rata Share of Operating Expenses over Tenant's Pro Rata share of
the Base Year For Operating Expenses; and (ii) the amount of any excess of
Tenant's Pro Rata Share of the Taxes over Tenant's Pro Rata Share of the Base
Year for Taxes. Beginning with the first calendar year in which this Lease
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commences, the monthly rent to be paid by Tenant to Landlord shall be increased
by an amount equal to (i) 1/12th of the estimated increase, if any, for each
calendar year over Tenant's Pro Rata Share of the Base Year For Taxes and (ii)
1/12th of the estimated increase, if any, of Tenant's Pro Rata Share of the Base
Year Operating Expenses, with an adjustment to be made between the parties at a
later date as hereinafter provided. As soon as practicable following the end of
each calendar year during the term of this Lease, Landlord shall submit to
Tenant a statement setting forth the exact amount of the increase, if any, in
(i) Tenant's Pro Rata Share of the Taxes for the calendar year just completed
over Tenant's Pro Rata Share of the Base Year For Taxes, and the difference, if
any, between Tenant's actual Pro Rata Share of the Taxes for the calendar year
just computed and the estimated amount of Tenant's Pro Rata Share of the Taxes
(on which its rent was based) for such year prior to the end of each calendar
year during the term hereof and (ii) Tenant's Pro Rata Share of the Operating
Expenses for the calendar year just computed over Tenant's Pro Rata Share of the
Base Year Operating Expenses, and the difference, if any, between Tenant's
actual Pro Rata Share of the Operating Expenses for the year first completed and
the estimated amount of Tenant's Pro Rata Share of Operating Expenses for such
year. Landlord shall submit to Tenant a statement setting forth the amount
reasonably estimated by Landlord as the increase, if any, in the Operating
Expenses or Taxes for the subsequent year and the amount of the increased
monthly rent to be paid by Tenant for such subsequent year computed in
accordance with the foregoing provision. To the extent that Tenant's Pro Rata
Share of the actual Operating Expenses or Tenant's Pro Rata Share of the Taxes
for the period covered by such statement is different from the estimated
increases upon which Tenant paid rent during the calendar year just completed,
Landlord shall pay to Tenant, or Tenant shall pay to Landlord, as the case may
be, the difference within thirty (30) days following receipt of said statement
from Landlord. In addition, with respect to the monthly rent, until Tenant
receives such statement, Tenant's monthly rent for the new calendar year shall
continue to be paid at the then current rate, but Tenant shall commence payment
to Landlord of the monthly installments of rent on the basis of the statement
beginning on the first day of the month following the month in which Tenant
receives such statement. Moreover, Tenant shall pay to Landlord, or shall
receive a credit against the next installment due hereunder, as the case may be,
on the date required for the first payment of rent as adjusted, the difference,
if any, between the monthly installments of rent so adjusted and the monthly
installments of rent actually paid during the new calendar year. In no event
shall any adjustment hereunder result in a decrease in the Gross Rent or
additional rent payable pursuant to any other provision of this Lease it being
agreed that the payments under this Section 2.05 are an obligation supplemental
to Tenant's obligation to pay the Gross Rent.
(c) If the Lease is in effect for less than a full calendar year
during the first or last calendar years of the term hereof, Tenant's Pro Rata
Share for such partial year shall be calculated by proportionately reducing the
Operating Expenses or the Taxes, as the case may be, to reflect the number of
months in such year during which the Lease is in effect (the "Adjusted Operating
Expenses and Taxes"). The Adjusted Operating Expenses and Taxes shall then be
compared with the actual Operating Expenses and Taxes for said partial year to
determine the amount, if any, of any increases in the actual Operating Expenses
and Taxes, as the case may be, for such partial year over the Adjusted Operating
Expenses and Taxes. Tenant shall pay its Pro Rata Share of any such increases
within thirty (30) days following receipt of notice thereof.
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(d) Landlord's failure during the Lease term to prepare and deliver
any statements or bills, or Landlord's failure to make a demand under this
Section or under any other provision of this Lease shall not in any way be
deemed to be a waiver of, or cause Landlord to forfeit or surrender, its rights
to collect any items of Additional Rent which may have become due pursuant to
this Section during the term of this Lease, except as otherwise specifically set
forth in this Lease. Tenant's liability for all Additional Rent due under this
Section 2.05 shall survive the expiration or earlier termination of this Lease.
(e) At its option and expense, Tenant shall have the right, one time
during any Lease year, upon fifteen (15) days prior written notice to Landlord,
to have its accountant's audit the records of Landlord relating to Taxes and
Operating Expenses for the prior year, at Landlord's record keeping office
during business hours; provided, however, if such audit (based on generally
accepted accounting principles) shall disclose that there is an overstatement of
Tenant's Pro Rata Share of the increases over the Base Year For Operating
Expenses or Base Year For Taxes to the extent of five (5%) percent, then
Landlord shall pay the cost of such audit.
ARTICLE III
SECURITY DEPOSIT; LETTER OF CREDIT
3.01 Security Deposit. Tenant has deposited with Landlord the sum of
----------------
$39,315.75 (the "Security"), the receipt of which is acknowledge by Landlord,
representing security for the full and faithful performance and observance by
Tenant of the covenants and obligations hereunder. Notwithstanding the
foregoing, upon the fifth anniversary of the Commencement Date, and further
provided that Tenant is not currently in default has not or has not been in
default (which default was not cured within any applicable notice and cure
period) under this Lease, the Security will be reduced to $19,657.88 and
Landlord, at its option, shall refund the excess portion of the Security to
Tenant or apply such excess toward Tenant's Gross Rent due Landlord. In the
event Tenant is in default or has been in default (which default was not cured
within any applicable notice and cure period) under the terms of this Lease, the
Security shall not be reduced and the entire Security shall be held and/or
applied by Landlord pursuant to the terms of this Lease throughout the remaining
term of the Lease. The Security shall be held by Landlord without interest in
favor of Tenant, and in the event Tenant defaults in the full and prompt payment
and performance of any of its covenants or obligations hereunder, Landlord may,
without notice to Tenant, use, apply or retain the whole or any part of the
Security to the extent required for the payment of any Gross Rent and Additional
Rent or any other sums which may be due Landlord hereunder. In the event
Landlord shall so use, apply, or retain the whole or any part of the Security,
Tenant shall, upon demand, immediately deposit with Landlord a sum equal to the
amount so used. The use, application, or retention of the Security, or a
portion thereof by Landlord shall not prevent Landlord from exercising any other
right or remedy provided by this Lease or by law (it being intended that
Landlord shall not first be required to proceed against the Security) and shall
not operate as a limitation on any recovery to which Landlord may otherwise be
entitled. If Tenant shall fully and faithfully comply with all the covenants
hereunder, the Security, or any balance thereof, shall be returned or paid over
to Tenant after the last to occur of (i) the date on which this Lease has
expired or been terminated, (ii) delivery to Landlord of full possession of the
Premises and (iii) Landlord's inspection of the Premises and determination that
all obligations of the Tenant under this Lease have been fully satisfied. It is
agreed and
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understood that the obligations of Tenant to Landlord hereunder which may not
have been performed prior to the Expiration Date shall be continuing obligations
owed by Tenant to Landlord and shall accordingly survive the termination of this
Lease. Landlord may deliver the Security to any purchaser of Landlord's interest
in the Premises and thereupon Landlord shall be discharged of and from any
further liability with respect to the same.
3.02 Letter of Credit.
----------------
(a) Upon the execution of this Lease, Tenant shall provide Landlord
with a clean, unconditional and irrevocable letter of credit in the amount of
$200,000 ("Letter of Credit") issued by a commercial banking institution
acceptable to Landlord, which shall include American National Bank, LaSalle Bank
or Harris Bank and Trust. The term of the Letter of Credit shall be two years
from and after the Commencement Date. The Letter of Credit shall permit partial
draws. Notwithstanding the foregoing, in the event Tenant is unable to procure
a letter of credit at the time of the execution of this Lease, Tenant shall
deposit $200,000 in cash with Landlord or with an escrow agent ("Escrow Agent")
satisfactory to Landlord ("Cash Deposit"). Landlord shall be entitled to draw
on the Cash Deposit on demand in the same manner Landlord is entitled to draw on
the Letter of Credit. Upon the presentation of a Letter of Credit satisfactory
to Landlord, the Escrow Agent or Landlord, as the case may be, shall promptly
refund, or be directed to refund, the Cash Deposit to Tenant. Unless there is
an Event of Default hereunder, all interest, if any, which accrues on the Cash
Deposit shall be paid to the Tenant.
(b) In the event Tenant defaults in the full and prompt payment and
performance of any of its covenants or obligations hereunder, Landlord may,
without notice to Tenant, draw in full or in part, on the Letter of Credit or
Cash Deposit, as the case may be, and use, apply or retain in whole or in part
to apply to any Gross Rent, Additional Rent or other sums due Landlord
hereunder. Any excess amounts drawn under the Letter of Credit or Cash Deposit,
as the case may be, shall be held and/or applied by Landlord as additional
Security under Section 3.01 above.
ARTICLE IV
USE
4.01 Use of Premises. It is agreed and understood that the Premises shall
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be used for the purpose of commercial office use for the purpose of the conduct
of Tenant's business as the executive offices for an internet related company
(or such other use as permitted by Landlord with respect to a sublease approved
by Landlord under Section 8.01 hereof) and for no other purpose. Tenant shall
abide by and not violate any of the rules and regulations of the Building
promulgated by Landlord from time to time. Landlord shall not be liable to
Tenant for violation of the rules and regulations by any other tenant or such
tenant's employees, agents, invitees or licensees. The existing rules and
regulations in force for the Building are described in Article XXVI below;
however, it is understood and agreed that, at any and all times during the term
of this Lease, Landlord may revise, modify, or amend said rules and regulations,
in Landlord's sole discretion, and Tenant shall comply with any and all rules
and regulations in effect, from time to
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time, throughout the term of this Lease, which will be enforced by Landlord in a
non-discriminatory manner.
4.02 Operation of Tenant's Business. If any governmental license or
------------------------------
permit, other than a Certificate of Occupancy, shall be required for the proper
and lawful conduct of Tenant's business in the Premises or any part thereof,
Tenant, at its expense, shall procure such license prior to the first day of the
term of this Lease, and thereafter maintain and renew such license or permit.
Tenant shall not, at any time, use or occupy, or suffer or permit anyone to use
or occupy, the Premises, or do or permit anything to be done in the Premises, in
any manner which may (a) violate the Certificate of Occupancy for the Premises
or for the Building; (b) cause or be liable to cause injury to the Building or
any equipment, facilities or systems therein; (c) constitute a violation of the
laws and requirements of any public authority or the requirements of insurance
bodies; (d) impair or intend to impair the character, reputation or appearance
of the Building as a first class office building; (e) impair or tend to impair
the proper and economic maintenance, operation, and repair of the Building
and/or its equipment, facilities or systems; and (f) disturb the quiet enjoyment
of other tenants or users of the Building.
ARTICLE V
PREPARATION OF PREMISES
5.01 Tenant Improvements. Tenant shall promptly furnish to Landlord for
-------------------
approval, design drawings and working drawings and specifications ("Plans and
Specifications") for all of Tenant's work as set forth in Exhibit C attached
---------
hereto ("Initial Improvements"). Tenant agrees to construct all of the Initial
Improvements in accordance with the approved Plans and Specifications. No
material deviation from the final set of Plans and Specification, once approved
by Landlord, in its reasonable discretion, shall be made without Landlord's
prior written consent. Approval of the Plans and Specifications shall not
constitute the assumption of any responsibility by Landlord for their accuracy,
efficiency or sufficiency, the Tenant being solely responsible for such items.
Tenant shall have access to the Premises to complete the Initial Improvements
from and after November 1, 1998.
5.02 Reimbursement for Initial Improvements. Landlord will provide to
--------------------------------------
Tenant an allowance for the Initial Improvements in the amount of up to $371,180
("Tenant Improvement Allowance") for the design and construction of the Initial
Improvements. Upon completion of the construction of the Initial Improvements,
Tenant shall provide Landlord with documentation, satisfactory to Landlord,
including, but not limited to, sworn statements and lien waivers, of all costs
for the construction of the Initial Improvement and design thereof and a copy of
all governmental approvals of same, and upon the satisfaction of such
requirements, Landlord shall promptly reimburse Tenant or pay directly to or
jointly with contractors or subcontractors for all such costs up to $371,180.
All costs for the Initial Improvements and design thereof in excess of $371,180
shall be paid by the Tenant. Notwithstanding the foregoing, provided Tenant is
not in default hereunder, the Landlord shall, subject to the limitations set
forth herein, make disbursements of the Tenant Improvement Allowance but not
more frequently than once each month. Such disbursements shall be reduced by the
holdback described below. At no time shall Landlord be required to make any
advances for construction costs if the remaining amount to be advanced under the
Tenant Improvement Allowance is insufficient to pay all remaining
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construction costs. If at any time prior to the completion of the Initial
Improvements it appears to Landlord or architect/agent of Landlord that the net
proceeds of the Tenant Improvement Allowance will be insufficient to complete
the Initial Improvements and to pay for all labor, material and costs thereof,
the Tenant shall deposit with Landlord additional monies, when added to the
Tenant Improvement Allowance, will be sufficient to complete and pay for the
Initial Improvements and until the additional monies are deposited, Landlord
shall not be required to make any additional disbursements.
