<PAGE>
As filed with the Securities and Exchange Commission on September 20, 1999
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
----------------
SciQuest.com, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 5199 56-2127592
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
----------------
5151 McCrimmon Parkway, Suite 208
Morrisville, North Carolina 27560
(919) 659-2100
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
----------------
M. Scott Andrews
President and Chief Executive Officer
SciQuest.com, Inc.
5151 McCrimmon Parkway, Suite 208
Morrisville, North Carolina 27560
(919) 659-2100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
----------------
Copies to:
Grant W. Collingsworth, Fred D. Hutchison, Esq. Alexander D. Lynch, Esq.
Esq. Helga L. Leftwich, Esq. Babak Yaghmaie, Esq.
James H. Sinnott, Esq. Hutchison & Mason PLLC Brobeck, Phleger &
Morris, Manning & 3110 Edwards Mill Road Harrison LLP
Martin, L.L.P. Suite 100 1633 Broadway, 47th
1600 Atlanta Financial Raleigh, North Carolina Floor
Center 27612 New York, New York 10019
3343 Peachtree Road,
N.E.
Atlanta, Georgia 30326
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(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
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Amount of Registration
Securities Registered Aggregate Offering Price(1) Fee
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<S> <C> <C>
Common Stock, par value $0.001 per share.. $90,000,000 $25,020
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</TABLE>
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until 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 Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US Federal Securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offers to buy them until +
+the registration statement filed with the SEC relating to these securities +
+has been declared effective by the SEC. This prospectus is not an offer to +
+sell these securities or our solicitation of your offer to buy these +
+securities in any jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - September 20, 1999
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Prospectus
, 1999
[LOGO OF SCIQUEST.COM APPEARS HERE]
SciQuest.com, Inc.
Shares of Common Stock
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SciQuest.com, Inc.: The Offering:
. We provide a Web- . We are offering
based, interactive shares of our
marketplace for common stock.
scientific and
laboratory . The underwriters
products. have an option to
purchase an
. 5151 McCrimmon additional
Parkway, Suite shares from us to
208, Morrisville, cover over-
NC 27560 allotments.
Proposed Symbol and . We currently
Market: estimate that the
initial public
. SQST/Nasdaq offering price
National Market will be between
$ and $ per
share.
. This is our
initial public
offering, and no
public market
currently exists
for our common
stock.
. Closing: ,
1999
-------------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
-------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to SciQuest.com, Inc.:
-------------------------------------------------
</TABLE>
This investment involves risks. See "Risk Factors" beginning on Page 4.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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Donaldson, Lufkin & Jenrette
Deutsche Banc Alex. Brown
Hambrecht & Quist
DLJdirect Inc.
E*OFFERING
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Forward-Looking Statements.......... 15
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Pro Forma Consolidated Statements of
Operations......................... 19
Selected Consolidated Financial
Data............................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 32
Management.......................... 42
Related Party Transactions ......... 48
Principal Stockholders.............. 49
Description of Capital Stock........ 51
Shares Eligible for Future Sale..... 54
Underwriting........................ 56
Legal Matters....................... 59
Experts............................. 59
Change in Accountants............... 59
Where You Can Find More Information. 59
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
"SciQuest," "SciMail" and "BioSupplyNet" are our registered trademarks.
This prospectus also includes trademarks, service marks and trade names of
other companies.
ii
<PAGE>
PROSPECTUS SUMMARY
The information below is only a summary of more detailed information
included in other sections of this prospectus. This summary may not contain all
the information that is important to you or that you should consider before
buying shares in the offering. The other information is important, so please
read this entire prospectus carefully.
SciQuest.com
Our Business
SciQuest.com is a leading Web-based, interactive marketplace for scientific
and laboratory products used by pharmaceutical, clinical, biotechnology,
chemical, industrial and educational organizations worldwide. Our marketplace
solutions utilize enabling Internet technologies and leverage our extensive
industry experience to streamline the traditionally inefficient scientific
products supply chain. Our distributor-neutral approach allows us to create an
open and scalable marketplace that we believe is more attractive to both buyers
and sellers.
Our marketplace benefits three distinct customers: scientists, purchasing
professionals and suppliers. Our solutions reduce the time scientists require
to find, compare, purchase, track and manage critical laboratory items, thus
allowing them to spend more time on research and testing. Our solutions allow
purchasing professionals to reduce procurement costs by automating order
processing, consolidating purchase orders and payments, reducing errors and
providing more control and information to support enterprise purchasing
policies. Our solutions serve as a more efficient sales channel that enables
suppliers to expand their market reach and reduce customer acquisition and
order processing costs.
Based upon data from the Laboratory Products Association and Strategic
Directions International, we estimate that the market for scientific products
in 1998 was approximately $11.8 billion in North America and $36.4 billion
worldwide. These expenditures are driven, to a large extent, by increases in
scientific research and development investments, which are expected to continue
to grow. Every year, over 100,000 North American laboratories purchase
scientific products from thousands of suppliers to facilitate research and
testing activities. As the demand for scientific products grows, the need for
efficient procurement processes becomes more critical. The current scientific
products market is characterized by (1) complex, information-intensive
products, (2) a highly fragmented supply chain and (3) a heavy concentration of
manual purchasing processes consisting of printed catalogs, paper requisitions
and telephone and fax orders.
Since our founding in 1995, we have expended significant resources to
develop our brand and assemble the most comprehensive online database of over
8,000 suppliers. Our easy-to-use, interactive database currently consists of
over 550,000 scientific products. Since July 1996, tens of thousands of
scientists and purchasing professionals from over 60 countries have used this
database to locate supplies and products. In April 1999, we introduced our e-
commerce marketplace solution to this growing community of online scientific
product buyers and suppliers. We intend to capitalize on this existing user
base to accelerate utilization of our marketplace.
Our objective is to be the leading global solution for buying and selling
scientific products. We intend to achieve this objective through the following
strategies: (1) leverage and build upon our current brand equity, (2) enhance
customer loyalty to increase repeat purchases, (3) maintain the distributor-
neutrality of our marketplace, (4) maximize the enterprise software
compatibility of our solutions, (5) expand our portfolio of solutions and (6)
expand our sales and marketing efforts internationally.
We have incorporated under the laws of the State of Delaware. Our
headquarters is located at 5151 McCrimmon Parkway, Suite 208, Morrisville, NC
27560 and our telephone number is (919) 659-2100. Our Web site is located at
www.sciquest.com. Information contained on our Web site is not part of this
prospectus.
1
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by SciQuest.com......... shares
Common stock outstanding after this offering. shares
Use of proceeds.............................. We intend to use the net
proceeds from this offering to
expand our sales and marketing
efforts, enhance our technology,
add to our online content and
for general corporate purposes,
including working capital needs.
Proposed Nasdaq Stock Market symbol.......... SQST
</TABLE>
The share information is based on shares outstanding as of August 31, 1999.
This information excludes:
. 1,606,974 shares of common stock issuable upon exercise of options
granted under our stock option plan, of which 821,224 shares are subject
to outstanding options at a weighted average exercise price of $0.96 per
share; and
. 837,678 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $9.89 per share.
Unless we indicate otherwise, all information in this prospectus:
. reflects the conversion of all outstanding shares of our Class A and
Class B common stock and all outstanding shares of our preferred stock
into shares of common stock upon the closing of this offering; and
. assumes no exercise of the underwriters' over-allotment option.
2
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
The following financial data is a summary of the more complete financial
information provided in our financial statements appearing elsewhere in this
prospectus.
The amounts below exclude:
. 1,606,974 shares of common stock issuable upon exercise of options
granted under our stock option plan, of which options to purchase 821,224
shares are subject to outstanding options as of August 31, 1999 at a
weighted average exercise price of $0.96 per share; and
. 837,678 shares of common stock issuable upon exercise of outstanding
warrants as of August 31, 1999 at a weighted average exercise price of
$9.89 per share.
The pro forma statement of operations data for the year ended December 31,
1998 and the six months ended June 30, 1998 reflect the acquisition of
BioSupplyNet, Inc., which occurred on September 29, 1998, as if it had occurred
on January 1, 1998. The pro forma net loss per common share reflects the
conversion of our preferred stock into common stock.
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
------------------------------------ ----------------------------
Pro Forma Pro Forma
1996 1997 1998 1998 1998 1998 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 196 $ 478 $ 1,098 $ 190 $ 734 $ 885
Gross profit............ -- 196 436 702 190 (422) 399
Operating loss.......... (536) (658) (4,356) (4,427) (649) (1,211) (8,142)
Net loss................ (545) (690) (4,222) (4,140) (661) (1,118) (7,730)
Net loss available to
common stockholders.... $ (545) $ (690) $(4,550) $(4,468) $ (661) $(1,118) $(16,190)
====== ====== ======= ======= ====== ======= ========
Net loss per common
share--basic and
diluted................ $(0.23) $(0.28) $ (1.82) $ (1.47) $(0.26) $ (0.36) $ (6.39)
Weighted average common
shares outstanding..... 2,359 2,500 2,500 3,046 2,500 3,046 2,533
Pro forma net loss per
common share--basic and
diluted................ $ (1.01) $ (1.00) $ (1.97)
Pro forma weighted
average common shares
outstanding--basic and
diluted................ 4,487 4,487 8,226
</TABLE>
The following balance sheet data is presented:
. on an actual basis;
. on an unaudited pro forma basis to the reflect the conversion of all
outstanding shares of our class A and class B common stock and all
outstanding shares of our preferred stock into shares of our common
stock; and
. on an unaudited pro forma as adjusted basis to reflect the conversion of
all outstanding shares of our class A and class B common stock and all
outstanding shares of our preferred stock into shares of common stock and
our receipt of the estimated net proceeds from our sale of shares of
our common stock at an assumed per share initial public offering price of
$ per share after deducting underwriting discounts and commissions and
offering expenses payable by us.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $10,496 $10,496 $
Working capital................................. 24,151 24,151
Total assets.................................... 39,352 39,352
Long term liabilities........................... 327 327
Mandatorily redeemable convertible preferred
stock.......................................... 54,478 --
Stockholders' equity (deficit).................. (18,226) 36,252
</TABLE>
3
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below before making an investment
decision. You should also refer to the other information in this prospectus,
including our financial statements and accompanying notes appearing elsewhere
in this prospectus.
Our limited operating history makes forecasting future performance difficult.
We commenced operations in 1995, first recognized revenues in 1997 and
launched our interactive e-commerce Web site in April 1999. Accordingly, we
have only a limited operating history on which to evaluate our business. As a
result of our limited operating history, the emerging nature of the online
scientific products market and the evolving nature of our business model, we
may be unable to accurately forecast our revenues. We incur expenses based
predominantly on operating plans and estimates of future revenues. Our expenses
are to a large extent fixed. We may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfalls. Accordingly,
a failure to meet our revenue projections will have an immediate and negative
impact on profitability. In addition, we cannot be certain that our evolving
business model will be successful, particularly in light of our limited
operating history.
We anticipate incurring losses in the future.
We incurred net losses of $4.2 million for the year ended December 31, 1998
and $7.7 million for the six months ended June 30, 1999. As of June 30, 1999,
we had an accumulated deficit of $20.6 million. We expect to incur substantial
operating losses and continued negative cash flow from operations for the
foreseeable future. In fact, we expect these losses to increase significantly
through at least December 31, 2000 because, as part of our strategy to achieve
profitability, we intend to significantly increase our spending on items such
as sales and marketing, content development, technology and operating
infrastructure. If these expenses do not generate increased revenues, our
earnings may be materially and adversely affected and anticipated net losses
may be greater than expected. We may not be able to increase revenues
sufficiently to achieve profitability.
Our business model is not proven and may not be successful.
Our business-to-business e-commerce solution is based on the development of
the SciQuest.com marketplace for sourcing, buying and using scientific and
laboratory products by pharmaceutical, clinical, biotechnology, chemical,
industrial and educational organizations. This business model is new and not
proven and depends upon our ability to, among other things:
. sell our solutions to pharmaceutical, biotechnology, chemical and
clinical research companies and academic, clinical and research
institutions;
. achieve high rates of adoption by scientists within large customers;
. maintain our current suppliers and enter into agreements with additional
suppliers;
. generate significant revenues from the use of our Web-based e-commerce
solution; and
. increase our transaction volume and maintain profit margins.
We cannot be certain that our business model will be successful or that we
can achieve or sustain revenue growth or generate any profits. The success of
this business model will require, among other things, that we develop and
market solutions with broad market acceptance by our customers, suppliers,
users and strategic partners. We cannot be certain that business-to-business e-
commerce on the Internet generally, or our solutions, services and brand in
particular, will achieve broad market acceptance. For example, purchasers may
continue purchasing products through their existing methods and may not adopt a
Web-based solution because of:
. their comfort with current purchasing habits and direct supplier
relationships;
4
<PAGE>
. the costs and resources required to switch purchasing methods;
. the need for products not offered through Sciquest.com;
. security and privacy concerns; or
. general reticence about technology or the Internet.
Our future revenue growth is highly dependent on the scientific products
industry.
We derive substantially all of our revenue from the scientific products
industry. We expect our future growth to depend on spending levels in this
industry. Any reduction in spending in the scientific products industry would
have a material adverse effect on our revenues.
If we do not successfully market the SciQuest.com brand, our business may
suffer.
We believe that establishing, maintaining and enhancing the SciQuest.com
brand is critical in attracting and expanding traffic to our Web sites. There
are a number of Web sites that offer competing services. Some of these sites
already have well-established brands in either online services or the
scientific products industry. As a result, it is critical that we establish and
enhance the SciQuest.com brand. We believe that increased competition may make
establishing our brand significantly more expensive. Promotion of our brand
will depend largely on expanding our sales and marketing capabilities and
providing a high-quality online experience. We intend to use a portion of the
proceeds of this offering to expand our sales and marketing activities and
further develop our online services. We cannot be certain that we will be
successful in marketing the SciQuest.com brand. If we are unable to
successfully promote our brand, or if we incur substantial expenses in
attempting to do so, our revenues and earnings could be materially and
adversely affected.
Our future revenues depend upon our ability to increase our transaction volume.
We expect that a substantial portion of our future revenues will be
generated by the products offered by us for sale through our e-commerce
marketplace. Accordingly, our revenues will be highly dependent on the dollar
volume of transactions conducted through our Web sites. Our profits depend upon
the discount levels we are able to negotiate with our suppliers. To maintain
revenue growth, we will need to increase the total dollar value of transactions
conducted through our Web sites. In order to increase our transaction volume,
we will need to:
. generate higher and continuously increasing levels of traffic, from both
new and repeat visitors, to our Web sites;
. increase the percentage of visitors to our Web sites who purchase
scientific products; and
. increase the average transaction size.
Failure to do one or more of the foregoing could have a material adverse effect
on our revenues.
Our profit margins are highly dependent upon the prices we negotiate with our
suppliers.
Our profits depend upon the prices we are able to negotiate with our
suppliers. We anticipate that the prices we negotiate with our suppliers will
vary based on a number of factors such as:
. size of supplier;
. product portfolio;
. relationship with key SciQuest.com customers;
. degree to which products are critical to our customers;
. extent to which transactions are conducted electronically; and
. extent that costs are shared with us.
5
<PAGE>
Our profit margins may decline in the future, particularly as competition in
the scientific products industry increases. A significant decline in profit
margins without a corresponding increase in transaction volume would adversely
affect our earnings.
Sales to larger customers may increase the length of our sales cycle and
decrease our profit margins.
Increasing sales to larger buyers is an important element of our business
strategy. As we sell more sophisticated solutions to larger organizations, we
expect the time from initial contact to final approval to increase. During this
sales cycle, we may expend substantial funds and management resources without
any corresponding revenue. If approval is delayed or does not occur, our
financial condition and operating results for a particular period may be
adversely affected. Approvals are subject to delays over which we have little
or no control, including the following:
. potential customers' internal approval processes;
. implementation of systems integration solutions;
. customers' concerns about implementing a new strategy and method of doing
business; and
. seasonal and other timing effects.
Increased sales to larger accounts may result in lower or negative profit
margins as larger customers typically have greater leverage in negotiating the
price and other terms of business relationships. We also typically incur costs
associated with customization of our systems with a sale to a large account. If
we do not generate sufficient transaction volume to offset any lower margins or
these increased costs, our operating results may be materially and adversely
affected. Also, the time between billing and receipt of revenues is often
longer when dealing with larger accounts due to increased administrative
overhead.
We may not be able to provide a broad range of products on commercially
favorable terms.
A number of factors could significantly reduce the number of suppliers and
products offered through our Web sites, including the following:
. consolidation among suppliers, which we believe is currently occurring;
and
. exclusive arrangements signed by suppliers with our competitors.
The inability to list a broad range of products on commercially favorable
terms could materially and adversely affect the effectiveness of our Web sites
and their attractiveness to potential buyers.
Our growth is highly dependent on attracting a sufficient base of suppliers and
customers.
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 customers. However, customers must perceive value in our
purchasing solution which, in large part, depends upon the breadth of the
product offerings from our suppliers. Creating a network effect, where the
value to buyers and suppliers alike increases as the number of participants
increases, is a key component of our strategy. If we are unable to increase the
number of suppliers and draw more customers to our Web sites, we will not be
able to benefit from this network effect. As a result, the overall value of our
purchasing solution would be harmed, which would negatively affect our revenues
and earnings.
Suppliers may terminate their agreements with us.
Following an initial one-year term, most of our supplier agreements may be
terminated by either party on 90 days' notice. After expiration of the initial
term, our suppliers may terminate or seek to renegotiate their agreements. If a
significant number of suppliers terminate their agreements with us, the range
of products we can offer would be adversely affected. In addition, the ability
of suppliers to terminate their agreements may
6
<PAGE>
result in negotiating new agreement terms that are less favorable to us, which
could have a material adverse effect on our earnings.
We currently rely on a limited number of large customers.
We expect that for the foreseeable future we will generate a significant
portion of our revenues from a limited number of large customers. Further, our
large customers are not obligated to use our purchasing solution exclusively or
for any minimum number of transactions or dollar amounts. In addition, our
contracts with our customers are for limited terms and our customers may
discontinue use of our system at any time upon short notice and without
penalty. If we lose any of our large customers or if we are unable to add new
large customers, our revenues will not increase as expected. In addition, our
reputation and brand name would be harmed.
We rely on third-party suppliers and carriers to provide products and services
to our customers.
We do not carry inventory or directly supply products. As a result, we rely
on our suppliers and carriers for rapid order fulfillment and other customer
service functions to ensure buyer satisfaction. If our suppliers do not provide
high quality customer service, our business reputation and customer
satisfaction could be materially and adversely affected. Most of our supplier
arrangements do not guarantee the availability of merchandise, establish
guaranteed prices or require continuity of pricing practices. As a result, we
have little or no control over the fulfillment of buyers' orders. In order to
be successful, we must maintain relationships with suppliers that will produce,
stock and deliver high quality products to buyers through our Web sites.
We rely on third-party carriers to ensure accurate and timely delivery of
products to buyers. Although suppliers are responsible for product shipment, we
designate the carrier and are responsible for carrier charges. We cannot be
certain that our carriers will consistently provide high quality performance.
If our carriers fail to deliver products accurately and on a timely basis, our
reputation and business could be materially and adversely affected.
Our Web sites and transaction processing systems must be able to service
increasing traffic levels.
Our success depends in large part on the number of buyers who use our Web
sites to purchase scientific supplies and products. Accordingly, our Web sites,
transaction-processing systems and network infrastructure must be able to
service increasing traffic levels while maintaining adequate buyer service
levels. Any system interruptions or delays in our transaction system would
reduce the volume of sales and the attractiveness of our service offerings,
which could have a material adverse effect on our customer satisfaction and our
ability to maintain revenue growth. We have experienced infrequent system
interruptions in the past during implementation of system upgrades. These
interruptions could continue to occur from time to time and could have a
material adverse effect on our service offerings. Substantial increases in the
volume of traffic on our Web sites or the number of purchases made by buyers
will require expansion and upgrades of our technology, transaction-processing
systems and network infrastructure. We cannot be certain that our transaction-
processing systems and network infrastructure will be able to accommodate
traffic in the future.
Our systems must be able to integrate with the internal systems of our key
suppliers and buyers.
A key component of all services is the efficiencies created for suppliers
and buyers through our online systems. In order to create these efficiencies,
it will often be necessary that our systems integrate with each major
supplier's and buyer's internal systems, such as inventory, customer service,
technical service, freight programs and financial systems. In addition, there
is little uniformity in the systems used by our suppliers and buyers. The
integration with our suppliers' systems also involves the downloading of a
significant amount of data, which increases the resources needed to execute the
integration. If these systems are not successfully integrated, our operating
costs and relationships with our suppliers and buyers would be adversely
affected, which could have a material adverse effect on our financial condition
and results of operations.
7
<PAGE>
Our computer and telecommunications systems are in a single location, which
could be vulnerable to damage or interruption.
Substantially all of our computer and telecommunications systems are located
in the same geographic area. These systems are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, break-
ins and similar events. While we have business interruption insurance, this
coverage may not adequately compensate us for lost business. Although we have
implemented network security measures, our systems, like all systems, are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. These disruptions could lead to interruptions, delays, loss of
data or the inability to accept and confirm buyer purchases. Any of these
occurrences could have a material adverse effect on our revenues.
Our advertising revenues will be highly dependent on a third party.
To date, a majority of our revenues has come from the sale of print and
online advertising to our suppliers, although we expect advertising revenue as
a percentage of total revenue to decrease significantly in the future. Cahners
Business Information is the exclusive sales representative for online
advertising on our Web sites and for print advertising in our Source Book.
Accordingly, our advertising revenues are highly dependent on the success of
Cahners' efforts. We cannot assure you that Cahners will be successful in
selling advertising for us.
We bear the risk of credit sales on SciQuest.com.
Our supplier agreements generally require us to pay the supplier for any
orders processed through our Web sites as we usually take title to these
products at the time of shipment. Accordingly, if a buyer fails to pay for the
products it purchased, we would be obligated to pay the supplier. Thus, we bear
the risk of collection. We also may be required to refund payments to buyers
for products returned to the supplier. Slow payment by buyers for products
purchased would negatively impact our cash flows. As our transaction volume and
average transaction size grow, these risks will increase. We generally do not
process an order from a buyer without a credit card or other payment
confirmation although we do extend credit terms to certain qualified buyers.
However, we cannot be certain that our credit confirmation practices will be
effective to protect us against these payment obligations. If a significant
number of buyers default on their payment obligations, or suppliers fail to
refund payments to us for products returned by our buyers, or buyers do not pay
their obligations to us on time, we could incur significant and immediate cash
payment obligations or suffer significant cash flow constraints. These
obligations could put a significant strain on our liquidity and capital
resources, which could prevent us from using our working capital to further
expand our business or require us to obtain additional financing.
Our revenue growth is highly dependent upon the widespread acceptance and use
of the Internet for e-commerce.
Use of the Internet to purchase products, particularly in the scientific
products market, is at an early stage of development. Convincing buyers to
purchase scientific products online may be particularly difficult as such
buyers have traditionally relied on distributors of scientific products and
mail order catalogs to purchase their scientific products. If the use of e-
commerce services does not grow in the future, our Web site traffic and
resulting revenue could be materially and adversely affected.
The continued growth of e-commerce services is dependent upon a number of
factors that are beyond our control, including the following:
. continued growth in the number of buyers who use e-commerce services;
. continued development of transaction security technology;
. continued development of e-commerce technology;
. continued development and successful implementation of enterprise
software solutions;
8
<PAGE>
. emergence of standard and common nomenclature and methodology for e-
commerce; and
. development of complementary services and products.
We must effectively manage the growth of our business to be successful.
We are rapidly expanding our operations. In particular, we have
significantly expanded our operations and sales, marketing and technology
staffs. We have also expanded our management and administration to support this
growth. We expect this expansion to continue at an accelerated rate. This
expansion has placed, and is expected to continue to place, a significant
strain on our management, operational and financial resources. If we are unable
to manage the growth of our business effectively, our earnings could be
materially and adversely affected.
Many of our employees have only recently joined us. Additionally, several of
our key executives have been employed by us for one year or less. If our
employees do not work well together or some of our employees do not succeed in
their designated roles, our financial condition and results of operations could
be materially adversely affected. We cannot be certain that our management,
operational and financial resources will be adequate to support our future
operations.
The online scientific products market is highly competitive, which makes
achieving market share and profitability more difficult.
The online scientific products market is new, rapidly evolving and intensely
competitive. Our primary competition includes e-commerce providers, online
scientific communities and suppliers' e-commerce initiatives.
Competition is likely to intensify as this market matures. As competitive
conditions intensify, competitors may:
. enter into strategic or commercial relationships with larger, more
established and well-financed companies;
. secure services and products from suppliers on more favorable terms;
. devote greater resources to marketing and promotional campaigns;
. secure exclusive deals with buyers that impede our sales; and
. devote substantially more resources to Web site and systems development.
In addition, new technologies and the expansion of existing technologies may
increase competitive pressures. As a result of increased competition, we may
experience reduced operating margins, as well as loss of market share and brand
recognition. We may not be able to compete successfully against current and
future competitors. These competitive pressures could have a material adverse
effect on our revenue growth and earnings.
Attracting and retaining key employees is important to our business.
A key factor of our success will be the continued services and performance
of our executive officers and other key personnel. If we lose the services of
any of our executive officers, our financial condition and results of
operations could be materially and adversely affected. We do not have long-term
employment agreements with any of our key personnel. Our success also depends
upon our ability to identify, hire and retain other highly skilled technical,
managerial, editorial, marketing and customer service professionals.
Competition for this personnel is intense. In particular, it is important that
we hire additional customer service personnel in order to maintain high quality
service and maintain buyer and supplier loyalty. We cannot be certain of our
ability to identify, hire and retain sufficiently qualified personnel. For
example, we may encounter difficulties in
9
<PAGE>
attracting a sufficient number of qualified software developers and operations
personnel for our online services and transaction-processing systems. Failure
to identify, hire and retain necessary technical, managerial, editorial,
merchandising, marketing and buyer service personnel could have a material
adverse effect on our financial condition and results of operations.
If we are unable to adapt our services to rapid technological change in online
commerce, our profits would be adversely affected.
The Internet and the online commerce industry undergo rapid changes in
technology, products and services, user profiles and operating standards. These
changes could render our Web sites and proprietary technology and systems
obsolete. We must continually improve the performance, features and reliability
of our online services, particularly in response to our competition. Our
success will depend, in part, on our ability to:
. enhance our existing services;
. develop new services and technology that address the increasingly
sophisticated and varied needs of our target markets; and
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
We cannot be certain of our success in accomplishing the foregoing. If we
are unable, for technical, legal, financial or other reasons, to adapt to
changing market conditions or buyer requirements, our market share could be
materially adversely affected.
We may become exposed to product liability claims.
The sale of scientific products involves the risk of product liability
claims. We face potential liability for claims based on the type and adequacy
of the information and data that suppliers publish on our Web sites as well as
the nature of the products that are sold through our Web sites, including
claims for breach of warranty, product liability, misrepresentation, violation
of governmental regulations and other commercial claims. Although we maintain
general liability insurance and product liability insurance, our insurance may
not cover some claims and may not be adequate to fully indemnify us for
liabilities that may be imposed. A product liability claim against us, if
successful, could result in a significant liability that would have a material
adverse effect on our liquidity and capital resources. In addition, even the
successful defense of a product liability claim could result in substantial
costs and diversion of our management's efforts.
Online commerce and database security concerns could adversely affect Web site
traffic.
The secure transmission of confidential information over public networks is
a fundamental requirement for online commerce. Concerns over the security of
transactions and commercial online services and other privacy issues may also
inhibit the growth of the Internet and the online commerce industry. We license
encryption and authentication technology for the transmission of confidential
information, such as buyer credit card numbers, through our online system. In
addition, we maintain an extensive confidential database of buyer profiles and
transaction information. Technological advances, including new discoveries in
the field of cryptography, could result in a compromise or breach of our
security systems. Security breaches could have a material adverse effect on our
reputation, financial condition and results of operations. An intruder who
breaches our security measures could misappropriate proprietary information or
cause interruptions in our operations. We could be required to spend a
significant amount of time and money to protect against security breaches or to
alleviate problems caused by such breaches. Security breaches could also expose
us to a risk of loss or litigation and possible liability. We cannot be certain
that our security measures will prevent security breaches.
10
<PAGE>
We must be able to offer new services in order to maintain revenue growth.
We plan to introduce new and expanded services and to expand our third-party
relationships in order to attract more buyers and suppliers to our Web sites
and increase transaction volume. We cannot be certain that we will be able to
offer these services in a cost-effective or timely manner. Any new services
that are not favorably received by buyers or suppliers could damage our
reputation or brand name. Expansion of our services will require us to develop
a significant amount of time and money and may strain our management, financial
and operating resources. The failure to generate profits from our expanded
services could have a material adverse effect on our earnings.
We could be exposed to liability for the content of our Web sites.
Our Web sites contain information concerning the products offered by
suppliers, including product descriptions, specifications and pricing. This
information is provided by suppliers, and we generally do not independently
verify this information. As a result, we could potentially face liability for
fraud, negligence, copyright, patent or trademark infringement and other claims
based on the information contained on our Web sites. A successful claim could
subject us to significant liability that would have a material adverse effect
on our liquidity and capital resources. In addition, even the successful
defense of a claim could result in substantial costs and division of our
management's efforts and damage to our brand perception by our customers.
We may not be able to protect our intellectual property.
We rely on a combination of trade secrets, copyright and trademark laws,
license agreements, nondisclosure and other contractual provisions and
technical measures to protect our proprietary rights. Our software technology
is not patented and existing copyright laws offer only limited practical
protection. We cannot guarantee that the legal protections that we rely on will
be adequate to prevent misappropriation of our technology. Also, these
protections do not prevent independent third-party development of competitive
products or services. We believe that our products, trademarks and other
proprietary rights do not infringe upon the proprietary rights of third
parties. However, we cannot guarantee that third parties will not assert
infringement claims against us in the future or that any such assertion will
not require us to enter into a license agreement or royalty agreement with the
party asserting a claim. Even the successful defense of an infringement claim
could result in substantial costs and diversion of our management's efforts.
We also license certain content for our online services from third parties.
Additionally, we intend to license a significant portion of our transaction
fulfillment systems from third parties. These third-party content licenses may
not be available to us on favorable terms, or at all, in the future. In
addition, we must be able to successfully integrate this context in a timely
and cost-effective manner to create an effective finished product. If we fail
to obtain necessary content on favorable terms or are unable to successfully
integrate this content or if we are unable to continue to license our order
fulfillment transaction systems on favorable terms, it could have a material
adverse effect on our business operations. In addition, failure to protect
against the misappropriation of our intellectual property, or claims that we
are infringing on the intellectual property of third parties, could have a
material adverse effect on our business operations.
Additional regulation of online commerce could adversely affect demand for our
products and services.
There are currently few laws and regulations directly applicable to the
Internet and e-commerce services. However, we expect that additional regulation
may be adopted covering issues such as user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products
and services. In addition, the growth and development of e-commerce may prompt
calls for more stringent buyer protection laws that may impose additional
burdens on those companies conducting business online. The adoption of any
additional laws or regulations may decrease the growth of the Internet or
commercial online services, which could, in turn, decrease the demand for our
products and services. Additional regulation could also increase our cost of
doing business.
11
<PAGE>
The application of sales and other taxes to online commerce could adversely
affect demand for our products and services and are administratively
burdensome.
The application of sales and other taxes by state and local governments to
online commerce is uncertain and may take years to resolve. In particular, a
number of states are currently reviewing the appropriate tax treatment of
online commerce, and new state tax regulations may subject us and/or the
suppliers and buyers that use our Web sites to additional state sales and
income taxes. The imposition of additional sales taxes on transactions
conducted through our Web sites could make this service less valuable to buyers
and adversely impact transaction volume. Any such taxes or other regulations
could have a material adverse effect on our revenues and earnings.
We collect sales taxes in the jurisdictions where we are required to do so.
Our failure to properly collect and pay such taxes in all of such jurisdictions
could subject us to penalties that could adversely affect our earnings. Even if
we do collect taxes properly for each of the jurisdictions required, the
collection and payment of such taxes causes us to incur significant
administrative effort and expense.
The failure to integrate successfully other businesses that we acquire could
adversely affect our business.
In September 1998, we acquired BioSupplyNet, Inc. in a stock acquisition. In
July 1999, we acquired Internet Auctioneers International, Inc. in a stock
acquisition. While we have no current agreements or binding commitments
regarding any potential acquisitions, an element of our strategy is to broaden
the scope and content of our products and services through the acquisition of
existing products, technologies, services and businesses. Acquisitions entail
numerous risks, including:
. the integration of new operations, products, services and personnel;
. the diversion of resources from our existing businesses, sites and
technologies;
. the inability to generate revenues from new products and services
sufficient to offset associated acquisition costs;
. the maintenance of uniform standards, controls, procedures and policies;
. accounting effects that may adversely affect our financial results;
. the impairment of employee and customer relations as a result of any
integration of new management personnel;
. dilution to existing stockholders from the issuance of equity securities;
and
.liabilities or other problems associated with an acquired business,
Any problems we encounter in connection with our acquisitions could have a
material adverse effect on our business.
Our planned international expansion may make it more difficult to manage our
business.
We intend to invest resources and capital to expand internationally. As a
result, we may need to establish international operations, hire additional
personnel and establish relationships with additional suppliers and customers.
This expansion will require significant financial resources and management
attention and could have a negative effect on our earnings. We cannot assure
you that we will be successful in creating international demand for our e-
commerce solutions and services. In addition, our international business may be
subject to a variety of risks, including, among other things, increased costs
associated with maintaining international marketing efforts, applicable
government regulation, fluctuations in foreign currency, difficulties in
collecting international accounts receivable and the enforcement of
intellectual property rights. We cannot assure you that these factors will not
have an adverse effect on future international sales and earnings.
12
<PAGE>
We rely on our suppliers and carriers in complying with government regulation.
Because we take legal title of the products that are distributed through our
system, we may be subject to additional government regulations as a seller or a
distributor of regulated products. Many of the products offered through our Web
sites are subject to direct regulation by governmental agencies, which includes
numerous laws and regulations generally applicable to the chemical,
pharmaceutical, controlled substances, human and biological reagents, nuclear
chemical businesses, and environmental spills. Although we take legal title to
the products, we do not take physical possession of a shipment during any part
of the transaction. As a result, we have historically relied, and will in the
future rely, upon our suppliers to meet all packaging, distribution, labeling,
hazard and health information notices to purchasers, record keeping and
licensing requirements applicable to transactions conducted through our system.
In addition, we rely upon our carriers to comply with regulations regarding the
shipment of hazardous materials sold through our system. At times, we may be
unable to verify the accuracy of our suppliers' regulatory staff determinations
and regulatory compliance. We could be fined or exposed to civil or criminal
liability, including monetary fines and injunctions, if the applicable
governmental regulatory requirements are not fully met by our suppliers,
carriers or by us directly.
The unpredictability of our quarterly results may negatively affect the trading
price of our common stock.
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
. demand for and market acceptance of our e-commerce solutions and
services;
. introduction of new and enhanced solutions and services by us or our
competitors;
. budgeting cycles of customers and users;
. loss of one or more of our key suppliers, customers or strategic
relationships;
. changes in our pricing policies or those of our competitors or suppliers;
. amount and timing of capital expenditures and other costs relating to the
expansion of our operations;
. timing and number of new hires;
. ability to comply with applicable laws and regulations or obtain
necessary permits and licenses to sell or ship products to customers;
. technical difficulties with our Web sites or Internet-based e-commerce
solutions;
. level of activity and funding in the life sciences industry;
. seasonality; and
. general economic conditions.
Potential year 2000 problems could adversely affect our business.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These systems cannot
reliably distinguish dates beginning on January 1, 2000 from dates prior to the
year 2000. Many companies' software and computer systems may need to be
upgraded or replaced in order to correctly recognize and process dates
beginning in 2000. Significant uncertainty exists in the software industry and
in many other industries concerning the potential effects of year 2000 non-
compliance.
13
<PAGE>
Our internally developed software has been designed to accept only four
digit entries in order to resolve year 2000 ambiguities. However, we also
utilize third-party equipment and software that may not be year 2000 compliant.
We are in the process of verifying whether our suppliers and service providers
are year 2000 compliant. We cannot guarantee that the systems of our suppliers
or service providers will be year 2000 compliant. The failure of such parties
to correct year 2000 problems could substantially disrupt our business and may
have a material adverse effect on our financial condition and results of
operations.
In addition, the computer systems necessary to maintain the viability of the
Internet or any of the Web sites that direct buyers to our Web sites may not be
year 2000 compliant. We believe that buyers and potential buyers may be
adversely affected by the year 2000 issue. The computers of potential buyers
may not be year 2000 compliant, thus preventing such buyers from accessing and
making purchases through our Web sites. In addition, many companies are
expending significant resources to address the year 2000 issue in their current
software systems that may reduce the amount of funds available to purchase
products offered on our Web sites. To the extent that major buyers experience
such year 2000 difficulties, our business could be materially adversely
affected.
Finally, we are dependent upon third-party carriers and suppliers to
efficiently ship and fulfill orders from buyers. We cannot be certain that
these carriers or suppliers will be year 2000 compliant. Failure of these
carriers or suppliers to correct any year 2000 problems could disrupt our
ability to distribute purchased products, which could have a material adverse
effect on our revenues.
Our business goals may not be achieved if the proceeds of this offering are not
used effectively.
The net proceeds from the sale of our common stock will become part of our
general working capital upon completion of this offering. The failure of
management to apply these proceeds effectively could materially and adversely
affect our business. We may use these funds to expand our business, including
increasing our sales and marketing activities, increasing our product
development, possible future acquisitions and for general corporate purposes,
including working capital. We will have considerable discretion in the
application of the net proceeds of this offering to these uses. The net
proceeds may be used for corporate purposes that do not increase our
profitability or market value. Pending application of the proceeds, they may be
placed in investments that do not produce income or that lose value. The timing
of our use of the net proceeds will depend on a number of factors, including
the amount and timing of our future cash flows.
Significant fluctuation in the market price of our common stock could result in
securities class action claims against us.
Significant price and value fluctuations have occurred with respect to the
securities of Internet-related companies. Our common stock price is likely to
be volatile in the future. In the past, following periods of downward
volatility in the market price of a company's securities, class action
litigation has often been pursued against such companies. If similar litigation
were pursued against us, it could result in substantial costs and a diversion
of our management's attention and resources.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus. They include statements concerning:
. our business strategy;
. liquidity and capital expenditures;
. our use of the proceeds of the offering;
. future sources of revenues;
. expansion of our products and services;
. trends in Internet activity generally;
. trends in government regulation; and
. payment of dividends.
You can identify these statements by forward-looking words such as "expect,"
"anticipate," "believe," "goal," "plan," "intend," "estimate," "predict,"
"potential," "continue," "may," "will," and "should" or similar words. You
should be aware that these statements are subject to known and unknown risks,
uncertainties and other factors, including those discussed in the section
entitled "Risk Factors," that could cause the actual results to differ
materially from those suggested by the forward-looking statements.
15
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock in this
offering are estimated to be approximately $ . If the underwriters exercise
their over-allotment option in full, our net proceeds from the sale of
shares of common stock in this offering are estimated to be approximately $ .
These estimates are based on an assumed public offering price of $ per share
and are after deducting estimated underwriting discounts and commissions and
estimated expenses payable by us in connection with the offering.
As of the date of this prospectus, we have not made any specific plans with
respect to the proceeds of this offering. Therefore, we cannot specify with
certainty the particular uses for the net proceeds to be received upon
completion of this offering. Accordingly, our management will have significant
flexibility in applying the net proceeds of the offering. We intend to use the
net proceeds from this offering to expand our sales and marketing efforts,
enhance our technology and add to our online content and for general corporate
purposes, including working capital needs. We also may use a portion of the net
proceeds of this offering to acquire or invest in complementary businesses or
technologies, although we have no present commitments or agreements with
respect to any material acquisition or investment. Pending the application of
the proceeds towards one of the above uses, we intend to invest the net
offering proceeds in short-term, interest-bearing, investment-grade securities.
The principal purposes of this offering are to increase our working capital,
to create a public market for our common stock, to facilitate future access to
the public capital markets and to increase our visibility in the marketplace.
The description above represents our present intentions based upon present
plans and business conditions. They may vary significantly and are subject to
change at our discretion depending upon certain factors, including economic or
industry conditions, changes in the competitive environment and strategic
opportunities that may arise.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and we do
not anticipate declaring or paying any cash dividends for the foreseeable
future. We currently expect to retain all earnings, if any, for investment in
our business.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:
. on an actual basis;
. on an unaudited pro forma basis to reflect conversion of all outstanding
shares of our class A and class B common stock and all outstanding shares
of our preferred stock into shares of our common stock; and
. on an unaudited pro forma as adjusted basis to reflect conversion of all
outstanding shares of our class A and class B common stock and all
outstanding shares of our preferred stock into shares of our common stock
and our receipt of the estimated net proceeds from our sale of shares
of common stock at an assumed initial public offering price of $ per
share after deducting underwriting discounts and commissions and offering
expenses payable by us.
<TABLE>
<CAPTION>
As of June 30, 1999
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
(In Thousands)
<S> <C> <C> <C>
Debt and capital lease obligations, long-
term portion............................... $ 152 $ 152 $
Mandatorily redeemable convertible preferred
stock, $0.001 par value, 7,147,900 shares
authorized actual; no shares authorized pro
forma or pro forma as adjusted:
Series B--3,835,180 shares designated;
3,777,626 issued and outstanding actual;
no shares designated, issued or
outstanding pro forma or pro forma as
adjusted.................................. 18,888 --
Series D--3,312,720 shares designated;
3,312,720 issued and outstanding actual;
no shares designated, issued or
outstanding pro forma or pro forma as
adjusted.................................. 35,590 --
-------- -------- ----
Total mandatorily redeemable convertible
preferred stock......................... 54,478 --
Stockholders' deficit:
Series A convertible preferred stock,
$0.001 par value, 769,231 shares
designated; 769,221 shares issued and
outstanding actual; no shares designated,
issued or outstanding pro forma or pro
forma as adjusted......................... 683 --
Series C convertible preferred stock,
$0.001 par value, 700,000 shares
designated; 635,813 shares issued and
outstanding actual; no shares designated,
issued or outstanding pro forma or pro
forma as adjusted......................... 1,775 --
Preferred stock, undesignated, $0.001 par
value, 1,382,869 shares authorized; no
shares issued or outstanding actual; no
shares authorized, issued or outstanding
pro forma or pro forma as adjusted........
Common stock, $0.001 par value, 20,000,000
shares authorized:
Class A common stock, 19,749,980 shares
designated; 2,355,724 shares issued and
outstanding actual; no shares
designated, issued or outstanding pro
forma or pro forma as adjusted.......... 2 --
Class B common stock, 250,020 shares
designated, issued and outstanding
actual; no shares designated, issued or
outstanding pro forma or pro forma as
adjusted................................ -- --
Common stock, $0.001 par value, 90,000,000
shares authorized; no shares issued and
outstanding actual; 11,101,124 shares
issued and outstanding pro forma;
shares issued and outstanding pro forma
as adjusted............................... -- 11
Additional paid-in capital................. -- 56,927
Deferred compensation...................... (39) (39)
Accumulated other comprehensive loss....... (7) (7)
Accumulated deficit........................ (20,640) (20,640)
-------- -------- ----
Total stockholders' equity (deficit)..... (18,226) 36,252
-------- -------- ----
Total capitalization(1)................ $ 36,404 $ 36,404 $
======== ======== ====
</TABLE>
- ---------------------
(1) Subsequent to June 30, 1999, we issued 114,995 shares of our series E
convertible preferred stock with a value of approximately $1.3 million in
exchange for all of the outstanding common stock of Internet Auctioneers
International, Inc. If the series E convertible preferred stock had been
outstanding at June 30, 1999, our total pro forma capitalization would have
been $37.7 million.
17
<PAGE>
DILUTION
As of June 30, 1999, our pro forma net tangible book value was approximately
$35.3 million, or $3.18 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding after
giving effect to the conversion of all outstanding shares of our class A and
class B common stock and all outstanding shares of our preferred stock into
common stock. After giving effect to our sale of shares of common stock in
this offering at an assumed initial public offering price of $ per share and
the application of the estimated net proceeds from this sale, our pro forma as
adjusted net tangible book value at June 30, 1999 would have been approximately
$ million, or $ per share of common stock. This represents an immediate
increase in such pro forma as adjusted net tangible book value of $ per
share to existing stockholders and an immediate decrease in pro forma as
adjusted net tangible book value of $ per share to new investors. The
following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
----
Net tangible book value per share at June 30, 1999............. $3.18
-----
Increase attributable to this offering.........................
-----
Pro forma as adjusted net tangible book value per share after
this offering...................................................
----
Dilution per share to new investors in this offering............. $
====
</TABLE>
The following table summarizes, as of June 30, 1999, differences between the
existing stockholders and new investors with respect to the number of shares of
common stock purchased, the total consideration paid and the average price paid
per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
or to be Purchased Paid or to be Paid
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 11,101,124 % $48,853,730 % $4.40
Existing option holders
and warrant holders...... 1,629,541 8,625,137 5.29
New investors.............
---------- ----- ----------- ----- -----
Total................... 100.0% $ 100.0% $
========== ===== =========== ===== =====
</TABLE>
The discussion and table assumes no exercise of options outstanding under
our stock option plan and no exercise of warrants that will remain outstanding
after this offering. As of June 30, 1999, there were 1,674,465 shares of common
stock reserved for issuance upon exercise of options granted under our stock
option plan, of which options to purchase 791,863 shares were outstanding as of
June 30, 1999 at exercise prices ranging from $0.003 to $3.15 per share and a
weighted average exercise price of $0.43 per share. There were also 837,678
shares of common stock issuable upon exercise of warrants outstanding as of
June 30, 1999 at a weighted average exercise price of $9.89 per share. The
exercise of these options and warrants will have the effect of increasing the
net tangible book value dilution of new investors in this offering.
Assuming full exercise of the underwriters' over-allotment option, the
percentage of shares held by existing stockholders would be % of the total
number of shares of common stock to be outstanding after the offering, and the
number of shares held by new stockholders would be increased to shares, or
% of the total number of shares of common stock to be outstanding after the
offering.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA
The unaudited pro forma combined statements of operations data for the year
ended December 31, 1998 and the six months ended June 30, 1998 combine the
historical statements of operations of SciQuest.com and BioSupplyNet as if the
acquisition of BioSupplyNet, which occurred on September 25, 1998, had been
completed on January 1, 1998. The total cost of the acquisition was
approximately $2.0 million and has been accounted for using the purchase method
of accounting. The unaudited pro forma statement of operations and the
accompanying notes should be read in conjunction with the historical financial
statements (including the related notes) of SciQuest.com and BioSupplyNet, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing elsewhere in this prospectus.
The pro forma adjustments reflecting the consummation of the acquisition are
based on the purchase method of accounting, available financial information and
certain estimates and assumptions set forth in the notes to the unaudited pro
forma statements of operations data. The unaudited pro forma statements of
operations data reflects SciQuest.com's best estimates; however, the actual
financial position and results of operations may differ significantly from the
pro forma amounts reflected herein due to various factors, including, without
limitation, access to additional information and changes in value. The pro
forma adjustments do not reflect any operating efficiencies or cost savings
that may be achievable with respect to the combined businesses of SciQuest.com
and BioSupplyNet.
The unaudited pro forma financial data for the year ended December 31, 1998
and the six months ended June 30, 1998, does not purport to represent what the
actual results of the combined businesses would have been if the acquisition of
BioSupplyNet had occurred on January 1, 1998, nor does this information purport
to project our results for any future period.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------------------------
Pro Forma Pro Forma
SciQuest.com BioSupplyNet Combined Adjustments Combined
(audited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 477,818 $ 620,359 $ 1,098,177 $ -- $ 1,098,177
Cost of revenues........ (41,880) (354,361) (396,241) -- (396,241)
----------- --------- ----------- --------- -----------
Gross profit.......... 435,938 265,998 701,936 -- 701,936
----------- --------- ----------- --------- -----------
Product development..... 1,191,135 132,840 1,323,975 121,383 (a) 1,445,358
Sales and marketing..... 1,706,033 370,601 2,076,634 2,076,634
General and
administrative......... 1,104,010 120,261 1,224,271 382,801 (a) 1,607,072
Purchased in process
research and
development............ 791,102 -- 791,102 (791,102)(b) --
----------- --------- ----------- --------- -----------
Total operating
expenses........... 4,792,280 623,702 5,415,982 (286,918) 5,129,064
----------- --------- ----------- --------- -----------
Operating loss.......... (4,356,342) (357,704) (4,714,046) 286,918 (4,427,128)
Interest income......... 110,565 1,608 112,173 -- 112,173
Interest expense........ (30,524) (12,997) (43,521) -- (43,521)
----------- --------- ----------- --------- -----------
Loss before income
taxes.................. (4,276,301) (369,093) (4,645,394) 286,918 (4,358,476)
Income tax benefit...... 54,695 -- 54,695 164,085 (c) 218,780
----------- --------- ----------- --------- -----------
Net loss................ (4,221,606) (369,093) (4,590,699) 451,003 (4,139,696)
Accretion on mandatorily
redeemable convertible
preferred stock........ 328,723 -- 328,723 -- 328,723
----------- --------- ----------- --------- -----------
Net loss available to
common stockholders.... $(4,550,329) $(369,093) $(4,919,422) $ 451,003 $(4,468,419)
=========== ========= =========== ========= ===========
Net loss per common
share.................. $ (1.00)
Weighted average common
shares outstanding..... 4,487,402
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
----------------------------------------------------------------
Pro Forma Pro Forma
SciQuest.com BioSupplyNet Combined Adjustments Combined
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 190,166 $ 543,890 $ 734,056 $ -- $ 734,056
Cost of revenues........ -- (312,369) (312,369) -- (312,369)
--------- --------- --------- --------- -----------
Gross profit.......... 190,166 231,521 421,687 -- 421,687
--------- --------- --------- --------- -----------
Product development..... 179,507 99,113 278,620 80,922 (d) 359,542
Sales and marketing..... 508,274 261,360 769,634 -- 767,634
General and
administrative......... 151,008 96,998 248,006 255,201 (d) 503,207
--------- --------- --------- --------- -----------
Total operating
expenses........... 838,789 457,471 1,296,260 336,123 1,632,383
--------- --------- --------- --------- -----------
Operating loss.......... (648,623) (225,950) (874,573) (336,123) (1,210,696)
Interest income......... 3,366 1,606 4,972 -- 4,972
Interest expense........ (16,190) (5,497) (21,687) -- (21,687)
--------- --------- --------- --------- -----------
Loss before income
taxes.................. (661,447) (229,841) (891,288) (336,123) (1,227,411)
Income tax benefit...... -- -- -- 109,390 (e) 109,390
--------- --------- --------- --------- -----------
Net loss................ (661,447) (229,841) (891,288) (226,733) (1,118,021)
Accretion on mandatorily
redeemable convertible
preferred stock........ -- -- -- -- --
--------- --------- --------- --------- -----------
Net loss available to
common stockholders.... $(661,447) $(229,841) $(891,248) $(226,733) $(1,118,021)
========= ========= ========= ========= ===========
</TABLE>
Notes to the Unaudited Pro Forma Statements of Operations Data
The following pro forma adjustments were made to our consolidated
statements operations to arrive at our unaudited pro forma statements of
operations data:
(a) We recorded additional amortization of intangible assets and goodwill
related to the acquisition of BioSupplyNet for all twelve months of
1998.
(b) We eliminated the charge to operations related to the portion of the
purchase price of BioSupplyNet allocated to in-process research and
development.
(c) We recorded a deferred tax benefit related to reduction in deferred tax
liabilities resulting from the increased amortization of the intangible
assets and goodwill recorded with the acquisition of BioSupplyNet for
all twelve months of 1998.
(d) We recorded amortization of intangible assets and goodwill related to
the acquisition of BioSupplyNet for the period from January 1, 1998 to
June 30, 1998.
(e) We recorded a deferred tax benefit related to reduction in deferred tax
liabilities resulting from the increased amortization of the intangible
assets and goodwill recorded with the acquisition of BioSupplyNet
during the period from January 1, 1998 to June 30, 1998.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Our selected financial data set forth below should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in
this prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The historical statements of operations
data for the years ended December 31, 1996, 1997 and 1998, and for the six
months ended June 30, 1999, and the balance sheet data as of December 31, 1997
and 1998, and June 30, 1999, are derived from, and are qualified by reference
to, our financial statements, which have been audited by PricewaterhouseCoopers
LLP. The balance sheet data as of December 31, 1996 is derived from an audited
balance sheet not included in this prospectus. The acquisition of BioSupplyNet
has been accounted for using the purchase method of accounting. Accordingly,
the actual consolidated statement of operations data reflects the results of
operations of BioSupplyNet since its acquisition on September 29, 1998. The
statement of operations data for the six months ended June 30, 1998 is derived
from our unaudited financial statements appearing elsewhere in this prospectus.
In the opinion of our management, the unaudited financial statements have been
prepared on a basis consistent with the financial statements which appear
elsewhere in the prospectus, and include all adjustments, consisting only of
normal recurring adjustments necessary for a fair statement of the financial
position and results of operations for these unaudited periods. Historical
results are not necessarily indicative of results to be expected in the future.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------- ---------------------------------
Pro Forma Pro Forma
1996 1997 1998 1998 1998 1998 1999
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 196 $ 478 $ 1,098 $ 190 $ 734 $ 885
Cost of revenues........ -- -- 42 396 -- 312 486
------ ------ -------- -------- ------ -------- ---------
Gross profit........... -- 196 436 702 190 422 399
Operating expenses:
Product development.... 85 140 1,191 1,445 179 360 3,182
Sales and marketing.... 150 257 1,706 2,077 508 770 3,165
General and administra-
tive.................. 301 457 1,104 1,607 151 503 2,194
Purchased in process
research and
development........... -- -- 791 -- -- -- --
------ ------ -------- -------- ------ -------- ---------
Total operating ex-
penses................. 536 855 4,792 5,129 838 1,633 8,541
------ ------ -------- -------- ------ -------- ---------
Operating loss.......... (536) (658) (4,356) (4,427) (648) (1,211) (8,142)
Net interest income (ex-
pense)................. (9) (32) 80 69 (13) (17) 302
------ ------ -------- -------- ------ -------- ---------
Loss before income tax-
es..................... (545) (690) (4,276) (4,358) (661) (1,228) (7,840)
Income tax benefit...... -- -- 54 218 -- 110 110
------ ------ -------- -------- ------ -------- ---------
Net loss................ (545) (690) (4,222) (4,140) (661) (1,118) (7,730)
Accretion on mandatorily
redeemable preferred
stock.................. -- -- 328 328 -- -- 8,460
------ ------ -------- -------- ------ -------- ---------
Net loss available to
common stockholders.... $ (545) $ (690) $ (4,550) $ (4,468) $ (661) $ (1,118) $ (16,190)
====== ====== ======== ======== ====== ======== =========
Net loss per common
share--basic and dilut-
ed..................... $(0.23) $(0.28) $ (1.82) $ (1.47) $(0.26) $ (0.36) $ (6.39)
Weighted average common
shares outstanding..... 2,359 2,500 2,500 3,046 2,500 3,046 2,533
Pro forma net loss per
common share--basic and
diluted................ $ (1.01) $ (1.00) $ (1.97)
Pro forma weighted aver-
age common shares
outstanding............ 4,487 4,487 8,226
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
--------------------- June 30,
1996 1997 1998 1999
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 9 $ 331 $ 5,391 $ 10,496
Working capital (deficit)..................... (227) (28) 6,413 24,151
Total assets.................................. 77 385 9,173 39,352
Long-term liabilities......................... 66 79 385 327
Mandatorily redeemable convertible preferred
stock........................................ -- -- 10,883 54,478
Stockholders' equity (deficit)................ (254) (81) (3,102) (18,226)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and accompanying notes, which appear elsewhere in this
prospectus. It contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forwarding-looking statements as a result of various
factors, including those discussed below and elsewhere in this prospectus,
particularly under the heading "Risk Factors."
Overview
SciQuest.com is a leading Web-based, interactive marketplace for scientific
and laboratory products used by pharmaceutical, clinical, biotechnology,
chemical, industrial and educational organizations worldwide. Our marketplace
solutions utilize enabling Internet technologies and leverage our extensive
industry expertise to streamline the traditionally inefficient scientific
products supply chain. Our distributor-neutral approach allows us to create an
open and scalable marketplace that we believe is more attractive to both buyers
and sellers.
Our marketplace benefits three distinct customers: scientists, purchasing
professionals and suppliers. Our solutions reduce the time scientists require
to find, compare, purchase, track and manage critical laboratory items, thus
allowing them to spend more time on research and testing. Our solutions allow
purchasing professionals to reduce procurement costs by automating order
processing, consolidating purchase orders and payments, reducing errors and
providing more control and information to support enterprise purchasing
policies. Our solutions serve as a more efficient sales channel that enables
suppliers to expand their market reach and reduce customer acquisition and
order processing costs.
We were incorporated in November 1995 and commenced operations in January
1996. During 1996, we focused on developing our business model and the required
technology. We did not begin to recognize any revenues until 1997.
Revenues consist of (1) sales of scientific products in e-commerce
transactions originating on our Web sites, (2) banner advertising revenues from
our Web sites and (3) advertising revenues from the Source Book. Prior to the
launch of our e-commerce marketplace in April 1999, substantially all of our
revenues were derived from advertising on our Web Sites and in the Source Book.
Revenues from e-commerce transactions are expected to increase and to comprise
a significant source of revenues for future periods.
Revenues from sales of scientific products in e-commerce transactions are
recorded as product revenues and are recognized upon notification from our
suppliers that the items ordered have been shipped to the customer.
We offer various Web-based solutions where potential buyers can cross-search
content from multiple suppliers and build a multiple line item order for
products from various suppliers. When a purchaser places an order through our
marketplace, we purchase that item from the supplier at either a pre-negotiated
price or at a discount from the supplier's list price and arrange for shipment
to the purchaser. We take legal title to the products purchased at the date of
shipment and relinquish title to our customers upon delivery. After the
supplier ships the product, we begin the collection process by presenting a
consolidated invoice to the buyer for the products and vendors represented in
the order. Payment by the buyer to us is then made by credit card/procurement
card or through a more traditional account setup and payment system. For each
transaction, we recognize revenue in the amount of the sales price of the item
to the purchaser and recognize the amount paid to the supplier plus shipping
costs as cost of goods sold. The difference between revenues and cost of goods
sold is our gross profit.
Advertising revenues on banner contracts are recognized ratably over the
period in which the advertisement is displayed. Revenues from advertising
included in the Source Book are recognized at the date
22
<PAGE>
the Source Book is published and distributed. Advertising on our Web sites is
sold by Cahners Business Information. Cahners will pay us a percentage of the
total advertising revenues which it receives.
On September 29, 1998, we acquired BioSupplyNet in exchange for the issuance
of 546,605 shares of our series C convertible preferred stock and 126,780
options and 107,288 warrants to purchase our common stock with exercise prices
ranging from $0.003 to $2.80 per share. This acquisition was accounted for
using the purchase method of accounting with a total purchase price of
approximately $2.0 million. Of the total purchase price, $0.8 million was
allocated to in-process research and development and immediately charged to
operations because the in-process e-commerce technology acquired had not
reached technological feasibility at the date of the acquisition and had no
alternative future use. The remaining $1.2 million of the purchase price of
BioSupplyNet was allocated to the tangible and intangible assets of
BioSupplyNet. The fair values assigned to in-process research and development,
tangible and intangible assets of BioSupplyNet was based on an independent
valuation.
BioSupplyNet publishes the Source Book, an annual printed catalogue of
vendors of biomedical research supplies and equipment and scientific products
for the biomedical research industry. In addition, BioSupplyNet was in the
process of developing an e-commerce product offering to allow research
scientists, lab technicians and purchasing agents to quickly identify suppliers
of specific scientific products. We intend to continue to enhance and develop
this product. With the acquisition of BioSupplyNet we began to derive revenues
from the sale of advertising in the Source Book.
On July 30, 1999, we acquired all of the outstanding common stock of
Internet Auctioneers International, Inc. in exchange for the issuance of
114,995 shares of our series E convertible preferred stock. Internet
Auctioneers International provides auction services to laboratories for the
sale of used equipment. We will receive a commission for performing these
services, which will be recognized as revenues at the time the sale is
finalized.
23
<PAGE>
Results of Operations
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated. We did not generate revenues prior to
1996.
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30
---------------- -----------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................................ 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ -- 8.8 -- 54.9
------ ------- ------ --------
Gross profit............................ 100.0 91.2 100.0 45.1
------ ------- ------ --------
Operating expenses:
Product development................... 71.6 249.3 94.4 359.5
Sales and marketing................... 130.7 357.0 267.3 357.5
General and administrative............ 232.7 231.0 79.4 247.8
Purchased in process-research and
development.......................... -- 165.6 -- --
------ ------- ------ --------
Total operating expenses................ 435.0 1,002.9 441.1 964.8
------ ------- ------ --------
Operating loss.......................... (335.0) (911.7) (341.1) (919.7)
------ ------- ------ --------
Net interest income (expense)........... (16.2) 16.7 (6.7) 34.1
------ ------- ------ --------
Loss before income taxes................ (351.2) 895.0 (347.8) (885.6)
Income tax benefit...................... -- 11.5 -- 12.4
------ ------- ------ --------
Net loss................................ (351.2) (883.5) (347.8) (873.2)
Accretion on mandatorily redeemable
preferred stock........................ -- 68.8 -- 955.7
------ ------- ------ --------
Net loss available to common
stockholders........................... (351.2)% (952.3)% (347.8)% (1,828.9)%
====== ======= ====== ========
</TABLE>
Six Months Ended June 30, 1999 and 1998
Revenues
Revenues increased to $0.9 million for the six months ended June 30, 1999
from $0.2 million for the six months ended June 30, 1998. This increase was
primarily due to $0.7 million in advertising revenues generated by BioSupplyNet
for the six months ended June 30, 1999 compared to zero in the six months ended
June 30, 1998. Revenues from the sale of scientific products in e-commerce
transactions totaled $0.1 million for the six months ended June 30, 1999.
Cost of Revenues
Cost of revenues consists of the purchase price of scientific products sold
in e-commerce transactions and related shipping costs for these products,
publishing and distribution costs related to the Source Book, and our Web site
advertising development costs.
Total cost of revenues increased to $0.5 million for the six months ended
June 30, 1999 from zero for the six months ended June 30, 1998. Cost of
revenues increased primarily due to $0.4 million in costs incurred related to
BioSupplyNet's advertising revenues. Costs related to the sale of scientific
products in e-commerce transactions totaled $43,000 for the six months ended
June 30, 1999.
Gross Profit
Gross profit increased to $0.4 million for the six months ended June 30,
1999 from $0.2 million for the six months ended June 30, 1998. Gross profit
increased as product sales began with the launch of the SciQuest.com-
24
<PAGE>
marketplace in April 1999 and as a result advertising revenues generated from
the sale of advertising by BioSupplyNet, which was acquired in September 1998.
Operating Expenses
Product Development Expenses. Product development expenses consist primarily
of personnel and related costs used to develop and maintain our Web sites.
Product development costs increased to $3.2 million for the six months ended
June 30, 1999 from $0.2 million for the six months ended June 30, 1998. This
increase resulted from additional expenses incurred to develop the e-commerce
functionality of our Web sites, including an increase in the product
development staff and the costs of continuing the development of the e-commerce
technology acquired with BioSupplyNet. We expect that our product development
expenses will continue to increase as we continue to enhance and develop
functionality on our Web sites, complete the development of the BioSupplyNet e-
commerce technology and develop customized private Web sites.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries and other related costs for sales and marketing personnel, travel
expenses, public relations expenses and marketing materials. Sales and
marketing expenses increased to $3.2 million for the six months ended June 30,
1999 from $0.5 million for the six months ended June 30, 1998. This increase
resulted primarily from the hiring of additional sales and marketing personnel
to market our products and services and increased expenses to advertise and
promote our Web sites and to a lesser extent sales and marketing expenses
related to BioSupplyNet. We expect that our sales and marketing expenses will
continue to increase in the next 12 months as we add sales and marketing
personnel, and as we continue to incur expenses to promote the services
provided by our Web sites.
General and Administrative Expenses. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including finance, accounting, legal, human resources, facilities
and information systems expenses. General and administrative expenses increased
to $2.2 million for the six months ended June 30, 1999 from $0.2 million for
the six months ended June 30, 1998. General and administrative expenses
increased primarily as a result of increased payroll costs due to the increase
in the number of general and administrative personnel, and other expenses,
including professional fees and facilities costs incurred to support the growth
of our business. We expect general and administrative expenses to continue to
increase in the next 12 months as we add administrative personnel to support
the growth of our business.
Interest Income (Expense)
Net interest income (expense) consists of interest income earned on cash
deposited in money market accounts and invested in short and long term U.S.
Government obligations reduced by interest expense incurred on notes payable
and capital lease obligations. Net interest income increased to net interest
income of $0.3 million for the six months ended June 30, 1999 from net interest
expense of $13,000 for the six months ended June 30, 1998. The increase in net
interest income was primarily the result of interest earned on funds received
from the sale of our series B mandatorily redeemable convertible preferred
stock in September 1998 and series D mandatorily redeemable convertible
preferred stock in May and June 1999.
Income Tax Benefit
Income tax benefit increased to $0.1 million the six months ended June 30,
1999 from zero for the six months ended June 30, 1998. The increased income tax
benefit was the result of the reduction in deferred tax liabilities during the
six months ended June 30, 1999 due to the amortization of the goodwill and
other intangible assets recorded with our acquisition of BioSupplyNet in
September 1998.
25
<PAGE>
Accretion of Mandatorily Redeemable Convertible Preferred Stock
Accretion of mandatorily redeemable preferred stock increased to $8.5
million in the six months ended June 30, 1999 from zero in the six months ended
June 30, 1998 as a result of the accretion of the series B mandatorily
redeemable convertible preferred stock to its estimated redemption amount at
June 30, 1999 and accretion of the series D mandatorily redeemable convertible
preferred stock to its redemption amount over the period from the date of
issuance to the first redemption date. Our series B mandatorily redeemable
convertible preferred stock has a redemption price that is variable in amount
(See Note 12 to our financial statements), and its carrying value is required
to be adjusted to the estimated redemption amount at each balance sheet date
rather than being accreted to the redemption amount over the period from date
of issuance to the first redemption date.
Years Ended December 31, 1998 and 1997
Revenues
Revenues increased to $0.5 million for the year ended December 31, 1998 from
$0.2 million for the year ended December 31, 1997. This increase was primarily
a result of hiring additional sales staff responsible for marketing advertising
space on our Web sites and the acquisition of BioSupplyNet in September 1998.
All of our revenues for the years ended December 31, 1998 and 1997 were
generated from the sale of advertising and creation of Web based content and
development services.
Cost of Revenues
Cost of revenues increased to $42,000 for the year ended December 31, 1998
from zero for the year ended December 31, 1997. This increase resulted
primarily from costs associated with the development of advertising for display
on our Web sites and cost of revenues of BioSupplyNet, which was acquired in
September 1998.
Gross Profit
Gross profit increased to $0.4 million for the year ended December 31, 1998
from $0.2 million for the year ended December 31, 1997. Gross profit increased
as a result of the increase in advertising revenues from sale of advertising on
our Web sites, which has a relatively low amount of associated costs.
Operating Expenses
Product Development Expenses. Product development expenses increased to $1.2
million for the year ended December 31, 1998 from $0.1 million for the year
ended December 31, 1997. This increase resulted primarily from the development
of the e-commerce functionality of our Web sites, which began during the fourth
quarter of 1998. Product development expenses incurred during the year ended
December 31, 1997 consisted primarily of the costs of developing and
maintaining our Web site, which functions were limited to providing a source
for data about scientific products.
Sales and Marketing Expenses. Sales and marketing expenses increased to $1.7
million for the year ended December 31, 1998 from $0.3 million for the year
ended December 31, 1997. The increased sales and marketing expenses were
primarily due to an increase in the number of sales and marketing personnel
during the year ended December 31, 1998 and sales and marketing expenses of
BioSupplyNet from the date of the acquisition through December 31, 1998.
26
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased to $1.1 million for the year ended December 31, 1998 from $0.5
million for the year ended December 31, 1997. This increase primarily resulted
from hiring additional general and administrative staff to support the rapid
growth of our business, and we incurred $0.3 million of general and
administrative expense in 1998 as a result of the acquisition of BioSupplyNet
in September 1998.
Purchased In Process Research and Development Expense. For the year ended
December 31, 1998, we recognized an in-process research and development charge
of $0.8 million as a result of the acquisition of BioSupplyNet. Based on an
independent valuation of BioSupplyNet and its assets, we allocated a portion of
the BioSupplyNet purchase price to in-process e-commerce technology being
developed by BioSupplyNet which had not reached technological feasablity and
had no alternative use at the date of the acquisition of BioSupplyNet. We are
using this technology in the development of the e-commerce and scientific
products search capabilities on our Web sites.
Interest Income (Expense)
Net interest income (expense) increased to net interest income of $0.1
million for the year ended December 31, 1998 from net interest expense of
$32,000 for the year ended December 31, 1997. Net interest income increased
primarily as a result of interest earned on funds received from sale of our
series B mandatorily redeemable convertible preferred stock between September
and November 1998.
Income Tax Benefit
The income tax benefit increased to $54,000 for the year ended December 31,
1998 from zero for the year ended December 31, 1997. The income tax benefit
increased as a result of a reduction in deferred tax liabilities due to the
amortization of the goodwill and other intangible assets recorded as a result
of the acquisition of BioSupplyNet in September 1998.
Accretion of Mandatorily Redeemable Convertible Preferred Stock
Accretion of mandatorily redeemable convertible preferred stock increased to
$0.3 million in the year ended December 31, 1998 from zero in the year ended
December 31, 1997. Prior to September 30, 1998, we did not have any mandatorily
redeemable convertible preferred stock outstanding; therefore, we did not
recognize any accretion in the year ended December 31, 1997. At December 31,
1998, our series B mandatorily redeemable convertible preferred stock was
mandatorily redeemable and was required to be stated at its redemption value at
December 31, 1998.
Years Ended December 31, 1997 and 1996
Revenue
Revenues increased to $0.2 million for the year ended December 31, 1997
compared to zero for the year ended December 31, 1996. Revenues increased due
to the sale of banner advertisements to be displayed on our Web site during the
year ended December 31, 1997.
Operating Expenses
Product Development Expenses. Product development expenses increased to $0.1
million for the year ended December 31, 1997 from $85,000 for the year ended
December 31, 1996. This increase resulted primarily from expenses incurred
related to the development of our Web sites during the year ended December 31,
1997.
27
<PAGE>
Sales and Marketing Expenses. Sales and marketing expenses increased to $0.3
million for the year ended December 31, 1997 from $0.2 million for the year
ended December 31, 1996. This increase was primarily due to the hiring of
additional sales and marketing personnel during the year ended December 31,
1997.
General and Administrative Expenses. General and administrative expenses
increased to $0.5 million for the year ended December 31, 1997 from $0.3
million for the year ended December 31, 1996. This increase resulted primarily
from the hiring of additional general and administrative staff to manage and
maintain supplier information on the Web site.
Interest Income (Expense)
Net interest expense increased to net interest expense of $32,000 for the
year ended December 31, 1997 from net interest expense of $9,000 for the year
ended December 31, 1996. We obtained additional financing between the years
ended December 31, 1997 and December 31, 1996, and as a result we incurred
additional interest and expenses.
Liquidity and Capital Resources
We have primarily funded our operations through private placements of our
preferred stock. As of June 30, 1999, we had cash and cash equivalents of $10.5
million, short term investments of $15.7 million and long term investments of
$10.2 million.
Cash used in operating activities during the six months ended June 30, 1999
was $6.2 million and during the years ended December 31, 1998, 1997 and 1996
was $3.1 million, $0.4 million and $0.3 million, respectively. Cash used in
operating activities was principally for the development of our Web sites, the
development of our e-commerce marketplace, the expansion of our sales and
marketing force and the expansion of the administrative and operations staff to
support our growth.
Cash used in investing activities during the six months ended June 30, 1999
was $24.8 million and during the years ended December 31, 1998, 1997 and 1996
was $2.2 million, zero and $27,000, respectively. Cash used in investing
activities has primarily been comprised of purchases of investments in US
government obligations and corporate bonds.
Cash provided by financing activities during the six months ended June 30,
1999 was $36.2 million and during the years ended December 31, 1998, 1997 and
1996 was $10.4 million, $0.7 million and $0.3 million, respectively. Between
March and September 1997, we received an aggregate of $80,000 in the form of
bridge loans. These bridge loans were converted into 90,702 shares of series A
convertible preferred stock in October 1997. In October 1997, we raised an
aggregate of $617,450 through the issuance of 678,519 shares of our series A
convertible preferred stock at a price of $0.91 per share. Between March and
June 1998, we received $515,000 in the form of bridge loans. These bridge loans
were converted into 187,394 shares of series B mandatory redeemable convertible
preferred stock in July 1998. Between July and November 1998, we raised an
aggregate of $10,038,979 through the issuance of 3,590,232 shares of our series
B mandatorily redeemable convertible preferred stock at a price of $2.80 per
share. Purchasers of the series B mandatorily redeemable convertible preferred
stock whose shares were issued pursuant to the conversion of bridge loans also
received 57,545 warrants to purchase series B mandatorily redeemable
convertible preferred stock at an exercise price of $2.80. In May and June
1999, we raised an aggregate of $37,506,616 through the issuance of 3,312,720
shares of our series D mandatorily redeemable convertible preferred stock at a
price of $11.32 per share. Purchasers of the series D mandatorily redeemable
convertible preferred stock also received 662,535 warrants to purchase our
common stock at an exercise price of $11.32 per share. In March 1999, we sold
89,408 shares of series C convertible preferred stock to an executive officer
for $250,000, or $2.80 per share.
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We believe that our existing liquidity and capital resources, including the
proceeds resulting from the sale of our common stock in this offering, will be
sufficient to satisfy our cash requirements for the next twenty-four months. To
the extent that such amounts are insufficient, we will be required to raise
additional funds through equity or debt financing. There can be no assurance
that we will be able to raise such funds on favorable terms, or at all.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes a number
of existing standards. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133, as
amended, is not expected to have a material impact on our consolidated
financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statements of
Position No. 98-1, "Software for Internal Use" (SOP No. 98-1), which requires
software developed or obtained for internal use to be capitalized and
amortized. SOP No. 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998. Our adoption of SOP No. 98-1 on January 1,
1999 had no impact on our consolidated financial position or results of
operations.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP No. 98-5), which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires companies to expense as incurred all pre-
opening, startup and organizational costs that are not capitalizable as long-
lived assets. Our adoption of SOP 98-5 on January 1, 1999 had no impact on our
consolidated financial position or results of operations.
Year 2000
Impact of Year 2000 Computer Issues
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This
situation could result in system failures or miscalculations causing
disruptions in the operations of any business. As a result, many companies'
software and computer systems may need to be upgraded or replaced to comply
with year 2000 requirements. Our ability to operate is dependent upon delivery
of accurate, electronic information via the Internet. To the extent year 2000
issues result in the long-term inoperability of the Internet or our Web sites,
our business could be materially and adversely affected.
We completed an assessment of our information technology systems for year
2000 problems in June 1999. We have not replaced any of our systems based on
the results of our assessment. However, we have made modifications to some
systems based on our assessment, at a cost to us of approximately $175,000.
Testing of Our Online Marketplace Application Software
We have internally reviewed our application software. We have performed
industry-standard procedures to test our internally developed applications for
year 2000 compliance. Based on our testing, we believe that our internally
developed applications and systems are designed to be year 2000 compliant.
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Assessment of Third-Party Equipment and Software
We utilize third-party equipment and software that may not be year 2000
compliant. Failure of third-party equipment or software, or the interface of
our applications with this equipment or software, could cause our applications
to malfunction and have a material adverse effect on our earnings. We are
continuing our assessment of the year 2000 risks of our third-party desktop
systems. We have contacted the vendors of most of our third-party software and
equipment to assess the year 2000 risks of our third-party systems. We have
received year 2000 compliance letters from 100% of these vendors. We are also
in the process of contacting the few remaining vendors with whom we have not
yet contacted in order to assess their year 2000 compliance. Based on these
vendors' representations, we believe that there are a number of third-party
hardware and software systems, some of which are material to our operations,
that require some upgrade in order to be year 2000 compliant. The failure of
these vendors to address their year 2000 issues may require us to seek
alternative vendors or, if possible, to develop our own solutions. The time and
resources required to find alternative vendors and to transition our systems
could increase our costs of doing business, require us to allocate our own
resources away from our core business, and delay development of our own
technology and operations. We plan to complete our assessment of the risk posed
by these third-party systems to our operations by the end of 1999. This process
has resulted in an insignificant amount of costs to us through June 30, 1999.
We expect any remaining costs to also be insignificant.
Interaction of Our Marketplace with Supplier and Customer Systems
Furthermore, the success of our efforts may depend on the success of our
suppliers, customers and strategic partners in dealing with their year 2000
issues. Many of these organizations' systems may not yet be year 2000
compliant, and the impact of failure of these systems on our marketplace is
difficult to determine. The availability of products from our suppliers and the
purchasing patterns of our customers or potential customers may be affected by
year 2000 issues.