All disbursements of hard costs from the Tenant Improvement Allowance shall
be subject to a 10% holdback of funds by Landlord and the monies so withheld
shall not become due or payable until (i) the full and final completion of work
of each contractor, subcontractor, materialmen, supplier or laborer, (ii) all
certificates of occupancy have been issued, (iii) complete releases and
discharges for all work has been submitted to Landlord and (iv) the receipt by
Landlord of a certification from Tenant's architect of substantial completion.
All applications for disbursements to Landlord shall include (i) a
certificate from Borrower's architect, certifying that the work described on the
application has been completed in accordance with the Plans and Specifications
approved by Landlord to the degree of completion as represented in the
application; (ii) sworn statements of the general contractor or construction
manager describing in detail the amount of costs incurred for construction to
the date of the request, the names of all persons or entities that have provided
work or materials for the construction, the amounts previously paid to the date
of the request, the amounts due and unpaid and an estimate of the amount
necessary to complete the work and (iii) partial or final waivers of lien
(whichever is applicable) duly executed by each contractor, subcontractor,
materialmen, supplier or laborer who has performed work or supplied material for
which reimbursement is sought. Landlord reserves the right to make disbursements
directly to the contractors, subcontractors, materialmen or suppliers or to make
any check jointly payable with Tenant.
ARTICLE VI
SUBORDINATION, NOTICE TO SUPERIOR
LESSORS AND MORTGAGEES AND ATTORNMENT
6.01 Subordination of Lease. This Lease, and all rights of Tenant
----------------------
hereunder are and shall be subject and subordinate to all mortgages, trust deeds
in the nature of a mortgage (both referred to hereafter as "mortgages"), and
ground leases, which may now or hereafter affect or encumber the Property and/or
the Building and/or any of such leases (whether or not such mortgages shall also
cover other lands and/or buildings and/or leases). This subordination shall
likewise apply to each and every advance made or hereafter to be made under such
mortgages, to all renewals, modifications, replacements and extensions of such
leases and such mortgages and to spreaders and consolidation of such mortgages.
This Section shall be self-operative and no further instrument of subordination
shall be required. However, in confirmation of such subordination, Tenant shall
promptly execute, acknowledge and deliver any instrument that Landlord, the
lessor, or the holder of any mortgage (or their respective successors-in-
interest) may reasonably request to evidence such subordination. If Tenant
fails to execute, acknowledge or deliver any such instrument within ten (10)
days after request therefor, Tenant hereby irrevocably constitutes and appoints
Landlord as Tenant's attorney-in-fact, which appointment is
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agreed to be coupled with an interest, to execute and deliver any such
instruments for and on behalf of Tenant. Any lease to which this Lease is
subject and subordinate is hereinafter referred to as a "Superior Lease" and the
lessor of a Superior Lease is hereinafter referred to as a "Superior Lessor";
and any mortgage to which this Lease is subject and subordinate is hereinafter
referred to as a "Superior Mortgage"; and any mortgagee of a Superior Mortgage
is hereinafter referred to as a "Superior Mortgagee." Notwithstanding the
foregoing, at Landlord's election, this Lease may be made senior to the lien of
any mortgage, if the mortgagee thereunder so requests.
6.02 Notice in the Event of Default. If any act or omission of Landlord
------------------------------
would give Tenant the right, immediately or after the lapse of a period of time,
to cancel or terminate this Lease or to claim a partial or total eviction,
Tenant shall not exercise such right (a) until it has given by registered or
certified mail written notice of such act or omission to Landlord and each
Superior Mortgagee and Superior Lessor whose name and address shall previously
have been furnished to Tenant, and (b) until a thirty (30) day period for
remedying (or-if the act or omission cannot, by its nature, be cured within
thirty days commencing with diligence and good faith, to remedy) such act or
omission shall be elapsed following the giving of such notice.
6.03 Successor Landlord. If any Superior Lessor or Superior Mortgagee
------------------
shall succeed to the rights of Landlord hereunder, whether through possession or
foreclosure action or delivery of a new lease or deed, or otherwise, then, at
the request of such party (hereinafter referred to as "Successor Landlord"),
Tenant shall attorn to and recognize such Successor Landlord as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
such Successor Landlord may reasonably request to further evidence such
attornment.
6.4 Non-Disturbance. Landlord agrees to use its reasonable efforts to
---------------
obtain a non-disturbance agreement (so long as Tenant is not in default under
this Lease) from any Superior Lessor or Superior Mortgagee.
ARTICLE VII
QUIET ENJOYMENT
So long as Tenant pays all of the Gross Rent and Additional Rent and
performs all of its other obligations hereunder, Tenant shall peaceably and
quietly have, hold and enjoy the Premises without hindrance, ejection or
molestation by Landlord or any other person lawfully claiming through or under
Landlord, subject to the provisions of this Lease and to Superior Leases and
Superior Mortgages. This covenant shall be construed as a covenant running with
the Property and is not, nor shall it be construed as, a personal covenant of
Landlord, except to the extent of Landlord's interest in this Lease and only so
long as such interest shall continue. Thereafter, this covenant shall be binding
upon only Landlord's successors in interest, to the extent of their respective
interests herein, as and when they shall have acquired the same and for so long
as they shall retain such interest.
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ARTICLE VIII
ASSIGNMENT, SUBLETTING, AND MORTGAGING
8.01 Prohibition. Except as expressly otherwise provided herein, Tenant
-----------
may not (a) assign or otherwise transfer this Lease or the term and estate
hereby granted, or offer or advertise to do so, or sublet the Premises or any
part thereof, or offer or advertise to do so, or allow the same to be used or
occupied by anyone other than Tenant, without the written consent of Landlord,
which consent shall be in the sole and absolute discretion of Landlord, and
which consent may be denied for any reason whatsoever; provided, however,
notwithstanding the foregoing, such consent shall be in the reasonable
discretion of Landlord provided (i) the proposed subtenant ("Subtenant") (-A-)
has a net worth (determined in accordance with reasonably accepted accounting
principles) in excess of $4,000,000 or (-B-), Subtenant provides a guaranty to
Tenant of an affiliated entity or party, who, has a net worth (in the aggregate
with Tenant) in excess of $4,000,000, which guaranty shall be assigned to
Landlord, (ii) such proposed Subtenant proposes to conduct a business compatible
with the other tenants of the Building and the manner in which Landlord is
marketing the building, which includes, but is not limited to, certain types of
the following businesses: an executive headquarters for a (-A-) leading edge
high technology company; (-B-) leading edge high technology interconnect
business; (-C-) financial services business; or (-D-) leading edge high
technology research and development, (iii) the Subtenant subleases the entire
10th floor or the entire space on the 11th floor, if any, which Tenant is then
currently leasing and (iv) Subtenant is a well established entity with a solid
financial record; and (b) mortgage, pledge, encumber, or otherwise hypothecate
this Lease or the Premises or any part thereof in any manner whatsoever, without
in each instance obtaining the prior written consent of Landlord, which consent
shall be in the sole and absolute discretion of Landlord, and which consent may
be denied for any reason whatsoever. Tenant shall pay Landlord's expenses,
including reasonable attorney fees, incurred in connection with the review of
Tenant's request for consent to assignment, sublease, or mortgage.
8.02 Rights of Landlord. If this Lease is assigned, whether or not in
------------------
violation of the provisions herein, Landlord may (without prejudice to, or
waiver of its rights), collect rent from the assignee. If the Premises or any
part thereof are sublet or used or occupied by anyone other than Tenant, whether
or not in violation of this Lease, Landlord may collect rent from the subtenant
or occupant. In either event, Landlord may apply the net amount collected to
the Gross Rent and Additional Rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of any of the
provisions of this Article VIII or the acceptance of the assignee, subtenant or
occupancy as a tenant, or a release of Tenant from the performance of its
obligations hereunder. In the event of any assignment, mortgaging, subletting,
or use or occupancy by others (whether or not in violation of this Lease) the
same shall not in any way be considered to relieve Tenant from acting in
accordance with the terms and prohibitions set forth in this Article VIII. Any
approved sublease shall be expressly subject to the terms and conditions of this
Lease. Reference in this Lease to use or occupancy by others (that is, anyone
other than Tenant) shall not be construed as limited to subtenants and those
claiming under or through subtenants but as including also licensees and others
claiming under or through Tenant, immediately or remotely. Tenant covenants
that, notwithstanding any assignment or transfer, and notwithstanding the
acceptance of Gross Rent and/or Additional Rent by Landlord from an assignee,
transferee, or any other party, it shall remain fully liable for the
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payment of the Gross Rent and Additional Rent and for the other obligations of
this Lease to be performed or observed by Tenant. In the event that the total
rent and any other considerations (whether cash or non-cash) received under any
sublease by Tenant, after deduction of Tenant's reasonable and actual expenses
in obtaining such sublease (including attorneys' fees, brokerage commissions and
advertising expenses, but excluding remodeling or construction costs), is
greater than the total rent provided for from time to time under this Lease,
which is allocable to the space sublet, Tenant shall pay to Landlord fifty
percent (50%) of such excesses received from any subtenant. In the event that
Tenant receives any consideration for an assignment of Tenant's interest under
this Lease, after deduction of Tenant's reasonable and actual expenses in
obtaining such assignment (including attorney fees, brokerage, commissions and
advertising expenses, but excluding remodeling or construction costs), Tenant
shall pay to Landlord fifty percent (50%) of such excesses received from any
assignee.
8.03 Permitted Transfers. The provisions of Section 8.01 (a) shall apply
-------------------
to a transfer of a majority of the stock of Tenant as if such transfer were an
assignment of this Lease; but said provisions shall not apply to transactions
with a corporation into or with which Tenant is merged or consolidated or to
which substantially all of Tenant's assets are transferred, provided in any of
such events (a) the successor to Tenant has a net worth computed in accordance
with generally accepted accounting principles at least equal to $5,000,000, and
(b) proof satisfactory to Landlord of such net worth shall have been delivered
to Landlord at least ten (10) days prior to the effective date of any such
transaction.
8.04 Recapture of Space. In the event Tenant desires to enter into any
------------------
sublease of the Premises, Landlord shall have the option to exclude from the
Premises covered by this Lease the space proposed to be sublet by Tenant,
effective as of the proposed commencement date of sublease of said space by
Tenant or if the proposed subletting is for the entire Premises, to terminate
this Lease. Landlord may exercise said option by giving Tenant written notice
thereof within twenty (20) days after receipt by Landlord of Tenant's notice of
the proposed sublease. In the event Landlord exercises said option, Tenant
shall either withdraw its request to sublease within ten (10) days after receipt
of notice of Landlord's exercise of such option or surrender possession of the
proposed subleased space to Landlord on the effective date of exclusion of said
space from the Premises covered by this Lease, and neither party hereto shall
have any further rights or liabilities with respect to said space from the
Premises covered by this Lease, and neither party hereto shall have any further
rights or liabilities with respect to said space under this Lease. Effective as
of the date of exclusion of any portion of the Premises covered by this Lease
pursuant to this Article VIII, (i) the Gross Rent specified in Article II shall
be reduced in the same proportion as the number of square feet of rentable area
contained in the portion of the Premises so excluded bears to the number of
square feet of rentable area contained in the Premises prior to such exclusion,
and (ii) the rentable area of the Premises specified in Article I shall be
decreased in the same proportion that the Premises has been decreased, for all
purposes under this Lease.
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ARTICLE IX
COMPLIANCE WITH LAWS
9.01 Generally. Tenant shall give prompt notice to Landlord of any notice
---------
it receives of the violation of any law or requirement of any governmental or
administrative authority with respect to the Premises or the use or occupation
thereof. Tenant shall, at Tenant's expense, comply with all laws and
requirements of any governmental or administrative authorities which shall
impose any violation, order or duty on Landlord or Tenant arising from (a)
Tenant's use of the Premises; (b) the manner or conduct of Tenant's business or
operation of its installations, equipment or other property therein; (c) any
cause or condition created by or at the instance of Tenant; (d) breach of any of
Tenant's obligations hereunder, whether or not such compliance requires work
which is structural or non-structural, ordinary or extraordinary, foreseen or
unforeseen; and Tenant shall pay all the costs, expenses, fines, penalties and
damages which may be imposed upon Landlord, any Superior Lessee, Superior Lessor
or Superior Mortgagee, by reason or arising out of Tenant's failure to fully and
promptly comply with and observe the provisions of this Section.
9.02 Environmental Laws. Neither Tenant or Tenant's agents, employees,
------------------
invitees or guests shall generate, release, store or dispose of hazardous
materials as defined by federal, state or local statures, ordinances, rules or
regulations ("Hazardous Materials"), at, upon, under or within any portion of
the Property. Tenant shall strictly comply in all respects with the requirements
with the Hazardous Materials laws, rules and regulations, and shall notify
Landlord immediately in the event of any discharge or discovery of any Hazardous
Material at, upon, under or within the Property. Tenant shall hold harmless and
indemnify Landlord against and from any damage, loss, expense or liability
resulting from the violation of this subsection including all attorney fees and
costs incurred as a result thereof. The covenants and indemnification contained
in this subsection shall survive the termination of this Lease.
ARTICLE X
INSURANCE
10.01 Tenant Activities. Tenant shall not violate, or permit the violation
-----------------
of, any condition imposed by any insurance policy issued in respect of the
Property and/or the Building of which Tenant has notice and shall not do, or
permit anything to be done, or keep or permit anything to be kept in the
Premises, which would (a) subject Landlord, any Superior Lessor, any Superior
Lessee or any Superior Mortgagee, to any liability or responsibility for
personal injury or death or property damage; (b) which would increase any
insurance rate in respect of the Property, the Building or the property therein
over the rate which would otherwise then be in effect; (c) which would result in
insurance companies of good standing refusing to insure the Property, the
Building or the property therein in amounts reasonably satisfactory to Landlord;
and (d) which would result in the cancellation or the assertion of any defense
by the insurer, in whole or in part, to claims under any policy of insurance
with respect to the Property, the Building or the property therein.
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10.02 Increased Premiums. If, by reason of any failure of Tenant to
------------------
comply with any provisions of this Lease, the premiums on Landlord's insurance
on the Property, the Building and/or property therein shall be higher than they
otherwise would be, Tenant shall reimburse Landlord, on demand, for that part of
such premiums determined to be attributable to such failure on the part of
Tenant.
10.03 Waiver of Subrogation. Landlord and Tenant each agree that it shall
---------------------
use its best efforts to obtain an appropriate clause in, or an endorsement
upon, each insurance policy obtained by it and covering or applicable to the
Premises and the personal property, fixtures, and equipment located therein or
thereon, pursuant to which the insurance company waives subrogation or Tenant,
as the case may be. The waiver of subrogation or permission for waiver of any
claim shall extend to Landlord and its beneficiaries, agents and employees, and
each Superior Lessor, Superior Lessee and Superior Mortgagee, and to other
appropriate parties designated by Landlord (collectively, "Superior Parties").
Each party hereby releases the other and its beneficiaries, agents and
employees, and each Superior Party with respect to any claim (including a claim
for negligence but not gross negligence or willful misconduct) which it might
otherwise have against the other or its beneficiaries, agents or employees, or
any Superior Party for loss, damage or destruction with respect to Tenant's
Property or the Building or any property therein by fire or other casualty
(including rental value or business interruption as the case may be) occurring
during the term of this Lease and normally covered under a fire insurance policy
with extended coverage endorsement.
10.04 Insurance to be Maintained by Tenant. Tenant, at its expense, shall
------------------------------------
maintain at all times during the term of this Lease comprehensive general public
liability insurance with respect to the Premises and the conduct or operation of
the business therein, protecting Landlord, its agents, its beneficiaries and
Tenant against any and all claims for injury and damage to persons or property
or for the loss of life or property occurring in, on, or about the Premises,
arising out of the act, negligence, omission, nonfeasance, or malfeasance of
Tenant, its employees, agents, contractors, customers, licensees, and invitees.
Such insurance shall be carried in a minimum amount (combined single limit) of
not less than Two Million Dollars ($2,000,000) for bodily injury or death to any
one person or any number of persons in any one occurrence and not less than Two
Million Dollars ($2,000,000) for property damage, and shall not provide for
deductible amounts. Landlord and its managing agent, and any Superior Lessor,
Superior Mortgagee and other parties designated by Landlord whose names and
addresses shall previously have been furnished to Tenant, shall be named as
additional insureds. Tenant, at its expense, shall also maintain at all times
during the term of this Lease fire insurance, with extended coverage, vandalism
and malicious mischief endorsements, in an amount adequate to cover full
replacement value of all leasehold improvements and all fixtures, contents and
wall and floor coverings in the Premises, and with no deductible in excess of
$1,000. Tenant shall deliver to Landlord and any additional named insured, all
such policies or certificates of insurance, in form satisfactory to Landlord,
issued by the insurance company or its authorized agent, along with receipts
indicating that the premiums for such insurance have been paid at least one (1)
year in advance, at least ten (10) days prior to the Commencement Date. Tenant
shall procure and pay for renewals of all such insurance from time to time
before the expiration thereof and deliver to Landlord (and any additional named
insured) such renewal policy or certificate thereof, along with receipts
indicating that the premiums for such insurance have been paid at least one (1)
year in advance, at least thirty (30) days prior to the expiration of any
existing policy. All such
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policies shall be issued by companies licensed to do business in the State of
Illinois and acceptable to Landlord, and all such policies shall contain a
provision whereby the same cannot be canceled or materially modified unless
Landlord and any additional named insured are given at least thirty (30) days'
prior written notice of such cancellation or material modification. Landlord may
require the amount of any public liability insurance to be maintained by Tenant
be increased from time to time so that the amount thereof adequately protects
Landlord's interest.
ARTICLE XI
ALTERATIONS
11.01 Procedural Requirements. Tenant may, from time to time, at its
-----------------------
expense, make such alterations, decorations, additions, or improvements
(hereinafter collectively referred to as "Alterations") in and to the Premises,
excluding structural changes, as Tenant may reasonably consider necessary for
the conduct of its business in the Premises; provided, however, that the written
consent of the Landlord is first obtained. Landlord's consent shall not be
reasonably withheld, provided, however, that: (a) the exterior of the Building
shall not be affected; (b) the Alterations are non-structural and the structural
integrity of the Building shall not be affected; (c) the Alterations are to the
interior of the Premises and no part of the Building outside of the Premises
shall be affected; (d) the proper functioning of the mechanical, electrical,
sanitary and other service systems of the Building shall not be adversely
affected and the usage of such systems by Tenant shall not be increased; (e)
Tenant shall have appropriate insurance coverage reasonably satisfactory to
Landlord regarding the Alterations; and (f) before proceeding with any
Alterations, Tenant shall submit to Landlord for Landlord's approval, plans and
specifications for the work to be done and Tenant shall not proceed with such
work until it has received said approval. In the event that the cost of the
proposed alternations exceed $25,000, upon Landlord's request Tenant shall
obtain and deliver to Landlord either (i) a performance bond and a labor and
materials payment bond (issued by a corporate surety licensed to do business in
Illinois), each in an amount equal to one hundred twenty-five percent (125%) of
the estimate of the cost of the Alterations and in form satisfactory to
Landlord, or (ii) such other security or evidence of Tenant's ability to pay the
cost of such Alternations as shall be reasonably satisfactory to Landlord.
11.02 Performance of Alterations, Initial Improvements and Additional
---------------------------------------------------------------
Improvements. Tenant, at its expense, shall obtain all necessary governmental
- ------------
permits and certificates for the commencement and prosecution of Alterations,
Initial Improvements and Additional Improvements and for the final approval
thereof upon completion, and shall cause the Alterations to be performed in
compliance therewith and in compliance with all applicable laws and requirements
of public authorities, or all entities holding mortgages on the Building and
with Landlord's rules and regulations or any other restrictions Landlord may
impose on the Alterations. Tenant shall not commence any Alterations, Initial
Improvements and Additional Improvements without having first demonstrated to
Landlord's reasonable satisfaction that all such permits and certificates have
been obtained. The Alterations, Initial Improvements and Additional
Improvements shall be diligently performed in a good and workmanlike manner,
using new materials and equipment at least equal in quality and class to the
standards for the Building established by Landlord. Alterations, Initial
Improvements and Additional Improvements shall be performed by contractors first
approved by Landlord, and Tenant's
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agents, contractors, workmen, mechanics, suppliers and invitees shall work in
harmony, and not interfere with, Landlord and its agents and contractors in
performing their work in the Premises, the Building, or with any other tenants
or occupants of the Building. Tenant shall, and hereby does, indemnify, defend,
and hold Landlord harmless from any and all claims, damages or losses, of any
nature, suffered by Landlord, whether directly or indirectly, as a result of, or
due to, or arising from, any labor dispute involving Landlord and/or the
Building and/or the Premises which labor dispute results from, or is due to, or
arising from the performance of any Alterations by, or on behalf of, Tenant.
Alterations, Initial Improvements and Additional Improvements shall be performed
in such manner as to not unreasonably interfere with or delay and as not to
impose any additional expense upon Landlord in the construction, maintenance,
repair or operation of the Building and so as not to interfere with any common
area renovation program being undertaken by Landlord; and if such expense is
incurred by Landlord, Tenant shall pay, the same upon demand. Tenant
acknowledges that any Alterations, Initial Improvements and Additional
Improvements commenced or performed in violation of any provision of this
Article XI shall cause Landlord irreparable injury, and Landlord shall have the
right to enjoin any such violations by injunction or other equitable relief.
11.03 Lien Prohibition. Tenant shall not permit any mechanics' or
----------------
materialmens' liens to attach to the Premises, the Building, the Property,
Tenant's leasehold estate or any of them. Tenant shall defend, indemnify, and
hold Landlord harmless from and against any and all mechanics' and other liens
and encumbrances filed in connection with Alterations, Initial Improvements and
Additional Improvements or any other work, labor, services, or materials done
for or supplied to Tenant, or any person claiming through or under Tenant,
including, without limitation, security interests in any materials, fixtures or
articles installed in and constituting a part of the Premises and against all
costs, expenses, and liabilities (including reasonable fees and attorneys of
Landlord's choosing) incurred in connection with any such lien or encumbrance or
any action or proceeding brought thereon. Tenant, at its expense, shall procure
the satisfaction or discharge of record of all such liens and encumbrances
within fifteen (15) days after the filing thereof. In the event Tenant has not
so performed, Landlord may, at its option, pay and discharge such liens and
Tenant shall be responsible to reimburse Landlord for all costs and expenses
incurred in connection therewith, together with interest thereon at the rate set
forth in Article XXI, Section 21.03, below, which expenses shall include
reasonable fees of attorneys of Landlord's choosing, and any costs in posting
bond to effect discharge or release of the lien as an encumbrance against the
Premises, the Building, the Property, or any of them.
ARTICLE XII
LANDLORD'S AND TENANT'S PROPERTY
12.01 Landlord's Property. All fixtures, equipment, improvements and
-------------------
appurtenances to or built into the Premises at the commencement of or during the
term of this Lease, whether or not placed thereby or at the expense of Tenant,
shall be and remain a part of the Premises, shall be deemed the property of
Landlord (the "Landlord Property") without compensation or credit to Tenant, and
shall not be removed by Tenant unless Landlord requests their removal. Further,
any personal property in the Premises on the Commencement Date, unless installed
and paid for by Tenant, shall be and shall remain the property of the Landlord
and shall not be removed by Tenant. All carpeting contained within the Premises
during the term of this Lease shall be and
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remain the property of Landlord and shall not be removed or replaced without the
prior written consent and approval by Landlord.
12.02 Tenant's Property. All movable partitions, business and trade
-----------------
fixtures, machinery and equipment, communications equipment and office
equipment, whether or not attached to or built into the Premises, which are
installed in the Premises by or for the account of Tenant without expense to
Landlord and which can be removed without damage to the Building, and all
furniture, furnishings and other articles of movable personal property owned by
Tenant and located in the Premises shall be and shall remain the property of
Tenant (the "Tenant's Property") and may be removed by Tenant at any time during
the term of this Lease, provided Tenant is not in default hereunder. In the
event Tenant's Property is so removed, Tenant shall repair or pay the cost of
repairing any damage to the Premises or to the Building resulting from the
installation and/or removal thereof. Any equipment or other property for which
Landlord shall have granted any allowance or credit to Tenant shall not be
deemed to have been installed by or for the account of Tenant without expense to
Landlord, shall not be considered Tenant's Property and shall be deemed the
property of Landlord.
12.03 Removal of Tenant's Property. At or before the Expiration Date of
----------------------------
this Lease, or the date of any earlier termination hereof, Tenant, at its
expense, shall remove from the Premises all of Tenant's Property (except such
items thereof as Landlord shall have expressly permitted in writing to remain,
which property shall become the property of Landlord), and Tenant shall repair
any damage to the Premises or the Building resulting from any installation which
shall remain in the Premises after the Expiration Date of this Lease, or
following an earlier termination date, may, at the option of Landlord, be deemed
to have been abandoned, and in such case, such items may be retained by Landlord
as its property or disposed of by Landlord, without accountability, in such
manner as Landlord shall determine, at Tenant's expense. Notwithstanding the
foregoing, if Tenant is in default under the terms of this Lease, it shall only
remove Tenant's Property from the Premises upon the express, written consent of
Landlord.
ARTICLE XIII
REPAIRS AND MAINTENANCE
13.01 Tenant Repairs and Maintenance. Except as provided in Section 13.02
------------------------------
of this Lease, Tenant shall, at its expense, throughout the term of this
Lease, take good care of the Premises, the fixtures and appurtenances therein,
including, without limitation, the Landlord's Property, and Tenant's Property.
Tenant shall be responsible for all repairs, interior and exterior, structural
and non-structural, ordinary and extraordinary to the Premises and the Building
and the facilities and systems thereof, if and to the extent that the need for
such repairs arises directly or indirectly from the Initial Improvements to the
extent performed by Tenant or under Tenant's supervision, Additional
Improvements or Alterations, (b) the installation, use or operation of Tenant's
Property in the Premises, (c) the moving of Tenant's Property in or out of the
Building, or (d) any act, omission, misuse, or neglect of Tenant or any of its
subtenants or its or their respective employees, agents, contractors, invitees,
or others entering into the premises by act or omission of Tenant or any
subtenant. Tenant, at its expense, shall promptly replace all scratched,
damaged, or broken doors and glass in and about the Premises and floor coverings
in the Premises and for the repair and maintenance of all sanitary and
electrical fixtures therein;
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provided, however, that all replacement materials and methods of replacement
shall be approved in writing by the Landlord prior to installation. Tenant shall
promptly make, at Tenant's expense, all repairs in or to the Premises for which
Tenant is responsible, and any repairs required to be made by Tenant to the
mechanical, electrical, sanitary, heating, ventilating, air conditioning, or
other systems of the Building or Premises shall be performed only by
contractor(s) designated by Landlord. All such repairs shall be performed at
such times and in such manner as shall cause the least interference with the
operation of the central systems of the Building and the use of the Building by
other occupants. All such repairs shall be subject to the supervision and
control of Landlord for which Landlord may charge Tenant a reasonable fee, not
to exceed 10% of the amount of such repairs. Any other repairs in or to the
Building and the facilities and systems thereof for which Tenant is reasonable
shall be performed by Landlord at Tenant's expense.