Our Contingency Planning Effort
We are engaged in an ongoing year 2000 assessment and are gathering
information for the development of contingency plans. We are in the process of
contacting our strategic partners, major customers and critical suppliers to
gauge their year 2000 compliance and are requesting year 2000 compliance
information and letters. We expect to receive responses from all our critical
suppliers, strategic partners and major customers by the end of September 1999.
The nature and extent of our contingency plans will depend on the responses
received from our critical suppliers, strategic partners and major customers.
Reasonably Likely Worst Case Scenario
The failure of our internal systems or of the products or systems including
hardware and software of third parties upon which we rely could result in:
. our inability to effective manage sales leads, which in turn could result
in fewer sales and lower revenue;
. the failure of our systems to function properly, which in turn could
result in our incurring significant costs and diverting significant human
resources in our efforts to comply with obligations under warranty and/or
service agreements;
. our inability to properly process orders from our customers; and
. our inability to properly invoice and process payments from our customers
and errors or omissions in accounting and financial data.
The occurrence of any of these events could have a material adverse effect
on our business.
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Quantitative and Qualitative Disclosures About Market Risk
Most of our cash equivalents, short-term and long-term investments and
capital lease obligations are at fixed interest rates, therefore the fair value
of these investments is affected by changes in market interest rates. However,
because our investment portfolio is primarily comprised of investments in U.S.
Government obligations and high grade commercial paper, an immediate 10% change
in market interest rates would not have a material effect on the fair market
value of our portfolio. Therefore, we would not expect our operating results or
cash flows to be affected to any significant degree by the effect of a sudden
change in market interest rates on our investment portfolio.
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BUSINESS
Overview
SciQuest.com is a leading Web-based, interactive marketplace for scientific
and laboratory products used by pharmaceutical, clinical, biotechnology,
chemical, industrial and educational organizations worldwide. Our marketplace
solutions utilize enabling Internet technologies and leverage our extensive
industry expertise to streamline the traditionally inefficient scientific
products supply chain. Our distributor-neutral approach allows us to create an
open and scalable marketplace that we believe is more attractive to both buyers
and sellers.
Our marketplace benefits three distinct customers: scientists, purchasing
professionals and suppliers. Our solutions reduce the time scientists require
to find, compare, purchase, track and manage critical laboratory items, thus
allowing them to spend more time on research and testing. Our solutions allow
purchasing professionals to reduce procurement costs by automating order
processing, consolidating purchase orders and payments, reducing errors and
providing more control and information to support enterprise purchasing
policies. Our solutions serve as a more efficient sales channel that enables
suppliers to expand their market reach and reduce customer acquisition and
order processing costs.
Since our founding in 1995, we have expended significant resources to
develop our brand and assemble the most comprehensive online database of over
8,000 suppliers. Our easy-to-use, interactive database currently consists of
over 550,000 scientific products. Since July 1996, tens of thousands of
scientists and purchasing professionals from over 60 countries have used this
database to locate supplies and products. In April 1999, we introduced our e-
commerce marketplace solution to this growing community of online scientific
product buyers and suppliers. We intend to capitalize on this existing user
base to accelerate the utilization of our marketplace.
The illustration below summarizes the procurement process through our online
marketplace:
[Graphic representation of a SciQuest.com procurement process.]
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Industry Background
The Scientific Products Market
Based upon data from the Laboratory Products Association and Strategic
Directions International, we estimate that the market for scientific products
in 1998 was approximately $11.8 billion in North America and $36.4 billion
worldwide. These expenditures are driven, to a large extent, by increases in
scientific research and development investments, which are expected to continue
to grow. Every year, 100,000 North American laboratories purchase scientific
products from thousands of different suppliers to facilitate research and
testing activities. As the demand for scientific products grows, the need for
efficient procurement processes becomes more critical.
The current scientific products market is characterized by:
. complex, information-intensive products;
. a highly fragmented supply chain; and
. a heavy concentration of manual purchasing processes consisting of
printed catalogs, paper requisitions and telephone and fax orders.
There are, generally, three types of scientific products: (1) highly
technical specialty items used for specific research and testing applications,
(2) commodity products that are used in a broad range of scientific
applications, and (3) highly technical instruments and other capital equipment.
Suppliers typically sell specialty scientific products and instruments directly
to customers, whereas commodity products are typically sold through
distributors.
Limitations of the Traditional Supply Chain
The traditional supply chain in the scientific products industry does not
adequately address the needs of scientists, purchasing professionals or
suppliers. According to Industrial Performance Group, Inc., 41% of scientific
buyers indicated that the traditional supply chain does not effectively meet
their procurement needs.
Scientists. Because scientists are continually developing applications and
testing new theories, they are typically unable to forecast many of the
chemicals, supplies and equipment that they will need to conduct their research
and testing. For this reason scientists often:
. have immediate needs for critical items that are highly technical and
have exacting criteria;
. need new products that they have not purchased before; and
. must purchase these items from new and different suppliers.
As a result, it is difficult and time-consuming for scientists to identify,
compare and purchase the scientific products required to meet their needs using
the traditional approach. In fact, we estimate that a typical laboratory spends
up to four hours weekly searching through paper catalogs and product literature
and requesting technical data from various suppliers.
Purchasing Professionals. The product ordering process traditionally has
been a paper-based process that requires manual preparation of purchase orders
and order tracking. Traditionally, scientists requisition supplies through
purchasing professionals within their organizations who place orders with
multiple suppliers by telephone, fax and e-mail. This multi-step manual process
is highly susceptible to errors. Additionally, the traditional process makes it
difficult for purchasing professionals to enforce purchasing policies among
scientists who specify and request products. As a result, each requisition
typically generates $130 in transaction costs for the buying organization,
according to the based on data from Emmes Group Inc. as compared to an average
transaction size in this industry of approximately $500.
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Suppliers. Traditionally, suppliers have used two sales channels:
traditional distributors and direct sales. While traditional distributors can
give a supplier access to a broad market, distributors separate suppliers from
the ultimate customer and may lack the ability to provide the technical
assistance required to sell specialty scientific products and instruments. As a
result, traditional distributors normally focus on selling commodity products.
Conversely, direct sales provide suppliers with greater control and contact
with their customers, enabling them to provide the technical assistance
necessary for the sale of specialty scientific products. However, direct sales
are often expensive and inefficient. Many suppliers have Web sites that are
essentially online versions of their catalogs, but these sites do not address
the primary cause of inefficiency for buyers --the inability to find products
and consolidate orders from different suppliers quickly and easily through a
single service.
The Online Market Opportunity
Business-to business e-commerce is expected to be the fastest growing
segment of the e-commerce market. According to Forrester Research, business-to-
business e-commerce is expected to grow from $44 billion in 1998 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 limitations of the traditional scientific products supply chain and the
significant information needs of scientists make the scientific products market
well-suited to an automated e-commerce solution. Moreover, the scientific
community is already accustomed to using the Internet. According to a recent
study by BioInformatics, Inc., 89% of scientists surveyed have interacted with
suppliers through the Internet and approximately 38% of them have purchased
scientific products over the Internet. The following percentage of scientists
responding to the study rated e-commerce superior to traditional purchasing in
each of the following areas:
.82% rated e-commerce superior in reducing administrative costs;
.73% rated e-commerce superior in speed of delivery to end users; and
.70% rated e-commerce superior in fast, accurate ordering.
For these reasons, we believe that the scientific products market will be an
early adopter of e-commerce solutions and that we are well positioned to take
advantage of this market opportunity.
The SciQuest.com Marketplace Solution
The SciQuest.com marketplace solution provides comprehensive public Web
sites and customized private sites that address the current limitations of the
scientific products supply chain by streamlining the process of buying and
selling of scientific products and reducing associated transaction costs. Our
distributor-neutral approach allows us to create an open and scalable
marketplace that we believe is more attractive to both buyers and sellers.
Our solutions serve three primary and distinct customers:
Scientists. Our solutions offer scientists online tools to streamline the
process of finding, comparing, purchasing, tracking and managing laboratory
supplies. By reducing the time scientists spend on these functions, our
solutions allow them to be more productive and spend more time on research and
testing. Our solutions enable a scientist to:
. search our extensive database, using our industry-leading taxonomies, to
compare products, attributes and technical data across multiple
suppliers;
. locate a specific chemical, equipment or supply item; and
. consolidate, purchase and track orders from multiple suppliers through
the convenience of a single Web site, 24 hours a day, seven days a week.
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Purchasing Professionals. Our solutions allow purchasing professionals to
automate order processing, consolidate purchase orders and payments and obtain
purchasing information. This provides purchasing professionals with greater
access to purchasing information to better monitor and control purchasing
patterns and to implement and enforce uniform purchasing policies that reduce
procurement costs. Our solutions enable purchasing professionals to:
. consolidate purchases from multiple suppliers onto one order;
. streamline the purchasing process and reduce the likelihood of errors;
. communicate and control purchasing policies and rules; and
. access detailed purchasing information and reports.
In addition, our solutions are designed to be compatible with leading
enterprise software systems and do not require organizations to install
additional enterprise software systems. This compatibility allows organizations
to avoid the expense, time and training typically required to install and
support new enterprise software.
Suppliers. Our solutions offer suppliers a more efficient sales channel that
cost-effectively provides many of the benefits of direct sales and
distribution. As a result, by participating in our marketplace suppliers can
expand their market reach and reduce customer acquisition and order processing
costs. Our solutions enable suppliers to:
. more cost-effectively market and sell products through access to our
global audience of scientists and purchasing professionals;
. access valuable market and customer data;
. leverage our e-commerce functionality without capital investment;
. easily update product information;
. introduce new products to qualified buyers quickly and economically; and
. maintain contact with their customers.
Strategy
Our objective is to be the leading global solution for buying and selling
scientific products. We intend to achieve this objective through the following
strategies:
Leverage and Build Brand Equity. We have invested significant resources over
the past four years to establish a strong brand identity. Our brand recognition
has enabled us to attract a growing user base of qualified scientific buyers
and participating suppliers. We intend to continue to invest heavily in
building the SciQuest.com brand by accelerating our marketing, sales,
advertising and public relations efforts.
Enhance Customer Loyalty to Increase Repeat Purchases. We intend to continue
to emphasize a high level of customer service in order to enhance customer
loyalty and facilitate repeat purchases by our customers. In addition, we will
continue to provide our customers with a comprehensive portfolio of solutions
that delivers a compelling user experience and an efficient fulfillment
process.
Maintain Distributor Neutrality. We intend to maintain our distributor
neutral position to better serve our users and maximize our market opportunity.
We believe that our distributor neutral approach has and will continue to allow
us to provide our users access to broad and unbiased product information. We
believe that this will maximize the attractiveness of our marketplace to all
customer and supplier segments.
Maximize Enterprise Software Compatibility. We will continue to concentrate
our efforts on integrating our marketplace solution with the leading enterprise
software vendors. This integration will allow us to accelerate buyer adoption
of our services, offer suppliers a broader sales channel and maximize our
market opportunity. In addition, our platform independence will allow us to
concentrate our technology spending on our core procurement solutions rather
than diverting our resources to create redundant and potentially competitive
enterprise software functionality.
Expand Our Product and Service Offerings. We intend to advance our market
leadership by continuing to expand the selection of scientific products offered
on our Web sites, which will allow us to attract additional
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purchasing professionals and accelerate adoption by scientists. We are also
committed to growing our portfolio of services to provide the most efficient
and comprehensive buying and selling experience for the scientific community.
We intend to develop additional services and functionality internally as well
as explore acquisitions of complementary service offerings.
Expand Internationally. We believe that the global reach of the Internet and
worldwide demand for scientific products presents a significant opportunity for
us to expand internationally. Our Web sites have to date been accessed by
buyers located in over 60 countries. As we continue to expand our product
offerings, we believe that we will attract a larger base of users globally. We
intend to invest resources and capital to expand our sales and marketing
efforts internationally in order to better address the needs of our customers
worldwide.
Products and Services
SciQuest.com is a Web-based marketplace that serves the needs of scientists
and purchasing professionals by providing an easy to use comprehensive
portfolio of solutions. Leveraging our existing customer base and extensive
industry knowledge, we have built a market-driven portfolio of services. In
addition to our primary offering, an e-commerce marketplace for public and
private buyers, we offer customers extensive online products and services,
including a comprehensive sourcing guide, used equipment auctions, discounted
products and other resources. In addition to these Web-based services, we
publish and distribute a printed Source Book. Our services enable buyers and
suppliers to efficiently gather and update product information, conduct
transactions and facilitate post-order activities. We believe this
comprehensive service offering provides our customers with a unique online
marketplace for scientific products. Set forth below is a detailed description
of our products and services.
SciQuest.com Marketplace Solutions
A primary component of the SciQuest.com marketplace solution is our
electronic purchasing service that allows users to buy over 300,000 chemicals,
supplies, lab equipment and other scientific products from our growing database
of over 235 suppliers. Buyers are able to search our proprietary life science
taxonomy developed by Cold Spring Harbor Laboratory and our analytical and
basic laboratory supply taxonomy developed by Cahners Business Information.
Buyers can also search across multiple suppliers' products simultaneously,
compare product attributes, order products from multiple suppliers on one
consolidated order form, track order status, receive one invoice and have a
single point of contact for customer service. Buyers can also track order
history and create a customized list of frequently purchased products for easy
repurchase.
Once a buyer submits an order to us, our customer care professionals oversee
the order fulfillment process. We purchase the items from suppliers at either a
pre-negotiated price or at a discount from the suppliers' list price and
arrange for shipment from the suppliers directly to the purchaser. We do not
physically take possession of the products. After the suppliers ship the items,
we present to the buyer a consolidated invoice for the products purchased.
Buyers then pay us by credit card/procurement card or through a more
traditional account setup and payment system.
For customers requiring specific customization, such as pre-negotiated
pricing discounts from preferred suppliers or more advanced integration with
enterprise systems, we offer customized versions of our marketplace that allow
scientists in leading pharmaceutical, clinical, biotechnology, chemical,
industrial and educational organizations to access enterprise-specific pricing
while also facilitating internal approval, workflow routing and financial
system integration.
Sourcing Guide
In addition to our e-commerce offerings, our proprietary, online Sourcing
Guide provides a broad database of product information from more than 8,000
suppliers and service providers. Given the large number of
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industry suppliers and fragmented nature of the scientific products market,
having a comprehensive database of suppliers and products is an important
value-added service for our customers. If a potential buyer is unable to
purchase the desired products through our e-commerce solutions, our Sourcing
Guide provides a means of identifying an alternative source for that product.
We believe this unique service engenders loyalty, repeat usage and customer
satisfaction relative to competitive offerings.
SciQuest.com Auctions
Our Web-based Auctions service enables customers to buy and sell used and
refurbished capital equipment and instrumentation through online auctions.
Auctions allows suppliers and laboratories to easily sell used equipment while
maximizing its value through the auction process. Auctions provides buyers an
economically attractive alternative to buying new products.
SciQuest.com LabDeals
Our Web-based LabDeals service is devoted to the sale of surplus scientific
products at discount prices. LabDeals provides suppliers with an additional
sales outlet for slow moving, obsolete or excess inventory. LabDeals provides
buyers access to an inventory of surplus scientific products at prices
discounted below manufacturers' suggested list price.
SciQuest.com Resources
Our Resources area offers a broad range of information and reference
materials for laboratory scientists. For instance, molecular biologists can
access our proprietary BioToolKit, one of the most comprehensive annotated
listings of databases related to molecular biology research currently available
on the Web. Our Ask Joe service helps customers locate hard-to-find items by
putting them in touch with our staff scientists. Our SciMail allows buyers to
simultaneously broadcast requests for technical data, product information and
price quotations to multiple suppliers. We intend to further expand our
Resources area to offer a broader array of information and reference materials
for laboratory scientists.
Source Book
In addition to our web-based products and services, we also offer the Source
Book, the dominant print product directory for life scientists. The Source Book
utilizes the product taxonomy developed by Cold Spring Harbor Laboratory and
contains product listings from more than 1,400 suppliers. In 1999, we expect
80,000 copies of the Source Book to be distributed to scientists in
pharmaceutical, clinical, biotechnology, chemical, industrial and educational
organizations. Its corresponding Web site, www.biosupplynet.com, which went
online in 1995, was the first Web-based product directory for the biomedical
research community. The Source Book helps accelerate buyer adoption of our web-
based purchasing solutions.
Sales & Marketing
We market and sell our portfolio of solutions through direct sales,
traditional and Internet marketing initiatives and co-marketing relationships.
Our primary audiences in the pharmaceutical, clinical, biotechnology, chemical,
industrial and educational markets are laboratory scientists, who drive the
decision-making process, and purchasing professionals, who drive the
procurement process.
Our experienced sales force concentrates on selling our enterprise
compatible solutions to larger purchasing organizations. We also sell our
purchasing solutions to medium-sized and smaller buyers. In addition, our sales
team assists suppliers in offering their products through our e-commerce
solutions. Our sales professionals average over 17 years of scientific products
industry experience. By leveraging their experience, we expect to continue to
attract and retain scientists, purchasing professionals and suppliers, thereby
growing our installed customer base and increasing repeat purchases.
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We leverage a variety of marketing channels to build our brand equity as
well as promote our solutions to both buyers and suppliers. These channels
include direct marketing, print and online advertising, trade shows and
seminars. We intend to use public relations group to communicate new product
and service offerings and other enhancements to industry analysts and targeted
scientific and business press on a regular basis through a combination of press
releases, phone briefings, in-person meetings and trade show appointments.
As of August 31, 1999, we had 46 people in our sales and marketing group.
Co-Marketing Relationships
We have co-marketing relationships with several leading Web based scientific
communities, such as BioMedNet and ChemWeb. These relationships give us access
to the over 550,000 online members of these communities. We have created a co-
branded version of the SciQuest.com marketplace for each of these communities.
We also have a marketing arrangement with Cold Spring Harbor Laboratory that
gives us access to its global audience of laboratory manual buyers. The Cold
Spring Harbor Laboratory Press publishes the leading laboratory techniques
manuals in the life science community. The Source Book is referenced in the
manuals as being the source to turn to when one needs to find suppliers for
needed products. In addition, the Source Book is distributed with every
laboratory manual sold in the United States and at all of the Cold Spring
Harbor Laboratory scientific meetings and courses throughout the year.
We also have a relationship with Cahners Business Information, a division of
Reed Elsevier Inc., the largest business-to-business publisher in the United
States. Through this relationship, scientists on our Web sites will have access
to a wider selection of new product announcement information through a variety
of Cahners' Web sites. In turn, Cahners' scientific Web sites will link to our
Web sites. This relationship also gives SciQuest.com customers access to
Cahners' analytical and basic laboratory supply taxonomy. In addition, Cahners
will be the exclusive sales representative for online advertising on our Web
sites.
Technology
We have integrated a broad array of specialized site management, search and
buyer interaction technologies, content management applications and transaction
processes and fulfillment services. We are using our own proprietary programs
and, where appropriate, commercially available, licensed technologies.
We have developed our e-commerce solutions utilizing development
methodologies and tools that enable rapid development and deployment of
customized versions of our public marketplace. We believe this will allow us to
quickly deliver customer specific solutions while minimizing development time
and costs. Our database is designed to be scalable to accommodate the expected
growth in the number of products offered. We also convert and maintain the
product data provided by suppliers for inclusion in our database.
We own all of our front-office and back-office production servers and Web
site hardware. Our Web sites run off multiple redundant product application
servers. Our production servers are located at a third party network operating
center located in Durham, North Carolina, which provides 24-hour systems
support, as well as connectivity to all major Internet bandwidth via redundant
high speed DS-3 connections. The server and network architecture is designed to
provide high speed and reliability for the operation of our Web sites and all
our communications.
As of August 31, 1999, we had 52 people in our product development and data
management groups. Product development expenses were $85,000 in 1996, $140,000
in 1997, $1.2 million in 1998 and $3.2 million through June 1999. We intend to
continue to invest significantly in enhancing our technology.
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Intellectual Property
We rely on a combination of trade secret, copyright and trademark laws,
license agreements, nondisclosure and other contractual provisions and
technical measures to protect our proprietary rights in our products,
technology and processes. Our software technology is not patented and existing
copyright laws offer only limited practical protection. We cannot guarantee
that the legal protections on which we rely will be adequate to prevent
misappropriation of our technology. Moreover, these protections do not prevent
independent third-party development of competitive products or services. We
believe our products, trademarks and other proprietary rights do not infringe
upon the proprietary rights of third parties. However, we cannot guarantee that
third parties will not assert infringement claims against us in the future or
that any such assertion will not require us to enter into a license agreement
or royalty agreement with the party asserting a claim. Even the successful
defense of an infringement claim could result in substantial costs and
diversion of our management's efforts.
We also license, and will continue to license, certain content for our
online services from third parties. Additionally, we intend to license a
significant portion of our transaction fulfillment system from third parties.
These third-party content licenses may not be available to us on favorable
terms in the future. In addition, we must be able to successfully integrate
this content in a timely and cost-effective manner to create an effective
finished product. If we fail to obtain necessary content on favorable terms,
are unable to successfully integrate this content or if we are unable to
continue to license our order fulfillment transaction systems on favorable
terms, it could have a material adverse effect on our business operations.
Competition
The online scientific products market is new, rapidly evolving and intensely
competitive. Our primary competition includes the following:
E-Commerce Providers. A number of e-commerce providers have established
online marketplaces and are attempting to build an online e-commerce brand in
the scientific products market. These competitors include companies such as
Chemdex Corporation.
Online Scientific Communities. There are a number of Web sites that have
created e-communities to serve the information needs of the scientists.
Traditionally, these communities have provided a means of retrieving scientific
information as well as providing discussion groups, bulletin boards and
directories. Increasingly, these communities include an e-commerce function
that may compete with our product offerings. These communities are operated by
companies such as VerticalNet.
Suppliers' E-Commerce Initiatives. Many suppliers have developed their own
e-commerce enabled Web sites. As the online market for scientific products and
services grows, we expect that these and other scientific suppliers will
further develop their own online services.
We believe that companies in this market compete based on:
. brand recognition;
. number and quality of product offerings;
. price;
. ease of use; and
. customer service and fulfillment capabilities.
Competition is likely to intensify as this market matures. As competitive
conditions intensify, competitors may:
. enter into strategic or commercial relationships with larger, more
established and well-financed companies;
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. secure services and products from suppliers on more favorable terms;
. devote greater resources to marketing and promotional campaigns;
. secure exclusive arrangements with buyers that impede our sales; and
. devote substantially more resources to Web site and systems development.
Our current and potential competitors' Web sites may achieve greater market
acceptance than ours. Many of our existing and potential competitors, including
large traditional distributors, have longer operating histories in the
scientific products market, greater name recognition, larger customer bases and
greater financial, technical and market resources than we do.
In addition, new technologies and the expansion of existing technologies may
increase competitive pressures. As a result of increased competition, we may
experience reduced operating margins, as well as loss of market share and brand
recognition. We cannot be certain that we will be able to compete successfully
against current and future competitors and competition could have a material
adverse effect on our revenue growth and earnings.
Government Regulations
We are subject to various laws and regulations relating to our business,
which include numerous laws and regulations generally applicable to the
chemical, pharmaceutical, controlled substances, human and biological reagents,
and nuclear chemical businesses, and environmental spills. Although we take
legal title to the products offered through our marketplace, we do not take
physical possession of a shipment during any part of the transaction. Legal
title generally passes to the buyer at the time of product shipment. As a
result, we have historically relied, and will in the future rely, upon our
suppliers to meet all packaging, distribution, labeling, hazard and healthy
information notices to purchasers, record keeping and licensing requirements
applicable to transactions conducted through our system. In addition, we rely
upon our carriers to comply with regulations regarding the shipment of
hazardous materials sold through our system. At times, we may be unable to
verify the accuracy of our suppliers' regulatory staff determinations and
regulatory compliance. We could be fined or exposed to civil or criminal
liability, including monetary fines and injunctions, if the applicable
governmental regulatory requirements are not fully met by our suppliers,
carriers or by us directly.
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted or interpreted in the
United States and abroad with particular applicability to the Internet. It is
also possible that new laws and regulations may be adopted or interpreted by
the United States and foreign governments, to address the sale and distribution
of scientific research products utilizing the Internet. In addition, it is
possible that governments may enact legislation that may be applicable to us in
areas such as content, product distribution, network security, encryption and
the use of key escrow, data and privacy protection, electronic authentication
or "digital" signatures, illegal and harmful content, access charges and re-
transmission activities. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, content, taxation,
defamation, personal privacy, product liability and environmental protection,
as well as the necessity for governmental permits, labeling, certifications and
the need to supply information to relevant parties, is uncertain. Most of these
laws were adopted before the widespread use and commercialization of the
Internet and, as a result, do not contemplate or address the unique issues of
the Internet and related technologies. Any export or import restrictions, new
legislation or regulation or governmental enforcement of existing regulations
may limit the growth of the Internet, increase our cost of doing business or
increase our legal exposure. Any of these factors could have a negative effect
on our business, revenues, results of operations and financial condition.
We collect sales taxes in the jurisdictions where we are required to do so.
Our failure to properly collect and pay such taxes in all of such jurisdictions
could subject us to penalties that could adversely affect our earnings. Even if
we do collect taxes properly for each of the jurisdictions required, the
collection and payment of such taxes causes us to incur significant
administrative effort and expense.
40
<PAGE>
Facilities
Our headquarters are located in Morrisville, North Carolina, where we
currently sublease approximately 24,000 square feet of office space. This lease
expires in February 2002. We are currently negotiating a five-year lease for an
additional 50,000 square feet of office space at our headquarters location. We
also sublease approximately 5,400 square feet of office space in Durham, North
Carolina through February 2000. We expect these facilities to be sufficient for
the foreseeable future.
We maintain an office in Plainview, New York, where our wholly-owned
subsidiary, BioSupplyNet, is located. This space is shared with Cold Spring
Harbor Laboratory Press and is rented on a month to month basis.
We have also entered into a sublease for approximately 2,300 square feet of
office space extending to December 31, 2002 for the offices of our subsidiary,
Internet Auctioneers International, Inc., located in Mountain View, California.
Employees
As of August 31, 1999, we had 139 full-time employees. None of our employees
are covered by a collective bargaining agreement. We consider our relations
with our employees to be good.
Legal Proceedings
We are not a party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers and their ages as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
M. Scott Andrews................. 34 President, Chief Executive Officer and
Director
Peyton C. Anderson............... 33 Vice President of Business Development and
Director
Lyle A. Brecht................... 52 Chief Business Development Officer
Antony Francis................... 49 Vice President of Operations
Robert M. Fusillo................ 32 Chief Information Officer
Cecil Kost....................... 46 Executive Vice President
James J. Scheuer................. 52 Chief Financial Officer
Bruce J. Boehm................... 45 Director
Noel J. Fenton................... 61 Director
Gautam A. Prakash................ 30 Director
Alan J. Taetle................... 36 Director
Timothy T. Weglicki.............. 48 Director
</TABLE>
M. Scott Andrews co-founded SciQuest.com in November 1995 and serves as our
President and Chief Executive Officer and as a director. From October 1991 to
January 1996, Mr. Andrews was a sales professional for Baxter Healthcare
Corporation, a scientific products company, which was acquired by VWR
Scientific Products Corporation. From May 1987 to October 1991, Mr. Andrews
served in the U.S. Army as an aviation officer. Mr. Andrews received an M.B.A.
from the University of North Carolina at Chapel Hill and a B.S. in business
management from the United States Military Academy at West Point. Mr. Andrews
currently serves as a director of the North Carolina BioScience Fund.
Peyton C. Anderson co-founded SciQuest.com in November 1995 and serves as
our Vice President of Business Development and as a director. From August 1989
to January 1996, Mr. Anderson was a sales manager for Butler Manufacturing
Company, a metal buildings company. Mr. Anderson is a director of the Council
for Entrepreneurial Development, a mentoring organization for the North
Carolina entrepreneurial community. Mr. Anderson received an M.B.A. from the
University of North Carolina at Chapel Hill and a B.A. from the University of
Richmond, Phi Beta Kappa.
Lyle A. Brecht has served as Chief Business Development Officer since August
1999, Vice President of Data Services from December 1998 to August 1999 and
Executive Vice President from October 1998 to December 1998. From October 1996
to December 1998, Mr. Brecht served as President and Chief Operating Officer
and was co-founder of BioSupplyNet, Inc., a life science resource company that
was acquired by SciQuest.com in September 1998. From March 1996 to October
1996, Mr. Brecht served as a consultant for Harris & Harris Group, PC, business
development investment firm. From October 1994 to January 1995, Mr. Brecht
served as President of Applied Research and Technology, Inc., an Internet
commerce company. From July 1991 to December 1994, Mr. Brecht served as
President of Blue Heron Group, Inc., a publishing and data analysis company.
Mr. Brecht received an M.B.A. from Harvard University, and an M.S. in applied
ecology and a B.A. in psychology and mathematics from the University of
Minnesota.
Antony Francis has served as our Vice President of Operations since February
1999. From June 1994 to January 1999, Mr. Francis served as Vice
President/General Manager of the Logistics, E-commerce and Customer Services
Division for the Federal Express Corporation at the European, Middle Eastern
and African headquarters. While at Federal Express, Mr. Francis also worked as
managing director of Financial Controls and Reporting and as managing director
and regional controller for the European headquarters from September, 1988 to
June, 1994. Mr. Francis also served as Finance and Administration Director for
subsidiaries of the Guinness Group and Elf Aquitaine from 1979 to 1988, after
ten years with Ernst & Young. Mr. Francis is a chartered public accountant
(England and Wales certified) and a Fellow of the Institute of Transport &
Logistics (UK).
42
<PAGE>
Robert M. Fusillo has served as our Chief Information Officer since November
1998. From September 1990 to October 1998, Mr. Fusillo served as Director of
Applications Development in the Information Systems Division of Wal-Mart
Stores, Inc. Prior to his employment with Wal-Mart, Mr. Fusillo was a senior
programmer for the Carrier Access Billing System at Nynex, a telecommunications
service company. Mr. Fusillo received a B.S. in computer science from State
University of New York at Buffalo.
Cecil Kost has served as our Executive Vice President since September 1999.
From March 1996 to December 1998, Mr. Kost served as President and Chief
Operating Officer of Oncor, Inc., a biotechnology company. From June 1976 to
October 1995, Mr. Kost served as Senior Vice President of Curtin Matheson
Scientific, a distributor of scientific products where he was responsible for
their industrial, clinical and international business sectors and clinical
diagnostic manufacturing operations. Mr. Kost is a former Chairman of the
Laboratory Products Association, a trade association of businesses serving
industrial and research laboratories. Mr. Kost received a B.S. in biology from
Tulane University.
James J. Scheuer has served as our Chief Financial Officer since September
1998. From March 1996 to March 1998, Mr. Scheuer served as Chief Operating
Officer and later Chief Financial Officer for Boise Marketing Services, Inc., a
subsidiary of Boise Cascade Office Products Corporation, and its predecessor.
From December 1989 to March 1996, Mr. Scheuer served as Senior Vice President--
Group Executive/Chief Financial Officer of Hickory Farms, Inc., and the
President of Canadian Hickory Farms, Ltd. From 1970 to 1989, Mr. Scheuer was
employed by Deloitte Haskins & Sells and was the partner in charge of its
Jacksonville, Florida office from 1985 to 1989. Mr. Scheuer is a certified
public accountant and received his B.A. in business administration from the
University of Wisconsin--Oshkosh.
Bruce J. Boehm has served as a director of SciQuest.com since October 1997.
Mr. Boehm has been active as an originator of and investor in early stage
technology companies since 1992. Mr. Boehm holds M.B.A. and M.S. degrees from
Stanford University and a B.S. from the Massachusetts Institute of Technology.
Noel J. Fenton has served as a director of SciQuest.com since November 1998.
Mr. Fenton has been a Managing General Partner of Trinity Ventures since 1986.
From 1964 to 1986, he was a co-founder of three venture capital backed start-up
companies, for two of which, Acurex Corporation and Covalent Systems
Corporation, he served as CEO. Mr. Fenton received an M.B.A. from Stanford
University and a B.S. from Cornell University.
Gautam A. Prakash has served as a director of SciQuest.com since October
1998. Mr. Prakash is a partner with Bessemer Venture Partners, which he joined
in 1993. He is a director of a number of privately held electronic commerce and
healthcare companies. Prior to joining Bessemer, Mr. Prakash worked for
McKinsey & Co. Mr. Prakash graduated from Yale University with a B.S. in
molecular biophysics and biochemistry and a B.A. in economics.
Alan J. Taetle has served as a director of SciQuest.com since August 1998.
Mr. Taetle has been a General Partner with Noro-Moseley Partners, a venture
capital firm, since May 1998. From March 1995 to April 1998, Mr. Taetle was
Executive Vice President of Marketing and Business Development for MindSpring
Enterprises, an Internet service provider. From November 1992 to March 1995,
Mr. Taetle served as Director of Operations and Product Management at CogniTech
Corporation, a developer of retail management software. Mr. Taetle received an
M.B.A. from Harvard Business School and a B.A. in Economics from the University
of Michigan.
Timothy T. Weglicki has served as a director of SciQuest.com since May 1999.
Since December 1993, he has been principally employed as a Managing Member of
ABS Partners, L.P., the General Partner of ABS Capital Partners, L.P., a
private equity fund. Prior to that date, he was principally employed as a
Managing Director of Alex. Brown & Sons Incorporated where he established and
headed its Capital Markets Group. Mr. Weglicki holds an M.B.A. from the Wharton
Graduate School of Business and a B.A. from Johns Hopkins
43
<PAGE>
University. Mr. Weglicki is a director of ElderTrust, a healthcare real estate
investment trust, and a number of privately held healthcare companies.
There are no family relationships between any of our directors or executive
officers.
Terms of Directors
Concurrently with the effective date of this offering, the board of
directors will be divided into three classes, with members serving for
staggered three-year terms. The board will be comprised of three Class I
directors (Messrs. Boehm, Prakash and Taetle), two Class II directors (Messrs.
Fenton and Weglicki) and two Class III directors (Messrs. Anderson and
Andrews). At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The terms of the initial Class I directors, Class II
directors and Class III directors will expire upon the election and
qualification of successor directors at the 2000, 2001 and 2002 annual meetings
of stockholders, respectively.
Committees of the Board of Directors
Messrs. Fenton and Weglicki are members of the Audit Committee. The Audit
Committee reviews the scope and timing of our audit services and any other
services our independent auditors are asked to perform, the auditor's report on
our financial statements following completion of their audit and their policies
and procedures with respect to internal accounting and financial controls. In
addition, the Audit Committee makes annual recommendations to the board of
directors for the appointment of independent auditors for the following year.
Messrs. Prakash, Taetle and Boehm are members of the Compensation Committee.
The Compensation Committee reviews and evaluates the compensation and benefits
of all our officers, reviews general policy matters relating to compensation
and employee benefits and makes recommendations concerning these matters to the
board of directors. The Compensation Committee also administers our stock
option plan.
Compensation of Directors
Our directors do not receive any compensation for services performed in
their capacity as directors. We reimburse each director for reasonable out-of-
pocket expenses incurred in attending meetings of the Board of Directors and
any of its committees.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or will be an executive officer
of SciQuest.com.
44
<PAGE>
Executive Compensation
The following table sets forth the total compensation paid by SciQuest.com
during the year ended December 31, 1998 to our Chief Executive Officer. No
executive officer was paid total annual salary and bonuses determined in excess
of $100,000 during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------- ------------
Number of
Securities
All Other Underlying
Name and Principal Position Salary Bonus Compensation Options
<S> <C> <C> <C> <C>
M. Scott Andrews....................... $68,288 -- -- --
President and Chief Executive Officer
</TABLE>
No options were granted to or exercised by Mr. Andrews during the fiscal
year ended December 31, 1998.
Stock Plans
SciQuest.com, Inc. Stock Option Plan. Our stock option plan became effective
in September 1997. The aggregate number of shares currently reserved for
issuance under the plan is 1,606,974 shares. The purpose of our plan is to
provide incentives for key employees, officers, consultants and directors to
promote our success and to enhance our ability to attract and retain the
services of such persons. Options granted under the stock option plan may be
either options intended to qualify as "incentive stock options" under Section
422 of the Internal Revenue Code or nonqualified stock options. The plan is
administered by the board of directors in conjunction with the Compensation
Committee.
The exercise price of options granted under the plan is determined by our
board of directors; however, the exercise price of incentive stock options
granted under the plan must be equal to at least the fair market value of our
common stock on the date of grant, or 110% of the fair market value if the
grant is made to a stockholder holding more than 10% of our common stock. Other
restrictions on the terms applicable to incentive stock options are imposed
under the plan to ensure compliance with the requirements for incentive stock
options under Section 422 of the Internal Revenue Code.
In the event an optionee ceases to be employed by us for any reason other
than death or disability, their outstanding options will terminate and cease to
be exercisable after three months following their cessation of employment. If
an optionee's employment terminates by reason of death or disability, the
optionee's outstanding options will terminate and cease to be exercisable after
twelve months following termination of the optionees' employment.
The plan permits common stock purchased upon the exercise of options to be
paid in cash or by check.
In the event that we merge with or consolidate into another corporation,
which results in our stockholders owning less than 50% of the voting power of
the voting securities of the surviving corporation, or we sell, lease or
otherwise dispose of all or substantially all of our assets, then any options
that would have become vested within the next twelve months become vested as of
a date prior to the merger, consolidation, sale, lease or other disposition of
assets. The board may also, in its discretion, provide that any other unvested
and unexercisable portion of an outstanding option shall become immediately
vested and exercisable. Any option that becomes vested and exercisable solely
because of this provision is conditioned upon the consummation of the
transaction that gave rise to the accelerated vesting. The board may, in its
discretion, terminate any unexercised options that become vested and
exercisable solely because of this provision.
45
<PAGE>
The board may terminate or amend the plan at any time. Our stockholders must
approve any increase in the total number of shares available under the plan. No
awards may be made under the plan after September 2007.
Subject to adjustment for stock splits, stock dividends, recapitalizations,
consolidations or other similar events, 1,606,974 shares are currently reserved
for issuance under the plan. As of August 31, 1999, we had outstanding 821,224
stock options under the plan, at a weighted average exercise price of $0.96 per
share, and 138,491 options have been exercised. As of August 31, 1999, 785,750
shares remained available for issuance under the plan.
401(k) Profit Sharing Plan. We maintain a 401(k) Profit Sharing Plan. In
general, all of our employees who have completed 30 days of service are
eligible to participate. Our 401(k) Plan includes a salary deferral arrangement
pursuant to which participants may contribute, subject to certain Code
limitations, a maximum of 15% of their salary or $10,000 on a pre-tax basis. We
currently do not match any portion of the employee's contribution. A separate
account is maintained for each participant in the 401(k) Plan. Distributions
from our 401(k) Plan may be made in the form of a lump-sum cash payment or in
installment payments.
Employment Agreements
Our principal employees, including executive officers, are required to sign
an agreement prohibiting their disclosure of any of our confidential or
proprietary information and restricting their ability to compete with us during
their employment and for a period of two years thereafter, restricting
solicitation of customers and employees following their employment with us and
providing for ownership and assignment of intellectual property rights to us.
Limitation of Liability and Indemnification of Officers and Directors
Our certificate of incorporation limits personal liability for breach of the
fiduciary duty of our directors to the fullest extent provided by the Delaware
General Corporation Law. Our certificate of incorporation provides that no
director of SciQuest.com shall have personal liability to us or to our
stockholders for monetary damages for breach of fiduciary duty of care or other
duty as a director. However, these provisions do not eliminate or limit the
liability of a director:
. for any breach of a director's duty of loyalty to us or our stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for voting or assenting to unlawful distributions; or
. for any transaction from which the director derived an improper personal
benefit.
Any amendment to or repeal of such provisions will not eliminate or reduce
the effect of such provisions in respect of any act or failure to act, or any
cause of action, suit or claim that would accrue or arise prior to any
amendment, repeal or adoption of such an inconsistent provision. If the
Delaware General Corporation Law is subsequently amended to provide for further
limitations on the personal liability of directors of corporations for breach
of duty of care or other duty as a director, then the personal liability of our
directors will be further limited to the greatest extent permitted by the
Delaware General Corporation Law.
46
<PAGE>
Our certificate of incorporation provides that we will indemnify our
directors and executive officers and may indemnify our other corporate 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 such capacity, regardless of whether the bylaws would
permit indemnification.
We have purchased a directors' and officers' liability insurance policy in
the amount of $5 million.
47
<PAGE>
RELATED PARTY TRANSACTIONS
Equity Transactions
In October 1997, as part of our sale of 711,486 shares of series A
convertible preferred stock at a price of $0.91 per share, we sold 109,890
shares to Bruce Boehm, one of our directors. Mr. Boehm acquired these shares on
the same terms as other purchasers in this transaction.
In July 1998, as part of our sale of 3,777,626 shares of series B
mandatorily redeemable convertible preferred stock at a price of $2.80 per
share and 57,545 warrants to acquire shares of our series B mandatorily
redeemable convertible preferred stock at an exercise price of $2.80 per share,
we sold 21,873 shares and 6,705 warrants to Bruce Boehm and 21,447 shares and
3,910 warrants to family members of Peyton Anderson, one of our officers and
directors. Mr. Boehm and Mr. Anderson's family members acquired these shares
and warrants on the same terms as other purchasers in this transaction.
On March 1, 1999, we sold 89,408 shares of our series C convertible
preferred stock, at a price of $2.80 per share to Antony Francis, our Vice
President of Operations. The shares vest over a two-year period. Mr. Francis
was granted registration rights with respect to these shares.
In May and June 1999, as part of our sale of 3,312,720 shares of our series
D mandatorily redeemable convertible preferred stock at a price of $11.32 per
share and 662,535 warrants to acquire our common stock at an exercise price of
$11.32 per share, we sold:
. 163,469 shares of series D mandatorily redeemable convertible preferred
stock and 32,693 warrants to affiliates of Gautam Prakash, one of our
directors;
. 111,561 shares of series D mandatorily redeemable convertible preferred
stock and 22,312 warrants to affiliates of Alan Taetle, one of our
directors;
. 151,638 shares of series D mandatorily redeemable convertible preferred
stock and 30,327 warrants to affiliates of Noel Fenton, one of our
directors;
. 15,085 shares of series D mandatorily redeemable convertible preferred
stock and 3,017 warrants to Dwight Sawin, who was then one of our
directors; and
. 7,371 shares of series D mandatorily redeemable convertible preferred
stock and 1,474 warrants to family members of Peyton Anderson, one of our
officers and directors.
These individuals acquired these shares and warrants on the same terms as
other purchasers in this transaction.
Other Transactions
On December 18, 1998, we entered into a Content Conversion Services
Agreement and a Product Information Title Distribution Agreement with Requisite
Technology, Inc. On August 9, 1999, we entered into a e-Content Management
Services Evaluation Agreement with Requisite Technology, Inc. Noel Fenton, one
of our directors, also serves as a director of Requisite Technology, Inc.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our capital stock as of August 31, 1999 and as adjusted to
reflect our sale of common stock in this offering by:
. all those known by us to be beneficial owners of more than five
percent of the outstanding shares of common stock;
. all executive officers;
. each of our directors; and
. all executive officers and directors as a group.
For purposes of calculating the percentage beneficially owned, the number
of shares of common stock deemed outstanding prior to this offering consists
of 11,275,708 shares outstanding as of August 31, 1999. The number of shares
of common stock deemed outstanding after this offering includes an additional
shares that are being offered for sale by us in this offering.
Options that are exercisable within sixty days are deemed to be outstanding
and to be beneficially owned by the stockholder holding the options for the
purpose of computing that stockholder's percentage ownership but are not
treated as outstanding for the purpose of computing the percentage ownership
of any other stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission that deem shares to
be beneficially owned by any person or group who has or shares voting or
investment power with respect to such shares. Unless otherwise indicated, the
persons named on this table have sole voting and investment control with
respect to all shares beneficially owned.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Owned After
Offering Offering
-------------------- --------------------
Name Shares Percent Shares Percent
<S> <C> <C> <C> <C>
Trinity Ventures VI, 1,397,228(2) 12.4% 1,397,228(2) %
L.P.(1).................
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Bessemer Venture Partners 1,090,234(4) 9.7% 1,090,234(4) %
IV L.P.(3)..............
1400 Old Country Road
Suite 407
Westbury, NY 11590
Noro-Moseley Partners IV, 1,027,946(6) 9.1% 1,027,946(6) %
L.P.(5).................
9 North Parkway Square
4200 Northside Parkway,
NW
Atlanta, GA 30327
ABS Capital Partners III, 795,053(7) 7.0% 795,053(7) %
L.P. ...................
1 South Street, 25th
Floor
Baltimore, MD 21202-3220
M. Scott Andrews......... 554,500 4.9% 554,500 %
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
Peyton C. Anderson....... 562,500 5.0% 562,500 %
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Owned After
Offering Offering
--------------------- ---------------------
Name Shares Percent Shares Percent
<S> <C> <C> <C> <C>
Wakefield Group II LLC............. 616,767(8) 5.5% 616,767(8) %
1110 E. Morehead Street
Charlotte, NC 28204
Bruce J. Boehm..................... 138,468(9) 1.2% 138,468(9) %
Noel J. Fenton..................... 1,397,228(10) 12.4% 1,397,228(10) %
Gautam Prakash..................... 1,090,234(11) 9.7% 1,090,234(11) %
Alan J. Taetle..................... 1,027,946(12) 9.1% 1,027,946(12) %
Timothy T. Weglicki................ 795,053(13) 7.0% 1,007,067(13) %
All directors and executive
officers as a group (13 persons)
(9)(10)(11)(12)(13)(14)........... 5,771,046 50.7% 5,771,046 %
</TABLE>
- --------
(1) Includes shares owned by Trinity VI Side-By-Side Fund, L.P., which is an
affiliate of Trinity Ventures VI, L.P.
(2) Includes 30,327 shares subject to warrants that are currently
exercisable.
(3) Includes shares owned by Bessemer Venture Investors L.P. and Bessec
Ventures IV L.P., which are affiliates of Bessemer Venture Partners IV
L.P.
(4) Includes 32,693 shares subject to warrants that are currently
exercisable.
(5) Includes shares owned by Noro-Moseley Partners IV-B Fund L.P., which is
an affiliate of Noro-Moseley Partners IV, L.P.
(6) Includes 22,312 shares subject to warrants that are currently
exercisable.
(7) Includes 132,509 shares subject to warrants that are currently
exercisable.
(8) Includes 13,387 shares subject to a warrant that is currently
exercisable.
(9) Includes 6,705 shares subject to a warrant that is currently exercisable.
(10) Consists of shares owned by Trinity Ventures VI, L.P. and Trinity VI
Side-By-Side Fund, L.P. Mr. Fenton is managing general partner of these
entities and may be deemed to be a beneficial owner of these shares. Mr.
Fenton disclaims beneficial ownership.
(11) Consists of shares owned by Bessemer Venture Partners IV L.P., Bessemer
Venture Investors L.P. and Bessec Ventures IV L.P. Mr. Prakash is a
principal of these entities and may be deemed to be a beneficial owner of
these shares. Mr. Prakash disclaims beneficial ownership.
(12) Consists of shares owned by Noro-Moseley Partners IV L.P. and Noro-
Moseley Partners IV-B Fund, L.P. Mr. Taetle is a principal of these
entities and may be deemed to be a beneficial owner of these shares.
Mr. Taetle disclaims beneficial ownership.
(13) Mr. Weglicki is Managing Member of ABS Partners III, L.L.C., which is the
general partner of ABS Capital Partners III, L.P., and may be deemed to
be a beneficial owner of these shares. Mr. Weglicki disclaims beneficial
ownership.
(14) Includes 115,659 shares subject to options that are exercisable within 60
days.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock of 100,000,000 shares consists of 90,000,000
shares of common stock, $0.001 par value per share, and 10,000,000 shares of
preferred stock, $0.001 par value per share. As of August 31, 1999, we had
issued and outstanding 11,275,708 shares of common stock. The following
description of our capital stock is a summary and is qualified in its entirety
by the provisions of our amended and restated certificate of incorporation and
amended and restated bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this prospectus is a part.
Common Stock
Upon the closing of this offering, there will be shares of common stock
outstanding. Holders of shares of our common stock are entitled to one vote for
each share on all matters to be submitted to a vote of our stockholders and do
not have cumulative voting rights. Subject to the rights of any holders of
preferred stock which may be issued in the future, the holders of shares of our
common stock are entitled to share ratably in such dividends as may be declared
and paid out of funds legally available. In the event of a liquidation or
winding up of SciQuest.com, holders of common stock are entitled to share
ratably in all assets remaining after payment of all liabilities and
liquidation preferences, if any. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are, and the shares of common stock to be issued in this offering will
be, duly authorized, validly issued, fully paid and nonassessable.
Preferred Stock
Upon completion of this offering, all of our outstanding preferred stock
will automatically convert into common stock. Accordingly, upon completion of
this offering, 10,000,000 shares of preferred stock will be authorized, and no
shares will be outstanding. The board has the authority, without further
stockholder approval, to issue such shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. The issuance of our preferred stock
may have the effect of delaying, deferring or preventing a change of control of
SciQuest.com. There are no outstanding shares of preferred stock and no series
have been designated.
Options and Warrants
As of August 31, 1999, we had outstanding options to purchase an aggregate
of 821,224 shares of common stock at a weighted average exercise price of $0.96
per share and warrants to purchase an aggregate of 837,678 shares of common
stock at a weighted average exercise price of $9.89 per share. All outstanding
options and warrants provide for antidilution adjustments in the event of
certain mergers, consolidations, reorganizations, recapitalizations, stock
dividends, stock splits or other changes in the corporate structure of
SciQuest.com. An aggregate of 662,535 warrants provide for antidilution
adjustment in the event of certain dilutive issuances of securities by us at
less than $11.32 per share.
Anti-takeover Effects of Provisions of Certificate of Incorporation and Bylaws
Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting. Our bylaws provide that, except as otherwise
required by law, special meetings of the stockholders can only be called by the
board of directors or our Chief Executive Officer or Chairman. In addition, our
bylaws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of stockholders,
51
<PAGE>
including proposed nominations of persons for election to the board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the board of directors or by a stockholder of record on the record
date for the meeting, who is entitled to vote at the meeting and who has
delivered timely written notice in proper form to our Secretary of the
stockholder's intention to bring such business before the meeting. The holders
of a majority of our outstanding shares will consist of a quorum for the
transaction of business. Each stockholder has one vote per share of stock.
Except as explained below or provided by Delaware law, approval of a majority
of those stockholders who are present is required to take any action.
Our certificate of incorporation and bylaws provide that a director may be
removed from office only with cause by the affirmative vote of at least 75% of
all shares voting on the removal. Cause is defined as incompetence, mental or
physical incapacity, breach of fiduciary duty involving dishonesty, personal
profit, a failure to perform stated duties or a violation of law. Our board of
directors is classified into the three-year terms. In addition, the provisions
of our certificate of incorporation that relate to the election and removal of
directors and the prohibition on the calling of special meetings by
stockholders and actions by stockholders by written consent may only be amended
by a vote of 75% of our outstanding shares of voting stock. Our bylaws may only
be amended by our board of directors or by a vote of 75% of our outstanding
shares of voting stock.
These provisions of our certificate of incorporation and bylaws are intended
to discourage types of transactions that may involve an actual or threatened
change of control of SciQuest.com. Such provisions are designed to reduce the
vulnerability of SciQuest.com to an unsolicited acquisition proposal and,
accordingly, could discourage potential acquisition proposals and could delay
or prevent a change in control of SciQuest.com. Such provisions are also
intended to discourage tactics that may be used in proxy fights but could,
however, have the effect of discouraging others from making tender offers for
our shares and, consequently, may also inhibit fluctuations in the market price
of our shares that could result from actual or rumored takeover attempts. These
provisions may also have the effect of preventing changes in the management of
SciQuest.com.
Effect of Delaware Anti-takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, or
the anti-takeover law, which regulates corporate acquisitions. The anti-
takeover law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from engaging
under certain circumstances in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of the anti-takeover law, a "business
combination" includes, among other things, a merger or consolidation involving
SciQuest.com, and the interested stockholder and the sale of more than 10% of
SciQuest.com's assets. In general, the anti-takeover law defines an "interested
stockholder" as any entity or person beneficially owning 15% or more the
outstanding voting stock of SciQuest.com and any entity or person affiliated
with or controlling or controlled by such entity or person. A Delaware
corporation may "opt out" of the anti-takeover law with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from amendments approved by
the holders of at least a majority of the corporation's outstanding voting
shares. We have not "opted out" of the provisions of the anti-takeover law.
Registration Rights
Upon completion of this offering, holders of 11,101,217 shares of our common
stock and 800,546 shares of our common stock issuable upon the exercise of
outstanding warrants will be entitled to certain rights with respect to the
registration of these shares under the Securities Act.
If we register any of our common stock, either for our own account or for
the account of other security holders, the holders are entitled to notice of
the registration and to include their shares of common stock in the
registration. All of these rights to register securities in connection with
this offering have been waived as required by the respective agreements
granting these rights.
52
<PAGE>
On or after July 30, 2000, holders of 3,777,626 shares of common stock,
representing shares issued in conversion of our series B mandatorily redeemable
convertible preferred stock, may require that we register all or part of these
securities for sale under the Securities Act. Beginning 12 months after the
completion of this offering, subject to specified limitations, holders of
3,975,255 shares of common stock, representing shares issued in conversion of
our series D mandatorily redeemable convertible preferred stock and issuable in
exercise of outstanding warrants, may require that we register all or part of
these securities for sale under the Securities Act. Until we are entitled to
register our shares on Form S-3, a short form registration statement, these
holders may only make two such demands. Once we are entitled to use Form S-3,
which may be as early as , 2000, all of these holders may make such demands
for registrations on Form S-3 on an unlimited number of occasions.
In all cases, a holder's right to include shares in a registration is
subject the ability of the underwriters to limit the number of shares included
in the offering. All fees, costs and expenses of all of these registrations
will be paid by us, and all selling expenses will be paid by the holders of the
securities being registered.
Listing
We have applied for trading and quotation of our common stock on The Nasdaq
National Market under the trading symbol "SQST."
Transfer Agent
The transfer agent for our common stock is SunTrust Bank, Atlanta.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
this offering, or the perception that such sales may occur, could materially
and adversely affect prevailing market prices of our common stock and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. Of these shares, all
shares sold in this offering will be freely tradable without restriction or
registration under the Securities Act, unless such shares are purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act. The
remaining 11,275,708 shares of our common stock are held by existing
stockholders. Such shares, as well as any shares sold in this offering that are
purchased by one of our affiliates, are restricted securities that may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rule 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below.
As a result of the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, the restricted securities will be available for sale
in the public market as follows:
. shares may be eligible for sale in accordance with the applicable
requirements of Rule 144 beginning 90 days after the date of this
prospectus;
. shares may be eligible for sale in accordance with the requirements
of Rule 144 upon expiration of the lock-up agreements; and
. 662,544 shares may be eligible for sale in accordance with the
requirements of Rule 144 beginning on June , 2000, and 114,995 shares
may be eligible for sale in accordance with the requirements of Rule 144
on July 30, 2000.
Lock-up Agreements
All of our officers, directors and substantially all of our stockholders
have signed lock-up agreements under which they have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise dispose of, other than by operation of law,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock or enter
into any swap or other arrangement that transfers to another person in whole or
in part, any of the economic consequences of ownership of our common stock for
a period of 180 days after the date of this prospectus, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any three-
month period a number of restricted securities that does not exceed the greater
of 1% of the number of shares of our common stock then outstanding, which will
equal approximately shares immediately after this offering, or the average
weekly trading volume of our common stock on the Nasdaq National Market during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to specific manner-of-sale provisions and notice requirements and to
the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding
54
<PAGE>
period of any prior owner other than one of our affiliates, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon completion of this
offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the date of this prospectus in
reliance on Rule 144, but without compliance with various restrictions.
Specifically, shares acquired pursuant to Rule 701 may be sold by nonaffiliates
without regard to the holding period, volume limitations or information or
notice requirements of Rule 144, and by our affiliates without regard to the
holding period requirement.
Registration Rights
Upon completion of this offering, the holders of 11,101,217 shares of common
stock and the holders of 800,546 shares of common stock issuable upon the
exercise of outstanding warrants, or their transferees, will be entitled to
rights with respect to the registration of such shares under the Securities
Act. See "Description of Capital Stock--Registration Rights." After such a
registration, these shares become freely tradable without restriction under the
Securities Act.
Stock Options and Warrants
Options to purchase an aggregate of 261,715 shares of our common stock will
be fully vested as of August 31, 1999. Of the total shares issuable pursuant to
these vested options, are subject to the 180-day lock-up agreements
described above. As of August 31, 1999, options to purchase an additional
559,509 shares of common stock were outstanding but subject to future vesting
and an additional 785,750 shares of common stock were available for future
grants under our stock option plan. As of August 31, 1999, 837,678 shares of
common stock are subject to currently exercisable warrants.
Following this offering, we intend to file one or more registration
statements on Form S-8 under the securities Act to register all shares of
common stock subject to outstanding stock options and options issuable pursuant
to our stock option plan. Subject to the lock-up agreements, shares covered by
these registration statements will be eligible for sale in the public markets,
other than shares owned by our affiliates, which may be sold in the public
market if they qualify for an exemption from registration under Rule 144 or
701.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
, 1999, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Deutsche Banc Securities Inc.,
Hambrecht & Quist LLC, DLJdirect Inc. and E*OFFERING Corp. have severally
agreed to purchase from SciQuest.com the respective number of shares of common
stock shown opposite their names below.
<TABLE>
<CAPTION>
Number
Underwriters: of Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Deutsche Banc Securities Inc..........................................
Hambrecht & Quist LLC.................................................
DLJdirect Inc. .......................................................
E*OFFERING Corp. .....................................................
----
Total.................................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered in this offering are subject to approval of certain legal matters and
to certain other conditions. The underwriters must purchase and accept delivery
of all the shares, other than those shares covered by the over-allotment option
described below, if any are purchased.
The underwriters propose to initially offer some of the shares of common
stock directly to the public at the public offering price on the cover page of
this prospectus and some of the shares to dealers at the public offering price
less a concession not in excess of $ per share. The underwriters may allow,
and these dealers may re-allow a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives of the underwriters may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of our common stock.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
<S> <C> <C>
Per share.....................................................
Total.........................................................
</TABLE>
We will pay the offering expenses, estimated to be $ .
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, and E*OFFERING Corp., a selected
dealer, are facilitating the distribution of the shares sold in this offering
over the Internet. The underwriters have agreed to allocate a limited number of
shares to DLJdirect and E*OFFERING. E*OFFERING has agreed to allocate a portion
of the shares that it purchases to E*TRADE Securities, Inc., for further
distribution to E*TRADE retail customers. We have been advised by E*TRADE that
it will allocate shares to its customers on a first-come, first served basis,
generally in 100 share lots. An electronic prospectus is available on the Web
sites maintained by DLJdirect and E*OFFERING, and other dealers and selected
dealers designated by E*OFFERING. Other than the prospectus in electronic
format, the information on these Web sites relating to the offering is not part
of this prospectus and has not been approved or endorsed by us or the
underwriters, and should not be relied on by prospective investors.
56
<PAGE>
We have granted to the underwriters an option, exercisable for 30 days after
the date of the underwriting agreement, to purchase up to additional shares
of common stock at the initial public offering price less the underwriting
fees. The underwriters may exercise this option solely to cover over-
allotments, if any, made in connection with this offering. To the extent that
the underwriters exercise this option, each underwriter will become obligated,
subject to various conditions, to purchase a number of additional shares
proportionate to such underwriter's initial purchase commitment.
We have agreed to indemnify the underwriters against various civil
liabilities, including liabilities under the Securities Act, or to contribute
the payments that the underwriters may be required to make in respect of these
liabilities.
We and our executive officers and directors, and substantially all of our
stockholders have agreed, for a period of 180 days after the date of this
prospectus, not to, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
Either of the foregoing transfer restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise. In addition, during this 180-
day period, we have also agreed not to file any registration statement for, and
each of our executive officers, directors and several stockholders have agreed
not to make any demand for, or exercise any right of, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Prior to the offering, there has been no established trading market for our
common stock. The initial public offering price for the shares of common stock
offered by this prospectus will be determined by negotiations among us and the
representatives of the underwriters. The factors to be considered in
determining the initial public offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable companies;
and
. the general condition of the securities markets at the time of the
offering.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "SQST."
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction that requires action for that
purpose. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any of these shares
be distributed or published in any jurisdiction, except under circumstances
that will result in compliance with the applicable rules and regulations of
that jurisdiction. We advise persons who receive this prospectus to inform
themselves about and to observe any restrictions relating to the offering of
the common
57
<PAGE>
stock and the distribution of this prospectus. This prospectus is not an offer
to sell or a solicitation of an offer to buy any shares of our common stock
included in this offering in any jurisdiction where such an offer or a
solicitation would not be permitted or legal.
In connection with this offering, some underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
shares of our common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. The underwriting
syndicate may reclaim selling concessions if the syndicate repurchases
previously distributed common stock in syndicate covering transactions, in
stabilization transactions or in some other way or if Donaldson, Lufkin &
Jenrette Securities Corporation receives a report that indicates clients of
such syndicate members have "flipped" the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
At our request, the underwriters have reserved for sale at the initial
public offering price up to 10% of the shares of common stock to be sold in
this offering for sale to our employees, friends and persons having
relationships with us. The number of shares available for sale to the general
public will be reduced to the extent that any reserved shares are purchased.
Any reserved shares not so purchased will be offered by the underwriters on the
same basis as the other shares offered through this prospectus.
Hambrecht & Quist LLC and persons associated with Hambrecht & Quist
beneficially own 31,060 shares of our series D mandatorily redeemable
convertible preferred stock and warrants to purchase 6,212 shares of class A
common stock at an exercise price of $11.32 per share, which warrants expire in
May 2004. Additionally, Access Technology Partners, L.P., a fund of outside
investors that is managed by an affiliate of Hambrecht & Quist, owns 124,235
shares of our series D mandatorily redeemable convertible preferred stock and
warrants to purchase 24,847 shares of class A common stock at an exercise price
of $11.32 per share, which warrants expire in May, 2004.
Deutsche Banc Securities Inc. and persons associated with Deutsche Banc
Securities own 839,222 shares of series D mandatorily redeemable convertible
preferred stock and warrants to purchase 167,845 shares of class A common stock
at an exercise price of $11.32 per share, which warrants expire in May 2004.
Hambrecht & Quist has provided financial advisory services to us in the past
and has received compensation at market rates for these services.
58
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of the common stock to be sold in
this offering and other legal matters related to this offering will be passed
upon for us by Hutchison & Mason PLLC, Raleigh, North Carolina and other legal
matters relating to this offering will be passed on for us by Morris, Manning &
Martin, L.L.P., Atlanta, Georgia. Legal matters in connection with this
offering will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, New York, New York.
EXPERTS
The financial statements of SciQuest.com as of June 30, 1999 and December
31, 1998 and 1997 and for the six months ended June 30, 1999 and each of the
three years in the period ended December 31, 1998, and the financial statements
of BioSupplyNet, Inc. as of June 30, 1998 and 1997 and for the years then ended
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.
CHANGE IN ACCOUNTANTS
In 1998, we dismissed Hughes, Pittman and Gupton LLP and engaged
PricewaterhouseCoopers LLP as our independent accountants. Our board of
directors approved the decision to change independent accountants. The report
of Hughes, Pittman and Gupton LLP on our financial statements for the year
ended December 31, 1997 did not contain any adverse opinion or disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with Hughes, Pittman and
Gupton LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of Hughes, Pittman and Gupton LLP, would have
caused them to make reference thereto in their report on the financial
statements for such year.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the shares of common stock offered by this prospectus. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document.
You may read and copy all or any portion of the registration statement and
the exhibits at the SEC's public reference room at 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request
copies of these documents, upon payment of a duplication fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the SEC's public reference rooms. Also, the SEC maintains a World
Wide Web site on the Internet at http:/www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the SEC.
As a result of this offering, we will become subject to the information and
periodic reporting requirements of the Exchange Act and, in accordance
therewith, will file periodic reports, proxy and information statements and
other information with the SEC. These periodic reports, proxy and information
statements and other information will be available for inspection and copying
at the public reference facilities, regional offices and SEC's Web site
referred to above.
59
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SciQuest.com, Inc.:
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999..................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998 and
the Six Months Ended June 30, 1998 (unaudited) and 1999.................. F-4
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1996, 1997 and 1998 and the Six Months Ended June 30, 1999.. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 and the Six Months Ended June 30, 1998 (unaudited)
and 1999................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
BioSupplyNet, Inc.:
Report of Independent Accountants......................................... F-25
Balance Sheets as of June 30, 1997 and 1998............................... F-26
Statements of Operations for the Years Ended June 30, 1997 and 1998....... F-27
Statements of Stockholders' Deficit for the Years Ended June 30, 1997 and
1998..................................................................... F-28
Statements of Cash Flows for the Years ended June 30, 1997 and 1998....... F-29
Notes to Financial Statements............................................. F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
SciQuest.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit, and of cash
flows present fairly, in all material respects, the financial position of
SciQuest.com, Inc. and its subsidiary (the "Company") at June 30, 1999 and
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the six months ended June 30, 1999 and the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
August 20, 1999
Raleigh, North Carolina
F-2
<PAGE>
SciQuest.com, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31, December 31, June 30, June 30,
1997 1998 1999 1999
(unaudited)
(note 1)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............ $ 330,836 $ 5,391,462 $ 10,495,700 $ 10,495,700
Short-term investments.. -- 1,886,693 15,732,620 15,732,620
Accounts receivable..... 20,658 104,082 307,898 307,898
Prepaid expenses and
other assets........... 7,227 37,057 387,735 387,735
----------- ----------- ------------ ------------
Total current assets.. 358,721 7,419,294 26,923,953 28,923,953
----------- ----------- ------------ ------------
Restricted cash.......... -- 82,236 82,236 82,236
Long-term investments.... -- -- 10,228,893 10,228,893
Property and equipment,
net..................... 19,412 357,460 1,046,364 1,046,364
Other assets............. 7,152 1,314,109 1,070,451 1,070,451
----------- ----------- ------------ ------------
Total assets.......... $ 385,285 $ 9,173,099 $ 39,351,897 $ 39,351,897
=========== =========== ============ ============
Liabilities and
Stockholders' Deficit
Current liabilities:
Accounts payable........ $ 82,926 $ 694,611 $ 1,606,592 $ 1,606,592
Accrued liabilities..... 142,267 280,003 1,131,800 1,131,800
Current maturities of
capital lease
obligations............ 2,758 18,048 19,488 19,488
Current maturities of
notes payable.......... 159,238 14,060 14,594 14,594
----------- ----------- ------------ ------------
Total current
liabilities.......... 387,189 1,006,722 2,772,474 2,772,474
----------- ----------- ------------ ------------
Deferred income taxes.... -- 285,005 175,615 175,615
Capital lease
obligations, less
current maturities...... -- 35,082 94,106 94,106
Notes payable, less
current maturities...... 79,188 65,128 57,712 57,712
Commitments and
contingencies (Note 14). -- -- -- --
Mandatorily redeemable
convertible preferred
stock................... -- 10,882,702 54,477,590 --
Stockholders' deficit:
Series A convertible
preferred stock,
$0.001 par value;
769,231 shares
designated; 769,221
shares issued and
outstanding as of
December 31, 1997 and
1998 and June 30,
1999, respectively, no
shares designated,
issued or outstanding
pro forma (unaudited).. 683,135 683,135 683,135 --
Series C convertible
preferred stock,
$0.001 par value;
700,000 shares
designated; no shares
issued or outstanding
as of December 31,
1997, 546,405 and
635,813 shares issued
and outstanding as of
December 31, 1998 and
June 30, 1999,
respectively, no
shares designated,
issued or outstanding
pro forma (unaudited).. -- 1,524,470 1,774,470 --
Preferred stock,
undesignated,
1,382,869 shares
authorized; none
issued or outstanding
actual or pro forma
(unaudited)............ -- -- -- --
Common stock, $0.001
par value, 20,000,000
shares authorized:
Class A common stock,
19,749,980 shares
designated; 2,250,000
shares issued and
outstanding as of
December 31, 1997 and
1998, 2,355,724
shares issued and
outstanding as of
June 30, 1999, no
shares designated,
issued or outstanding
pro forma
(unaudited)........... 10,000 10,000 2,356 --
Class B common stock,
250,020 shares
designated, issued
and outstanding as of
December 31, 1997 and
1998 and
June 30, 1999, no
shares designated,
issued or outstanding
pro forma
(unaudited)........... 100,000 100,000 250 --
Common stock, $0.001
par value, 90,000,000
shares authorized; no
shares issued and
outstanding actual;
11,101,124 shares
issued and outstanding
pro forma (unaudited).. -- -- -- 11,101
Additional paid-in
capital................. 360,000 43,361 -- 56,926,700
Deferred compensation.... -- -- (39,343) (39,343)
Accumulated other
comprehensive loss...... -- (6,673) (6,673) (6,673)
Accumulated deficit...... (1,234,227) (5,455,833) (20,639,795) (20,639,795)
----------- ----------- ------------ ------------
Total stockholders'
equity (deficit)....... (81,092) (3,101,540) (18,225,600) 36,251,990
----------- ----------- ------------ ------------
Total liabilities and
stockholders'
deficit.............. $ 385,285 $ 9,173,099 $ 39,351,897 $ 39,351,897
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SciQuest.com, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Six Months Ended
-------------------------------------- ------------------------
December 31, December 31, December 31, June 30, June 30,
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 196,381 $ 477,818 $ 190,166 $ 885,260
Cost of revenues........ -- -- 41,880 -- 486,208
--------- --------- ----------- --------- ------------
Gross profit........ -- 196,381 435,938 190,166 399,052
--------- --------- ----------- --------- ------------
Operating expenses:
Product development... 85,025 140,520 1,191,135 179,507 3,182,290
Sales and marketing... 149,560 256,699 1,706,033 508,274 3,165,279
General and
administrative....... 300,822 457,058 1,104,010 151,008 2,193,525
Purchased in-process
research and
development.......... -- -- 791,102 -- --
--------- --------- ----------- --------- ------------
Total operating
expenses........... 535,407 854,277 4,792,280 838,789 8,541,094
--------- --------- ----------- --------- ------------
Operating loss...... (535,407) (657,896) (4,356,342) (648,623) (8,142,042)
--------- --------- ----------- --------- ------------
Interest income
(expense):
Interest income....... -- 3,235 110,565 3,366 308,513
Interest expense...... (9,113) (35,028) (30,524) (16,190) (6,077)
--------- --------- ----------- --------- ------------
Net interest income
(expense).......... (9,113) (31,793) 80,041 (12,824) 302,436
--------- --------- ----------- --------- ------------
Loss before income
taxes.............. (544,520) (689,689) (4,276,301) (661,447) (7,839,606)
Income tax benefit...... -- -- 54,695 -- 109,390
--------- --------- ----------- --------- ------------
Net loss................ (544,520) (689,689) (4,221,606) (661,447) (7,730,216)
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- 328,723 -- 8,460,051
--------- --------- ----------- --------- ------------
Net loss available to
common stockholders.... $(544,520) $(689,689) $(4,550,329) $(661,447) $(16,190,267)
========= ========= =========== ========= ============
Net loss per common
share--basic and
diluted................ $(0.23) $(0.28) $(1.82) $(0.26) $(6.39)
Weighted average common
shares outstanding--
basic and diluted...... 2,359,298 2,500,020 2,500,020 2,500,020 2,533,174
Pro forma net loss per
common share--basic and
diluted (unaudited).... $(1.01) $(1.97)
Pro forma weighted
average shares
outstanding--basic and
diluted (unaudited).... 4,487,402 8,225,982
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SciQuest.com, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
<TABLE>
<CAPTION>
Series A Series C Class A Class B
Preferred Stock Preferred Stock Common Stock Common Stock Additional Other
---------------- ------------------ ----------------- ---------------- Paid in Deferred Comprehensive
Shares Amount Shares Amount Shares Amount Shares Amount Capital Compensation Loss
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............. -- $ -- -- $ -- 2,250,000 $10,000 250,020 $100,000 $ 180,000 $ -- $ --
Noncash
management
compensation
expense......... -- -- -- -- -- -- -- -- 180,000 -- --
Issuance of
Series A
convertible
preferred stock
at $0.91 per
share in
exchange for
cash and
conversion of
promissory note,
net............. 769,221 683,135 -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- --------- ------- ------- -------- ---------- -------- -------
Balance at
December 31,
1997............. 769,221 683,135 -- -- 2,250,000 10,000 250,020 100,000 360,000 -- --
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
shares of
BioSupplyNet,
Inc............. -- -- 546,405 1,524,470 -- -- -- -- -- -- --
Issuance of
stock warrants.. -- -- -- -- -- -- -- -- 12,084 -- --
Accretion of
mandatorily
redeemable
preferred stock. -- -- -- -- -- -- -- -- (328,723) -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
Other
comprehensive
loss--
unrealized loss
on investments.. -- -- -- -- -- -- -- -- -- -- (6,673)
------- -------- ------- ---------- --------- ------- ------- -------- ---------- -------- -------
Balance at
December 31,
1998............. 769,221 683,135 546,405 1,524,470 2,250,000 10,000 250,020 100,000 43,361 -- (6,673)
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
cash............ -- -- 89,408 250,000 -- -- -- -- -- -- --
Conversion to
$0.001 par value
stock........... -- -- -- -- -- (7,750) -- (99,750) 107,500 -- --
Deferred
compensation
related to grant
of stock
options......... -- -- -- -- -- -- -- -- 44,598 (44,598) --
Accretion of
mandatorily
redeemable
preferred stock. -- -- -- -- -- -- -- -- (1,006,305) -- --
Exercise of
common stock
options......... -- -- -- -- 78,902 79 -- -- 9,736 -- --
Exercise of
common stock
warrants........ -- -- -- -- 26,822 27 -- -- 74,973 -- --
Issuance of
common stock
warrants in
connection with
Series D
preferred stock. -- -- -- -- -- -- -- -- 726,137 -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- 5,255 --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- --------- ------- ------- -------- ---------- -------- -------
Balance at June
30, 1999......... 769,221 $683,135 635,813 $1,774,470 2,355,724 $ 2,356 250,020 $ 250 $ -- $(39,343) $(6,673)
======= ======== ======= ========== ========= ======= ======= ======== ========== ======== =======
<CAPTION>
Total
Accumulated Stockholders'
Deficit Deficit
<S> <C> <C>
Balance at
December 31,
1996............. $ (544,538) $ (254,538)
Noncash
management
compensation
expense......... -- 180,000
Issuance of
Series A
convertible
preferred stock
at $0.91 per
share in
exchange for
cash and
conversion of
promissory note,
net............. -- 683,135
Net loss........ (689,689) (689,689)
------------- --------------
Balance at
December 31,
1997............. (1,234,227) (81,092)
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
shares of
BioSupplyNet,
Inc............. -- 1,524,470
Issuance of
stock warrants.. -- 12,084
Accretion of
mandatorily
redeemable
preferred stock. -- (328,723)
Net loss........ (4,221,606) (4,221,606)
Other
comprehensive
loss--
unrealized loss
on investments.. -- (6,673)
------------- --------------
Balance at
December 31,
1998............. (5,455,833) (3,101,540)
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
cash............ -- 250,000
Conversion to
$0.001 par value
stock........... -- --
Deferred
compensation
related to grant
of stock
options......... -- --
Accretion of
mandatorily
redeemable
preferred stock. (7,453,746) (8,460,051)
Exercise of
common stock
options......... -- 9,815
Exercise of
common stock
warrants........ -- 75,000
Issuance of
common stock
warrants in
connection with
Series D
preferred stock. -- 726,137
Amortization of
deferred
compensation.... -- 5,255
Net loss........ (7,730,216) (7,730,216)
------------- --------------
Balance at June
30, 1999......... $(20,639,795) $(18,225,600)
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SciQuest.com, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Six Months Ended
-------------------------------------- ------------------------
December 31, December 31, December 31, June 30, June 30,
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss.............. $(544,520) $(689,689) $(4,221,606) $(661,447) $ (7,730,216)
Adjustments to
reconcile net loss to
net cash used in
operating activities
Depreciation and
amortization......... 8,773 12,421 205,122 6,887 304,802
Noncash management
compensation expense. 180,000 180,000 -- -- --
Amortization of debt
discount............. -- -- 12,084 12,084 --
Purchased in process
research and
development.......... -- -- 791,102 -- --
Deferred tax benefit.. -- -- (54,695) -- (109,390)
Amortization of
deferred
compensation......... -- -- -- -- 5,255
Realized loss on sale
of investments....... -- -- -- -- 1,448
Changes in operating
assets and
liabilities
Accounts receivable.. (27,118) 6,460 (61,425) (68,197) (203,816)
Prepaid expenses and
other assets........ (2,849) (4,830) (47,535) 7,070 (279,133)
Accounts payable..... 69,801 13,125 469,833 (24,144) 911,981
Accrued liabilities.. 53,111 91,659 (184,467) 86,667 851,797
--------- --------- ----------- --------- ------------
Net cash used in
operating
activities......... (262,802) (390,854) (3,091,587) (641,080) (6,247,272)
--------- --------- ----------- --------- ------------
Cash flows from
investing activities
Purchase of property
and equipment........ (27,208) -- (273,341) (31,737) (752,396)
Cash received from
acquisitions......... -- -- 9,173 -- --
Maturity of
investments.......... -- -- -- -- 940,863
Purchase of
investments,
including restricted
cash................. -- -- (1,975,602) -- (25,017,131)
--------- --------- ----------- --------- ------------
Net cash used in
investing
activities......... (27,208) -- (2,239,770) (31,737) (24,828,664)
--------- --------- ----------- --------- ------------
Cash flows from
financing activities
Borrowings under notes
payable.............. 197,714 211,581 562,110 532,068 --
Repayment of notes
payable.............. -- (90,869) (206,348) (6,039) (6,882)
Repayment of capital
lease obligations.... -- (8,322) (2,758) (3,141) (8,734)
Proceeds from exercise
of common stock
warrants............. -- -- -- -- 75,000
Proceeds from exercise
of common stock
options.............. -- -- -- -- 9,815
Proceeds from issuance
of Class B common
stock, net........... 100,000 -- -- -- --
Proceeds from issuance
of Series A
convertible preferred
stock, net........... -- 600,596 -- -- --
Proceeds from issuance
of Series C
convertible preferred
stock, net........... -- -- -- -- 250,000
Proceeds from issuance
of Series B
mandatorily
redeemable
convertible preferred
stock, net........... -- -- 10,038,979 -- --
Proceeds from issuance
of Series D
mandatorily
redeemable
convertible preferred
stock, net........... -- -- -- -- 35,860,975
--------- --------- ----------- --------- ------------
Net cash provided by
financing
activities......... 297,714 712,986 10,391,983 522,888 36,180,174
--------- --------- ----------- --------- ------------
Net increase in cash
and cash equivalents.. 7,704 322,132 5,060,626 (149,929) 5,104,238
Cash and cash
equivalents at
beginning of period... 1,000 8,704 330,836 330,836 5,391,462
--------- --------- ----------- --------- ------------
Cash and cash
equivalents at end of
period................ $ 8,704 $ 330,836 $ 5,391,462 $ 180,907 $ 10,495,700
========= ========= =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.The Company
SciQuest.com, Inc. ("SciQuest.com" or the "Company"), which began operations
on November 27, 1995, is a leading Web-based, interactive marketplace for
scientific and laboratory products used by pharmaceutical, clinical,
biotechnology, chemical, industrial and educational organizations worldwide.