13.02 Landlord Repairs and Maintenance. Landlord, at its expense (subject
--------------------------------
to reimbursement as provided herein), shall keep and maintain the public
portions of the Building and its systems and facilities serving the Premises in
good working order, condition and repair, and shall keep and maintain the
foundation, exterior walls and roof of the Building and the structural portions
of the Building in good repair. Landlord shall have no liability to Tenant, nor
shall Tenant's covenants and obligations hereunder be reduced or abated in any
manner whatsoever, by reason of any inconvenience, annoyance, interruption or
injury to business arising from Landlord's making any repairs or changes which
Landlord is required or permitted by this Lease, or required by law, to make in
or to any portion of the Building or the Premises, or in or to the fixtures,
equipment or appurtenances of the Building or the Premises. Additionally, except
as may otherwise be provided herein, Tenant waives any and all claims of any
kind, nature or description against Landlord arising out of the temporary
failure of the Landlord from time to time to furnish any of the services
requested to be furnished hereunder, including, without limitation, air
conditioning, heat, electricity, elevator service, and toilet facilities.
13.03 Tenant Equipment. Tenant shall not place a load upon any floor of
----------------
the Premises which exceeds the load per square foot which such floor was
designed to carry or which is allowed by law. Tenant acknowledges that there may
be special heavy-load extra-reinforced areas designated by landlord on the
Premises that Tenant may use, but that no other portion of the Premises may bear
a load that exceeds seventy (70) pounds per square foot. Business machines and
mechanical equipment belonging to Tenant which cause noise or vibrations that
may be transmitted to the structure of the Building or to the Premises to such a
degree as to be objectionable to Landlord shall, at Tenant's expense, be placed
and maintained by Tenant in settings of cork, rubber or spring-type vibration
eliminators sufficient to eliminate such noise or vibration.
ARTICLE XIV
HEAT, VENTILATION, AIR CONDITIONING, AND ELECTRICAL ENERGY
14.01 Air Conditioning and Heating Provided by Landlord. Except as
-------------------------------------------------
otherwise provided herein, Landlord, at its expense, shall maintain and operate
the heating, ventilating and air conditioning in the Premises and shall furnish
heat, ventilating and air conditioning in the Premises as may be reasonably
required for reasonably comfortable occupancy of the Premises
20
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during Business Hours of Business Days. "Business Hours" shall mean 8:00 a.m.
through 6:00 p.m. during Business Days and "Business Days" shall mean all days
except Saturdays (after 1:00 p.m.), Sundays and days observed by the Federal
government as legal holidays, and such other days as shall be designated by
Landlord as holidays. If Tenant shall require such services any other time,
Landlord may, at its option, furnish the same upon not less than twenty-four
(24) hours' notice and Tenant shall pay to Landlord, upon demand, Landlord's
then established charges therefor.
14.02 Use of Electrical Energy By Tenant. Tenant shall pay for all
----------------------------------
electrical services to its Premises, which are currently separately metered by
Commonwealth Edison. Tenant's use of electrical energy in the Premises shall
not, at any time, exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Premises. In order to insure that such
capacity is not exceeded and to avert possible adverse effects upon the
Building's electrical service, Tenant shall not, without Landlord's prior
written consent in each instance, make any alteration or addition to the
electric system of the Premises existing on the Commencement Date. Tenant's
electrical usage under this Lease contemplates only the use of normal and
customary office equipment. In the event Tenant installs any office equipment
which uses substantial additional amounts of electricity, then Tenant agrees
that Landlord's prior written consent is required before the installation of
such additional office equipment.
ARTICLE XV
OTHER SERVICES
15.01 Services Provided by Landlord. Landlord, at its expense, shall
-----------------------------
provide elevator service to the Premises during Business Hours of Business Days,
and Landlord shall have at least one elevator subject to call at all other
times. The use of the elevators shall be subject to the rules and regulations
promulgated by the Landlord. Landlord shall furnish adequate hot and cold water
to the floor of the Building on which the Premises are located for drinking,
lavatory and cleaning purposes. Landlord shall maintain listings on the
Building directory of the names of Tenants, and the names of any Tenant's
officers and employees, provided that the names so listed shall not use more
than tenant's proportionate share of the space in the Building on the Building
directory.
15.02 Janitorial Standards. Provided that Landlord, its cleaning
--------------------
contractor and their employees shall have access to the Premises at all
reasonable times and shall have the right to use, without charge therefor, all
light, power, and water in the Premises reasonably required to clean the same,
Landlord shall cause the Premises, including the exterior and interior of the
windows thereof, to be cleaned in a manner which, in Landlord's sole and
exclusive judgment, is consistent with standards of similar downtown Chicago
office buildings and in material accordance with the specifications attached
hereto as Exhibit D. Landlord shall not be required to clean any portions of
the Premises used for the preparation, serving or consumption of food or
beverages. Tenant shall pay to Landlord on demand the cost incurred by Landlord
for (a) extra cleaning work in the Premises required because of (i) misuse or
neglect on the part of Tenant or subtenants or its or their employees or
visitors, (ii) the use of portions of the Premises for special purposes
requiring greater or more difficult cleaning work than office areas, (iii)
interior glass partitions or unusual quantity of interior glass surfaces, and
(iv) non-building standard materials
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or finishes installed by Tenant or at its request, and (b) removal from the
Premises and the Building of any refuse and rubbish of Tenant in excess of that
ordinarily accumulated in business office occupancy or times other than
Landlord's standard cleaning times, and (c) the use of the Premises by Tenant
other than during Business Hours on Business Days except for Saturday.
15.03 Involuntary Cessation of Services. Landlord reserves the
---------------------------------
right, without any liability to Tenant and without affecting Tenant's covenants
and obligations hereunder, to stop service of the heating, air conditioning,
electric, sanitary, elevator, or other building systems serving the Premises, or
to stop any other services required by Landlord under this Lease, whenever and
for so long as may be necessary, by reason of accidents, emergencies, strikes,
or the making of repairs or changes which Landlord is required by this Lease or
by law to make or in good faith deems necessary, by reason of Landlord's
inability to secure proper supplies of fuel, steam, water, electricity, labor,
or supplies, or by reason of any other cause beyond Landlord's reasonable
control.
15.04 Parking. Landlord agrees, upon request of Tenant, to lease to
-------
Tenant up to four (4) parking spaces in the Building during the term of the
Lease at market rates, as determined by Landlord. Tenant shall enter into such
additional standard lease agreements with respect to the parking spaces as
requested by Landlord.
15.05 Untenability. Except for Tenant's non-payment of the
------------
electrical bill set forth in Section 14.02, if the heating, air conditioning, or
water or sewer services are interrupted, which causes the Premises to be
rendered untenable for more than 365 consecutive days, Tenant may, at its option
by giving Landlord written notice thereof terminate this Lease within three (3)
days after the end of such 365 day period. In the event Tenant terminates this
Lease under this Section 15.05, Tenant shall pay Landlord, as a condition
precedent to Lease termination, the unamortized balance (amortized over the term
of this Lease on a straight line basis) of any Tenant Improvement Allowance and
Additional Improvement Allowance plus all other transactional costs of Landlord
in connection with this Lease or any modification thereto, including, but not
limited to, leasing brokerage fees, and legal fees.
ARTICLE XVI
LANDLORD'S RIGHTS
16.01 Common Areas. Except for the space within the inside surfaces
------------
of all walls, hung ceilings, floors, windows and doors bounding the Premises,
all of the Building, including, without limitation, exterior Building walls,
core corridor walls and doors and any core corridor entrance, any terraces or
roofs adjacent to the Premises, and any space in or adjacent to the Premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof, as well as
access thereto through the Premises for the purposes of operation, maintenance,
decoration and repair, are reserved to Landlord. Landlord reserves the right,
and Tenant shall permit Landlord, to install, erect, use and maintain pipes,
ducts and conduits in and through the Premises.
16.02 Landlord's Rights of Access. Landlord and its agents shall
---------------------------
have the right to enter and/or pass through the Premises at any time or times
(a) to examine the Premises and to show
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them to actual and prospective Superior Lessors, Superior Lessees, Superior
Mortgagees, or prospective purchasers, mortgagees or lessees of the Building,
and (b) to make such repairs, alterations, additions and improvements in or to
the Premises and/or in or to the Building or its facilities and equipment as
Landlord is required or desires to make; provided, however, that Landlord shall
use reasonable efforts to avoid disturbing Tenant, Tenant's employees and
Tenant's business operations. Landlord shall be allowed to take all materials
into and upon the Premises that may be required in connection therewith, without
any liability to Tenant and without any reduction of Tenant's covenants and
obligations hereunder. During the period of nine (9) months prior to the
expiration date of this Lease, Landlord and its agents may exhibit the Premises
to prospective tenants.
16.03 Landlord's Right to Repair and Maintain. If at any time any
---------------------------------------
windows of the Premises are temporarily darkened or obstructed by reason of any
repairs, improvements, maintenance and/or cleaning in or about the Building, or
if any part of the Building, other than the Premises, is temporarily or
permanently closed or inoperable, the same shall be without liability to
Landlord and without any reduction or diminution of Tenant's obligations under
this Lease. Landlord reserves the right, at any time, without incurring any
liability to Tenant therefore, and without affecting or reducing any of Tenant's
covenants and obligations hereunder, to decorate and to make, at Landlord's
expense, repairs, alterations, additions and improvements (structural or
otherwise), in or to the Premises, the Building or any part thereof, and during
such operations to take into and through the Premises or any part of the
Building all material required, and to close or temporarily suspend operation of
entrances, doors, corridors, elevators and other facilities. Landlord may do
any such work during regular business hours; provided, however, Landlord shall
use reasonable efforts to avoid disturbing Tenant or its operations, and Tenant
shall pay Landlord for overtime and for any other expenses incurred if such work
is done during other hours by agreement between Landlord and Tenant.
16.04 Other Landlord Rights. Landlord shall have the following
---------------------
rights exercisable without notice, without liability to Tenant for damage or
injury to persons, property or business and without being deemed an eviction or
disturbance of Tenant's use or possession of the Premises or giving rise to any
claim for setoff or abatement of Rent: (i) to adopt any name for the Building
and to change the Building's name or street address; (ii) to install, affix and
maintain all signs on the exterior and/or interior of the Building; (iii) to
designate and/or approve prior to installation, all types of signs, window
shades, blinds, drapes, awnings or other similar items, and all internal
lighting that may be visible from the exterior of the Premises; (iv) to grant to
any party the exclusive right to conduct any business or render any service in
or to the Building, provided such exclusive right shall not operate to prohibit
Tenant from using the Premises for the purpose permitted hereunder; (v) to
designate all sources furnishing sign painting and lettering, drinking water,
towels, and toilet supplies used on the Premises; (vi) to have access for
Landlord and other tenants of the Building to any mail chutes and boxes located
in or on the Premises according to the rules of the United States Post Office;
(vii) to sell or otherwise transfer the Property or Building and assign and pass
through all of Landlord's obligations hereunder to the new owner; (viii) to
close the Building after normal business hours, except that Tenant and its
employees and invitees shall be entitled to admission at all times, under such
regulations as Landlord prescribes for security purposes; (ix) to have pass
keys, access cards, or both, to the Premises; (x) to decorate, remodel, repair,
alter or otherwise prepare the Premises for reoccupancy at any time after Tenant
vacates or abandons the Premises or suspends active
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business operations for a period of thirty (30) thirty days; (xi) to require all
persons entering or leaving the Building during such hours as Landlord may from
time to time reasonably determine, to identify themselves to a security guard by
registration or otherwise and to establish their right to enter or leave, and to
exclude any peddlers, solicitors, vagrants or beggars at any time from the
Premises or the Building; and (xii) to close the receiving dock for the Building
at 5:00 p.m. daily, and all day on Saturdays, Sundays and all other non-Business
Days.
ARTICLE XVII
NON-LIABILITY AND INDEMNIFICATION
17.01 Non-Liability. Neither Landlord nor any partner, director,
-------------
officer, agent, servant, or employee of Landlord, Landlord's beneficiary,
Landlord's managing agent, any Superior Lessor or any Superior Mortgagee, shall
be liable to Tenant for any loss, injury, or damage, to Tenant or to any other
person, or to its or their property, irrespective of the cause of such injury,
damage or loss, unless caused by or resulting from the gross negligence or
willful misconduct of Landlord, its agents, servants or employees in the
operation or maintenance of the Premises or the Building, subject to the
doctrine of comparative negligence, if applicable, in the event of negligence on
the part of Tenant or any of its subtenants or licensees or its or their
employees, agents or contractors. Further, neither Landlord, Landlord's
beneficiaries, any Superior Lessor, or any Superior Mortgagee, nor any partner,
director, officer, agent, servant, or employee of Landlord or its beneficiaries
shall be liable (a) for any such damage caused by other tenants or persons, in,
upon or about the Building, or caused by operations in construction of any
private, public or quasi-public work; or (b) for consequential damages arising
out of any loss of the Premises or any equipment or facilities therein by Tenant
or any person claiming through or under Tenant.