The Company's marketplace solutions utilize enabling Internet technologies and
leverage its extensive industry expertise to streamline the traditionally
inefficient scientific products supply chain. The Company's distributor-neutral
approach allows it to create an open and scalable marketplace that we believe
is more attractive to both buyers and sellers. The Company earns revenues from
e-commerce transactions generated by purchases made through the SciQuest.com
Web sites and on sponsorship contracts relating to the design, coordination and
integration of vendors' Web sites and links into SciQuest.com's online
properties. In addition, SciQuest.com earns revenue for banner advertising on
its Web sites and advertising in the printed catalogue of scientific products
(the "Source Book"), which is prepared and distributed by the Company's
subsidiary, BioSupplyNet, Inc. ("BioSupplyNet"). SciQuest.com's technology
allows buyers to quickly find vendors of the scientific products and services
they need and then order these products directly from the supplier using
SciQuest.com's Web sites.
2.Summary of Significant Accounting Policies
Unaudited Interim Financial Statements
The statements of operations and of cash flows for the six month period
ended June 30, 1998 are unaudited and reflect all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's results of
operations. All financial statement disclosures related to the six month period
ended June 30, 1998 are unaudited.
Unaudited Pro Forma Balance Sheet
The Board of Directors has authorized the Company to file a Registration
Statement with the Securities and Exchange Commission permitting the Company to
sell shares of common stock in an initial public offering ("IPO"). If the IPO
is consummated as presently anticipated, all shares of the Series A, Series B,
Series C and Series D preferred stock will automatically convert into an equal
number of shares of common stock. The unaudited pro forma balance sheet
reflects the subsequent conversion of Series A, Series B, Series C and Series D
preferred shares into common stock as if such conversion had occurred as of
June 30, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of SciQuest.com,
Inc. and its wholly-owned subsidiary, BioSupplyNet, Inc. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
F-7
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments
The Company considers all investments that are not considered cash
equivalents and with a maturity of less than one year from the balance sheet
date to be short term investments. The Company considers all investments with a
maturity of greater than one year to be long term investments. At December 31,
1998, all investments were considered as available-for-sale and were carried at
fair value with unrealized gains and losses recognized as a component of other
comprehensive income. At June 30, 1999, all investments are considered as held-
to-maturity and are carried at amortized cost, as the Company has both the
positive intent and ability to hold them to maturity. Interest income includes
interest, amortization of investment purchases premiums and discounts, and
realized gains and losses on sales of securities. The cost of securities sold
is based on the specific identification method.
Restricted Cash
Restricted cash is comprised of a certificate of deposit which serves as
collateral on the Company's bank loan. This certificate of deposit must be
maintained until the bank loan is repaid. Subsequent to June 30, 1999, the
Company repaid the loan, and therefore this certificate of deposit is no longer
restricted.
Accounts Receivable
The Company bears all risk of loss on credit sales of scientific products in
e-commerce transactions. Accounts receivable are presented net of an allowance
for uncollectable accounts which is not significant at December 31, 1997 and
1998 and June 30, 1999.
Property and Equipment
Property and equipment is primarily comprised of furniture and computer
equipment which are recorded at cost and depreciated using the straight-line
method over their estimated useful lives which range from three to five years.
Property and equipment includes certain equipment under capital leases. These
items are depreciated over the shorter of the lease period or the estimated
useful life of the equipment.
Product Development Costs
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's Web site. Product
development costs are expensed as incurred. The software development costs
component 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.
Capitalized Software Costs
Software 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. Capitalized software
costs result from the acquisition of BioSupplyNet (see Note 3) and were
determined by an independent valuation of BioSupplyNet.
These capitalized software costs are primarily associated with a search
engine with e-commerce capabilities and high level electronic taxonomy and
ontological conventions under development by BioSupplyNet at the date of
acquisition. As a result of the rapid changes in technology in the Internet,
these costs are being amortized over a period of 27 months.
Intangible Assets
Intangible assets, which resulted primarily from the acquisition of
BioSupplyNet, were determined by an independent valuation and are primarily
associated with the Source Book and contracts with certain Web sites
F-8
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(the "Web Site Agreements") to provide a link to the SciQuest.com Web site.
Because the Source Book is a printed publication, which must be updated on an
annual basis, capitalized costs related to the Source Book are being amortized
over a period of 15 months. Capitalized costs related to the Web Site
Agreements are being amortized over a 12 month period which is the remaining
term of such agreements.
Goodwill represents the excess of the purchase price of BioSupplyNet over
the fair value of the assets acquired. Goodwill is being amortized over a
period of five years because of the rapid changes in technology in the Internet
industry.
Purchased In-Process Research and Development
The acquisition cost of in-process technology that at the date of purchase
has not achieved technological feasibility and has no alternative future use is
charged to operations in the period such technology is acquired. Purchased in-
process research and development costs for the year ended December 31, 1998
relate to the acquisition of BioSupplyNet (see Note 3).
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and
accounts receivable at December 31, 1998 and 1999 and June 30, 1999
approximated their fair value due to the short-term nature of these items. The
fair value of the Company's short-term and long-term investments at December
31, 1998 and 1999 and June 30, 1999, based on market quotes, approximated their
carrying values.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment and
intangible assets in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," ("SFAS No. 121"). SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets or the business to which such assets relate. No impairments were
required to be recognized during the years ended December 31, 1996, 1997 and
1998 or the six month period ended June 30, 1999.
Revenue Recognition
The Company's revenues have historically been derived from services provided
to customers for development of Internet services, short term contracts for
banner advertising on its Web sites and from the sale of advertising included
in the Source Book. In April 1999, the Company began selling scientific
products through its e-commerce Web sites.
Service revenues are recognized upon completion of the development of
Internet services and approved by the customer. The Company generated an
insignificant amount of service revenues during the year ended December 31,
1998 and had no service revenues during the six months ended June 30, 1999.
Advertising revenues on banner contracts are recognized ratably over the
period in which the advertisement is displayed, provided that the Company has
no significant remaining obligations to the advertiser and that collection of
the resulting receivable is probable. Revenues from advertising included in the
Source Book are recognized at the date the Source Book is published and
distributed to the purchasers of scientific products as the Company has met all
of its obligations to the advertisers at that date.
Revenues received from e-commerce transactions are recorded as product
revenues and are recognized by the Company upon notification from the suppliers
of scientific products that the items ordered have been shipped to purchasers.
A reserve for returns is recognized for estimated product returns to the
suppliers. Product revenues totaled approximately $43,000 for the six months
ended June 30, 1999.
F-9
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cost of Revenues
Cost of product revenues represents the purchase price to the Company of the
scientific products sold through its e-commerce Web sites and the cost of
maintaining such Web sites. We generally take legal title to the scientific
products purchased at the date of shipment and relinquish title to our
customers upon delivery.
Cost of advertising and subscription revenue includes the cost of preparing
the banner ads for display on the Company's Web sites and the cost of
publishing and distributing the Source Book. Advertising production costs are
recorded as cost of revenues the first time an advertisement appears on the
Company's Web sites.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process. Sales
and marketing expenses also include costs of advertising, trade shows and
certain indirect costs. All costs of advertising the services and products
offered by the Company are expensed as incurred. Advertising expense totaled
$166,000 and $324,000 for the six months ended June 30, 1998 and 1999,
respectively, and $13,000, $15,000 and $181,000 for the years ended December
31, 1996, 1997 and 1998, respectively.
Income Taxes
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and for tax carryforwards at enacted statutory
tax rates in effect for the years in which the differences are expected to
reverse. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Stock Based Compensation
The Company accounts for stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", ("APB No. 25") which states that no compensation expense
is recognized for stock options or other stock-based awards to employees that
are granted with an exercise price equal to or above the estimated fair value
per share of the Company's common stock on the grant date. In the event that
stock options are granted with an exercise price below the estimated fair
market value of the Company's common stock at the grant date, the difference
between the fair market value of the Company's common stock and the exercise
price of the stock option is recorded as deferred compensation. Deferred
compensation is amortized to compensation expense over the vesting period of
the stock option. The Company has adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), which requires compensation expense to be
disclosed based on the fair value of the options granted at the date of the
grant.
Credit Risk, Significant Customers and Concentrations
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, accounts
receivable and investments. Cash and cash equivalents are deposited with high
credit quality financial institutions which invest primarily in U.S. Government
securities, highly rated commercial paper and certificates of deposit
guaranteed by banks which are members of the FDIC. The counterparties to the
agreements relating to the Company's investments consist primarily of the U.S.
Government and various major corporations with high credit standings.
F-10
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No single customer accounted for more than 10% of the Company's revenues
during the year ended December 31, 1996, the year ended December 31, 1998 or
the six month period ended June 30, 1999. In 1997, one customer accounted for
30% of revenues. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the
Company's customer base and because all customers are located in the United
States. There were no significant individual customer balances as of December
31, 1996 or June 30, 1999. As of December 31, 1997, two customers comprised 18%
and 34% of the accounts receivable balance. As of December 31, 1998, one
customer comprised 30% of the accounts receivable balance. All of the Company's
revenues are from sales transactions originating in the United States.
SciQuest.com relies on a number of third party suppliers for various
services, including e-commerce fulfillment services. While SciQuest.com
believes it could obtain these services from other qualified suppliers on
similar terms and conditions, a disruption in supply of these services by the
current suppliers could materially harm the business.
Cash Flows
The Company made cash payments for interest of $8,438, $33,416 and $18,521
during the years ended December 31, 1996, 1997 and 1998, respectively, and
$5,494 during the six months ended June 30, 1999.
The Company acquired property and equipment through the assumption of
capital lease obligations amounting to $11,080, $0 and $55,130 during the years
ended December 31, 1996, 1997 and 1998, respectively, and $69,198 during the
six months ended June 30, 1999.
Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity during a period from non-
owner sources. The Company's only item of other comprehensive income during
each of the three years in the period ended December 31, 1998 is the unrealized
gain on investments in debt securities considered as available-for-sale. The
Company had no items of other comprehensive income for the six months ended
June 30, 1998 or 1999.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS No. 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for the
year ended December 31, 1998. The Company has determined that it does not have
any separately reportable operating segments as of December 31, 1998 or June
30, 1999.
Internal Use Software
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statements of
Position No. 98-1, "Software for Internal Use," ("SOP No. 98-1") which requires
software developed or obtained for internal use to be capitalized and
amortized. SOP No. 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted SOP No. 98-1 effective
January 1, 1999. The adoption of SOP No. 98-1 did not have a material impact on
the Company's consolidated financial statements.
F-11
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Start Up Costs
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities," ("SOP No. 98-5") which is effective for fiscal years beginning
after December 15, 1998. SOP No. 98-5 requires companies to expense as incurred
all preopening, startup and organizational costs that are not capitalizable as
long-lived assets. The Company's adopted SOP No. 98-5 effective January 1,
1999. The adoption of SOP No. 98-5 had no impact on the Company's financial
condition or results of operations.
Net Income (Loss) Per Common Share
Historical
The Company computes net income (loss) per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS No. 128") and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under
the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per
common share ("Basic EPS") is computed by dividing net income (loss) available
to common stockholders by the weighted average number of common shares
outstanding. Diluted net income (loss) per common share ("Diluted EPS") is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares and dilutive potential common share
equivalents then outstanding. Potential common shares consist of shares
issuable upon the exercise of stock options and warrants and shares issuable
upon conversion of convertible preferred stock. The calculation of the net loss
per share available to common stockholders for the years ended December 1996,
1997 and 1998 and the six months ended June 30, 1999, does not include 0, 545,
117,739 and 642,558, respectively, potential shares of common stock
equivalents, as their impact would be antidilutive.
Pro Forma (Unaudited)
Pro forma net income (loss) per common share is calculated assuming
conversion of all preferred stock which converts automatically upon the
completion of the initial public offering into 5,093,252 and 8,495,380 shares
of common stock (see Note 11) at December 31, 1998 and June 30, 1999,
respectively. Therefore, accretion of mandatorily redeemable preferred stock of
$328,723 for the year ended December 31, 1998 and $8,460,051 for the six months
ended June 30, 1999 is excluded from the calculation of pro forma net income
(loss) per common share.
The calculation of pro forma net loss per common share for the year ended
December 31, 1998 and the six months ended June 30, 1999 does not include
117,739 and 642,558, respectively, potential shares of common stock
equivalents, as their impact would be anti-dilutive.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supercedes several
existing standards. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS No. 133 will have a material impact
on the consolidated financial statements.
F-12
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3.Acquisition of BioSupplyNet
On September 29, 1998, the Company purchased all of the outstanding common
and preferred stock of BioSupplyNet in exchange for the issuance of 546,405
shares of the Company's Series C convertible preferred stock and 126,780
options to purchase the Company's common stock. 124,813 of these options were
issued with an exercise price of $0.28 per share and the remaining 1,967
options were issued with an exercise price of $0.003 per share. In addition,
107,288 warrants were issued to purchase the Company's common stock at an
exercise price of $2.80 per share. The acquisition has been accounted for using
the purchase method of accounting and, accordingly, the purchase price
allocated to the assets acquired and liabilities assumed based on our estimates
of fair value at the acquisition date. The fair value assigned to intangible
assets acquired was based on a valuation prepared by an independent third-party
appraisal company of the purchased in-process research and development,
developed technology, the Source Book and the management of BioSupplyNet. The
fair value of the tangible and intangible assets acquired and purchased in-
process research and development was determined by an independent valuation
using the average of a risk-adjusted income approach based on stage of
completion and the estimated cost actually incurred by BioSupplyNet in
developing the technology, for acquired research and development and completed
technology, and a risk-adjusted income approach for the Source Book and the Web
Site Agreements. The excess of the purchase price over the fair values of
assets acquired less liabilities assumed was allocated to goodwill.
The total purchase price of $1,988,524 consisted of 546,405 shares of the
Company's Series C preferred stock with an estimated fair value of $2.80 per
share, based on the per share price of the company's Series B mandatorily
redeemable convertible preferred stock which was sold between July and November
1998, and the assumption of $464,054 of net liabilities of BioSupplyNet. Of the
total purchase price, $791,102 was allocated to acquired in process research
and development and immediately charged to operations because the in-process
technology acquired had not reached the stage of technological feasibility at
the date of the acquisition and had no alternative future use. In addition,
$364,148 of the purchase price was allocated to capitalized software costs for
completed technology, $378,592 was allocated to the Source Book, $80,766 was
allocated to the Web Site Agreements and $79,809 was allocated to the tangible
assets of BioSupplyNet, which were comprised of cash, accounts receivable and
furniture and equipment. The remaining purchase price of $294,107 was allocated
to goodwill.
Approximately $791,102 of the purchase price represents purchased in-process
research and development related to an e-commerce product offering being
developed by BioSupplyNet that had not yet reached technological feasibility
and had no alternative future use. The value assigned to in process research
and development was based on a valuation prepared by an independent third-party
appraisal company. The value assigned to e-commerce technology being developed
by BioSupplyNet was adjusted to reflect the relative value of this e-commerce
technology based on stage of completion, complexity of the work completed at
the date of the acquisition, difficulty of completing the development, the
development costs already incurred by BioSupplyNet and projected costs to
complete the development of the e-commerce technology and resulting projected
net cash flows from the e-commerce technology. The value assigned to purchased
in process research and development was based on key assumptions, including
projected revenues from the e-commerce product offering, current and expected
industry trends and acceptance of the e-commerce products technology.
BioSupplyNet had incurred approximately $1,000,000 in development costs
related to its e-commerce offering prior to its acquisition by SciQuest.com.
The Company expects to incur approximately $1.9 million to complete development
of all aspects of BioSupplyNet's e-commerce technology. This development is
projected to be completed by March 2000.
As the acquisition of BioSupplyNet was a stock for stock transaction which
was structured as a tax free exchange, the purchase price of BioSupplyNet was
in excess of the carryover tax basis of the assets acquired. This resulted in
the immediate recognition of a deferred tax liability of and additional
goodwill of $339,700 as the difference between the recognized fair value of the
acquired assets and their historical tax basis is not deductible for tax
purposes.
F-13
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma consolidated financial information
reflects the results of operations of the Company for the years ended December
31, 1997 and 1998, and the six months ended June 30, 1998 as if the acquisition
of BioSupplyNet had occurred on January 1, 1997 and 1998, respectively, and
after giving effect to the purchase accounting adjustments. These pro forma
results are not necessarily indicative of what the Company's operating results
would have been had the acquisition actually taken place on January 1, 1997 or
January 1, 1998, and may not be indicative of future operating results.
<TABLE>
<CAPTION>
Year Ended
------------------------
December December Six Months Ended
31, 31, June 30,
1997 1998 1998
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenue.......................... $ 558,791 $ 1,098,177 $ (734,056)
Operating loss................... $ (919,308) $(4,427,128) $(1,210,696)
Net loss......................... $(1,158,359) $(4,139,696) $(1,118,021)
Net loss available to common
stockholders.................... $(1,158,359) $(4,468,419) $(1,118,021)
Net loss per common share........ $ (0.46) $ (1.47) $ (0.36)
</TABLE>
4.Management Services
During the years ended December 31, 1996 and 1997, certain members of the
Company's management provided services to the Company on a full time basis for
no consideration. A charge to general and administrative expenses and an
increase to additional paid in capital for $180,000 in each of 1996 and 1997
were recorded to reflect the value of these services. The amount of this charge
was based on management's estimate of the market rate of compensation for these
individuals in a start-up company environment.
5.Investments
The aggregate fair values of investment securities at December 31, 1998 and
June 30, 1999 along with unrealized gains and losses determined on an
individual security basis are as follows:
December 31, 1998
<TABLE>
<CAPTION>
Gross Market
Description Cost Unrealized Loss Value
<S> <C> <C> <C>
Short-Term Investments:
U.S. Government obligations........ $ 1,893,367 $ (6,673) $ 1,886,693
=========== ======== ===========
June 30, 1999
<CAPTION>
Gross Market
Description Cost Unrealized Loss Value
<S> <C> <C> <C>
Short-Term Investments:
U.S. Government obligations........ $15,732,620 $ (7,278) $15,732,620
----------- -------- -----------
Long-Term Investments:
U.S. Government obligations........ 9,907,091 -- 9,907,091
Corporate Bonds.................... 321,197 -- 321,197
----------- -------- -----------
$10,228,288 $ -- $10,228,288
=========== ======== ===========
</TABLE>
F-14
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6.Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1997 1998 1999
<S> <C> <C> <C>
Furniture and equipment...................... $ -- $ 42,094 $ 193,216
Computer software and equipment.............. 40,606 408,752 1,030,153
Leasehold improvements....................... -- -- 13,839
-------- -------- ----------
Total costs................................ 40,606 450,846 1,237,208
Less accumulated depreciation................ (21,194) (93,386) (190,844)
-------- -------- ----------
Net book value............................. $ 19,412 $357,460 $1,046,364
======== ======== ==========
</TABLE>
7.Other Assets
Other assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
<S> <C> <C> <C>
Goodwill...................................... $ -- $ 638,416 $ 638,416
Web site agreements........................... -- 80,766 80,766
Source Book................................... -- 378,592 378,592
Capitalized software costs.................... -- 364,148 364,148
Deposits...................................... -- -- 107,029
Other......................................... 7,152 20,248 10,294
------ ---------- ----------
7,152 1,482,170 1,579,245
Less accumulated amortization................. -- (168,061) (508,794)
------ ---------- ----------
$7,152 $1,314,109 $1,070,451
====== ========== ==========
</TABLE>
8.Accrued Liabilities
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
<S> <C> <C> <C>
Deferred revenues.............................. $ 87,750 $136,024 $ 23,896
Accrued compensation........................... 45,921 139,219 428,272
Professional services.......................... -- -- 318,478
Less accumulated amortization.................. 8,596 4,760 361,154
-------- -------- ----------
$142,267 $280,003 $1,131,800
======== ======== ==========
</TABLE>
F-15
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9.Income Taxes
The components of the Company's income tax benefit for the year ended
December 31, 1997, 1998 and the six months ended June 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
For the Year Ended For the
December 31, Six Months Ended
------------------ June 30,
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal............................... $ -- $ -- $ --
State................................. -- -- --
------- ---------- ---------
-- -- --
------- ---------- ---------
Deferred:
Federal............................... -- (44,158) (88,327)
State................................. -- (10,537) (21,063)
------- ---------- ---------
-- (54,695) (109,390)
------- ---------- ---------
Total............................... $ -- $ (54,695) $(109,390)
======= ========== =========
</TABLE>
The Company recognized a deferred tax benefit of $54,695 and $109,390 for
the year ended December 31, 1998 and the six months ended June 30, 1999,
respectively, resulting primarily from the reduction of the difference between
the book and tax basis of the assets and liabilities recorded in conjunction
with the acquisition of BioSupplyNet.
The Company did not have an income tax provision for the years ended
December 31, 1996 and 1997 due to net operating losses incurred during the
portion of these years that the Company was a taxable entity (see Note 2).
As of December 31, 1997 and 1998 and June 30, 1999 the Company had federal
and state net operating loss carryforwards of approximately $1,800,000,
$4,400,000, and $12,000,000, respectively. The use of these federal net
operating loss carryfowards may be subject to limitation under the rules
regarding a change in stock ownership and separate return limitations years as
determined by the Internal Revenue Code. The federal and state net operating
loss carryforwards will begin to expire in 2012.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1996, 1997 and 1998 and June 30, 1999 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------- June 30,
1997 1998 1999
<S> <C> <C> <C>
Net operating loss carryforwards....... $ 139,094 $ 1,708,406 $ 4,676,708
Accrual to cash adjustment............. 76,852 324,514 243,397
Other.................................. 7,786 30,832 22,921
--------- ----------- -----------
Total deferred tax assets............ 223,732 2,063,752 4,943,026
Valuation allowance for deferred..... (223,732) (2,063,752) (4,943,026)
--------- ----------- -----------
Deferred tax assets.................. -- -- --
--------- ----------- -----------
Acquired intangibles................... -- (285,005) (175,615)
--------- ----------- -----------
Total deferred tax liabilities....... -- (285,005) (175,615)
--------- ----------- -----------
Net deferred tax liability........... $ -- $ (285,005) $ (175,615)
========= =========== ===========
</TABLE>
F-16
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1998, the Company recorded deferred tax liabilities of $339,700 in
conjunction with the acquisition of BioSupplyNet.
The Company has provided a valuation allowance against the balance of its
deferred tax assets since realization of these benefits cannot be reasonably
assured. The change in valuation allowance was an increase of $142,374, $81,358
and $1,840,020 in 1996, 1997 and 1998, respectively, and $2,879,274 for the six
months ended June 30, 1999. The charge primarily relates to additional
operating losses in those years. The 1998 deferred tax asset has been adjusted
to reflect the net operating loss carryforward of BioSupplyNet.
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the provision (benefit) for income taxes as follows:
<TABLE>
<CAPTION>
Year Ended Six Months
-------------------------------------- Ended
December 31, December 31, December 31, June 30,
1996 1997 1998 1998
<S> <C> <C> <C> <C>
Effective rate.......... 0% 0% (1%) (1%)
--------- --------- ----------- -----------
United States Federal
tax at statutory rate.. $(185,137) $(234,494) $(1,453,942) $(2,665,466)
State taxes (net of
Federal benefit)....... (26,954) (34,140) (211,677) (383,417)
Change in valuation
allowance.............. 142,374 81,358 1,840,020 2,879,274
Acquired research and
development write-off.. -- -- 312,963 --
Nondeductible
compensation........... 70,110 70,110 -- --
Acquired net operating
losses................. -- -- (583,029) --
Other nondeductible
expenses............... -- -- 48,688 31,893
Other................... (393) 117,166 (7,718) 28,326
--------- --------- ----------- -----------
Provision (benefit) for
income tax............. $ -- $ -- $ (54,695) $ (109,390)
========= ========= =========== ===========
</TABLE>
10.Notes Payable
The Company's debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
<S> <C> <C> <C>
Notes payable to
officers and
stockholders........... $ 146,851 $ -- $ --
Bank loan............... 91,575 79,188 72,306
--------- -------- --------
238,426 79,188 72,306
Less current maturities. (159,238) (14,060) (14,594)
--------- -------- --------
Long-term debt.......... $ 79,188 $ 65,128 $ 57,712
========= ======== ========
</TABLE>
In October 1998, the Company refinanced the remaining outstanding balance on
the bank loan. The bank loan was refinanced at a 7.75% interest rate and is
collateralized by a certificate of deposit held at a bank, which is shown as
restricted cash in the accompanying consolidated balance sheets. The bank loan
is payable in monthly installments of $1,643 through October 2003. Subsequent
to June 30, 1999, the bank loan was repaid.
The notes payable to officers and stockholders had a stated interest rate of
15% and were payable on demand. These notes were repaid in July 1998.
F-17
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Annual maturities of long-term debt for the years subsequent to December 31,
1998 are as follows:
<TABLE>
<S> <C>
1999............................................................ $14,060
2000............................................................ 15,189
2001............................................................ 16,409
2002............................................................ 17,727
2003............................................................ 15,803
-------
Total......................................................... $79,188
=======
</TABLE>
11.Capital Stock
In June 1997, the Company issued a common stock dividend of 21 1/2 shares
for each issued and outstanding share of common stock and the remaining shares
of common stock into Class A common stock. In September 1997, the Company
converted 250,020 shares of common stock to Class B common stock. All share and
per share amounts in the accompanying financial statements for all periods
presented have been retroactively adjusted to reflect these events.
During the year ended December 31, 1998, the Company's Articles of
Incorporation were amended to authorize 10,000,000 shares of preferred stock
with no par value, of which 769,231 shares were designated as Series A
convertible preferred stock (the "Series A preferred"), 3,835,180 shares were
designated as Series B convertible preferred stock (the "Series B preferred")
which are mandatorily redeemable, 601,046 shares were designated as Series C
convertible preferred stock (the "Series C preferred"), and 4,794,543 shares
were undesignated. The Company authorized 20,000,000 shares of common stock, of
which 250,020 shares were designated as Class B common stock and 19,749,980
were designated as Class A common stock. In February 1999, the Company's
Articles of Incorporation were amended and restated to increase the number of
authorized shares of Series C preferred to 700,000 and to decrease the number
of undesignated preferred shares to 4,695,589. In March 1999, the Company
reincorporated under the laws of the State of Delaware and amended and restated
its Certificate of Incorporation to assign a par value of $0.001 to all classes
of capital stock. In June 1999, the Company's Certificate of Incorporation was
amended whereby 3,312,720 shares of preferred stock were designated as Series D
convertible preferred stock (the "Series D preferred"), which are mandatorily
redeemable, and the number of undesignated preferred shares were decreased to
1,382,869. In July 1999, the Company filed a Certificate of Designation whereby
126,500 shares of preferred stock were designated a Series E convertible
preferred stock (the "Series E preferred"), and which decreased the number of
undesignated preferred shares to 1,256,369. At all times, the Company shall
reserve a number of shares of unissued Class A common stock for the purpose of
effecting the conversion of its issued and outstanding shares of all series of
preferred stock and Class B common stock and the exercise of all outstanding
warrants and options to purchase the Company's Class A common stock.
In July 1996, the Company sold 250,020 shares of common stock to an investor
for $50,000 in cash and the cancellation of convertible debt of $50,000. These
shares were converted to Class B common stock in September 1997.
In October 1997, the Company sold 678,519 shares of Series A preferred in a
private placement transaction in exchange for proceeds of $600,596, net of
issuance costs of $16,854, and issued 90,702 shares of Series A preferred in
exchange for the cancellation of notes payable of $80,000 and accrued interest
of $2,539. The notes payable were issued between March and September 1997, and
bore interest at 10% per annum. Certain notes were issued with a total of 9,615
warrants, which expire in 2000, for the purchase of Class A common stock with
exercise prices of $1.25 per share. The Company did not record any additional
paid in capital related to the value of these warrants because the fair market
value of the warrants at the date of issuance, as calculated using the Black-
Scholes option pricing model, was de minimis.
F-18
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In September 1998, the Company issued 546,405 shares of Series C preferred
and 126,780 options and 107,288 warrants to purchase the Company's Class A
common stock to the former stockholders, option holders and warrant holders of
BioSupplyNet in exchange for all of the outstanding common and preferred stock,
options and warrants of BioSupplyNet (see Note 3).
In March 1999, the Company sold 89,408 shares of Series C preferred to an
officer of the Company at $2.80 per share, which shares are subject to vesting
over a two year period.
Rights, Preference and Terms of Capital Stock
The following is a summary of the rights, preferences, and terms of the
Company's outstanding series of common and preferred stock:
Dividends
No dividends may be paid with respect to the holders of common stock, Series
A preferred, Series B preferred, or Series C preferred until equivalent
dividends have been declared and paid on all outstanding shares of the Series D
preferred. The Company cannot pay any dividends to the stockholders of Series A
preferred shares until equivalent dividends have been declared and paid to the
holders of Series B preferred shares. The holders of Series A preferred shall
be entitled to receive in any fiscal year, when and if declared by the board of
directors, non-cumulative dividends of at least 5% of the per share purchase
price of the Series A preferred. The Company cannot pay any dividends to the
holders of Series C or Series E preferred shares until equivalent dividends
have been declared and paid to the holders of Series A and Series B preferred
shares. The Company is under no obligation to pay dividends unless dividends
are declared by the board of directors.
Liquidity
In the event of any liquidation, dissolution, or winding up of the Company,
holders of Series D preferred shares shall be entitled to receive an amount
equal to the greater of $11.32 per share, adjusted for any stock splits or
dividends, plus any unpaid or accrued dividends, plus an amount equal to 10%
return per annum when combined with any dividends paid or the amount per share
that would have been received if all shares of Series D preferred had been
converted into common stock immediately prior to the liquidation, dissolution,
or winding up of the Company. After payments have been made to the holders of
Series D preferred shares, holders of Series B preferred shares shall be
entitled to receive, prior to payments to any holders of Class A or Class B
common stock, Series A preferred shares, Series C preferred shares, or Series E
preferred shares an amount equal to $2.80 per share, adjusted for any stock
splits or dividends, plus any accrued but unpaid dividends, plus an amount
equal to a 10% return per annum when combined with any dividends paid or the
amount per share that would have been received if all shares of Series D and B
preferred had been converted into common stock immediately prior to the
liquidation dissolution, or winding up of the Company. After payment has been
made to the holders of Series D and B preferred shares, holders of Series A
preferred shares shall be entitled to receive in liquidation, prior to payments
to any holders of Series C or Series E preferred shares and common
stockholders, an amount equal to $0.91 per share, adjusted for any stock splits
or dividends, plus any accrued but unpaid dividends. After payments have been
made to the holders of Series D, Series B and Series A preferred shares,
holders of Series C and Series E preferred shall be entitled to receive in
liquidation, prior to payments to common stockholders, an amount equal to $2.80
and $11.32 per share, respectively, on a pro rata basis, adjusted for any stock
splits or dividends, plus any accrued but unpaid dividends. After payment has
been made to the holders of Series D, Series B, Series A, Series C, and Series
E preferred shares, the holders of Class B common stock shall be entitled to
receive in liquidation, an amount equal to $0.40 per share plus any accrued and
unpaid dividends. After payments have been made to the holders of Series D,
Series B, Series A, and Series C preferred shares and Class B common shares any
remaining assets of the Company will be distributed to holders of Class A
common shares and no further distributions will be
F-19
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
made to the Class B common stockholders or to the preferred stockholders unless
the amount per share distributed to the holders of Class A common stock would
be greater than the amount paid to the holders of the Class B common stock, in
which case an additional amount will be paid to the holders of Class B common
stock.
The following is a summary of the liquidation values for the Series D,
Series B, Series A, and Series C preferred shares, and Class B common stock as
of December 31, 1998 and June 30, 1999, in the order of preference:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
<S> <C> <C>
Series D mandatorily preferred stock............... $ -- $35,589,460
Series B mandatorily preferred stock............... 10,882,702 11,433,639
Series A preferred stock........................... 683,135 683,135
Series C preferred stock........................... 1,524,470 1,774,470
Class B common stock............................... 100,000 100,000
----------- -----------
Total............................................ $13,190,307 $49,580,704
=========== ===========
</TABLE>
Voting
Holders of Series A, Series B, Series C, Series D, and Series E preferred
shares, and Class B common shares have voting rights on an as if converted
basis.
Conversion
Each share of Series A, Series B, Series C, Series D, and Series E
preferred, at the option of the holder, is convertible into Class A shares of
common stock of the Company at a one to one conversion ratio, subject to
certain adjustments as defined. Conversion is automatic for holders of Series A
preferred shares upon the closing of a firm commitment underwritten public
offering with gross proceeds of at least $5,000,000 at a minimum price of $2.50
per share. Conversion is automatic for holders of Series B and Series D
preferred shares upon the closing of a qualified initial public offering of the
Company's common stock. Conversion is automatic for holders of Series C
preferred shares upon the closing of a firm commitment underwritten public
offering. Class B common stockholders shall have the same conversion rights and
obligations as Series A preferred.
Preemptive Rights
Holders of Series B and D preferred shares have the right of first refusal
to purchase any new securities, as defined in the Certificate of Incorporation,
that the Company may propose to sell and issue. These rights terminate upon
closing of a qualifying initial public offering. Holders of Series A preferred
shares and Class B common shares have contractual rights of first refusal to
purchase certain new securities that the Company may propose to sell and issue.
These rights also terminate upon the closing of a qualified initial public
offering.
12.Mandatorily Redeemable Convertible Preferred Stock
In July 1998, the Company sold 1,442,500 shares of Series B preferred in a
private placement transaction for $2.80 per share which resulted in net
proceeds of $4,033,503 and issued 187,394 shares of Series B preferred in
exchange for the cancellation of notes payable in the aggregate principal
amount of $515,000. The notes payable were issued between March and June 1998
and bore interest at 6% per annum. Attached to the notes were warrants to be
issued upon repayment or conversion of such notes. The number of warrants was
determined based on a formula as set forth in the agreements. When the notes
payable were converted to
F-20
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Series B preferred, the Company issued 57,545 warrants to purchase shares of
Series B preferred with exercise prices of $2.80 per share. The Company
recorded a debt discount of $12,084 for the value of these warrants as
determined using the Black-Scholes option pricing model. In October and
November of 1998, the Company sold 2,147,732 shares of Series B preferred in
private placement transactions in exchange for proceeds of $6,005,476.
Upon any request by any holder of Series B preferred shares at any time
after July 30, 2003, the Company must redeem the Series B preferred in three
equal annual installments. The redemption price will be equal to the greater of
the appraised value of the Series B preferred shares at the date of the
redemption request or an amount equal to the invested amount plus interest at a
rate of 10% per annum, less the aggregate amount of all dividends actually paid
since the issuance date.
As the redemption price of the Series B preferred is variable in amount, its
carrying value is required to be adjusted to the estimated redemption amount at
each balance sheet date. The Company recorded charges to stockholders' equity
of $328,723 for the year ended December 31, 1998 and $8,460,051 for the six
months ended June 30, 1999, to reflect the Series B preferred at its estimated
fair value at each date based on the price of the most recent sales of the
Company's preferred stock.
In May and June, 1999, the Company sold 3,312,720 shares of Series D
preferred in a private placement transaction for $11.32 per share which
resulted in proceeds of $35,860,975, net of issuance costs of $1,645,641. In
addition, the Company issued 662,535 warrants to purchase the Company's common
stock at an exercise price of $11.32 per share and 27,517 warrants to purchase
the Company's common stock at an exercise price of $14.15 per share. The
estimated fair value of the warrants of $726,137 according to the Black-Scholes
pricing model using an estimated fair value of $5 per common share for the
Company's common stock was recorded as a reduction in the carrying value of the
Series D preferred and an increase to additional paid in capital.
Upon any request by any holder of Series D preferred shares at any time
after the Initial Redemption Exercise Date, the Company must redeem the Series
D preferred at the amount invested per share plus a per annum interest charge
for the period the share has been outstanding of 10% compounded annually and
prorated for any partial year less the aggregate amount of all dividends
actually paid since the issuance date.
The following table summarizes the Company's outstanding shares and carrying
value of mandatorily redeemable convertible preferred stock at December 31,
1998 and June 30, 1999:
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------------- -----------------------
Shares Carrying Shares Carrying
Outstanding Value Outstanding Value
<S> <C> <C> <C> <C>
Series B preferred.............. 3,777,626 $10,882,702 3,777,626 $18,888,130
Series D preferred.............. -- -- 3,312,720 35,589,460
--------- ----------- --------- -----------
3,777,626 $10,882,702 7,090,346 $54,477,590
========= =========== ========= ===========
</TABLE>
13.Stock Options and Warrants
Stock Options
In September 1997, the Company adopted the SciQuest, Inc. Stock Option Plan
(the "Plan") which provided for the grant of up to 225,000 employee stock
options. In September 1998, the Plan was amended to provide for the grant of up
to 838,891 employee stock options. In February 1999, the Plan was amended to
provide for the grant of up to 979,017 employee stock options. In August 1999,
the Plan was further amended to allow for the grant of up to 1,745,465 employee
stock options. Stock options granted under the Plan are for
F-21
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
periods not to exceed ten years. Options granted under the Plan during the
years ended December 31, 1997 and 1998 and the six months ended June 30, 1999
generally vest in periods between three and five years as determined by the
board of directors, although certain grants have been vested immediately upon
the grant of the option.
The Company did not grant any stock options during the year ended December
31, 1996. The Company continues to apply APB No. 25 and related interpretations
in accounting for the Plan. The Company recognized $5,255 in non-cash
compensation expense related to amortization of deferred compensation during
the six months ended June 30, 1999. No deferred compensation or compensation
expense was recorded related to stock option grants during the years ended
December 31, 1996, 1997 and 1998. Had compensation expense for the Plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the methods of SFAS No. 123, the Company's net loss for the
years ended December 31, 1997 and 1998, and the six months ended June 30, 1999
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 June 30, 1999
----------------- ----------------- -------------
<S> <C> <C> <C>
Net loss available to common
stockholders:
As reported............... $689,689 $4,550,329 $16,190,267
Pro Forma................. $691,591 $4,554,641 $16,198,187
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 1997 and 1998
and the six months ended June 30, 1999: risk free interest of 5.5%, 6.0%, and
6.0%, respectively; expected lives of five years; dividend yields of 0%; and
volatility factors of 0%.
A summary of the status of the Plan as of December 31, 1997 and 1998, and
June 30, 1999 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------- Six Months Ended
1997 1998 June 30, 1999
------------------- ------------------- -------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- $ -- 77,537 $0.09 662,193 $0.20
Granted................. 77,537 0.09 585,476 0.23 279,572 0.88
Exercised............... -- -- -- -- (78,902) 0.12
Forfeited............... -- -- (820) 0.28 (71,000) 0.28
------ ----- ------- ----- ------- -----
Outstanding at end of
period................. 77,537 $0.09 662,193 $0.20 791,863 $0.43
====== ===== ======= ===== ======= =====
</TABLE>
All incentive stock options granted during the years ended December 31, 1997
and 1998 were granted with an exercise price equal to the fair value of the
underlying common stock on the grant date, as determined by the board of
directors. The Company recorded $44,598 of deferred compensation during the six
months ended June 30, 1999 to reflect the difference between the aggregate fair
market value and exercise price of all stock options granted during this period
with an exercise price below the fair market value of the Company's common
stock at the date of the grant. The weighted average fair value of options
granted during the years ended December 31, 1997 and 1998, and the six months
ended June 30, 1999 according to the Black-Scholes pricing model was $0.07,
$0.03 and $0.45, respectively.
F-22
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the Company's stock options
at June 30, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average Number of
Range of of Options Contractual Exercise Options
Exercise Prices Outstanding Life Price Exercisable
<S> <C> <C> <C> <C>
$0.003 - 0.10............... 202,004 8.5 $ .06 34,889
$0.003 - 0.28............... 531,787 9.3 .28 210,591
$0.003 - 3.15............... 58,072 9.8 3.15 442
------- --- ----- -------
791,863 9.1 $ .43 245,922
======= === ===== =======
</TABLE>
Stock option grants subsequent to June 30, 1999 (unaudited) are as follows:
<TABLE>
<CAPTION>
Shares Weighted Average
Month of Grant Underlying Options Exercise Price
<S> <C> <C>
July 1999............................. 78,950 $5.00
August 1999........................... 10,000 $5.00
September 1999........................ 157,500 $5.00
September 1999........................ 97,400 $11.50
</TABLE>
Subsequent to June 30, 1999, the Company recorded approximately $1,800,000
of deferred compensation related to these grants to reflect the difference
between the aggregate fair market value and exercise price of these options.
Warrants
At December 31, 1997 and 1998, and June 30, 1999, the Company had 9,615,
116,903, and 780,133, respectively, of warrants outstanding and exercisable to
purchase the Company's Class A common stock at prices ranging from $1.25 to
$14.15. These warrants expire at various dates between 2000 and 2004. At
December 31, 1998 and June 30, 1999, the Company had 57,545 warrants
outstanding and exercisable to purchase the Company's Series B preferred at
exercise prices of $2.80. These warrants convert to warrants to purchase the
Company's common stock upon an IPO and expire in 2003 if unexercised.
14.Commitments and Contingencies
The Company leases certain equipment under various noncancellable capital
leases and leases its office space and certain equipment under operating
leases. Future minimum lease payments required under the leases at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
<S> <C> <C>
1999........................................ $ 22,076 $59,234
2000........................................ 22,076 9,754
2001........................................ 15,672 2,145
-------- -------
Total minimum lease payments.............. 59,824 71,133
=======
Less amount representing interest from 12 to
32%........................................ (6,694)
--------
Present value of net minimum lease payment.. 53,130
Less current maturities..................... (18,048)
--------
Long-term maturities of capital lease
obligations................................ $ 35,082
========
</TABLE>
Rent expense recognized under operating leases totaled $3,400 and $34,490
for the years ended December 31, 1997 and 1998, respectively. For the six
months ended June 30, 1999, rent expense totaled $113,629.
F-23
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In February 1999, the Company entered into a lease agreement for a period of
three years with a monthly rental of $16,771 for additional office space.
The Company is involved in certain legal proceedings as a part of its normal
course of business. Management does not believe that the ultimate resolution of
these matters will have a material impact on the Company's results of
operations or financial position in any quarterly or annual period.
15.Subsequent Event
On July 30, 1999, the Company purchased all of the outstanding common stock
of Internet Auctioneers International, Inc. ("IAI") in exchange for the
issuance of 114,995 shares of the Company's Series E convertible preferred. In
connection with the purchase of IAI, a former shareholder and officer of IAI
entered into a two year employment agreement with the Company. In the event
that this individual were to voluntarily terminate his employment prior to the
end of the two year period, this individual would be required to pay an amount
equal to $400,000, reduced by $50,000 upon the completion of each 90 day period
of continuous employment, payable in either cash or by surrendering a number of
Series E preferred shares of an equivalent value, as determined in the
individual's employment agreement. The Company also entered into a three year
non-compete agreement with this individual. The purchase price of $1,400,000
consisted of the 114,995 shares of the company's Series E preferred, with an
estimated fair value of $11.32 per share, based on the per share price of the
Company's Series D preferred that was sold in May and June 1999, and the
assumption of $94,495 of net liabilities of IAI. The purchase price of IAI was
allocated as follows:
<TABLE>
<S> <C>
Cash and cash equivalents..................................... $ 5,000
Goodwill...................................................... 995,000
Deferred compensation......................................... 400,000
----------
Total Assets................................................ $1,400,000
==========
Accounts payable.............................................. $ 57,000
Notes payable................................................. 96,000
Series E convertible preferred stock.......................... 1,247,000
----------
$1,400,000
==========
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
BioSupplyNet, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit), and of cash flows present
fairly, in all material respects, the financial position of BioSupplyNet, Inc.
(the "Company") at June 30, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
April 1, 1999
Raleigh, North Carolina
F-25
<PAGE>
BioSupplyNet, Inc.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, June 30,
1997 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 435,678 $ 14,097
Accounts receivable................................. 52,325 93,911
---------- -----------
Total current assets.............................. 488,093 108,008
---------- -----------
Property and equipment, net........................... 64,240 48,639
Other assets, net..................................... 75,000 15,000
---------- -----------
Total assets...................................... $ 627,243 $ 171,647
========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable.................................... $ 233,364 $ 121,617
Accrued expenses.................................... 28,715 21,765
Deferred revenue.................................... -- 48,771
Advances from related party......................... -- 235,000
---------- -----------
Total current liabilities......................... 262,079 427,153
---------- -----------
Stockholders' equity (deficit):
Series A convertible preferred stock, $0.001 par
value, 1,200,000 shares authorized, issued and
outstanding........................................ 1,200 1,200
Common stock, $0.001 par value, 3,000,000 shares
authorized, 327,833 shares issued and outstanding.. 328 328
Additional paid-in capital.......................... 1,187,394 1,187,394
Accumulated deficit................................. (823,758) (1,444,428)
---------- -----------
Total stockholders' equity (deficit)................ 365,164 (255,506)
---------- -----------
Total liabilities and stockholders' equity (defi-
cit)............................................. $ 627,243 $ 171,647
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
BioSupplyNet, Inc.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
June 30, June 30,
1997 1998
<S> <C> <C>
Revenues................................................. $ 281,762 $ 627,404
Cost of revenues......................................... 342,417 371,473
--------- ---------
Gross profit (loss).................................. (60,655) 255,931
--------- ---------
Operating expenses:
Product development.................................... 417,196 201,970
Sales and marketing.................................... 243,298 517,470
General and administrative............................. 120,301 155,420
--------- ---------
Total operating expenses............................. 780,795 874,860
--------- ---------
Operating loss....................................... (841,450) (618,929)
--------- ---------
Interest income (expense):
Interest income........................................ 17,692 3,756
Interest expense....................................... -- (5,497)
--------- ---------
Net interest income (expense)........................ 17,692 (1,741)
--------- ---------
Net loss............................................. $(823,758) $(620,670)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
BioSupplyNet, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------- -------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ------ ------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1996................... -- $ -- -- $-- $ -- $ -- $ --
Issuance of common
stock in exchange for
assets................ -- -- 327,833 328 119,672 -- 120,000
Issuance of convertible
preferred stock....... 1,200,000 1,200 -- -- 1,067,722 -- 1,068,922
Net loss............... -- -- -- -- -- (823,758) (823,758)
--------- ------ ------- ---- ---------- ----------- ----------
Balance at June 30,
1997................... 1,200,000 1,200 327,833 328 1,187,394 (823,758) 365,164
Net loss................ -- -- -- -- -- (620,670) (620,670)
--------- ------ ------- ---- ---------- ----------- ----------
Balance at June 30,
1998................... 1,200,000 $1,200 327,833 $328 $1,187,394 $(1,444,428) $ (255,506)
========= ====== ======= ==== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
BioSupplyNet, Inc.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
June 30, June 30,
1997 1998
<S> <C> <C>
Cash flows from operating activities
Net loss............................................... $ (823,758) $(620,670)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 60,601 75,601
Changes in operating assets and liabilities:
Accounts receivable.................................. (52,325) (41,586)
Accounts payable..................................... 233,364 (111,747)
Deferred revenue..................................... -- 48,771
Accrued expenses..................................... 28,715 (6,950)
---------- ---------
Net cash used in operating activities............... (553,403) (656,581)
---------- ---------
Cash flows from investing activities
Purchase of property and equipment..................... (79,841) --
---------- ---------
Net cash used in investing activities............... (79,841) --
---------- ---------
Cash flows from financing activities
Advances from related party............................ -- 235,000
Proceeds from issuance of preferred stock, net......... 1,068,922 --
---------- ---------
Net cash provided by financing activities........... 1,068,922 235,000
---------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ 435,678 (421,581)
Cash and cash equivalents at beginning of year.......... -- 435,678
---------- ---------
Cash and cash equivalents at end of year................ $ 435,678 $ 14,097
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
BioSupplyNet, Inc.
NOTES TO FINANCIAL STATEMENTS
1. The Company
BioSupplyNet, Inc. (the "Company") was incorporated in February 1996 and
began operations in October 1996. The Company provided the biomedical research
industry with an annual printed catalogue of vendors of biomedical research
supplies and equipment and of scientific products, "The BioSupplyNet Source
Book" (the "Source Book"). Research scientists, lab technicians, and purchasing
agents use the Source Book to locate companies and supplies and equipment used
in biomedical research. Users were provided the Source Book at no charge. The
Company primarily generated revenues from the sale of advertisements in the
Source Book. In addition, the Company was developing an e-commerce product
offering to allow research scientists, lab technicians and purchasing agents to
quickly identify suppliers of specific scientific products.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
Property and Equipment
Property and equipment is primarily comprised of furniture and computer
equipment which are recorded at cost and depreciated using the straight-line
method over their estimated useful lives which range from three to seven years.
Intangible Assets
Intangible assets, which resulted from the issuance of common stock in
exchange for the rights to the Source Book in October 1996 (see Note 6) were
recorded at the estimated fair market value of the Source Book and are being
amortized over a two year period. Amortization expense related to intangible
assets was $45,000 and $60,000 during the years ended June 30, 1997 and 1998,
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 and the
cost of development of the Company's search engine and electronic taxonomy and
ontology conventions. Product development costs are expensed as incurred.
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 Web sites and major enhancements to the Web
sites and the date of general release of the Web sites have substantially
coincided.
F-30
<PAGE>
BioSupplyNet, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and advances from related party are
carried at cost. The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and advances from related party approximates their
fair value, due to the short term nature of these items.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment and
intangible assets in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets or the business to which such intangible assets relate. No impairments
were required to be recognized during the years ended June 30, 1997 and 1998.
Income Taxes
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and for tax carryforwards at enacted statutory
tax rates in effect for the years in which the differences are excepted to
reverse. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce tax assets to the amounts
expected to be realized.
Revenue Recognition
The Company's revenues have historically been derived from the sale of
advertising to be included in the Source Book in printed form.
Revenues from advertising included in the Source Book are recognized at the
date the Source Book is published and distributed to the purchasers of
scientific products as the Company has met all of its obligations to the
advertisers at that date.
Cost of Revenue
Cost of revenue is primarily comprised of the costs of publishing and
distributing the Source Book.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process. Sales
and marketing expenses also include costs of advertising, trade shows and
certain indirect costs.
Advertising expense totaled $9,000 for the year ended June 30, 1997. There
was no advertising expense for the year ended June 30, 1998.
Stock Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees"
F-31
<PAGE>
BioSupplyNet, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
("APB No. 25"), and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Under APB No. 25, compensation expense is based
on the difference, if any, on the date of the grant, between the fair value of
the Company's stock and the exercise price of the stock option. The Company
accounts for stock issued to non-employees in accordance with the provisions of
SFAS No. 123. No compensation expense was recognized related to stock option
grants during the years ended June 30, 1997 and 1998.
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. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers comprising the
Company's customer base and because all customers are located in the United
States.
3.Property and Equipment
Property and equipment consist of the following at June 30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Furniture and fixtures................................... $ 6,426 $ 6,426
Computer hardware........................................ 73,415 73,415
-------- --------
Total costs............................................ 79,841 79,841
Less accumulated depreciation............................ (15,601) (31,202)
-------- --------
Property and equipment, net............................ $ 64,240 $ 48,639
======== ========
</TABLE>
4.Advances from Related Party
On June 30, 1997, the Company entered into a revolving credit agreement,
secured by the Company's advertisement confirmations, with a major shareholder
of the Company. Advances under the revolving credit line may not exceed the
lessor of $450,000 or 80% of the dollar amount of the then outstanding
advertising confirmations.
The revolving credit line expired on June 30, 1998 and amounts outstanding
became due on demand. Interest accrues at 10% per annum on the outstanding
advances under the revolving credit line. In addition, the Company must issue
to the lender warrants to purchase the number of shares of common stock of the
Company equal to the principal amount of all advances provided, however, the
number of shares of common stock subject to warrants shall not exceed 450,000.
The exercise price of any warrants granted will be $1.00 per share. At June 30,
1998, outstanding borrowings under the line of credit totaled $235,000.
Accordingly, the Company granted 235,000 warrants to the lender in fiscal 1999.
The fair value of the warrants of $14,100, as calculated by the Black Scholes
pricing method, was recorded as additional borrowing cost in fiscal 1998. The
warrants are exercisable for ten years from the date of issuance. The
outstanding balance of the advance from related party was paid in fiscal 1999.
F-32
<PAGE>
BioSupplyNet, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5.Income Taxes
Significant components of the Company's deferred tax assets and liabilities
at June 30, 1997 and 1998, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Domestic net operating loss carryforwards................ $305,466 $522,822
-------- --------
Total deferred tax assets.............................. 305,466 522,822
Valuation allowance for deferred assets.................. (305,466) (519,105)
-------- --------
Net deferred tax assets................................ -- 3,717
-------- --------
Fixed assets............................................. -- (3,717)
-------- --------
Total deferred tax liabilities......................... -- (3,717)
-------- --------
Net deferred tax asset (liability)..................... $ -- $ --
======== ========
</TABLE>
The Company has provided a full valuation allowance against its net deferred
tax assets since realization of these benefits could not be reasonably assured.
The change in valuation allowance was an increase of $305,466 and $213,639 in
1997 and 1998, respectively, and relates to the net operating losses incurred
in these years.
As of June 30, 1997 and 1998 the Company had federal and state net operating
loss carryforwards of approximately $778,000 and $1,331,000, respectively. The
use of the federal net operating loss carryforwards may be subject to
limitation under the rules regarding a change in stock ownership and separate
return limitation years as determined by the Internal Revenue Code. The federal
and state net operating losses will begin to expire in 2012.
6.Capital Stock
On October 16, 1996, the Company issued 327,833 shares of common stock to
Cold Spring Harbor Laboratory in exchange for the rights to the Source Book,
the BioSupplyNet web site and other intangible assets. The Company recorded
this acquisition based on the fair values of the assets acquired as determined
based on the historical gross profit generated by the Source Book rather than
the fair value of the Company's common stock as the fair value of the assets
acquired were more readily determinable than the fair value of the Company's
common stock. This resulted in a value of $120,000 being allocated to the
assets acquired.
On October 16, 1996, the Company sold 1,000,000 shares of its Series A
Convertible Preferred Stock for $1,000,000. In June 1997, the Company sold an
additional 200,000 shares of Series A convertible preferred stock for $200,000.
The combined net proceeds to the Company were $1,068,922, net of related
expenses of $131,078. Each share of Series A convertible preferred stock is
convertible into one share of common stock. Preferred shares have the same
voting rights as common shares.
The holders of Series A convertible preferred stock are entitled to receive
dividends at the rate of $.08 per share per annum, payable out of funds legally
available therefore. Such dividends shall be payable only when, and if declared
by the Board of Directors, but shall accrue and be cumulative (whether or not
declared) from and after the second anniversary of the date of initial issuance
of Series A Preferred Stock.
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders' of the Series A preferred stock
are entitled to receive, prior and in preference to the holders of the common
stock, $1 per share plus all accrued or declared but unpaid dividends.
F-33
<PAGE>
BioSupplyNet, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7.Stock Options and Warrants
In December 1996, the Company adopted the 1996 Stock Plan (the "1996 Plan")
for which the Company reserved 492,000 common shares for issuance upon exercise
of options. The 1996 Plan provides that options may be granted to employees,
directors and consultants at exercise prices equal to the fair market value of
the Company's common stock on the date of grant for incentive stock options,
and at exercise prices below the fair value of the stock for non-qualified
options. Options are granted for periods up to ten years from the date of the
grant, except for incentive stock options granted to an employee owning more
than ten percent of the outstanding common stock, in which case the maximum
period is five years.
In addition to options granted under the 1996 Plan, 5,500 non-qualified
stock options were granted in fiscal 1997 under a separate agreement. Such
options are exercisable at $.001 per share at any time through October 16,
2001.
Transactions involving the 1996 Plan are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------- -------------------------
Shares Weighted Shares Weighted
Underlying Average Underlying Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year................ 357,200 $0.10 357,200 $0.10
Granted................. -- -- -- --
Forfeited............... -- -- -- --
------- ----- ------- -----
Outstanding at end of
year................... 357,200 $0.10 357,200 $0.10
======= ===== ======= =====
</TABLE>
The exercise price of all options outstanding under the 1996 Plan at June
30, 1998 was $.10 per share, the fair market value of the Company's common
stock on the date of grant as determined by the Company's Board of Directors.
The options vest over four years, and as of June 30, 1997 and 1998, 49,463 and
93,425 options respectively, were exercisable.
The Company continues to apply APB Opinion No. 25 in accounting for its
stock options grants and, accordingly, no compensation cost has been recognized
in the financial statements for its stock options which have exercise prices
equal to or greater than the fair value of the stock on the date of grant. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net loss would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net Loss:
As reported.............................................. $620,670 $823,758
Pro forma................................................ 622,632 825,604
</TABLE>
The per share weighted average fair value of stock options granted during
fiscal 1997 and 1998 was $0.02 on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for 1997
and 1998: expected dividend yield of 0%; risk free interest rate of 6%; an
expected option life of approximately four years; and a volatility factor of
0%.
8.Subsequent Event
On September 29, 1998, SciQuest.com, Inc. (the "Buyer") purchased all of the
outstanding common and preferred stock, stock options, and warrants of the
Company in exchange for 546,405 shares of the Buyer's Series C preferred,
126,780 options to purchase the Buyer's common stock, of which 124,813 were
granted at an exercise price of $0.28 per share and 1,967 were granted at an
exercise price of $0.003 per share, and 107,288 warrants to purchase the
Buyer's common stock at an exercise price of $2.80 per share.
F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
SciQuest.com, Inc.
Shares of Common Stock
----------------------
PROSPECTUS
----------------------
Donaldson, Lufkin & Jenrette
Deutsche Banc Alex. Brown
Hambrecht & Quist
DLJdirect Inc.
E*OFFERING
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
sales made hereunder after the date of this prospectus should create an
implication that the information contained in this prospectus or the affairs of
SciQuest.com have not changed since the date of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 25,020
National Association of Securities Dealers, Inc. fee............... $ 5,000
Nasdaq Stock Market listing fee.................................... $ 90,000
Accountants' fees and expenses..................................... $ *
Legal fees and expenses............................................ $ *
Blue Sky fees and expenses......................................... $ *
Transfer Agent's fees and expenses................................. $ *
Printing and engraving expenses.................................... $ *
Miscellaneous...................................................... $ *
--------
Total Expenses................................................... $ *
========
</TABLE>
- --------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Our Amended and Restated Certificate of Incorporation limits personal
liability for breach of the fiduciary duty of our directors to the fullest
extent provided by the Delaware General Corporation Law. Such provisions
provide that no director of SciQuest.com shall have personal liability to us or
to our stockholders for monetary damages for breach of fiduciary duty of care
or other duty as a director. However, such provisions shall not eliminate or
limit the liability of a director
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation or law;
. for voting or assenting to unlawful distributions; or
. for any transaction for which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under our bylaws,
any agreement, a vote of our stockholders or otherwise. Our certificate of
incorporation eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law
and provides that the registrant shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that such person is or was our director
or officer or is or was serving at our request as a director or officer of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our certificate of incorporation. We are not aware
of any threatened litigation or proceeding that may result in a claim for such
indemnification.
Section of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriters named therein.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
The share numbers presented below are provided with respect to our shares of
common stock and Series A convertible preferred stock, Series B mandatorily
redeemable convertible preferred stock, Series C convertible preferred stock,
Series D mandatorily redeemable convertible preferred stock and Series E
convertible preferred stock and reflect (1) various stock splits and (2) the
recapitalization of the Series A convertible preferred stock, Series B
mandatorily redeemable convertible preferred stock, Series C convertible
preferred stock, Series D mandatorily redeemable convertible preferred stock
and Series E convertible preferred stock into common stock, which will occur
immediately prior to completion of this offering.
Except as described below, there have been no securities sold by us within
the last three years that were not registered under the Securities Act.
(a) Issuances of Securities
On July 30, 1999, we issued an aggregate of 114,995 shares of Series E
convertible preferred stock in connection with our acquisition of Internet
Auctioneers International, Inc., in exchange for the shares of capital stock of
the former stockholders of Internet Auctioneers International, Inc., at a
conversion price of $11.32 per share.
In May and June 1999, we sold an aggregate of 3,312,720 shares of Series D
mandatorily redeemable convertible preferred stock to certain of our existing
stockholders and new investors, with attached stock purchase warrants
exercisable for an aggregate of 662,535 shares of common stock, at an aggregate
offering price of $37,500,000.
On March 1, 1999, we sold 89,408 shares of restricted Series C convertible
preferred stock to Antony Francis, our vice president of operations, at an
aggregate purchase price of $250,000.
On September 29, 1998, we (i) issued an aggregate of 546,405 shares of
Series C convertible preferred stock in connection with our acquisition of
BioSupplyNet, Inc., in exchange for the shares of capital stock of the former
stockholders of BioSupplyNet, Inc., at a conversion price of $2.80 per share,
and (ii) issued stock purchase warrants exercisable into an aggregate of
107,288 shares of common stock to former holders of stock purchase warrants to
purchase shares of capital stock of BioSupplyNet, Inc., at an exercise price of
$2.80 per share.
Between March 13, 1998 and June 15, 1998, we issued convertible promissory
notes in the aggregate principal amount of $515,000, which were converted into
an aggregate of 187,394 shares of Series B mandatorily redeemable convertible
preferred stock (including shares issued in respect of accrued interest on the
convertible promissory notes) on July 30, 1998. We also issued warrants to the
holders of the convertible promissory notes to purchase an aggregate of 57,545
shares of Series B mandatorily redeemable convertible preferred stock. Between
July 30, 1998 and November 19, 1998, we sold a total of 3,590,232 additional
shares of Series B mandatorily redeemable convertible preferred stock
(excluding the shares issued upon conversion of the convertible promissory
notes) to certain investors, at an aggregate offering price of $10,038,979.
Between March 6, 1997 and September 11, 1997, we issued convertible
promissory notes to certain individuals in the aggregate principal amount of
$80,000, which were converted into a total of 90,702 shares of Series A
convertible preferred stock (including shares issued in respect of accrued
interest on the notes). We also issued warrants to certain holders of the
convertible promissory notes to purchase an aggregate of 9,615 shares of Class
A common stock. Between October 2, 1997 and October 17, 1997, we sold a total
of 678,519 additional shares of Series A convertible preferred stock (excluding
the shares issued on conversion of the convertible promissory notes) to certain
investors at an aggregate offering price of $617,452.
On August 15, 1996, we sold an aggregate of 250,020 shares of Class A common
stock to an investor for $50,000 in cash and cancellation of convertible debt
of $50,000, which were converted in September, 1997 into 250,020 shares of
Class B common stock.
II-2
<PAGE>
From September 15, 1997 through August 31, 1999, we issued options to
certain employees, consultants and others to purchase an aggregate of 1,031,535
shares of common stock at a weighted average exercise price of $0.90 per share.
As of August 31, 1999, 138,491 of such options have been exercised, 71,820 of
such options have been terminated and 821,224 of such options remain
outstanding at a weighted average exercise price of $0.96 per share.
(b) Hambrecht & Quist, LLC, served as placement agent in connection with the
offer and sale by us of our Series D convertible preferred stock and related
warrants to purchase Class A common stock and has received compensation in the
form of cash and warrants for such services. Except as so noted, underwriters
were involved in connection with the sales of securities referred to in
paragraph (a) of this Item 15.
(c) The convertible promissory notes, the warrants and the shares of Class B
common stock, Series A convertible preferred stock, Series B mandatorily
redeemable convertible preferred stock, Series C convertible preferred stock,
Series D mandatorily redeemable convertible preferred stock and Series E
convertible preferred stock described in paragraph (a) of this Item 15 were
issued in reliance on the exemption provided by Section 4(2) and/or Rule 506 of
Regulation D promulgated pursuant to the Securities Act. The issuances of stock
options and the shares of common stock issuable upon the exercise of the
options as described in paragraph (a) of this Item 15 were issued in reliance
on the exemption provided by Section 3(b) of the Securities Act and Rule 701
promulgated thereunder, as well as Section 4(2) of the Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. All recipients either received adequate
information about us or had access, through employment or other relationships,
to such information.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Second Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws
of the Registrant defining rights of the holders of Common Stock of
the Registrant.
4.2* Specimen Stock Certificate.
5.1* Opinion of Hutchison & Mason PLLC, Counsel to the Registrant, as to
the legality of the shares being registered.
10.1 SciQuest.com, Inc. Stock Option Plan dated as of September 4, 1997.
10.2 Amendment No. 1 to SciQuest.com, Inc. Stock Option Plan dated as of
September 11, 1998.
10.3 Amendment No. 2 to SciQuest.com, Inc. Stock Option Plan dated as of
February 26, 1999.
10.4 Amendment No. 3 to SciQuest.com, Inc. Stock Option Plan dated as of
March 1, 1999.
10.5 Amendment No. 4 to SciQuest.com, Inc. Stock Option Plan dated as of
August 27, 1999.
10.6 Agreement of Sublease by and between Inspire Pharmaceuticals, Inc. and
the Registrant dated July 31, 1998.
10.7 Sublease Agreement by and between Applied Innovation, Inc. and the
Registrant dated March 11, 1999.
10.8 Sublease Agreement by and between Vascular Therapeutics, Inc. and the
Registrant dated August 19, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.9 Master Lease Agreement by and between Comdisco, Inc. and the
Registrant dated May 21, 1999, as amended.
10.10 Stock Restriction Agreement by and between the Registrant and Antony
Francis dated March 1, 1999.
10.11 Registration Rights Agreement by and among the Registrant and the
purchasers of Class B Common Stock and the purchasers of Series A
Convertible Preferred Stock dated October 17, 1997, as amended.
10.12 Registration Rights Agreement by and among the Registrant and the
purchasers of Series C Convertible Preferred Stock dated September 29,
1998.
10.13 Registration Rights Agreement by and among the Registrant and Antony
Francis dated March 1, 1999.
10.14 Registration Rights Agreement by and among the Registrant, the holders
of Series B Mandatorily Redeemable Convertible Preferred Stock and the
purchasers of Series D Mandatorily Redeemable Convertible Preferred
Stock dated May 18, 1999, as amended.
10.15 Registration Rights Agreement by and among the Registrant and the
holders of Series E Convertible Preferred Stock dated July 27, 1999.
16.1 Letter from Hughes, Pittman and Gupton LLP.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Hutchison & Mason PLLC (included in Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
Item 17. Undertakings
(a) 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
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.
(c) The Registrant hereby undertakes that:
(i) 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
II-4
<PAGE>
contained in the 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 the Registration Statement as of the time it was declared
effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Morrisville, State of
North Carolina on the 20th day of September, 1999.
SciQuest.com, Inc.
/s/ M. Scott Andrews
By: _________________________________
M. Scott Andrews,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints M. Scott Andrews, Peyton C. Anderson and James
J. Scheuer, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
subsequent registration statements pursuant to Rule 462 of the Securities Act
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorney-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ M. Scott Andrews President, Chief Executive September 20, 1999
______________________________________ Officer and Director
M. Scott Andrews (Principal Executive
Officer)
/s/ Peyton C. Anderson Vice President of Business September 20, 1999
______________________________________ Development and Director
Peyton C. Anderson
/s/ James J. Scheuer Chief Financial Officer September 20, 1999
______________________________________ (Principal Financial and
James J. Scheuer Accounting Officer)
/s/ Noel J. Fenton Director September 20, 1999
______________________________________
Noel J. Fenton
/s/ Gautam Prakash Director September 20, 1999
______________________________________
Gautam Prakash
/s/ Alan J. Taetle Director September 20, 1999
______________________________________
Alan J. Taetle
/s/ Bruce J. Boehm Director September 20, 1999
______________________________________
Bruce J. Boehm
/s/ Timothy T. Weglicki Director September 20, 1999
______________________________________
Timothy T. Weglicki
</TABLE>
II-6
<PAGE>
Exhibit 10.1
SCIQUEST, INC.
STOCK OPTION PLAN
1. Purpose. The Sciquest, Inc. Stock Option Plan (the "Plan") is established
-------
to create an additional incentive for key employees, directors and
consultants or advisors of Sciquest, Inc. and any successor corporations
thereto (collectively referred to as the "Company"), and any present or
future parent and/or subsidiary corporations of such corporation (all of
whom along with the Company being individually referred to as a
"Participating Company" and collectively referred to as the "Participating
Company Group"), to promote the financial success and progress of the
Participation Company Group. For purposes of the Plan, a parent
corporation and a subsidiary corporation shall be as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Administration. The Plan shall be administered by the Board of Directors
--------------
of the Company (the "Board") and/or by a duly appointed committee of the
Board having such powers as shall be specified by the Board. Any
subsequent references herein to the Board shall also mean the committee if
such committee has been appointed and, unless the powers of the committee
have been specifically limited, the committee shall have all of the powers
of the Board granted herein, other than power to terminate or amend the
Plan as provided in section 12 hereof, subject to the terms of the Plan and
any applicable limitations imposed by law. All questions of interpretation
of the Plan or of any option granted under the Plan (an "Option") shall be
determined by the Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan and/or any Option. Options
may be either incentive stock options as defined in Section 422 of the Code
("Incentive Stock Options") or nonqualified stock options. Any officer of
a Participating Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, or election which is
the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, or election.
3. Eligibility. The Options may be granted only to employees (including
-----------
officers) and directors of the Participating Company Group or to
individuals who are rendering services as consultants, advisors or other
independent contractors to the Participating Company Group. The Board, in
its sole discretion, shall determine which persons shall be granted Options
(an "Optionee"). A director of the Company shall be eligible to be granted
only a nonqualified stock option unless the director is also an employee of
the Company. An individual who is rendering services as a consultant,
advisor, or other independent contractor shall be eligible to be granted
only a nonqualified stock option. An Optionee may, if otherwise eligible,
be granted additional Options.
4. Shares Subject to Option. Options shall be options for the purchase of the
------------------------
authorized but unissued common stock of the Company (the "Stock"), subject
to adjustment as provided
<PAGE>
in paragraph 10 below. The maximum number of shares of Stock which may be
issued under the Plan shall be Two Hundred Twenty-Five Thousand (225,000)
shares. In the event that any outstanding Option for any reason expires or
is terminated or cancelled and/or shares of Stock subject to repurchase are
repurchased by the Company, the shares allocable to the unexercised portion
of such Option, or such repurchased shares, may again be subject to an
Option grant. It is intended that the Plan shall constitute a written
compensatory benefit plan within the meaning of Rule 701 promulgated under
the Securities Act of 1933, as amended ("Rule 701"), and that the Plan
shall otherwise be administered in compliance with the requirements of Rule
701. To ensure such compliance, the Board shall maintain a record of shares
subject to outstanding Options under the Plan and the exercise price of
such Options, plus a record of all shares of Common Stock issued upon the
exercise of such Options and the exercise price of such Options.
5. Time for Granting Options. All Options shall be granted, if at all, within
-------------------------
ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the shareholders of the
Company.
6. Terms, Conditions and Form of Options. Subject to the provisions of the
-------------------------------------
Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option is granted,
whether the Option is to be treated as an Incentive Stock Option or as a
nonqualified stock option and all other terms and conditions of the Option
not inconsistent with the Plan. Options granted pursuant to the Plan shall
comply with and be subject to the following terms and conditions:
(a) Option Price. The option price for each Option shall be established
------------
in the sole discretion of the Board; provided, however, that (i) the
option price per share for an Incentive Stock Option shall be not less
than the fair market value of a share of Stock on the date of the
granting of the Incentive Stock Option and (ii) the option price per
share of an Incentive Stock Option granted to an Optionee who at the
time the Incentive Stock Option is granted owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of a Participating Company within the meaning of
section 422(b)(6) of the Code (a "Ten Percent Owner Optionee") shall
be not less than one hundred ten percent (110%) of the fair market
value of a share of Stock on the date the Option is granted. For this
purpose, "fair market value" means the value assigned to the stock for
a given day by the Board, as determined pursuant to a reasonable
method established by the Board that is consistent with the
requirements of sections 422 and 424 of the Code and the regulations
thereunder (which method may be changed from time to time).
Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a nonqualified stock option) may be granted by the Board in
its discretion with an exercise price lower than the minimum exercise
price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying
with the provisions of section 424(a) of the Code. Nothing
hereinabove shall require that any such
2
<PAGE>
assumption or modification will result in the Option having the same
characteristics, attributes or tax treatment as the Option for which
it is substituted.
(b) Exercise Period of Options. The Board shall have the power to set the
--------------------------
time or times within which each Option shall be exercisable or the
event or events upon the occurrence of which all or a portion of each
Option shall be exercisable and the term of each Option; provided,
however, that (i) no Incentive Stock Option shall be exercisable after
the expiration of ten (10) years after the date such Incentive Stock
Option is granted, (ii) no Incentive Stock Option granted to a Ten
Percent Owner Optionee shall be exercisable after the expiration of
five (5) years after the date such Incentive Stock Option is granted
and (iii) no Incentive Stock Option shall be exercisable after the
date the Optionee's employment with the Participating Company Group is
terminated for cause (as determined in the sole discretion of the
Board); and provided, further, an Option shall terminate and cease to
be exercisable no later than three (3) months after the date on which
the Optionee terminates employment with the Participating Company
Group, unless the Optionee's employment with the Participating Company
Group shall have terminated as a result of the Optionee's death or
disability (within the meaning of Section 22(e)(3) of the Code), in
which event the Option shall terminate and cease to be exercisable no
later than twelve (12) months from the date on which the Optionee's
employment terminated. For this purpose, an Optionee's employment
shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months following the Optionee's termination of
employment.
(c) Payment of Option Price. Payment of the option price for the number
-----------------------
of shares of Stock being purchased pursuant to any Option shall be
made in cash, by check or cash equivalent.
(d) $100,000 Limitation. The aggregate fair market value, determined as
-------------------
of the date on which an Incentive Stock Option is granted, of the
shares of Stock with respect to which incentive stock options
(determined without regard to this subsection) are first exercisable
during any calendar year (under this Plan or under any other plan of
the Participating Company Group) by any Optionee shall not exceed
$100,000. If such limitation would be exceeded with respect to an
Optionee for a calendar year, the Incentive Stock Option shall be
deemed a nonqualified stock option to the extent of such excess.
7. Standard Form of Stock Option Agreement. All Options shall be evidenced by
---------------------------------------
a written award agreement in the form of the nonqualified stock option
agreement attached hereto as Exhibit A or the incentive stock option award
---------
agreement attached hereto as Exhibit B, as applicable, both of which are
---------
incorporated herein by reference (the "Standard Option Agreements").
8. Transfer of Control Upon a merger, consolidation, corporate
-------------------
reorganization, or any transaction in which all or substantially all of the
assets of the Company are sold, leased, transferred or otherwise disposed
of (other than a mere reincorporation transaction or one
3
<PAGE>
in which the holders of capital stock of the Company immediately prior to
such merger or consolidations continue to hold at least a majority of the
voting power of the surviving corporation) (a "Transfer of Control"), (1)
any unexercisable portion of an outstanding Option that will become
exercisable within twelve (12) months after the Transfer of Control shall
become immediately exercisable as of a date prior to the Transfer of
Control, which date shall be determined by the Board, and (2) the Board may
elect, in its sole discretion, to provide that any other unexercisable
portion of an outstanding Option shall become immediately exercisable as of
a date prior to the Transfer of Control, as the Board so determines. The
exercise of any Option that was permissible solely by reason of this
paragraph 8 shall be conditioned upon the consummation of the Transfer of
Control. The Board may further elect, in its sole discretion, to provide
that any Options which become exercisable solely by reason of this
paragraph 8 and which are not exercised as of the date of the Transfer of
Control shall terminate effective as of the date of the Transfer of
Control.