17.02 Tenant Indemnification. Tenant shall defend, indemnify and
----------------------
hold Landlord, Landlord's beneficiary, Landlord's managing agent, and all
Superior Lessors and Superior Mortgagees and its and their respective partners,
directors, officers, agents and employees harmless from and against any and all
claims arising from or in connection with (a) the management of the Premises or
the conduct of any business therein, or any work or thing whatsoever done, or
any condition created (other than by Landlord) in or about the Premises during
the term of this Lease or during the period of time, if any, prior to the
Commencement Date that Tenant may have given access to the Premises; (b) any
act, omission or negligence of Tenant or any of its subtenants or licensees or
its or their partners, directors, officer, agents, employees or contractors; (c)
any accident, injury or damage whatsoever (unless caused by Landlord's gross
negligence) occurring in, at or upon the Premises; and (d) any breach or default
by Tenant in the full and prompt payment and performance of Tenant's obligations
under this Lease; together with all costs, expenses and liabilities incurred in
or in connection with each such claim or action or proceeding brought thereon
(including, without limitation, all reasonable fees and costs of attorneys of
Landlord's choice). In case any action or proceeding is brought against
Landlord and/or its beneficiaries, and/or any Superior Lessor or Superior
Mortgagee and/or its beneficiaries, and/or any Superior Lessor or Superior
Mortgagee and/or its or their partners, directors, officers, agents and/or
employees by reason of any such claim. Tenant, upon notice from Landlord,
Landlord's beneficiary, Landlord's managing agent, or such Superior Lessor,
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Superior Lessee or Superior Mortgagee, shall resist and defend such action or
proceeding (by counsel selected by Landlord or such Superior Lessor, Superior
Lessee or Superior Mortgagee).
17.03 Landlord Indemnification. Landlord shall indemnify Tenant and
------------------------
its officers, directors, representations, agents, employees and beneficiaries,
and hold them harmless from and against all claims, actions, damages,
liabilities, cost and expense, including attorney fees, in connection with any
loss, including loss of life, personal injury and/or damage to property, arising
from or out of any occurrence in, upon or at the common areas of the Premises,
except for any loss occurring as a result of Tenant's or its employees, agents,
or invitees gross negligence or willful misconduct.
17.04 Force Maieure. The obligations of Tenant hereunder shall not
-------------
be affected, impaired or excused, and Landlord shall have no inability
whatsoever to Tenant, with respect to any act, event or circumstances arising
out of (a) Landlord being unable to fulfill, or delayed in fulfilling any of its
obligations under this Lease by reason of strike, other labor trouble,
governmental preemption of priorities or other controls in connection with the
national or other public emergency or shortages of fuel, supplies, labor or
materials, or any other cause, whether similar or dissimilar, beyond Landlord's
reasonable control; or (b) any failure or defect in the supply, quantity or
character of electricity, gas, steam, or water furnished to the Premises, by
reason of any requirement, act or omission of any public utility or others
serving the Building beyond Landlord's reasonable control. Tenant shall not
hold Landlord liable for any latent defect in the Premises nor shall Landlord be
liable for injury or damage to person or property caused by fire, theft, or
resulting from the operation of elevators, heating or air conditioning or
lighting apparatus, or from falling plaster, or from steam, gas, electricity,
water, rain, snow, ice, or dampness, which may leak or flow from any part of the
Building, or from the pipes, appliance or plumbing work of the same.
ARTICLE XVIII
DAMAGE OR DESTRUCTION
18.01 Notification. Tenant shall give prompt notice to Landlord of
------------
(a) any occurrence in or about the Premises for which Landlord might be liable,
(b) any fire or other casualty in the Premises, (c) any damage to or defect in
the Premises, including the fixtures, equipment and appurtenances thereof, for
the repair of which landlord might be responsible, and (d) any damage to or
defect in any part or appurtenance of the Building's sanitary, electrical,
hearing, ventilating, air conditioning, elevator or other systems located in or
passing through the Premises or any part thereof.
18.02 Repair Provisions. If the Building or the Premises shall be
-----------------
damaged by fire or other casualty (and if this Lease shall not be terminated as
hereinafter provided), Landlord shall repair the damage and restore and rebuild
the Building and/or the Premises (except for Landlord's Property and Tenant's
Property) with reasonable dispatch after notice to it of the damage or
destruction and the collection of the insurance proceeds attributable to such
damage and Tenant's Property, with reasonable dispatch after such damage or
destruction. Such work by Tenant shall be deemed Alterations for the purposes
of this Lease.
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18.03 Rental Abatement. If the Building or the Premises shall be
----------------
partially damaged by fire or other casualty, the Gross Rent shall be abated in
the proportion that the untenantable area of the premises bears to the total
area of the Premises, for the period from the date of such damage or destruction
to (i) the date the damage or destruction shall be substantially repaired or
restored; or (ii) if the Building and not the Premises is so damaged or
destroyed, the date on which the Premises shall be made tenantable; provided,
however, should Tenant reoccupy a portion of the Premises during the period the
restoration work is taking place and prior to the date that the Premises are
substantially repaired or restored, the Gross Rent allocable to such reoccupied
portion, based upon the proportion which the area of the reoccupied portion of
the Premises bears to the total area of the Premises, shall be payable by Tenant
from and after the date of such occupancy.
18.04 Total Destruction. If the Building or the Premises shall be
-----------------
totally destroyed by fire or other casualty, or if the Building shall be so
damaged by fire or other casualty (whether or not the Premises are damaged or
destroyed) that its repair or restoration requires more than Two Hundred Seventy
(270) days or the expenditure (as estimated by a contractor or architect
designated by Landlord) or more than twenty percent (20%) of the full insurable
value of the Building immediately prior to the casualty, or if the holder of, or
appropriate party under, any mortgage, Superior Lease or other lease or other
party entitled to proceeds fails to make insurance proceeds available to
Landlord sufficient for restoration of the Building or the Premises, then in any
such case Landlord may, at Landlord's sole option, either (i) terminate this
Lease by giving Tenant notice to such effect within ninety (90) days after the
date of the casualty, or (ii) make the appropriate repairs and restoration. For
the purposes of this Section only, "full insurable value" shall mean replacement
cost less the cost of footings, foundations and other structures below the
street floor of the Building.
18.05 Repair or Restoration. Tenant shall not be entitled to
---------------------
terminate this Lease and no damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Premises or of the Building pursuant
to this Article. Landlord shall use its best efforts to make such repair or
restoration promptly and in such manner as not to unreasonably interfere with
Tenant's use and occupancy of the Premises, but Landlord shall not be required
to do such repair or restoration work except during Business Hours of Business
Days.
18.06 Liability of Tenant. Notwithstanding any of the foregoing
-------------------
provisions of this Article, if by reason of some act or omission on the part of
Tenant or any of its subtenants or its or their partners, directors, officers,
servants, employees, agents, or contractors, either (a) Landlord or any Superior
Lessor or any Superior Mortgagee or other appropriate party shall be unable to
collect all of the insurance proceeds (including, without limitation, rent
insurance proceeds) applicable to damage or destruction of the Premises or the
Building by fire or other casualty, or (b) the Premises or the Building shall be
damaged or destroyed or rendered completely or partially untenantable on account
of fire or other casualty then, without prejudice to any other remedies which
may be available against Tenant, there shall be no abatement or reduction of the
Gross Rent or Additional Rent. Further, nothing contained in this Article shall
relieve Tenant from any liability that may exist as a result of any damage or
destruction by fire or other casualty.
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ARTICLE XIX
EMINENT DOMAIN
19.01 Total Condemnation. If the whole of the Building or the
------------------
Premises or if any part of the Building or the Property which materially affects
Tenant's use and occupancy of the Premises shall be taken by condemnation or in
any other manner for any public or quasi-public use or purpose, this Lease and
the term and estate hereby granted shall terminate as of the date of vesting of
title on such taking (herein called "date of the Taking"), and the Gross Rent
and Additional Rent shall be prorated and adjusted as of such date.
19.02 Award. Landlord shall be entitled to receive the entire award
-----
or payment in connection with any taking without deduction therefrom; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority an award in respect of the loss, if any, to leasehold improvements in
the Premises paid for by Tenant without any credit or allowance from Landlord or
deduction from Landlord's award.
19.03 Compensation to Tenant for Temporary Use. If temporary use or
----------------------------------------
occupancy of all or any part of the Premises shall be taken by condemnation or
in any other manner for any public or quasi-public use or purpose during the
term of this Lease, Tenant shall be entitled, except as hereinafter set forth,
to receive that portion of the award or payment for such taking which represents
compensation for the use and occupancy of the Premises for the taking of
Tenant's Property and for moving expenses, and Landlord shall be entitled to
receive that portion which represents reimbursement for the cost of restoration
of the Premises. This Lease shall be and remain unaffected by such taking and
Tenant shall continue to be responsible for all of its obligations hereunder
insofar as such obligations are not affected by such taking and shall continue
to pay in full the Gross Rent and Additional Rent due. If the period of
temporary use or occupancy shall extend beyond the expiration date of this
Lease, that part of the award which represents compensation for the use and
occupancy of the Premises (or a part thereof) shall be divided between Landlord
and Tenant so that Tenant shall receive so much thereof as represents the period
up to and including such expiration date and Landlord shall receive so much
thereof as represents the period after such expiration date. All monies paid
as, or as part of, an award for temporary use and occupancy for a period beyond
the date to which the Gross Rent and Additional Rent have been paid shall be
received, held and applied by Landlord as a trust fund for payment of the Gross
Rent and Additional Rent becoming due hereunder.
19.04 Partial or Temporary Taking. Subject to the rights of any
---------------------------
Superior Mortgagee or Superior Lessor, the grantee of any facade or historical
easement, and other appropriate parties having rights to condemnation proceeds,
in the event of any taking of less than the whole of the Building and/or the
Property which does not result in termination of this Lease, or in the event of
taking for a temporary use or occupancy of all or any part of the Premises which
does not result in a termination of this Lease, (a) Landlord, at its expense,
shall proceed with reasonable diligence to repair the remaining parts of the
Building and the Premises (other than those parts of the Premises which are
Landlord's Property and Tenant's Property) to substantially their former
condition to the extent that the same may be feasible (subject to reasonable
changes which Landlord shall deem desirable) and so as to continue a complete
and tenantable Building and Premises, and (b) Tenant, at its expense, and
whether or not any award or awards shall be
27
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sufficient for the purpose, shall proceed with reasonable diligence to repair
the remaining parts of the Premises which are deemed Landlord's Property and
Tenant's Property, to substantially their former condition, subject to
reasonable changes which Tenant shall deem desirable. Such work by Tenant shall
be deemed Alterations as hereinabove defined.
ARTICLE XX
SURRENDER AND HOLDOVER
On the last day of the term of this Lease, or upon any earlier
termination of this Lease, or upon any re-entry by Landlord upon the Premises,
Tenant shall quit and surrender the Premises to Landlord "broom-clean" and in
good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of the Tenant's Property therefrom except as
otherwise expressly provided in this Lease. No termination of this Lease prior
to the Expiration Date shall affect Landlord's right to collect Gross Rent and
Additional Rent for any period prior to the effective date of termination. If
Tenant remains in possession after the Expiration Date hereof, (a) Tenant shall
be deemed a tenant at will, (b) Tenant shall pay two hundred percent (200%) of
the Gross Rent and Additional Rent last prevailing hereunder, and also shall pay
all damages sustained by Landlord, consequential as well as direct, by reason of
such remaining in possession after the expiration or termination of this Lease,
(c) there shall be no renewal or extension of this Lease by operation of law,
and (d) the tenancy at will may be terminated upon thirty (30) days' notice from
Landlord. The provisions of this Article shall not constitute a waiver by
Landlord of any re-entry rights of Landlord provided hereunder or by law.
ARTICLE XXI
EVENTS OF DEFAULT
21.01 Bankruptcy of Tenant.
(a) In the event that Tenant shall make an assignment for the benefit
of creditors, or shall file a voluntary petition under any state or federal
bankruptcy or insolvency law, or an involuntary petition alleging an act of
bankruptcy or insolvency shall be filed against Tenant under any state or
federal bankruptcy or insolvency law, or whenever a petition shall be filed by
or against Tenant under the reorganization provisions of the United States
Bankruptcy Act or under the provisions of any law of like import, or whenever a
petition shall be filed by Tenant under the arrangement provisions of the United
States Bankruptcy Act or similar law, or whenever a receiver of Tenant, or of or
for the property of Tenant shall be appointed, or Tenant admits it is insolvent
or is not able to pay its debts as they mature, then Landlord, if such event
occurs without the acquiescence of Tenant at any time after the event continues
for sixty (60) days, or otherwise with no such grace period, may give Tenant a
notice of default, and may exercise its remedies as provided in Article XXII
below.
(b) If following the filing of a petition by or against Tenant in a
bankruptcy court, Landlord shall not be permitted to terminate this Lease as
herein provided because of the provisions of Title 11 of the United States Code
relating to Bankruptcy, as amended (the "Bankruptcy code"), then Tenant
(including Tenant as Debtor-in-Possession) or any trustee for
28
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Tenant agrees to promptly, but no later than sixty (60) days after petition by
Landlord to the bankruptcy court, assume or reject this Lease, and Tenant agrees
not to seek or request any extension or adjournment, of any petition to assume
or reject this Lease by Landlord with such court. Tenant's, or the trustee's,
failure to assume this Lease within said 60-day period shall be deemed a
rejection. Landlord shall thereupon immediately be entitled to possession of the
Premises without further obligation to Tenant or the trustee, and this Lease
shall be terminated, except that Landlord's right to damages for Tenant's
default shall survive such termination.