9. Authority to Vary Terms. The Board shall have the authority from time to
-----------------------
time to vary the terms of the Standard Option Agreements either in
connection with the grant of an individual Option or in connection with the
authorization of a new standard form or forms; provided, however, that the
terms and conditions of such revised or amended standard form or forms of
stock option agreement shall be in accordance with the terms of the Plan.
Such authority shall include, but not by way of limitation, the authority
to grant Options which are not immediately exercisable.
10. Effect of Change in Stock Subject to Plan. The Board shall make
-----------------------------------------
appropriate adjustments in the number and class of shares of Stock subject
to the Plan and to any outstanding Options and in the option price of any
outstanding Options in the event of a stock dividend, stock split, reverse
stock split, combination, reclassification or like change in the capital
structure of the Company.
11. Options Non-Transferable. During the lifetime of the Optionee, the Option
------------------------
shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent
and distribution.
12. Termination or Amendment of Plan. The Board may terminate or amend the
--------------------------------
Plan at any time; provided however, that without the approval of the
Company's shareholders, there shall be (a) no increase in the total number
of shares of Stock covered by the Plan (except by operation of the
provisions of paragraph 10 above), (b) no change in the class of persons
eligible to receive Incentive Stock Options, and (c) no extension of the
period during which Incentive Stock Options may be granted beyond the date
which is ten (10) years following the date the Plan is adopted by the
Company or the date the Plan is approved by the shareholders of the
Company. In any event, no amendment may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent
of the Optionee, unless such amendment is required to enable an Option
designated as an Incentive Stock Option to qualify as an Incentive Stock
Option.
13. Miscellaneous
-------------
4
<PAGE>
(a) Nothing in this Plan or any Option granted hereunder shall confer upon
any Optionee any right to continue in the employ of the Participating
Company Group, or to serve as a director thereof, or interfere in any
way with the right of a Participating Company to terminate his or her
employment at any time. Unless specifically provided otherwise, no
grant of an Option shall be deemed salary or compensation for the
purpose of computing benefits under any employee benefit plan or other
arrangement of a Participating Company for the benefit of its
employees unless the Participating Company shall determine otherwise.
No Optionee shall have any claim to an Option until it is actually
granted under the Plan. To the extent that any person acquires a
right to receive payments from the Company under the Plan, such right
shall, except as otherwise provided by the Board, be no greater than
the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of
the Company, and no special or separate fund shall be established and
no segregation of assets shall be made to assure payment of such
amounts, except as otherwise provided by the Committee.
(b) The Plan and the grant of Options hereunder shall be subject to all
applicable federal and state laws, rules, and regulations and to such
approvals by any United States government or regulatory agency as may
be required.
(c) The terms of the Plan shall be binding upon the Company, and its
successors and assigns.
(d) This Plan and all actions taken hereunder shall be governed by the
laws of the State of North Carolina.
(e) With respect to any payments not yet made to a Optionee by the
Company, nothing contained herein shall give any such Optionee any
rights that are greater than those of a general creditor of the
Company.
(f) If any provision of this Plan or a Standard Option Agreement is or
becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any Standard Option
Agreement under any law deemed applicable by the Board, such provision
shall be construed or deemed amended to conform to applicable laws or
if it cannot be construed or deemed amended without, in the
determination of the Board, materially altering the intent of the Plan
or the Standard Option Agreement, it shall be stricken and the
remainder of the Plan or the Standard Option Agreement shall remain in
full force and effect.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Plan was duly adopted by the Board of Directors of the Company on
the 4/th/ day of September, 1997.
SCIQUEST, INC.
By: /s/ Keith D. Gunter
----------------------------
Secretary
6
<PAGE>
EXHIBIT A
---------
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
_____________________________
SCIQUEST, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
Sciquest, Inc. (the "Company"), granted to the individual named below an
option to purchase certain shares of common stock of the Company pursuant to the
Sciquest, Inc. Stock Option Plan, in the manner and subject to the provisions of
this Option Agreement.
1. Definitions:
-----------
(a) "Code" shall mean the Internal Revenue Code of 1986, as amended. (All
citations to sections of the Code are to such sections as they may
from time to time be amended or renumbered.)
(b) "Company" shall mean Sciquest, Inc., a North Carolina corporation, and
any successor corporation thereto.
(c) "Date of Option Grant" shall mean ____________________.
(d) "Disability" shall mean disability within the meaning of section
22(e)(3) of the Code, as determined by the Board in its discretion
under procedures established by the Board of Directors of the Company.
(e) "Exercise Price" shall mean ___________________ Dollars ($________)
per share as adjusted from time to time pursuant to paragraph 9 below.
(f) "Number of Option Shares" shall mean ________________ (______) shares
of common stock of the Company as adjusted from time to time pursuant
to paragraph 9 below.
(g) "Option Term Date" shall mean the date ten (10) years after the Date
of Option Grant.
(h) "Optionee" shall mean ______________________________.
7
<PAGE>
(i) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company
while such corporation is a parent or subsidiary of the Company. For
purposes of this Option Agreement, a parent corporation and a
subsidiary corporation shall be as defined in Sections 424(e) and
424(f) of the Code.
(j) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(k) "Plan" shall mean the Sciquest, Inc. Stock Option Plan.
2. Nonqualified Stock Option. This Option is intended to be a nonqualified
-------------------------
stock option. The Optionee should consult with the Optionee's own tax
advisors regarding the tax effects of this Option.
3. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references
herein to the Board shall also mean the committee if such committee has
been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the
Board granted in the Plan, other than the power to terminate or amend the
Plan as provided in section 12 of the Plan, subject to the terms of the
Plan and any applicable limitations imposed by law. All determinations by
the Board shall be final and binding upon all persons having an interest in
the Option. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter,
right, obligation or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation or election.
4. Exercise and Vesting of the Option.
----------------------------------
(a) Right to Exercise. The Option shall vest and become exercisable from
-----------------
time to time, subject to the schedule set forth below, in whole or in
part, subject to the termination provisions of paragraphs 6 and 7
hereof and the Optionee's agreement that any shares purchased upon
exercise are subject to the Company's repurchase rights set forth in
paragraph 11 below:
[Insert vesting schedule here. Example follows below:
(i) On or after ___________, 1998, the Option may be exercised to
purchase up to _______ shares.
(ii) On or after ___________, 1999, the Option may be exercised to
purchase up to _______ shares.
8
<PAGE>
(iii) On or after ___________, 2000, the Option may be exercised to
purchase up to _______ shares.]
The schedule set forth above is cumulative, so that shares as to which
the Option has become exercisable on and after a date indicated by the
schedule may be purchased pursuant to exercise of the Option at any
subsequent date prior to termination of the Option. The Option may be
exercised at any time and from time to time to purchase up to the
number of shares as to which it is then exercisable.
(b) Method of Exercise. The Option shall be exercised by written notice
------------------
to the Company in the form of Exhibit A hereto stating the election to
---------
exercise the Option, the number of shares for which the Option is
being exercised and such other representations and agreements as to
the Optionee's investment intent with respect to such shares as may be
required by the Company. The written notice must be signed by the
Optionee and must be delivered in person or by certified or registered
mail, return receipt requested, to the Chief Financial Officer of the
Company, or other authorized representative of the Participating
Company Group, prior to the termination of the Option as set forth in
paragraph 6 below, accompanied by (i) full payment of the exercise
price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current form of joint escrow
instructions referenced below.
(c) Form of Payment of Option Price. Such payment shall be made in cash,
-------------------------------
check or cash equivalent or in any other form as may be permitted by
the Board in its discretion.
(d) Withholding. At the time the Option is exercised, in whole or in
-----------
part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes payroll withholding and otherwise agrees to
make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i)
the exercise, in whole or in part, of the Option, (ii) the transfer,
in whole or in part, of any shares acquired on exercise of the Option,
(iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with
respect to any shares acquired on exercise of the Option.
(e) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered
in the name of the Optionee, or, if applicable, the heirs of the
Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The grant
----------------------------------------------------------
of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements
of federal or state law with respect to such securities. The Option
may not be exercised if the issuance of shares upon such exercise
would constitute a violation of any applicable federal or state
9
<PAGE>
securities laws or other law or regulations. In addition, no Option
may be exercised unless (i) a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), shall at
the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the
Option may be issued in accordance with the terms of an applicable
exemption from the registration requirements of the Securities Act.
THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE
EXERCISABLE UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION
IS VESTED.
As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect
thereto as may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during the
---------------------------------
lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no longer be
-------------------------
exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of
Control as described in paragraph 8 below.
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an employee of
-------------------------
the Participating Company Group for any reason except death or
Disability, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee ceased to be an
employee, may be exercised by the Optionee within three (3) months
after the date on which the Optionee's employment terminates, but in
any event no later than the Option Term Date. If the Optionee's
employment with the Participating Company Group is terminated because
of the death or Disability of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee
(or the Optionee's legal
10
<PAGE>
representative) at any time prior to the expiration of twelve (12)
months from the date the Optionee's employment terminated, but in any
event no later than the Option Term Date. The Optionee's employment
shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months after the Optionee's termination of
employment. This paragraph shall be interpreted such that the Option
ceases to vest on the date on which the Optionee ceases to be an
employee of the Participating Company Group (pursuant to this
paragraph 7) for any reason, notwithstanding any period after such
cessation of employment during which the Option may remain exercisable
as provided in this paragraph 7.
(b) Termination of Employment Defined. For purposes of this paragraph 7,
---------------------------------
the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's
employer ceasing to be a Participating Company.
(c) Exercise Prevented by Law. Except as provided in this paragraph 7,
-------------------------
the Option shall terminate and may not be exercised after the
Optionee's employment with the Participating Company Group terminates
unless the exercise of the Option in accordance with this paragraph 7
is prevented by the provisions of paragraph 4(f) above. If the
exercise of the Option is so prevented, the Option shall remain
exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any
event no later than the Option Term Date.
(d) Optionee Subject to Section 16(b). Notwithstanding the foregoing, if
---------------------------------
the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Option shall remain exercisable until the earliest to occur of (i)
the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth
(190th) day after the Optionee's termination of employment, or (iii)
the Option Term Date.
(e) Leave of Absence. For purposes hereof, the Optionee's employment with
----------------
the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide
leave of absence approved by the Company of ninety (90) days or less.
In the event of a leave in excess of ninety (90) days, the Optionee's
employment shall be deemed to terminate on the ninety-first (91st) day
of the leave unless the Optionee's right to reemployment with the
Participating Company Group remains guaranteed by statute or contract.
(f) Directors, Consultants and Advisors. In the event an Optionee is a
-----------------------------------
director or consultant or advisor but not an employee of a
Participating Company at the time the Option is granted, termination
of the Optionee's status as a director or consultant or advisor of the
Participating Company shall be deemed to be termination of the
Optionee's employment.
11
<PAGE>
8. Transfer of Control. [Company to select one of the following
-------------------
alternative provisions:
OPTION A: Upon a merger, consolidation, corporate reorganization,
or any transaction in which all or substantially all of the assets of
the Company are sold, leased, transferred or otherwise disposed of
(other than a mere reincorporation transaction or one in which the
holders of capital stock of the Company immediately prior to such
merger or consolidation continue to hold at least a majority of the
voting power of the surviving corporation) (a "Transfer of Control"),
then any unexercisable portion of an outstanding Option shall become
immediately exercisable as of a date prior to the Transfer of Control,
which date shall be determined by the Board. The exercise of any
Option that was permissible solely by reason of this paragraph 8 shall
be conditioned upon the consummation of the Transfer of Control. The
Board may further elect, in its sole discretion, to provide that any
Options which become exercisable solely by reason of this paragraph 8
and which are not exercised as of the date of the Transfer of Control
shall terminate effective as of the date of the Transfer of Control.
OPTION B: Upon a merger, consolidation, corporate reorganization,
or any transaction in which all or substantially all of the assets of
the Company are sold, leased, transferred or otherwise disposed of
(other than a mere reincorporation transaction or one in which the
holders of capital stock of the Company immediately prior to such
merger or consolidations continue to hold at least a majority of the
voting power of the surviving corporation) (a "Transfer of Control"),
(1) any unexercisable portion of an outstanding Option that will
become exercisable within twelve (12) months after the Transfer of
Control shall become immediately exercisable as of a date prior to the
Transfer of Control, which date shall be determined by the Board, and
(2) the Board may elect, in its sole discretion, to provide that any
other unexercisable portion of an outstanding Option shall become
immediately exercisable as of a date prior to the Transfer of Control,
as the Board so determines. The exercise of any Option that was
permissible solely by reason of this paragraph 8 shall be conditioned
upon the consummation of the Transfer of Control. The Board may
further elect, in its sole discretion, to provide that any Options
which become exercisable solely by reason of this paragraph 8 and
which are not exercised as of the date of the Transfer of Control
shall terminate effective as of the date of the Transfer of Control.
OPTION C: Upon a merger, consolidation, corporate reorganization,
or any transaction in which all or substantially all of the assets of
the Company are sold, leased, transferred or otherwise disposed of
(other than a mere reincorporation transaction or one in which the
holders of capital stock of the Company immediately prior to such
merger or consolidations continue to hold at least a majority of the
voting power of the surviving corporation) (a "Transfer of Control"),
the Board may elect, in its sole discretion, to provide that any
unexercisable portion of an outstanding Option shall become
immediately exercisable, in whole or in part, as the Board so
determines, as of a date prior to the Transfer of Control, which date
shall be determined by the Board. The exercise of any Option that was
permissible solely by reason of this paragraph 8 shall be conditional
upon the consummation of the Transfer of Control. The Board may
further
12
<PAGE>
elect, in its sole discretion, to provide that any Option which become
exercisable solely by reason of this paragraph 8 and which are not
exercised as of the date of the Transfer of Control shall terminate
effective as of the date of the Transfer of Control.]
9. Effect of Change in Stock Subject to the Option. The Board shall make
-----------------------------------------------
appropriate adjustments in the number, exercise price and class of
shares of stock subject to the Option in the event of a stock
dividend, stock split, reverse stock split, combination,
reclassification, or like change in the capital structure of the
Company. In the event a majority of the shares which are of the same
class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to a
Transfer of Control) shares of another corporation (the "New Shares"),
the Board may unilaterally amend the Option to provide that the Option
is exercisable for New Shares. In the event of any such amendment, the
number of shares and the exercise price shall be adjusted in a fair
and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no rights
-----------------------------------
as a shareholder with respect to any shares covered by the Option
until the date of the issuance of a certificate or certificates for
the shares for which the Option has been exercised. No adjustment
shall be made for dividends or distributions or other rights for which
the record date is prior to the date such certificate or certificates
are issued, except as provided in paragraph 9 above. Nothing in the
Option shall confer upon the Optionee any right to continue in the
employ of a Participating Company or interfere in any way with any
right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Right of First Refusal.
----------------------
(a) Right of First Refusal. In the event the Optionee proposes to
----------------------
sell, pledge, or otherwise transfer any shares acquired upon
exercise of the Option (the "Transfer Shares") to any person or
entity, including, without limitation, any shareholder of the
Participating Company Group, the Company shall have the right to
repurchase the Transfer Shares under the terms and subject to the
conditions set forth in this paragraph 11 (the "Right of First
Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall give a written notice
(the "Transfer Notice") to the Company describing fully the
proposed transfer, including the number of Transfer Shares, the
name and address of the proposed transferee (the "Proposed
Transferee") and, if the transfer is voluntary, the proposed
transfer price and containing such information necessary to show
the bona fide nature of the proposed transfer. In the event of a
bona fide or involuntary transfer, the proposed transfer price
shall be deemed to be the fair market value of the Transfer
Shares as determined by the Company in good faith. In the event
the Optionee proposes to transfer any Transfer Shares to more
than one (1) Proposed Transferee, the Optionee shall provide a
separate Transfer Notice for the proposed transfer to each
Proposed Transferee. The Transfer Notice shall be signed by both
13
<PAGE>
the Optionee and the Proposed Transferee and must constitute a binding
commitment of the Optionee and the Proposed Transferee for the
transfer of the Transfer Shares to the Proposed Transferee subject
only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine
------------------
that the information provided by the Optionee in the Transfer Notice
is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company shall give the Optionee written notice
of the Optionee's failure to comply with the procedure described in
this paragraph 11 and the Optionee shall have no right to transfer the
Transfer Shares without first complying with the procedures described
in this paragraph 11. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
(d) Exercise of the Right of First Refusal. In the event the proposed
--------------------------------------
transfer is deemed to be bona fide, the Company shall have the right
to purchase all, but not less than all, of the Transfer Shares at the
purchase price and on the terms set forth in the Transfer Notice by
delivery to the Optionee of a notice of exercise of the Right of First
Refusal within thirty (30) days after the date the Transfer Notice is
delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's
ability to exercise the Right of First Refusal with respect to any
proposed transfer described in any other Transfer Notice, whether or
not such other Transfer Notice is issued by the Optionee or issued by
a person other than the Optionee with respect to a proposed transfer
to the same Proposed Transferee. If the Company exercises the Right
of First Refusal, the Company and the Optionee shall thereupon
consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice; provided however, that in the event
that the Transfer Notice provides for the payment for the Transfer
Shares other than in cash, the Company shall have the option of paying
for the Transfer Shares by the discounted cash equivalent of the
consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating
Company shall be treated as payment to the Optionee in cash to the
extent of the unpaid principal and any accrued interest cancelled.
(e) Failure to Exercise the Right of First Refusal. If the Company fails
----------------------------------------------
to exercise the Right of First Refusal in full within the period
specified in paragraph 11(d) above, the Optionee may conclude a
transfer to the Proposed Transferee of the Transfer Shares on the
terms and conditions described in the Transfer Notice, provided such
transfer occurs not later than one hundred twenty (120) days following
delivery to the Company of the Transfer Notice. The Company shall
have the right to demand further assurances from the Optionee and the
Proposed Transferee (in a form satisfactory to the Company) that the
transfer of the Transfer Shares was actually carried out on the terms
and conditions described in the Transfer
14
<PAGE>
Notice. No Transfer Shares shall be transferred on the books of the
Company until the Company has received such assurances, if so
demanded, and has approved the proposed transfer as bona fide. Any
proposed transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed
transfer by the Optionee, shall again be subject to the Right of First
Refusal and shall require compliance by the Optionee with the
procedure described in this paragraph 11.
(f) Transferees of the Transfer Shares. All transferees of the Transfer
----------------------------------
Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a
form satisfactory to the Company) that such transferee shall receive
and hold such Transfer Shares or interests subject to the provisions
of this paragraph 11 providing for the Right of First Refusal with
respect to any subsequent transfer. Any sale or transfer of any
shares acquired upon exercise of the Option shall be void unless the
provisions of this paragraph 11 are met.
(g) Transfers Not Subject to the Right of First Refusal. The Right of
---------------------------------------------------
First Refusal shall not apply to any transfer or exchange of the
shares acquired pursuant to the exercise of the Option if (i) such
transfer is in connection with a Transfer of Control, (ii) such
transfer is to one or more members of the Optionee's immediate family
(or a trust for their benefit) provided all such transferees agree in
writing to the restrictions in paragraph 11(f), or (iii) such transfer
has been approved by the Board of Directors of the Company, which
approval many be granted or withheld in its complete discretion. If
the consideration received pursuant to such transfer or exchange
consists of stock of a Participating Company, such consideration shall
remain subject to the Right of First Refusal unless the provisions of
paragraph 11(i) below result in a termination of the Right of First
Refusal.
(h) Assignment of the Right of First Refusal. The Company shall have the
----------------------------------------
right to assign the Right of First Refusal at any time, whether or not
the Optionee has attempted a transfer, to one (1) or more persons as
may be selected by the Company.
(i) Early Termination of the Right of First Refusal. The other provisions
-----------------------------------------------
of this paragraph 11 notwithstanding, the Right of First Refusal shall
terminate, and be of no further force and effect upon (i) the
occurrence of a Transfer of Control, unless the surviving, continuing,
successor, or purchasing corporation, as the case may be, assumes the
Company's rights and obligations under the Plan, or (ii) the existence
of a public market for the class of shares subject to the Right of
First Refusal. A "public market" shall be deemed to exist if (x) such
stock is listed on a national securities exchange (as that term is
used in the Exchange Act) or (y) such stock is traded on the over-the-
counter market and prices therefor are published daily on business
days in a recognized financial journal.
15
<PAGE>
12. Escrow.
------
(a) Establishment of Escrow. To insure shares subject to the Right of
-----------------------
First Refusal will be available for repurchase, the Company may
require the Optionee to deposit the certificate or certificates
evidencing the shares which the Optionee purchases upon exercise of
the Option with an escrow agent designated by the Company under the
terms and conditions of an escrow agreement approved by the Company.
If the Company does not require such deposit as a condition of
exercise of the Option, the Company reserves the right at any time to
require the Optionee to so deposit the certificate or certificates in
escrow. The Company shall bear the expenses of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Right of First Refusal, the escrow agent shall
deliver to the Optionee the shares no longer subject to such
restrictions.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Right of First Refusal, the
notices required to be given to the Optionee shall be given to the
escrow agent and any payment required to be given to the Optionee
shall be given to the escrow agent. Within thirty (30) days after
payment by the Company, the escrow agent shall deliver the shares
which the Company has purchased to the Company and shall deliver the
payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to time, there
-------------------------------------------
is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the Company, the stock of which
is subject to the provisions of this Option Agreement, then, in such event,
any and all new substituted or additional securities to which the Optionee
is entitled by reason of the Optionee's ownership of the shares acquired
upon exercise of the Option shall be immediately subject to the Right of
First Refusal with the same force and effect as the shares subject to the
Right of First Refusal immediately before such event.
14. Legends. The Company may at any time place legends referencing the Right
--------
of First Refusal set forth in paragraph 11 above and an applicable federal
or state securities law restriction on all certificates representing shares
of stock subject to the provisions of this Option Agreement. The Optionee
shall, at the request of the Company, promptly present to the Company any
and all certificates representing shares acquired pursuant to the Option in
the possession of the Optionee in order to effectuate the provisions of
this paragraph. Unless otherwise specified by the Company, legends placed
on such certificates may include, but shall not be limited to, the
following:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
16
<PAGE>
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SHARES, THE SALE
IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE
CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SHARES REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS
ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.
15. Initial Public Offering. The Optionee hereby agrees that in the event of
-----------------------
an initial public offering of stock made by the Company under the
Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any
rights to acquire stock of the Company for such period of time as may be
established by the underwriter for such initial public offering; provided,
however, that such period of time shall not exceed one hundred eighty (180)
days from the effective date of the registration statement to be filed in
connection with such initial public offering. The foregoing limitation
shall not apply to shares registered under the Securities Act.
16. Binding Effect. This Option Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
17. Termination or Amendment. The Board may terminate or amend this Option
------------------------
Agreement at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee.
18. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
other agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Company with respect to the subject
matter contained herein other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
19. Terms and Conditions of Plan. The terms and conditions included in the
----------------------------
Plan are incorporated by reference herein, and to the extent that any
conflict may exist between
17
<PAGE>
any term or provision of this Option Agreement and any term or provision of
the Plan, the term or provision of the Plan shall control.
20. Applicable Law. This Option Agreement shall be governed by the laws of the
--------------
State of North Carolina as such laws are applied to agreements between
North Carolina residents entered into and to be performed entirely within
the State of North Carolina.
SCIQUEST, INC.
By: __________________________________
Peyton Anderson
President
18
<PAGE>
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
of the Company made in good faith upon any questions arising under this Option
Agreement.
The undersigned hereby acknowledges receipt of a copy of the Plan.
Date:_________________________ ______________________________
(Signature of Optionee)
______________________________
(Printed Name of Optionee)
19
<PAGE>
EXHIBIT A
---------
Sciquest, Inc.
c/o Peyton Anderson
P.O. Box 12156
Research Triangle Park, NC 27709-2156
Re: Exercise of Non-Qualified Stock Option
Dear Sirs:
Pursuant to the terms and conditions of the Non-Qualified Stock Option
Award Agreement dated as of __________, 19__ (the "Agreement"), between
__________ ("Optionee") and Sciquest, Inc. (the "Company"), the Optionee hereby
agrees to purchase _____ shares (the "Shares") of the Common Stock of the
Company and tender payment in full for such shares in accordance with the terms
of the Agreement.
The Shares are being issued to Optionee in a transaction not involving a
public offering and pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with such
purchase, Optionee represents, warrants and agrees as follows:
1. The Shares are being purchased for the Optionee's own account, and not
for the account of any other person, with the intent of holding the
Shares for investment and not with the intent of participating, directly
or indirectly, in a distribution or resale of the Shares or any portion
thereof.
2. The Optionee is not acquiring the Shares based upon any representation,
oral or written, by any person with respect to the future value of, or
income from, the Shares, but rather upon independent examination and
judgment as to the prospects of the Corporation.
3. The Optionee has had complete access to and the opportunity to review
all material documents related to the business of the Corporation, has
examined all such documents as the Optionee desired, is familiar with
the business and affairs of the Corporation and realizes that any
purchase of the Shares is a speculative investment and that any possible
profit therefrom is uncertain.
4. The Optionee has had the opportunity to ask questions of and receive
answers from the Corporation and its executive officers and to obtain
all information necessary for the Optionee to make an informed decision
with respect to the investment in the Corporation represented by the
Shares.
5. The Optionee is able to bear the economic risk of any investment in the
Shares, including the risk of a complete loss of the investment, and the
Optionee acknowledges that he or she may need to continue to bear the
economic risk of the investment in the Shares for an indefinite period.
2
<PAGE>
6. The Optionee understands and agrees that the Shares are being issued and
sold to the Optionee without registration under any state or federal
laws relating to the registration of securities, in reliance upon
exemptions from registration under appropriate state and federal laws
based in part upon the representations of the Optionee made herein.
7. The Corporation is under no obligation to register the Shares or to
comply with any exemption available for sale of the Shares by the
Optionee without registration, and the Corporation is under no
obligation to act in any manner so as to make Rule 144 promulgated under
the Securities Act of 1933 available with respect to any sale of the
Shares by the Optionee.
8. The Optionee has not relied upon the Corporation or an employee or agent
of the Corporation with respect to any tax consequences related to
exercise of this Option or the disposition of the Shares. The Optionee
assumes full responsibility for all such tax consequences and the filing
of all tax returns and elections the Optionee may be required to or find
desirable to file in connection therewith.
Date: ____________________
Very truly yours,
________________________________
Print Name: ____________________
________________________________
________________________________
________________________________
(Address)
3
<PAGE>
EXHIBIT B
---------
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
_____________________________
SCIQUEST, INC.
INCENTIVE STOCK OPTION AGREEMENT
Sciquest, Inc. (the "Company") granted to the individual named below an
option to purchase certain shares of common stock of the Company pursuant to the
Sciquest, Inc. Stock Option Plan, in the manner and subject to the provisions of
this Option Agreement.
1. Definitions:
-----------
(a) "Code" shall mean the Internal Revenue Code of 1986, as amended. (All
citations to sections of the Code are to such sections as they may
from time to time be amended or renumbered.)
(b) "Company" shall mean Sciquest, Inc., a North Carolina corporation, and
any successor corporation thereto.
(c) "Date of Option Grant" shall mean __________________.
(d) "Disability" shall mean disability within the meaning of section
22(e)(3) of the Code, as determined by the Board in its discretion
under procedures established by the Board of Directors of the Company.
(e) "Exercise Price" shall mean ___________ ($______) per share as
adjusted from time to time pursuant to paragraph 9 below.
(f) "Number of Option Shares" shall mean ________________ (______) shares
of common stock of the Company as adjusted from time to time pursuant
to paragraph 9 below.
(g) "Option Term Date" shall mean the date ten (10) years after the Date
of Option Grant.
(h) "Optionee" shall mean _______________________________.
4
<PAGE>
(i) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company
while such corporation is a parent or subsidiary of the Company. For
purposes of this Option Agreement, a parent corporation and a
subsidiary corporation shall be as defined in sections 424(e) and
424(f) of the Code.
(j) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(k) "Plan" shall mean the Sciquest, Inc. Stock Option Plan.
2. Status of the Option. This Option is intended to be an incentive stock
--------------------
option as described in section 422 of the Code, but the Company does not
represent or warrant that this Option qualifies as such. The Optionee
should consult with the Optionee's own tax advisors regarding the tax
effects of this Option and the requirements necessary to obtain favorable
income tax treatment under section 422 of the Code, including, but not
limited to, holding period requirements.
3. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references
herein to the Board shall also mean the committee if such committee has
been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the
Board granted in the Plan, other than the power to terminate or amend the
Plan as provided in section 12 of the Plan, subject to the terms of the
Plan and any applicable limitations imposed by law. All determinations by
the Board shall be final and binding upon all persons having an interest in
the Option. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter,
right, obligation or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation or election.
4. Exercise and Vesting of the Option.
----------------------------------
(a) Right to Exercise. The Option shall vest and become exercisable from
-----------------
time to time, subject to the schedule set forth below, in whole or in
part, subject to the termination provisions of paragraphs 6 and 7
hereof and the Optionee's agreement that any shares purchased upon
exercise are subject to the Company's repurchase rights set forth in
paragraph 11 below:
[Insert vesting schedule here. Example follows below:
(i) On or after ____________, 1998, the Option may be exercised to
purchase up to _____ shares.
5
<PAGE>
(ii) On or after ____________, 1999, the Option may be exercised to
purchase up to _____ shares.
(iii) On or after ____________, 2000, the Option may be exercised to
purchase up to _____ shares.]
The schedule set forth above is cumulative, so that shares as to which
the Option has become exercisable on and after a date indicated by the
schedule may be purchased pursuant to exercise of the Option at any
subsequent date prior to termination of the Option. The Option may be
exercised at any time and from time to time to purchase up to the
number of shares as to which it is then exercisable.
Notwithstanding the foregoing, if the aggregate fair market value,
determined as of the Date of Option Grant, of the stock with respect
to which the Optionee may exercise incentive stock options (determined
without regard to this provision) for the first time during any
calendar year (under this Plan or under any other plan of the
Participating Company Group), as determined in accordance with section
422(d) of the Code, shall exceed one hundred thousand dollars
($100,000), the Option shall be deemed a nonqualified stock option to
the extent of such excess.
(b) Method of Exercise. The Option shall be exercised by written notice
------------------
to the Company in the form of Exhibit A hereto stating the election to
---------
exercise the Option, the number of shares for which the Option is
being exercised and such other representations and agreements as to
the Optionee's investment intent with respect to such shares as may be
required by the Company. The written notice must be signed by the
Optionee and must be delivered in person or by certified or registered
mail, return receipt requested, to the Chief Financial Officer of the
Company, or other authorized representative of the Participating
Company Group, prior to the termination of the Option as set forth in
paragraph 6 below, accompanied by (i) full payment of the exercise
price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current form of joint escrow
instructions referenced below.
(c) Form of Payment of Option Price. Such payment shall be made in cash,
-------------------------------
check or cash equivalent or in any other form as may be permitted by
the Board in its discretion.
(d) Withholding. At the time the Option is exercised, in whole or in
-----------
part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes payroll withholding and otherwise agrees to
make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i)
the exercise, in whole or in part, of the Option, (ii) the transfer,
in whole or in part, of any shares acquired on exercise of the Option,
(iii) the operation of
6
<PAGE>
any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares
acquired on exercise of the Option.
(e) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered
in the name of the Optionee, or, if applicable, the heirs of the
Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The grant
----------------------------------------------------------
of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements
of federal or state law with respect to such securities. The Option
may not be exercised if the issuance of shares upon such exercise
would constitute a violation of any applicable federal or state
securities laws or other law or regulations. In addition, no Option
may be exercised unless (i) a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), shall at
the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the
Option may be issued in accordance with the terms of an applicable
exemption from the registration requirements of the Securities Act.
THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE
EXERCISABLE UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION
IS VESTED.
As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect
thereto as may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during the
---------------------------------
lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no longer be
-------------------------
exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of
Control as described in paragraph 8 below.
7
<PAGE>
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an employee
-------------------------
of the Participating Company Group for any reason except death or
Disability, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee ceased to be an
employee, may be exercised by the Optionee within three (3) months
after the date on which the Optionee's employment terminates, but in
any event no later than the Option Term Date. If the Optionee's
employment with the Participating Company Group is terminated because
of the death or Disability of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee
(or the Optionee's legal representative) at any time prior to the
expiration of twelve (12) months from the date the Optionee's
employment terminated, but in any event no later than the Option Term
Date. The Optionee's employment shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after
the Optionee's termination of employment. This paragraph shall be
interpreted such that the Option ceases to vest on the date on which
the Optionee ceases to be an employee of the Participating Company
Group (pursuant to this paragraph 7) for any reason, notwithstanding
any period after such cessation of employment during which the Option
may remain exercisable as provided in this paragraph 7.
(b) Termination of Employment Defined. For purposes of this paragraph 7,
---------------------------------
the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's
employer ceasing to be a Participating Company.
(c) Exercise Prevented by Law. Except as provided in this paragraph 7,
-------------------------
the Option shall terminate and may not be exercised after the
Optionee's employment with the Participating Company Group terminates
unless the exercise of the Option in accordance with this paragraph 7
is prevented by the provisions of paragraph 4(f) above. If the
exercise of the Option is so prevented, the Option shall remain
exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any
event no later than the Option Term Date.
(d) Optionee Subject to Section 16(b). Notwithstanding the foregoing, if
---------------------------------
the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Option shall remain exercisable until the earliest to occur of (i)
the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth
(190th) day after the Optionee's termination of employment, or (iii)
the Option Term Date.
8
<PAGE>
(e) Leave of Absence. For purposes hereof, the Optionee's employment with
----------------
the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide
leave of absence approved by the Company of ninety (90) days or less.
In the event of a leave in excess of ninety (90) days, the Optionee's
employment shall be deemed to terminate on the ninety-first (91st) day
of the leave unless the Optionee's right to reemployment with the
Participating Company Group remains guaranteed by statute or contract.
8. Transfer of Control. [Company to select one of the following alternative
-------------------
provisions:
OPTION A: Upon a merger, consolidation, corporate reorganization, or
any transaction in which all or substantially all of the assets of the
Company are sold, leased, transferred or otherwise disposed of (other than
a mere reincorporation transaction or one in which the holders of capital
stock of the Company immediately prior to such merger or consolidation
continue to hold at least a majority of the voting power of the surviving
corporation) (a "Transfer of Control"), then any unexercisable portion of
an outstanding Option shall become immediately exercisable as of a date
prior to the Transfer of Control, which date shall be determined by the
Board. The exercise of any Option that was permissible solely by reason of
this paragraph 8 shall be conditioned upon the consummation of the Transfer
of Control. The Board may further elect, in its sole discretion, to provide
that any Options which become exercisable solely by reason of this
paragraph 8 and which are not exercised as of the date of the Transfer of
Control shall terminate effective as of the date of the Transfer of
Control.
OPTION B: Upon a merger, consolidation, corporate reorganization, or
any transaction in which all or substantially all of the assets of the
Company are sold, leased, transferred or otherwise disposed of (other than
a mere reincorporation transaction or one in which the holders of capital
stock of the Company immediately prior to such merger or consolidations
continue to hold at least a majority of the voting power of the surviving
corporation) (a "Transfer of Control"), (1) any unexercisable portion of an
outstanding Option that will become exercisable within twelve (12) months
after the Transfer of Control shall become immediately exercisable as of a
date prior to the Transfer of Control, which date shall be determined by
the Board, and (2) the Board may elect, in its sole discretion, to provide
that any other unexercisable portion of an outstanding Option shall become
immediately exercisable as of a date prior to the Transfer of Control, as
the Board so determines. The exercise of any Option that was permissible
solely by reason of this paragraph 8 shall be conditioned upon the
consummation of the Transfer of Control. The Board may further elect, in
its sole discretion, to provide that any Options which become exercisable
solely by reason of this paragraph 8 and which are not exercised as of the
date of the Transfer of Control shall terminate effective as of the date of
the Transfer of Control.
OPTION C: Upon a merger, consolidation, corporate reorganization, or
any transaction in which all or substantially all of the assets of the
Company are sold, leased, transferred or otherwise disposed of (other than
a mere reincorporation transaction or one in which the holders of capital
stock of the Company immediately prior to such merger or
9
<PAGE>
consolidations continue to hold at least a majority of the voting power of
the surviving corporation) (a "Transfer of Control"), the Board may elect,
in its sole discretion, to provide that any unexercisable portion of an
outstanding Option shall become immediately exercisable, in whole or in
part, as the Board so determines, as of a date prior to the Transfer of
Control, which date shall be determined by the Board. The exercise of any
Option that was permissible solely by reason of this paragraph 8 shall be
conditional upon the consummation of the Transfer of Control. The Board may
further elect, in its sole discretion, to provide that any Option which
become exercisable solely by reason of this paragraph 8 and which are not
exercised as of the date of the Transfer of Control shall terminate
effective as of the date of the Transfer of Control.]
9. Effect of Change in Stock Subject to the Option. The Board shall make
-----------------------------------------------
appropriate adjustments in the number, exercise price and class of shares
of stock subject to the Option in the event of a stock dividend, stock
split, reverse stock split, combination, reclassification, or like change
in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the
Option are exchanged for, converted into, or otherwise become (whether or
not pursuant to a Transfer of Control) shares of another corporation (the
"New Shares"), the Board may unilaterally amend the Option to provide that
the Option is exercisable for New Shares. In the event of any such
amendment, the number of shares and the exercise price shall be adjusted in
a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no rights as
-----------------------------------
a shareholder with respect to any shares covered by the Option until the
date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is
prior to the date such certificate or certificates are issued, except as
provided in paragraph 9 above. Nothing in the Option shall confer upon the
Optionee any right to continue in the employ of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's employment at any time.
11. Right of First Refusal.
----------------------
(a) Right of First Refusal. In the event the Optionee proposes to sell,
----------------------
pledge, or otherwise transfer any shares acquired upon exercise of the
Option (the "Transfer Shares") to any person or entity, including,
without limitation, any shareholder of the Participating Company
Group, the Company shall have the right to repurchase the Transfer
Shares under the terms and subject to the conditions set forth in this
paragraph 11 (the "Right of First Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of the
---------------------------
Transfer Shares, the Optionee shall give a written notice (the
"Transfer Notice") to the Company describing fully the proposed
transfer, including the number of Transfer Shares, the name and
address of the proposed transferee (the "Proposed Transferee") and, if
the transfer is voluntary, the proposed transfer price and
10
<PAGE>
containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide or involuntary
transfer, the proposed transfer price shall be deemed to be the fair
market value of the Transfer Shares as determined by the Company in
good faith. In the event the Optionee proposes to transfer any
Transfer Shares to more than one (1) Proposed Transferee, the Optionee
shall provide a separate Transfer Notice for the proposed transfer to
each Proposed Transferee. The Transfer Notice shall be signed by both
the Optionee and the Proposed Transferee and must constitute a binding
commitment of the Optionee and the Proposed Transferee for the
transfer of the Transfer Shares to the Proposed Transferee subject
only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine
------------------
that the information provided by the Optionee in the Transfer Notice
is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company shall give the Optionee written notice
of the Optionee's failure to comply with the procedure described in
this paragraph 11 and the Shares without first complying with the
procedures described in this paragraph 11. The Optionee shall not be
permitted to transfer the Transfer Shares if the proposed transfer is
not bona fide.
(d) Exercise of the Right of First Refusal. In the event the proposed
--------------------------------------
transfer is deemed to be bona fide, the Company shall have the right
to purchase all, but not less than all, of the Transfer Shares at the
purchase price and on the terms set forth in the Transfer Notice by
delivery to the Optionee of a notice of exercise of the Right of First
Refusal within thirty (30) days after the date the Transfer Notice is
delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's
ability to exercise the Right of First Refusal with respect to any
proposed transfer described in any other Transfer Notice, whether or
not such other Transfer Notice is issued by the Optionee or issued by
a person other than the Optionee with respect to a proposed transfer
to the same Proposed Transferee. If the Company exercises the Right
of First Refusal, the Company and the Optionee shall thereupon
consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice; provided however, that in the event
that the Transfer Notice provides for the payment for the Transfer
Shares other than in cash, the Company shall have the option of paying
for the Transfer Shares by the discounted cash equivalent of the
consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating
Company shall be treated as payment to the Optionee in cash to the
extent of the unpaid principal and any accrued interest cancelled.
(e) Failure to Exercise the Right of First Refusal. If the Company fails
----------------------------------------------
to exercise the Right of First Refusal in full within the period
specified in paragraph 11(d) above, the Optionee may conclude a
transfer to the Proposed Transferee of the Transfer
11
<PAGE>
Shares on the terms and conditions described in the Transfer Notice,
provided such transfer occurs not later than one hundred twenty (120)
days following delivery to the Company of the Transfer Notice. The
Company shall have the right to demand further assurances from the
Optionee and the Proposed Transferee (in a form satisfactory to the
Company) that the transfer of the Transfer Shares was actually carried
out on the terms and conditions described in the Transfer Notice. No
Transfer Shares shall be transferred on the books of the Company until
the Company has received such assurances, if so demanded, and has
approved the proposed transfer as bona fide. Any proposed transfer on
terms and conditions different from those described in the Transfer
Notice, as well as any subsequent proposed transfer by the Optionee,
shall again be subject to the Right of First Refusal and shall require
compliance by the Optionee with the procedure described in this
paragraph 11.
(f) Transferees of the Transfer Shares. All transferees of the Transfer
----------------------------------
Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a
form satisfactory to the Company) that such transferee shall receive
and hold such Transfer Shares or interests subject to the provisions
of this paragraph 11 providing for the Right of First Refusal with
respect to any subsequent transfer. Any sale or transfer of any
shares acquired upon exercise of the Option shall be void unless the
provisions of this paragraph 11 are met.
(g) Transfers Not Subject to the Right of First Refusal. The Right of
---------------------------------------------------
First Refusal shall not apply to any transfer or exchange of the
shares acquired pursuant to the exercise of the Option if (i) such
transfer is in connection with a Transfer of Control, (ii) such
transfer is to one or more members of the Optionee's immediate family
(or a trust for their benefit) provided all such transferees agree in
writing to the restrictions of paragraph 11(f), or (iii) such transfer
has been approved by the Board its complete discretion. If the
consideration received pursuant to such transfer or exchange consists
of stock of a Participating Company, such consideration shall remain
subject to the Right of First Refusal unless the provisions of
paragraph 11(i) below result in a termination of the Right of First
Refusal.
(h) Assignment of the Right of First Refusal. The Company shall have the
----------------------------------------
right to assign the Right of First Refusal at any time, whether or not
the Optionee has attempted a transfer, to one (1) or more persons as
may be selected by the Company.
(i) Early Termination of the Right of First Refusal. The other provisions
-----------------------------------------------
of this paragraph 11 notwithstanding, the Right of First Refusal shall
terminate, and be of no further force and effect, upon (i) the
occurrence of a Transfer of Control, unless the surviving, continuing,
successor, or purchasing corporation, as the case may be, assumes the
Company's rights and obligations under the Plan, or (ii) the existence
of a public market for the class of shares subject to the Right of
First
12
<PAGE>
Refusal. A "public market" shall be deemed to exist if (x) such stock
is listed on a national securities exchange (as that term is used in
the Exchange Act) or (y) such stock is traded on the over-the-counter
market and prices therefor are published daily on business days in a
recognized financial journal.
12. Escrow.
------
(a) Establishment of Escrow. To insure shares subject to the Right of
-----------------------
First Refusal will be available for repurchase, the Company may
require the Optionee to deposit the certificate or certificates
evidencing the shares which the Optionee purchases upon exercise of
the Option with an escrow agent designated by the Company under the
terms and conditions of an escrow agreement approved by the Company.
If the Company does not require such deposit as a condition of
exercise of the Option, the Company reserves the right at any time to
require the Optionee to so deposit the certificate or certificates in
escrow. The Company shall bear the expenses of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Right of First Refusal, the escrow agent shall
deliver to the Optionee the shares no longer subject to such
restrictions.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Right of First Refusal, the
notices required to be given to the Optionee shall be given to the
escrow agent and any payment required to be given to the Optionee
shall be given to the escrow agent. Within thirty (30) days after
payment by the Company, the escrow agent shall deliver the shares
which the Company has purchased to the Company and shall deliver the
payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to time, there
-------------------------------------------
is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the Company, the stock of which
is subject to the provisions of this Option Agreement, then, in such event,
any and all new substituted or additional securities to which the Optionee
is entitled by reason of the Optionee's ownership of the shares acquired
upon exercise of the Option shall be immediately subject to the Right of
First Refusal with the same force and effect as the shares subject to the
Right of First Refusal immediately before such event.
14. Notice of Sales Upon Disqualifying Disposition. The Optionee shall dispose
----------------------------------------------
of the shares acquired pursuant to the Option only in accordance with the
provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one
(1) year from the date the Optionee exercises all or part of the Option or
within two (2) years of the date of grant of the Option. Until such time
as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, the Optionee shall hold all shares
acquired pursuant to the Option in
13
<PAGE>
the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after exercise of the Option and the two-year period
immediately after grant of the Option. At any time during the one-year or
two-year periods set forth above, the Company may place a legend or legends
on any certificate or certificates representing shares acquired pursuant to
the Option requesting the transfer agent for the Company's stock to notify
the Company of any such transfers. The obligation of the Optionee to notify
the Company of any such transfer shall continue notwithstanding that a
legend has been placed on the certificate or certificates pursuant to the
preceding sentence.
15. Legends. The Company may at any time place legends referencing the Right
--------
of First Refusal set forth in paragraph 11 above and any applicable federal
or state securities law restriction on all certificates representing shares
of stock subject to the provisions of this Option Agreement. The Optionee
shall, at the request of the Company, promptly present to the Company any
and all certificates representing shares acquired pursuant to the Option in
the possession of the Optionee in order to effectuate the provisions of
this paragraph. Unless otherwise specified by the Company, legends placed
on such certificates may include, but shall not be limited to, the
following:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SHARES, THE SALE
IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE
CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SHARES REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH
SALE, TRANSFER ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS
ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.
(c) THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE
STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES
BY THE REGISTERED HOLDER
14
<PAGE>
HEREOF MADE ON OR BEFORE THE REGISTERED HOLDER SHALL HOLD ALL SHARES
PURCHASED UNDER THE OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN
THE NAME OF ANY NOMINEE) FOR A PERIOD OF ONE YEAR FROM THE DATE OF
EXERCISE OF THE OPTION OR TWO YEARS FROM THE DATE OF GRANT OF THE
OPTION.
16. Initial Public Offering. The Optionee hereby agrees that in the event of
-----------------------
an initial public offering of stock made by the Company under the
Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any
rights to acquire stock of the Company for such period of time as may be
established by the underwriter for such initial public offering; provided,
however, that such period of time shall not exceed one hundred eighty (180)
days from the effective date of the registration statement to be filed in
connection with such initial public offering. The foregoing limitation
shall not apply to shares registered under the Securities Act.
17. Binding Effect. This Option Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
18. Termination or Amendment. The Board may terminate or amend this Option
------------------------
Agreement at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such amendment is required to
enable the Option to qualify as an Incentive Stock Option.
19. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
other agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Company with respect to the subject
matter contained herein other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
20. Terms and Conditions of Plan. The terms and conditions included in the
----------------------------
Plan are incorporated by reference herein, and to the extent that any
conflict may exist between any term or provision of this Option Agreement
and any term or provision of the Plan, the term or provision of the Plan
shall control.
15
<PAGE>
21. Applicable Law. This Option Agreement shall be governed by the laws of the
--------------
State of North Carolina as such laws are applied to agreements between
North Carolina residents entered into and to be performed entirely within
the State of North Carolina.
SCIQUEST, INC.
By:___________________________
Peyton Anderson
President
16
<PAGE>
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
of the Company made in good faith upon any questions arising under this Option
Agreement.
The undersigned hereby acknowledges receipt of a copy of the Plan.
Date:_________________________ ______________________________
(Signature of Optionee)
______________________________
(Printed Name of Optionee)
17
<PAGE>
EXHIBIT A
---------
Sciquest, Inc.
c/o Peyton Anderson
P.O. Box 12156
Research Triangle Park, NC 27709-2156
Re: Exercise of Incentive Stock Option
Dear Sirs:
Pursuant to the terms and conditions of the Incentive Stock Option Award
Agreement dated as of __________, 19__ (the "Agreement"), between __________
("Optionee") and Sciquest, Inc. (the "Company"), Optionee hereby agrees to
purchase _____ shares (the "Shares") of the Common Stock of the Company and
tender payment in full for such shares in accordance with the terms of the
Agreement.
The Shares are being issued to Optionee in a transaction not involving a
public offering and pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with such
purchase, Optionee represents, warrants and agrees as follows:
1. The Shares are being purchased for the Optionee's own account and not for
the account of any other person, with the intent of holding the Shares for
investment and not with the intent of participating, directly or
indirectly, in a distribution or resale of the Shares or any portion
thereof.
2. The Optionee is not acquiring the Shares based upon any representation,
oral or written, by any person with respect to the future value of, or
income from, the Shares, but rather upon independent examination and
judgment as to the prospects of the Corporation.
3. The Optionee has had complete access to and the opportunity to review all
material documents related to the business of the Corporation, has examined
all such documents as the Optionee desired, is familiar with the business
and affairs of the Corporation and realizes that any purchase of the Shares
is a speculative investment and that any possible profit therefrom is
uncertain.
4. The Optionee has had the opportunity to ask questions of and receive
answers from the Corporation and its executive officers and to obtain all
information necessary for the Optionee to make an informed decision with
respect to the investment in the Corporation represented by the Shares.
5. The Optionee is able to bear the economic risk of any investment in the
Shares, including the risk of a complete loss of the investment, and the
Optionee acknowledges that he or
<PAGE>
she may need to continue to bear the economic risk of the investment in the
Shares for an indefinite period.
6. The Optionee understands and agrees that the Shares are being issued and
sold to the Optionee without registration under any state or federal laws
relating to the registration of securities, in reliance upon exemptions
from registration under appropriate state and federal laws based in part
upon the representations of the Optionee made herein.
7. The Corporation is under no obligation to register the Shares or to comply
with any exemption available for sale of the Shares by the Optionee without
registration, and the Corporation is under no obligation to act in any
manner so as to make Rule 144 promulgated under the Securities Act of 1933
available with respect to any sale of the Shares by the Optionee.
8. The Optionee has not relied upon the Corporation or an employee or agent of
the Corporation with respect to any tax consequences related to exercise of
this Option or the disposition of the Shares. The Optionee assumes full
responsibility for all such tax consequences and the filing of all tax
returns and elections the Optionee may be required to or find desirable to
file in connection therewith.
Date: ____________________
Very truly yours,
________________________________
Print Name: ____________________
________________________________
________________________________
________________________________
(Address)
2
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT
OF SCIQUEST, INC.
STOCK OPTION PLAN
THIS FIRST AMENDMENT of SciQuest, Inc. Stock Option Plan is dated as of
September 11, 1998.
WHEREAS, the Board of Directors of SciQuest, Inc. (the "Company") has
adopted and the shareholders of the Company have approved the SciQuest, Inc.
Stock Option Plan (the "Plan"); and
WHEREAS, the Board of Directors deems it to be in the best interest of the
Company to amend the Plan in order to increase the maximum number of shares
issuable pursuant to options granted under the Plan from 225,000 to 838,891.
NOW, THEREFORE, the Plan shall be amended as follows:
1. The second sentence of Paragraph 4 of the Plan shall be deleted in its
entirety and the following substituted in lieu thereof:
"The maximum number of shares of Stock which may be issued under the
Plan shall be Eight Hundred Thirty-Eight Thousand Eight Hundred
Ninety-One (838,891) shares."
2. Except as herein amended, the terms and provisions of the Plan shall
remain in full force and effect as originally adopted and approved.
IN WITNESS WHEREOF, the undersigned hereby certifies that this First
Amendment was duly adopted by the Board of Directors of the Company on the 10th
day of September, 1998 and by the shareholders of the Company on the 11th day of
September, 1998.
SCIQUEST, INC.
[CORPORATE SEAL]
By: /s/ Scott Andrews
-----------------
ATTEST: Scott Andrews
President
By: /s/ Holly A. Coldiron
---------------------
Holly A. Coldiron
Assistant Secretary
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT
OF SCIQUEST, INC.
STOCK OPTION PLAN
THIS SECOND AMENDMENT of SciQuest, Inc. Stock Option Plan is dated as of
February 26, 1999.
WHEREAS, the Board of Directors of SciQuest, Inc. (the "Company") has
adopted and the shareholders of the Company have approved the SciQuest, Inc.
Stock Option Plan, as amended (the "Plan"); and
WHEREAS, the Board of Directors deems it to be in the best interests of the
Company to further amend the Plan in order to increase the maximum number of
shares issuable pursuant to options granted under the Plan from 838,891 to
979,017.
NOW, THEREFORE, the Plan shall be amended as follows:
1. The second sentence of Paragraph 4 of the Plan shall be deleted in its
entirety and the following substituted in lieu thereof:
"The maximum number of shares of Stock which may be issued under the
Plan shall be Nine Hundred Seventy-Nine Thousand Seventeen (979,017)
shares."
2. Except as herein amended, the terms and provisions of the Plan shall
remain in full force and effect as originally adopted and approved.
IN WITNESS WHEREOF, the undersigned hereby certifies that this Second
Amendment was duly adopted by the Board of Directors of the Company on the 9th
day of February, 1999 and by the shareholders of the Company on the 26th day of
February, 1999.
SCIQUEST, INC.
[CORPORATE SEAL]
By: /s/ Peyton C. Anderson
-----------------------------
ATTEST: Peyton C. Anderson
Executive Vice President
By: /s/ Holly A. Coldiron
------------------------------
Holly A. Coldiron
Assistant Secretary
<PAGE>
EXHIBIT 10.4
THIRD AMENDMENT
OF SCIQUEST, INC.
STOCK OPTION PLAN
THIS THIRD AMENDMENT of SciQuest, Inc. Stock Option Plan is dated as of
March 1, 1999.
WHEREAS, the Board of Directors of SciQuest, Inc. ("SciQuest") has adopted
and the shareholders of the Company have approved the SciQuest, Inc. Stock
Option Plan, as amended (the "Plan"); and
WHEREAS, on March 1, 1999, SciQuest merged with and into SciQuest.com,
Inc., a Delaware corporation and wholly-owned subsidiary of SciQuest
("SciQuest.com" or the "Company"), with SciQuest.com being the surviving entity;
and
WHEREAS, pursuant to the Agreement and Plan of Merger, dated March 1, 1999,
and without any action on the part of either party, SciQuest.com assumed the
Plan; and
WHEREAS, the Board of Directors deems it to be in the best interests of the
Company to further amend the Plan in order to change the name "SciQuest, Inc."
wherever it appears in the Plan to "SciQuest.com, Inc." in order to reflect the
new corporate name.
NOW, THEREFORE, the Plan is hereby amended as set forth below:
1. The name "SciQuest, Inc. Stock Option Plan", as it appears in the
title and in the first sentence of Paragraph 1 of the Plan, shall
be changed to "SciQuest.com, Inc. Stock Option Plan."
2. The name "SciQuest, Inc.", as it appears throughout the Plan, and
all exhibits thereto, shall be changed to "SciQuest.com Inc."
3. Except as herein amended, the terms and provisions of the Plan
shall remain in full force and effect as originally executed.
SCIQUEST.COM, INC. (formerly,
SciQuest, Inc.)
/s/ Peyton C. Anderson
--------------------------
Peyton C. Anderson
Executive Vice President
<PAGE>
EXHIBIT 10.5
FOURTH AMENDMENT
OF SCIQUEST.COM, INC.
STOCK OPTION PLAN
THIS FOURTH AMENDMENT of SciQuest.com, Inc. Stock Option Plan is dated as
of August 27, 1999.
WHEREAS, the Board of Directors of SciQuest.com, Inc. (the "Company") has
adopted and the stockholders of the Company have approved the SciQuest.com, Inc.
Stock Option Plan, as amended (the "Plan"); and
WHEREAS, the Board of Directors deems it to be in the best interests of the
Company to further amend the Plan in order to increase the maximum number of
shares issuable pursuant to options granted under the Plan from 979,017 to
1,745,465.
NOW, THEREFORE, the Plan shall be amended as follows:
1. The second sentence of Paragraph 4 of the Plan shall be deleted in its
entirety and the following substituted in lieu thereof:
"The maximum number of shares of Stock which may be issued under the
Plan shall be One Million Seven Hundred Forty-Five Thousand Four
Hundred Sixty-Five (1,745,465) shares."
2. Except as herein amended, the terms and provisions of the Plan shall
remain in full force and effect as originally adopted and approved.
IN WITNESS WHEREOF, the undersigned hereby certifies that this Fourth
Amendment was duly adopted by the Board of Directors of the Company as of the
10/th/ day of August, 1999 and by the stockholders of the Company on the 27/th/
day of August, 1999.
SCIQUEST.COM, INC.
[CORPORATE SEAL]
By: /s/ M. Scott Andrews
-----------------------------
ATTEST: M. Scott Andrews
President
By: /s/ Peyton C. Anderson
------------------------------
Peyton C. Anderson
Secretary
<PAGE>
EXHIBIT 10.6
SUBLEASE
--------
THIS AGREEMENT OF SUBLEASE made as of this 31/st/ day of July 1998, by and
between Inspire Pharmaceuticals, Inc., a Delaware corporation (hereinafter
referred to as "Sublessor") and SciQuest, Inc., a Delaware corporation having a
principal place of business and mailing address of 4100 Betterton Drive,
Raleigh, North Carolina 27613 (hereinafter referred to as "Sublessee").
WITNESSETH:
----------
WHEREAS, on December 23/rd/, 1997, Sublessor, as Lessee, entered into a
Lease (which lease is hereinafter referred to as the "Master Lease") with Petula
Associates, Ltd., an Iowa corporation, (hereinafter referred to as the "Master
Lessor"), which lease concerns 5400 square feet of space in the building known
as Royal Center II in the Imperial Center office park and located at 4222
Emperor Boulevard, Durham, North Carolina (the "Premises"); and
WHEREAS, Sublessee desires to sublease the Premises from Sublessor, and
Sublessor desires to sublease the Premises to Sublessee.
NOW, THEREFORE, in consideration of the rents and covenants hereinafter set
forth to be, paid and performed by Sublessee, Sublessor does hereby demise,
lease and let unto Sublessee, and the Sublessee does hereby lease and take from
Sublessor upon the terms and conditions hereinafter set forth the Premises, as
described in the Master Lease, which is attached hereto as Exhibit A and
incorporated herein by reference (hereinafter referred to as the "Subleased
Premises").
1. RELATIONSHIP T0 MASTER LEASE. The Sublease and all its terms,
----------------------------
covenants and provisions are and each of them is subject and subordinate to (i)
the Master Lease under which Sublessor is in control of the Subleased Premises;
(ii) the rights as contained in the Master Lease of the owner or owners of the
Premises and/or the land and building of which the Subleased Premises are a
part; (iii) all rights of Master Lessor as contained in the Master Lease; and
(iv) to any and all mortgages or encumbrances now or hereafter afflicting the
Subleased Premises to which the Master Lease would be subordinated. Sublessee
expressly agrees that, if Sublessor's tenancy, control or right to possession of
the Subleased Premises shall terminate by expiration or any other cause, this
Sublease shall thereupon immediately cease and terminate and Sublessee shall
give immediate possession to Sublessor; provided however, that the liability of
the Sublessee to the Sublessor or the liability of the Sublessor to the
Sublessee for any termination caused by the applicable party's default under
this Sublease shall not be discharged by reason of such termination.
2. PERFORMANCE OF MASTER LEASE TERMS. With respect to the Subleased
---------------------------------
Premises, Sublessee shall receive all benefits which accrue to Sublessor under
the Master Lease as it relates to the Subleased Premises Sublessee hereby
expressly, and without condition or reservation, agrees to assume the obligation
for performance of all Sublessor's responsibilities under the Master Lease with
respect to the Subleased Premises and during the term hereof to be subject to
and bound by, and to faithfully and punctually perform and comply with all of
the covenants, conditions, stipulations, restrictions and agreements contained
therein except as excluded herein. Sublessee hereby agrees to indemnify and hold
harmless Sublessor from and against any loss, claim, damage, expense or injury
(including reasonable attorney's fees and court costs) which Sublessor may incur
as a result of Sublessee's failure to perform such obligations on behalf of
Sublessor. Sublessor covenants and agrees that if and so long as the Sublessee
fully, faithfully and punctually observes the covenants and conditions hereof
and of the Master Lease, Sublessee shall quietly enjoy the Subleased Premises,
subject, however, to the terms of this Sublease and the Master Lease.
<PAGE>
3. TERM. The term of this Sublease shall commence on August 15, 1998
----
("Commencement Date") and shall expire at midnight on August 14, 1999. Sublessee
shall have access to the Subleased Premises prior to August 15, 1998 for
purposes of installation of telecommunications wiring, equipment, and other
furnishings, provided, however, that all insurance and indemnification
provisions of this Sublease shall apply during any such early occupancy period.
Sublessee shall have the right to extend the term of this Sublease for an
additional term of six (6) months provided that Sublessee shall give Sublessor
at least ninety (90) days' prior written notice of its election to so extend,
time being of the essence with respect to such notice. Rent for such first
extension term shall be $4,837.50 per month. Sublessee shall also have the right
to extend the term of this Sublease for a second additional term of six (6)
months after the end of the initial extension term provided that Sublessee shall
give Sublessor at least one hundred and twenty (120) days' prior written notice
of its election to so extend, time being of the essence with respect to such
notice. Rent for such second extension term shall be the same as for the first
extension term. Sublessee's right to extend for the second extension term shall
be subject to Sublessor's election to notify Sublessee, within thirty (30) days
of Sublessor's receipt of Sublessee's notice of election to extend for a second
extension term, that Sublessor elects to occupy the Subleased Premises for
Sublessor's own purposes, in which event Sublessee shall not receive a second
extension of the term of this Sublease.
4. RENT. During each month of the one-year term of this Sublease,
----
Sublessee covenants to pay Sublessor as base rent the sum of $4,612.50.
In addition to base rent, Sublessee shall pay to Sublessor, as additional
rent, Sublessor's proportionate share of taxes, insurance and ail building
operating costs and other pass-through items as required of Sublessor in the
Master Lease. Sublessee shall pay Sublessor such base rent and additional rent,
without offset or deduction, prior notice or demand, in advance on the first day
of each calendar month of the term hereof. If the Commencement Date is a day
other than the first day of a calendar month, base rent and additional rent for
the month in which the Commencement Date Occurs shall be prorated. All base rent
and additional rent shall be paid to Sublessor at 4222 Emperor Boulevard, Suite
470, Durham, North Carolina 27703. Sublessee shall contract for and shall pay
for its own utilities and janitorial services. Sublessor shall provide notice to
Sublessee of the amount of any additional rent due from Sublessee at such time
as Sublessor receives such notice from Master Lessor or at such other time as
Sublessor becomes aware of the amount of any additional rent due from Sublessee
5. USE. Sublessee shall use the Subleased Premises for only those
---
purposes permitted under Section 6 of the Master Lease.
6. CONDITION OF PREMISES. SUBLESSEE (i) ACCEPTS THE SUBLEASED PREMISES
---------------------
IN THEIR "AS IS" CONDITION ON THE COMMENCEMENT DATE HEREOF, (ii) ACKNOWLEDGES
THAT SUBLESSOR HAS MADE AND MAKES NO REPRESENTATIONS OR WARRANTIES CONCERNING
THE CONDITION OF THE SUBLEASED PREMISES OR THEIR FITNESS FOR THE USE INTENDED BY
SUBLESSEE, AND (iii) AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW THE
SUBLESSEE WAIVES ANY CLAIM IT HAS, MAY HAVE, OR OUGHT TO HAVE AGAINST THE
SUBLESSOR, BASED ON OR ARISING OUT OF THE CONDITION OF THE SUBLEASED PREMISES.
Sublessee shall, at all times during the term hereof, keep and maintain the
Subleased Premises in good condition and repair as required by the Master Lease.
Sublessee shall have the right to extend power poles from ceiling to floor to
support systems furniture provided that Sublessee shall remove the same prior to
the end of the term of this Sublease and shall repair any damage caused by such
installations and shall otherwise return the Subleased Premises to its original
configuration, ordinary wear and tear and loss by insured casualty excepted.
2
<PAGE>
7. INSURANCE AND INDEMNIFICATIONS. At all times during the term of this
------------------------------
Sublease, Sublessee shall, at Sublessee's expense, keep in effect (i) a policy
of Comprehensive General Liability insurance with a reputable company in amounts
not less than $2,000,000 combined single limit and $2,000,000 property damage,
which policy shall name Sublessor and Master Lessor as additional insureds, (ii)
a policy of Workers' Compensation insurance in at least the statutory amounts-,
and (iii) insurance covering loss to Sublessee's personal property by fire or
other casualty. Sublessee shall otherwise comply in all respects with all
insurance provisions of the Master Lease. Except to the extent of matters caused
by the negligent acts or ommissions or the willful misconduct of Sublessor, its
agents, employees or contractors, from which matters Sublessor shall indemnify
and hold harmless Sublessee, Sublessee shall indemnify, defend and hold harmless
Sublessor from and against any loss, claim, damage, expense or injury to persons
or property caused by or arising out of (i) Sublessee's use of the Subleased
Premises, (ii) Sublessee's default in the performance of its obligations
hereunder,- or (iii) any negligent or intentional act or omission by Sublessee,
its agents, employees or contractors.
8. SURRENDER. At the expiration or earlier termination of this Sublease,
---------
Sublessee shall surrender the Subleased Premises to Sublessor in broom clean
condition in the same condition as on the Commencement Date hereof, ordinary
wear and tear excepted. Sublessee warrants and covenants that it will pay the
full cost of any repairs or maintenance necessary to restore the Subleased
Premises to the same condition as on the Commencement Date hereof, ordinary wear
and tear and loss by insured casualty excepted.
9. ASSIGNMENT AND SUBLETTING. Sublessee may not assign this Sublease or
-------------------------
further sublet all or any part of the Subleased Premises without the prior
written consent of Sublessor, which consent shall not unreasonably be withheld.
conditioned or delayed, provided, however, that the provisions of Section 22 of
the Master Lease as to the respective rights and obligations of Landlord and
Tenant thereunder shall apply as to the respective rights and obligations of
Sublessor and Sublessee with respect to the matters set out therein.
10. DEFAULT. If Sublessee shall default in the payment of any base or
-------
additional rent hereunder within three (3) days of when due or if Sublessee
shall default in the performance of any of the other terms, covenants and
conditions of this Sublease or the Master Lease, then Sublessor may (i) avail
itself of any remedy available to the Master Lessor under the Master Lease; (ii)
avail itself of any statutory or other remedy provided by the laws of the state
in which the Subleased Premises are situated; (iii) re-enter, retake and
repossess the Premises through summary proceedings or an action of unlawful
detainer; and/or (iv) terminate this Sublease. Notwithstanding the foregoing,
Sublessee shall be entitled to written notice and a five (5) day cure period
with respect to the failure to pay any base or additional rent due hereunder as
follows: one (1) time during the term of this Sublease and one (1) time during
each renewal term, if any.
11. ACCESS. Sublessor shall be permitted access to the Subleased Premises
------
at all reasonable times upon reasonable advance notice, or at any time in case
of emergency, to inspect the Subleased Premises or to show the Subleased
Premises to other potential subtenants. provided however, that, without the
prior consent of Sublessee, which shall not unreasonably be withheld,
conditioned, or delayed, Sublessor's right to enter the Subleased Premises to
show it to potential subtenants shall only apply (1) for the ninety (90) day
period after Sublessee fails to provide Sublessor with written notice of Its
intention to renew the term of this Sublease for the first renewal term or (II)
for the one hundred and twenty (120) day period after Sublessee fails to provide
Sublessor with written notice of its intention to renew the term of this
Sublease for the second renewal term. Sublessor shall attempt to conduct all of
its activities permitted under this Paragraph in a manner which will not
unreasonably inconvenience, annoy or disturb the Sublessee in its use and
occupancy of the Subleased Premises.
3
<PAGE>
12. NOTICE. Any notice required or permitted to be sent pursuant to this
------
Sublease shall be sent by FAX or certified mail, return receipt requested,
postage prepaid to the parties at the following addresses or FAX numbers and to
such other addresses or FAX numbers as they shall from time to time indicate:
Sublessee: Sublessor:
SciQuest, Inc. Inspire Pharmaceuticals, Inc.
4222 Emperor Boulevard, Suite 225 4222 Emperor Boulevard, Suite 470
Durham, NC 27703 Durham, NC 27703
Phone # (919) 786-1770 Phone # (919) 941-9777
Fax # (919) 782-3123 Fax # (919) 941-9797
ATTN: Peyton Anderson ATTN: Greg Mossinghoff
With a copy to.
Kathleen N. Worm. Esq. Jeffrey J. Johnson, Esq.
Hutchison & Mason PLLC Wyrick Robbins Yates & Ponton LLP
4011 Westchase Boulevard, Suite 400 4101 Lake Boone Trail, Suite 300
Raleigh, NC 27607 Raleigh, NC 27607
13. SUBLESSOR RELEASED FROM LIABILITY IN CERTAIN EVENTS. Sublessor shall
---------------------------------------------------
not be responsible to Sublessee, at any time or in any event, for deterioration
or change in the condition of the Subleased Premises not caused by Sublessor's
willful misconduct or gross negligence. Sublessor shall also not be responsible
for any damage to Sublessee's property contained therein, including injury to
persons whether caused by riot or civil commotion, fire or earthquake damage, or
overflow or leakage upon or into the Subleased Premises, of water, steam gas or
electricity, or by any breakage in pipes or plumbing, or breakage, leakage or
obstruction of sewer pipes or other damage occasioned by water being upon or
coming through the roof, skylight, trapdoors, walls, basement or otherwise,
nor for failure of the heating (steam) plant, nor for loss of property by theft
or otherwise, nor for any damage arising from any act or neglect of any co-
tenant or other occupant of the Subleased Premises, or for that of any owner or
occupants of adjoining or contiguous property unless said damage, loss or injury
results from the willful misconduct or gross negligence of Sublessor or its
agents, employees or contractors.
14. CONSENT OF MASTER LESSOR; SUBLESSOR. This Sublease is subject to and
-----------------------------------
conditioned upon the consent of the Master Lessor. If such consent is not
obtained prior to August 15., 1998, this Sublease shall be voidable by either
party. Sublessor shall immediately ask Master Lessor for consent.
15. ENTIRE AGREEMENT. This Sublease (including the provisions of the
----------------
Master Lease incorporated herein by reference) contains the entire agreement
between the parties and any agreement hereafter made shall be ineffective to
change, modify or discharge it in whole or in part unless such agreement is in
writing and signed by the parties hereto.
16. SUBLESSOR'S REPRESENTATIONS AND WARRANTIES. Sublessor represents and
------------------------------------------
warrants that (i) the Master Lease is in full force and effect; (ii) to
Sublessor's knowledge, there exists
4
<PAGE>
no circumstance, condition, or act of default which would entitle or permit the
Master Lessor to terminate the Master Lease or to abridge any rights of
Sublessor thereunder; (iii) it will not modify or surrender the Master Lease
without the prior written consent of Sublessee which shall not be unreasonably
withheld; (iv) in the event of a default by Master Lessor under the Master
Lease, Sublessor shall use its commercially reasonable best efforts to obtain
Master Lessor's performance of its obligations thereunder.
17. MISCELLANEOUS.
-------------
a. If any term, covenant or condition of this Sublease or the
application thereof to any circumstances or to any person, corporation or other
entity shall be invalid or unenforceable to any extent, the remaining terms,
covenants and conditions of this Sublease shall not be affected thereby and
shall be valid and enforceable to the fullest extent permitted by law.
b. The paragraph headings contained in this Sublease have been
included for convenience only and shall not be used in the construction or
interpretation of this Sublease,
c. This Sublease shall be governed by and construed in accordance
with the laws of the State of North Carolina.
18. ATTORNEYS FEES. In the event that any action or proceeding shall be
--------------
brought by any party hereto against the other with respect to any matter arising
under this Sublease, the prevailing party shall be entitled to recover from the
other costs of suit and reasonable attorney's fees actually incurred. All costs
and expenses (including without limitation reasonable attorney's fees incurred
by Sublessor in connection with enforcement of its rights and remedies
hereunder) shall be paid to Sublessor by Sublessee as additional rent hereunder.
19. SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon and inure
----------------------
to the benefit of the parties hereto and their respective successors and
permitted assigns.
20. HOLDOVER. In the event the Sublessee holds over after the expiration
--------
or earlier termination of the Master Lease. then the Sublessee shall assume all
of the Sublessor's obligations under Section 30 "Holding Over" of the Master
Lease. Nothing herein shall be construed as Sublessor's consent to any holding
over by Sublessee.
21. BROKERAGE Sublessee represents and warrants that it has dealt with no
---------
real estate broker or agent and Sublessor warrants that it has dealt with no
real estate broker or agent with respect to this transaction except for
Corporate Realty Advisors whose commission shall be paid by Sublessor. Each
party shall indemnify and hold harmless the other from and against all claims of
any other broker or agent claiming to have represented Sublessee or Sublessor as
the case may be in this matter.
22. SECURITY DEPOSIT. On or prior to the Commencement Date, Sublessee
----------------
shall deliver to Sublessor the amount of $4,612.50, which shall be held as a
security deposit in an account of Sublessor's choosing during the term of the
Sublease (the "Security Deposit") for the faithful performance by the Sublessee
of the terms, covenants and conditions of this Sublease. Sublessor may comingle
such Security Deposit with Sublessor's other funds and shall not be accountable
to Sublessee for interest earned thereon, if any. If Sublessee defaults with
respect to any provisions of this Sublease, including but not limited to the
provisions relating to the payment of rent, additional rent or any other
monetary sums due under this Sublease, Sublessor may (but shall not be required
to) use, apply or retain any part or all of the Security Deposit for the payment
of any amounts which Sublessor may spend or be obligated to spend by reason of
Sublessee's default or to compensate Sublessor for any loss or damages which
Sublessor
5
<PAGE>
may suffer by reason of Sublessee's default. Return of the Security Deposit
shall be subject to the foregoing and Sublessee's surrender of the Subleased
Premises and Sublessor's or its agents' inspection of the Subleased Premises
following expiration or earlier termination of the Sublease and determination
that there is no damage to the property (ordinary wear and tear excepted) and no
delinquencies in rent or other sums payable under the Sublease. Sublessor's
holding of the security deposit shall not release Sublessee of its obligation to
pay the last month's rent under the Sublease.
IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this
Agreement of Sublease effective as of the day and year first above written.
SUBLESSOR: SUBLESSEE:
INSPIRE PHARMACEUTICALS, INC. SCIQUEST, INC.
By: /s/ Christy L. Shaffer By: /s/ M. Scott Andrews
------------------------------ -----------------------------------
Title: Vice President Development, Title: Chief Executive Officer/President
----------------------------- ---------------------------------
Chief Operating Officer
-----------------------
Attest: /s/ David J. Drutz Attest: /s/ Peyton Anderson
-------------------- ---------------------------------
Title: Vice Chairman Title: Vice President Business
--------------- -----------------------
Development
-----------
(Corporate Seal) (Corporate Seal)
6
<PAGE>
LEASE AGREEMENT
BY AND BETWEEN
PETULA ASSOCIATES, LTD.
(ASLANDLORD)
AND
INSPIRE PHARMACEUTICALS, INC.
(AS TENANT)
1
<PAGE>
TABLE OF CONTENTS
- -----------------
1. DESCRIPTION OF PREMISES .......................................... 1
-----------------------
2. TERM ............................................................. 1
----
3. RENTAL ........................................................... 2
------
4. DELIVERY AND UPFITTING OF PREMISES ............................... 5
----------------------------------
5. ALTERATIONS AND IMPROVEMENTS BY TENANT ........................... 7
--------------------------------------
6. USE OF PREMISES .................................................. 7
---------------
7. TAXES ON LEASE AND TENANT'S PROPERTY ............................. 9
------------------------------------
8. FIRE AND EXTENDED COVERAGE INSURANCE ............................. 9
------------------------------------
9. LANDLORDS COVENANT TO REPAIR AND REPLACE ......................... 10
----------------------------------------
10. TENANT'S COVENANT TO REPAIR ...................................... 11
---------------------------
11. TRADE FIXTURES AND EQUIPMENT...................................... 11
---------------------------
12. UTILITIES ........................................................ 12
---------
13. DAMAGE OR DESTRUCTION OF PREMISES ................................ 12
---------------------------------
14. GOVERNMENTAL ORDERS .............................................. 13
-------------------
15. MUTUAL WAIVER OF SUBROGATION ..................................... 14
----------------------------
16. SIGNS AND ADVERTISING ............................................ 14
---------------------
17. INDEMNIFICATION AND LIABILITY INSURANCE .......................... 14
---------------------------------------
18. LANDLORDS RIGHT OF ENTRY
------------------------
19. EMINENT DOMAIN ................................................... 15
--------------
20. EVENTS OF DEFAULT AND REMEDIES ................................... 16
------------------------------
21. SUBORDINATION .................................................... 17
-------------
22. ASSIGNING AND SUBLETTING ......................................... 18
------------------------
23. TRANSFER OF LANDLORD'S INTEREST .................................. 19
-------------------------------
24. COVENANT OF QUIET ENJOYMENT ...................................... 19
---------------------------
2
<PAGE>
25. ESTOPPEL CERTIFICATES ............................................ 19
---------------------
26. PROTECTION AGAINST LIENS ......................................... 19
------------------------
27. MEMORANDUM OF LEASE .............................................. 20
-------------------
28. FORCE MAJEURE .................................................... 20
-------------
29. REMEDIES CUMULATIVE -- NONWAIVE .................................. 20
-------------------------------
30. HOLDING OVER ..................................................... 20
------------
31. NOTICES .......................................................... 21
-------
32. LEASING COMMISSION ............................................... 21
------------------
33. MISCELLANEOUS .................................................... 22
-------------
34. SEVERABILITY ..................................................... 24
------------
35. REVIEW OF DOCUMENTS .............................................. 24
-------------------
3
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (the "Lease") made and entered into as of the 30/th/ day of
------
December, 1997, by and between PETULA ASSOCIATES, LTD., an Iowa corporation,
- --------
hereinafter called "Landlord"; and INSPIRE PHARMACEUTICALS, INC., a Delaware
corporation, hereinafter called "Tenant":
W I T N E S S E T H:
- - - - - - - - - --
In consideration of the mutual covenants and agreements contained herein,
the parties hereto agree for themselves, their successors and assigns, as
follows:
1. DESCRIPTION OF PREMISES.
------------------------
Landlord hereby leases to Tenant, and Tenant hereby accepts and rents from
Landlord, that certain office/warehouse space (the "Premises") containing
approximately 5,400 rentable square feet known as Suite ______ and more
particularly described on Exhibit "B", located in the building known as Royal
Center II (the "Building") on a tract of land located at 4222 Emperor Boulevard,
Durham, North Carolina, in Imperial Center Business Park (the "Business Park"),
more particularly described on Exhibit "A" attached hereto; together with the
-----------
nonexclusive right to use all parking areas, driveways, sidewalks and other
common facilities furnished by Landlord from time to time. Landlord may, at any
time prior to, or during the first six (6) months of the first Lease Year (as
hereinafter defined), have its architect or engineer measure the actual total
square footage of the Premises. In the event the Premises shall contain an
amount of square footage which exceeds the amount of square feet referenced
above by more than two percent (2%) of such amount, the square footage of the
Premises shall be adjusted to reflect the actual square footage and the Annual
Rental (as hereinafter defined) shall be proportionately adjusted based on
actual square footage multiplied by the applicable square foot rental rate (and
such adjustment shall relate back to the Commencement Date if there is a
variance). The reasonable cost of such measurement shall be borne by Landlord.
2. TERM.
-----
Unless otherwise adjusted as hereinbelow provided, the term of this Lease (the
"Term") shall commence on the earlier of: (a) the date Tenant, or any person
occupying any portion of the Premises with Tenant's permission, commences
business operations from the Premises, or (b) December 1, 1997 (the
"Commencement Date") and shall end at midnight on the date (the "Expiration
Date") which is six (6) full years from the Commencement Date (as same may be
adjusted as hereinbelow provided); provided, however, for purposes hereof,
Tenant's installation or storage of furniture, fixtures and equipment within
the Premises shall not be deemed the commencement of business operations. Tenant
shall have the option to extend the Term in accordance with Exhibit "E" attached
-----------
hereto and incorporated herein by reference. As used herein, the term "Lease
Year" shall mean each consecutive twelve-month period of the Term, beginning
with the Commencement Date (as same may be adjusted as hereinbelow provided) or
any anniversary thereof.
4
<PAGE>
3. RENTAL.
-------
During the Term, Tenant shall pay to Landlord, without notice, demand,
reduction (except as may be applicable pursuant to the paragraphs of this Lease
entitled "Damage or Destruction of Premises" or the paragraph entitled "Eminent
Domain" of this Lease), setoff or any defense, a total rental (the "Annual
Rental") consisting of the sum total of the following:
(a) Minimum Rental.
---------------
(i) Beginning with the Commencement Date and continuing through the
earlier to occur of: (i) December 1, 1998, or (ii) the date upon which the
Tenant Improvements (as hereinafter defined) are substantially completed and a
permanent Certificate of Occupancy is issued for the Premises (the "Adjustment
Date"), Tenant shall pay a minimum annual rental (the "Minimum Rental") of
Thirty-One Thousand Fifty and No/100 Dollars ($31,050.00) [which represents a
rate of $5.75 per rentable square foot of the Premises], payable in equal
monthly installments of Two Thousand Five Hundred Eighty-Seven and 50/100
Dollars ($2,587.50) each in advance on or before the first day of each month.
(ii) Beginning with the Adjustment Date and continuing through the
Expiration Date or earlier termination of this Lease, Tenant shall pay Minimum
Rental of Fifty-One Thousand Three Hundred and No/100 Dollars ($51,300.00)
[which represents a rate of $9.50 per rentable square foot of the Premises],
payable in equal monthly installments of Four Thousand Two Hundred Seventy-Five
and No/1 00 Dollars ($4,275.00) each in advance on or before the first day of
each month. In addition, Minimum Rental shall be increased annually, beginning
on the first anniversary of the Adjustment Date and continuing on each
anniversary of same thereafter, by an amount equal to three percent (3%) of the
Minimum Rental for the immediately preceding twelve (12) month period. For
purposes hereof, if the Commencement Date is a date other than the first day of
a calendar month, the Minimum Rental shall be prorated daily from such date to
the first day of the next calendar month and paid on the Commencement Date.
(b) Additional Rental. [Intentionally Deleted]
------------------
(c) Tenant's Share of Taxes.
------------------------
Tenant shall pay an amount equal to Tenant's "proportionate share" of any
ad valorem taxes (or any tax hereafter imposed in lieu thereof) imposed upon the
Building and the Premises. Tenant's "proportionate share" of the taxes, the
insurance premiums and common area maintenance costs, as described below, shall
be a fraction, the numerator of which shall be the number of rentable square
feet within the Premises and the denominator of which shall be the number of
rentable square feet within the Building, which is currently estimated to be
32,713 rentable square feet. Tenant's proportionate share of taxes shall be paid
as provided in subparagraph (f) below. Provided, any increase in ad valorem
taxes on the Premises as a result of alterations, additions or improvements made
by, for or on account of Tenant shall be reimbursed by Tenant to Landlord within
thirty (30) days after receipt of written demand therefor.
(d) Tenant's Share of Insurance Premiums.
-------------------------------------
Tenant shall pay an amount equal to Tenant's "proportionate share" of any
premiums charged for fire and extended coverage and liability insurance with all
endorsements carried by Landlord on the Building payable for any calendar year
(including any applicable partial calendar year), provided such premiums are not
a
5
<PAGE>
direct result of another tenant's use of its premises in the Building. Tenant's
proportionate share of premiums shall be paid as provided in subparagraph (f)
below.
(e) Tenant's Share of Common Area Operating and Maintenance Costs.
--------------------------------------------------------------
Tenant shall pay an amount equal to Tenant's "proportionate share" of the
reasonable costs for operating and maintaining the Building's common areas,
including, but not limited to, building management (such management fees to be
consistent with customary fees in the Raleigh/Durham area), the cost of grass
mowing, shrub care and general landscaping, irrigation systems, maintenance and
repair to parking and loading areas, driveways, sidewalks, exterior lighting,
garbage collection and disposal, common water and sewer, common plumbing, common
signs and other facilities shared by the various tenants in the Building, and of
the Building's share of the common area operating and maintenance costs for the
entire Business Park (including without limitation a general Business Park fee).
Landlord shall use good faith efforts to keep the operating and maintenance
costs in line with costs for other similarly situated buildings in the
Raleigh/Durham market, taking into account rent and other relevant factors.
Tenant's proportionate share shall be paid as provided in subparagraph (f)
below. For purposes hereof, the expenses identified in subparagraphs (c), (d)
and (e) of this Section shall be deemed the "Tenant Expenses."
(f) Payment of Proportionate Shares.
--------------------------------
Tenant shall pay to Landlord each month, along with Tenant's installments
of Minimum Rental (and Additional Rental, if applicable) a sum equal to one-
twelfth (1/12) of the amount estimated by Landlord (in its reasonable
discretion) as Tenant's proportionate share of the taxes, insurance premiums and
common area maintenance costs (including the Business Park fee) for each
calendar year. For the first calendar year beginning with January 1, 1998, the
amount of Tenant's estimated proportionate share of all Tenant Expenses shall be
Eight Thousand One Hundred and No/100 Dollars ($8,100.00) [which represents
$1.50 per rentable square foot of the Premises], payable in advance in equal
monthly installments of Six Hundred Seventy-Five and No/100 Dollars ($675.00).
Landlord will make reasonable efforts to provide Tenant with Landlord's estimate
of Tenant's proportionate share of Tenant Expenses for the upcoming calendar
year on or before December 15 of each calendar year during the term hereof. If
Landlord fails to notify Tenant of Tenant's revised proportionate share of
Tenant Expenses by such date, Tenant 'shall continue to pay the monthly
installments of the proportionate share amount, if any, last payable by Tenant
until notified by Landlord of such new estimated amount. No later than May I of
each calendar year of the Term, Landlord shall deliver to Tenant a reasonably
detailed written statement setting forth the actual amount of Tenant's
proportionate shares for taxes, insurance premiums and all common area
maintenance costs for the preceding calendar year. Tenant shall pay the total
amount of any balance due shown on such statement within thirty (30) days after
its delivery. In the event such annual costs decrease for any such year,
Landlord shall, within thirty (30) days after delivery of such written
statement, reimburse Tenant for any overage paid and the monthly rental
installments for the next period shall be reduced accordingly, but not below the
Minimum Rental. For the calendar year in which this Lease commences, the
proportionate shares of such amounts shall be prorated from the Commencement
Date through December 31 of such year. Further, Tenant shall be responsible for
payment of its proportionate share of Tenant Expenses for the calendar year in
which the Term expires, prorated from January I thereof through the Expiration
Date. Tenant shall pay any unpaid estimated proportionate shares within thirty
(30) days after the Expiration Date, which estimate shall be made by Landlord
based upon actual and estimated costs for such year. After the exact amount
payable for such proportionate shares shall have been determined, Landlord shall
return any excess security deposit to Tenant or Tenant shall promptly pay any
deficiency.
6
<PAGE>
Tenant may audit Landlord's records and all information pertaining to
Tenant Expenses in order to verify the accuracy of Landlord's determination of
Tenant's proportionate share of same provided that:
(i) Tenant must give notice to Landlord of its election to undertake
said audit within one hundred twenty (120) days after receipt of the statement
of the actual amount of Tenant's proportionate share for the preceding calendar
year from Landlord;
(ii) Such audit will be conducted only during regular business hours at
the office where Landlord maintains records of Tenant Expenses and only after
Tenant gives Landlord fourteen (14) days' advance written notice;
(iii) Tenant shall deliver to Landlord a copy of the results of such
audit Within fifteen (15) days of its receipt by Tenant and no such audit shall
be conducted if any other tenant of the Building has conducted an independent
audit for the time period Tenant intends to audit and Landlord furnishes to
Tenant a copy of the results of such audit;
(iv) No audit shall be conducted at any time that Tenant is in default
of any of the terms of this Lease;
(v) No subtenant shall have any right to conduct an audit and no
assignee shall conduct an audit for any period during which such assignee was
not in possession of the Premises; and
(vi) Such audit review by Tenant shall not postpone or alter the
liability and obligation of Tenant to pay any amounts due under the terms of
this Lease.
Within thirty (30) days after Tenant's receipt of such audit, Tenant must
give notice to Landlord of any disputed amounts and identify all items being
contested in Landlord's statement of Tenant's proportionate share of Tenant
Expenses. If Landlord and Tenant cannot agree upon any such item as to which
Tenant shall have given such notice, the dispute shall be resolved by an audit
by a major accounting firm mutually acceptable to Landlord and Tenant and the
cost of said audit shall be paid by the non-prevailing party; provided however,
Tenant will not be considered the "prevailing party" for purposes of this
paragraph unless the accounting firm's audit reveals an overcharge by Landlord
in excess of five percent (5%) of Tenant's proportionate share of Tenant
Expenses for the particular calendar year in question.
Any adjustment required as a result of any audit shall be made by
adjustment to Tenant's proportionate share of Tenant Expenses so that said
adjustment is fully made (or recovered) in equal installments over the twelve
(12) month period immediately following the final resolution of said audit.
(g) Documentary Tax.
----------------
Landlord represents that there is currently no documentary stamp tax, sales
tax or any other tax or similar charge (exclusive of any income tax payable by
Landlord as a result hereof) which will be levied on the rental, leasing or
letting of the Premises, however, in the event that any such charge or tax,
whether local, state or federal, becomes applicable to the rental, leasing or
letting of the Premises and is required to be paid due to the execution hereof
or otherwise with respect to this Lease or the payments due hereunder, the cost
thereof shall be borne by Tenant and shall be paid promptly and prior to same
becoming past due. Tenant shall provide Landlord with copies of all paid
receipts respecting such tax or charge promptly after payment of same.
7
<PAGE>
(h) Late Payment.
-------------
If any monthly installment of Minimum Rental, Additional Rental (if any) or any
other sum due and payable pursuant to this Lease remains due and unpaid ten (10)
days after said amount becomes due, Tenant shall pay as additional rent
hereunder a late payment charge equal to the greater of (i) Five Hundred and
No/100 Dollars ($500.00) or (ii) a sum equal to three percent (3%) of the unpaid
rent or other payment; provided, however, subject to Tenant's not being in
default hereunder, Tenant shall be entitled to one (1) additional ten (10) day
grace period per Lease Year during which Tenant may make such payment without
paying the late charge as hereinabove described. All unpaid rent and other sums
of whatever nature owed by Tenant to Landlord under this Lease shall bear
interest from the tenth (10th) day after the due date thereof until paid at the
lesser of two percent (2%) per annum above the "prime rate" as published in the
Wall Street Journal from time to time (the "Prime Rate"). Acceptance by Landlord
of any payment from Tenant hereunder in an amount less than that which is
currently due shall in no way affect Landlord's rights under this Lease and
shall in no way constitute an accord and satisfaction.
4. DELIVERY AND UPFITTING OF PREMISES.
-----------------------------------
Landlord shall deliver the Premises to Tenant in its base building
condition on or before December 1, 1997. Tenant agrees that it is accepting the
Premises in its "as is" base building condition without any further improvements
thereto by Landlord. Tenant agrees to deliver the final plans and specifications
for the design and upfitting of the Premises (the "Plans") to Landlord for
Landlord's approval. Landlord shall not unreasonably withhold or delay its
approval of such of the Plans and agrees to provide Tenant with notice of any
objections to the Plans within twenty (20) days after Landlord's receipt of
same. At such time-as Landlord approves the Plans, Landlord shall identify those
improvements described in the Plans which must be removed from the Premises upon
the expiration or earlier termination of this Lease as herein described;
provided, however, Landlord reserves the right to subsequently direct Tenant to
leave certain items previously designated for removal in the Premises. Upon
approval by Landlord of the Plans, they shall be attached as Exhibit C to this
---------
Lease and made a part hereof. Once the Plans have been approved by Landlord,
Tenant shall be responsible for the installation of the Tenant Improvements (as
hereinafter defined) in the Premises in accordance with the Plans. The general
contractor retained by Tenant to install the Tenant Improvements shall be
subject to Landlord's prior written approval, such approval not to be
unreasonably withheld, conditioned or delayed; provided further, Landlord and
Tenant shall mutually designate up to five (5) general contractors which shall
be deemed approved by Landlord.
Tenant will supervise the design, construction and installation of the
initial improvements in the Premises (the "Tenant Improvements") in accordance
with the Plans at Tenant's sole cost and expense. Landlord agrees to pay Tenant
at the time and in the manner set forth below an allowance (the "Tenant
Improvement Allowance") in the amount of Twenty-Two and No/100 Dollars ($22.00)
per rentable square foot of the Premises to cover the costs associated with the
design, construction and installation of the Tenant Improvements in the
Premises. Upon receipt of evidence from Tenant that such amounts have been
expended in connection with the design, construction and installation of the
Tenant Improvements (together with such other information as Landlord may
reasonably request from Tenant), Landlord shall, within twenty (20) days of
Landlord's receipt of such documentation, pay to Tenant the amount of all cost
and expenses shown thereby less the amount of any such payment or payments
previously made by Landlord to Tenant; provided, however, such disbursements of
the Tenant Improvement Allowance shall occur not more frequently than monthly
and the aggregate amount of all sums to be paid by Landlord to Tenant hereunder
with respect to the Premises shall not in any event exceed
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the sum of One Hundred Eighteen Thousand Eight Hundred and No/100 Dollars
($118,800.00); provided further, that Landlord shall have no obligation
hereunder to make any payment with respect to any such improvement which, when
made, shall not be a fixture and thus part of the Building to be surrendered to
Landlord upon the expiration of or earlier termination of this Lease (for
purposes of this Paragraph 4, all telephone, telecommunications and computer
wiring equipment shall be deemed a fixture). All savings or unused portions of
the Tenant Improvement Allowance shall be retained by Landlord.
In connection with the upfitting of the Premises, Tenant agrees to pay
Landlord a construction management fee equal to four percent (4%) of the total
cost of constructing the Tenant Improvements. In addition to the Tenant
Improvements, Tenant shall be solely responsible for the cost of constructing
any demising wall(s) required by Landlord and any required suite entrances or at
Landlord's election, Landlord may proceed to construct such demising wall(s) and
reduce the Tenant Improvement Allowance by the reasonable cost of same.
Notwithstanding anything contained herein to the contrary, upon the
expiration or earlier termination of the Term or Tenant's vacating the Premises,
Tenant shall, at its sole cost and expense, restore the Premises to its "base
building condition," which for purposes hereof, shall be defined as the
condition of the Premises as it existed when received by Tenant together with
such other Tenant Improvements as Landlord has approved as hereinabove provided
(ordinary wear and tear, damage by fire and other casualty, condemnation and
acts of God above excepted), or otherwise directs be left at the Premises;
provided, however, Tenant's restoration obligations with respect to the slab
floor in the Premises shall be limited to restoring the floor to a level slab of
commercially reasonable tolerances (i.e. one-eighth of an inch per ten feet).
Within ten (10) business days after Tenant's request for same (such request to
be made no earlier than sixty (60) days prior to the expiration or earlier
termination of the Term), Landlord shall provide Tenant with a list of those
Tenant Improvements which Landlord directs be left at the Premises upon the
expiration of the Term.
5. ALTERATIONS AND IMPROVEMENTS BY TENANT.
---------------------------------------
Tenant shall make no structural changes respecting the Premises or the
Building and shall make no changes of any kind respecting the Premises or the
Building that are visible from the exterior of the Premises without Landlord's
consent, to be granted or withheld in Landlord's sole discretion. Except for the
initial upfitting of the Premises in accordance with the Plans, any other
nonstructural changes or other alterations, additions, or improvements to the
Premises shall be made by or on behalf of Tenant only with the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. All alterations, additions or improvements, including without
limitation all partitions, walls, railings, carpeting, floor and wall coverings
and other fixtures (excluding, however, Tenant's trade fixtures as described in
the paragraph entitled "Trade Fixtures and Equipment" below) made by, for, or at
the direction of Tenant shall, when made, become the property of Landlord, at
Landlord's sole election, and shall, unless otherwise specified by Landlord at
the time Landlord gives its consent thereto, remain upon the Premises at the
expiration or earlier termination of this Lease.
Notwithstanding anything contained herein to the contrary, all alterations
and improvements undertaken by Tenant shall be consistent with the then-existing
quality, color scheme (where appropriate), general aesthetic appearance and
tenor of the balance of the Building and, in any event, Landlord may withhold
its consent to any proposed alteration or improvement by Tenant unless Tenant
agrees to remove said improvement at the end of the Term and/or restore the
Premises to the condition in which it existed prior to the undertaking of the
proposed alteration or improvement.
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6. USE OF PREMISES.
----------------
(a) Tenant shall use the Premises only for office, warehouse, storage
and light assembly and or laboratory purposes, all of which shall be consistent
with the pharmaceutical industry or similar scientific, research or technical
industry and for no other purposes. Tenant shall comply with all laws,
ordinances, orders, regulations or zoning classifications of any lawful
governmental authority, agency or other public or private regulatory authority
(including insurance underwriters or rating bureaus) having jurisdiction over
the Premises. Tenant shall not do any act or follow any practice relating to the
Premises which shall constitute a nuisance or detract in any way from the
reputation of the Building as a real estate development comparable to other
comparable buildings in the Raleigh/Durham market taking into account rent and
other relevant factors. Tenant's duties in this regard shall include allowing no
noxious or offensive odors, fames, gases, smoke, dust, steam or vapors, or any
loud or disturbing noise or vibrations to originate in or emit from the
Premises.
(b) Without limiting the generality of (a) above, and excepting only (i)
office supplies and cleaning materials used by Tenant in its ordinary day to day
business operations (but not held for sale, storage or distribution) and
customarily used in facilities such as the Building, and (ii) certain Hazardous
Materials (as herein defined) used in the ordinary course of Tenant's business,
and then only to the extent used, stored (but not any bulk storage),
transported, and disposed of strictly in accordance with all applicable laws,
regulations and manufacturer's recommendations and in a manner consistent with
commercially reasonable standards for comparable first-class flex-space
buildings, the Premises shall not be used for the treatment, storage,
transportation to or from, use or disposal of toxic or hazardous wastes,
materials, or substances, or any other substance that is prohibited, limited or
regulated by any governmental or quasi-governmental authority or that, even if
not so regulated, could or does pose a hazard to health and safety of the
occupants of the Building or surrounding property (collectively "Hazardous
Substances"). Prior to its occupancy of the Premises, Tenant shall provide
Landlord with a list of any Hazardous Substances which it plans to introduce to
the Premises and thereafter, on each anniversary of the Commencement Date,
Tenant shall update said list and identify which Hazardous Substances have been
used within the Premises and which Hazardous Substances may be used within the
Premises in the future. In addition, prior to Tenant's occupancy of the
Premises, Tenant shall submit a plan detailing the method of disposal, storage
and treatment of such Hazardous Substances to Landlord for Landlord's approval.
Tenant shall be liable for-, and shall indemnify and hold Landlord harmless
from, all costs, damages and expenses (including reasonable attorney's fees)
incurred in connection with the use, storage, discharge or disposal of any
Hazardous Substances by Tenant or Tenant's Invitees.
(c) Except for possible restrictions with respect to signage (which
Tenant agrees to abide by in connection with its use of the Premises), there are
currently no restrictive covenants relating to the Building.
(d) Tenant shall exercise due care in its use and occupancy of the
Premises and shall not commit or allow waste to be committed on any portion of
the Premises; and at the expiration or earlier termination of this Lease, Tenant
shall deliver the Premises to Landlord in as good condition on the date of
completion of the Tenant Improvements in the Premises, ordinary wear and tear,
fire or other casualty, condemnation and acts of God alone excepted.
(e) Tenant shall save Landlord harmless from any claims, liabilities, penalties,
fines, costs, expenses or damages resulting from the failure of Tenant to comply
with the provisions of this paragraph 6. This indemnification shall survive the
termination or expiration of this Lease.
7. TAXES ON LEASE AND TENANT'S PROPERTY.
-------------------------------------
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(a) Landlord represents that there are currently no taxes, documentary
stamps or assessments of any nature which will be imposed or assessed upon this
Lease, Tenant's occupancy of the. Premises or Tenant's trade fixtures,
equipment, machinery, inventory, merchandise or other personal property located
on the Premises and owned by or in the custody of Tenant; provided, however, in
the event any such charge or tax becomes appliable to this Lease, Tenant's
occupancy of the Premises or Tenant's equipment, Tenant shall be fully
responsible for the payment of same and shall pay such amount as promptly as all
such taxes or assessments may become due and payable without any delinquency.
(b) Landlord shall pay, subject to reimbursement from Tenant as provided
in the paragraph entitled "Rental" of this Lease, all ad valorem property taxes
which are now or hereafter assessed upon the Building and the Premises, except
as otherwise expressly provided in this Lease.
8. FIRE AND EXTENDED COVERAGE INSURANCE.
-------------------------------------
Landlord shall maintain and pay for fire and casualty special form "all
risk" insurance, with extended coverage, covering the Building equal to at least
eighty percent (80%) of the replacement cost thereof. Tenant shall not do or
cause to be done or permit on the Premises or in the Building anything deemed
extra hazardous on account of fire and Tenant shall not use the Premises or the
Building in any manner which will cause an increase in the premium rate for any
insurance in effect on the Building or a part thereof. If, because of anything
done, caused to be done, permitted or omitted by Tenant or Tenant's Invitees,
the premium rate for any kind of insurance in effect on the Building or any part
thereof shall be raised, Tenant shall pay Landlord on demand the amount of any
such increase in premium which Landlord shall pay for such insurance and if
Landlord shall demand that Tenant remedy the condition which caused any such
increase in an insurance premium rate, Tenant shall remedy such condition within
five (5) days after receipt of such demand or such reasonable time thereafter as
is possible, provided Tenant has commenced such cure and is diligently pursuing
the completion of same. Tenant shall maintain and pay for all fire and extended
coverage insurance on its contents in the Premises, including trade fixtures,
equipment, machinery, merchandise or other personal property belonging to or in
the custody of Tenant.
Notwithstanding anything herein to the contrary, Landlord reserves the
right for itself, successors and assigns to self-insure against any risk
required hereunder to be insured or otherwise assumed by Landlord so long as any
such program of self-insurance affords the same coverage of risks and benefits
which would be afforded in the event Landlord procured insurance from a third-
party insurer.
9. LANDLORD'S COVENANT TO REPAIR AND REPLACE.
------------------------------------------
(a) During the Term, Landlord shall be responsible only for repairs or
replacements to the roof, exterior walls (including downspounts and gutters),
structural members (including foundation and subflooring of the Premises) and
for the central plumbing and electrical systems serving the entire Building up
to the respective applicable points of entry of same into the Premises except
for repairs or replacements caused by the negligent acts or omissions or
misconduct of Tenant or Tenant's Invitees unless such amounts are paid to
Landlord pursuant to an insurance policy. Landlord shall maintain such items in
compliance with applicable laws, regulations, ordinances and codes or
alternatively, any non-compliance shall not materially impair Tenant's use and
enjoyment of the Premises or constitute a threat or danger to the health or
safety of Tenant or Tenant's Invitees. Landlord's repairs and replacements shall
be made as soon as reasonably possible using due diligence and reasonable
efforts, taking into account in each instance all circumstances surrounding the
repair or replacement including without limitation, the materiality of the
repair or replacement to Tenants use and
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operation of its business within the Premises and the relation thereof to the
enjoyment of same. If Landlord cannot, using due diligence, complete its repairs
within one hundred eighty (180) days after written notice from Tenant, then
(unless the need for such repairs or replacements is the result of the negligent
acts or omissions or misconduct of Tenant or Tenant's Invitees, in which event
Tenant shall not be entitled to terminate this Lease) either party may terminate
this Lease effective upon thirty (30) days' prior written notice, without
prejudice to Landlord's rights to receive payment from Tenant for uninsured
damages caused directly or indirectly by Tenant or Tenant's Invitees. If the
need for such repairs or replacements is the result of the negligent acts or
omissions or misconduct of Tenant or Tenant's Invitees, and the expense of such
repairs or replacements are not fully covered and paid by Landlord's insurance,
then Tenant shall pay Landlord the full amount of expenses not covered.
Landlord's duty to repair or replace as prescribed in this paragraph shall be
Tenant's sole remedy and shall be in lieu of all other warranties or guaranties
of Landlord, express or implied; provided, however, in the event Landlord fails
to fulfill its obligations under this Paragraph 9(a) with respect to a leak in
the roof of the Premises within thirty (30) days (or such longer period as may
be required in the exercise of due diligence) following receipt of written
notice of such failure to perform from Tenant, Tenant shall be entitled to hire
a contractor reasonably acceptable to Landlord to make the necessary repair or
replacement to the roof of the Premises, provided such activities shall not in
any way void or negatively impact Landlord's warranty on the roof of the
Premises or the Building, and thereafter, to the extent not reimbursed to Tenant
within fifteen (15) days after demand therefor, Tenant may pursue an action
against Landlord for collection of the actual costs of such repair or
replacement to the extent same is an obligation of Landlord hereunder.
(b) Landlord shall not be liable for any failure to make any repairs or to
perform any maintenance required of Landlord hereunder unless such failure shall
persist for an unreasonable period of time after written notice from Tenant
setting forth the need for such repair(s) or replacement(s) in reasonable detail
has been received by Landlord. Except as set forth in the paragraph of this
Lease, entitled "Damage or Destruction of Premises", there shall be no abatement
of rent. Except to the extent of the negligent acts or omissions or misconduct
of Landlord or Landlords Invitees, there shall be no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, replacements, alterations or improvements to any portion
of the Building or the Premises, or to fixtures, appurtenances and equipment
therein. To the extent permitted under applicable law, Tenant waives the right
to make repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect.
10. TENANT'S COVENANT TO REPAIR.
----------------------------
Tenant shall be responsible for the repair, replacement and maintenance in
good order and condition of all parts and components of the Premises (other than
those specified for repair, replacement and maintenance by Landlord above),
including without limitation the plumbing, wiring, electrical systems, HVAC
system, glass and plate glass, equipment and machinery constituting fixtures,
unless such repairs or replacements are required as a result of the negligence,
misconduct or intentional acts or omissions of Landlord, its agent(s),
employee(s) or invitee(s) in which event Landlord shall be responsible for such
repairs. At the end of the Term, Tenant shall return the Premises to Landlord in
as good condition as they were when received, excepting only normal wear and
tear, acts of God, repairs required to be made by Landlord hereunder and damage
by fire and other casualty and condemnation (but only to the extent any casualty
proceeds applicable to the Tenant Improvements are paid over to Landlord).
Tenant's duty to maintain the HVAC system shall specifically include the duty to
enter into and maintain at Tenant's sole expense during the entire term of this
Lease a contract for the routine and periodic maintenance and regular inspection
of such HVAC system, the replacement of filters as recommended and the
performance of other recommended periodic servicing in accordance with
applicable manufacturer's standards and recommendations. Such contract: (a)
shall be with a reputable contractor reasonably satisfactory to
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Landlord; (b) shall satisfy the requirements for routine and periodic
maintenance, if any, necessary to keep all applicable manufacturer's warranties
in full force and effect; and (c) shall provide that in the event this Lease
expires or is earlier terminated for any reason whatsoever that said contract
shall be immediately terminable by Landlord or Tenant without any cost, expense
or other liability on the part of Landlord.
11. TRADE FIXTURES AND EQUIPMENT.
-----------------------------
Prior to installation, Tenant shall furnish to Landlord notice of all trade
fixtures and equipment of a permanent nature which it intends to install within
the Premises and the installation of same shall be subject to Landlord's consent
which shall not be unreasonably withheld, condition or delayed. Any trade
fixtures and equipment installed in the Premises at Tenant's expense and
identified by Tenant in notice to Landlord shall remain Tenant's personal
property and Tenant shall have the right at any time during the Term to remove
such trade fixtures and equipment. Upon removal of any trade fixtures or
equipment, Tenant shall immediately restore the Premises to substantially the
same condition in which it existed when received by Tenant, ordinary wear and
tear, condemnation damage by fire and other casualty and acts of God alone
excepted. Any trade fixtures not removed by Tenant at the expiration or an
earlier termination of the Lease shall, at Landlord's sole election, either (i)
become the property of Landlord, in which event Landlord shall be entitled to
handle and dispose of same in any manner Landlord deems fit without any
liability or obligation to Tenant or any other third party with respect thereto,
or (ii) be subject to Landlord's removing such property from the Premises and
storing same, all at Tenant's expense and without any recourse against Landlord
with respect thereto. Without limiting the generality of the foregoing, the
following property shall in no event be deemed to be "trade fixtures" and Tenant
shall not remove any such property from the Premises under any circumstances,
regardless of whether installed by Landlord or Tenant: (a) any air conditioning,
air ventilating or heating fixtures or equipment; (b) any lighting fixtures or
equipment; (c) any carpeting or other permanent floor coverings; (d) any
paneling-or other wall coverings; (e) plumbing fixtures and equipment; or (f)
permanent shelving. Landlord hereby waives any lien interests which it may have
in Tenant's personal property; provided, however, and notwithstanding anything
contained herein to the contrary, in no event may Tenant encumber or otherwise
impair Landlord's title to the Premises, the Building or the Building's common
areas through the financing of any personal property within the Premises or any
other activities.
12. UTILITIES.
----------
Tenant shall pay for all utilities or services related to its use of the
Premises including without limitation electricity, gas, heat, water, sewer,
telephone and janitorial services. To the extent that water and/or sewer usage
are not separately metered for the Premises, Tenant shall pay its proportionate
share of the applicable charges therefor, with such proportionate share being as
defined in subparagraph 3(c), and the manner for payment thereof shall be as set
forth in subparagraph 3(f). Landlord shall not be responsible for the stoppage
or interruption of utilities services other than as required by its limited
covenant to repair and replace set forth above, nor shall Landlord be liable for
any damages caused by or from the plumbing and sewer systems.
13. DAMAGE OR DESTRUCTION OF PREMISES.
----------------------------------
If the Premises are damaged by fire or other casualty, but are not rendered
untenantable for Tenant's business, either in whole or in part, Landlord shall
cause such damage to be repaired without unreasonable delay and the Annual
Rental shall not abate. If by reason of such casualty the Premises are rendered
untenantable for Tenant's business, either in whole or in part, Landlord shall
cause the damage to be repaired or replaced without unreasonable delay, and, in
the interim, the Annual Rental shall be proportionately reduced as to such
portion of
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the Premises as is rendered untenantable. Any such abatement of rent shall not,
however, create an extension of the Term. Provided, however, if by reason of
------------------
such casualty, the Premises are rendered untenantable in some material portion,
and Landlord, in its reasonable estimation, determines that the amount of time
required to repair the damage using due diligence is in excess of two hundred
ten (210) days, then either party shall have the right to terminate this Lease
by giving written notice of termination within thirty (30) days after the date
of casualty, and the Annual Rental shall abate as of the date of such casualty
in proportion to the part of the Premises rendered untenantable. Notwithstanding
the foregoing, in the event the casualty giving rise to an election to terminate
is caused by the negligence, misconduct or acts or omissions of Tenant or
Tenant's Invitees, Tenant shall have no right to terminate this Lease.
Notwithstanding the other provisions of this paragraph, in the event there
should be a casualty loss to the Premises to the extent of fifty percent (50%)
or more of the replacement value of the Premises or if the Premises is rendered
untenantable for the conduct of Tenant's business operations during the last
Lease Year of the Term or any extended term, as determined by Landlord in the
exercise of its reasonable discretion, either party may, at its option,
terminate this Lease by giving written notice within thirty (30) days after the
date of the casualty and the Annual Rental shall abate as of the date of such
notice. Except as provided herein, Landlord shall have no obligation to rebuild
or repair in case of fire or other casualty, and no termination under this
paragraph shall affect any rights of Landlord or Tenant hereunder because of
prior defaults of the other party. Tenant shall give Landlord immediate notice
of any fire or other casualty in the Premises.
14. GOVERNMENTAL ORDERS.
--------------------
Except as hereinbelow set forth regarding compliance of the physical
structure of the Premises with applicable governmental regulations including
without limitation, compliance with the applicable requirements of the Americans
with Disabilities Act and the implementing regulations (the "ADA") as of the
Commencement Date, Tenant agrees, at its own expense, to comply promptly with
all requirements of any legally constituted public authority that may be in
effect from time to time made necessary by reason of Tenant's use or occupancy
of the Premises. Landlord agrees to comply promptly with any such requirements
if not made necessary by reason of Tenant's use or occupancy. With regard to the
physical structure of the Premises, Landlord agrees to use good faith and due
diligence to undertake those actions that are "readily achievable" (as such term
is defined in the ADA) in order to attempt to bring the physical structure of
the Premises in compliance with the applicable requirements of the ADA in effect
as of the Commencement Date. If it is determined that for any reason Landlord
shall have failed to cause the physical structure of the Premises to be brought
into compliance with the ADA as of the Commencement Date (to at least the
minimum extent required under applicable regulations then in effect), then
Landlord, as its sole obligation, will take the action(s) necessary to cause the
physical structure of the Premises to so comply, and Tenant acknowledges and
agrees that Landlord has and shall have no other obligation or liability
whatsoever to Tenant, or to anyone claiming by or through Tenant, regarding any
failure of the Premises or the activities therein to comply with the applicable
---
requirements of the ADA. Landlord and Tenant agree, however, that if in order to
comply with any of the above requirements, the cost to Landlord or Tenant, as
the case may be, shall exceed a sum equal to one (1) year's rent, then the party
who is obligated to comply with such requirements is privileged to terminate
this Lease by giving written notice of termination to the other party, which
termination shall become effective sixty (60) days after receipt of such notice,
and which notice shall eliminate the necessity of compliance with such
requirement by the party giving such notice, unless the party receiving such
notice of termination shall, before termination becomes effective, pay to the
party giving notice all costs of compliance in excess of one (1) year's rent, or
secure payment of said sum in a manner satisfactory to the party giving notice.
Notwithstanding anything contained herein to the contrary, it is agreed that:
(a) Tenant is exclusively responsible for all compliance with all requirements
of any legally constituted public authority in the event non-compliance relates
to Tenant's use of, or operations from, the Premises and (b)
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in the event of non-compliance for which Landlord is responsible, Landlord
shall not be deemed in breach of this Lease if such non-compliance does not
materially impair Tenant's use of the Premises or threaten or endanger the
health or safety of Tenant or Tenant's Invitees.
15. MUTUAL WAIVER OF SUBROGATION.
-----------------------------
For the purpose of waiver of subrogation, the parties mutually release and
waive unto the other all rights to claim damages, costs or expenses for any
injury to property caused by a casualty or any other matter whatsoever in, on or
about the Premises to the extent that such damage, cost or expense has been paid
to such damaged party under the terms of any policy of insurance. All insurance
policies carried with respect to this Lease, if permitted under applicable law,
shall contain a provision whereby the insurer waives, prior to loss, all rights
of subrogation against either Landlord or Tenant.
16. SIGNS AND ADVERTISING.
----------------------
(a) Tenant may install, in Tenant's sole discretion and at Tenant's sole
cost and expense, a tenant identification sign in accordance with Building
standards, such sign to be located at or near the Tenant's front entrance to the
Premises within the Building; provided, however, Tenant shall install, at a
minimum, the suite numerals of the Premises in accordance with Building
standards at or near the front entrance to the Premises within the Building. The
Tenant Improvement Allowance shall be reduced by an amount equal to any costs
incurred by Landlord in preparing or installing Tenant identification signage or
graphics on or within the Building or the Premises.
(b) In order to provide architectural control for the Building and Business
Park, Tenant shall not install any exterior signs, marquees, billboards, outside
lighting fixtures and/or other decorations on the Premises. Landlord shall have
the right to remove any such sign or other decoration and restore fully the
Premises at the cost and expense of Tenant if any such exterior work is done
without Landlord's prior written approval, which approval Landlord shall be
entitled to withhold or deny in its sole discretion. Tenant shall not permit,
allow or cause to be used in, on or about the Premises any sound production
devices, mechanical or moving display devices, bright lights, or other
advertising media, the effect of which would be visible or audible from the
exterior of the Premises.
17. INDEMNIFICATION AND LIABILITY INSURANCE.
----------------------------------------
(a) Except to the extent of the negligent acts or omissions or misconduct
of Landlord or Landlord's Invitees, Tenant shall indemnify and save Landlord
harmless against any and all claims, suits, demands, actions, fines, damages,
and liabilities, and all costs and expenses thereof (including without
limitation reasonable attorneys' fees) arising out of injury to persons
(including death) or tangible property occurring in, on or about, or arising out
of the Premises or other areas in the Building if caused or occasioned wholly or
in part by any act(s) or omission(s) of Tenant or Tenant's Invitees, except if
caused by any act(s) or omission(s) on the part of Landlord. The non-prevailing
party shall also pay all costs, expenses and reasonable attorneys' fees that may
be incurred by the prevailing party in enforcing the agreements of this Lease,
whether incurred as a result of litigation or otherwise. Tenant shall give
Landlord immediate notice of any such happening causing injury to persons or
tangible property.
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(b) At all times during the term of this Lease, Tenant shall at its own
expense keep in force adequate public liability insurance under the terms of a
commercial general liability policy (occurrence coverage) in the amount of not
less than Two Million and No/100 Dollars ($2,000,000.00) single limit with such
company(ies) as shall from time to time be reasonably acceptable to Landlord
(and to any lender having a mortgage interest in the Premises) and naming
Landlord and Landlord's agent as an additional insured (and, if requested by
Landlord from time to time, naming Landlord's mortgagee as an additional
insured). Such insurance shall include, without limitation, personal injury and
contractual liability coverage for the performance by Tenant of the indemnity
agreements set forth in this Lease. Tenant shall first furnish to Landlord
certificates of insurance evidencing the required coverage prior to the
Commencement Date and thereafter prior to each policy renewal date. All policies
required of Tenant hereunder shall contain a provision whereby the insurer is
not allowed to cancel or change materially the coverage without first giving
thirty (30) days' written notice to Landlord.
(c) Landlord shall keep in force during the Term insurance in such amounts
and coverages as Landlord deems appropriate or is otherwise required of Landlord
by a third party such as its lender.
18. LANDLORD'S RIGHT OF ENTRY.
--------------------------
Landlord, and those persons authorized by it, shall have the right to enter the
Premises at all reasonable times and upon reasonable notice for the purposes of
making repairs, making connections, installing utilities, providing services to
the Premises or for any other tenant, making inspections or showing the same to
prospective purchasers and/or lenders (at any time during the Term hereof), or
prospective tenants (during the last nine (9) months of the Term) as well as at
any time in the event of emergency involving possible injury to property or
persons in or around the Premises or the Building.
19. EMINENT DOMAIN.
---------------
If any substantial portion of the Premises is taken under the power of
eminent domain (including any conveyance made in lieu thereof) or if such taking
shall materially impair the normal operation of Tenant's business, then either
party shall have the right to terminate this Lease by giving written notice of
such termination within thirty (30) days after such taking. If neither party
elects to terminate this Lease, Landlord shall repair and restore the Premises
to the best possible tenantable condition and the Annual Rental shall be
proportionately and equitably reduced as of the date of the taking. All
compensation awarded for any taking (or the proceeds of a private sale in lieu
thereof) shall be* the property of Landlord whether such award is for
compensation for damages to the Landlord's or Tenant's interest in the Premises,
and Tenant hereby assigns all of its interest in any such award to Landlord;
provided, however, Landlord shall not have any interest in any separate award
made to Tenant for loss of business, moving expense or the taking of Tenant's
trade fixtures or equipment if a separate award for such items is made to Tenant
and if such separate award does not reduce the award to Landlord.
20. EVENTS OF DEFAULT AND REMEDIES.
-------------------------------
(a) Upon the occurrence of any one or more of the following events (the
"Events of Default," any one an "Event of Default"), the party not in default
shall have the right to exercise any rights or remedies available in this Lease,
at law or in equity. Events of Default shall be:
16
<PAGE>
(i) Tenant's failure to pay any Annual Rental payable hereunder
within five (5) days after same becomes due; provided, however, Tenant shall be
entitled to written notice and a five (5) day cure period with respect to its
failure to pay any Annual Rent once during each Lease Year;
(ii) Tenant's failure to pay any other sum of money payable
hereunder within ten (10) days after written notice thereof from Landlord of a
deficiency in such payment;
(iii) Failure by either party to perform any other of the terms,
covenants or conditions contained in this Lease if not remedied within thirty
(30) days after receipt of written notice thereof, or if such default cannot be
remedied within such period, such party does not within thirty (30) days after
written notice thereof commence such act or acts as shall be necessary to remedy
the default and shall not thereafter diligently prosecute such cure and complete
such act or acts within ninety (90) days after written notice thereof;
(iv) Tenant shall become bankrupt or insolvent, or file any debtor
proceedings, or file pursuant to any statute a petition in bankruptcy or
insolvency or for reorganization, or file a petition for the appointment of a
receiver or trustee for all or substantially all of Tenant's assets and such
petition or appointment shall not have been set aside within sixty (60) days
from the date of such petition or appointment, or if Tenant makes an assignment
for the benefit of creditors, or petitions for or enters into an arrangement; or
(v) Tenant allows its leasehold estate to be taken under any writ
of execution and such writ is not vacated or set aside within thirty (30) days.
(b) In addition to its other remedies, Landlord, upon an Event of Default
by Tenant, shall have the immediate right, after any applicable grace period
expressed herein, to terminate and cancel this Lease and/or terminate Tenant's
right of possession, and, in accordance with applicable laws, to reenter and
remove all persons and proper-ties from the Premises and dispose of such
property as it deems fit, all without being guilty of trespass or being liable
for any damages caused thereby. If Landlord reenters the Premises, it may either
terminate this Lease or, from time to time without terminating this Lease,
terminate Tenant's right of possession and make such alterations and repairs as
may be necessary or appropriate to relet the Premises and relet the Premises
upon such commercially reasonable terms and conditions as Landlord deems
advisable without any responsibility on Landlord whatsoever to account to Tenant
for any surplus rents collected. No retaking of possession of the Premises by
Landlord shall be deemed as an election to terminate this Lease unless a written
notice of such intention is given by Landlord to Tenant at the time of reentry;
but, notwithstanding any such reentry or reletting without termination, Landlord
may at any time thereafter elect to terminate for such previous default. In the
event of an elected termination by Landlord, whether before or after reentry,
Landlord may recover from Tenant damages, including the costs of recovering the
Premises and any costs incurred in reletting the Premises, and Tenant shall
remain liable to Landlord for the total Annual Rental (which may at Landlord's
election be accelerated to be due and payable in full as of the Event of Default
and recoverable as damages in a lump sum) as would have been payable by Tenant
hereunder for the remainder of the term less the rentals actually received from
any reletting or, at Landlord's election, less the reasonable rental value of
the Premises for the remainder of the term. In determining the Annual Rental
which would be payable by Tenant subsequent to default, the Annual Rental for
each Lease Year of the unexpired term shall be equal to the Annual Rental
payable by Tenant for the last Lease Year prior to the default. If any rent
owing under this Lease is collected by or through an attorney, Tenant agrees to
pay Landlord's reasonable attorneys' fees to the extent allowed by applicable
law. Landlord shall be required to reasonably mitigate its damages.
21. SUBORDINATION.
--------------
17
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This Lease is subject and subordinate to any and all mortgages or deeds of
trust currently existing on the property of which the Premises is a part, and
this clause shall be self-operative without any further instrument necessary to
effect such subordination; however, if requested by Landlord, Tenant shall
promptly execute and deliver to Landlord any such certificate(s) in a
commercially reasonable form as Landlord may reasonably request evidencing the
subordination of this Lease to or the assignment of this Lease as additional
security for such mortgages or deeds of trust; provided, further, upon Tenant's
request, Landlord shall use reasonable efforts to obtain a non-disturbance
agreement in a commercially reasonable form from any such mortgagee, trustee or
beneficiary currently having an interest in all or any portion of the Premises.
Subject to the condition precedent that Landlord provide Tenant with a
nondisturbance agreement in a commercially reasonable form in favor of Tenant
from any mortgagee, trustee or beneficiary, this Lease shall be subject and
subordinate to any mortgage or deed of trust which may hereafter encumber the
property of which the Premises is a part. Tenant's obligations under this Lease
shall continue in full force and effect notwithstanding any such default
proceedings under a mortgage or deed of trust and shall attorn to the mortgagee,
trustee or beneficiary of such mortgage or deed of trust, and their successors
or assigns, and to the transferee under any foreclosure or default proceedings
and subject to the terms of the nondisturbance agreement, the mortgagee, trustee
or beneficiary or their successors or assigns shall be bound by all of the
obligations of Landlord under this Lease which accrue after such foreclosure or
default proceeding. Tenant will, upon request by Landlord, execute and deliver
to Landlord or to any other person designated by Landlord, any instrument or
instruments in a commercially reasonable form required to give effect to the
provisions of this paragraph.
22. ASSIGNING AND SUBLETTING.
-------------------------
Tenant shall not assign, sublet, mortgage, pledge or encumber this Lease,
the Premises, or any interest in the whole or in any portion thereof, directly
or indirectly, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed. In the event of any
assignment, sublease, mortgage, pledge or encumbrance, Tenant shall: (i) remain
primarily liable for the performance of all terms of this Lease, (ii) pay all
reasonable costs, including without limitation, attorney's fees, incurred by
Landlord in connection with such assignment, sublease or mortgage, and (iii) pay
to Landlord fifty percent (50%) of any rental or any fees or charges received by
Tenant (less the actual, reasonable expenses incurred by Tenant in connection
with such reletting as evidenced by written receipts thereof) in excess of the
Annual Rental payable to Landlord hereunder as further rental under this Lease.
Landlord's consent to one assignment or sublease will not waive the requirement
of its consent to any subsequent assignment or sublease as required herein. Upon
notice to Landlord of a proposed sublease or assignment of all or any portion of
the Premises for the balance of the Term (the "Proposed Space"), Landlord shall
have the option within fifteen (15) days after its receipt of such notice, to
terminate this Lease with respect to the Proposed Space, whereupon the parties
hereto shall have no further rights or liabilities with respect to the Proposed
Space except as otherwise expressly set forth herein. Tenant may assign or
sublet all or any portion of the Premises upon ten (10) days advance written
notice to Landlord (but without Landlord's consent), to an entity controlled by
Tenant or which controls Tenant or in connection with a merger, consolidation,
corporate reorganization, or a sale of all or substantially all of its assets,
provided that the new controlling entity has a consolidated net worth greater
than or equal to Tenant's consolidated net worth at the time of the proposed
transfer.
In the event of a proposed assignment of this Lease or subletting of all or
a part of the Premises, Tenant shall submit to Landlord, in writing, (i) the
name of the proposed assignee or sublessee, (ii) current financial statements,
if any, available to Tenant disclosing the financial condition of the proposed
assignee or subtenant,
18
<PAGE>
(iii) the nature of the business of the proposed assignee or sublessee, and its
proposed use of the Premises (any assignment or subletting being subject to
restrictions on use contained in this Lease, the violation of which by the
proposed assignee or sublessee shall constitute absolute grounds for Landlord's
denial of the requested assignment or subletting, such grounds not being the
exclusive grounds for denial under clause (iii)) and (iv) the proposed
commencement date of the assignment or subletting, together with a copy of the
proposed assignment or sublease. Within fifteen (15) days after its receipt of
such notice, Landlord shall either approve or disapprove such proposed
assignment or sublease in writing or give Tenant notice of its election to
terminate this Lease with respect to the Proposed Space (as hereinabove
described).
Notwithstanding anything in this Lease to the contrary, Tenant further
agrees that any assignment or sublease shall be subject to the following
additional limitations: (i) in no event may Tenant assign this Lease or sublet
all or any portion of the Premises to an existing Tenant of the Business Park or
its subtenant or assignee (unless Landlord consents to such assignment or
sublease); (ii) in no event shall the proposed subtenant or assignee be a person
or entity with whom Landlord or its agent is negotiating and to or from whom
Landlord, or its agent, has given or received any written or oral proposal
within the past six (6) months regarding a lease of space in the Business Park;
and (iii) Tenant shall not publicly advertise the rate for which Tenant is
willing to sublet the Premises; and all public advertisements of the assignment
of the Lease or sublet of the Premises, or any portion thereof, shall be subject
to prior written approval by Landlord, such approval not to be unreasonably
withheld or delayed. Said public advertisement shall include, but not be limited
to, the placement or display of any signs or lettering on the exterior of the
Premises or on the glass or any window or door of the Premises or in the
interior of the Premises if it is visible from the exterior.
23. TRANSFER OF LANDLORD'S INTEREST.
--------------------------------
If Landlord shall sell, assign or transfer all or any part of its interest
in the Premises or in this Lease to a successor in interest which expressly
assumes the obligations of Landlord hereunder, then Landlord shall thereupon be
released or discharged from all covenants and obligations hereunder, and Tenant
shall look solely to such successor in interest for performance of all of
Landlord's obligations and such successor shall be obligated to perform all of
Landlord's obligations under this Lease which accrue after the date of such
transfer. Tenant's obligations under this Lease shall in no manner be affected
by Landlord's sale, assignment, or transfer of all or any part of such
interest(s) of Landlord, and Tenant shall thereafter attorn and look solely to
such successor in interest as the Landlord hereunder.
24. COVENANT OF QUIET ENJOYMENT.
----------------------------
Landlord represents that it has full right and authority to lease the
Premises and Tenant shall peacefully and quietly hold and enjoy the Premises for
the full Term hereof, and any extensions or renewals terms, so long as no Event
of Default occurs hereunder.
25. ESTOPPEL CERTIFICATES.
----------------------
Within twenty (20) days after a request by Landlord, Tenant shall deliver a
written estoppel certificate, in form supplied by or acceptable to Landlord,
certifying any facts that, to the best of Tenant's knowledge, are then true with
respect to this Lease, including without limitation that this Lease is in full
force and effect, that no Event of Default exists on the part of Landlord or
Tenant, that Tenant is in possession, that Tenant has commenced the payment of
rent, and that Tenant claims no defenses or offsets with respect to payment of
19
<PAGE>
rentals under this Lease. Likewise, within ten (10) days after a request by
Tenant, Landlord shall deliver to Tenant a similar estoppel certificate covering
such matters as are reasonably required by Tenant.
26. PROTECTION AGAINST LIENS.
-------------------------
Tenant shall do all things necessary to prevent the filing of any
mechanics', materialmen's or other types of liens whatsoever, against all or any
part of the Premises by reason of any claims made by, against, through or under
Tenant. If any such lien is filed against the Premises, Tenant shall either
cause the same to be discharged of record within thirty (30) days after filing
or, if Tenant in its discretion and in good faith determines that such lien
should be contested, it shall furnish such security as may be necessary to
prevent any foreclosure proceedings against the Premises during the pendency of
such contest. If Tenant shall fail to discharge such lien within said time
period or fail to furnish such security, then Landlord may at its election, in
addition to any other right or remedy available to it, discharge the lien by
paying the amount claimed to be due or by procuring the discharge by giving
security or in such other manner as may be allowed by law. If Landlord acts to
discharge or secure the lien then Tenant shall immediately reimburse Landlord
for all sums paid and all costs and expenses (including reasonable attorneys'
fees) incurred by Landlord involving such lien together with interest on the
total expenses and costs at an interest rate equal to the Prime Rate plus two
percent (2%).
27. MEMORANDUM OF LEASE.
--------------------
If requested by Tenant, Landlord shall execute a recordable Memorandum or
Short Form Lease, prepared at Tenant's expense, specifying the exact term of
this Lease and such other terms as the parties shall mutually determine.
28. FORCE MAJEURE.
--------------
In the event Landlord or Tenant shall be delayed, hindered or prevented
from the performance of any act required hereunder, by reason of governmental
restrictions, scarcity of labor or materials, strikes, fire, or any other
reasons beyond its reasonable control, the performance of such act shall be
excused for the period of delay, and the period for performance of any such act
shall be extended as necessary to complete performance after the delay period.
However, the provisions of this paragraph shall in no way be applicable to
Tenant's obligations to pay Annual Rental or any other sums, monies, costs,
charges or expenses required by this Lease.
29. REMEDIES CUMULATIVE -- NONWAIVER.
---------------------------------
Unless otherwise specified in this Lease, no remedy of Landlord or Tenant
shall be considered exclusive of any other remedy, but each shall be distinct,
separate and cumulative with other available remedies. Each remedy available
under this Lease or at law or in equity may be exercised by Landlord or Tenant
from time to time as often as the need may arise. No course of dealing between
Landlord and Tenant or any delay or omission of Landlord or Tenant in exercising
any right arising from the other party's default shall impair such right or be
construed to be a waiver of a default.
30. HOLDING OVER.
-------------
If Tenant remains in possession of the Premises or any part thereof after
the expiration of the Term, whether with or without Landlord's acquiescence,
Tenant shall be deemed only a tenant at will and there shall be no renewal of
this Lease without a written agreement signed by both parties specifying such
renewal. The
20
<PAGE>
"monthly" rental payable by Tenant during any such tenancy at will period shall
be one hundred fifty percent (150%) of the monthly installments of Minimum
Rental and one hundred percent (100%) of the monthly installments of any
Additional Rent and other pass-through changes payable during the final Lease
Year immediately preceding such expiration. Tenant shall also remain liable for
any and all damages, direct and consequential, suffered by Landlord as a result
of any holdover without Landlord's unequivocal written acquiescence.
31. NOTICES.
--------
Any notice allowed or required by this Lease shall be deemed to have been
sufficiently served if the same shall be in writing and placed in the United
States mail, via certified mail or registered mail, return receipt requested,
with proper postage prepaid or delivered by a nationally recognized overnight
courier, and addressed as follows:
AS TO LANDLORD: Petula Associates, Ltd.
Commercial Real Estate Equities
711 High Street
Des Moines, IA 50392
Attention: Bruce K. Bruene
WITH A COPY TO: Tri Properties
Royal Center Property Manager
1009 Slater Road, Suite I 10
Durham, NC 27703
Attention: David M. Adams
AS TO TENANT: Inspire Pharmaceuticals, Inc.
4222 Emperor Boulevard, Suite 470
Durham, NC 27703
Attention: Geoff Grisham
WITH A COPY TO: Wyrick, Robbins, Yates & Ponton LLP
4101 Lake Boone Trail
Raleigh, NC 27607
Attention: Jeffrey J. Johnson
The addresses of Landlord and Tenant and the party, if any, to whose
attention a notice or copy of same shall be directed may be changed or added
from time to time by either party giving notice to the other in the prescribed
manner.
32. LEASING COMMISSION.
-------------------
21
<PAGE>
Landlord and Tenant represent and warrant each to the other that they have
not dealt with any broker(s) or any other person claiming any entitlement to any
commission in connection with this transaction except Corporate Realty Advisors
(the "Broker"). Landlord and Tenant agree to indemnify and save each other
harmless from and against any and all claims, suits, liabilities, costs,
judgments and expenses, including reasonable attorneys' fees, for any leasing
commissions or other commissions, fees, charges or payments resulting from or
arising out of their respective actions in connection with this Lease. Landlord
agrees to be responsible for the leasing commission due Broker pursuant to a
separate written agreement between Landlord and Broker, and to hold Tenant
harmless respecting same.
33. MISCELLANEOUS.
--------------
(a) Rules and Regulations.
----------------------
Landlord shall have the right from time to time to prescribe reasonable
rules and regulations (the "Rules and Regulations") for Tenant's use of the
Premises and the Building. A copy of Landlord's current Rules and Regulations
respecting the Premises and the Building is attached hereto as Exhibit "D".
------------
Tenant shall abide by and actively enforce on all its employees, agents,
invitees and licensees such regulations including without limitation rules
governing parking of vehicles in designated areas, provided Tenant has received
written copies of such regulations and any amendments or revisions thereto. The
Rules and Regulations shall be applied uniformly to all tenants in the Building.
(b) Evidence of Authority.
----------------------
If requested by Landlord, Tenant shall furnish reasonable legal
documentation evidencing the valid existence and good standing of Tenant and the
authority of any parties signing this Lease to act for Tenant.
(c) Limitation of Landlord's Liability.
-----------------------------------
If Landlord shall fail to perform any covenant, term or condition of this
Lease upon Landlord's part to be performed within thirty (30) days after written
notice from Tenant (unless such condition is incapable of being cured within
said thirty (30) day period, in which event it shall not be deemed a default so
long as Landlord is diligently pursuing the completion of same), and, as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied solely out of the proceeds of sale
received upon execution of such judgment levied thereon against the right, title
and interest of Landlord in the Building as the same may then be encumbered
(including without limitation Landlord's interest in the rents and profits
arising out of Landlord's interest in the Building); and neither Landlord nor,
if Landlord be a partnership, any of the partners comprising Landlord shall have
any personal liability for any deficiency. It is understood and agreed that in
no event shall Tenant or any person claiming by or through Tenant have the right
to levy execution against any property of Landlord other than its interest in
the Building as hereinbefore expressly provided.
(d) Nature and Extent of Agreement.
-------------------------------
This Lease, together with all exhibits hereto, contains the complete
agreement of the parties concerning the subject matter, and there are no oral or
written understandings, representations, or agreements pertaining thereto which
have not been incorporated herein. This Lease creates only the relationship of
landlord and tenant
22
<PAGE>
between the parties, and nothing herein shall impose upon either party any
powers, obligations or restrictions not expressed herein. This Lease shall be
construed and governed by the laws of the state in which the Premises are
located.
(e) Binding Effect.
---------------
This Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, successors and assigns. This Lease
shall not be binding on Landlord until executed by a Vice President of Landlord
and delivered to Tenant. No amendment or modification to this Lease shall be
binding upon Landlord unless same is in writing and executed by a Vice President
of Landlord.
(f) Captions and Headings.
----------------------
The captions and headings in this Lease are for convenience and reference
only, and they shall in no way be held to explain, modify, or construe the
meaning of the terms of this Lease.
(g) Security Deposit.
-----------------
Tenant has paid to Landlord upon signing this Lease Ten Thousand and No/100
Dollars ($10,000.00) (the "Deposit") as security for Tenant's performance of all
obligations hereunder. The Deposit may be held by Landlord in such manner as it
shall elect and Landlord shall be entitled to any interest which accrues on the
Deposit. In the event of a default by Tenant, Landlord may, at its option, apply
all or any part of the Deposit to cure the default, and thereupon Tenant shall
immediately redeposit with Landlord the amount so applied in order that Landlord
will always have the full Deposit on hand during the term of this Lease. Upon
the termination of this Lease, provided that Tenant is not in default hereunder,
Landlord shall refund to Tenant any of the remaining balance of the Deposit
subject to final adjustments for payment of any rental required by this Lease.
If the Premises is sold, Landlord shall have the right to transfer the Deposit
to the new owner, and upon the new owner's express assumption of the obligations
for the Deposit required by this Lease, Landlord shall thereupon be released
from all liability for such Deposit, and Tenant thereafter shall look only to
the new owner for such Deposit provided that such new owner has provided notice
to Tenant of its assumption of such obligations. The terms hereof shall apply to
every transfer of the Deposit.
(h) Right to Relocate. [Intentionally Deleted]
------------------
(i) Lease Review.
-------------
The submission of this Lease to Tenant for review does not constitute a
reservation of or option for the Premises, and this Lease shall become effective
as a contract only upon execution and delivery by Landlord and Tenant.
(j) Attorney's Fees. If either party places in the hands of an attorney
----------------
the enforcement of this Lease or any part thereof, for the collection of any
rent due or to become due hereunder, or recovery of the possession of the
Premises, or otherwise files suit hereunder, the non-prevailing (or defaulting)
party shall pay the other party's reasonable attorneys' fees and court costs.
23
<PAGE>
(k) Principal Mutual Approval. This Lease is subject to approval by the
--------------------------
Principal Mutual Life Insurance Company Investment Committee and the Board of
Directors of Petula Associates, Ltd., such approval to be granted or denied
within ten (10) days after the full execution of this Lease.
34. SEVERABILITY.
-------------
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforced to the fullest extent permitted by law
notwithstanding the invalidity of any other term or provision hereof.
35. REVIEW OF DOCUMENTS.
--------------------
If, following the execution of this Lease, either party hereto requests
that the other party execute any document or instrument that is other than (i) a
document or instrument the form of which is attached hereto as an exhibit, or
(ii) a document that solely sets forth facts or circumstances that are then
------
existing and reasonably ascertainable by the requested party with respect to the
Lease, then the party making such request shall be responsible for paying the
reasonable out-of-pocket costs and expenses (within thirty (30) days of such
parties receipt of reasonably detailed evidence supporting such expenses),
including without limitation, the attorneys fees, incurred by the requested
party in connection with the review (and, if applicable, the negotiations)
related to such document(s) or instrument(s), regardless of whether such
document(s) or instrument(s) is (are) ever executed by the requested party. In
the event the requesting party is Tenant, all such costs and expenses incurred
by Landlord in connection with its review and negotiation of any such
document(s) or instrument(s) shall be deemed to be additional rental due
hereunder and shall be payable by Tenant as provided above.
24
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be duty executed
and sealed pursuant to authority duly given as of the day and year first above
written.
"LANDLORD"
PETULA ASSOCIATES, LTD.
ATTEST:
/s/ By:/s/ Timothy E. Minton
- --------------------- ---------------------
JOYCE N. HOFFMAN TIMOTHY E. MINTON
VICE PRESIDENT AND CORPORATE SECRETARY VICE PRESIDENT
"TENANT"
INSPIRE PHARMACEUTICALS, INC
ATTEST:
____________________ By: /s/ David J. Drutz
--------------------------
__________Secretary David J. Drutz President
-----------------
[CORPORATE SEAL]
25
<PAGE>
STATE OF IOWA
----
COUNTY OF POLK
----
This 30/TH/ day of DECEMBER 1997, personally came before me
------ -------------------------
TIMOTHY E. MINTON , who, being by me duly sworn, says that he is____________
- --------------------
President Petula Associates, Ltd., an Iowa corporation, and that said writing
was signed by him, in behalf of said corporation by its authority duly given,
and acknowledged the said writing to be the act and deed of said corporation.
/s/ Rachel J. Mischke
---------------------------
[NOTARIAL SEAL] Notary Public
My Commission expires:
RACHEL J. MISCHKE
MY COMMISION EXPIRES
MAY, 19, 2000
STATE OF NORTH CAROLINA
--------------
COUNTY OF DURHAM
------
This 5/TH/day of DECEMBER , 1997, personally came before me
---- ------------------------
David J. Drutz, M.D., who, being by me duly sworn, says that he is_____________
- ---------------------
President of Inspire Pharmaceuticals, Inc., a DELAWARE corporation, and
-----------------
that said writing was signed by him, in behalf of said corporation, by its
authority duly given, and acknowledged the said writing to be the act and deed
of said corporation.
/s/ Jean W. Lutes
----------------------
Notary Public
[NOTARIAL SEAL]
My Commission expires:
AUG. 5, 2001
- ------------
26
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[MAP APPEARS HERE]
27
<PAGE>
[FLOORPLAN APPEARS HERE]
28
<PAGE>
EXHIBIT "C"
-----------
FINAL PLANS
[To be attached upon approval by Landlord]
29
<PAGE>
EXHIBIT "D"
-----------
RULES AND REGULATIONS
The following rules and regulations have been adopted by the Landlord for
the care, protection and benefit of the Building and for the general comfort and
welfare of the tenants.
These Rules and Regulations shall remain in full force and effect until Tenant
is notified in writing by Landlord of any changes and amendments. To the extent
any of the Rules and Regulations set forth herein are inconsistent with the
provisions of the Lease, the terms and conditions of the Lease shall prevail.
1. The sidewalks, entrances, halls, passages, elevators and stairways
shall not be obstructed or used by Tenant for any other purpose than for ingress
and egress. All loading and unloading of goods, furniture, fixtures, equipment
and supplies shall be done only in areas and through entrances designated for
such purposes.
2. Toilet rooms and other plumbing facilities shall not be used for any
purpose other than those for which they are constructed and no foreign substance
of any kind shall be disposed of therein. All repairs required due to breakage,
stoppage or damage resulting from a violation of this provision shall be at
Tenant's sole expense.
3. Tenant shall not do anything in the Premises, or bring or keep
anything therein, which shall in any way conflict with any law, ordinance, rule
or regulation affecting the occupancy and use of the Premises, which are or may
hereafter be enacted or promulgated by any public authority or by the Board of
Fire Underwriters.
4. Tenant shall at all times maintain an adequate number of suitable fire
extinguishers on the Premises for use in case of local fires, including
electrical fires.
5. Tenant shall keep the Premises heated at a temperature sufficiently
high to prevent freezing of water in pipes and fixtures.
6. Trucks shall not be allowed to remain overnight in the common area
whether loaded, unloaded or otherwise, without Landlord's prior written consent.
7. All garbage and refuse shall be placed for collection in containers
specified by Landlord outside the Premises or Building. Tenant shall pay the
cost of removal of any of Tenant's refuse or rubbish.
8. Tenant shall, at Tenant's expense, provide for regular pest
extermination within the Premises, as necessary, and shall provide Landlord with
a copy of such extermination contract.
9. In order to insure proper use and care of the Premises, neither the
Tenant nor agent nor employee of Tenant shall:
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(a) Allow any furniture, packages or articles of any kind to remain in
corridors except for short periods incidental to moving same in or out of
Building or to cleaning or rearranging occupancy of leased space.
(b) Mark or defile elevators, toilet rooms, walls, windows, doors or any
part of the of the Building.
(c) Except for "seeing-eye" dogs, keep animals or birds on the Premises.
(d) Deposit waste paper, dirt or other substances in corridors, stairways,
elevators, toilets, restrooms, or any other part of the Building not leased by
Tenant.
(e) Except for pictures, wall hangings and other customary decorations and
items which would not cause permanent damage to the structural elements of the
Building, fasten any article, drill holes, drive nails or screws into walls,
floors, doors, or partitions or otherwise mar or deface them by paint, papers or
otherwise, without Landlord's prior written consent.
(f) Operate any machinery within the Building except customary warehouse,
training and office equipment, such as computers, dictaphones, calculators,
electric typewriters, televisions, video cassette recorders and the like.
Special equipment or machinery used in the trade or profession of the Tenant may
be operated only with Landlord's prior written consent.
(g) Leave Premises unoccupied without locking all exterior doors and
turning off all water outlets.
(h) Burn any trash, refuse, debris or garbage of any kind in or about
the Premises or Building.
(i) Attach awnings, air-conditioning units or other fixtures to the
outside walls or window sills, or otherwise affix such so as to project from the
Premises or Building without Landlord's prior written consent.
(j) Except for Tenant's installation of a key card security system,
install additional locks or bolts of any kind on any doors or windows of the
Premises without Landlord's prior written consent. On the termination of
Tenant's tenancy, Tenant shall deliver to Landlord all keys to the Premises,
either furnished to or otherwise procured by Tenant.
(k) Install or operate any engine, boiler, machinery, or stove, or use oil
or any burning fluid (other than gas) for heating, warming or lighting, or use
any lighting other than incandescent or fluorescent electric lights, on the
Premises without Landlord's prior written consent. All stoves permitted in the
Premises shall be placed and installed according to city ordinances. No articles
deemed extra hazardous on account of fire, and no explosives, shall be brought
into the Premises.
(1) Use loudspeakers, televisions, radios or other devices in such a
manner as to be heard outside the Premises, or make, or permit to be made, any
unseeming or disturbing noises, nuisance or other activity objectionable to
other tenants.
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(m) Use the Premises for the purpose of lodging or sleeping rooms, or
for any illegal purposes.
(n) Install any aerial, antenna, satellite dish or other equipment or
structure on the roof or exterior walls of the Premises, or on the grounds
without, in each instance, the prior written consent of Landlord. Any
installation so made without such prior written consent shall be subject to
removal without notice at any time, at Tenant's expense.
10. Landlord shall have the right to prohibit any advertising by Tenant
which, in its opinion, shall damage the reputation of the Building or its
desirability, and upon written notice from Landlord, Tenant shall discontinue
any such advertising.
11. Except for deliveries in the ordinary course of Tenant's business,
Landlord reserves the right to designate the time when and method whereby
freight, furniture, safes, goods, merchandise and other articles may be brought
into, moved or taken from the Building and the Premises leased by Tenant; and
workmen employed, designated or approved by Landlord must be employed by Tenants
for repairs, painting, material moving and other similar work that may be done
on the Premises.
12. Tenant will reimburse Landlord for the cost of repairing any damage
to the Premises or other parts of the Building caused by Tenant or the agents or
employees of Tenant, including replacing any glass broken.
13. Tenant shall not install in the Premises any metal safes or permit
any concentration of excessive weight in any portion thereof without first
having obtained the written permission of Landlord.
14. Landlord reserves the right at all times to exclude newsboys,
loiterers, vendors, solicitors and peddlers, from the Building or common area
and to require registration, satisfactory identification and credentials from
all person seeking access to any part of the Building or common area outside of
ordinary business hours. Ordinary business hours shall mean Monday through
Friday, 8:00 a.m. to 6:00 p.m., except on legal holidays. Landlord shall
exercise its best judgment in the execution of such control but shall not be
held liable for the granting or refusal of such access. Landlord reserves the
right to exclude the general public from the building after ordinary business
hours and on weekends and holidays.
15. The attaching of wires to the outside of the Building is absolutely
prohibited, and no wires shall be run or installed in any part of the Building
without the Landlord's permission and direction.
16. Requests for services of janitors or other Building employees must be
made to the Landlord. Agents or employees of Landlord shall not perform any work
or do anything outside of their regular duties unless under special instructions
from Landlord.
17. Signs or any other Tenant identification shall be in accordance with
building standard signage. No signs of any nature shall be placed in the windows
so as to be visible from the exterior of the Building. All signs not approved in
writing by Landlord shall be subject to removal without notice.
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18. Except as otherwise set forth in the Lease, any improvements or
alterations to the Premises by Tenant shall be approved in advance by Landlord
and all such work, if approved, shall be done at Tenant's sole expense under the
supervision of Landlord.
19. Tenant shall have a non-exclusive right to use of all driveways and
parking areas designated for Tenant and Tenant's employees, if deemed necessary
by Landlord.
20. If additional drapes or window decorations are desired by Tenant,
they shall be approved by Landlord and installed at Tenant's expense under the
direction of Landlord. Lining on drapes visible from the exterior shall be of a
color approved by Landlord.
21. The possession of weapons, including concealed handguns, is strictly
forbidden on the Premises and Building.
22. Tenant shall not use nor permit the use of the common area by its
employees, agents or invitees for the purpose of displaying or selling personal
property, automobiles, equipment, furniture, fixtures, merchandise or any other
item whether owned by Tenant or its employees, agents or invitees.
23. So long as such rescissions or amendments do not materially interfere
with Tenant's standard business operations within the Premises, Landlord
reserves the right to rescind, amend, alter or waive any of the foregoing rules
and regulations at any time in a reasonable and nondiscriminatory manner, or
make such other reasonable and non-discriminatory rules and regulations as, in
its sole judgment it deems necessary, desirable or proper for its best interest
and for the best interests of the tenants, or as may from time to time be
necessary for the safety, care and cleanliness of the Premises, the Building or
adjacent areas, and for the preservation of good order therein. Any such
rescission, amendment, alteration or waiver of any rules or regulations or
creation of any such new rules or regulations shall be effective five (5) days
after all tenants have been given written notice thereof. Landlord shall not be
responsible to any tenant for the non-observance or violation by any other
tenant of any of these rules and regulations at any time.
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EXHIBIT "E"
-----------
OPTION TO EXTEND
1. Notice and Exercise. Provided no Event of Default has occurred and is
--------------------
continuing under this Lease, Tenant is hereby granted the option to extend
the Term once for an additional period of five (5) years (the "Renewal
Term") commencing upon the expiration of the initial Term on the same terms
and conditions (except as provided in this Section) as contained in the
other provisions of this Lease. This option shall be exercised only by
delivery of written notice (the "Renewal Notice") to Landlord no later than
nine (9) months prior to the scheduled Expiration Date referred to in
Paragraph 2 of this Lease. The Minimum Rental for the Premises shall be the
then fair market rental ("Market Rate") applicable to the Premises. Upon
Landlord's receipt of Tenant's election to extend the Term as herein
provided, Landlord shall notify Tenant in writing of Landlord's
determination of the Market Rate for the Renewal Term. If Tenant disagrees
with the Market Rate specified by Landlord for the Renewal Term, and
Landlord and Tenant cannot, using good faith reasonable efforts, agree upon
a mutually acceptable Market Rate for the Renewal Term, Tenant may, as
Tenant's sole right and remedy, revoke its election to extend the Term by
so notifying Landlord in writing within thirty (30) days following
Landlord's receipt of the Renewal Notice (the "Tenant Review Period"). In
the event Landlord and Tenant cannot agree upon a mutually acceptable
Market Rate for the Extension Term and Tenant fails to revoke its election
to extend the Term prior to the expiration of the Tenant Review Period, the
Market Rate for the Renewal Term shall be determined in accordance with
Section 2 hereunder and such determination shall be final and binding upon
both Landlord and Tenant. Notwithstanding anything contained herein to the
contrary, upon the expiration of the Tenant Review Period, Tenant shall
have no right to rescind or otherwise revoke its election to extend the
Term. Tenant's occupancy of the Premises during any renewal period shall be
subject to all other terms and conditions of this Lease, expressly
including without limitation, the obligation to pay Tenant's proportionate
share of the taxes, insurance premiums and common area maintenance costs;
provided, however, Landlord shall have no obligation to provide any
upfitting allowance for the Renewal Term and Tenant agrees to continue
leasing the Premises in its "as-is" condition.