(c) Tenant or any trustee for Tenant may also assume this Lease if
(i) it cures or provides adequate assurance that the trustee will promptly cure
any default hereunder, (ii) it compensates or provides adequate assurance that
the Tenant will promptly compensate Landlord for any actual pecuniary loss to
Landlord resulting from Tenant's default, and (iii) it provides adequate
assurance of future performance under this Lease by Tenant. In no event after
the assumption of this Lease by Tenant or any trustee for Tenant shall any then-
existing default remain uncured for a period in excess of ten (10) days.
Adequate assurance of future performance of this Lease shall include, without
limitation, adequate assurance (a) of the source of Gross Rent and Additional
Rent required to be paid by Tenant hereunder, and (b) that assumption or
permitted assignment of this lease will not breach any provision hereunder. To
adequately assure the source of Rent due under this Lease in such event, Fast
Heat shall be required to be liable for Tenant's obligations under the Guaranty.
21.02 Default Provisions. This Lease and the term and estate hereby
------------------
granted are subject to the following limitations, each of which shall constitute
a breach of this Lease by Tenant: (a) if Tenant shall fail to pay Gross Rent or
Additional Rent or any other payment within five (5) days of when due hereunder;
(b) if Tenant shall, whether by action or inaction, be in default of any of its
obligations under this Lease (other than a default in any payment hereunder) and
such default shall continue and not be remedied within thirty (30) days after
Landlord shall have given to Tenant a notice specifying the same; (c) in the
case of a non-monetary default which cannot by its nature with due diligence be
cured within a period of thirty (30) days and the continuance of which for the
period required for cure will or could subject Landlord to any litigation or
subject the Premises or any part thereof or the Building or the Property, or any
part thereof, to being condemned or vacated, subject the Building or the
Property, or any part thereof, to any lien or encumbrance, or result in the
termination of any Superior Lease or foreclosure of any Superior Mortgage, and
Tenant shall not have (i) within said thirty (30) day period advised Landlord of
Tenant's intention to take all steps necessary to remedy such default, (ii) duly
commenced within said thirty (30) day period and thereafter to diligently
prosecute to completion all steps necessary to remedy the default, and (iii)
completed such remedy within a reasonable time, but in no event later than sixty
(60) days after the date of said notice of Landlord; (d) if any event shall
occur or any contingency shall arise whereby this Lease or the estate hereby
granted or the unexpired balance of the term hereof would, by operation of law
or otherwise, devolve upon or pass to any person, firm or corporation other than
Tenant; or (e) if Tenant shall vacate or abandon the Premises. After Landlord
has provided two (2) default notices during any twelve (12) month period, any
additional event during such twelve (12) month period which would otherwise
require Landlord to provide notice to Tenant in order to be deemed an event of
Tenant default, shall be immediately deemed an event of Tenant default.
29
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21.03 Landlord's Rights Upon Default of Tenant. If Tenant shall
----------------------------------------
default in the performance of any of its obligations under this Lease, Landlord,
without thereby waiving such default, may (but shall not be obligated to)
perform the same for the account and at the expense of Tenant, without notice in
a case of emergency, and in any other case only if such default continues after
the expiration of thirty (30) days from the date Landlord gives Tenant notice of
the default. Any expenses incurred by Landlord in connection with any such
performance, and all costs, expenses, and disbursements of every kind and nature
whatsoever, including reasonable disbursements of every kind and nature
whatsoever, including reasonable attorney fees (through all appellate
proceedings) involved in collecting or endeavoring to collect the Gross Rent or
Additional Rent or any part thereof or enforcing or endeavoring to enforce any
rights against Tenant or Tenant's obligations hereunder shall be due and payable
upon Landlord's submission of an invoice therefor. All sums advanced by
Landlord on account of Tenant under this Article, or pursuant to any other
provision of this Lease, and all Gross Rent and Additional Rent, if delinquent
or not paid by Tenant and received by Landlord when due hereunder, shall bear
interest at the rate of three percent (3%) per annum above the Corporate Base
Rate or similar rate of interest announced from time to time by the First
National Bank of Chicago from the due date thereof until paid and the same shall
be and constitute Additional Rent and be due and payable upon Landlord's
submission of an invoice therefor.
ARTICLE XXII
REMEDIES
22.01 Landlord's Remedies. In the event of any breach of this Lease
-------------------
by Tenant, Landlord, at its option, and after the proper notice if any, as
provided in Article XXI has expired, without further notice or demand to Tenant,
may, in addition to all other rights and remedies provided in this Lease, at law
or in equity, to the extent permissible:
(a) Terminate this Lease and Tenant's right of possession of
the Premises, and recover all damages to which Landlord is entitled under law,
specifically including, without limitation, Rent for the balance of the Term,
and all Landlord's expenses of reletting (including repairs, alterations,
improvements, additions decorations, legal fees and brokerage commissions).
(b) Terminate Tenant's right of possession of the Premises
without terminating this Lease; provided, however, that Landlord shall use its
reasonable efforts, whether Landlord elects to proceed under subparagraphs (a)
or (b) above to relet the Premises, or any part thereof for the account of
Tenant, for such rent and term and upon such terms and conditions as are
acceptable to Landlord. In addition, Landlord may accelerate and declare all
Rent due and to become due immediately payable, and obtain immediate payment
thereof (subject to an accounting at the end of the term for amounts received
from any re-letting of the Premises).
(c) Without entering into possession of the Premises or
canceling this Lease, accelerate and declare all Rent due and to become due and
other charges equivalent to rent reserved in this Lease due and to become due
immediately due and payable, and bring suit for collection thereof and for
damages. Such acceleration and commencement of any such action shall not be
construed as an election to terminate this Lease and shall not absolve or
discharge Tenant from any obligations or liabilities under this Lease for the
remainder of the term.
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If Landlord shall elect to pursue its rights and remedies under subparagraph
(b), then Landlord shall have the further right and remedy to rescind such
election and pursue its rights and remedies under subparagraph (a) or (c), if
Landlord has obtained a tenant to relet the Premises, which, in Landlord's
judgment is a suitable tenant. For purposes of such reletting, Landlord is
authorized to decorate, repair, alter and improve the Premises to the extent
deemed necessary by Landlord in its sole discretion. If Landlord fails to relet
the Premises or if the Premises are relet and a sufficient sum if not realized
therefrom after payment of all Landlord's expenses of reletting (including
repairs, alterations, improvements, additions, decorations, legal fees and
brokerage commissions) to satisfy the payment when due of Rent reserved under
this Lease for any monthly period, then Tenant shall pay Landlord, a sum equal
to the amount of Gross Rent and Additional Rent due under this Lease for each
such monthly period, or if the Premises have been relet, Tenant shall pay any
such deficiency monthly. Landlord shall have the right to draw on the Letter of
Credit or the Cash Deposit to pay any amounts due under this Lease. Tenant
agrees that Landlord may file suit to recover any sums due to Landlord hereunder
from time to time and that such suit or recovery of any amount due Landlord
hereunder shall not be any defense to any subsequent action brought for any
amount not therefore reduced to judgment in favor of Landlord. In the event
Landlord elects, pursuant to subsection (b) of Article XXII to terminate
Tenant's right of possession only without terminating this Lease, Landlord may,
at Landlord's option, enter into the Premises, remove Tenant's signs and other
evidences of tenancy, and take and hold possession thereof, as provided in this
Lease; provided, however, that such entry and possession shall not terminate
this Lease or release Tenant, in whole or in part, from Tenant's obligation to
pay the Gross Rent and Additional Rent reserved hereunder for the full Term or
from any other obligation of Tenant under this Lease. Any and all property
which may be removed from the Premises by the Landlord pursuant to the authority
of the lease or of law, to which the Tenant is or may be entitled, may be
handled, removed or stored by the Landlord at the risk, cost and expense of the
Tenant, and the Landlord shall in no event be responsible for the value,
preservation or safekeeping thereof. The Tenant shall pay to the Landlord, upon
demand, any and all expenses incurred in such removal and all storage charges
against such property so long as the same shall be in the Landlord's possession
or under the Landlord's control. Any such property of the Landlord not retaken
from storage by the Tenant within thirty (30) days after the end of the term,
however terminated, shall be conclusively presumed to have been conveyed by the
Tenant to the Landlord under this lease as a bill of sale without further
payment or credit by the Landlord to the Tenant. Tenant hereby grants, to
Landlord a first lien upon the interest of Tenant under this Lease to secure the
payment of monies due under this Lease, which lien may be enforced in equity;
and Landlord shall be entitled as a matter of right to have a receiver appointed
to take possession of the Premises and relet the same under order of court.
Landlord, upon request of Tenant, shall subordinate its interest, pursuant to an
agreement reasonably satisfactory to Landlord, to a lender of the Tenant.
22.02 Rights of Landlord. Suit or suits for the recovery of such
------------------
damages, or any installments thereof, may be brought by Landlord from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the term of this Lease would have
expired nor limit or preclude recovery by Landlord against Tenant of any sums or
damages which, in addition to the damages particularly provided above, Landlord
may lawfully be entitled by reason of any default hereunder on the part of
Tenant. The various rights, remedies and elections of Landlord reserved,
expressed or contained herein are cumulative and no one of them shall be deemed
to be exclusive of the others or of such other
31
<PAGE>
rights, remedies, options or elections as are now or may hereafter be conferred
upon Landlord by law. Landlord is hereby granted a valid security interest to
secure payment of all Gross Rent and Additional Rent becoming due hereunder and
to secure payment of any loss or damage due to any default by Tenant hereunder
upon all of Tenant's Property and any other personal property of Tenant which
may now or hereafter be installed or placed in the building. Landlord, upon
request of Tenant, shall subordinate its interest, pursuant to an agreement
reasonably satisfactory to Landlord, to a lender of the Tenant.
ARTICLE XXIII
ESTOPPEL CERTIFICATES
Each party agrees, at any time and from time to time, as requested by
the other party to execute and deliver to the other (and to any existing or
prospective mortgage lender, ground lessor, or purchaser designated by
Landlord), within ten (10) days after the request therefor, a statement
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modification), certifying the dates to which the Gross
Rent and Additional Rent have been paid, stating whether or not the other party
is in default in performance of any of its obligations under this Lease, and, if
so, specifying each such default and stating whether or not, any event has
occurred which with the giving of notice or passage of time, or both, would
constitute such a default, and, if so, specifying each such event. Any such
statement delivered pursuant hereto shall be deemed a representation and
warranty to be relied upon by the party requesting the certificate and by others
with whom such party may be dealing, regardless of independent investigation.
Tenant also shall include in any such statements such other information
concerning this Lease as Landlord may reasonably request including, but not
limited to, the amount of Gross Rent and Additional Rent under this Lease, and
whether Landlord has completed all improvements to the Premises required under
this Lease. If Tenant fails to execute, acknowledge or deliver any such
statement within ten (10) days after request therefor, Tenant hereby irrevocably
constitutes and appoints Landlord as Tenant's attorney-in-fact (which
appointment is agreed to be coupled with an interest), to execute and deliver
any such statements for and on behalf of Tenant.
ARTICLE XXIV
MISCELLANEOUS
24.01 Merger. Tenant expressly acknowledges and agrees that Landlord
------
has not made and is not making, and Tenant, in executing and delivering this
Lease, is not relying upon, any warranties, representations, promises, or
statements, except to the extent that the same are expressly set forth in this
Lease. All prior understandings and agreements between the parties are merged
in this Lease which alone fully and completely expresses the agreement of the
parties. No agreement shall be effective to change, modify, waive, release,
discharge, terminate or effect an abandonment of this Lease, in whole or in
part, unless such agreement is in writing, and is signed by the party against
whom enforcement of said change or modification is sought.
32
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24.02 Notices. Any notice required to be given by either party
-------
pursuant to this Lease, shall be in writing and shall be deemed to have been
properly given, rendered or made only if personally delivered or if sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the other party at the addresses set forth below (or to such other
address as Landlord or Tenant may designate in writing to each other from time
to time), and shall be deemed to have been given, rendered or made on the day so
delivered or mailed:
If to Landlord:
Mr. James Lawler
WDI Realty Co.
901 44th Street, S.E.
Grand Rapids, Michigan 49508
With a copy to:
Tishman Real Estate Management Company
350 North LaSalle Street
Chicago, Illinois 60610
and With a copy to:
Roberta R. Russ, Esq.
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
If to Tenant:
Commerx, Inc.
350 North LaSalle St., Suite 1000
Chicago, Illinois 60610
With a copy to:
Bruce M. Chanen, Esq.
Wildman, Harold, Allen & Dixon
225 W. Wacker Drive
Chicago, Illinois 60606
24.03 Non-Waiver. The failure of either party to insist in any one
----------
or more instances upon the strict performance of any one or more of the
obligations of this Lease, or to exercise any election herein contained, shall
not be construed as a waiver or relinquishment for the future of the performance
of such one or more obligations of this Lease or of the right to exercise such
election, but the Lease shall continue and remain in full force and effect with
respect to any subsequent breach, act or omission. The receipt by Landlord or
Gross Rent or Additional Rent with knowledge of breach by Tenant of any
obligation of this Lease shall not be deemed a waiver of such breach.
33
<PAGE>
24.04 Parties Bound. Except as otherwise expressly provided for in
-------------
this Lease, this Lease shall be binding upon, and inure to the benefit of, the
successors and assignees of the parties hereto. The obligations of Tenant
hereunder shall be joint and several; however, the obligations of Landlord shall
not be binding upon Landlord herein named with respect to any period subsequent
to the transfer of its interest in the Building as owner thereof, and in the
event of such transfer, said obligations shall thereafter be binding upon each
transferee, and Tenant waives all rights and causes of action Tenant may then
have, as against the Landlord herein named. Submission of this instrument by
Landlord to Tenant for examination shall not bind Landlord in any manner, and no
lease, option, agreement to lease or other obligation of Landlord shall arise
until the instrument is signed by, and delivered to, both Landlord and Tenant.
24.05 Recordation of Lease. Tenant shall not record this Lease in
--------------------
the public records of Cook County or elsewhere. However, at the request of
Landlord or Tenant, Tenant and Landlord, as required, shall promptly execute,
acknowledge, and deliver to Landlord a memorandum of lease in respect of this
Lease and a memorandum of modification of lease in respect of any modification
of this Lease, sufficient for recording. Such memorandum shall not be deemed to
change or otherwise affect any of the obligations or provisions of this Lease.
24.06 Definition of Parties. The term "Tenant" shall mean the Tenant
---------------------
herein named or any assignee or other successor in interest of the Tenant herein
named, which at the time in question is the owner of the Tenant's estate and
interest granted by this Lease and which is expressly permitted by this Lease to
hold such interest. The term "Landlord" shall mean only the owner at the time
in question of the Building or of a lease of the Building, so that in the event
of any transfer or transfers of title to the Building of Landlord's interest in
a lease of the Building, the transferor shall be and hereby is relieved and
freed of all obligations of Landlord under this Lease accruing after such
transfer, and it shall be deemed, without further agreement that such transferee
has assumed and agreed to perform and observe all obligations of Landlord herein
during the period it is the holder of Landlord's interest in this Lease.
Nothing in this paragraph shall prevent Landlord, if Landlord so elects, from
dealing with a purported assignee or successor in interest is prohibited
hereunder; provided, however, that no dealings between Landlord and such
purported assignee, subtenant or successor in interest shall constitute or
waiver of any of Landlord's rights and remedies hereunder.
24.07 Survival of Obligations. Upon the expiration or other
-----------------------
termination of this Lease, neither party shall have any further obligation or
liability to the other except as otherwise expressly provided in this Lease and
except for such obligations as by their nature and under the circumstances can
only be, or by the provisions of this Lease, may be, performed after such
expiration or other termination; and, in any event, unless otherwise expressly
provided in this lease, any liability for any payment hereunder which shall have
accrued to or with respect to any period ending at the time of expiration or
other termination of this Lease shall survive the expiration or other
termination of this Lease.
24.08 Interference by Tenant. Tenant agrees that the exercise of its
----------------------
rights pursuant to this Lease or the Exhibits hereto shall not be done in a
manner which would violate Landlord's union contracts affecting the Building
and/or the Property to extent Tenant has been informed of such contracts nor
create any work stoppage, picketing, labor disruption or dispute or any
interference with the business of Landlord or any tenant or occupant of the
Building.
34
<PAGE>
24.09 Prorations. Any apportionments or prorations of Gross Rent or
----------
Additional Rent to be made under this Lease shall be computed on the basis of a
year containing Three Hundred Sixty (360) days, consisting of twelve (12) months
of thirty (30) days each.
24.10 Governing Law; Construction. This Lease shall be governed by
---------------------------
and construed in accordance with the laws of the State of Illinois. If any
provision of this Lease or the application thereof to any person or circumstance
shall, for any reason and to any extent be invalid or unenforceable, the
remainder of this Lease and the application of that provision to other persons
or circumstances shall not be affected but rather shall be enforced to the
extent permitted by law. The captions, headings and titles in this lease shall
be construed without regard to any presumption or other rule requiring
construction against the party causing this Lease to be drafted. Each covenant,
agreement, obligations, or other provision of this Lease on Tenant's part to be
performed, shall be deemed and construed as a separate and independent covenant
of Tenant, not dependent on any other provision of this Lease. All terms and
words used in this Lease, regardless of the number or gender in which they are
used, shall be deemed to include any other number and any other gender as the
context may require.
24.11 Time. Time is of the essence of this Lease and in the
----
performance of all obligations hereunder. If the time for performance hereunder
falls on a Saturday, Sunday or any non-Business Day, then such time shall be
deemed extended to the next Business Day following such day.
24.12 Authority of Tenant. If Tenant is a corporation, limited
-------------------
liability company, partnership, associated or any other entity, it shall deliver
to Landlord, concurrently with the delivery to Landlord of an executed Lease,
certified resolutions of Tenant's directors or other governing person or body
authorizing execution and delivery of this Lease and the performance by Tenant
of its obligations hereunder and the authority of the party executing the Lease
as having been duly authorized to do so.
24.13 Riders. All Riders attached hereto and executed both by
------
Landlord and Tenant shall be deemed to be a part hereof and hereby incorporated
herein.
24.14 Brokerage. Landlord represents that it has dealt with Tishman
---------
Real Estate Services Co. as agent of Landlord who has cooperated with Grubb and
Ellis as the sole broker with respect to negotiation of this Lease. Tenant
represents that it has dealt only with the Ross Group in the negotiation of this
Lease. Landlord, through its agent Tishman Real Estate Services Co., will pay
the brokerage commission due Grubb and Ellis and the Ross Group. Landlord and
Tenant each hereby agree to indemnify the hold the other harmless of and from
any and all loss, cost, damage, or expense (including, without limitation, all
counsel fees and disbursements) by reason of any claim or liability to any other
broker claiming through it or arising out of or in connection with the execution
or delivery of this Lease. In event any claim shall be made by any other broker
who shall claim to have negotiated this Lease on behalf of Tenant or Landlord or
to have introduced Tenant or Landlord to the Building or each other, Tenant or
Landlord shall have the right to defend any such action by counsel selected by
it and approved by the other, which approval shall not be unreasonably withheld,
and in the event such broker shall be successful in such action, Tenant or
Landlord, as the case may be, shall, in addition to making payment of the claim
of such broker, be responsible for all counsel fees incurred in such action.
35
<PAGE>
ARTICLE XXV
RULES AND REGULATIONS
It is the intention of Landlord that the Building shall be operated at
all times as a first-class office building, and Tenant covenants that it will
not engage in, or permit, any activities which are not consistent with such
standard. In the furtherance of this purpose, but not in limitation thereof,
Tenant agrees to abide by the following rules and regulations, and further
agrees that Landlord may make such reasonable changes or additions to such rules
and regulations as it may deem necessary or advisable so long as such additions
or changes do not discriminate against Tenant and are applied uniformly against
all other tenants of the Building:
25.01 Any sign, lettering, picture, notice or advertisement installed
within the Premises which is visible from the public corridors within the
Building shall be installed in such manner, and be of such character and style,
as Landlord shall approve in writing. No sign, lettering, picture, notice or
advertisement shall be placed on any outside window or door or in a position to
be visible from the public corridor or outside the Building.
25.02 Sidewalks, entrances, passages, courts, corridors, halls,
elevators and stairways in and about the Building shall not be obstructed nor
shall objects be placed against glass partitions, doors or windows which would
be unsightly from the Building's' corridors or from the exterior of the
Building.
25.03 No animals, pets, bicycles or other vehicles shall be brought,
or permitted to be brought, in the Building or the Premises.
25.04 Room to room canvasses to solicit business from other tenants
of the Building are not permitted.
25.05 Tenant shall not waste electricity, water or air conditioning
systems. All controls shall be adjusted only by authorized Building personnel.
25.06 Tenant shall not utilize the Premises in any manner which would
overload the standard heating, ventilating or air conditioning systems of the
Building.
25.07 Tenant shall not permit the use of any apparatus for sound
production or transmission in such manner that the sound so transmitted or
produced shall be audible or vibrations shall be detectable beyond the Premises.
25.08 Tenant shall not utilize any electronic, radiowave, microwave
or other transmitting, receiving or amplification device which would disturb or
interfere with any other tenant of the Building or the operation of the Building
generally.
25.09 Tenant shall not utilize any equipment or apparatus in such
manner as to create any magnetic fields or waves which adversely affect or
interfere with the operation of any systems or equipment in the Building.
36
<PAGE>
25.10 Tenant shall keep all electrical and mechanical apparatus free
of vibration, noise and air waves which may be transmitted beyond the Premises.
25.11 All corridor doors shall remain closed at all times.
25.12 No locks or similar devices shall be attached to any door
except by Landlord and Landlord shall have the right to retain a key to all such
locks.
25.13 Tenant assumes full responsibility of protecting the Premises
from theft, robbery and pilferage. Except during Tenant's normal business
hours, Tenant shall keep all doors to the Premises locked and other means of
entry to the Premises closed and secured.
25.14 Only machinery or mechanical devices of a nature directly
related to Tenant's ordinary use of the Premises shall be installed, placed or
used in the Premises and the installation and use of all such machinery and
mechanical devices is subject to the other rules contained in this Lease.
25.15 Except with the prior written approval of Landlord, all
cleaning, repairing, janitorial, decorating, painting or other services and work
in and about the Premises shall be performed only by authorized Building
personnel.
25.16 Safes, furniture, equipment, machines and other large or bulky
articles shall be brought to the Building, and into and out of the Premises, at
such times, and in such manner, as Landlord shall direct (including the
designation of elevator), and at Tenant's sole risk and costs. Prior to
Tenant's removal of such articles from the Building, Tenant shall obtain written
authorization of the office of the Building and shall present such authorization
to a designated employee of Landlord.
25.17 Tenant shall not in any manner deface or damage the Building.
25.18 Inflammables such as gasoline, kerosene, naphtha and benzene,
or explosives or any other articles of an intrinsically dangerous nature are not
permitted in the Building or the Premises.
25.19 Tenant shall ascertain from Landlord the maximum amount of
electrical current which can safely be used in the Premises, taking into account
the capacity of the electrical wiring of the Building and the Premises and the
needs of other tenants, and shall not use more than such capacity. Landlord's
consent to the installation of electrical equipment shall not relieve Tenant
from the obligation not to use more electricity than such capacity.
25.20 To the extent permitted by law, Tenant shall not permit
picketing or other union activity involving its employees in the Building,
except in those locations and subject to time and other constraints as to which
Landlord may give its prior written consent.
25.21 Tenant shall not enter into or upon the roof or basement of the
Building or any storage, heating, ventilation, air-conditioning, mechanical or
elevator machinery housing areas.
37
<PAGE>
25.22 Tenant shall not distribute literature, flyers, handouts or
pamphlets of any type in any of the common areas of the Building.
25.23 Tenant shall not cook, otherwise prepare or sell any food or
beverages in or from the Premises, other than as is reasonably necessary in
order to accommodate Tenant's employees.
25.24 Tenant shall not permit objectionable odors or vapors to
emanate from the Premises.
25.25 Tenant shall not place a load upon any floor of the Premises
exceeding the floor load capacity for which such floor was designed or allowed
by law to carry.
25.26 No floor covering shall be affixed to any floor in the Premises
by means of glue or other adhesive without Landlord's prior written consent.
25.27 Tenant shall not open or permit to be opened any window in the
Premises.
25.28 The directories of the Building shall be used exclusively for
the display of the name and suite number of the tenants only and will be
provided at the expense of the Landlord. Additional names requested by Tenant
to be displayed in the directories must be approved by the Landlord and, if
approved, will be provided at the expense of the Landlord. Changes in the
directory listings requested by the Tenant after the Commencement Date will be
submitted to the Landlord for approval and, if approved, will be provided at the
expense of the Tenant.
25.29 Tenant shall comply with all applicable laws, ordinances,
governmental orders or regulations and applicable orders or directions from any
public office or body having jurisdiction, with respect to the Premises and the
use of occupancy thereof. Tenant shall not make or permit any use of the
Premises which is directly or indirectly forbidden by law, ordinance,
governmental regulation or order, or direction of applicable authority, or which
may be dangerous to person or property.
25.30 Tenant shall not take or permit to be taken in or out of other
entrances of the Building, or take or permit on other elevators, any item
normally taken in or out through service doors or in or on freight elevators;
and Tenant shall not, whether temporarily, accidentally or otherwise, allow
anything to remain in place or store anything in, or obstruct in any way, any
sidewalk, court, passageway, entrance or shipping area. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition, and move all supplies, furniture and equipment as soon as
received directly to the Premises, and shall move all such items and waste
(other than waste customarily removed by Building employees) that are at any
time being taken from the Premises directly to the areas designated for
disposal. All courts, passageways, entrances, exits, elevators, escalators,
stairways, corridors, hall and roofs are not for the use of the general public
and Landlord shall in all cases retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation and interests of the Building
and its tenants' provided, however, that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant deals within the
normal course of Tenant's business unless such persons are engaged in illegal
activities. Neither Tenant nor any employee or invitee of Tenant shall enter
into areas reserved for the exclusive use of Landlord, its employees or
invitees.
38
<PAGE>
25.31 Service requirements of Tenant will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their duties unless under special
instructions from Landlord.
25.32 The toilet rooms, urinals, wash bowls and other apparatus
located in the Building shall not be used for any purpose other than that for
which they were constructed, and no foreign substance of any kind whatsoever
shall be thrown therein, and the expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by Tenant if Tenant, or
its employees or invitees, shall have caused it.
25.33 Landlord reserves the right to exclude or expel from the
Building any person who, in the judgment of Landlord, is intoxicated or under
the influence of liquor or drugs, or who shall in any manner do any act in
violation of the rules and regulations of the Building.
25.34 No vending machines of any description shall be installed,
maintained or operated without the written consent of Landlord.
ARTICLE XXVI
LIMITATION OF LIABILITY
Notwithstanding anything contained in this Lease to the contrary, if
Landlord is in default of this Lease, and as a consequence Tenant recovers a
money judgment against Landlord, the judgment shall be satisfied only out of the
proceeds of sale received on execution of the judgment and levy against the
right, title, and interest of Landlord in the Building and out of rent or other
income from the Building receivable by Landlord, or out of the consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title, and interest in the Building.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of The day and year first above written.