2. Determination of Market Rate. For purposes of this Exhibit "E", the
----------------------------- ------------
term "Market Rate" shall mean the annual amount per rentable square foot
that comparable landlords of comparable buildings have accepted in then-
current transactions between non-affiliated parties from new, non-
expansion, non-renewal (unless the lease involved a procedure invoked by
landlord and tenant for a 100% determination of "fair market rental") and
non-equity tenants of comparable credit-worthiness, for comparable space,
for a comparable use, for a comparable period of time ("Comparable
Transactions"). In any determination of Comparable Transactions appropriate
consideration shall be given to the annual rental rates per rentable square
foot, the standard of measurement by which the rentable square footage is
measured, the ratio of rentable square feet to usable square feet, the type
of escalation clause implemented, the extent of tenant's liability under
the lease, abatement provisions reflecting free rent and/or no rent during
the period of construction or subsequent to the commencement date as to the
space in question, parking considerations, length of the lease term, size
and location of premises being -leased, building standard work letter
and/or tenant improvement allowances, if any, or any other tenant
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<PAGE>
concessions and other generally applicable conditions of tenancy for such
Comparable Transactions. The intent is that Tenant will obtain the same
rent and other economic benefits that Landlord would otherwise give in
Comparable Transactions and that Landlord will make, and receive the same
economic payments and concessions that Landlord would otherwise make, and
receive in Comparable Transactions.
Upon expiration of the Tenant Review Period, Landlord and Tenant shall each
place in a separate sealed envelope their final proposal as to Market Rate and
such determination shall be submitted to arbitration in accordance with
subsections (a) through (e) below.
(a) Landlord and Tenant (together with or through their designated
representatives) shall meet with each other within five (5) business days of the
Outside Agreement Date and exchange the sealed envelopes and then open such
envelopes in each other's presence. If Landlord and Tenant do not mutually agree
upon the Market Rate within one (1) business day of the exchange and opening of
envelopes, then, within ten (10) business days of the exchange and opening of
envelopes Landlord and Tenant shall agree upon and jointly appoint a single
arbitrator who shall by profession be a real estate appraiser, lawyer or broker
who shall have been active over the five (5) year period ending on the date of
such appointment in the leasing of comparable commercial properties in the
vicinity of the Building (the "Arbitrator"). Neither Landlord nor Tenant shall
consult with such Arbitrator as to his or her opinion as to Market Rate prior to
the appointment. The determination of the Arbitrator shall be limited solely to
the issue of whether Landlord's or Tenant's submitted Market Rate for the
Premises is the closer to the actual Market Rate for the Premises as determined
by the Arbitrator, taking into account the requirements of this Section 2. Such
Arbitrator may hold such hearings and require such briefs as the Arbitrator, in
his or her sole discretion, determines as necessary. In addition, Landlord or
Tenant (together with or through their designated representatives) may submit to
the Arbitrator with a copy to the other party within five (5) business days
after the appointment of the Arbitrator any market data and additional
information that such party deems relevant to the determination of Market Rate
("MR Data") and the other party may submit a reply in writing within five (5)
business days after receipt of such MR Data.
(b) The Arbitrator shall, within thirty (30) days of his or her
appointment, reach a decision as to whether the parties shall use Landlord's or
Tenant's submitted Market Rate, and shall notify Landlord and Tenant of such
determination.
(c) The decision of the Arbitrator shall be binding upon Landlord and
Tenant.
(d) If Landlord and Tenant fail to agree upon and appoint an Arbitrator,
then the appointment of the Arbitrator shall be made by the Presiding Judge of
the Superior Court, or, if he or she refuses to act, by any judge having
jurisdiction over the parties.
(e) The cost of arbitration shall be paid by Landlord and Tenants equally.
Immediately after the base rent for the applicable Extension Period is
determined pursuant to this Exhibit, Landlord and Tenant shall execute an
amendment to the Lease stating the new base rent in effect.
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<PAGE>
EXHIBIT 10.7
SUBLEASE AGREEMENT
THIS SUBLEASE (this "Sublease") dated for reference purposes March 11,
1999, is entered into by and between Applied Innovation Inc., hereinafter
referred to as "Sublandlord", and SciQuest, Inc., hereinafter referred to as
"Subtenant".
WHEREAS, Sublandlord, as Tenant, and Weeks Realty, L.P., a Georgia limited
partnership authorized to do business in North Carolina as Weeks Realty Limited
Partnership, successor in interest to Perimeter Park West Associates Limited
Partnership, as Landlord, hereinafter referred to as "Prime Landlord", entered
into that certain Lease Agreement dated September 19, 1996 (the "Prime Lease")
pertaining to the rental of certain premises located at Enterprise Center II,
5151 McCrimmon Parkway, Suite 108, Morrisville, North Carolina 27560 (the
"Premises").
WHEREAS, Sublandlord desires to sublet the Premises to Subtenant, subject
to the written consent of the Prime Landlord, and Subtenant desires to sublet
the Premises from Sublandlord;
WHEREAS, Subtenant has passed a corporate resolution approving Subtenant's
ability to enter into this Sublease with Sublandlord and a copy of said
resolution is attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Sublandlord and Subtenant agree as follows:
1. Unless otherwise defined in this Sublease, all capitalized terms used
herein that are defined in the Prime Lease, shall have the meaning ascribed to
such term in the Prime Lease.
2. The Prime Lease is attached hereto and by reference made a part hereof
as Exhibit C. Except as otherwise expressly provided herein, this Sublease is
subject to and made upon all the terms, covenants and conditions of the Prime
Lease, with the same force and effect as is fully set forth therein. All terms,
covenants and conditions which Sublandlord is bound to comply with under the
Prime Lease shall be binding upon Subtenant hereunder.
3. It is the intention of the parties hereto that, except as otherwise
expressly provided in the Sublease, and except as inapplicable hereto or
inconsistent herewith, the relationship between Sublandlord and Subtenant shall
be governed by the provisions of the Prime Lease as if they have been set forth
in-full in this Sublease with the term "Sublandlord" replacing the term
"Landlord" and the term "Subtenant " replacing the term "Tenant". Except as
expressly provided herein or as may be inapplicable hereto or inconsistent
herewith, Subtenant agrees to observe or perform the terms, covenants and
conditions on its part to be observed and performed by Sublandlord as Tenant
under the Prime Lease and Subtenant agrees to be bound by the provisions of the
Prime Lease. The remedies of the parties, as Subtenant and Sublandlord hereunder
shall be the same as the respective remedies of the "Landlord" and "Tenant"
under the Prime Lease.
4. Sublandlord hereby subleases to Subtenant and Subtenant hereby
subleases from Sublandlord the Premises for a term of approximately thirty-five
and one-half months (the "Term") commencing on or about the later of February
22, 1999 or that day that this Sublease is fully-executed by the parties and
approved in writing by Prime Landlord and the Premises delivered with all
improvements and work set forth in Exhibit A attached hereto performed, and
expiring on February 9, 2002.
5. Subtenant shall pay Sublandlord monthly rent throughout the Term, in
advance on the first day of each and every month of the Term in the amounts set
forth in the Prime Lease and adjusted annually by Prime Landlord. Sublandlord
shall notify Subtenant promptly of any increase in Rent once
<PAGE>
Sublandlord has received notice from Prime Landlord. All rent and any other sums
due to Sublandlord shall be paid to Sublandlord at 5800 Innovation Drive,
Dublin, Ohio 43016-3271, or at such other address directed by Sublandlord. The
first monthly installment of rent, Sixteen Thousand Seven Hundred Seventy One
and 24/100 dollars ($16,771.24), shall be paid and delivered to Sublandlord at
execution of this Sublease by Subtenant, provided, however, that if the Term
commences on a date other than the first day of the month, rent for the first
month of the Term shall be pro-rated based on the number of days remaining in
the first month of the Term.
6. In addition to the monthly rent stated above, Subtenant shall contract
for utilities and other services used at the Premises directly with the service
provider and pay all charges for said utilities and services directly to the
service provider. Subtenant shall also reimburse Sublandlord for Sublandlord's
Percentage Share of the Taxes, CAM Expenses, and Insurance Expenses, as outlined
in the Prime Lease, which amounts shall be paid to Sublandlord along with
Subtenant's monthly rent. The first monthly reimbursement of said expenses,
Three Thousand Five Hundred Sixty Three and 00/100 dollars ($3,563.00), shall be
paid and delivered to Sublandlord at execution of this Sublease by Subtenant.
Sublandlord shall notify Subtenant promptly of any change in such expenses once
Sublandlord has received such information from Prime Landlord.
7. Subtenant acknowledges that this Sublease shall not be effective
unless and until Prime Landlord's written consent is given.
8. Subtenant agrees at its expense to keep and maintain the Premises in
good repair and in a good, sanitary and safe condition and to return the
Premises to Sublandlord at the end of the Sublease term in as good a condition
as received, normal wear and tear and loss by insured casualty excepted.
Subtenant shall be responsible for its own janitorial and other maintenance
service at the Premises.
9. Upon receiving any written notice, statement or other written
communication from Prime Landlord which pertains to the Premises, the party
receiving such notice shall promptly forward a copy of such notice to the other.
10. It is understood and agreed upon by all parties hereto that neither
the Sublease of the above described Premises, nor anything contained in this
agreement shall release the Sublandlord from its duty and obligation to perform
and be bound by all the covenants, terms, and conditions contained in the Prime
Lease with the Prime Landlord provided, however, that Subtenant shall perform
all such duties and obligations and be bound by such covenants, terms, and
conditions in the first instance.
11. Sublandlord agrees that if Subtenant pays all rents and other sums due
hereunder and performs all of the terms and conditions of this Sublease and of
the Prime Lease required hereunder, that Subtenant's quiet enjoyment of the
Premises for the term of this Sublease shall not be disturbed or interfered with
by Sublandlord.
12. Subtenant agrees that it will not assign this Sublease or sublet the
Premises without the prior written approval of the Prime Landlord and
Sublandlord, which approval by Sublandlord will not be unreasonably withheld,
conditioned or delayed.
13. During the term of this Sublease, Subtenant, at its sole cost and
expense and for the mutual benefit of the Sublandlord, Prime Landlord and
Subtenant shall carry and maintain comprehensive public liability insurance,
including property damage, insuring Sublandlord, Prime Landlord, and Subtenant
against liability for injury to persons or property occurring in or about the
Premises arising out of the ownership, maintenance, use or occupancy thereof,
and Subtenant shall name Sublandlord and Prime Landlord as additional insureds
hereunder. Said liability insurance shall be in amounts as called for
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<PAGE>
in the Prime Lease. On or before the commencement of this Sublease, Subtenant
shall deliver to Sublandlord a copy of a Certificate of Insurance evidencing
that such insurance has been purchased and is in effect. Any insurance which
Subtenant is required to maintain under this Sublease shall include a provision
which requires the insurance carrier to give Prime Landlord and Sublandlord not
less than thirty (30) days' written notice prior to any cancellation or
modification of such coverage. Further, if Subtenant fails to maintain said
liability insurance, this act shall be a material breach of this Sublease, and
Sublandlord may elect any of its remedies under this Sublease, and, in addition,
Sublandlord may obtain such insurance on behalf of Subtenant, in which case
Subtenant shall reimburse Sublandlord for the costs thereof within fifteen (15)
days after receipt of a statement indicating the cost of such insurance.
14. Subtenant shall not do or permit to be done or omit or permit to be
omitted any act or thing that will constitute or cause a breach or violation of
any of the terms, covenants or conditions of the Prime Lease or this Sublease.
Each party will indemnify and hold harmless the other from and against all
losses, costs, damages, expenses and liability, including reasonable attorneys'
fees, which such party may incur or pay out by reason of injuries to person or
property occurring in, on or about the Premises, occasioned by the other party's
use, occupancy, negligence or intentional acts or by reason of any breach or
default of this Sublease. Sublandlord hereby represents that to the best of its
knowledge it knows of no facts or circumstances related to environmental matters
concerning the Premises that could lead to any future environmental claims,
liabilities, or responsibilities against Subtenant. Sublandlord shall indemnify
and hold Subtenant harmless from all costs, losses, damages, liabilities or
claims (including attorney's fees) arising out of the operations or activities
or presence of Sublandlord on the Premises relating to environmental matters.
15. With the exception of those improvements and work to be performed by
Sublandlord as set forth in Exhibit A attached hereto, the Premises shall be
delivered to Subtenant in as-is condition. Any improvements to be performed
within the Premises must have Sublandlord's and Prime Landlord's prior written
consent, which consent by Sublandlord will not be unreasonably withheld,
conditioned, or delayed. Such improvements shall be paid for by Subtenant and
removed by Subtenant at the expiration of the Term if so required under the
Prime Lease and with all resulting damage to the Premises from such removal also
repaired to its original condition as at the commencement of the Term by
Subtenant at its sole cost and expense. Subtenant shall maintain the Premises
during the term of the Sublease in the condition existing when delivered to
Subtenant, normal wear and tear and loss by insured casualty excepted.
16. Together with the payment made at Sublease execution of the first
monthly installment of rent, expenses and furniture purchase, Subtenant shall
deposit with Sublandlord the sum of Sixteen Thousand Seven Hundred Seventy One
and 24/100 dollars ($16,771.24) as security for Subtenant's obligations under
this Sublease. Sublandlord will not be required to keep the security deposit
separate from its general funds and Subtenant shall not be entitled to interest
on the security deposit. The security deposit will not be a limitation on
Sublandlord's damages or other rights under this Sublease, or an advance on the
payment of any amounts due from Subtenant under this Sublease. If Subtenant pays
all such due amounts and performs all of its obligations under this Sublease,
Sublandlord will return the unused portion of the security deposit to Subtenant
within thirty (30) days after the end of the Term.
17. Subtenant shall not do or permit to be done or permit to be omitted
any act or thing which will constitute or cause a breach or violation of any of
the terms, covenants or conditions of the Prime Lease.
18. The parties also agree that: (a) Subtenant shall use and occupy the
Premises solely for uses permitted in the Prime Lease; (b) Sublandlord's refusal
to consent to or to approve any matter or thing, whenever Sublandlord's consent
or approval is required under this Sublease or under the Prime
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Lease, shall be deemed reasonable if Prime Landlord has refused to give such
consent or approval. Sublandlord agrees to use reasonable efforts and good faith
to assist Subtenant in obtaining Prime Landlord's consent; (c) if for any reason
the term of the Prime Lease shall be terminated prior to the expiration date of
the Sublease, the Sublease shall thereupon be automatically terminated, and
Sublandlord shall not be liable to Subtenant by reason thereof, unless such
termination shall have been affected because of the breach or default by
Sublandlord under the Prime Lease not occasioned by any breach or default by
Subtenant, but Subtenant shall be entitled whatever rights and remedies against
the Prime Landlord that may be available to Sublandlord in connection with such
termination, provided, however, that Subtenant shall receive from Sublandlord
prompt notice of any default under the Prime Lease by , Sublandlord and
Subtenant shall have the right to cure such default; (d) Subtenant acknowledges
and agrees that in the event Subtenant fails to vacate the Premises when
required hereunder, Sublandlord may incur damages under the terms of the Prime
Lease. In such event, Subtenant agrees to indemnify and hold harmless
Sublandlord from and against any and all costs, expenses and liabilities
(including reasonable attorneys' fees) incurred by Sublandlord arising out of
such failure.
19. (INTENTIONALLY DELETED)
20. Sublandlord shall have no obligation or liability to Subtenant in the
event that the Prime Landlord fails to perform any of its obligations under the
Prime Lease, unless such failure arose as a result of Sublandlord's defaulting
in the performance of any of Sublandlord's obligations under the Prime Lease
beyond any applicable cure periods contained therein, and Subtenant shall look
solely to the Prime Landlord for the performance of any such obligations.
21. Any notice required to be given by either party to the other shall be
in writing and shall be (a) delivered personally, and the giving of such notice
shall be complete on the date of delivery; (b) sent by reputable overnight
delivery service, and the giving of such notice shall be complete on the
immediately succeeding business day after such notice is deposited with such
delivery service, or (c) sent by United States registered or certified mail,
postage prepaid, return receipt requested, and the giving of such notice shall
be complete on the immediately succeeding second business day after such notice
is deposited into the U.S. mail; at the following addresses:
If to Sublandlord:
Applied Innovation Inc.
5800 Innovation Drive
Dublin, OH 43016-3271
ATTN: William H. Largent
If to Subtenant:
SciQuest, Inc.
Enterprise Center II
5151 McCrimmon Parkway, Suite 208
Morrisville, NC 27560
ATTN: Jim Scheuer
With a copy to:
Kathleen N. Worm
Hutchison & Mason
Suite 400
4011 Westchase Boulevard
Raleigh, NC 27607
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With a copy to Prime Landlord:
Weeks Realty, L.P.
c/o Weeks Corporation
1800 Perimeter Park Drive
Suite 200
Morrisville, NC 27560
ATTN: Robert G. Cutlip, Senior Vice President
Either party may change its address by written notice to the other.
22. Sublandlord and Subtenant each represent and warrant to the other
that it had no dealings with any broker or agent in connection with this
Sublease except for Vector Properties, LLC and Corporate Realty Advisors.
Sublandlord shall be responsible for payment of any and all fees payable to
Vector Properties, LLC and Corporate Realty Advisors as a result of this
Sublease.
23. To the extent any terms or provisions of this Sublease are
inconsistent with or shall conflict with any other terms or provisions of the
Prime Lease, the terms and provisions of this Sublease shall control.
24. This Sublease and the exhibits incorporated herein by reference set
forth all of the agreements, covenants, representations and warranties of
Sublandlord and Subtenant. No modification or amendment of this Sublease shall
be binding or effective unless in writing signed by Sublandlord and Subtenant.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease the day
and year first written above.
APPLIED INNOVATION INC.
By: /s/ William H. Largent
-------------------------
Name: William H. Largent
-----------------------
Its: Senior Vice President
-----------------------
Date: March 9, 1999
-----------------------
SCIQUEST, INC.
By: /s/ James J. Scheuer
-------------------------
Name: James J. Scheuer
-----------------------
Its: Chief Financial Officer
-----------------------
Date: March 10, 1999
-----------------------
(Remainder of page left intentionally blank)
5
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CONSENT OF PRIME LANDLORD TO SUBLEASE
- -------------------------------------
The Prime Landlord, Weeks Realty L.P., successor in interest to Perimeter Park
West Associates Limited Partnership hereby consent to the sublease of the
Premises under the terms and conditions set forth in this sublease dated as of
March 11, 1999 by and between Applied Innovation Inc. and SciQuest. This Consent
by Prime Landlord shall apply only to this Sublease and shall not be deemed to
be consent to any other sublease or assignment by Sublandlord. The Prime Lease
remains in full force and effect and the obligations of the Prime Landlord and
the Sublandlord pursuant to the Prime Lease are not modified or extinguished by
this Sublease.
The execution of this consent by Prime Landlord is not a release by Prime
Landlord of Sublandlord of any of its duties and obligations under the Prime
Lease.
PRIME LANDLORD:
WEEKS REALTY L.P.
BY: WEEKS GP HOLDINGS INC.
BY: /s/ Robert G. Cutlip
-------------------------
Robert G. Cutlip
Senior Vice President
(Remainder of page left intentionally blank)
6
<PAGE>
EXHIBIT A
IMPROVEMENTS AND WORK
Sublandlord shall, at its sole cost and expense, on or before the commencement
date of the Sublease perform the following improvements and work to the
Premises:
(1) Remove racking systems from the computer lab, except leaving in tact
(a) those racks which support the telecommunications systems, (b) the row of
racking located adjacent to and parallel to the aforementioned
telecommunications rack, (c) all tray components of said racking system
(2) Removing all power drops in the computer lab, leaving in tact
finished junction boxes in the plenum.
All other improvements and work to be performed in the Premises shall be
performed by Subtenant at Subtenant's sole cost and expense and shall be
performed in compliance with the ternis of the Prime Lease, including but not
limited to obtaining prior approval of Prime Landlord and Sublandlord and
possible removal of said improvements at the expiration of the Term.
(Remainder of page left intentionally blank)
7
<PAGE>
EXHIBIT C
[LETTERHEAD OF WEEKS/LIGHTIN]
February 11, 1997
Mr. John Spiegel
Comptroller
Applied Innovation, Inc.
5800 Innovation Drive
Dublin, Ohio 43017
RE: 5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
Dear Mr. Spiegel:
The undersigned hereby accepts the Premises under that certain Lease Agreement
dated September 19, 1996, between Perimeter Park West Associates Limited
Partnership and Applied Innovation, Inc. for approximately 24,143 square feet of
space and confirms that the Commencement Date of said Agreement is February 10,
1997, with term ending on February 9, 2002.
Furthermore, it is hereby agreed that rent shall commence for this space on
February 10, 1997.
Sincerely.
Dave Lindner
Vice President/Director of Leasing
ACKNOWLEDGED:
Tenant: APPLIED INNOVATION, INC.
By: /s/ John Spiegel
-------------------------
John Spiegel
Title: Comptroller
Date: 2/19/97
cc: Carol Wood
Angela Braggs
<PAGE>
EXHIBIT C
DUPLICATE ORIGINAL
LEASE AGREEMENT BY AND BETWEEN
PERIMETER PARK WEST ASSOCIATES LIMITED PARTNERSHIP
AND
APPLIED INNOVATION, INC.
<PAGE>
TABLE OF CONTENTS
1. PREMISES AND TERM.
2. BASE RENT, TAXES, INSURANCE EXPENSE, CAM EXPENSE, AND SECURITY DEPOSIT.
3. COMPLIANCE WITH LAWS AND USE.
4. REPAIR AND MAINTENANCE.
5. ALTERATIONS.
6. SIGNS.
7. INSPECTION.
8. UTILITIES.
9. ASSIGNMENT AND SUBLETTING.
10. FIRE AND CASUALTY DAMAGE.
11. LIABILITY.
12. CONDEMNATION.
13. HOLDING OVER AND TERMINATION.
14. QUIET ENJOYMENT.
15. EVENTS OF DEFAULT.
16. REMEDIES.
17. LANDLORD'S LIEN.
18. MORTGAGES.
19. MECHANIC'S LIENS.
20. NOTICES.
21. BROKER'S CLAUSE.
22. LANDLORD'S LIABILITY.
23. RULES AND REGULATIONS.
24. HAZARDOUS MATERIALS.
25. LANDLORD'S RIGHT TO SUBSTITUTE THE PREMISES.
26. COVENANT OF TENANT.
27. MISCELLANEOUS.
EXHIBIT A- THE LAND
EXHIBIT B- FLOOR PLAN
EXHIBIT C- PLANS AND SPECIFICATIONS
EXHIBIT C-1- PRELIMINARY PLANS AND SPECIFICATIONS
EXHIBIT D- RULES AND REGULATIONS
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), is made and entered into as of the 19th day
of September, 1996, by and between PERIMETER PARK WEST ASSOCIATES LIMITED
PARTNERSHIP, a North Carolina limited partnership (the "Landlord"), and APPLIED
INNOVATION, INC., a Delaware corporation (the "Tenant").
W I T N E S S E T H:
--------------------
1. PREMISES AND TERM.
-----------------
(a) PREMISES. In consideration of the obligation of Tenant to pay rent as
herein provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, certain premises comprised of approximately 24,153 rentable
square feet (the "Premises") in a building known as Enterprise Center II
(the "Building") situated on certain land (the "Land") in the County of
Wake, State of North Carolina, more particularly described on Exhibit A,
attached hereto and incorporated herein by reference, together with all
rights, privileges, easements, appurtenances and immunities belonging to or
in any way pertaining to the Premises.
Exhibit B. The Premises are leased by Tenant - "gas is", subject to
the obligations of Landlord hereunder to perform certain leasehold
improvements to the Premises in accordance with the Plans (as hereinafter
defined). The taking of possession by Tenant shall be deemed conclusively
to establish that the Premises and any improvements thereto are in good and
satisfactory condition as of when possession was taken subject to those
items set forth in a punchlist prepared by Landlord and Tenant and to any
conditions set forth in the temporary certificate of occupancy issued by
the Town of Morrisville for the Premises. Tenant further acknowledges that
no representations as to the repair of the Premises, nor promises to alter,
remodel or improve the Premises have been made by Landlord, unless such
representations or promises are expressly set forth in this Lease. within
five days of the Commencement Date, Tenant shall, upon demand of Landlord,
execute and deliver to Landlord a letter of acceptance of delivery of the
Premises, acknowledging the Commencement and Termination Dates of this
Lease.
All upfit of the Premises shall be performed by Landlord in accordance
with plans and specifications for the Premises (The "Plans") and in a good
and workmanlike manner. The Plans shall reflect a turnkey upfit of the
Premises by Landlord and are subject to the mutual approval of Landlord and
Tenant, and upon the mutual approval of Landlord and Tenant and the pricing
of the Plans, a copy of the final Plans shall be attached hereto and made a
part hereof as Exhibit C. Each party hereto shall act in good faith and
promptly to approve the Plans. Should either party hereto fail to respond
to a written request for approval of any portion of the Plans within ten
business days of a request therefor, that portion of the Plans shall be
deemed approved. In the event a preliminary outline of the plans and
specifications is attached hereto and made a part hereof as Exhibit C-1,
Exhibit C-1 shall be null and void and of no further force and effect upon
the mutual approval by the parties hereto of the final Plans, and the
attachment of the final Plans as Exhibit C. Landlord shall provide Tenant
with an upfit allowance for the Premises (the "Upfit Allowance") in an
amount of up to $18.00 per rentable square foot of the Premises to perform
the upfit in accordance with the Plans using standard building materials of
Landlord. Any cost and expense incurred by Landlord in upfitting the
Premises in excess of the Upfit Allowance, or any revisions to the Plans
requested by Tenant that increase the cost of the upfit performed by
Landlord hereunder once the Plans are mutually approved by Landlord and
Tenant, shall be borne by Tenant (hereinafter collectively, the "Excess").
The Excess shall be borne by Tenant and payable by Tenant to Landlord
within ten days of demand by Landlord to Tenant and provided that portion
of the work applicable to the Excess has been completed by Landlord.
Failure by Tenant to pay
<PAGE>
the Excess upon demand as aforesaid is an event of default hereunder, and
in addition to all other remedies available to Landlord at law or in equity
for such event of default, Landlord may recover from Tenant the cost it
incurs in preparing the Premises for another tenant. Once the final Plans
are attached to this Lease, any revisions to the Plans shall be approved by
each of the parties hereto.
(b) TERM.
TO HAVE AND TO HOLD the same for a term of sixty months commencing on
the date a temporary certificate of occupancy is issued for the Premises
(the "Commencement Date"), and ending on the date that is sixty months
thereafter, unless sooner terminated pursuant to the provisions hereof (the
"Termination Date"). The Commencement Date and Termination Date shall be
extended due to delays beyond the control of Landlord, including, but not
limited to, unavailability of supplies and materials, permitting, acts of
God, delays caused by Tenant, and/or inclement weather. Landlord shall use
reasonable efforts to make the Premises available for occupancy by Tenant
no later than June 1, 1997.
(c) RIGHT TO TERMINATE.
Provided there is no default or event of default on the part of Tenant
hereunder (after applicable grace and cure periods, if any) at the time
such rights are exercised or on the Effective Date (as hereinafter
defined), Tenant shall have the right to terminate this Lease effective
upon the last day of the thirty-sixth full calendar month during the term
of this Lease (the "Effective Date") by (i) providing written notice to
Landlord of its desire to terminate this Lease no later than the last day
of the twenty-fourth month during the term of this Lease, and (ii) paying
Landlord on or before the Effective Date a termination fee in an amount
equal to the base rent that shall be due and payable for the third lease
year of the term of this Lease, as reasonably determined by Landlord.
Should Tenant fail to comply strictly with the aforesaid pre-conditions to
its right to terminate, this right to terminate shall be null and void and
of no further force and effect.
(d) TEMPORARY SPACE.
Until such time as Landlord shall deliver the Premises to Tenant for
occupancy hereunder, Landlord shall make available to Tenant 6,150 rentable
square feet of temporary space located at Building 1100, Perimeter Park,
Morrisville, NC (the "Temporary Space"). Tenant shall lease the Temporary
Space in accordance with the terms and provisions of this Lease except that
(i) the term of the lease for the Temporary Space shall expire on the
Commencement Date, (ii) Tenant shall pay Taxes, Insurance Expense, CAM
Expense, all utilities and janitorial charges at the Temporary space in
accordance with this Lease based upon the rentable square footage of the
Temporary Space but shall not be required to pay base rent for the
Temporary Space, (iii) Landlord shall provide no upfit of the Temporary
Space, (iv) Tenant shall have no right to assign or sublease the Temporary
Space; and (v) the term of the Lease for the Temporary Space shall
terminate upon the receipt by Tenant of notice from Landlord (the "Landlord
Notice") that Tenant must quit and vacate the Temporary Space; provided,
however, Tenant shall not be required to vacate the Temporary Space until
the date Landlord has notified Tenant that the Premises are ready for
occupancy by Tenant.
Upon its receipt of the Landlord Notice, Tenant shall vacate the Temporary
Space in accordance with the provisions of the Landlord Notice. Should
Tenant fail to vacate the Temporary Space in accordance with the provisions
of the Landlord Notice, Landlord shall be entitled to all of its rights and
remedies
<PAGE>
under the Lease for an event of default by Tenant, with no requirement that
Landlord provide notice to Tenant or a cure period for its failure to
vacate in accordance with the Landlord Notice.
2. BASE RENT, TAXES, INSURANCE, CAM EXPENSE, AND SECURITY DEPOSIT.
--------------------------------------------------------------
(a) BASE RENT.
Tenant agrees to make monthly payments of base rent to Landlord for
the Premises ("base rent"), in advance, without demand, deduction or
offset, in lawful money of the United States, in the amount of Eight and
Twenty-Five Hundredths ($8.25) per rentable square foot of the Premises,
commencing on the Commencement Date, and continuing on the first day of
each and every month thereafter until the Termination Date. Rent payments
for any fractional calendar month at the end or the beginning of the term
of the Lease shall be prorated.
Base rent shall be increased on each January 1 during the term of this
Lease by increases in the Index. For purposes of this Lease:
(i) The term "Index" shall mean the Consumer Price Index-United
States City Average for all Urban Consumers (computed on the basis of
1982-84=100) issued and published by the Bureau of Labor Statistics of
the United States Department of Labor. In the event that the Index
ceases to use a 1982-84 base rate of 100 as the basis of calculation,
or if a substantial change is made in the terms of or number of items
contained in the Index, then the Index shall be adjusted to the figure
that would have been arrived at had the manner of computing the Index
in effect on the date of this Lease not been altered. if the Index is
not available, the term Index shall mean (i) a successor or substitute
index to the Index, appropriately adjusted; or (ii) if such a
successor or substitute index is not available or may not lawfully be
used for the purposes herein stated, a reliable government or other
nonpartisan publication, selected by Landlord and approved by Tenant
(approval shall not be unreasonably withheld or delayed) evaluating
the information theretofore used in determining the Index.
(ii) The term "Base Index" shall mean the Index in effect for the
----------
month of the Commencement Date.
(iii) The term "Current Index" shall mean the Index in effect for the
-------------
month of December prior to each January 1 when an increase in base
rent becomes effective.
(iv) The base rent shall be adjusted as of January 1 during the term
of this Lease to an amount equal to the product obtained by
multiplying the base rent by a fraction, the numerator of which is the
Current Index and the denominator of is the Base Index. For example,
if the base rent is $10,000.00 per month, and the increase in the
Index in lease year two is two percent, the base rent for lease year
three shall be $10,200.00 per month.
(v) Notwithstanding anything to the contrary contained in this
Lease, in no event shall the base rent per rentable square foot for
the Premises for any calendar year during the term of this Lease be
less than the base rent per rentable square foot for the Premises for
any previous calendar year.
(b) TAXES.
<PAGE>
Beginning on the Commencement Date and continuing for the entire term
hereof, Tenant shall pay to Landlord, as additional rental, Tenant's pro
rata share of all taxes, assessments and governmental charges of any kind
or nature whatsoever levied or assessed against the Land and the Building
by any municipality, county, or other governmental agency (the "Taxes"),
which shall be based upon the ratio of the square footage of the Premises
to the total square footage of the Building. Tenant shall pay its pro rata
share of the Taxes in advance in equal monthly installments in such amounts
as are estimated for each year by Landlord at the beginning of each
calendar year during the term, each such installment being made along with
payments of base rent hereunder. Tenant's share of Taxes for the initial
year of the term is estimated by Landlord to be $.64 per square foot per
year, or $1,288.16 per month.
(c) INSURANCE EXPENSE.
Beginning on the Commencement Date and continuing for the entire term
hereof, Tenant shall pay to Landlord, as additional rental, Tenant's pro
rata share of the insurance premiums (the "Insurance Expense") for
commercial general liability, and fire and extended coverage insurance on
the Building and the Land, which shall be based upon the ratio of the
square footage of the Premises to the total square footage of rentable
space in the Building. Tenant shall pay its pro rata share of the Insurance
Expense in advance in equal monthly installments in such amounts as are
estimated by Landlord at the beginning of each calendar year during the
term, each such installment being made along with payments of base rent
hereunder. Tenant's pro rata share of the Insurance Expense for the initial
year of the term is estimated by Landlord to be $.04 per square foot per
year or $80.51 per month.
(d) CAM EXPENSE.
Beginning on the Commencement Date and continuing for the entire term
hereof, Tenant shall pay to Landlord, as additional rental, Tenant's pro
rata share of the cost to Landlord of all the costs and expenses of the
operation, repair and maintenance of the Premises, the Building, its
interior and exterior common areas, and driveways and parking areas,
including, but not limited to, the costs of lawn maintenance, driveway and
parking area maintenance for the Premises and for the streets and roadways
providing access to-the Building and the Land, management and supervisory
fees customary for this type of building in this geographic area, exterior
lighting maintenance, snow removal, repair and maintenance of paved areas,
cleaning supplies, miscellaneous building supplies, sweeper brushes,
Tenant's share of supplies for materials used in common by all tenants of
the complex in which the Premises are located, external paint for the
Building, exterior and interior common area maintenance, elevator repair
and maintenance, external plumbing for the Building, utility common areas,
costs for exterior lighting and lighting in co insect and pest
extermination, security guards for the complex in which the Premises are
located, signs for the complex in which the Premises are located, fuel for
vehicles and street sweepers used by Landlord in the complex in which the
Premises are located, and miscellaneous maintenance expenses (hereinafter
collectively, the "CAM Expense"). The pro rata share of Tenant for CAM
Expense shall be based upon the ratio of the square footage of the Premises
to the total square footage of rentable space in the Building. Tenant's pro
rata share of the CAM Expense for the initial year of the term is estimated
by Landlord to be $1.24 per square foot per year or $2,495.81.00 per month.
To the extent, utilities and HVAC are separately metered and paid
directly by Tenant to such utilities, CAM Expense shall not include a
charge to Tenant for same. If CAM Expense includes charges to Tenant for
HVAC and utilities, this charge shall not include usage by Tenant of
utilities and HVAC beyond the hours of 8:00 AM to 6:00 PM, Monday Friday.
Any usage by Tenant of HVAC and utilities at times other than the aforesaid
hours shall be at the sole cost and expense of Tenant. Landlord shall bill
Tenant directly for all such costs as a separate item of Additional Rent,
and Tenant shall pay such
<PAGE>
amounts within fifteen days of receipt of demand for payment from Landlord,
and the failure by Tenant to pay such costs in accordance with the demand
made by Landlord shall be treated in the same manner under this Lease as a
non-payment of base rent by Tenant with Landlord being afforded the same
rights and remedies for such nonpayment.
(e) RECONCILIATION OF EXPENSES.
Landlord shall promptly notify Tenant of the total actual (i) Taxes
assessed against the Land and the Building, (ii) Insurance Expense, and
(iii) CAM Expense, attaching a copy of the tax or special assessment bill,
the insurance invoice, or the calculation of CAM Expense, as applicable,
and shall specify (i) Tenant's pro rata share thereof, and (ii) the excess,
if any, of Tenant's pro rata share over Landlord's estimation for such
calendar year. Tenant shall pay the excess amount so specified to Landlord
within fifteen (15) days following receipt by Tenant of Landlord's letter.
Failure by Tenant to pay Landlord such amount within the period designated
shall constitute a non-payment of rent by Tenant and a default of Tenant's
obligation under the Lease, and Landlord shall be entitled to all remedies
provided for in this Lease upon default in payment of rent. If the first
year for which Tenant's pro rata share of Taxes, Insurance Expense, or CAM
Expense (hereinafter collectively, the "Expenses") are due or the final
year of the term hereof do not coincide with the calendar year, Tenant's
pro rata share of Expenses for the portion of that year shall be prorated
according to the number of months during which Tenant was in possession of
the Premises. In the event Landlord's estimation of Expenses shall exceed
the actual amount of Expenses, the amount paid by Tenant for such year
shall be adjusted between Landlord and Tenant and Tenant shall receive a
credit against the next due installment of rent hereunder in such excess
amount unless this Lease has expired or been otherwise terminated, in which
event Landlord shall pay to Tenant such excess amount within fifteen (15)
days following receipt by Tenant of Landlord's letter.
(f) SECURITY DEPOSIT.
Tenant shall pay to Landlord on or before the execution date hereof
the sum of one month's base rent to be held by Landlord as security for the
performance by Tenant of all obligations imposed on Tenant pursuant to this
Lease (hereinafter the "security deposit"). Landlord shall not be required
to apply all or any portion of the security deposit with respect to any
particular violation or default by Tenant but Landlord may apply all or any
portion of the security deposit to any violation, breach, or default by
Tenant hereunder after applicable grace and notice periods, if any.
LANDLORD SHALL DEPOSIT THE SECURITY DEPOSIT IN AN INTEREST BEARING ESCROW
ACCOUNT, WITH ALL INTEREST ACCRUED THEREON TO BE FOR THE BENEFIT OF
LANDLORD. Tenant shall reimburse Landlord for such portions of the security
deposit as Landlord shall from time to time apply with respect to any
violation, breach, or default by Tenant hereunder promptly upon written
notice of such application by Landlord. Any portion of the security deposit
which has not been appropriated by Landlord in accordance with the
provisions hereof shall be returned to Tenant upon the termination of this
Lease.
If Landlord conveys Landlord's interest under this Lease, the security
deposit, or any part thereof not previously applied, may be released by
Landlord to Landlord's grantee, and if so released, Tenant agrees to look
solely to such grantee for the proper application and return thereof in
accordance with the terms of this section 2. Tenant agrees that Tenant will
not assign, and that neither Landlord, nor its successors and assigns,
shall be bound by any such assignment, encumbrance or pledge, attempted
assignment, attempted pledge, or attempted encumbrance of the security
deposit.
<PAGE>
Any mortgagee or ground lessor shall not be responsible to Tenant for
the return or application of the security deposit, whether or not it
succeeds to the position of Landlord hereunder, unless the security deposit
shall have been received in hand by such mortgagee or ground lessor.
(g) PROVISIONS TO SURVIVE LEASE TERMINATION.
Any unperformed obligations of Tenant under this Section 2 shall
survive the termination of the Lease, for whatever reason, or any extension
or renewal hereof.
3. COMPLIANCE WITH LAWS AND USE.
(a) The Premises shall be used only for the following purposes: design and
preparation of computer programs and general office use related thereto.
Tenant shall conduct no activity that will result in the discharge of
harmful gases, affluents or other wastes or toxic substances, outside
storage, including, without limitation, trucks and other vehicles, is
prohibited without Landlord's prior written consent. Tenant shall at its
sole cost and expense obtain any and all licenses and permits necessary for
its use of the Premises. Tenant shall comply with all governmental laws,
ordinances and regulations relating to the use of the Premises by Tenant,
and shall promptly comply with all governmental orders and directives for
the correction, prevention and abatement of nuisances in or upon, or
connected with, the Premises, all at Tenant's sole expense. Tenant shall
not permit any objectionable or unpleasant odors, smoke, dust, gas, noise
or vibrations to permeate in or emanate from the Premises, nor take any
other action which would constitute a nuisance or would disturb or endanger
any other tenants of the Building or unreasonably interfere with their
respective premises. Without Landlord's prior written consent, Tenant shall
not receive, store or otherwise handle any product, material or merchandise
which is explosive, inflammable, combustible, corrosive, caustic or
poisonous except in the ordinary course of the business of Tenant and in
compliance with all applicable laws, statutes, regulations, and ordinances.
Tenant will not permit the Premises to be used for any purpose or in any
manner (including, without limitation, any method of storage) which would
render the insurance thereon void or the insurance risk more hazardous or
cause the State Board of Insurance or other insurance authority to disallow
any sprinkler credits. Tenant shall give notice to Landlord immediately
upon the occurrence of any accident in the Premises or upon Tenant's
discovery of any defects thereon or in any fixtures or equipment located
therein or upon the occurrence of any emergency in the Premises or the
Building.
(b) Tenant, at its expense, in its use of the Premises and in making any
alterations, renovations, upfit or modifications of the Premises shall
comply with all laws, ordinances, orders, rules and regulations of state,
federal, municipal or other agencies or bodies having jurisdiction relating
to the use, condition and occupancy of the Premises, including, but not
limited to, the provisions of the Americans with Disabilities Act of 1990,
as amended, and with recorded covenants, conditions and restrictions
applicable for the Land and Building, if any.
(c) Landlord shall insure that as of the Commencement Date, the
construction of the Premises for general office use shall comply with all
applicable laws, statutes, regulations, and ordinances.
4. REPAIRS AND MAINTENANCE.
(a) Landlord shall at its expense maintain, repair and replace only the
roof, downspouts, gutters, foundation, utility lines located outside the
Premises and the structural soundness of the exterior walls of the Building
in good repair, reasonable wear and tear excepted. Subject to Paragraph
10(f) below, Tenant shall repair, replace and pay for, any damage to the
foregoing caused by the negligence of
<PAGE>
Tenant or Tenant's employees, agents or invitees, or caused by Tenant's
default hereunder. The term "walls" as used herein shall not include
windows, glass or plate glass, doors, special store fronts or office
entries. Tenant shall immediately give Landlord written notice of defect or
need for repairs, after which Landlord shall have reasonable opportunity to
repair same or cure such defect. Landlord's liability with respect to any
defects, repairs or maintenance for which Landlord is responsible under any
of the provisions of this Lease shall be limited to the cost of such
repairs or maintenance or the curing of such defect.
(b) Tenant shall at its own cost and expense maintain, repair and replace
all parts of the Premises (except those for which Landlord is expressly
responsible under the terms of this Lease) in good condition, reasonable
wear and tear excepted, promptly making all necessary repairs and
replacements, including, but not limited to, windows, glass and plate
glass, doors, any special office entry, interior walls, finish work, floors
and floor covering, heating and air conditioning systems, dock boards,
truck doors, dock bumpers, plumbing work and fixtures and regular removal
of trash and debris. The foregoing notwithstanding, Tenant shall not be
obligated to repair any casualty covered by the insurance to be maintained
by Landlord pursuant to subparagraph 10(a) below.
(c) If either party hereto shall fail to fulfill its obligations under this
paragraph, the other party hereto may enter upon the area of the Building
or the Premises as required to conduct the obligations of the defaulting
party, and shall be entitled to reimbursement from the defaulting party for
its actual costs and expenses in conducting such obligations. The
defaulting party shall reimburse the other party hereto for its actual
costs and expense promptly upon demand made by the other party hereto. The
provisions of this subparagraph shall not be interpreted to obligate either
party hereto to conduct obligations of the other party hereto.
(d) Tenant shall enter into a maintenance contract providing for the
periodic maintenance of all hot water, heating and air conditioning systems
and units in the Premises, and removal and replacement of filters, and
shall enter into a janitorial contract providing for the daily cleaning of
the Premises. These contracts shall be with parties and upon such terms and
conditions as shall be reasonably approved by Landlord. Tenant shall
provide Landlord a copy of such contracts within five days of the execution
of this Lease.
(e) Tenant shall not damage any demising wall of the Building, or disturb
the integrity and support provided by any demising wall and shall, at its
sole cost and expense, promptly repair any damage or injury to any demising
wall caused by Tenant or its employees, agents or invitees, subject to the
provisions of Paragraph 10(f) below.
(f) Tenant and its employees, customers and licensees shall have the non-
exclusive right to use the parking areas, and common areas in the Building
as may be designated by Landlord in writing, subject to reasonable rules
and regulations as Landlord may from time to time prescribe and subject to
rights of ingress and egress of other tenants. Parking shall be available
at the Building at a ratio of no less than four parking spaces per every
1,000 rentable square feet. Landlord shall not be responsible for enforcing
Tenant's parking rights against any third parties. Landlord may require, at
its option, in its sole discretion, that Tenant, its employees, invitees,
and visitors use certain numbered spaces to be designated by Landlord.
5. ALTERATIONS.
<PAGE>
(a) Tenant shall not make any alterations, additions or improvements to the
Premises (including, but not limited to, roof and wall penetrations)
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. Tenant may, without the consent of Landlord, but at
its own cost and expense and in a good workmanlike manner, erect such
shelves, bins, machinery and trade fixtures as it may deem advisable,
without altering the basic character or structure of the Premises or
improvements and without overloading or damaging the Premises or
improvements, and in each case complying with all applicable governmental
laws, ordinances, regulations and other requirements. Tenant shall not make
any alterations, additions or improvements to the Premises which will
contravene Landlord's policies insuring against loss or damage by fire or
other hazards, including but not limited to commercial general liability,
or which will prevent Landlord from securing such policies in companies
acceptable to Landlord. If any such alterations, additions or improvements
cause the rate of fire or other insurance on the Premises by companies
acceptable to Landlord to be increased beyond the minimum rate from time to
time applicable to the Premises for permitted uses thereof, Tenant shall
pay as additional rent the amount of any such increase promptly upon demand
by Landlord.
(b) Any and all alterations, additions, improvements, partitions and
fixtures erected by Tenant shall be the property of Landlord and shall
remain at the Premises upon termination of the Lease or upon earlier
vacating of the Premises. All shelves, bins, machinery and trade fixtures
installed by Tenant may be removed by Tenant prior to the termination of
this Lease provided such removal may be accomplished without damage to the
Premises or to the primary structure or structural qualities of the
Building and other improvements situated on the Premises. Tenant shall
repair any damage to the Premises, or to the Building as a result of any
alteration, addition, improvement, or repair to the Premises, or the
removal of personal property or trade fixtures by Tenant, its employees,
agents, invitees, or contractors. Should Tenant fail to conduct any such
repair within ten days of written notice from Landlord, Landlord may, at
its option, perform same, and Tenant shall remit payment to Landlord for
the actual cost and expense incurred by Landlord in effecting such repair
immediately upon demand.
6. SIGNS. Tenant shall have the right to install signs upon the Premises only
when first approved in writing by Landlord, which approval shall not be
unreasonably withheld, and subject to any applicable governmental laws,
ordinances, regulations and other requirements. Tenant shall remove all such
signs upon the termination of this Lease. Such installations and removals shall
be made in such manner as to avoid injury or defacement of the Premises, and
Tenant shall repair any injury or defacement, including, without limitation,
discoloration of the Building caused by such installation and/or removal.
7. INSPECTION. Landlord and Landlord's agents and representatives shall have the
right to enter and inspect the Premises at any reasonable time during business
hours, upon reasonable prior notice (except in the event of an emergency when no
notice shall be required), for the purpose of ascertaining the condition of the
Premises or in order to make such repairs as may be required or permitted to be
made by Landlord under the terms of this Lease or in order to show the Premises
to any prospective purchaser or lender. During any entry by Landlord or its
agents or employees on the Premises, all such persons shall act in a manner so
as not to disrupt the business of Tenant. During the period that is six (6)
months prior to the end of the term hereof, Landlord and Landlord's agents and
representatives shall have the right to enter the Premises at any reasonable
time during business hours for the purpose of showing the Premises to any
prospective tenant and shall have the right to erect on the Land a suitable sign
indicating the Premises are available. Tenant shall schedule with Landlord at
least sixty (60) days prior to vacating the Premises a time mutually agreeable
to the parties hereto for a joint inspection of the Premises prior to vacating.
In the event of Tenant's failure to give notice or arrange such joint
inspection, Landlord's inspection at or after Tenant's vacating the Premises
shall be conclusively deemed correct for purposes of determining Tenant's
responsibilities for repairs and restoration.
<PAGE>
8. UTILITIES. Landlord agrees to provide at its cost, all utility line
connections into the Premises. Tenant shall pay all charges for all water,
electrical, telephone, sewer, and other utilities or services used on or from
the Premises, together with any taxes, penalties, surcharges or the like
pertaining thereto. Tenant shall also pay for any utility maintenance charges
and shall furnish all electric light bulbs and tubes required for the Premises.
If any such services are not separately metered to Tenant, Tenant shall pay a
reasonable proportion as determined by Landlord of all charges jointly metered
with other tenants of the Building. Landlord shall in no event be liable for any
interruption or failure of utility services on the Premises, unless caused by
the negligence of Landlord in maintaining utility connections into the Building
but in any such event Landlord shall be liable only for the cost to repair and
restore any such services.
9. ASSIGNMENT AND SUBLETTING. Tenant shall not sublet the Premises or the
interest of Tenant therein in whole or in part, or assign this Lease or the
interest of Tenant therein in whole or in part, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld. Further,
Tenant may not sell, lien, or encumber its interest in this Lease or assign or
delegate the management or permit the use or occupancy of the Premises in whole
or in part by anyone other than Tenant without the prior written consent of
Landlord, which consent Landlord may withhold in its sole discretion. Landlord
and Tenant acknowledge and agree that the foregoing provisions have been freely
negotiated by the parties hereto and that Landlord would not have entered into
this Lease without Tenant's consent to the terms of this Paragraph 9.
No assignment, transfer, mortgage, sublease or other encumbrance, whether
or not approved, and no indulgence granted by Landlord to any assignee or
subtenant, shall in any way impair the continuing primary liability (which after
an assignment shall be joint and several with the assignee) of Tenant hereunder,
and no approval in a particular instance shall be deemed to be a waiver of the
obligation to obtain Landlord's approval in any other case. If for any approved
assignment or sublease Tenant receives rent or other consideration, either
initially or over the term of the assignment or sublease, in excess of the base
rent hereunder, or in case of a sublease of part of the Premises, in excess of
the portion of such rent fairly allocable to such part, after appropriate
adjustments to assure that all other payments called for hereunder are
appropriately taken into account, Tenant shall pay to Landlord as additional
rent the full excess of each such payment of rent or other consideration
received by Tenant promptly after its receipt.
Notwithstanding any provision of this Lease to the contrary, should Tenant
receive consent from Landlord to sublease or assign its interest in the Premises
and seek to sublease or assign its interest in the Premises in accordance with
this paragraph, Tenant shall not use the name of Landlord, any insignia of
Landlord, or any likeness of the Building in any of its advertising for such
sublease or assignment.
10. FIRE AND CASUALTY DAMAGE.
(a) Landlord agrees to maintain standard fire and extended coverage
insurance for the Building in an amount not less than 80% (or such greater
percentage as may be necessary to comply with the provisions of any co-
insurance clauses of the policy) of the "replacement cost" thereof as such
term is defined in the Replacement Cost Endorsement to be attached thereto,
insuring against special causes of loss, including, the perils of fire, and
lightning, such coverages and endorsements to be as defined, provided and
limited in the standard bureau forms prescribed by the insurance regulatory
authority for the State of North Carolina. Subject to the provisions of
subparagraphs 10(c), 10(d), 10(e), and 10(f) below, such insurance shall be
for the sole benefit of Landlord and under its sole control.
(b) If the Premises should be damaged or destroyed by any peril covered by
the insurance to be provided by Landlord under subparagraph 10(a) above,
Tenant shall give immediate written notice thereof to Landlord.
<PAGE>
(c) If the Premises should be totally destroyed by any peril covered by the
insurance to be provided by Landlord under subparagraph 10(a) above, or if
they should be so damaged thereby that rebuilding or repairs cannot in
Landlord's estimation be completed within two hundred (200) days after the
date upon which Landlord is notified by Tenant of such damage, this Lease
shall terminate and the rent shall be abated during the unexpired portion
of this Lease, effective upon the date of the occurrence of such damage,
and any prepaid rent shall be refunded to Tenant in proportion to the
portion of the Premises damaged and unusable.
(d) If the Premises should be damaged by any peril covered by the insurance
to be provided by Landlord under subparagraph 10(a) above, but only to such
extent that rebuilding or repairs can, in Landlord's estimation, be
completed within two hundred (200) days after the date upon which Landlord
is notified by Tenant of such damage, this Lease shall not terminate, and
Landlord shall, at its sole cost and expense, thereupon proceed with
reasonable diligence to rebuild and repair the Premises to substantially
the condition in which they existed prior to such damage, except that
Landlord shall not be required to rebuild, repair or replace any part of
the partitions, fixtures, additions and other improvements which may have
been placed in, on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the rent payable
hereunder during the period in which they are untenantable shall be reduced
to such extent as may be fair and reasonable under all of the
circumstances, as determined by Landlord.
(e) Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering
the Premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such holder, whereupon all rights and
obligations hereunder thereafter accruing shall cease and terminate, and
any prepaid rent shall be refunded to Tenant in proportion to the portion
of the Premises damaged and unusable.
(f) Each of Landlord and Tenant hereby waives all rights to recover against
each other or against any other tenant or occupant of the Building, or
against the officers, directors, shareholders, partners, joint venturers,
employees, agents, customers, invitees, or business visitors of each other
or of any other tenant or occupant of the Building, for any loss or damage
arising from any cause covered by any insurance required to be carried by
each of them pursuant to this Lease, or any other insurance actually
carried by either of them. Landlord and Tenant shall cause their respective
insurers to issue waiver of subrogation rights endorsements to all policies
of insurance carried in connection with the Building ,or the Premises or
the contents of either of them, and any cost for the issuance of such
endorsements shall be borne by the original insured under such policies.
(g) The obligation of Landlord in this paragraph 10 to repair and restore
the Premises and the Building as provided herein, does not include an
obligation of Landlord to repair the fixtures, equipment, or personal
property of Tenant, which Tenant shall insure for its benefit, and Tenant
shall have the obligation to repair and restore in the event of a casualty
or other loss.
(h) The period of time within which repair and restoration of the Premises
must be completed shall be extended due to delays due to or resulting from
(i) force majeure, (ii) inclement weather, (iii) acts or omissions of
Tenant (iv) permitting or licensing, or (v) reasons beyond the reasonable
control of Landlord.
<PAGE>
(i) In the event Landlord shall choose to repair and rebuild the Premises
under subparagraphs (c) and (d) above and Landlord shall fail to complete
such repairs within the 200-day period provided above, with such time
period extended due to force majeure, due to delays beyond the reasonable
control of Landlord, and due to delays caused by Tenant (collectively, the
"Excused Delays"), Tenant shall have the right to terminate this Lease by
written notice to Landlord received by Landlord no later than ten days
after the end of the 200 day period plus any Excused Delays.
(j) If, during the last six months of the term of this Lease, the Premises
should be totally destroyed by any peril covered by the insurance to be
provided by Landlord under subparagraph 10(a) above, or if they should be
so damaged thereby that rebuilding or repairs cannot in Landlord's
estimation be completed within two hundred (200) days after the date upon
which Landlord is notified by Tenant of such damage, and provided there is
no default or event of default by Tenant hereunder, Tenant shall have the
right to terminate this Lease upon written notice to Landlord provided such
notice is received by Landlord within fifteen days of such damage or
destruction.
11. LIABILITY. Landlord shall not be liable to Tenant or Tenant's employees,
agents, officers, partners, licensees or invitees, or to any other person
whomsoever, for any damage to property on or about the Premises belonging to
Tenant or any other person, due to any cause whatsoever, unless caused by the
willful or intentional misconduct of Landlord.
Tenant hereby covenants and agrees that it will at all times indemnify,
defend (with counsel reasonably approved by Landlord) and hold safe and harmless
Landlord (including, without limitation, its trustees and beneficiaries if
Landlord is a trust), and Landlord's agents, employees, patrons and visitors
from any loss, liability, claims, suits, costs, expenses, including without
limitation attorney's fees and damages, both real and alleged, incurred by
Landlord, its agents, employees, officers, partners, invitees, or licensees
arising out of or resulting from of the occupancy by Tenant of the Premises, a
breach by Tenant of any provision of this Lease, or the conduct by Tenant of its
business in the Building, unless caused by the negligence of Landlord, its
agents, employees, or contractors.
Landlord hereby covenants and agrees that it will at all times indemnify,
defend (with counsel reasonably approved by Tenant) and hold safe and harmless
Tenant (including, without limitation, its trustees and beneficiaries if Tenant
is a trust), and Tenant's agents, employees, patrons and visitors from any loss,
liability, claims, suits, costs, expenses, including without limitation
attorney's fees and damages, both real and alleged, incurred by Tenant, its
agents, employees, officers, partners, invitees, or licensees arising out of or
resulting from of the occupancy by Landlord of the Premises, a breach by
Landlord of any provision of this Lease, or the conduct by Landlord of its
business in the Building and on the Land, unless caused by the negligence of
Tenant, its agents, employees, or contractors.
Tenant shall procure and maintain throughout the term of this Lease a
policy or policies of insurance, at its sole cost and expense, naming Landlord
as an additional insured, and insuring both Landlord and Tenant against all
claims, demands or actions arising out of or in connection with: (i) the
Premises; (ii) the condition of the Premises; (iii) Tenant's operations in and
maintenance and use of the Premises; (iv) the equipment, personal property and
fixtures of Tenant located on the Premises; (v) any interruption in the conduct
of the business of Tenant on the Premises; (v) Tenant's liability assumed under
this Lease, and such other kinds of insurance as Landlord shall reasonably
request. The limits of coverage maintained by Tenant for (i) commercial general
liability shall be not less than $5,000,000.00 with respect to each occurrence,
not less than $5,000,000.00 with respect to personal injury or death of a single
person, not less than $5,000,000 general aggregate, and not less than
$5,000,000.00 with respect to products completed operations aggregate, (ii) for
business interruption
<PAGE>
insurance shall be not less than coverage for actual loss, and (iii) for
replacement of the equipment, personal property and fixtures of Tenant shall be
not less than full replacement value.
All such policies shall be procured by Tenant from responsible insurance
companies reasonably satisfactory to Landlord. Certificates or certified copies
of such policies, together with receipt evidencing payments of premiums thereof,
shall be delivered to Landlord prior to the Commencement Date. Not less than
fifteen (15) days prior to the expiration date of any such policies, certified
copies of the renewals thereof or certificates in form reasonably satisfactory
to Landlord (bearing notations evidencing the payment of renewal premiums) shall
be delivered to Landlord. Such policies shall further provide that not less than
thirty (30) days prior written notice shall be given to Landlord before such
policy may be canceled or changed to reduce insurance provided thereby.
12. CONDEMNATION.
(a) If the whole or any substantial portion of the Premises, the Building
or the Land should be taken for any public or quasi-public use under
governmental law, ordinance, or regulation, or by right of eminent domain,
or by private purchase in lieu thereof, and the taking would prevent or
materially interfere with the use of the Premises by Tenant for the
purposes provided herein, this Lease shall terminate and the rent shall be
abated during the unexpired portion of this Lease, effective when the
physical taking of the Premises shall occur, and any prepaid rent shall be
refunded to Tenant in proportion to the portion of the Premises damaged and
unusable.
(b) If a portion of the Premises, the Building or the Land shall be taken
for any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the use by Tenant of the Premises is not materially interfered
with, this Lease shall not terminate but the rent payable hereunder during
the unexpired portion of this Lease shall be reduced in an amount that
shall be reasonable under all of the circumstances.
(c) In the event of any such taking or private purchase in lieu thereof,
Landlord shall be entitled to receive and retain all awards as may be
awarded in any condemnation proceedings other than those specifically
awarded Tenant for a taking of Tenant's personal property, loss of business
and moving expenses, and the portion of the leasehold improvements paid for
by Tenant.
13. HOLDING OVER AND TERMINATION.
(a) Tenant shall upon the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord without the
requirement of notice by Landlord to Tenant of the termination of this
Lease, nor any grace or cure period should Tenant fail to yield up
immediate possession to Landlord. Unless the parties hereto shall otherwise
agree in writing, if Landlord agrees in writing that Tenant may hold over
after the expiration or termination of this Lease, the hold over tenancy
shall be subject to termination by Landlord at any time upon not less than
five (5) days advance written notice, or by Tenant at any time upon not
less than thirty (30) days advance written notice, and all of the other
terms and provisions of this Lease shall be applicable during that period,
except that Tenant shall pay Landlord from time to time upon demand, as
rental for the period of any hold over, an amount equal to one and one-half
(1-1/2) the rent in effect on the termination date, computed on a daily
basis for each day of the hold over period. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend this
Lease except as otherwise expressly provided. The preceding provisions of
this Paragraph 13 shall not be construed as Landlord's consent for Tenant
to hold over.
<PAGE>
(b) Upon the termination of this Lease for whatever reason, Tenant shall
quit and immediately surrender the Premises to Landlord, broom clean, in
good order and condition with all repairs and maintenance required by
Tenant hereunder having been performed, ordinary wear and tear and casualty
loss excepted, and Tenant shall remove its personal property from the
Premises in accordance with this Lease. Should any of the personal property
or trade fixtures of Tenant remain upon the Premises after the Termination
Date, all such property shall be deemed abandoned by Tenant, and Landlord
may remove same at the cost and expense of Tenant with no liability to
Tenant therefor, and Tenant hereby releases Landlord from all liability
therefor.
14. QUIET ENJOYMENT. Landlord covenants that it now has, or will acquire before
Tenant takes possession of the Premises, good title to the Premises, free and
clear of all liens and encumbrances, excepting only the lien for current taxes
not yet due, deed of trust(s), or mortgage(s) of record, zoning ordinances
and other building and fire ordinances and governmental regulations relating to
the use of such property, and easements, restrictions and other conditions of
record. In the event this Lease is a sublease, then Tenant agrees to take the
Premises subject to the provisions of the prior leases. Landlord represents and
warrants that it has full right and authority to enter into this Lease and that
Tenant, upon paying the rental herein set forth and performing its other
covenants and agreements herein set forth, shall peaceably and quietly have,
hold and enjoy the Premises for the term hereof without hindrance or molestation
from Landlord, or its successors in interest, subject to the terms and
provisions of this Lease.
15. EVENTS OF DEFAULT. The following events shall be deemed to be events of
default by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of the rent herein reserved,
or payment with respect to taxes hereunder, or any other payment or
reimbursement to Landlord required herein, within five (5) days of when
due; provided, however, Landlord shall provide Tenant written notice of a
default under this subparagraph (a) but shall not be obligated hereunder to
do so more than once in any twelve month period.
(b) Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
(c) Tenant shall file a petition under any section or chapter of the
Bankruptcy Reform Act, as amended or under any similar law or statute of
the United States or any state thereof, and is not discharged within sixty
days of filing; or Tenant shall be adjudged bankrupt or insolvent in
proceedings filed against Tenant thereunder.
(d) A receiver or trustee shall be appointed for all or substantially all
of the assets of Tenant and is not discharged within sixty days of
appointment.
(e) Tenant shall desert or vacate all or a portion of the Premises and fail
to maintain the neat and orderly appearance of the Premises.
(f) Tenant shall fail to yield up immediate possession of the Premises to
Landlord upon termination of this Lease.
(g) Tenant shall fail to comply with any term, provision or covenant of
this Lease (other than the provisions of subparagraphs (a), (b), (c), (d),
(e) and (f) of this Paragraph 15), and shall not cure such failure within
twenty (20) days after written notice thereof to Tenant; provided, however,
in the event
<PAGE>
Tenant is acting in good faith and diligently to effect a cure, Landlord
shall act reasonably to provide such additional time as shall be necessary
to complete such cure.
16. REMEDIES. Upon the occurrence of any event of default in Paragraph 15
hereof, Landlord shall have the option to pursue any remedy at law or in equity,
including, but not limited to, one or more of the following remedies without any
notice or demand whatsoever:
(a) Terminate this Lease, in which event Tenant shall immediately surrender
the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearage in rent, enter upon and take possession of the Premises and expel
and remove Tenant and any other person who may be occupying the Premises or
any part thereof, with or without judicial approval, by any legal means
necessary, without being liable for prosecution or any claim of damages
therefor; secure the Premises against unauthorized entry; and Tenant agrees
to pay to Landlord on demand the amount of all loss and damage which
Landlord may suffer by reason of such termination, whether through
inability to relet the Premises on satisfactory terms or otherwise.
(b) Enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying such Premises or any part
thereof, with or without judicial approval, by any legal means necessary,
without being liable for prosecution and receive the rent thereof; secure
the Premises against unauthorized entry; store any property located on the
Premises at the expense of the owner thereof and Tenant agrees to pay to
Landlord on demand any deficiency that may arise by reason of such
reletting. In the event Landlord is successful in reletting the Premises at
a rental in excess of that agreed to be paid by Tenant pursuant to the
terms of this Lease, Landlord and Tenant each mutually agree that Tenant
shall not be entitled, under any circumstances, to such excess rental, and
Tenant does hereby specifically waive any claim to such excess rental.
(c) Enter upon the Premises, with or without judicial approval, by any
legal means necessary, without being liable for prosecution or any claim
for damages therefor, secure the Premises against unauthorized entry,
remove all property of Tenant from the Premises and store it at the cost
and expense of Tenant, and do whatever Tenant is obligated to do under the
terms of this Lease; and Tenant agrees to reimburse Landlord on demand for
any expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease, and Tenant further agrees that
Landlord shall not be liable for any damages resulting to Tenant from such
action, whether caused by the negligence of Landlord or otherwise.
(d) Accelerate and demand the payment of all base rent and other charges
due and payable hereunder over the term of this Lease which shall be
discounted to present value as reasonably determined by Landlord.
In connection with the exercise of its remedies under this Lease, Landlord
shall act in a commercially reasonable manner to mitigate its damages.
In the event Tenant fails to pay any installment of base rent or additional
rent hereunder within fifteen days of the due date of such installment, Tenant
shall pay to Landlord on demand a late charge in an amount equal to four percent
(4%) of such installment to help defray the additional cost to Landlord for
processing such late payment. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner. If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this Lease, it shall become
necessary or appropriate for Landlord to employ or consult
<PAGE>
with an attorney concerning or to enforce or defend any of Landlord's rights or
remedies hereunder, Tenant agrees to pay any and all reasonable attorneys' fees
so incurred.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law or
equity, nor shall pursuit of any remedy herein provided constitute a forfeiture
or waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. No act or thing done by Landlord or its agents
during the term hereby granted shall be deemed a termination of this Lease or an
acceptance of the surrender of the Premises, and no agreement to terminate this
Lease or accept a surrender of the Premises shall be valid unless in writing
signed by Landlord. No waiver by Landlord of any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions and covenants herein contained. Landlord's acceptance of the
payment of rental or other payments hereunder after the occurrence of an event
of default shall not be construed as a waiver of such default, unless Landlord
so notifies Tenant in writing, and no receipt of money by Landlord from Tenant
after the termination of this Lease or after service of any notice or after the
commencement of any suit or after final judgment for possession of the Premises
shall reinstate, continue or extend the term of this Lease or affect any such
termination, notice, suit or judgment, unless landlord so notifies Tenant in
writing. Forbearance by Landlord to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to
constitute waiver of such default or of Landlord's right to enforce any such
remedies with respect to such default or any subsequent default.
17. [INTENTIONALLY DELETED.]
18. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a
lien or charge upon the Premises or the improvements situated thereon; provided,
however, that if the mortgagee, trustee, or holder of any such mortgage or deed
of trust elects to have Tenant's interest in this Lease superior to any such
instrument, then by notice to Tenant from such mortgagee, trustee or holder,
this Lease shall be deemed superior to such lien, whether this Lease was
executed before or after said mortgage or deed of trust. Tenant shall at any
time hereafter on demand execute any instruments, releases or other documents
which may be required by any mortgagee or trustee for the purpose of further
subjecting and subordinating this Lease to the lien of any such mortgage or deed
to trust. Landlord shall use reasonable efforts to provide Tenant with a
subordination, attornment and nondisturbance agreement in customary form whereby
the lender under the deed of trust encumbering the Building agrees not to
disturb the interest of Tenant under this Lease so long as there is no default
hereunder by Tenant. The form and substance of the nondisturbance agreement will
be reasonably acceptable to the lender and Tenant.
19. MECHANIC'S LIENS. Tenant shall have no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind, the interest of Landlord in the Premises or to charge
the rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs, and each such claim shall affect and each such lien
shall attach to, if at all, only the leasehold interest granted to Tenant by
this instrument. Tenant covenants and agrees that it will pay or cause to be
paid all sums legally due and payable by it on account of any labor performed or
materials furnished at the request of Tenant in connection with any work
performed on the Premises at the request of Tenant on which any lien is or can
be validly and legally asserted against its leasehold interest in the Premises
or the improvements thereon and that it will save and hold Landlord harmless
from any and all loss, cost or expense based on or arising out of asserted
claims or liens
<PAGE>
against the leasehold estate or against the right, title and interest of
Landlord in the Premises or under the terms of this Lease.
20. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations, or other requirements with reference
to the sending, mailing, or delivery of any notice by Landlord to Tenant or with
reference to the sending, mailing, or delivery of any notice or the making of
any payment by Tenant to Landlord shall be deemed to be complied with when and
if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address first hereinbelow set
forth or at such other address as Landlord may specify from time to time by
written notice delivered in accordance herewith. Tenant's obligations to
pay rent and any other amounts to Landlord under the terms and of this
Lease shall not be deemed satisfied until such rent and other amounts have
been actually received by Landlord.
(b) Any notice or document required or permitted to be delivered hereunder
shall be deemed to be delivered whether actually received or not when:
(i) deposited in the United States Mail, postage prepaid;
(ii) sent by federal express or other nationally recognized
overnight courier, charges prepaid; or
(iii) sent by Certified or Registered Mail, return receipt requested,
postage prepaid, and addressed to the parties hereto at the respective
addresses set out below, or at other such addresses as they have heretofore
specified by written notice delivered in accordance therewith.
LANDLORD:
Perimeter Park West Associates
Limited Partnership c/o Lichtin Properties, Inc.
1800 Perimeter Park Drive Suite 200
Morrisville, North Carolina 27560
Attention: Mr. Harold S. Lichtin
With a copy to:
Alan H. Peterson, Esq.
Kennedy Covington Lobdell & Hickman, L.L.P.
Two Hanover Square Building
Fayetteville Street Mall, 24th Floor
Raleigh, North Carolina 27602
Dave Lindner
c/o Lichtin Properties, Inc.
1800 Perimeter Park Drive Suite 200
Morrisville, North Carolina 27560
TENANT:
<PAGE>
Applied Innovation, Inc.
5800 Innovation Drive
Dublin, Ohio 43016 - 3271
With a copy to:
Curtis A. Loveland, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
If and when included within the term "Landlord", as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of notices
and payments to Landlord; if and when included within the term "Tenant, as used
in this instrument, there is more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address within the
continental United States for the receipt of notices to Tenant. All parties
included within the terms "Landlord" and "Tenant", respectively, shall be deemed
to have received notices in accordance with the provisions of this paragraph
with the same effect as if each had received such notice.
21. BROKER'S CLAUSE. Tenant warrants and represents to Landlord that it has
had no dealings with any real estate broker or agent in connection with this
Lease other than Koll/Lichtin, and Tenant covenants to pay, hold harmless, and
indemnify Landlord from and against any and all costs, expenses, liabilities
(including reasonable attorneys' fees), causes of action, claims or suits in
connection with any compensation, commission, fee, or charges claimed by any
other real estate broker or agent with respect to this Lease or the negotiation
thereof, arising out of any act of Tenant. Landlord warrants and represents to
Tenant that it has had no dealings with any real estate broker or agent in
connection with this Lease other than Koll/Lichtin, and Landlord covenants to
pay, hold harmless, and indemnify Tenant from and against any and all costs,
expenses, liabilities (including reasonable attorneys' fees), causes of action,
claims or suits in connection with any compensation, commission, fee, or
charges claimed by any other real estate broker or agent with respect to this
Lease or the negotiation thereof, arising out of any act of Landlord.
22. LANDLORD'S LIABILITY. Notwithstanding anything to contrary contained in
this Lease, Tenant agrees and understands that Tenant shall look solely to the
estate and property of Landlord in the Building and the Land for the enforcement
of a judgment (or other judicial decree) requiring the payment of money by
Landlord to Tenant by reason of default or breach of Landlord in performance of
its obligations under this Lease, it being intended that there will be
absolutely no personal liability on the part of Landlord, its successors and
assigns with respect to any of the terms, covenants, and conditions of this
Leases, and no other assets of Landlord or of Landlord's partners, if any, shall
be subject to levy, execution, attachment or any other legal process for the
enforcement or satisfaction of the remedies pursued by Tenant in the event of
such default or breach, this exculpation of liability to be absolute and without
exception whatsoever; provided, however if Landlord has sold the Building and
Land prior to the entry of any judgment against Landlord on behalf of Tenant and
if there is a lawsuit pending against Landlord on behalf of Tenant at the time
of such sale or transfer, Landlord shall be liable to Tenant in an amount equal
to the amount of equity received by Landlord from the sale of the Building and
the Land.
<PAGE>
23. RULES AND REGULATIONS. Tenant shall fully comply with the Rules and
Regulations attached hereto as Exhibit D and made a part hereof and any and all
modifications thereof, or amendments thereto. Landlord shall provide Tenant at
least thirty days prior written notice of any amendments or modifications to the
Rules and Regulations, and shall act to enforce the Rules and Regulations in a
uniform and nondiscriminatory manner.
24. HAZARDOUS MATERIALS.
(a) Tenant agrees that it will not release, discharge, place, hold, or
dispose of any Hazardous Material (as hereinafter defined) on, under or at
the Premises, in the Building, or on the Land, and that it will not use the
Premises, the Building, the Land, or any other portion thereof as a site
for the treatment, storage, or disposal (whether permanent or temporary) of
any Hazardous Material except in the ordinary course of the business of
Tenant and in compliance with all applicable laws, statutes, ordinances,
and regulations. Tenant further agrees that it will not cause or allow any
asbestos to be incorporated into any improvements or alterations which
Tenant makes or causes to be made to the Premises, or the Building.
(b) Tenant hereby agrees to indemnify, defend (with counsel reasonably
approved by Landlord) and hold harmless Landlord of from and against any
and all losses, liabilities, damages, injuries, costs, expenses and claims
of any and every kind whatsoever (including without limitation, court costs
and attorneys' fees at all tribunal levels) which at any time or from time
to time may be paid, incurred or suffered by, or asserted against Landlord
for, with respect to, or as a direct or indirect result of (i) any breach
by Tenant of the provisions of this Paragraph, or (ii) as a direct or
indirect result of the acts or omissions of Tenant or any agent, employee,
invitee, licensee, or independent contractor of Tenant, the presence on or
under, or the escape, seepage, leakage, spillage, discharge, emission, or
release from, onto, or into the Premises, the Building, the Land, the
atmosphere, or any watercourse, body of water, or groundwater, of any
Hazardous Material (including, without limitation, any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other Federal, state,
local or other statute, law, ordinance, code, rule, regulation, order or
decree regulating, relating to or imposing liability or standards of
conduct concerning any Hazardous Material); and the provisions of and
undertakings and indemnification set forth in this paragraph shall survive
the termination or expiration of this Lease, for any reason, and shall
continue to be the liability, obligation and indemnification of Tenant,
binding upon Tenant forever. The provisions of the preceding sentence shall
govern and control over any inconsistent provision of this Lease.
(c) For purposes of this Lease, "Hazardous Material" means and includes any
hazardous or toxic substance, pollutant, contaminant, gas, or petroleum
product defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, any
so-called "Superfund" or "Superlien", law, the Toxic Substances Control
Act, as amended, or any other Federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous,
toxic or dangerous waste, substance or material, as now or at any time
hereafter in effect, or any other hazardous, toxic or dangerous, waste,
substance or material, gas or petroleum product, and "Applicable Laws"
shall mean the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, any so-called "Superfund" or "Superlien", law,
the Toxic Substances Control Act, as amended, or any other Federal, state
or local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material,
as now or at any time hereafter in effect, or any other hazardous, toxic or
dangerous, waste, substance or material, gas or petroleum product.
<PAGE>
(d) Tenant shall provide Landlord with a list of any and all Hazardous
Materials released, discharged, placed, held, or disposed of on the
Premises, and certification to Landlord of compliance by Tenant with all
Applicable Laws, within ten days of a request therefor by Landlord.
(e) Landlord shall indemnify, defend (with counsel reasonably approved by
Landlord) and hold harmless Tenant of from and against any and all losses,
liabilities, damages, injuries, costs, expenses and claims of any and every
kind whatsoever (including without limitation, court costs and attorneys'
fees at all tribunal levels) which at any time or from time to time may be
paid, incurred or suffered by, or asserted against Tenant with respect to
the presence of Hazardous Materials on the Premises and not caused by
Tenant, its employees, agents, invitees, licensees, or independent
contractors. The provisions of this subparagraph (e) shall survive the
termination or expiration of this Lease, for any reason, and shall continue
to be the liability, obligation and indemnification of Landlord, binding
upon Landlord forever. The provisions of the preceding sentence shall
govern and control over any inconsistent provision of this Lease.
25. LANDLORD'S RIGHT TO SUBSTITUTE THE PREMISES. At any time after the date on
which Landlord shall have delivered possession of the Premises to Tenant in
accordance with this Lease but only once during the term of this Lease, and in
the event that Landlord shall elect to devote all or a portion of the Premises
to use by another existing or prospective tenant, Landlord shall have the right
to substitute for the Premises other comparable space in the Building (the
"Substitute Premises") by written notice delivered to Tenant not less than
ninety (90) days nor more than one hundred twenty (120) days prior to the date
set forth in said notice as the effective date (the "Substitution Date") for
such substitution. The Substitution Date shall be the date upon which Tenant
shall open for business in the Substitute Premises. Such written notice shall
include a floor plan identifying the Substitute Premises which premises shall
have a rentable square footage equal to or greater than the Premises (but at no
greater base rent charge) and shall be similar in configuration, and Tenant
shall have the right to reasonably approve the Substitute Premises. Tenant shall
submit Tenant's Plans and Specifications for the Substitute Premises for
Landlord's review and approval within thirty days of its receipt of notice from
Landlord concerning the Substitute Premises. Landlord shall, promptly after
Tenant assumes occupancy of the Substitute Premises and provided that Tenant is
not then in default of any of its obligations under the Lease, reimburse Tenant
for any reasonable costs and expenses incurred by Tenant in connection with the
substitution hereunder. From and after the Substitution Date, the term Premises
shall be deemed to mean the Substitute Premises for all purposes under the
Lease.
26. COVENANT OF TENANT. If Landlord encounters difficulties in negotiating
permanent or construction financing for the Building, and after using its best
efforts is unable to resolve those difficulties without obtaining minor
modifications to this Lease, Tenant will act in good faith to execute an
amendment to this Lease, but this agreement on the part of Tenant will not
require Tenant to make any changes that in Tenant's reasonable judgment alter
the term hereof, or adversely affect any substantive right of Tenant, whether
legal or economic.
27. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
(b) The terms, provisions and covenants and conditions contained in this
Lease shall apply to, inure to the benefit of, and be binding upon the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly
provided. Landlord shall have the right to assign any of its rights and
obligations under this Lease. Each party
<PAGE>
agrees to furnish to the other, promptly upon demand, a resolution, or
other appropriate documentation evidencing the due authorization of such
party to enter into this Lease.
(c) The captions inserted in this Lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this Lease,
or any provision hereof, or in any way affect the interpretation of this
Lease.
(d) Tenant agrees from time to time, within ten (10) business days after
request of Landlord, to deliver to Landlord, or Landlord's designee, an
estoppel certificate stating, if true, that this Lease is in full force and
effect, the date to which rent has been paid, the unexpired term of this
Lease and such other matters pertaining to this Lease as may be reasonably
requested by Landlord. It is understood and agreed that Tenant's obligation
to furnish such estoppel certificates in a timely fashion is a material
inducement for Landlord's execution of this Lease.
(e) This Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive
the expiration or earlier termination of the term hereof, including,
without limitation, all payment obligations concerning the condition of the
Premises. Upon the expiration or earlier termination of the term hereof,
and prior to Tenant's vacating the Premises, Tenant shall pay to Landlord
any amount reasonably estimated by Landlord as necessary to put the
Premises, including, without limitation, all heating and air conditioning
systems and equipment therein, in good condition and repair, normal wear
and tear and casualty loss excepted. Tenant shall also, prior to vacating
the Premises, pay to Landlord the amount, as estimated by Landlord, of
Tenant's obligation hereunder for real estate taxes and insurance premiums
payable during the year in which the Lease expires or terminates. All such
amounts shall be used and held by Landlord for payment of such obligations
of Tenant hereunder, with Tenant being liable for any additional costs
therefor upon demand by Landlord, or with any excess to be returned to
Tenant after all such obligations have been determined and satisfied, as
the case may be. Any security deposit held by Landlord shall be credited
against the amount payable by Tenant under this Paragraph 26(f).
(g) In the event of a transfer by Landlord of its interest in the Premises,
the transferring Landlord shall be released from all obligations and
liabilities under the terms of this Lease subsequent to the date of such
transfer. In the event a transferee shall agree to assume the obligations
and liabilities of Landlord under the Lease prior to the date of the
transfer, Landlord shall be released from all obligations and liabilities
under the Lease.
(h) If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of
this Lease, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby, and
it is also the intention of the parties to this Lease that in lieu of each
clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added as a part of this Lease contract a clause or
provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
(i) Because the Premises are on the open market and are presently being
shown, this Lease shall be treated as an offer with the Premises being
subject to prior lease and such offer subject to the withdrawal or non-
acceptance by Landlord or to other use of the Premises without notice, and
this Lease shall not be
<PAGE>
valid or binding unless and until accepted by Landlord in writing and a fully
executed copy delivered to both parties hereto.
(j) All references in this Lease to "the date hereof" or similar references
be deemed to refer to the last date, in point of time, on which all parties
hereto have executed this Lease.
(k) Time is of the essence of this Lease.
(l) Landlord shall not be in default in the performance of any of Landlord's
obligations hereunder unless and until Landlord shall have failed to perform
such duties or obligations within thirty (30) days (or such additional time as
is reasonably required to correct any such default, or such lesser time as shall
be reasonable in the event of an emergency) after written notice by Tenant to
Landlord, properly specifying wherein Landlord has failed to perform any such
duty or obligation. Landlord shall have no liability for any incidental or
consequential damages of Tenant, or anyone claiming by, through or under Tenant,
for any reason whatsoever.
(m) In the event that Landlord shall default in the performance of Landlord's
obligations hereunder, the holder of a mortgage or the beneficiary of a deed of
trust which includes the Premises shall have the right, but not the obligation,
to perform or comply with any covenants, agreements and provisions violated in
connection with such default. Further, if such holder or beneficiary notifies
Tenant that such holder or beneficiary has taken over Landlord's right under
this Lease, Tenant shall not assert any right to deduct the cost of repairs or
any monetary claims against Landlord theretofore accrued from rent thereafter
due and payable, but shall look solely to Landlord and not such holder or
beneficiary for satisfaction of such claim.
(n) This Lease does not create the relationship of partner or joint venturer
between Landlord and Tenant.
(o) The laws of the State of North Carolina shall govern the interpretation,
the validity, performance and enforcement of this Lease.
(p)
(i) If Tenant is a corporation, the undersigned officer of Tenant does
hereby warrant and certify to Landlord that Tenant is a corporation in
good standing and duly organized under the laws of the State of North
Carolina, or if chartered in a state other than the State of North
Carolina is a corporation in good standing and duly organized under the
laws of such state and is authorized to do business in the State of North
Carolina. The undersigned officer of Tenant hereby further warrants and
certifies to Landlord that such officer is authorized and empowered to
bind the corporation to the terms of this Lease by such officer's
signature hereto.
(ii) If Tenant is a general or limited partnership, the undersigned
general partner of Tenant does hereby warrant and certify to Landlord
that Tenant is a general partnership or limited partnership, as the case
may be, validly existing under the laws of the State of North Carolina,
or if formed in a state other than the State of North Carolina, is a
general partnership or limited partnership validly existing under the
laws of such state and is authorized to do business in the State of North
Carolina. The undersigned general partner of Tenant hereby further
warrants and certifies to Landlord that such general partner is
authorized and empowered to bind Tenant to the terms of this Lease by
such general partner's signature hereto.
<PAGE>
(iii) The undersigned general partner of Landlord does hereby warrant and
certify to Tenant that Landlord is a limited partnership, validly
existing under the laws of the State of North Carolina and is authorized
to do business in the State of North Carolina. The undersigned general
partner of Landlord hereby further warrants and certifies to Tenant that
such general partner is authorized and empowered to bind Landlord to the
terms of this Lease by such general partner's signature hereto.
(q) This Lease shall be executed in duplicate, each of which shall be deemed an
original and complete of itself and may be introduced into evidence or used for
any purpose without the production of any other copy. If Tenant is a
corporation, two authorized corporate officers must execute this Lease in their
appropriate capacity for Tenant and affix the corporate seal.
(r) The provisions contained in the Rider attached hereto, if any, are
incorporated herein by reference and made a part of this Lease. In the event of
any conflict between the printed portion of this Lease and the Rider, the
provisions of the Rider shall govern and control.
(s) Although the printed provisions of this Lease were drafted by Landlord,
such fact shall not cause this Lease to be construed either for or against
Landlord or Tenant.
(t) This Lease may not be recorded. Upon the request and at the expense of
Tenant, Landlord shall execute a memorandum of this Lease suitable for recording
which shall omit the financial terms herein but which shall identify the
Premises and the term of this Lease. Upon the expiration of this Lease, a
recorded memorandum of this Lease may be canceled of record by a document
executed by Landlord, or its successor in interest for such purpose.
(u) Tenant shall provide to Landlord within 120 days of the close of its fiscal
year, and thereafter upon reasonable request of Landlord but no more frequently
than once each calendar year, financial statements of Tenant certified by the
chief financial officer of Tenant, and Tenant shall act to ensure that any
guarantor hereof provides Landlord with copies of its financial statements
within ninety days of the close of its fiscal year.
(v) No remedy conferred herein is intended to be exclusive of any other remedy
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or thereunder or now or hereafter existing at law
or in equity or by statute or otherwise.
(w) No provision of this Lease shall be deemed to waive any statutory or common
law rights of Landlord to assert a lien upon property of Tenant.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal as of
the day and year first above written.
LANDLORD:
PERIMETER PARK WEST ASSOCIATES
LIMITED PARTNERSHIP (SEAL), a
North Carolina limited partnership
WITNESS:
By: /s/ Pamela S. Cromer By: /s/ Harold S. Lichtin (SEAL)
----------------------- -----------------------------
Pamela S. Cromer Harold S. Lichtin,
General Partner
TENANT:
APPLIED INNOVATION, INC., a Delaware
corporation
ATTEST:
By:/s/ [signature illegible] By: /s/ Gerald B. Moersdorf, Jr.
------------------------- -----------------------------
Gerald B. Moersdorf, Jr.
Secretary Chairman, President and CEO
[CORPORATE SEAL]
<PAGE>
EXHIBIT A
THE LAND
BEING ALL of that certain tract or parcel of land containing 7.668 acres
(334,013 square feet) designated as Enterprise Center II, according to plat of
survey entitled "Boundary Survey of: Enterprise Center 11, 5151 McCrimmon
Parkway, for: Perimeter Park West Associates, Tax PIN #0746.04-92-5846, Cedar
Fork TWSP, Wake County, Morrisville, North Carolina" dated July 11, 1995,
prepared by Timothy E. Bowes, registered land surveyor, of DSAtlantic and
recorded in Book of Maps 1995, Page 1158, Wake County Registry.
<PAGE>
EXHIBIT C
PLANS AND SPECIFICATIONS
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND TENANT.]
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, common areas, and public portions of the Building, such as
entrances, passages, courts, elevators, vestibules, stairways, corridors or
halls, and the streets, alleys or ways surrounding or in the vicinity of the
Building shall not be obstructed by Tenant, even temporarily, or encumbered by
Tenant or used for any purpose other than ingress to and egress from the
Premises.
2. No awnings or other projections shall be attached to the outside walls of
the Building.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
Premises or Building unless approved by Landlord. Signs on entrance doors shall,
at Tenant's expense, be inscribed, painted or affixed for each tenant by sign
makers approved by Landlord. In the event of the violation of the foregoing by
Tenant, Landlord may remove same without notice to Tenant or any liability
therefor, and may charge the expense incurred by such removal to Tenant.
4. The sashes, sash doors, skylights, windows, heating, ventilating and air
conditioning vents and doors that reflect or admit light and air into the halls,
passageways or other public places in the Building shall not be covered or
obstructed by Tenant.
5. No show cases or other articles shall be put in front of or affixed to any
part of the exterior of the Building, nor placed in the public halls, corridors,
or vestibules without the prior written consent of Landlord.
6. The bathrooms and plumbing fixtures shall not be used for any purposes
other than those for which they were designed, and no sweepings, rubbish, rags,
or other substances shall be thrown therein. All damages resulting from any
misuse of the bathrooms or fixtures shall be the responsibility of Tenant.
7. Tenant shall not in any way deface any part of the Premises or the
Building.
8. No vehicles, or animals of any kind shall be brought into or kept in
or about the Premises, or in the Building. No cooking shall be done or permitted
by Tenant on the Premises except in conformity with all applicable laws,
statutes, regulations and ordinances and then only in the area designated as a
kitchen, if any, on the Premises of Tenant, which is to be primarily used by
Tenant's employees for heating beverages and light snacks. Tenant shall not
cause or permit any unusual or objectionable odors to be produced upon or
permeate from the Premises.
9. All desks shall be serviced by chairs with rollers that are equipped with
floor mats underneath each chair.
10. No space in the Building shall be used for the sale of merchandise, goods,
or property of any kind at auction.
11. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of the Building or neighboring
buildings or premises or those having business with them, whether by the use of
any musical instrument, radio, talking machine, unmusical noise, whistling,
singing, or in any other way. Tenant shall not throw anything out of the doors,
windows or skylights or down the passageways.
12. Neither Tenant, nor any of Tenant's servants, employees, agents, visitors,
or licensees, shall at any time bring or keep upon the Premises any inflammable,
combustible or explosive fluid, or chemical substance, other
<PAGE>
than reasonable amounts of cleaning fluids or solvents required in the normal
operation of Tenant's business offices.
13. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by Tenant, nor shall any changes be made in existing locks or
the mechanism thereof, without the prior written approval of Landlord and unless
and until a duplicate key is delivered to Landlord. Tenant shall, upon the
termination of its tenancy, return to Landlord all keys of stores, offices and
toilet rooms, either furnished to, or otherwise procured by, Tenant, and in the
event of the loss of any keys so furnished, Tenant shall pay to Landlord the
cost thereof.
14. Tenant shall not overload any floor.
15. Tenant shall not occupy or permit any portion of the Premises to be used
for the possession, storage, manufacture or sale of liquor, narcotics, or
tobacco in any form.
16. Tenant shall be responsible for all persons for whom it issues passes
and/or keys and shall be liable to Landlord for all acts of such persons.
17. The Premises shall not be used for lodging or sleeping or for any immoral
or illegal purpose.
18. The requirements of Tenant will be attended to only by Landlord or the
property manager of the Premises.
19. Canvassing, soliciting, and peddling in the Building are prohibited and
Tenant shall cooperate to prevent the same.
20. All paneling, grounds or other wood products not considered furniture shall
be of fire retardant materials.
21. No smoking is permitted in the Premises, or in the Building. Smoking is
permitted outside the Building in designated smoking areas. All cigarette butts
and other refuse should be placed in designated containers.
22. No weapons concealed or visible are permitted in the Premises, in the
Building, or on the Land.
23. Landlord shall not be responsible to Tenant or liable for the non-
observance or violation of any of these Rules and Regulations by any other
tenant.
Whenever the above rules conflict with any of the rights or obligations of
Tenant pursuant to the provisions of the Lease, the provisions of the Lease
shall govern.
<PAGE>
EXHIBIT " C-1 " continued
[FLOOR PLANS APPEAR HERE]
<PAGE>
Via Fax (919.281.2199) and Mail
February 25, 1999
Mr. James J. Scheuer
Chief Financial Officer
Sciquest, Inc.
4222 Emperor Boulevard, Suite 225
Durham, NC 27703
RE: Purchase Agreement of Property
Dear Jim:
Reference is made to a certain pending sublease agreement (the "Sublease")
between Applied Innovation Inc. ("Sublandlord", hereinafter referred to as
"Seller") and SciQuest, Inc. ("Subtenant", hereinafter referred to as "Buyer")
for premises at 5151 McCrimmon Parkway, Enterprise Center 11, Suite 208,
Morrisville, NC 27560 (the "Premises").
Pursuant to the terms of this letter and simultaneous with the execution of
the Sublease by Buyer and Seller, Seller hereby sells, transfers and conveys
to Buyer and Buyer hereby purchases and accepts from Seller, free and clear,
those items of furniture and telecommunications equipment inventoried in the
attached Exhibit, and any and all other property of Seller which remains in
the Premises as of the date Buyer takes possession of the Premises under the
Sublease (together known as the "Property").
Seller hereby represents and warrants that it has good and valid title, free
and clear of any and all liens and encumbrances, of all Property contemplated
hereunder and the undersigned has the authority to sell the Property on behalf
of the Seller.
As consideration for the Property, Buyer shall, at execution of the Sublease
by Buyer, pay Seller by corporate check the sum of Fifteen Thousand and
000/100 Dollars ($15,000), reftmdable in ftdl to Buyer should the Sublease not
be approved in writing by Prime Landlord.
Please sign this letter and its duplicate, returning one copy to my attention.
Thank you.
Sincerely,
By: /s/ William H. Largent
-------------------------
William H. Largent,
Chief Financial Officer
AGREED AND ACCEPTED:
SCIQUEST, INC.
By: /s/ James J. Scheuer Date: 3/1/99
-------------------------
James J. Scheuer,
Attachment (Property inventory list)
<PAGE>
EXHIBIT TO PURCHASE AGREEMENT
FAX
TO: Bob Van Wormer FROM: Kelly Krull
Grubb& Ellis Applied Innovation Inc.
5800 Innovation Inc.
Phone 919-420-1562 Dublin, OH 43016-32 71
Fax Phone 919-783-42.44
Phone 614-798-2000
Fax Phone 614-798-1770
.cc.
Date 02112199
Number of pages including cover sheet
REMARKS: [] Urgent [] For your review E] Reply ASAP 0 Please Comment
Telecommunications system information:
PBX
Fujitsu F9600ES
16 CO Trunk ports
16 DID Trunk ports
32 Digital station ports
48 Analog station ports
6 voice mail ports
32 Digital telephones (Approx)
38 Analog telephones (Approx)
VoiceMail system
ActiveVoice Repartee system
6 voice mail ports
<PAGE>
January 19, 1997
APPLIED INNOVATION
PHASE1
(5) PRIVATE OFFICES
3 - LEFT UNITS
2 - RIGHT UNITS
ANDERSON WcKEY - METAL #C1000 SERIES
1. (3) #CMS1066L., DESKS W/PED AND CENTER DRAWER
2. (2) #CMS1066R, DESK W/PED AND CENTER DRAWER
3. (5) #026 100. BRIDGE 24" X 42"
4. (5) #CC16624P. DESK CREDENZA SHELL 24" X 66"
5. (5) #L230, LATERAL FILE
6. (5) #NSX-1 I TASK CHAIRS W/ARMS BY UNITED, GRADE 4 FABRIC
#N21 WINDWARD
7. (10) NNS-31 SIDE CHAIRS BY UNITED GRADE 4 FABRIC #N21 WINDWARD
8. (5) #1248 BOOKCASE
SMALL CONFERENCE ROOM
9. #RT-6-BOOO. 72" X 36"TABLE
BY ABCO. GRAY NEBULA B
10. (6) #A32 SLED BASE CHAIRS
#N51 HALYARD
BOARD ROOM
11. #BCB-162-COOO WTABLE
B)~ ABCO. LAMINATE "ERIN-C
BOATSHAPED 2" TIECK EDGE
4 PEDESTALS - 2PC.TOP
48- X WX 29"H
12. (16) #CN-32 SLED BASE CHAIRS
GRADE 4 FABRIC NN51 HALYARD
13. (1) #CC-1848-COOO CREDENZA 29"D X 487W X 29"H LAMINATE -ERIN"
14. (1) #CC-1848-6000 CREDENZA 22" X 487' X 29"H LAMINATE "DOVE GRAY" (FOR
MEDIUM CONE ROOM)
BREAK ROOM LUNCH ROOM
15. (48)#1200-2100 CHAIRS STACKING TR-93, KR-V TEAL GREEN
16. (5) #45XR-42-E4SO
HC-21, CV-28. TRE
17. (5) #45XC-3048-E4SO
HC-2 1, CV-28, TRE
18. NSX- I I CHAIR (REC AREA)
<PAGE>
#N51HALYARD
19. NSX-10 CHAIR (MAIL ROOM)
#N51HALYARD
TOTAL
TAX
TOTAL SELL PRICE
CONFERENCE ROOM (FOR BOARD MEETING THEN MOVE TO BACK LIBRARY CONF. ROOM) BY B.C.
9. (1) #OV4896TGY, 48- X 96" OVAL
10. (1) #OVBASEGY, BASE GRAY LAMINATE
11. (10) #A32 SLED BASE WITH ARMS
GRADE 4 FABRIC BY UNITED
#N51HALYARD
12. (12) #WS7230DGG PEOPLE FURNITURE
TABLES, GREY LAMINATE BY BPI
TOTAL
PHASE II
(15) PRIVATE OFFICES
8 - LEFT UNITS
7 - RIGHT UNITS
ANDERSON HICKEY - METAL #C 1000 SERIES
1. (8) #CMS1066L, DESKS WIPED AND CENTER
DRAWER
2. (7) #CMS1066R, DESKS WIPED AND CENTER
DRAWER
3. (15) #026100. BRIDGE 24- X 42"
4. (15) #CC 16624P, DESK CREDENZA
SHELL 24" X 66"
5. (15) #L230, LATERAL FILES
6. G 5) #NSX- 11, TASK CHAIRS W/ARMS
BY UNITED, GRADE 4 FABRIC
7. (30) #NS-31 SIDE CHAIR
BY UNITED, GRADE 4 FABRIC
8. (15) #1248 BOOKCASES
TOTAL
<PAGE>
EXHIBIT 10.8
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made effective as of the 19th day
of August, 1999, (the "Effective Date") by and between Vascular Therapeutics,
Inc., a California corporation ("Sublessor"), and SciQuest.Com, Inc., a Delaware
corporation ("Sublessee"). Sublessor agrees to sublease to Sublessee, and
Sublessee agrees to sublease from Sublessor, those certain premises situated in
the City of Mountain View, County of Santa Clara, State of California,
consisting of Suite 270 at 700 E. El Camino Real, Mountain View, California
94040, more particularly set forth on Exhibit "A" hereto (the "Subleased
Premises").
ARTICLE I
MASTER LEASE AND OTHER AGREEMENTS
1.1 Applicable Provisions. Except as specifically set forth herein, this
---------------------
Sublease subject and subordinate to all of the terms and conditions of the lease
(the "Original Lease") dated April 15, 1997, between Crossroads Investment
Group, a California general partnership ("Master Lessor") and Sublessor as
"Lessee" and now "Sublessor" under this Sublease. The Original Lease is also
referred to herein as the "Master Lease". Sublessee hereby assumes and agrees to
perform the obligations of Lessee under the Master Lease as more particularly
set forth hereafter. Unless otherwise defined, all capitalized terms used herein
shall have the same meanings as given them in the Master Lease. A copy of the
Master Lease is attached hereto as Exhibit "B" and incorporated herein by this
reference. Sublessee shall not commit or permit to be committed any act or
omission which would violate any term or condition of the Master Lease. Neither
Sublessor nor Sublessee shall do or permit anything to be done which would cause
the Master Lease to be terminated or forfeited by reason of any right of
termination or forfeiture reserved or vested in Master Lessor under the Master
Lease, and Sublessee shall indemnify and hold Sublessor harmless from and
against all liability, judgments, costs, demands, claims, and damages of any
kind whatsoever (including, without limitation, attorneys' fees and court costs)
by reason of any failure on the part of Sublessee to perform any of the
obligations of Lessee under the Master Lease which Sublessee has become
obligated hereunder to perform. In the event of the termination of Sublessor's
interest as Lessee under the Master Lease for any reason other than for
Sublessor's breach, then this Sublease shall terminate automatically upon such
termination without any liability of Master Lessor or Sublessor to Sublessee.
Sublessee represents and warrants to Sublessor that it has read and is familiar
with the Master Lease.
1.2 Applicable Provisions. All of the terms and conditions contained in
---------------------
the Master Lease as they may apply to the Subleased Premises, except those
directly contradicted by the terms and conditions contained in this document,
and specifically except for Paragraphs 1.1, 1.5, 1.6, 1.8, 1.9, 3.1, 3.2, 4.1,
5, 38, Exhibit C, Exhibit D are incorporated herein and shall be the terms and
conditions of this Sublease (with each reference therein to "Landlord" or
"Lessor", "Tenant" or "Lessee" and "Lease" to be deemed to refer to Sublessor,
Sublessee, and Sublease, respectively, as appropriate except the following
provisions that are incorporated herein, the reference to Landlord or Lessor
shall mean Master Lessor only, 7.1, 8.2, 8.4, 9, 10, 16), and along with all of
the following terms and conditions set forth in this document, shall constitute
the complete terms and conditions of this Sublease.
<PAGE>
1.3 Obligations of Sublessor. Notwithstanding anything herein contained,
------------------------
the only services or rights to which Sublessee is entitled hereunder are those
to which Sublessor is entitled under the Master Lease, and for all such services
and rights Sublessee shall look solely to the Master Lessor under the Master
Lease, and the obligations of Sublessor hereunder shall be limited to using its
reasonable good faith efforts to obtain the performance by Master Lessor of its
obligations. Sublessor shall have no liability to Sublessee or any other person
for damage of any nature whatsoever as a result of the failure of Master Lessor
to perform said obligations except for Master Lessor's termination of the
Sublessor's interest as Lessee under the Master Lease in the event of
Sublessor's breach of the Master Lease, and Sublessee shall indemnify and hold
Sublessor harmless from any and all claims and liability whatsoever for any such
damage including, without limitation, all reasonable costs and reasonable
attorneys' fees incurred in defending against same.
ARTICLE 2
TERM
2.1 Term. The term of this Sublease shall commence on September 1, 1999.
----
This shall be referred to as the "Commencement Date." The term of this Sublease
shall end on December 31, 2002, unless sooner terminated pursuant to any
provision of the Master Lease applicable to the Subleased Premises (the
"Expiration Date"). Sublessor shall have no obligation to Sublessee to exercise
any of its options to extend under the Master Lease.
2.2 Option to Extend. Sublessee shall have no option to extend this
----------------
Sublease.
2.3 Sublessor's Inability to Deliver Premises. In the event Sublessor is
-----------------------------------------
unable to deliver possession of the Subleased Premises on or before September 1,
1999, Sublessor shall not be liable for any damage caused thereby, nor shall
this Sublease be void or voidable, but Sublessee shall not be liable for Rent
until such time as Sublessor delivers possession of the Subleased Premises to
Sublessee, but the term hereof shall not be extended by such delay. If
Sublessee, with Sublessor's consent, takes possession prior to commencement of
the term, except as provided in Paragraph 2.4 hereafter, Sublessee shall do so
subject to all the covenants and conditions hereof and shall pay pro rated Base
Rent for each day at the same rate as that prescribed for the first month of the
term. In the event Sublessor has been unable to deliver possession of the
Subleased Premises within thirty (30) days after September 1, 1999, Sublessee,
at Sublessee's sole option, may terminate this Sublease.
2.4 Early Access. Sublessee shall have access to the Subleased Premises
------------
for purposes of installation of equipment and trade fixtures up to seven (7)
days before the Commencement Date, subject to this Sublease except for payment
of Rent.
2
<PAGE>
ARTICLE 3
RENT
3.1 Rent. Sublessee shall pay to Sublessor each month during the term of
----
this Sublease, rent in the amount of Seven Thousand Five Hundred Thirty and
25/100 Dollars ($7,530.25), in advance, on Sublease execution for the first
month and on or before the first of each month thereafter subject to annual
increases as set forth in the Master Lease (CPI with minimum of 4% and maximum
of 8%), though the first increase shall not be until January 1, 2001 ("Base
Rent"). Rent for partial months at the commencement or termination of this
Sublease shall be prorated. Rent shall be paid to the Sublessor at its business
address noted herein, or at any other place Sublessor may from time to time
designate by written notice mailed or delivered to Sublessee.
3.2 Additional Rent. If Sublessor shall be charged for additional rent or
---------------
other sums pursuant to any of the provisions of the Master Lease, Sublessee
shall be liable for its pro rata share (as defined in the Master Lease) of such
additional rent or sums. If Sublessee shall procure any additional services from
Master Lessor, Sublessee shall make such payment to Sublessor or Master Lessor,
as Sublessor shall direct. Any rent or other sums payable by Sublessee under
this Section 3 shall constitute and be due as additional rent. Base Rent and
additional rent shall herein be referred to as "Rent".
ARTICLE 4
SECURITY DEPOSIT
4.1 Security Deposit. Upon execution hereof, Sublessee shall deposit with
----------------
Sublessor the sum of Seven Thousand Five Hundred Dollars ($7,500.00) as and for
a Security Deposit to secure Sublessee's full and timely performance of all of
its obligations hereunder. If Sublessee fails to pay Rent or any other sums as
and when due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may (but shall not be obligated to) use, apply, or
retain all or any portion of said deposit for payment of any sum for which
Sublessee is obligated or which will compensate Sublessor for any loss or damage
which Sublessor may suffer thereby. Any such use, application,,or retention
shall not constitute a waiver by Sublessor of its right to enforce its other
remedies hereunder, at law, or in equity. If any portion of said deposit is so
used, applied, or retained, Sublessee shall, within 10 business days after
delivery of written demand from Sublessor, restore said deposit to its original
amount. Sublessee's failure to do so shall constitute a material breach of this
Sublease, and in such event Sublessor may elect, among or in addition to other
remedies, to terminate this Sublease. Sublessor shall not be a trustee of such
deposit, and shall not be required to keep this deposit separate from its
accounts. Sublessor alone shall be entitled to any interest or earnings thereon
and Sublessor shall have the free use of same. If Sublessee fully and faithfully
performs all of its obligations hereunder, then so much of the deposit as
remains shall be returned to Sublessee (without payment of interest or earnings
thereon) within 30 days after the later of (i) expiration or sooner termination
of the term hereof, or (ii) Sublessee's surrender of possession of the Subleased
Premises to Sublessor.
3
<PAGE>
ARTICLE 5
CONDITION OF SUBLEASED PREMISES
5.1 Condition of the Subleased Premises. Sublessee acknowledges that as
-----------------------------------
of the Commencement Date, the Subleased Premises, and every part thereof, are in
good condition and without need of repair, and Sublessee accepts the Subleased
Premises "as is", Sublessee having made all investigations and tests it has
deemed necessary or desirable in order to establish to its own complete
satisfaction the condition of the Subleased Premises. Sublessee accepts the
Subleased Premises in their condition existing as of the Commencement Date,
subject to all applicable zoning, municipal, county and state laws, ordinances,
and regulations governing and regulating the use of the Subleased Premises and
any covenants or restrictions of record. Sublessee acknowledges that neither
Sublessor nor Master Lessor have made any representations or warranties as to
the condition of the Subleased Premises or its present or future suitability for
Sublessee's purposes.
ARTICLE 6
INSURANCE
6.1 Sublessee's Insurance. With respect to the Tenant's insurance under
---------------------
the Master Lease, the same is to be provided by Sublessee as described in the
Master Lease, and such policies of insurance shall include as named insureds
Master Lessor, Sublessor and any lender as required by Master Lessor.
6.2 Waiver of Subrogation. With respect to the waiver of subrogation
---------------------
contained in the Master Lease, such waiver shall be deemed to be modified to
constitute an agreement by and among Master Lessor, Sublessor and Sublessee (and
Master Lessor's consent to this Sublease shall be deemed to constitute its
approval of this modification).
ARTICLE 7
USE OF PREMISES; IMPROVEMENTS
7.1 Use of Premises. Sublessee shall use the Subleased Premises only for
---------------
those purposes permitted in the Master Lease.
7.2 Alterations; Improvements. Except as set forth in Exhibit "C" hereto,
-------------------------
Sublessee shall not make any alterations, improvements, or modifications to the
Subleased Premises without the express prior written consent of Sublessor and of
Master Lessor, which consent by Sublessor shall not be unreasonably withheld. On
termination of this Sublease, Sublessee shall remove any or all of such
improvements and to restore the Subleased Premises (or any part thereof) to the
same condition as of the commencement date of the Master Lease, reasonable wear
and tear excepted or as otherwise instructed in writing by either Sublessor or
Master Lessor. Should Sublessee fail to remove such improvements and restore the
Subleased Premises
4
<PAGE>
on termination of this Sublease unless instruction otherwise in writing as set
forth above, Sublessor shall have the right to do so, and charge Sublessee
therefor.
ARTICLE 8
ASSIGNMENT, SUBLETTING & ENCUMBRANCE
8.1 Consent Require. Sublessee shall not assign this Lease or any
---------------
interest therein nor shall Sublessee sublet, license, encumber or permit the
Subleased Premises or any part thereof to be used or occupied by others, without
Sublessor's and Master Lessor's prior written consent, which shall not be
unreasonably withheld. The consent by Sublessor and Master Lessor to any
assignment or subletting shall not waive the need for Sublessee (and Sublessee's
assignee or subtenant) to obtain the consent of Sublessor and Master Lessor to
any different or further assignment or subletting. All Conditions and Standards
set forth in the Master Lease regarding assignments and subletting shall apply,
and to the extent there is any Bonus Rents, (Rent paid by such Assignee or
Sublessee in excess of Rent paid by Sublessee hereunder) the Bonus Rent shall
first be split per the Master Lease and any Bonus Rent to go to Sublessee shall
be split 50150 with Sublessor to be paid to Sublessor within ten (10) days of
receipt by Sublessee.
8.2 Form of Document. Every assignment, agreement, or sublease shall (i)
----------------
recite that it is and shall be subject and subordinate to the provisions of this
Sublease, that the assignee or subtenant assumes Sublessee's obligation
hereunder, that the termination of this Sublease shall at Sublessor's sole
election, constitute a termination of every such assignment or sublease, and
(ii) contain such other terms and conditions as shall be reasonably requested or
provided by Sublessor's attorneys.
8.3 No Release of Sublessee. Regardless of Sublessor's consent, no
-----------------------
subletting or assignment shall release Sublessee of Sublessee's obligation or
alter the liability of Sublessee to pay the Rent and to perform all other
obligations to be performed by Sublessee hereunder. The acceptance of Rent by
Sublessor from any other person shall not be deemed to be a waiver by Sublessor
of any provision hereof. In the event of default by any assignee, subtenant or
any other successor of Sublessee, in the performance of any of the terms hereof,
Sublessor may proceed directly against Sublessee without the necessity of
exhausting remedies against such assignee, subtenant or successor.
8.4 Default. An involuntary assignment shall constitute a default and
-------
Sublessor shall have the right to elect to terminate this Sublease, in which
case this Sublease shall not be treated as an asset of Sublessee.
ARTICLE 9
DEFAULT
9.1 Default Described. The occurrence of any of the following shall
-----------------
constitute a material breach of this Sublease and a default by Sublessee: (i)
failure to pay Rent or any other amount within ten (10) days after due; (ii) all
those items of default set forth in the Master Lease
5
<PAGE>
which remain unsecured after the cure period provided in the Master Lease; or
(iii) Sublessee's failure to perform timely and subject to any cure periods any
other material provision of this Sublease or the Master Lease as incorporated
herein.
9.2 Sublessor's Remedies. Sublessor shall have the remedies set forth in
--------------------
the Master Lease as though Sublessor is Master Lessor. These remedies are not
exclusive; they are cumulative and in addition to any remedies now or later
allowed by law.
9.3 All Sums Due and Payable as Rent. Sublessee shall also pay without
--------------------------------
notice, or where notice is required under this Sublease, immediately upon demand
without any abatement, deduction, or setoff, as additional rent all sums,
impositions, costs, expenses, and other payments which Sublessee in any of the
provisions of this Sublease assumes or agrees to pay, and, in case of any
nonpayment thereof, Sublessor shall have, in addition to all other rights and
remedies, all the rights and remedies provided for in this Sublease or by law in
the case of nonpayment of rent.
9.4 Sublessor Default. For purposes of this Sublease, Sublessor shall not
-----------------
be deemed in default hereunder unless and until Sublessee shall first deliver to
Sublessor thirty (30) days' prior written notice, and Sublessor shall fail to
cure said default within said thirty (30) day period, or in the event Sublessor
shall reasonably require in excess of thirty (30) days to cure said default,
shall fail to commence said cure within ten (10) days after notice thereof, and
thereafter diligently to prosecute the same to completion.
9.5 Notice of Event of Default under Master Lease. Sublessor shall notify
---------------------------------------------
Sublessee of any Event of Default under the Master Lease, or of any other event
of which Sublessor has actual knowledge which will impair Sublessee's ability to
conduct its normal business at the Subleased Premises, as soon as reasonably
practicable following Sublessor's receipt of notice from Master Lessor of an
Event of Default or Sublessor's actual knowledge of such impairment.
ARTICLE 10
CONSENT OF MASTER LESSOR
10.1 Precondition. The Master Lease requires that Sublessor obtain the
------------
consent of Master Lessor to any subletting by Sublessor. This Sublease shall not
be effective unless Master Lessor signs a consent to this subletting
satisfactory to Sublessor and Sublessee and including Master Lessor's approval
of the proposed alterations by Sublessee set forth in Exhibit C hereto.
ARTICLE 11
MISCELLANEOUS
11.1 Conflict with Master Lease; Interpretation. In the event of any
------------------------------------------
conflict between the provisions of the Master Lease and this Sublease, the
Master Lease shall govern and control except to the extent directly contradicted
by the terms of this Sublease. No presumption shall
6
<PAGE>
apply in the interpretation or construction of this Sublease as a result of
Sublessor having drafted the whole or any part hereof.
11.2 Remedies Cumulative. The rights, privileges, elections, and remedies
-------------------
of Sublessor in this Sublease, at law, and in equity are cumulative and not
alternative.
11.3 Holding Over. Any holding over by Sublessee after expiration of this
------------
Sublease with the consent of Sublessor and Master Lessor shall be deemed a
tenancy from month-to-month at a monthly rate of 150% of the Base Rent and other
amounts due for the last month of the Sublease term and shall otherwise be on
the same terms and conditions set forth herein. Said monthly rent shall be due
and payable monthly in advance on the first day of the month and otherwise as
provided for in Article 3 hereof until such tenancy is terminated by Sublessor
or Sublessee upon 30 days notice.
ARTICLE 12
BROKER'S COMMISSIONS
12.1 Commission. Sublessor and Sublessee represent and warrant to each
----------
other that each has dealt with the following brokers CRESA Partners, LLC
(Sublessor's Broker) and Grubb & Ellis (Sublessee's Broker) and with no other
agent, finder, or other such person with respect to this Sublease and each
agrees to indemnify and hold the other harmless from any claim asserted against
the other by any broker, agent, finder, or other such person not identified
above as Sublessor's Broker or Sublessee's Broker. The Commission to the Brokers
is pursuant to separate agreement.
ARTICLE 13
NOTICES AND PAYMENTS
13.1 Certified Mail. Any notice, demand, request, consent, approval,
--------------
submittal or communication that either party desires or is required to give to
the other party or any other person shall be in writing and either served
personally or sent by prepaid, first-class certified mail or commercial
overnight delivery service. Such Notice shall be effective on the date of actual
receipt (in the case of personal service or commercial overnight delivery
service) or two days after deposit in the United States mail, to the following
addresses:
Sublessor at: c/o GlycoDesign Inc., attention Patrick Michaud,
480 University Avenue, Suite 900, Toronto, Ontario, M5G IV2
Canada, telephone (416) 593-6027, Extension 243, FAX (416) 593-8988.
Sublessee at the Subleased Premises, whether or not Sublessee has
abandoned or vacated the Subleased Premises or notified the Sublessor
of any other address, with a copy to: SciQuest.com, Inc., 5151
McCrimmon Parkway, Suite 208, Morrisville, NC 27560, Attn. Jim
Scheuer, Chief Financial Officer.
7
<PAGE>
ARTICLE 14
ATTORNEYS' FEES
14.1 Sublessor Made Party to Litigation. If Sublessor becomes a party to
----------------------------------
any litigation brought by someone other than Sublessee and concerning this
Sublease, the Premises, or Sublessee's use of occupancy of the Subleased
Premises, based upon any real or alleged act or omission of Sublessee or its
authorized representatives, Sublessee shall be liable to Sublessor for
reasonable attorneys' fees and court costs incurred by Sublessor in the
litigation.
14.2 Certain Litigation Between the Parties. In the event any action or
--------------------------------------
proceeding at law or in equity or any arbitration proceeding be instituted by
Sublessor for damages or possession of the Subleased Premises or both, for an
alleged breach of any obligation of Sublessee under this Sublease, to recover
rent, to terminate the tenancy of Sublessee at the Subleased Premises, or to
enforce, protect, or establish any right or remedy of Sublessor, the prevailing
party (by judgment or settlement) in such action or proceeding shall be entitled
to recover as part of such action or proceeding such reasonable attorneys' fees,
expert witness fees, and court costs as may be fixed by the court or jury.
ARTICLE 15
EXHIBITS
15.1 Exhibits and Attachments. All exhibits and attachments to this
------------------------
Sublease are a part hereof.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed and delivered
this Sublease on the date first set forth above.
SUBLESSOR SUBLESSEE
Vascular Therapeutics, Inc., SciQuest.Com, Inc.
a California corporation a Delaware Corporation
By: /s/ Julian Carver By: /s/ James J. Scheuer
Its: Treasurer Its: Chief Financial Officer
Date: August 21, 1999
By: ________________________ By: __________________________
Its: _______________________ Its: _________________________
8
<PAGE>
Exhibit B
---------
Master Lease
------------
<PAGE>
STANDARD OFFICE LEASE-GROSS
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, April
15,1997, is made by and between Crossroads Investment Group a California general
partnership , (herein called "Lessor") and Vascular Therapeutics, Inc., a
California corporation, (herein called "Lessee").
1.2 Premises: Suite Number 270, consisting of approximately 2,317 rentable
square feet, more or less, as defined in paragraph 2 and as shown on Exhibit "A"
hereto (the "Premises").
1.3 Building: Commonly described as being located at 700 E. El Camino
Real, in the City of Mountain View, County of Santa Clara , State of California,
as more particularly described in Exhibit A hereto, and as defined in paragraph
2.
1.4 Use: General offices, subject to paragraph 6.
1.5 Term: Five (5) years commencing January 1, 1998 ("Commencement Date")
and ending December 31, 2002, as defined in paragraph 3.
1.6 Base Rent: $_________ per month, payable on the first day of each
month per paragraph 4.1
1.7 Base Rent Increase: On each anniversary of the Commencement Date, the
monthly Base Rent payable under paragraph 1.6 above shall be adjusted as
provided in paragraph 4.3 below.
1.8 Rent Paid Upon Execution: $_________ for first month's base rent.
1.9 Security Deposit: $__________ per paragraph 5.
1.10 Lessee's Share of Operating Expense Increase: 4.67% as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking areas used in connection
therewith. The Premises, the Building, the Common Areas, the land upon which the
same are located, along with all other buildings and improvements thereon or
thereunder, are herein collectively referred to as the "Office Building
Project", Lessor hereby leases to Lessee and Lessee leases from Lessor for the
term, at the rental, and upon all of the conditions set forth herein, the real
property referred to in the Basic Lease Provisions. paragraph 1.2, as the
"Premises", including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use its pro rata share
<PAGE>
of parking spaces in the Office Building Project at no charge by Lessor. Lessee
shall be responsible for paying any rate applicable for parking as set by any
governmental authority.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas-Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways. ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas-Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees or invitees of the Office Building
Project,
2.5 Common Areas-Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces. parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided. however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of the
Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Office Building Project as Lessor may,
in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
<PAGE>
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof, but, in such
case, Lessee shall not obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided, however,
that as to Lessee's obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard Improvements and, as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any offsets due
Lessor for Non-Standard Improvements); and provided further, that if such
written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and be of
no further force or effect.
3.2.1 Possession Tendered-Defined. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, and (3) Lessee has
reasonable access to the Premises.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent, and
the sixty (60) day period following the Commencement Date before which Lessee's
right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended
to the extent of any delays caused by acts or omissions of Lessee, Lessee's
agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in paragraph 1.8 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
<PAGE>
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase", in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate rentable square
footage of the Premises by the total approximate square footage of the rentable
space contained in the Office Building Project. It is understood and agreed that
the square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office Building
Project.
(b) "Base Year" is defined as the calendar year in which the Lease term
commences.
(c) "Comparison Year" is defined as each calendar year during the term of
this Lease subsequent to the Base Year; provided, however, Lessee shall have no
obligation to pay a share of the Operating Expense Increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by a
governmental authority, as to which government mandated expenses Lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense Increase for the first and last
Comparison Years of the Lease Term shall be prorated according to that portion
of such Comparison Year as to which Lessee is responsible for a share of such
increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to include
all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building Project, including
but not limited to, the following:
(aa) The Common Areas. Including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems, including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense",
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8
hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10. 1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project; (vii) Labor, salaries
and applicable fringe benefits and costs, materials, supplies and tools, used in
maintaining and/or cleaning the Office Building Project and accounting and a
management fee attributable to the operation of the Office Building Project and
an additional administration fee to Lessor equal to five percent (5%) of
operating expenses;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby, amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements amortized over its
useful life.
(e) Operating Expenses shall not include any expenses paid by any lessee
directly to third parties, or as to which Lessor is otherwise reimbursed by any
third party, other tenant, or by insurance proceeds.
<PAGE>
(f) Lessee's Share of Operating Expense Increase shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time in advance of Lessee's Share of the
Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 Rent Increase.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the published increase, if any, in the Consumer Price Index
of the Bureau of Labor Statistics of the Department of Labor for All Urban
Consumers (1982-84) all items for the city nearest the location of the Office
Building Project, herein referred to as "C.P.I.", since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1 shall be
calculated as follows: the Base Rent payable for the first month of the term of
this Lease, as set forth in paragraph 4.1 of this Lease, shall be multiplied by
a fraction the numerator of which shall be the C.P.I. of the calendar month
during which the adjustment is to take effect, and the denominator of which
shall be the C.P.I. for the calendar month in which the original Lease term
commences. The sum so calculated shall constitute the new monthly Base Rent
hereunder, but, in no event, shall such new monthly Base Rent be less than the
Base Rent payable for the month immediately preceding the date for the rent
adjustment. In no event shall the annual rent increase be less than four percent
(4%) or greater than eight percent (8%).
4.3.3 In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the C.P.I. shall be used
to make such calculations. Should the Index be discounted, Lessor may substitute
any substantially equivalent official index (as determined in Lessor's sole
reasonable discretion) and Landlord shall use appropriate conversion factors to
accomplish such substitution.
4.3.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days following
the date on which the increase is determined, Lessee shall make such payment to
Lessor as will bring the increased rental current, commencing with the effective
date of such increase through the date of any rental installments then due.
Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by this
Lease is known or determined, Lessor and Lessee shall execute an amendment to
this Lease setting forth such change.
<PAGE>
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the initial Base Rent set forth in paragraph 1.6 of the Basic
Lease Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law. Lessee shall, at Lessee's expense, promptly comply
with all applicable statutes, ordinances, rules, regulations, orders, covenants
and restrictions of record, and requirements of any fire insurance underwriters
or rating bureaus, now in effect or which may hereafter come into effect,
whether or not they reflect a change in policy from that now existing, during
the term or any part of the term hereof, relating in any manner to the Premises
and the occupation and use by Lessee of the Premises. Lessee shall conduct its
business in a lawful manner and shall not use or permit the use of the Premises
or the Common Areas in any manner that will tend to create waste or a nuisance
or shall tend to disturb other occupants of the Office Building Project.
6.3 Hazardous Materials.
(a) (i) Lessee shall not cause or permit the release, discharge, deposit,
presence, use, generation, storage or disposal of, on, under, from or about the
Premises any Hazardous Materials (as defined below) in violation of any
Environmental Law (as defined below).
(ii) Lessor shall not cause or permit the release, discharge, deposit,
presence, use, generation, storage or disposal of, on, under, from or about any
portion of the Office Building Project any Hazardous Materials (as defined
below) in violation of any Environmental Law (as defined below).
(b) For purposes of this Section 6.2.3, the term "Environmental Law" shall
mean any federal, state or local laws, ordinances or regulations, all as may be
amended from time to time, and the term "Hazardous Materials" shall mean those
substances (i) defined as "hazardous substances," "hazardous materials," "toxic
substances," "hazardous wastes," "extremely hazardous wastes," or "restricted
hazardous wastes," or (ii) stated to be known to cause cancer of reproductive
toxicity, or (iii) defined in similar terms as substances which are hazardous
to, harmful to or have an adverse affect on the environment or environmental
conditions, health and safety or industrial hygiene under any Environmental Law.
(c) (i) Lessee, at Lessee's sole cost and expenses, shall comply with all
Environmental Laws now or hereafter in effect pertaining to any Hazardous
Materials which are released, discharged, deposited, used,
<PAGE>
generated, stored or disposed at, in, on, under, from or about the Premises by
Lessee, its employees, agents, contractors or suppliers.
(ii) Lessor, at Lessor's sole cost and expense, shall comply with all
Environmental Laws now or hereafter in effect pertaining to any Hazardous
Materials which are released, discharged, deposited, used, generated, stored or
disposed at, in, on, under, from or about any portion of the Office Building
Project by any entity other than Lessee or Lessee's employees, agents,
contractors, or suppliers. No portion of any such cost shall be passed through
to Lessee as an operating expense.
(d) (i) Lessee shall indemnify and hold Lessor harmless from and against
all claims, demands, actions, damages, costs, liabilities and expenses
(including, without limitation, foreseeable and unforeseeable consequential
damages and the cost of any required or necessary repair, clean-up or
detoxifications of the Improvements and the preparation of any closure or other
required plans and injuries to persons, property and national resources )
directly or indirectly arising out of the actual or alleged release, discharge,
deposit presence, use, generation, storage or disposal of Hazardous Materials
(such incident is referred to herein as a "Contamination") at, in, or on any
portion of the Office Building Project caused by or allowed by Lessee, its
employees, agents, contractors or suppliers.
(ii) Lessor shall indemnify and hold Lessee harmless from and against
all claims, demands, actions, damages, costs, liabilities and expenses
(including, without limitation, foreseeable and unforeseeable consequential
damages and the cost of any required or necessary repair, clean-up or
detoxification of any required or necessary repair, clean-up or detoxification
of any portion of the Office Building Project and the preparation of any closure
or other required plans and injuries to persons, property and national
resources) directly or indirectly arising out of any contamination at, in, on or
under any portion of the Building Project caused by or allowed by any entity
other than Lessee, its employees, agents, contractors, or suppliers. No portion
of any such cost shall be passed through to Lessee as an operating expense.
6.4 Condition of Premises. Except as otherwise provided in this Lease,
Lessee hereby accepts the Premises and the Office Building Project in their
condition existing as of the Lease Commencement Date or the date that Lessee
takes possession of the Premises, whichever is earlier, subject to all
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations governing and regulating the use of the Premises, and any easements,
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that it has satisfied itself by its own independent investigation
that the Premises are suitable for its intended use, and that neither Lessor nor
Lessor's agent or agents has made any representation or warranty as to the
present or future suitability of the Premises, Common Areas, or Office Building
Project for the conduct of Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
<PAGE>
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by Lessor,
Lessor may, at any time during the term of this Lease, require that Lessee
remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in or
about the Premises or the Office Building Project that the Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials furnished
or alleged to have been furnished to or for Lessee at or for use in the
Premises, which claims are or may be secured by any mechanic's or materialmen's
lien against the Premises, the Building or the Office Building Project, or any
interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior to
the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee
<PAGE>
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to such contested lien claim or demand indemnifying Lessor against liability for
the same and holding the Premises, the Building and the Office Building Project
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorneys' fees and costs in participating in
such action if Lessor shall decide it is to Lessor's best interest to do so.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such utility installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this Paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
Paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications for
any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance Indemnity.
8.1 Liability Insurance-Lessee. Lessee shall at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability Insurance utilizing an Insurance Services Office Standard form
with Broad Form General Liability Endorsement (GLO404), or equivalent, in an
amount of not less than $ 1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less that $5,000,000.00 per
occurance.
8.3 Property Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost as the same may exist from time to time, of allof Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not
<PAGE>
Lessee's personal property, fixtures, equipment or tenant improvements, in the
amount of the full replacement cost thereof, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or equivalent,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, plate glass, and such
other perils as Lessor deems advisable or may be required by a lender having a
lien on the Office Building Project. In addition, Lessor shall obtain and keep
in force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with loss payable to Lessor, which insurance
shall also cover all Operating Expenses for said period. Lessee will not be
named in any such policies carried by Lessor and shall have no right to any
proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall
contain such deductibles as Lessor or the aforesaid lender may determine. In the
event that the Premises shall suffer an insured loss as defined in paragraph 9.
1 (f) hereof, the deductible amounts under the applicable insurance Policies
shall be deemed an Operating Expense. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies carried by Lessor. Lessee
shall pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1, or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least sixty (60) days prior to
the expiration of such policies, furnish Lessor with renewals thereof. Lessor
shall be named as additional insured on all policies required of Lessee by this
Lease.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary, all property insurance policies required under this
Lease shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason, of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or y to persons, in, upon or about the Office Building Project arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or
<PAGE>
other property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Office Building Project, nor shall Lessor
be liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage.
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air-conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project or of the equipment fixtures or appurtenances
applicable thereto and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building, Project nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction Definitions.
9.1 Definitions
(a) "Premises Damage" shall mean if the Premises are damaged or destroyed
to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent (50%) of the then Replacement Cost of the
building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the building.
(d) "Office Building Project Buildings" shall mean all of the buildings on
the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if the
Office Building Project Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent (50%) or more of the then Replacement Cost
of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by an
event required to be covered by the insurance described in paragraph 8. The fact
that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be spent
in order to repair or rebuild the damaged area to the condition that existed
immediately prior to the damage occurring, excluding all improvements made by
lessees, other than those included by Lessor at Lessee's expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage which is an Insured Loss and
which falls into the classification of either Premises Damage or Premises
Building Partial Damage, then Lessor shall, as soon as reasonably possible and
to the extent the required materials and labor are readily available through
usual commercial channels, at Lessor's expense, repair such damage (but not
Lessee's fixtures, equipment or tenant improvements originally paid for by
Lessee) to its condition existing at the time of the damage, and this Lease
shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if
at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any
<PAGE>
substantial use of the Premises, Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease as of the date
of the occurrence of such damage, in which event this Lease shall terminate as
of the date of the occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction.
Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the
term of this Lease there is damage, whether or not it is an Insured Loss, which
falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises pursuant to
the provisions of this paragraph 9, and any part of the Premises are not usable
(including loss of use due to loss of access or essential services), the rent
payable hereunder (including Lessee's Share of Operating Expense Increase) for
the period during which such damage, repair or restoration continues shall be
abated, provided (1) the damage was not the result of the negligence of Lessee,
and (2) such abatement shall only be to the extent the operation and
profitability of Lessee's business as operated from the Premises is adversely
affected. Except for said abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or the
Building under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at
<PAGE>
any time prior to the commencement or completion, respectively, of such repair
or restoration. In such event this Lease shall terminate as of the date of such
notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination-Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax": or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership. or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof
10.4 Joint Assessment. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's worksheets
or such other information (which may include the cost of construction) as must
be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
<PAGE>
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Services and Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air-conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided from
7:00 a.m. to 6:00 p.m. Monday through Friday. Utilities and services required at
other times shall be subject to advance request and reimbursement by Lessee to
Lessor of the cost thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the 0ffice Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion.
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13. 1. "Transfer" within the meaning of this paragraph 12 shall
include the transfer or transfers aggregating: (a) if Lessee is a corporation,
more than twenty-five percent (25%) of the voting stock of such corporation, or
(b) if Lessee is a partnership, more than twenty-five percent (25%) of the
profit and loss participation in such partnership.
<PAGE>
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are mutually changed or altered without the consent of Lessee, the consent
of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed BY Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment or
subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by third
parties, then an assignment or sublease, and Lessor's consent thereto, shall not
be effective unless said guarantors give their written consent to such sublease
and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefore to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon by
Lessor in giving its consent to an assignment or subletting was materially false
shall, at Lessor's election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease before or hereafter made by
Lessee, and Lessor may collect such rent and income and apply
<PAGE>
same toward Lessee's obligations under sublease; provided, however, that until a
default shall occur in the performance of Lessee's obligations under this Lease,
Lessee may receive, collect and enjoy the rents accruing under such sublease.
Lessor shall not, by reason of this or any other assignment of such sublease to
Lessor nor by reason of the collection of the rents from a sublessee, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and until
it has been approved in writing by Lessor. In entering into any sublease, Lessee
shall use only such form of sublease as is satisfactory to Lessor, and once
approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its obligations
under this Lease, Lessor at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of Lessee under such sublease from the time of the exercise of
said option to the termination of such sublease; provided, however, Lessor shall
not be liable for any prepaid rents or security deposit paid by such sublessee
to Lessee or for any other prior defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within three (3)
days after service of said notice of default upon such sublessee, and the
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys, architects, engineers or other
consultants fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater. Lessor may consent to the proposed
assignment or sublease on the condition that Lessee agrees to pay to Lessor, as
additional rent; Fifty Percent (50%) of any and all rents or other consideration
(including key money) received by Lessee from the assignee or sublessee by
reason of such assignment or sublease in excess of the rent payable by Lessee to
Lessor under this Lease (less any brokerage commissions or advertising expenses
incurred by Lessee in connection with the assignment or sublease). Lessee
expressly agrees that foregoing is a reasonable condition for obtaining Lessor's
consent to any assignment or sublease.
<PAGE>
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of the
Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or provisions
of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or subletting),
13. 1 (a) (vacation or abandonment), 13. 1 (e) (insolvency), 13. 1 (f) (false
statement), 16(a) (estoppel certificate), 30(b) (subordination), 33 (auctions),
or 4 1.1 (easements), all of which are hereby deemed to be material, non-curable
defaults without the necessity of any notice by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to
Pay Rent or Quit shall also constitute the notice required by this subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in I I U.S.C. (S) 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days): (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13. 1 (e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee, or its successor in interest or by any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises; reasonable attorney's fees;
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
<PAGE>
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expense Increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Lessee and
no reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the
<PAGE>
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade fixtures, removable
personal property and unamortized tenant improvements that have been paid for by
Lessee. For that purpose the cost of such improvements shall be amortized over
the original term of this Lease excluding any options. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(1) Certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Office Building Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
16. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided herein, in the event of any transfer of such title or
interest Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
17. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
18. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that Interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
<PAGE>
19. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
20. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
21. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the listing real estate
broker nor any cooperating broker on this transaction nor the Lessor or any
employee or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
22. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
23. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the some or any other provision. Lessor's consent to, or approval of, any ad
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
24. Recording. This lease shall not be recorded.
25. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be one hundred fifty percent (l50%) of the rent payable
immediately preceding the termination of this Lease, and all Options, if any,
granted under the terms of this Lease shall be deemed terminated and be of no
further effect during said mouth to month tenancy.
26. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
<PAGE>
28. Binding Effect Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
16, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
29. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of Wust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 29(b).
30. Attorneys' Fees.
30.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
30.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
30.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
31. Lessor's Access.
31.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse
<PAGE>
effect to Lessee's use of the Premises. Lessor may at any time place on or about
the Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days of the term hereof place on or about the Premises
any ordinary "For Lease" signs.
31.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
31.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, closets and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
32. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of an auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
33. Signs. Lessee shall place a Lessor standard sign in Office Building Project
directory and by entrance to Premises. Lessee shall be permitted signage on the
Building. All signs require appropriate government approval and Lessor's prior
written consent before placement. Lessee shall be responsible for all costs
associated with signage. Under no circumstances shall Lessee place a sign on any
roof of the Office Building Project.
34. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor. shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
35. Consents. Except for paragraphs 32 (auctions) and 33 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
36. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
37. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants. conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
38. Options.
38.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other
<PAGE>
property of Lessor; (3) the right or option to purchase the Premises or the
Office Building Project, or the right of first refusal to purchase the Premises
or the Office Building Project or the right of first offer to purchase the
Premises or the Office Building Project, or the right or option to purchase
other property of Lessor, or the right of first refusal to purchase other
property of Lessor or the right of first offer to purchase other property of
Lessor.
38.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion, thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease. nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
38.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
38.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option. notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1 (c) or 13.1 (d) and continuing until the noncompliance alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) and continuing until the obligation
is paid. or (iii) in the event that Lessor has given to Lessee three or more
notices of default under paragraph 13. 1 (c), or paragraph 13. 1 (d), whether or
not the defaults are cured, during the 12 month period of time immediately prior
to the time that Lessee attempts to exercise the subject Option, (iv) if Lessee
has committed any non-curable breach, including without limitation those
described paragraph 13.l(b), or is otherwise in default of any of the terms,
covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 38.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease.(i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13. 1 (d) within thirty (30)
days after the day that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1 (c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv)if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
39. Security Measures-Lessor's Reservations.
39.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee. its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses as set forth in paragraph 4.2(b).
<PAGE>
39.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project or
building in which the Premises are located upon not less than 90 days prior
written notice;
(b) To, at Lessee's expense, provide and install Building standard graphics
on the door of the Premises and such portions of the Common Areas as Lessor
shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
39.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or the
Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof of
the Building.
40. Easements.
40.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents on request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
40.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
41. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
42. Authority. If Lessee is a corporation. trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
43. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, is any, shall be
controlled by the typewritten or handwritten provisions.
44. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
45. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
<PAGE>
46 Multiple Parties. If more than one person or entity is named as either Lessor
or Lessee herein, except as otherwise expressly provided herein, the obligations
of the Lessor or Lessee herein shall be the joint and several responsibility of
all persons or entities named herein as such Lessor or Lessee, respectively.
47. Existing Conditions.
47.1 This Lease is supplemented by that certain Improvements Exhibit
attached hereto as Exhibit C, and incorporated herein by this reference. Other
than the work to be performed as specified in Exhibit C, Lessee hereby accepts
the Premises in its existing "As-is" condition.
47.2 The amount of square footage in the premises, as set forth in
paragraph 1.2 hereof, is an approximation and there shall be no adjustment in
the Base Rent if the square footage is more or less than that amount.
48. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Exhibit A - Floorplan
Exhibit B - Rules and Regulations
Exhibit C - Improvements
Exhibit D - Options
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL.
NO REPRESENTATION OR RECOMMENDATION IS MADE AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO;
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
<TABLE>
<S> <C>
LESSOR LESSEE
Crossroads Investment Group, Vascular Therapeutics, Inc.
a California general partnership a California corporation
by /s/ Bernard Kotansky by /s/ James Allen
------------------------ -------------------------
Bernard Kotansky Managing Partner James Allen, President
Address: 14651 S. ascom Ave., Suite 280 Address: 700 E. El Camino Real, Suite 270
Los Gatos, CA 95032 Mountain View, CA 94040
</TABLE>
Date: 4/22/97 Date: 4/14/97
------- -------
<PAGE>
EXHIBIT A
FLOORPLAN
700 E. El Camino Real, Suite 270
2,075 sq. ft. usable
2,317 sq. ft. rentable
[Graphic of Office Floorplan Inserted Here]
<PAGE>
EXHIBIT B
RULES AND REGULATIONS FOR STANDARD OFFICE LEASE
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.
4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not Suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity
11. Lessee shall not employ any service or contractor. for services or work to
be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 6 P.M. and 8
A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall be
responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
<PAGE>
17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon the
Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation, except microwave and coffee maker use by Lessee's employees.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.
22 Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles",
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or re
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent off-site
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
<PAGE>
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as
it may deem necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby.
<PAGE>
EXHIBIT C
IMPROVEMENTS
Lessee takes and accepts the Premises in its present "AS-IS" condition. Lessor
has made no representations or warranties as to the physical condition of the
Premises or any other matter concerning the Premises. Lessee has inspected the
Premises, is familiar with the conditions of the Premises and is not relying
upon any representations or warranties of the Lessor.
Lessor shall make the following improvements to the Premises as soon as possible
after the Commencement Date of the Lease:
I . Install standard grade and color carpet throughout.
Any additional improvements made to the Premises shall be at Lessee's sole cost
and expense, subject to approval of Lessor per Paragraph 7 and other terms and
conditions of this Lease Agreement, and Lessor shall have no responsibility
thereafter.
<PAGE>
EXHIBIT D
OPTION
A. Provided that Lessee has not assigned this Lease or sublet all or any
part of the Premises and provided further that Lease is not in default under
this Lease at the time of exercise of the hereinafter described option or at the
time of termination of the then existing term of this Lease, as the case may be,
Lessee shall have one (1) option to extend the term of this Lease for a period
of five (5) years (the "Extended Term"). Lessee may exercise said option only by
giving Lessor written notice of its exercise of said option no later than one
hundred eighty (180) days prior to the expiration date of the Lease. In all
respects, the terms, covenants and conditions of this Lease shall remain
unchanged during the Extended Term, except that the Monthly Installment of rent
payable during the Extended Term shall be increased in accordance with
subparagraph B below, and except that there shall be no further option to extend
the term of this Lease at the end of the Extended Term.
B. Promptly following the exercise of each option to extend, the parties
shall meet and endeavor to agree upon the Fair Market Rental (including initial
rental rate of the Extended Term and amount and timing of increases during the
Extended Term) of the Premises as of the first day of the Extended Term. In
determining the Fair Market Rental for the Premises, the Premises shall be
compared only to buildings of a similar quality and size and with similar
improvements and amenities in Santa Clara County and all legal uses of the
Premises shall be considered. If within thirty (30) days after the exercise of
the option, the parties cannot agree upon the Fair Market Rental for the
Premises as of the first day of the Extended Term, either party may terminate
this Option by giving written notice to the other party prior to the expiration
of the thirty (30) day period. If neither party elects to terminate the Option
then both parties shall submit the matter to binding appraisal in accordance
with the following procedure: Within thirty (30) days after the exercise of the
Option, the parties shall either (a) jointly appoint an appraiser for this
purpose or (b) failing this joint action separately designate a disinterested
appraiser. No person shall be appointed or designated an appraiser unless he or
she has at least five (5) years experience in appraising major commercial
property in Santa Clara County and is a member of a recognized society of real
estate appraisers. If, within thirty five (35) days after the appointment, the
two appraisers reach agreement on the Fair Market Rental for the Premises as of
the first day of the Extended Term, that value shall be binding and conclusive
upon the parties. If the two appraisers thus appointed cannot reach agreement on
the question presented within thirty (30) days after their appointment, then the
appraisers thus appointed shall appoint a third disinterested appraiser having
like qualifications. If within thirty (30) days after the appointment of the
third appraiser, a majority of appraisers agree on the Fair Market Rental of the
Premises as of the first day of the Extended Term, that value shall be binding
and conclusive upon the parties. If within thirty (30) days after the
appointment of the third appraiser, a majority of the appraisers cannot reach
agreement on the question presented, then the three appraisers shall each submit
their independent appraisal to the parties and the appraisal farthest from the
median of the three appraisals shall be disregarded and the mean average of the
remaining two appraisals shall be deemed to be the Fair Market Rental of the
Premises as of the first day of the Extended Term and shall be binding and
conclusive upon the parties. Each party shall pay the fees and expenses of the
appraiser appointed by it and shall share equally the fees and expenses of the
third appraiser. If the two appraisers appointed by the parties cannot agree on
the appointment of the third appraiser, they or either of them shall give notice
of such failure to agree to the parties and if the parties fail to agree upon
the selection of such third appraiser within ten ( 10) days after the appraisers
appointment by the parties give such notice, then either of the parties, upon
notice to the other party, may request such appointment by the American
Arbitration Association, or on its failure, refusal or inability to act, may
apply for such appointment to the presiding judge of the Superior Court of Santa
Clara County, California.
<PAGE>
Exhibit C
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Sublessee Alterations
---------------------
<PAGE>
FLOORPLAN
700 E. El Camino Real, Suite 270
2,075 sq. ft. usable
2,317 sq. ft. rentable
[Graphic of Office Floorplan Inserted Here.]
<PAGE>
LESSOR'S CONSENT TO SUBLEASE
The undersigned, Lessor under the Master Lease attached as Exhibit "A", hereby
consents to the subletting of the Premises described herein on the terms and
conditions contained in this Sublease subject to the following
1. No Release. This Consent to Sublease shall in no way release the Sublessor or
any person or entity claiming by, through or under Sublessor, including
Sublessee, from any of its covenants, agreements, liabilities and duties
under the Lease, as the same may be amended from time to time, without
respect to any provision to the contrary in the Sublease.
2. Specific Provisions of Lease and Sublease. This Consent to Sublease
consenting to a sublease to Sublease does not constitute approval by Lessor
of any of the provision of the Sublease document or agreement thereto or
therewith; nor shall the same be construed to amend the Lease in any respect,
any purported modifications being solely for the purpose of setting forth the
rights and obligations as between Sublessor and Sublessee, but not binding
Lessor. The Sublease in all respects, subject and subordinate to the Lease,
as the same may be amended- Furthermore, in the case of any conflict between
the provisions of this Consent to Sublease or the Lease and the provisions of
the Sublease, the provisions of this Consent to Sublease or the Lease, as the
case may be, shall prevail unaffected by the Sublease.
3. Limited Consent. This Consent to Sublease does not and shall not be construed
or implied to be a consent to any other matter for which Lessor's consent is
required under the Lease, including without limitation, any Alterations under
the Lease.
4. Sublessor's Continuing Liability. Sublessor shall be liable to Lessor for any
default under the Lease. whether such default is caused by Sublessor or
Sublessee or anyone claiming by or through either Sublessor or Sublesse, but
the foregoing shall not be deemed to restrict or diminish any right which
Lessor may have against Sublesse pursuant to the Lease in law or in equity
for violation of the Lease or otherwise, including without limitation, the
right to enjoin or otherwise restrain any violation of the Lease by
Sublessee.
5. Default by Sublessor under the Lease. If Sublessor defaults under the Lease,
Lessor may elect to receive directly from Sublessee and sums due or payable
to Sublessor by Sublessee pursuant to the Sublease. Upon written notice from
Lessor, Sublessee shall thereafter pay to Lessor any and al1 sums due or
payable under the Sublease. In such event; Sublessor shall receive from
Lessor a corresponding credit for such sums against any payments then due or
thereafter becoming due from Sublessor.
6. Termination of Lease. If at any time prior to the expiration of the term of
the Sublease the Lease shall terminate or be terminated for any reason, the
Sublease shall simultaneously terminate. However, Sublessee agrees, at the
election and upon written demand of Lessor, and not otherwise to attorn to
Lessor for the remainder of the term of the Sublease, such attornment to be
upon all of the terms and conditions of the Lease, except that the Base Rent
set forth in the Sublease shall be substituted for the Base Rent set forth in
the Lease and the computation of Additional Rent as provided in the Lease
shall be modified as set forth in the Sublease. The foregoing provisions of
this paragraph shall apply notwithstanding that as a matter of law, the
Sublease may otherwise terminate upon the termination of the Lease and shall
be self-operative upon such written demand of the Lessor, and no further
instrument shall be required to give effect to said provisions. Upon the
demand of Lessor, however, Sublessee agrees to execute, from time to time,
documents in confirmation of the foregoing provisions of this paragraph
satisfactory to Lessor in which Sublessee shall acknowledge such attornment
and shall set forth the terms and conditions of its tenancy.
<PAGE>
7. Sublease Profits. Pursuant to the Master Lease, provided this Sublease
remains in full force and effect, Sublessor agrees to pay to Lessor each
month, along with the base monthly rent due under the Lease, the sublease
profits as specified in the Master Lease.
8. No Waiver; No Privity. Nothing herein contained shall be deemed a waiver of
any of the Lessor's rights under the Lease. In no event, however, shall
Lessor be deemed to be in privity of contract with Sublessee or owe any
obligation or duty to Sublessee under the Lease or otherwise, any duties of
Lessor under the Lease being in favor of, for the benefit of and enforceable
solely by Sublessor.
9. Notices. Sublessee agrees to promptly deliver a copy to Lessor of all
notices of default and all other notices sent to Sublessor under the
Sublease, and Sublessor agrees to promptly deliver a copy to Lessor of all
such notices sent to Sublessee under the Sublease, All copies of any such
notices shall be delivered personally or sent by United States registered or
certified mail, postage prepaid, return receipt requested to Lessor.
10. Sublesse's Alterations Subject to all terms and conditions set forth in this
Consent to Sublease and in the Master Lease and Sublease Agreement, Master
Lessor and Sublassor agree to allow Sublessee, at Sublessee's sole cost and
expense, to make certain minor alterations to the Premises in accordance
with Exhibit "C" of the Sublease Agreement. Upon execution of this Consent,
Sublessee agrees to deposit with Master Lessor the sum of Five Thousand
Dollars ($5,000.00) being the amount deemed necessary for the restoration
and reconstruction of the proposed alterations (which include but are not
limited to removal of 2 doors, a wall, minor electrical, carpet patch and
paint) described in Exhibit "C" pertaining to offices #105 and #106.
Additionally, at the expiration of the Sublease Term, Sublessee agrees to
remove the projection room.
In the event Master Lessor elects not to restore and reconstruct said
alterations pertaining to offices # 105 and #106, Master Lessor agrees in
good faith to return said Five Thousand Dollars ($5,000.00) to Sublessee
upon 6 months after expiration of the Master Lease and Sublease. ~
Lessor. Sublessor: Sublessee:
By:_________________ By:_________________ By:_________________
Name:_______________ Name:_______________ Name:_______________
Title:______________ Title:______________ Title:______________
<PAGE>
EXHIBIT 10.9
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated May 21, 1999 by and between
COMDISCO, INC. ("Lessor') and SCIQUEST.COM, INC. ("Lessee").
CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
1
<PAGE>
5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have been
granted by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other transfer
by Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee reserves
its right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment,
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and unconditional and is not subject to any abatement, reduction, set-off,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. Care, Use and Maintenance; Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided re-
certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
2
<PAGE>
7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
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 Master Lease and each Schedule
constitute legal, valid and binding agreements of Lessee, enforceable in
accordance with their terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and rules of law
concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to
the knowledge of the Lessee, threatened against or affecting the Lessee in any
court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant for Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
3
<PAGE>
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessors interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. Indemnity.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any insured Party as additional insured
and as loss payee, and will provide for at least thirty days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice, or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
4
<PAGE>
(a) enforce Lessee's performance of the provisions of the applicable Schedule
by appropriate court action in law or in equity.
(b) recover from Lessee any damages and or expenses, including Default Costs,
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence, and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
(b) if leased, the present value (discounted at three percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
All proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. Upon invitation of Lessee, one representative of Lessor
will have the right to attend Lessee's corporate Board of Directors meetings and
Lessee will give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice will provide an agenda of the subject matter to
be discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting held during the term of this Master Lease.
14.2 Financial Statements. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering
5
<PAGE>
of Lessee's securities, the term "Financial Statements" will be deemed to refer
to only those statements required by the Securities and Exchange Commission.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master Lease
and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the Initial Term(s) of all Schedules, and will return
the Equipment in accordance with Section 9. Lessor hereby consents to any Merger
in which the acquiring entity has a Moody's Bond Rating of BA3 or better or a
commercially acceptable equivalent measure of creditworthiness as reasonably
determined by Lessor.
14.5 Entire Agreement. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders, ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or e-cured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (3) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument, If Lessor grants a
security interest in
6
<PAGE>
all or any part of a Schedule, the Equipment or sums payable thereunder, only
that counterpart Schedule marked "Secured Party's Original" ran transfer
Lessor's rights and all other counterparts will be marked "Duplicate."
14.13 Licensed Products. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 Secretary's Certificate. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 Electronic Communications. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 Definitions.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
- -------
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
- --------
owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
- -------------
Casualty Value - means the greater of the aggregate Rent remaining to be paid
- --------------
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
- -----------------
Default Costs - means reasonable attorney's fees and remarketing costs resulting
- -------------
from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date - means date of delivery of Inventory Equipment to Lessee's
- -------------
address.
Equipment - means the property described on a Summary Equipment Schedule and any
- ---------
replacement for that property required or permitted by this Master Lease or a
Schedule.
Event of Default - means the events described in Subsection 13. 1.
- ----------------
Fair Market Value - means the aggregate amount which would be obtainable in an
- -----------------
arm's-length transaction between an informed and willing buyer/user and an
informed willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
- ------------
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
7
<PAGE>
Interim Rent - means the pro-rata portion of Rent due for the period from the
- ------------
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
Late Charge - means the lesser of five percent (5%) of the payment due or the
- -----------
maximum amount permitted by the law of the state where the Equipment is located.
Licensed Products - means any software or other licensed products attached to
- -----------------
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
- --------------
model, type, configuration and manufacture as Equipment.
Merge - means any consolidation or merger of the Lessee with or into any other
- -----
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
Notice Period - means not less than ninety (90) days nor more than twelve (12)
- -------------
months prior to the expiration of the lease term.
Owner - means the owner of Equipment.
- -----
Rent - means the rent Lessee will pay for each item of Equipment expressed in a
- ----
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
- -------------
Schedule.
Schedule - means either an Equipment Schedule or a Licensed Products Schedule
- --------
which incorporates all of the terms and conditions of this Master Lease.
Secured Party - means an entity to whom Lessor has granted a security interest
- -------------
for the purpose of securing a loan.
Summary Equipment Schedule - means a certificate provided by Lessor summarizing
- --------------------------
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
SCIQUEST.COM, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ James S. Scheur By: /s/ James Labe
------------------- --------------
Title: Chief Financial Officer Title: James Labe, President
Comdisco Ventures Division
8
<PAGE>
ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF MAY 21,1999
BETWEEN SCIQUEST.COM, INC., AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the above-
referenced Master Lease are hereby modified and amended as follows:
1) Section 7. Care, Use and Maintenance; Inspection by Lessor
----------------------------------------------------------
Section 7.2 Inspection by Lessor. In the fourth line change the word
"Articles" to "Certificate".
2) Section 11. Indemnity
---------------------
In the second sentence between the words "negligent" and "acts" insert the
words "or intentional".