LANDLORD:
WDI REALTY CO.,
a Michigan corporation
BY: /s/ illegible
----------------------------------
Its: General Manager / V.P.
-----------------------------------
TENANT:
COMMERX, INC.,
an Illinois corporation
BY: /s/ Nick Stojka
----------------------------------
Its: Vice President
-----------------------------------
39
<PAGE>
EXHIBIT 10.5
OFFICER AND DIRECTOR
--------------------
INDEMNITY AGREEMENT
-------------------
This Indemnity Agreement (this "Agreement"), dated as of ________________,
2000, is made by and between Commerx, Inc., a Delaware corporation (the
"Company"), and _________________, a director and/or officer of the Company (the
"Indemnitee").
R E C I T A L S
WHEREAS, the Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
WHEREAS, based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
WHEREAS, Section 145 of the General Corporation Law of the State of
Delaware, under which the Company is organized ("Section 145"), empowers the
Company to indemnify by agreement its officers, directors, employees and agents,
and persons who serve, at the request of the Company, as directors, officers,
employees or agents of other corporations or enterprises, and expressly provides
that the indemnification provided by Section 145 is not exclusive; and
WHEREAS, the Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following terms
-----------
shall have the meaning set forth herein:
"agent" of the Company means any person who is or was a director or
-----
officer of the Company or a subsidiary of the Company; or is or was serving at
the request of, for the
<PAGE>
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
Company; or was a director or officer of another enterprise or affiliate of the
Company at the request of, for the convenience of, or to represent the interests
of such predecessor corporation. The term "enterprise" includes any employee
benefit plan of the Company, its subsidiaries, affiliates and predecessor
corporations.
"expenses" includes all direct and indirect costs of any type or
--------
nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements and other out-of-pocket costs) actually and reasonably
incurred by the Indemnitee in connection with the investigation, defense or
appeal of a proceeding or establishing or enforcing a right to indemnification
or advancement of expenses under this Agreement, Section 145 or otherwise;
provided, however, that expenses shall not include any judgments, fines, ERISA
excise taxes or penalties or amounts paid in settlement of a proceeding.
"proceeding" means any threatened, pending or completed action, suit
----------
or other proceeding, whether civil, criminal, administrative, investigative or
any other type whatsoever.
"subsidiary" means any corporation of which more than 50% of the
----------
outstanding voting securities is owned directly or indirectly by the Company, by
the Company and one or more of its subsidiaries or by one or more of the
Company's subsidiaries.
ARTICLE II
AGREEMENT TO SERVE
Section 2.1 Agreement to Serve. The Indemnitee agrees to serve
------------------
and/or continue to serve as an agent of the Company, at the will of the Company
(or under separate agreement, if such agreement exists), in the capacity the
Indemnitee currently serves as an agent of the Company, faithfully and to the
best of his ability, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the charter documents of the
Company or any subsidiary of the Company; provided, however, that the Indemnitee
may at any time and for any reason resign from such position (subject to any
contractual obligation that the Indemnitee may have assumed apart from this
Agreement), and the Company or any subsidiary shall have no obligation under
this Agreement to continue the Indemnitee in any such position.
ARTICLE III
INSURANCE AND INDEMNITY
Section 3.1 Directors' and Officers' Insurance. The Company shall,
----------------------------------
to the extent that the Board determines it to be economically reasonable,
maintain a policy of directors' and officers' liability insurance ("D&O
Insurance"), on such terms and conditions as may be approved by the Board.
Section 3.2 Mandatory Indemnification. Subject to Section 3.7 below,
-------------------------
the Company shall indemnify the Indemnitee:
2
<PAGE>
(a) if the Indemnitee is a person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the Company) by reason of the fact that he is or was an agent of
the Company, or by reason of anything done or not done by him in any such
capacity, against any and all expenses and liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) actually and reasonably incurred by
him in connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
(b) if the Indemnitee is a person who was or is a party or is
threatened to be made a party to any proceeding by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any amounts paid in settlement of any such proceeding
and all expenses actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company; except that no indemnification under this
subsection shall be made in respect of any claim, issue or matter as to which
such person shall have been finally adjudged to be liable to the Company by a
court of competent jurisdiction due to willful misconduct of a culpable nature
in the performance of his duty to the Company, unless and only to the extent
that the Court of Chancery or the court in which such proceeding was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such amounts which the Court of Chancery or
such other court shall deem proper; and
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for expenses or liabilities of any type whatsoever (including,
but not limited to, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) to the extent such have been paid directly to the
Indemnitee by D&O Insurance.
Section 3.3 Partial Indemnification and Contribution.
----------------------------------------
(a) If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of any
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) incurred by him in the investigation, defense, settlement or appeal
of a proceeding but is not entitled, however, to indemnification for all of the
total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
(c) If the Indemnitee is not entitled to the indemnification provided
in Section 3.2 for any reason other than the statutory limitations set forth in
the Delaware General Corporation Law, then in respect of any threatened, pending
or completed proceeding in which the Company is jointly liable with the
Indemnitee (or would be if joined in such proceeding), the Company shall
contribute to the amount of expenses (including attorneys' fees), judgments,
fines
3
<PAGE>
and amounts paid in settlement actually and reasonably incurred and paid or
payable by the Indemnitee in such proportion as is appropriate to reflect (i)
the relative benefits received by the Company on the one hand and the Indemnitee
on the other hand from the transaction from which such proceeding arose and (ii)
the relative fault of the Company on the one hand and of the Indemnitee on the
other hand in connection with the events which resulted in such expenses,
judgments, fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Indemnitee on the other hand shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. The Company agrees that it would not be
just and equitable if contribution pursuant to this Section 3.3 were determined
by pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
Section 3.4 Mandatory Advancement of Expenses.
---------------------------------
(a) Subject to Section 3.7 below, the Company shall advance all
expenses incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of any proceeding to which the Indemnitee is a
party or is threatened to be made a party by reason of the fact that the
Indemnitee is or was an agent of the Company or by reason of anything done or
not done by him in any such capacity. The Indemnitee hereby undertakes to
promptly repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Company under the provisions of this Agreement, the Certificate of
Incorporation or Bylaws of the Company, the General Corporation Law of Delaware
or otherwise. The advances to be made hereunder shall be paid by the Company to
the Indemnitee within thirty (30) days following delivery of a written request
therefor by the Indemnitee to the Company.
(b) Notwithstanding the foregoing provisions of this Section 3.4, the
Company shall not be obligated to advance any expenses to the Indemnitee arising
from a lawsuit filed directly by the Company against the Indemnitee if an
absolute majority of the members of the Board reasonably determines in good
faith, within thirty (30) days of the Indemnitee's request to be advanced
expenses, that the facts known to them at the time such determination is made
demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If
such a determination is made, the Indemnitee may have such decision reviewed by
another forum, in the manner set forth in Sections 3.6(c), 3.6(d) and 3.6(e)
hereof, with all references therein to "indemnification" being deemed to refer
to "advancement of expenses," and the burden of proof shall be on the Company to
demonstrate clearly and convincingly that, based on the facts known at the time,
the Indemnitee acted in bad faith. The Company may not avail itself of this
Section 3.4(b) as to a given lawsuit if, at any time after the occurrence of the
activities or omissions that are the primary focus of the lawsuit, the Company
has undergone a change in control. For this purpose, a change in control shall
mean a given person or group of affiliated persons or groups increasing their
beneficial ownership interest in the Company by at least twenty (20) percentage
points without advance Board approval.
Section 3.5 Notice and Procedures.
---------------------
4
<PAGE>
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 3.5(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.
(c) In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
(i) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (ii) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (iii) if (A) the employment of counsel by
the Indemnitee has been previously authorized by the Company, (B) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (C) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
Section 3.6 Determination of Right to Indemnification.
-----------------------------------------
(a) To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 3.4(a) or 3.4(b)
of this Agreement or in the defense of any claim, issue or matter described
therein, the Company shall indemnify the Indemnitee against expenses actually
and reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding, or such claim, issue or matter, as the case may be.
(b) In the event that Section 3.6(a) is inapplicable, or does not
apply to the entire proceeding, the Company shall nonetheless indemnify the
Indemnitee unless the Company shall prove by clear and convincing evidence to a
forum listed in Section 3.6(c) below that the Indemnitee has not met the
applicable standard of conduct required to entitle the Indemnitee to such
indemnification.
5
<PAGE>
(c) The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 3.6(b) hereof that the Indemnitee
is not entitled to indemnification will be heard from among the following,
except that the Indemnitee can select a forum consisting of the stockholders of
the Company only with the approval of the Company:
(i) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(ii) The stockholders of the Company;
(iii) Legal counsel mutually agreed upon by the Indemnitee and
the Board, which counsel shall make such determination in a written
opinion;
(iv) A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of
whom is selected by the first two arbitrators so selected; or
(v) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
(d) As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 3.6(c) above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
(e) If the forum selected in accordance with Section 3.c(c) hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 3.6
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
(f) Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 3 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.
Section 3.7 Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
6
<PAGE>
(a) to indemnify or advance expenses to the Indemnitee with respect to
proceedings or claims initiated or brought voluntarily by the Indemnitee and not
by way of defense, except with respect to proceedings specifically authorized by
the Board or brought to establish or enforce a right to indemnification and/or
advancement of expenses arising under this Agreement, the charter documents of
the Company or any subsidiary or any statute or law or otherwise, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board finds it to be appropriate; or
(b) to indemnify the Indemnitee hereunder for any amounts paid in
settlement of a proceeding unless the Company consents in advance in writing to
such settlement, which consent shall not be unreasonably withheld; or
(c) to indemnify the Indemnitee on account of any suit in which
judgment is rendered against the Indemnitee for an accounting of profits made
from the purchase or sale by the Indemnitee of securities of the Company
pursuant to the provisions of Section l6(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law; or
(d) to indemnify the Indemnitee if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful. In this respect, the Company and the Indemnitee have been advised that
the Securities and Exchange Commission takes the position that indemnification
for liabilities arising under the federal securities laws is against public
policy and is, therefore, unenforceable and that claims for indemnification
should be submitted to appropriate courts for adjudication.
Section 3.8 Non-Exclusivity. The provisions for indemnification and
---------------
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements or
otherwise, both as to action in the Indemnitee's official capacity and to action
in another capacity while occupying his position as an agent of the Company, and
the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
ARTICLE IV
GENERAL PROVISIONS
Section 4.1 Interpretation of Agreement. It is understood that the
---------------------------
parties hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification and advancement of expenses to the Indemnitee to the
fullest extent now or hereafter permitted by law, except as expressly limited
herein.
Section 4.2 Severability. If any provision or provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, then: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, all portions of any
paragraphs of this Agreement containing any such provision held
7
<PAGE>
to be invalid, illegal or unenforceable that are not themselves invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraphs of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to Section 4.1 hereof.
Section 4.3 Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
Section 4.4 Subrogation. In the event of full payment under this
-----------
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary or desirable to secure such
rights and to enable the Company effectively to bring suit to enforce such
rights.
Section 4.5 Counterparts. This Agreement may be executed in one or more
------------
counter-parts, which shall together constitute one agreement.
Section 4.6 Successors and Assigns. The terms of this Agreement shall
----------------------
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
Section 4.7 Notice. All notices, requests, demands and other
------
communications under this Agreement shall be in writing and shall be deemed duly
given: (a) if delivered by hand and receipted for by the party addressee; or (b)
if mailed by certified or registered mail, with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement or as subsequently modified by
written notice.
Section 4.8 Governing Law. This Agreement shall be governed exclusively
-------------
by and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
Section 4.9 Consent to Jurisdiction. The Company and the Indemnitee
-----------------------
each hereby irrevocably consent to the jurisdiction of the courts of the State
of Illinois for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
Section 4.10 Attorneys' Fees. In the event Indemnitee is required to bring
---------------
any action to enforce rights under this Agreement (including, without
limitation, the expenses of any Proceeding described in Section 3, the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
COMMERX, INC. INDEMNITEE:
By: ____________________ ____________________
Name: Name: ______________
Title:
Address: Address:
1000 North LaSalle Street, Suite 1000 ____________________
Chicago, Illinois 60606 ____________________
9
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated December 28, 1999 relating to the financial statements and
financial statement schedule of Commerx, Inc., which appear in such
Registration Statement. We also consent to the reference to us under the
headings "Selected Financial Data" and "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 25, 2000
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<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 SEP-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 3,302,954 1,799,915
<SECURITIES> 0 0
<RECEIVABLES> 20,127 485,612
<ALLOWANCES> 0 26,363
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,345,517 2,391,672
<PP&E> 309,481 1,630,784
<DEPRECIATION> 103,455 323,781
<TOTAL-ASSETS> 3,751,543 3,926,855
<CURRENT-LIABILITIES> 814,904 5,426,698
<BONDS> 0 996,932
0 0
5,009,520 7,009,520
<COMMON> 7,430 7,430
<OTHER-SE> (2,080,311) (9,513,725)
<TOTAL-LIABILITY-AND-EQUITY> 3,751,543 3,926,855
<SALES> 0 0
<TOTAL-REVENUES> 375,037 833,479
<CGS> 0 0
<TOTAL-COSTS> 0 426,209
<OTHER-EXPENSES> 2,367,195 8,507,473
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 185,825 39,019
<INCOME-PRETAX> (2,177,983) (8,080,075)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,177,983) (8,080,075)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,177,983) (8,080,075)
<EPS-BASIC> (.13) (1.09)
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