3) Section 12. Risk of Loss
------------------------
In the first line between the words "returned," and "Lessee" insert the
words "or purchased".
Delete the second paragraph of this Section 12, in its entirety and insert
the following language:
"Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss or such Equipment was damaged due to
the willful misconduct or negligent acts of Lessor, in which event Lessor
shall, at its expense repair or replace such Equipment. Subject to the
above, within fifteen (15) days of a Casualty Loss, Lessee will provide
written notice of that loss to Lessor and Lessee will, at Lessee's option,
either (a) replace the item of Equipment with Like Equipment and marketable
title to the Like Equipment will automatically vest in Lessor or (b) pay
the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligations to pay further Rent for the item of Equipment will cease."
4) Section 13. Default, Remedies and Mediation
-------------------------------------------
13.2 Remedies. Between the words "occurrence" and "of' insert "and
continuance
5) Section 14. Additional Provisions
---------------------------------
14.1 Board Attendance. Delete this section in its entirety.
14.4 Merger and Sale Provisions. Replace "sixty (60) days" in the
first sentence with "thirty (30) days".
14.7 Binding Nature. At the end of the sentence add the following
language, "without the prior consent of Lessor, which consent
shall not be unreasonably withheld."
14.18 Definitions. In the definition of "Merger" in the second line
after the word "entity" insert "which results in a change of
control,".
9
<PAGE>
EXECUTED as of the date and year set forth above.
SCIQUEST.COM, INC. COMDISCO, INC.
as LESSEE as LESSOR
By: /s/ James S. Scheur By: /s/ James Labe
------------------- --------------
Title: Chief Financial Officer Title: James Labe, President
Date: May 21, 1999 Comdisco Ventures Division
Date: May 24, 1999
10
<PAGE>
EQUIPMENT SCHEDULE VL-1
DATED AS OF MAY 21,1999
TO MASTER LEASE AGREEMENT
DATED AS OF MAY 21,1999 (THE "MASTER LEASE")
LESSEE: SCIQUEST.COM, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Contact: James J. Scheuer 6111 North River Road
TEL: (919) 659-2100 Rosemont, Illinois 60018
FAX: (919) 659-2199 Attn.: Venture Group
Address for Notices:
- -------------------
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
Central Billing Location: Rent Interval: Monthly
- ------------------------ ----
same as above
Attn.:
Lessee Reference No.:
(24 digits maximum)
Location of Equipment Initial Term: 42 months
- --------------------- -------
same as above (Number of Rent Intervals)
Lease Rate Factor: 2.709% per month
-----------------
Attn.:
EQUIPMENT (as defined below): Advance: $67,725.00
Interim Rent: Interest Only
------------
(Annual Interest Rate 7.75%)
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period May 21, 1999 through August 21, 2000
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $2,500,000
("Commitment Amount"); excluding custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling,
"standalone" software, application software bundled into computer hardware, hand
held items, molds and fungible items.
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii) , (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the
11
<PAGE>
Equipment that Lessee has either received or approved the relevant purchase
documentation between vendor and Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
obtained from a vendor by Lessee for its use subject to Lessor's
prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback Transaction
must be submitted to Lessor in writing (along with accompanying
evidence of Lessee's Equipment ownership satisfactory to Lessor for
all Equipment submitted) no later than June 22, 1999*. Lessor will
not perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at Lessor's actual
net appraised Equipment value pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
INVOICE DATE NET EQUIPMENT COST TO BE PAID BY LESSOR
------------ --------------------------------------
<S> <C>
September 1, 1998 through May 21, 1999 100%
</TABLE>
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which is
obtained from a third party by Lessee for its use subject to Lessor's
prior approval of the Equipment and at Lessor's appraised value for
such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third
party or Lessor will supply new or used Equipment from its inventory
for use by Lessee at rates provided by Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar quarter into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar quarter thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
3. Option to Extend
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) mu, ichs and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
12
<PAGE>
4. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed fifteen percent (15%) of the Equipment cost and
upon terms and conditions to be mutually agreed upon by the parties following
Lessee's written notice, plus any taxes applicable at time of purchase. Said
purchase price shall be paid to Lessor at least thirty (30) days before the
expiration date of the Initial Term or extended term. Title to the Equipment
shall automatically pass to Lessee upon payment in full of the purchase price
but, in no event, earlier than the expiration of the fixed Initial Term or
extended term, if applicable. If the parties are unable to agree on the purchase
price or the terms and conditions with respect to said purchase, then the
Summary Equipment Schedule with respect to this Equipment shall remain in full
force and effect. Notwithstanding the exercise by Lessee of this option and
payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. Technology Exchange Option
If Lessee is not in default, and there is no material adverse change in
Lessee's credit, on or after the expiration of the 12th month of any Summary
Equipment Schedule, Lessee shall have the option to replace any of the Equipment
subject to such summary Equipment Schedule with new technology equipment ("New
Technology Equipment") utilizing the following guidelines:
A. Equipment being replaced with New Technology Equipment shall have an
aggregate original cost equal to or greater than $30,000 and be comprised of
full configurations of equipment.
B. This Technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software or any soft costs financed hereunder including but not limited
to tenant improvements and custom equipment.
C. The cost of the New Technology Equipment must be equal to or greater than
the original equipment cost of the replaced equipment, but in no event shall
exceed 150% of the original equipment cost.
D. The remaining lease payments applicable to the equipment being replaced by
the New Technology Equipment will be discounted to present value at 6%.
The wholesale market value of the equipment being replaced will be established
by Comdisco based upon then current market conditions. Upon the return of the
replaced equipment, the wholesale price will be deducted from the present value
of the remaining rentals and the differential will be added to the cost of the
New Technology Equipment in calculating the new rental. The lease for the New
Technology Equipment will contain terms and conditions substantially similar to
those for the replaced equipment and will have an Initial Term not less than the
balance of the remaining Initial Term for the replaced equipment.
6. Equity
In consideration of Lessor financing this Schedule, Lessee agrees to grant
Lessor the right to purchase $500,000 of equity in the Series D Preferred Stock
of Lessee, at the closing of such financing, which is anticipated to close in
May 1999.
7. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
(a) Section 14.18. "Definitions"
In the definition of "Interim Rent", delete "the pro-rata portion" and
------------
replace with "interest only portion of'.
13
<PAGE>
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
SCIQUEST.COM, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ James S. Scheur By: /s/ James Labe
------------------- --------------
Title: Chief Financial Officer Title: James Labe, President
Date: May 21, 1999 Comdisco Ventures Division
Date: May 24, 1999
14
<PAGE>
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
--------------------------
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. VL-1 to the Master Lease Agreement dated May 21, 1999
between Comdisco, Inc. ("Lessor") and SciQuest.com, Inc. ("Lessee"). All of the
terms, conditions, representations and warranties of the Master Lease Agreement
and Equipment Schedule No. VL-1 are incorporated herein and made a part hereof,
and this Summary Equipment Schedule constitutes a Schedule for the Equipment on
the attached invoices.
1 . For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
15
<PAGE>
EXHIBIT 10.10
STOCK RESTRICTION AGREEMENT
AGREEMENT made as of the 1/st/ day of March, 1999 (the "Effective Date"),
by and between SciQuest.com, Inc., a Delaware corporation (the "Corporation"),
and Antony Francis (the "Stockholder").
For valuable consideration, receipt of which is acknowledged, the parties
hereto agree as follows:
1. Purchase of Shares. The Stockholder hereby subscribes for and, upon
------------------
acceptance hereof, shall purchase, subject to the terms and conditions set forth
in this Agreement, 89,408 shares (the "Shares") of the Series C Convertible
Preferred Stock, no par value per share, of the Corporation ("Series C Stock"),
at a purchase price of $2.796194 per share. The aggregate purchase price for the
Shares shall be paid by the Stockholder by check payable to the order of the
Corporation or such other method as may be acceptable to the Corporation. Upon
receipt of payment by the Corporation for the Shares, the Corporation shall
issue to the Stockholder one or more certificates in the name of the Stockholder
for that number of Shares purchased by the Stockholder. The Stockholder agrees
that the Shares shall be subject to the Purchase Option set forth in Section 2
of this Agreement and the restrictions on transfer set forth in Section 4 of
this Agreement.
2. Purchase Option.
---------------
(a) In the event that the Stockholder ceases to be employed by the
Corporation, for any reason or for no reason, with or without cause, prior to
the second anniversary of the Effective Date, the Corporation shall have the
right and option (the "Purchase Option") to purchase from the Stockholder, for a
sum of $2.796194 per share (the "Option Price") up to that number of the Shares
which is unvested at the time the Stockholder ceases to be employed by the
Corporation. Forty-four thousand seven hundred four (44,704) of the Shares shall
vest as of the first anniversary of the Effective Date. The remaining Forty-four
thousand seven hundred four Shares shall then vest on a monthly basis at the
rate of Three thousand seven hundred twenty-five (3,725) shares per month for
each full month of employment by the Corporation, with all Shares being fully
vested after twenty-four (24) full months of employment by the Corporation
(beginning as of the Effective Date).
(b) For purposes of this Agreement, employment by the Corporation
shall include employment by a parent or subsidiary of the Corporation.
(c) Notwithstanding the provisions of Section 2(a) hereof, any
unvested portion of the Shares that will vest within twelve (12) months after an
Acceleration Event described below shall immediately vest as of a date prior to
such
<PAGE>
Acceleration Event, which date shall be determined by the Board of Directors of
the Corporation. An "Acceleration Event" shall be deemed to have occurred upon
the merger, consolidation corporate reorganization or other transaction in which
all or substantially all of the assets of the Corporation are sold, leased,
transferred or otherwise disposed of (other than a mere reincorporation
transaction or one in which the holders of the capital stock of the Corporation
immediately prior to such merger or consolidation to continue to hold at least a
majority of the voting power of the surviving corporation).
3. Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Corporation may exercise the Purchase Option by delivering or
mailing to the Stockholder (or the Stockholder's estate), in accordance with
Section 14, written notice of exercise within sixty (60) days after the
termination of the Stockholder's active participation in the business of the
Corporation. Such notice shall specify the number of Shares to be purchased. If
and to the extent the Purchase Option is not so exercised within such 60-day
period, the Purchase Option shall automatically expire and terminate effective
upon the expiration of such 60-day period.
(b) Within ten (10) days after the Stockholder's receipt of the
Corporation's notice of the exercise of the Purchase Option pursuant to Section
3(a) above, the Stockholder (or the Stockholder's estate) shall tender to the
Corporation at its principal offices the certificate or certificates
representing the Shares which the Corporation has elected to purchase, duly
endorsed in blank by the Stockholder or with duly endorsed stock powers attached
thereto, all in form suitable for the transfer of such Shares to the
Corporation. Upon its receipt of such Shares, the Corporation shall deliver or
mail to the Stockholder (or the Stockholder's estate) a check in the amount of
the aggregate Option Price therefor.
(c) After the time at which any Shares are required to be delivered
to the Corporation for transfer to the Corporation pursuant to Section 3(b)
above, the Corporation shall not pay any dividend to the Stockholder on account
of such Shares or permit the Stockholder to exercise any of the privileges or
rights of a stockholder with respect to such Shares, but shall, in so far as
permitted by law, treat the Corporation as the owner of such Shares.
(d) The Option Price may be payable, at the option of the
Corporation, in cancellation of all or a portion of any outstanding indebtedness
of the Stockholder to the Corporation or in cash (by check) or both.
(e) The Corporation shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 2 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).
2
<PAGE>
4. Restrictions on Transfer.
------------------------
(a) Except as otherwise provided in Section 4(b) or 4(c) below, the
Stockholder shall not sell, assign, transfer, pledge, hypothecate or otherwise
dispose of, by operation of law or otherwise (collectively "transfer"), any of
the Shares, or any interest therein.
(b) If, at any time or from time to time, the Stockholder proposes to
transfer any Shares not then subject to the Purchase Option (the "Offered
Shares"), the Stockholder shall first give written notice of the proposed
transfer (the "Transfer Notice") to the Corporation. The Transfer Notice shall
name the proposed transferee and state the number of Offered Shares to be
transferred, the price per Offered Share and all other material terms and
conditions of the proposed transfer. The Corporation shall have the option to
purchase all, but not less than all, of the Offered Shares at the purchase price
and upon the other terms and conditions specified in the Transfer Notice. The
Corporation may accept the offer by notifying the Stockholder in writing, within
twenty (20) days after the date of its receipt of the Transfer Notice, of its
acceptance. The closing of the purchase of Offered Shares pursuant to this
Section 4(b) shall occur at the principal offices of the Corporation fifteen
(15) days after receipt by the Stockholder of the Corporation's notice of
acceptance. At the closing, the Stockholder shall tender to the Corporation the
certificate or certificates representing the Offered Shares, duly endorsed in
blank or with duly endorsed stock powers attached thereto, all in form suitable
for the transfer of such Offered Shares, free and clear of all liens,
encumbrances and restrictions (other than those imposed by the Corporation's
Certificate of Incorporation or Bylaws or applicable laws) to the Corporation
against delivery by the Corporation to the Stockholder of a check in the amount
of the aggregate purchase price therefor, provided, that if the terms of the
payment set forth in the Transfer Notice were other than cash against delivery,
the Corporation may, at its option, pay for the Offered Shares on the same terms
and conditions set forth in the Transfer Notice. If the Corporation does not
elect to acquire all of the Offered Shares, the Stockholder may transfer to the
proposed transferee, within the 60-day period following the expiration of the
rights granted to the Corporation pursuant to this Section 4(b), all, but not
less than all, of the Offered Shares, provided, that (i) such transfer shall not
--------
be on terms and conditions more favorable to the transferee than those contained
in the Transfer Notice, (ii) such transfer shall comply with all applicable
state and federal securities laws, (iii) the Shares so transferred shall remain
subject to this Agreement (including without limitation the restrictions on
transfer set forth in this Section 4) and (iv) such transferee shall, as a
condition to such transfer, deliver to the Corporation a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
(c) Notwithstanding the foregoing, the Stockholder may transfer
Shares (whether or not subject to the Purchase Option) to or for the benefit of
any parent, spouse, child or grandchild, or to a trust or custodial account for
his, her or their benefit, without first offering such Shares to the Corporation
pursuant hereto, provided that (i)
--------
3
<PAGE>
such transfer shall comply with all applicable state and federal securities
laws, (ii) such Shares shall remain subject to this Agreement (including without
limitation the Purchase Option, if then applicable, and the restrictions on
transfer set forth in this Section 4), and (iii) such permitted transferee
shall, as a condition to such transfer, deliver to the Corporation a written
instrument confirming that such transferee shall be bound by all of the terms
and conditions of this Agreement.
(d) Except as set forth in Section 4(c), the Stockholder may not
transfer any Shares subject to the Purchase Option.
(e) The restrictions on transfer set forth in this Section 4 shall
remain in effect from the date hereof until the date on which the Corporation
(or, in the event of a transaction to which Section 8(b) applies, an Acquiring
Corporation) first becomes subject to the reporting requirements of Section 13
of the Securities and Exchange Act of 1934, as amended (provided, however, that
if the Corporation first becomes subject to such reporting requirements in
connection with the sale of the Corporation's Common Stock in a public offering
registered under the Securities Act of 1933, as amended (the "Securities Act"),
the date determined pursuant to this Section 4(e) shall be deemed to be the date
of the closing of such sale.)
5. Effect of Prohibited Transfer. The Corporation shall not be required
-----------------------------
(a) to transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement,
or (b) to treat as owner of such Shares or to pay dividends to any transferee to
whom any such Shares shall have been so sold or transferred.
6. Restrictive Legend. All certificates representing Shares shall have
------------------
affixed thereto a legend in substantially the following form, in addition to any
other legends that may be required under federal or state securities laws:
"The shares represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth
in a certain Stock Restriction Agreement between the
Corporation and the registered owner of this certificate (or
such owner's predecessor in interest), and such Stock
Restriction Agreement is on file in, and may be examined at,
the principal office of the Corporation."
7. Investment Representations. The Stockholder represents, warrants and
--------------------------
covenants as follows:
(a) The Stockholder is purchasing the Shares for the Stockholder's
own account for investment only, and not with a view to, or for sale in
connection with, any distribution of the Shares in violation of the Securities
Act, or any rule or regulation under the Securities Act.
4
<PAGE>
(b) The Stockholder has had such opportunity as the Stockholder has
deemed adequate to obtain from representatives of the Corporation such
information as is necessary to permit the Stockholder to evaluate the merits and
risks of the Stockholder's investment in the Corporation.
(c) The Stockholder has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Shares and to make an informed investment decision with respect to such
purchase.
(d) The Stockholder can afford a complete loss of the value of the
Shares and is able to bear the economic risk of holding such Shares for an
indefinite period.
(e) The Stockholder understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least two years and even then will not be available unless a
public market then exists for the Corporation's Common Stock, adequate
information concerning the Corporation is then available to the public, and
other terms and conditions of Rule 144 are complied with; and (iv) there is now
no registration statement on file with the Securities and Exchange Commission
with respect to any stock of the Corporation and the Corporation has no
obligation or current intention to register the Shares under the Securities Act.
(f) A legend substantially in the following form will be placed on
the certificate representing the Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement under such
Act or an opinion of counsel satisfactory to the Corporation
to the effect that such registration is not required."
8. Adjustments for Stock Splits, Stock Dividends, etc.
---------------------------------------------------
(a) If from time to time during the term of the Purchase Option there
is any stock split-up, stock dividend, stock distribution or other
reclassification of the common stock of the Corporation, any and all new,
substituted or additional securities to which the Stockholder is entitled by
reason of the Stockholder's ownership of the Shares shall be immediately subject
to the Purchase Option, the restrictions on transfer and other
5
<PAGE>
provisions of this Agreement in the same manner and to the same extent as the
Shares, and the Option Price shall be appropriately adjusted.
(b) If the Shares are converted into or exchanged for, or
Stockholders of the Corporation receive by reason of any distribution in total
or partial liquidation, securities of another corporation (an "Acquiring
Corporation"), or other property (including cash), pursuant to any merger of the
Corporation or acquisition of its assets by an Acquiring Corporation, then the
rights of the Corporation under this Agreement shall inure to the benefit of the
Acquiring Corporation and this Agreement shall apply to the securities or other
property received from the Acquiring Corporation upon such conversion, exchange
or distribution in the same manner and to the same extent as the Shares.
9. Withholding Taxes.
-----------------
(a) The Stockholder acknowledges and agrees that the Corporation has
the right to deduct from payments of any kind otherwise due to the Stockholder
any federal, state or local taxes of any kind required by law to be withheld
with respect to the purchase of the Shares by the Stockholder.
(b) If the Stockholder elects, in accordance with Section 83(b) of
the Internal Revenue Code of 1986, as amended, to recognize ordinary income in
the year of acquisition of the Shares, the Corporation will require at the time
of such election an additional payment for withholding tax purposes based on the
difference, if any, between the purchase price for such Shares and the fair
market value of such Shares as of the day immediately preceding the date of the
purchase of such Shares by the Stockholder.
10. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each other provision of this Agreement shall be
severable and enforceable to the extent permitted by law.
11. Waiver. Any provision contained in this Agreement may be waived,
------
either generally or in any particular instance, by the Board of Directors of the
Corporation on behalf of the Corporation.
12. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the Corporation and the Stockholder and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 4 of this
Agreement.
13. No Rights to Employment. Nothing contained in this Agreement shall be
-----------------------
construed as giving the Stockholder any right to be retained, in any position,
by the Corporation, whether as an employee of or consultant to the Corporation
or in any other capacity.
6
<PAGE>
14. Notice. All notices required or permitted hereunder shall be in
------
writing and deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by certified mail, postage prepaid, addressed to
the other party hereto at the address shown beneath the Stockholder's or the
Corporation's respective signature to this Agreement, or at such other address
or addresses as either party shall designate to the other in accordance with
this Section 14.
15. Pronouns. Whenever the context may require, any pronouns used in this
--------
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and vice
versa.
16. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties, and supersedes all prior agreements and understandings,
relating to the subject matter of this Agreement.
17. Amendment. This Agreement may be amended or modified only by a written
---------
instrument executed by both the Corporation and the Stockholder.
18. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the laws of the State of North Carolina.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SCIQUEST.COM, INC.
By: /s/ James J. Schever
-----------------------------------
Name: James J.Schever
-----------------------------
Title: Chief Financial Officer
----------------------------
Address: 4222 Emperor Boulevard
Suite 225
Durham, North Carolina 27703
STOCKHOLDER:
/s/ Antony Francis
------------------
Antony Francis
Address: 10214 Whitemark Lane
------------------------------
Cary, NC 27511
------------------------------
<PAGE>
FIRST AMENDMENT
---------------
TO
--
STOCK RESTRICTION AGREEMENT
---------------------------
FIRST AMENDMENT TO STOCK RESTRICTION AGREEMENT, dated as of April 15 1999
(the "First Amendment"), by and between SciQuest.com Inc., a Delaware
corporation (the "Corporation"), and Antony Francis, an individual residing in
Wake County, North Carolina (the "Stockholder").
WHEREAS, the Corporation and the Stockholder are parties to a Stock
Restriction Agreement, dated as of March 1,1999 (the "Stock Agreement'); and
WHEREAS, pursuant to Section 17 of the Stock Agreement, the Corporation and
the Stockholder desire to amend and modify the provisions of the Stock Agreement
in the manner and to the extent set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein,
the Corporation and the Stockholder hereby agree as follows:
1. Amendment of Section 8. The provisions of the Section 8 (Adjustments
---------------------- -----------
for Stock Splits, Stock Dividends, etc.) are hereby amended by adding the
- ---------------------------------------
following Section 8(c):
(c) If at any time the Shares are converted into shares of common
stock of the Corporation pursuant to the applicable provisions of the
Certificate of Incorporation of the Corporation, then this Agreement
shall apply to the shares of common stock received by the Stockholder
upon such conversion (the "Conversion Shares") in the same manner and
to the same extent as the Shares, and for all purposes hereunder, the
term "Shares" as used herein shall be deemed to refer to such
Conversion Shares.
2. Effect of First Amendment. The provisions of the Stock Agreement are
-------------------------
hereby amended and modified by the provisions of this First Amendment. If any
of the provisions of the Stock Agreement are materially different from or
inconsistent with the provisions of this First Amendment, the provisions of this
First Amendment shall control, and the provisions of the Stock Agreement shall,
to the extent of such difference or inconsistency, be deemed to be amended and
modified.
3. Single Agreement. This First Amendment and the Stock Agreement, as
----------------
amended and modified by the provisions of this First Amendment, shall constitute
and shall be construed as a single agreement. The provisions of the Stock
Agreement, as
<PAGE>
amended and modified by the provisions of this First Amendment, are incorporated
herein by this reference and are ratified and affirmed.
IN WITNESS WHEREOF, this First Amendment has been executed and delivered by
the Corporation and the Stockholder as of the date first written above.
SCIQUEST.COM, INC.
By:/s/ Scott Andrews
-----------------
Scott Andrews
President
STOCKHOLDER
/s/ Antony Francis
------------------
Antony Francis
<PAGE>
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of this
17th day of October, 1997, by and among SCIQUEST, INC., a North Carolina
corporation (the "Company"), and the undersigned investors in Class B Common
Stock and Series A Preferred Stock of the Company, respectively (individually,
an "Investor" and collectively, the "Investors").
WHEREAS, the Investors have purchased shares of the Company's Class B
Common Stock, no par value per share (the "Class B Common Stock") or Series A
Preferred Stock, no par value per share (the "Series A Preferred Stock")
(collectively, the "Shares"); and
WHEREAS, the Company and the Investors have agreed to provide the Investors
with certain rights relating to the registration and sale of the Shares.
NOW, THEREFORE, in consideration of the covenants and promises contained
herein, the parties agree as follows:
ARTICLE 1 - REGISTRATION RIGHTS
-------------------------------
1.1 Definitions. For purposes of this Article 1, the following terms
-----------
shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute enacted hereafter, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
(b) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Act.
(c) "Common Stock" shall mean the Class A Common Stock of the Company.
(d) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the Commission.
(e) "Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Shares and (ii) any other shares of Common
Stock issued in respect of the Shares (on account of stock splits, stock
dividends, reclassifications, recapitalizations or similar events); provided,
--------
however, that shares of Common Stock which are Registrable Shares shall cease to
- -------
be Registrable Shares (i) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act (as defined below) or (ii) upon any sale in
any manner to a person or entity which, by virtue of Section 1.10 of this
Agreement, is not entitled to the rights provided by this Agreement.
<PAGE>
1.2 Piggyback Registration. Subject to Section 1.8 of this Agreement, if
----------------------
at any time the Company proposes to register any of its securities under the
Act, either for its own account or for the account of others, in connection with
the public offering of such securities solely for cash, on a registration form
that would also allow the registration of Registrable Securities, the Company
shall, each such time, promptly give each Investor written notice of such
proposal. This provision shall not apply to a registration solely of securities
issued or issuable in connection with any stock option plan or other employee
benefit plan or in connection with a merger or acquisition. Upon receipt by the
Company of the written request of any Investor given within ten (10) days after
mailing of any such notice by the Company, the Company shall use its best
efforts to cause to be included in such registration under the Act all the
Registrable Securities that each such Investor has requested be registered.
1.3 Obligations of the Company. Whenever required under this Agreement
--------------------------
to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement covering
such Registrable Securities and use its best efforts to cause such registration
statement to be declared effective by the Commission as expeditiously as
possible and to keep such registration effective until the earlier of (i) the
date when all Registrable Securities covered by the registration statement have
been sold or (ii) 180 days from the effective date of the registration
statement.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
1.3(a) and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement, and cause
the prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed with the Commission pursuant to Rule 424 under the
Act.
(c) Furnish to the selling Investors such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), and each
supplement thereto as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the Registrable
Securities under the securities laws of such jurisdictions in which the Company
shall register securities to be sold by the Company pursuant to the same
registration under the Act.
(e) Promptly notify each selling Investor of such Registrable Securities
at any time when a prospectus relating thereto is required to be delivered under
the Act of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Investor, the Company will prepare
promptly a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of
<PAGE>
such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading.
(f) Provide a transfer agent for all such Registrable Securities not later
than the effective date of such registration statement.
(g) Enter into underwriting agreements and related agreements in customary
form for a primary offering.
(h) Promptly notify the selling Investors of Registrable Securities and
the underwriters, if any, of the following events and (if requested by any such
person) confirm such notification in writing: (1) the filing of the prospectus
or any prospectus supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the effectiveness of
such documents, (2) any requests by the Commission for amendments or supplements
to the registration statement or the prospectus or for additional information,
(3) the issuance of any stop order suspending the effectiveness of the
registration statement, and (4) the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction.
(i) Whenever any provision of this Agreement requires the Company to
furnish any information to the Investors or the agents or representatives of the
Investors, the Company may require any such person or entity to execute and
deliver a reasonable confidentiality agreement, agreement to refrain from
trading or any other agreement necessary or prudent to protect the Company or
its officers, directors and employees against insider trading liabilities and
may restrict access to confidential trade secret information.
1.4 Furnish Information. In the event of any registration by the Company
-------------------
(whether or not the Registrable Securities of any Investor are included
therein), the Investors shall furnish to the Company such information regarding
them, the Registrable Securities and other securities of the Company held by
them, and the intended method of disposition of such Registrable Securities as
the Company shall reasonably request and as shall be required in connection with
the action to be taken by the Company. It shall be a condition precedent to the
obligation of the Company to include any Registrable Securities of an Investor
in a registration effected pursuant to this Agreement for such Investor to have
provided the Company with such written information regarding the registration of
such Registrable Securities as the Company shall reasonably request.
1.5 Suspension of Disposition of Registrable Securities. Each selling
---------------------------------------------------
Investor of Registrable Securities agrees by acquisition of such Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 1.3(e) or 1.3(h)(2), 1.3(h)(3) or
1.3(h)(4) hereof, such Investor will forthwith discontinue disposition of
Registrable Securities until such Investor's receipt of copies of a supplemented
or amended prospectus contemplated by Section 1.3(e) hereof, or until it is
advised in writing by the Company that the use of the prospectus may be resumed,
and has received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus, or in the
<PAGE>
case of Section 1.3(i)(2), 1.3(h)(3) or 1.3(h)(4), until the Company notifies
the Investor in writing that sales of Registrable Securities may continue. If so
directed by the Company, such Investor will deliver to the Company (at the
expense of the Company) all copies, other than permanent file copies then in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
1.6 Expenses of Registration.
------------------------
The Investors shall bear the fees and expenses of their own counsel and
shall bear any additional registration and qualification fees and expenses
(including underwriters' discounts and commissions and transfer taxes), and any
additional costs and disbursements of counsel for the Company that result solely
from the inclusion of Registrable Securities held by the Investors in such
registration, with such additional expenses of the registration being borne by
all selling Investors pro rata on the basis of the total number of Registrable
Securities so registered; provided, however, that if any such cost or expense is
attributable solely to one selling Investor and does not constitute a normal
cost or expense of a registration, such cost or expense shall be allocated
solely to that selling Investor. All other expenses of such registrations shall
be borne by the Company.
1.7 Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall have the right to select the investment banker(s)
and/or manager(s) to administer any offering to which this Agreement is
applicable. If a registration is an underwritten primary registration on behalf
of the Company (without regard to registration rights arising hereunder or under
any other agreement), and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold at the desired price
in such offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the Investors
thereof on the basis of the number of Registrable Securities requested to be
registered and (iii) third, other securities requested to be included in such
registration, pro rata among the holders thereof on the basis of the number of
shares requested to be registered. If a registration is an underwritten
secondary registration on behalf of holders of securities of the Company, or a
combined primary and secondary offering, and the managing underwriters advise
the Company in writing that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold at the
desired price in such offering, the Company will include in such registration
(i) first, securities the Company proposes to sell, (ii) second, the securities
requested to be included therein by holders with contractual registration rights
other than the Investors, pro rata among the holders of such securities on the
basis of the number of shares requested to be included therein, (iii) third, the
securities requested to be included therein by Investors of Registrable
Securities, pro rata among the holders of such Registrable Securities on the
basis of the number of shares requested to be included therein, and (iv) fourth,
other securities requested to be included in such registration, including
securities to be sold by holders without contractual registration rights.
<PAGE>
(b) No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
1.8 Limitation of the Company's Obligations.
---------------------------------------
(a) The Company may, in its sole discretion, postpone or withdraw any
registration effected pursuant to this Agreement without obligation to the
Investors.
(b) The Company shall not be obligated under this Agreement to register
or include in any registration Registrable Securities that any Investor has
requested to be registered if the Company shall furnish such Investor with a
written opinion of counsel reasonably satisfactory to such Investor, that all
Registrable Securities that such Investor holds may be publicly offered, sold
and distributed without registration under the Act pursuant to Rule 144
promulgated by the Commission under the Act and without restriction as to the
amount of securities that can be sold.
(c) The Company may, in its sole discretion, grant to any owner of
securities of the Company registration rights of any kind or nature.
1.9 Lockup Agreement. For so long as the Investor has the right to have
----------------
Registrable Securities included in any registration pursuant to this Agreement,
the Investor agrees in connection with any registration of the Company's
securities, upon the request of the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of,
pledge, grant any option for the purchase of or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, during the seven days prior to and during the 180-day period beginning on
the effective date of such registration as the Company or the underwriters may
specify. This provision shall apply whether or not any Registrable Securities
of the Investor are included in the offering.
1.10 Transfer of Registration Rights. Provided that the Company is given
-------------------------------
written notice by the Investor at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being assigned, the registration rights
under this Agreement may be transferred in whole or in part at any time to any
transferee of Registrable Securities.
1.11 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify and hold harmless each Investor whose Registrable Securities are
included in a registration, each director, officer, partner, employee, or agent
for such Investor, any underwriter (as defined in the Act) for such Investor,
and each person, if any, who controls such Investor or
<PAGE>
underwriter within the meaning of the Act, against any losses, claims, damages
or liabilities, joint or several, to which they may become subject under the Act
and applicable state securities laws insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein in light of the circumstances under which they
were made or necessary to make the statements therein not misleading or arise
out of any violation by the Company of any rule or regulation promulgated under
the Act applicable to the Company and relating to action or inaction required of
the Company in connection with any such registration; and will reimburse each
such person or entity for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity 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 an untrue statement or alleged untrue statement
or omission or alleged omission made in connection with such registration
statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by or on behalf
of any such Investor, underwriter or controlling person.
(b) To the fullest extent permitted by law, each Investor whose
Registrable Securities are included in a registration under this Agreement,
severally and not jointly, will, and hereby does, 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 Act, and any underwriter for the Company (within the meaning of
the Act), each other selling Investor and each person, if any, who controls such
other selling Investor or underwriter within the meaning of the Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer, controlling person, selling Investor or
underwriter may become subject, under the Act and applicable state securities
laws, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon 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 in
light of the circumstances, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Investor expressly for use
in connection with such registration; and each such Investor will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, selling Investor or underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however,
<PAGE>
that the indemnity 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 such Investor (which consent shall not be unreasonably withheld).
In no event shall the liability by reason of this contractual indemnity of
any selling Investor of Registrable Securities hereunder be greater than the
dollar amount of the proceeds received by such Investor upon the sale of the
Registrable Securities giving rise to such indemnification obligation. Any
Investor required to indemnify the Company as provided above shall cease to have
the right to participate in any other registration pursuant to this Agreement.
(c) In order to provide for just and equitable contribution to joint
liability under the Act in circumstances in which the indemnity provisions
provided for in this section are for any reason held to be unavailable to the
indemnified parties although applicable in accordance with its terms; then, in
each such case, the Company and such Investor will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportions as shall be appropriate to reflect
the relative fault of the Company, on the one hand, and the Investor, on the
other hand, with such relative fault determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Investor, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
-------- -------
Investor will be required to contribute any amount in excess of the proceeds to
it of all Registrable Securities sold by it pursuant to such registration
statement, and (B) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
ARTICLE 2 - MISCELLANEOUS
-------------------------
2.1 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given, by
written consent of the Company and the Investors of at least seventy percent
(70%) of the outstanding Registrable Securities; provided, that this Agreement
--------
may be amended with the consent of the holders of less than all Registrable
Securities only in a manner which affects all Registration Securities in the
same fashion. No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
2.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE>
2.3 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
2.4 Notices. All notices required or permitted to be sent shall be sent
-------
to the addresses of the parties set forth on their respective signature pages,
or to such other address as any party shall provide to the other parties in a
notice sent in accordance with this Agreement. Any notice sent by registered or
certified mail, return receipt requested, or by Federal Express, shall be deemed
to have been received by the party to whom it was sent one day following the
date it was sent. Any notice sent by any other means shall be deemed to have
been received when it is actually received at the address provided above.
2.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
2.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
2.7 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. Nothing
in this Agreement shall preclude the Company from entering into any other
agreement having the same or different terms with any Investor or any third
party with respect to registration rights or related matters.
2.8 Parties Benefitted. Nothing in this Agreement, express or implied, is
------------------
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
[COUNTERPART SIGNATURE PAGES ATTACHED]
<PAGE>
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
-----------------------------------------------
IN WITNESS WHEREOF, the undersigned, through its duly authorized
representative, has executed this Agreement under seal as of the date provided
below:
SCIQUEST, INC.
By: /s/ Peyton Anderson
----------------------
Name: Peyton Anderson
Title: President
September 29, 1997
By: /s/ Lex K. Larson
----------------------
Lex K. Larson
September 29, 1997
N. C. TECHNOLOGICAL
DEVELOPMENT AUTHORITY, INC.
By: /s/ John Ciannamea
----------------------
John Ciannamea
Title: President
October 2, 1997
By: /s/ Bruce J. Boehm
----------------------
Bruce J. Boehm
September 30, 1997
By: /s/ Anne H. Nase
----------------------
Anne H. Nase
October 2, 1997
By: /s/ Harold W. Nase
----------------------
Harold W. Nase
October 2, 1997
<PAGE>
By: /s/ Mike Andrews, Jr.
-----------------------
Mike Andrews, Jr.
October 3, 1997
By: /s/ Carol B. Jones
-----------------------
Carol B. Jones
October 1, 1997
By: /s/ Paul A. Jones, Sr.
-----------------------
Paul A. Jones, Sr.
October 1, 1997
By: /s/ Arthur M. Pappas
-----------------------
Arthur M. Pappas
September 30, 1997
By: /s/ Laura Jones
-----------------------
Laura Jones
October 1, 1997
By: /s/ Paul A. Jones
-----------------------
Paul A. Jones
October 10, 1997
By: /s/ Anne T. Varner
-----------------------
Anne T. Varner
October 17, 1997
By: /s/ Sara Brooks Creagh
-----------------------
Sara Brooks Creagh
October 2, 1997
By: /s/ Ralph L. Haga, Jr.
-----------------------
Ralph L. Haga, Jr.
October 1, 1997
<PAGE>
By: /s/ Nancy A. Haga
------------------------
Nancy A. Haga
October 1, 1997
By: /s/ Daniel Egger
------------------------
Daniel Egger
October 7, 1997
By: /s/ W. H. Johnson, III
------------------------
W.H. Johnson, III
October 5, 1997
By: /s/ Jane Newman Hines
------------------------
Jane Newman Hines
October 2, 1997
By: /s/ Ripon W. LaRoche, II
------------------------
Ripon W. LaRoche, II
October 2, 1997
By: /s/ Walt Newman
------------------------
Walt Newman
October 2, 1997
By: /s/ Hunter R. Watson
------------------------
Hunter R. Watson
October 14, 1997
By: /s/ W.A. Watson, III
------------------------
W.A. Watson, III
October 2, 1997
By: /s/ Anita H. Garland
------------------------
Anita H. Garland
October 1, 1997
<PAGE>
By: /s/ Dwight Sawin
------------------------
Dwight Sawin
October 2, 1997
By: /s/ Susan M. Harwood
------------------------
Susan M. Harwood
October 14, 1997
ASPENTREE CAPITAL
By: /s/ Robert R. Bonczek
------------------------
Robert R. Bonczek
October 15, 1997
By: /s/ Charles A. Sanders
------------------------
Charles A. Sanders
October 17, 1997
By: /s/ Michael A. Recny
------------------------
Michael A. Recny
October 17, 1997
By: /s/ Joyce B. Morey
------------------------
Joyce B. Morey
October 16, 1997
By: /s/ Clive A. Morey
------------------------
Clive A. Morey
October 16, 1997
By: /s/ Nancy N. Layne
------------------------
Nancy N. Layne
October 15, 1997
<PAGE>
By: /s/ William P. Few
------------------------
William P. Few
October 14, 1997
By: /s/ Robbie Hardy
------------------------
Robbie Hardy
October 15, 1997
By: /s/ John B. Lewis
------------------------
John B. Lewis
October 17, 1997
By: /s/ William C. Schuler
------------------------
William C. Schuler
October 17, 1997
<PAGE>
FIRST AMENDMENT
---------------
TO
--
REGISTRATION RIGHTS AGREEMENT
-----------------------------
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT, dated as of July 30, 1998
(the "First Amendment"), by and among SciQuest, Inc., a North Carolina
corporation (the "Company"), and certain investors in Series A Preferred Stock
and Class B Common Stock of the Company (collectively, the "Stockholders").
WHEREAS, the Company and the Investors are parties to a Registration Rights
Agreement, dated as of October 17, 1997 (the "Registration Rights Agreement");
and
WHEREAS, pursuant to Section 2.1 of the Registration Rights Agreement, the
Company and the Investors desire to amend and modify the provisions of the
Registration Rights Agreement in the manner and to the extent set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein,
the Company and the Investors hereby agree as follows:
1. Amendment of Section 1.7(a). The provisions of the second sentence of
---------------------------
Section 1.7(a) (Underwriting Requirements; Priorities) of the Registration
-------------------------------------
Rights Agreement are hereby deleted in their entirety and the following
substituted in lieu thereof:
If a registration is an underwritten primary registration on behalf of the
Company (without regard to registration rights arising hereunder or under
any other agreement), and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold at the
desired price in such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such
registration by the Investors and the securities requested to be included
therein by holders with contractual registration rights other than the
Investors, pro rata among the holders of such securities on the basis of
the number of Registrable Securities or shares requested to be included
therein, and (iii) third, other securities requested to be included in such
registration, pro rata among the holders thereof on the basis of the number
of shares requested to be registered.
2. Effect of First Amendment. The provisions of the Registration Rights
-------------------------
Agreement are hereby amended and modified by the provisions of this First
Amendment. If any of the provisions of the Registration Rights Agreement are
materially different from or inconsistent with the provisions of this First
Amendment, the provisions of this First Amendment shall control, and the
provisions of the Registration Rights Agreement
<PAGE>
shall, to the extent of such difference or inconsistency, be deemed to be
amended and modified.
3. Single Agreement. This First Amendment and the Registration Rights
----------------
Agreement, as amended and modified by the provisions of this First Amendment,
shall constitute and shall be construed as a single agreement. The provisions
of the Registration Rights Agreement, as amended and modified by the provisions
of this First Amendment, are incorporated herein by this reference and are
ratified and affirmed.
[Remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been executed and delivered by
the Company and the Investors as of the date first written above.
SCIQUEST, INC.
By: /s/ Peyton Anderson
--------------------------
Name:
Title: President
SERIES A SHAREHOLDERS:
/s/ M. C. Andrews
-------------------------------
M. C. Andrews
ASPENTREE CAPITAL
/s/ William Tomai
-------------------------------
William Tomai
/s/ Bruce J. Boehm
-------------------------------
Bruce J. Boehm
/s/ Sarah Brooks Creagh
-------------------------------
Sarah Brooks Creagh
/s/ Daniel Egger
-------------------------------
Daniel Egger
/s/ William P. Few
-------------------------------
William P. Few
<PAGE>
/s/ Anita H. Garland
-------------------------------
Anita H. Garland
Ralph L. Haga Jr. and Nancy A. Haga,
Joint Tenants with Rights of Survivorship
/s/ Ralph L. Haga Jr.
-------------------------------
Ralph L. Haga, Joint Tenant
/s/ Nancy A. Haga
-------------------------------
Nancy A. Haga, Joint Tenant
/s/ Roberta B. Hardy
-------------------------------
Roberta B. Hardy
/s/ Susan M. Harwood
-------------------------------
Susan M. Harwood
/s/ Jane Newman Hines
-------------------------------
Jane Newman Hines
/s/ Willie H. Johnson, III
-------------------------------
Willie H. Johnson, III
Paul A. Jones and Laura E. Jones, Joint
Tenants with Rights of Survivorship
/s/ Paul A. Jones
-------------------------------
Paul A. Jones, Joint Tenant
/s/ Laura E. Jones
-------------------------------
Laura E. Jones, Joint Tenant
<PAGE>
Paul A. Jones, Sr. and Carol B. Jones, Joint
Tenants with Rights of Survivorship
/s/ Paul A. Jones Sr.
-------------------------------
Paul A. Jones, Joint Tenant
/s/ Carol B. Jones
-------------------------------
Carol B. Jones, Joint Tenant
/s/ Ripon W. LaRoche, II
-------------------------------
Ripon W. LaRoche, II
/s/ Lex K. Larson
-------------------------------
Lex K. Larson
/s/ Nancy N. Layne
-------------------------------
Nancy N. Layne
/s/ John B. Lewis
-------------------------------
John B. Lewis
Clive A. Morey and Joyce B. Morey, Joint
Tenants with Rights of Survivorship
/s/ Clive A. Morey
-------------------------------
Clive A. Morey, Joint Tenant
/s/ Joyce B. Morey
-------------------------------
Joyce B. Morey, Joint Tenant
/s/ Anne H. Nase
-------------------------------
Anne H. Nase
<PAGE>
/s/ Walt Newman
-------------------------------
Walt Newman
N. C. Technological Development
Authority, Inc.
By: /s/ John Ciannamea
----------------------------
Its: President
/s/ Arthur M. Pappas
-------------------------------
Arthur M. Pappas
/s/ Michael A. Recny
-------------------------------
Michael A. Recny
/s/ Charles A. Sanders
-------------------------------
Charles A. Sanders
/s/ Dwight H. Sawin, III
-------------------------------
Dwight H. Sawin, III
/s/ William C. Schuler
-------------------------------
William C. Schuler
John H. Varner and Anne T. Varner, Joint
Tenants with Rights of Survivorship
/s/ John H. Varner
-------------------------------
John H. Varner, Joint Tenant
/s/ Anne T. Varner
-------------------------------
Anne T. Varner, Joint Tenant
<PAGE>
/s/ Hunter R. Watson
-------------------------------
Hunter R. Watson
/s/ W.A. Watson, III
-------------------------------
W.A. Watson, III
CLASS B COMMON SHAREHOLDER:
/s/ Worth Godwin
-------------------------------
Worth Godwin
<PAGE>
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of this 29th day of September, 1998, by and among SCIQUEST, INC., a
North Carolina corporation (the "Company"), and the undersigned holders of
Series C Convertible Preferred Stock of the Company, (individually, a "Series C
Holder" and collectively, the "Series C Holders").
WHEREAS, pursuant to the terms of the Merger Agreement (the "Merger
Agreement") dated September 29, 1998, by and among the Company, SciQuest
Acquisition, Inc., a North Carolina corporation ("Acquisition"), and
BioSupplyNet, Inc., a Delaware corporation ("BioSupplyNet"), the Series C
Holders are acquiring an aggregate of 546,405 shares (the "Shares"), of the
Company's Series C Convertible Preferred Stock, no par value per share (the
"Series C Preferred Stock"); and
WHEREAS, the Company has agreed to provide the Series C Holders with
certain rights relating to the registration and sale of the Shares.
NOW, THEREFORE, in consideration of the covenants and promises contained
herein, the parties agree as follows:
ARTICLE 1 - REGISTRATION RIGHTS
-------------------------------
1.1 Definitions. For purposes of this Article 1, the following terms shall
-----------
have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute enacted hereafter, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
(b) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Act.
(c) "Common Stock" shall mean the Class A Common Stock, no par value per
share, of the Company.
(d) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the Commission.
(e) "Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Shares and (ii) any other shares of Common
Stock issued in respect of the Shares (on account of stock splits, stock
dividends, reclassifications, recapitalizations or similar events); provided,
--------
however, that shares of Common Stock which are Registrable Shares shall cease to
- -------
be Registrable Shares (i) upon any sale pursuant to a Registration Statement or
Rule 144
<PAGE>
under the Act or (ii) upon any sale in any manner to a person or entity which,
by virtue of Section 1.10 of this Agreement, is not entitled to the rights
provided by this Agreement.
1.2 Piggyback Registration. Subject to Section 1.8 of this Agreement, if
----------------------
at any time the Company proposes to register any of its securities under the
Act, either for its own account or for the account of others, in connection with
the public offering of such securities solely for cash, on a registration form
that would also allow the registration of the Registrable Securities, the
Company shall, each such time, promptly give each Series C Holder written notice
of such proposed registration. This provision shall not apply to a registration
solely of securities issued or issuable in connection with any stock option plan
or other employee benefit plan or in connection with a merger or acquisition.
Upon receipt by the Company of the written request of any Series C Holder given
within twenty (20) days after mailing of any such notice by the Company, the
Company shall use its best efforts to cause to be included in such registration
under the Act all the Registrable Securities that each such Series C Holder has
requested be registered.
1.3 Obligations of the Company. Whenever required under this Agreement to
--------------------------
use its best efforts to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement covering
such Registrable Securities and use its best efforts to cause such registration
statement to be declared effective by the Commission as expeditiously as
possible and to keep such registration effective until the earlier of (i) the
date when all Registrable Securities covered by the registration statement have
been sold or (ii) 180 days from the effective date of the registration
statement.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
1.3(a) and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement, and cause
the prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed with the Commission pursuant to Rule 424 under the
Act.
(c) Furnish to the selling Series C Holders such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), and each
supplement thereto as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the Registrable
Securities under the securities laws of such jurisdictions in which the Company
shall also register securities to be sold by the Company pursuant to the same
registration under the Act.
(e) Promptly notify each selling Series C Holder of such Registrable
Securities at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration statement
<PAGE>
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading and, at the request of any such
Series C Holder, the Company will prepare promptly a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading.
(f) Provide a transfer agent for all such Registrable Securities not later
than the effective date of such registration statement.
(g) Enter into underwriting agreements and related agreements in customary
form for any primary offering.
(h) Promptly notify the selling Series C Holders of Registrable Securities
and the underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (1) the filing of the
prospectus or any prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment thereto, the declaration
of the effectiveness of such documents, (2) any requests by the Commission for
amendments or supplements to the registration statement or the prospectus or for
additional information, (3) the issuance of any stop order suspending the
effectiveness of the registration statement, and (4) the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction.
(i) Whenever any provision of this Agreement requires the Company to
furnish any information to the Series C Holders or the agents or representatives
of the Series C Holders, the Company may require any such person or entity to
execute and deliver a reasonable confidentiality agreement, agreement to refrain
from trading or any other agreement necessary or prudent to protect the Company
or its officers, directors and employees against insider trading liabilities and
may restrict access to confidential trade secret information.
1.4 Furnish Information. In the event of any registration by the Company,
-------------------
the Series C Holders shall furnish to the Company such information regarding
them, the Registrable Securities and other securities of the Company held by
them, and the intended method of disposition of such Registrable Securities as
the Company shall reasonably request and as shall be required in connection with
the action to be taken by the Company. It shall be a condition precedent to the
obligation of the Company to include any Registrable Securities of an Series C
Holder in a registration effected pursuant to this Agreement for such Series C
Holder to have provided the Company with such written information regarding the
registration of such Registrable Securities as the Company shall reasonably
request.
1.5 Suspension of Disposition of Registrable Securities. Each selling
---------------------------------------------------
Series C Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 1.3(e) or 1.3(h)(2),
1.3(h)(3) or 1.3(h)(4) hereof, such Series C Holder will forthwith discontinue
disposition of Registrable Securities until such Series C Holder's receipt of
copies of a
<PAGE>
supplemented or amended prospectus contemplated by Section 1.3(e) hereof, or
until it is advised in writing by the Company that the use of the prospectus may
be resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in the prospectus, or in the case of Section
1.3(h)(2), 1.3(h)(3) or 1.3(h)(4), until the Company notifies the Series C
Holder in writing that sales of Registrable Securities may continue. If so
directed by the Company, such Series C Holder will deliver to the Company (at
the expense of the Company) all copies, other than permanent file copies then in
such Series C Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
1.6 Expenses of Registration.
------------------------
The Series C Holders shall bear the fees and expenses of their own counsel
and shall bear any additional registration and qualification fees and expenses
(including underwriters' discounts and commissions and transfer taxes), and any
additional costs and disbursements of counsel for the Company that result solely
from the inclusion of Registrable Securities held by the Series C Holders in
such registration, with such additional expenses of the registration being borne
by all selling Series C Holders pro rata on the basis of the total number of
Registrable Securities so registered; provided, however, that if any such cost
or expense is attributable solely to one selling Series C Holder and does not
constitute a normal cost or expense of a registration, such cost or expense
shall be allocated solely to that selling Series C Holder. All other expenses
of such registrations shall be borne by the Company.
1.7 Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall have the right to select the investment banker(s)
and/or manager(s) to administer any offering to which this Agreement is
applicable. If a registration is an underwritten primary registration on behalf
of the Company (without regard to registration rights arising hereunder or under
any other agreement), and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold at the desired price
in such offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration by the Series C Holders and the
securities requested to be included therein by holders of securities with
contractual registration rights other than the Series C Holders, pro rata among
the holders of all such securities on the basis of the number of Registrable
Securities or shares requested to be included therein, and (iii) third, other
securities requested to be included in such registration, pro rata among the
holders thereof on the basis of the number of shares requested to be registered.
If a registration is an underwritten secondary registration on behalf of holders
of securities of the Company, or a combined primary and secondary offering, and
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold at the desired price in such offering, the Company
will include in such registration (i) first, securities the Company proposes to
sell, (ii) second, the securities requested to be included therein by holders of
securities with contractual registration rights that are senior to those of the
Series C Holders, pro rata among the holders of such securities on the basis of
the number of shares requested to be included therein, (iii) third,
<PAGE>
the securities requested to be included therein by Series C Holders and by the
holders of securities with contractual registration rights that are in parity
with the rights of the Series C Holders, pro rata among such Series C Holders
and other holders on the basis of the number of shares requested to be included
therein, and (iv) fourth, other securities requested to be included in such
registration, including securities to be sold by holders without contractual
registration rights.
(b) No Series C Holder may participate in any underwritten registration
hereunder unless such Series C Holder (i) agrees to sell such Series C Holder's
securities on the basis provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
1.8 Limitation of the Company's Obligations.
---------------------------------------
(a) The Company may, in its sole discretion, postpone or withdraw any
registration in which Registrable Securities have been included pursuant to this
Agreement without obligation to the Series C Holders.
(b) The Company shall not be obligated under this Agreement to register
or include in any registration Registrable Securities that any Series C Holder
has requested to be registered if the Company shall furnish such Series C Holder
with a written opinion of counsel reasonably satisfactory to such Series C
Holder, that all Registrable Securities that such Series C Holder holds may be
publicly offered, sold and distributed without registration under the Act
pursuant to Rule 144 promulgated by the Commission under the Act in any three-
month period without restriction as to the amount of securities that can be
sold.
(c) The Company may, in its sole discretion, grant to any owner of
securities of the Company registration rights of any kind or nature.
1.9 Lockup Agreement. For so long as a Series C Holder has the right to
----------------
have Registrable Securities included in any registration pursuant to this
Agreement, the Series C Holder agrees in connection with any registration of the
Company's securities, upon the request of the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, pledge, grant any option for the purchase of or otherwise dispose of
any Registrable Securities (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, during the seven (7) days prior to and during the 180-day period
beginning on the effective date of such registration, as the Company or the
underwriters may specify. This provision shall apply whether or not any
Registrable Securities of the Series C Holder are included in the offering.
1.10 Transfer of Registration Rights. Provided that the Company is given
-------------------------------
written notice by the Series C Holder at the time of such transfer stating the
name and address of the transferee and identifying the securities with respect
to which the rights under this Agreement are
<PAGE>
being assigned and such transferee agrees in writing to be bound by the terms of
this Agreement, the registration rights under this Agreement may be transferred
in whole or in part at any time to any transferee of Registrable Securities.
Upon such transfer, the transferee shall be deemed to be a Series C Holder for
all purposes hereunder.
1.11 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify and hold harmless each Series C Holder whose Registrable
Securities are included in a registration, each director, officer, partner,
employee, or agent for such Series C Holder, any underwriter (as defined in the
Act) for such Series C Holder, and each person, if any, who controls such Series
C Holder or underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the Act and applicable state securities laws insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based on any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein in light of the
circumstances under which they were made or necessary to make the statements
therein not misleading or arise out of any violation by the Company of any rule
or regulation promulgated under the Act applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration; and will reimburse each such person or entity for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity 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
an untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by or on behalf of any such Series C Holder, underwriter
or controlling person.
(b) To the fullest extent permitted by law, each Series C Holder whose
Registrable Securities are included in a registration under this Agreement,
severally and not jointly, will, and hereby does, 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 Act, and any underwriter for the Company (within the meaning of
the Act), each other selling Series C Holder and each person, if any, who
controls such other selling Series C Holder or underwriter within the meaning of
the Act against any losses, claims, damages or liabilities, joint or several, to
which the Company or any such director, officer, controlling person, selling
Series C Holder or underwriter may become subject, under the Act and applicable
state securities laws, insofar as such losses, claims, damages or liabilities
(or
<PAGE>
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon 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
in light of the circumstances, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Series C Holder expressly
for use in connection with such registration; and each such Series C Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, selling Series C Holder or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity 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 such Series C
Holder (which consent shall not be unreasonably withheld).
In no event shall the liability by reason of this contractual indemnity of
any selling Series C Holder hereunder be greater than the dollar amount of the
proceeds received by such Series C Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. Any Series C Holder
required to indemnify the Company as provided above shall cease to have the
right to participate in any other registration pursuant to this Agreement.
(c) In order to provide for just and equitable contribution to joint
liability under the Act in circumstances in which the indemnity provisions
provided for in this section are for any reason held to be unavailable to the
indemnified parties although applicable in accordance with its terms; then, in
each such case, the Company and such Series C Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportions as shall be appropriate to
reflect the relative fault of the Company, on the one hand, and the Series C
Holder, on the other hand, with such relative fault determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Series C Holder, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
-------- -------
(A) no such Series C Holder will be required to contribute any amount in excess
of the proceeds to it of all Registrable Securities sold by it pursuant to such
registration statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Act, shall be
entitled to contribution from any person or entity who is not guilty of such
fraudulent misrepresentation.
ARTICLE 2 - MISCELLANEOUS
-------------------------
2.1 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may be amended, modified or supplemented, and
waivers or consents
<PAGE>
to departures from the provisions hereof may be given, by written consent of the
Company and the Series C Holders of at least seventy percent (70%) of the
outstanding Registrable Securities; provided, that this Agreement may be amended
--------
with the consent of the holders of less than all Registrable Securities only in
a manner which affects all Registration Securities in the same fashion. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.
2.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
2.3 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
2.4 Notices. All notices required or permitted to be sent shall be sent
-------
to the addresses of the parties set forth on their respective signature pages,
or to such other address as any party shall provide to the other parties in a
notice sent in accordance with this Agreement. Any notice sent by registered or
certified mail, return receipt requested, or by Federal Express or other
reputable nationwide overnight delivery service, shall be deemed to have been
received by the party to whom it was sent upon receipt of confirmation of
delivery if sent by registered or certified mail and one day following the date
it was sent if sent by Federal Express or other reputable nationwide overnight
delivery service. Any notice sent by any other means shall be deemed to have
been received when it is actually received at the address provided above.
2.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
2.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
2.7 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. Nothing
in this Agreement shall preclude the Company from entering into any other
agreement having the same or different terms with any Series C Holder or any
third party with respect to registration rights or related matters.
<PAGE>
2.8 Parties Benefited. Nothing in this Agreement, express or implied, is
-----------------
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement under seal
as of the date provided below:
THE COMPANY:
SCIQUEST, INC.
By: /s/ Peyton C. Anderson
-------------------------------
Name: Peyton C. Anderson
Title: Exec. Vice President
THE SERIES C HOLDERS:
HARRIS & HARRIS GROUP, INC.
By: /s/ Mel P. Melsheimer
-------------------------------
Name: Mel P. Melsheimer
Title: President
COLD SPRING HARBOR LABORATORY
By: /s/ W. Dillaway Ayres, Jr.
-------------------------------
Name: W. Dillaway Ayres, Jr.
Title: Associate Administrative Director
/s/ Eric J. Gleacher
-----------------------------------
Eric J. Gleacher
/s/ James Goodwin
-----------------------------------
James Goodwin
/s/ Emil W. Henry, Jr.
-----------------------------------
Emil W. Henry, Jr.
/s/ Charles Phillips
-----------------------------------
Charles Phillips
<PAGE>
/s/ Michiel McCarty
-----------------------------------
Michiel McCarty
/s/ Roger Hoit
-----------------------------------
Roger Hoit
/s/ Thomas P. Riley
-----------------------------------
Thomas P. Riley
/s/ Andrew Gilman
-----------------------------------
Andrew Gilman
/s/ Max Holmes
-----------------------------------
Max Holmes
/s/ John Huwiler
-----------------------------------
John Huwiler
/s/ Jeffrey H. Tepper
-----------------------------------
Jeffrey H. Tepper
/s/ David Mills
-----------------------------------
David Mills
<PAGE>
EXHIBIT 10.13
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of this 1/st/ day of March, 1999, by and among SCIQUEST.COM,
INC., a Delaware corporation (the "Company"), and the undersigned holder of
Series C Convertible Preferred Stock of the Company (the "Series C Holder").
WHEREAS, the Series C Holder has agreed to purchase 89,704 shares of
the Series C Convertible Preferred Stock of the Company (the "Shares"); and
WHEREAS, the Company has agreed to provide the Series C Holder with
certain rights relating to the registration and sale of the Shares.
NOW, THEREFORE, in consideration of the covenants and promises
contained herein, the parties agree as follows:
ARTICLE 1 - REGISTRATION RIGHTS
-------------------------------
1.1 Definitions. For purposes of this Article 1, the following terms
-----------
shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute enacted hereafter, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
(b) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
(c) "Common Stock" shall mean the Class A Common Stock, no par value
per share, of the Company.
(d) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the Commission.
(e) "Registrable Securities" shall mean (i) shares of Common Stock
issued or issuable upon conversion of the Shares and (ii) any other shares of
Common Stock issued in respect of the Shares (on account of stock splits, stock
dividends, reclassifications, recapitalizations or similar events); provided,
--------
however, that shares of Common Stock which are Registrable Shares shall cease to
- -------
be Registrable Shares (i) upon any sale pursuant to a Registration Statement or
Rule 144 under the Act or (ii) upon any sale in any manner to a person or entity
which, by virtue of Section 1.10 of this Agreement, is not entitled to the
rights provided by this Agreement.
1.2 Piggyback Registration. Subject to Section 1.8 of this
----------------------
Agreement, if at any time the Company proposes to register any of its securities
under the Act, either for its own account or
<PAGE>
for the account of others, in connection with the public offering of such
securities solely for cash, on a registration form that would also allow the
registration of the Registrable Securities, the Company shall, each such time,
promptly give the Series C Holder written notice of such proposed registration.
This provision shall not apply to a registration solely of securities issued or
issuable in connection with any stock option plan or other employee benefit plan
or in connection with a merger or acquisition. Upon receipt by the Company of
the written request of the Series C Holder given within twenty (20) days after
mailing of any such notice by the Company, the Company shall use its best
efforts to cause to be included in such registration under the Act all the
Registrable Securities that the Series C Holder has requested be registered.
1.3 Obligations of the Company. Whenever required under this
--------------------------
Agreement to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement
covering such Registrable Securities and use its best efforts to cause such
registration statement to be declared effective by the Commission as
expeditiously as possible and to keep such registration effective until the
earlier of (i) the date when all Registrable Securities covered by the
registration statement have been sold or (ii) 180 days from the effective date
of the registration statement.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
1.3(a) and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement, and cause
the prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed with the Commission pursuant to Rule 424 under the
Act.
(c) Furnish to the Series C Holder such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), and each
supplement thereto as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the Registrable
Securities under the securities laws of such jurisdictions in which the Company
shall also register securities to be sold by the Company pursuant to the same
registration under the Act.
(e) Promptly notify the Series C Holder (if such Series C Holder
holds Registrable Securities) at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading and, at the request of the Series C Holder,
the Company will prepare promptly a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not
2
<PAGE>
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.
(f) Provide a transfer agent for all such Registrable Securities not later
than the effective date of such registration statement.
(g) Enter into underwriting agreements and related agreements in customary
form for any primary offering.
(h) Promptly notify the Series C Holder (if such Series C Holder holds
Registrable Securities) and the underwriters, if any, of the following events
and (if requested by any such person) confirm such notification in writing: (1)
the filing of the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment thereto and, with
respect to the registration statement or any post-effective amendment thereto,
the declaration of the effectiveness of such documents, (2) any requests by the
Commission for amendments or supplements to the registration statement or the
prospectus or for additional information, (3) the issuance of any stop order
suspending the effectiveness of the registration statement, and (4) the receipt
by the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction.
(i) Whenever any provision of this Agreement requires the Company to
furnish any information to the Series C Holder or its agents or representatives,
the Company may require any such person or entity to execute and deliver a
reasonable confidentiality agreement, agreement to refrain from trading or any
other agreement necessary or prudent to protect the Company or its officers,
directors and employees against insider trading liabilities and may restrict
access to confidential trade secret information.
1.4 Furnish Information. In the event of any registration by the
-------------------
Company, the Series C Holder shall furnish to the Company such information
regarding itself, the Registrable Securities and other securities of the Company
held by such holder, and the intended method of disposition of such Registrable
Securities as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company. It shall be a condition
precedent to the obligation of the Company to include any Registrable Securities
of the Series C Holder in a registration effected pursuant to this Agreement for
the Series C Holder to have provided the Company with such written information
regarding the registration of such Registrable Securities as the Company shall
reasonably request.
1.5 Suspension of Disposition of Registrable Securities. The Series C
---------------------------------------------------
Holder agrees by acquisition of such Registrable Securities that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 1.3(e) or 1.3(h)(2), 1.3(h)(3) or 1.3(h)(4) hereof, the
Series C Holder will forthwith discontinue disposition of Registrable Securities
until its receipt of copies of a supplemented or amended prospectus contemplated
by Section 1.3(e) hereof, or until it is advised in writing by the Company that
the use of the
3
<PAGE>
prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus, or
in the case of Section 1.3(h)(2), 1.3(h)(3) or 1.3(h)(4), until the Company
notifies the Series C Holder in writing that sales of Registrable Securities may
continue. If so directed by the Company, the Series C Holder will deliver to the
Company (at the expense of the Company) all copies, other than permanent file
copies then in the Series C Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
1.6 Expenses of Registration.
------------------------
The Series C Holder shall bear the fees and expenses of their such holder's
own counsel and shall bear any additional registration and qualification fees
and expenses (including underwriters' discounts and commissions and transfer
taxes), and any additional costs and disbursements of counsel for the Company
that result solely from the inclusion of Registrable Securities held by the
Series C Holder in such registration. All other expenses of such registrations
shall be borne by the Company.
1.7 Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall have the right to select the investment banker(s)
and/or manager(s) to administer any offering to which this Agreement is
applicable. If a registration is an underwritten primary registration on behalf
of the Company (without regard to registration rights arising hereunder or under
any other agreement), and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold at the desired price
in such offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration by the Series C Holder and the
securities requested to be included therein by holders of securities with
contractual registration rights other than the Series C Holder, pro rata among
the holders of all such securities on the basis of the number of Registrable
Securities or shares requested to be included therein, and (iii) third, other
securities requested to be included in such registration, pro rata among the
holders thereof on the basis of the number of shares requested to be registered.
If a registration is an underwritten secondary registration on behalf of holders
of securities of the Company, or a combined primary and secondary offering, and
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold at the desired price in such offering, the Company
will include in such registration (i) first, securities the Company proposes to
sell, (ii) second, the securities requested to be included therein by holders of
securities with contractual registration rights that are senior to those of the
Series C Holder, pro rata among the holders of such securities on the basis of
the number of shares requested to be included therein, (iii) third, the
securities requested to be included therein by the Series C Holder and by the
holders of securities with contractual registration rights that are in parity
with the rights of the Series C Holder, pro rata among such Series C Holder and
other holders on the basis of the number of
4
<PAGE>
shares requested to be included therein, and (iv) fourth, other securities
requested to be included in such registration, including securities to be sold
by holders without contractual registration rights.
(b) The Series C Holder may not participate in any underwritten
registration hereunder unless the Series C Holder (i) agrees to sell its
securities on the basis provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
1.8 Limitation of the Company's Obligations.
---------------------------------------
(a) The Company may, in its sole discretion, postpone or withdraw any
registration in which Registrable Securities have been included pursuant to this
Agreement without obligation to the Series C Holder.
(b) The Company shall not be obligated under this Agreement to register
or include in any registration Registrable Securities that the Series C Holder
has requested to be registered if the Company shall furnish the Series C Holder
with a written opinion of counsel reasonably satisfactory to the Series C
Holder, that all Registrable Securities that the Series C Holder holds may be
publicly offered, sold and distributed without registration under the Act
pursuant to Rule 144 promulgated by the Commission under the Act in any three-
month period without restriction as to the amount of securities that can be
sold.
(c) The Company may, in its sole discretion, grant to any owner of
securities of the Company registration rights of any kind or nature.
1.9 Lockup Agreement. For so long as the Series C Holder has the right
----------------
to have Registrable Securities included in any registration pursuant to this
Agreement, the Series C Holder agrees in connection with any registration of the
Company's securities, upon the request of the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, pledge, grant any option for the purchase of or otherwise dispose of
any Registrable Securities (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, during the seven (7) days prior to and during the 180-day period
beginning on the effective date of such registration, as the Company or the
underwriters may specify. This provision shall apply whether or not any
Registrable Securities of the Series C Holder are included in the offering.
1.10 Transfer of Registration Rights. Provided that the Company is given
-------------------------------
written notice by the Series C Holder at the time of such transfer stating the
name and address of the transferee and identifying the securities with respect
to which the rights under this Agreement are being assigned and such transferee
agrees in writing to be bound by the terms of this Agreement,
5
<PAGE>
the registration rights under this Agreement may be transferred in whole or in
part at any time to any transferee of Registrable Securities. Upon such
transfer, the transferee shall be deemed to be the Series C Holder for all
purposes hereunder.
1.11 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify and hold harmless the Series C Holder (if such holder's
Registrable Securities are included in a registration), each director, officer,
partner, employee, or agent for the Series C Holder, any underwriter (as defined
in the Act) for the Series C Holder, and each person, if any, who controls the
Series C Holder or underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Act and applicable state securities laws insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based on any untrue or alleged untrue statement of any
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
in light of the circumstances under which they were made or necessary to make
the statements therein not misleading or arise out of any violation by the
Company of any rule or regulation promulgated under the Act applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration; and will reimburse each such person or entity for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity 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 an untrue statement or alleged untrue statement
or omission or alleged omission made in connection with such registration
statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by or on behalf
of the Series C Holder, underwriter or controlling person.
(b) To the fullest extent permitted by law, the Series C Holder (if such
holder's Registrable Securities are included in a registration under this
Agreement), will, and hereby does, 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 Act, and any underwriter for the Company (within the meaning of the Act),
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director, officer, controlling person or underwriter may
become subject, under the Act and applicable state securities laws, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
6
<PAGE>
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon 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 in light of the
circumstances, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such registration statement, preliminary or final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by the Series C Holder expressly for use in
connection with such registration; and the Series C Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person or underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity 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 Series C Holder (which consent shall not be unreasonably
withheld).
In no event shall the liability by reason of this contractual indemnity of
the Series C Holder hereunder be greater than the dollar amount of the proceeds
received by the Series C Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation. If the Series C Holder is
required to indemnify the Company as provided above, it shall cease to have the
right to participate in any other registration pursuant to this Agreement.
(c) In order to provide for just and equitable contribution to joint
liability under the Act in circumstances in which the indemnity provisions
provided for in this section are for any reason held to be unavailable to the
indemnified parties although applicable in accordance with its terms; then, in
each such case, the Company and the Series C Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportions as shall be appropriate to
reflect the relative fault of the Company, on the one hand, and the Series C
Holder, on the other hand, with such relative fault determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Series C Holder, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
-------- -------
(A) the Series C Holder will not be required to contribute any amount in excess
of the proceeds to it of all Registrable Securities sold by it pursuant to such
registration statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Act, shall be
entitled to contribution from any person or entity who is not guilty of such
fraudulent misrepresentation.
ARTICLE 2 - MISCELLANEOUS
-------------------------
2.1 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given, by
written consent of the Company and
7
<PAGE>
the Series C Holder. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
2.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
2.3 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
2.4 Notices. All notices required or permitted to be sent shall be sent
-------
to the addresses of the parties set forth on their respective signature pages,
or to such other address as any party shall provide to the other parties in a
notice sent in accordance with this Agreement. Any notice sent by registered or
certified mail, return receipt requested, or by Federal Express or other
reputable nationwide overnight delivery service, shall be deemed to have been
received by the party to whom it was sent upon receipt of confirmation of
delivery if sent by registered or certified mail and one day following the date
it was sent if sent by Federal Express or other reputable nationwide overnight
delivery service. Any notice sent by any other means shall be deemed to have
been received when it is actually received at the address provided above.
2.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
2.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
2.7 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. Nothing
in this Agreement shall preclude the Company from entering into any other
agreement having the same or different terms with any third party with respect
to registration rights or related matters.
2.8 Parties Benefited. Nothing in this Agreement, express or implied, is
-----------------
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement under seal
as of the date provided below.
THE COMPANY:
SCIQUEST.COM, INC.
By: /s/ James J. Scheuer
-----------------------
Name: James J. Scheuer
Title: Chief Financial Officer
THE SERIES C HOLDER:
/s/ Antony Francis
----------------------------
Antony Francis
9
<PAGE>
EXHIBIT 10.14
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of May 18, 1999 among SciQuest.com, Inc., a
Delaware corporation (the "Company"); the holders (the "Series B Purchasers") of
the Company's Series B Preferred Stock, $0.001 par value per share (the "Series
B Preferred Stock") and those persons (the "Series D Purchasers") purchasing the
Company's Series D Preferred Stock, $0.001 par value per share (the "Series D
Preferred Stock"), as set forth on Schedule I hereto. The Series B Purchasers
and the Series D Purchasers are hereinafter referred to collectively as the
"Stockholders."
WHEREAS, the Company and the Series B Purchasers are party to that
certain Stock Purchase Agreement dated as of July 30, 1998, as amended on
October 2, 1998 and November 19, 1998 (together, the "Original Agreement");
WHEREAS, Article 8 of the Original Agreement provides for certain
registration rights with respect to the Series B Preferred Stock;
WHEREAS, the Original Agreement provides that it may be amended with
the written consent of the Company and the holders of at least a majority of the
then issued and outstanding shares of Series B Preferred Stock (the "Requisite
Series B Purchasers");
WHEREAS, pursuant to a Stock and Warrant Purchase Agreement dated as
of the date hereof between the Company and the Series D Purchasers (the "Series
D Purchase Agreement"), the Series D Purchasers are purchasing Series D
Preferred Stock and Common Stock Purchase Warrants;
WHEREAS, it is a condition to the obligations of the Series D
Purchasers pursuant to the Series D Purchase Agreement that this Agreement be
executed by the parties hereto, and the parties are willing to execute this
Agreement and to be bound by the provisions hereof; and
WHEREAS, the Company and the Requisite Series B Purchasers desire to
terminate the rights provided under Article 8 of the Original Agreement and have
them be of no further force and effect and enter into this Agreement, upon the
terms and subject to the conditions set forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, in addition to the
-------------------
terms defined above, the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
<PAGE>
"Common Stock" shall mean the Class A Common Stock, $0.001 par value, of
------------
the Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean the shares of Common Stock issued upon
-----------------
conversion of the Preferred Shares or issued pursuant to any stock split, stock
dividend, recapitalization or similar event, upon the conversion of such
additional shares.
"Founder" shall mean Peyton Anderson, Scott Andrews, Keith Gunter and
-------
Robert Feigler.
"Holders" shall mean the Series B Purchasers and the Series D Purchasers
-------
and any other person holding Registrable Securities to whom these registration
rights have been transferred pursuant to Section 11 hereof.
"Initial Public Offering" shall mean the effectiveness of the filing of the
-----------------------
first registration statement under the Securities Act that covers the offer and
sale by the Company to the public of Common Stock.
"Other Shareholders" shall mean persons other than Holders who, by virtue
------------------
of agreements with the Company, are entitled to include their securities in a
registration effected pursuant to this Agreement.
"Preferred Shares" shall mean the Series B Preferred Stock and the Series D
----------------
Preferred Stock.
The terms "register," "registered" and "registration" refer to the
-------- ---------- ------------
effectiveness of a registration statement prepared and filed in compliance with
the Securities Act.
"Registrable Securities" as of any particular time shall mean the Series B
----------------------
Registrable Securities and the Series D Registrable Securities, each as defined
below.
"Registration Expenses" shall mean all expenses incurred by the Company in
---------------------
complying with Sections 2, 3 and 4 hereof, including, without limitation, all
registration and filing fees; printing expenses; fees and disbursements of
counsel for the Company; reasonable fees and expenses of a single counsel for
the selling Holders; state "blue sky" fees and expenses; and accountants'
expenses, including without limitation 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, and
excluding also any additional disbursements of counsel for the selling Holders,
which shall be paid by such selling Holders.
"Securities Act" shall mean the federal Securities Act of 1933, as amended,
--------------
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at any particular time.
"Securities Exchange Act" shall mean the federal Securities Exchange Act of
-----------------------
1934, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at any
particular time.
<PAGE>
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and transfer taxes applicable to the sale of Registrable Securities
and any other securities of the Company being sold in the same registration as
the Registrable Securities by Other Shareholders.
"Series B Conversion Shares" shall mean shares of Common Stock issued upon
--------------------------
conversion of the Series B Preferred Stock.
"Series D Conversion Shares" shall mean shares of Common Stock issued upon
--------------------------
conversion of the Series D Preferred Stock.
"Series B Registrable Securities" as of any particular time shall mean (i)
-------------------------------
all then issued and outstanding Series B Conversion Shares, and (ii) all shares
of Common Stock issuable, yet not actually issued, upon conversion of the then
outstanding Series B Preferred Stock and upon conversion of any additional
shares of Series B Preferred Stock issued pursuant to any stock split, stock
dividend, recapitalization or similar event; provided, however, that no shares
shall be included in any registration under this Agreement unless such shares
shall have been first converted to Common Stock.
"Series D Registrable Securities" as of any particular time shall mean (i)
-------------------------------
all then issued and outstanding Series D Conversion Shares, (ii) all shares of
Common Stock issuable, yet not actually issued, upon conversion of the then
outstanding Series D Preferred Stock and upon conversion of any additional
shares of Series D Preferred Stock issued pursuant to any stock split, stock
dividend, recapitalization or similar event, and (iii) all shares of Common
Stock issuable under those certain Common Stock Purchase Warrants which were
issued and sold pursuant to the Series D Purchase Agreement; provided, however,
that no securities shall be included in any registration under this Agreement
unless such securities shall have been first converted to Common Stock.
2. Requested Registration
----------------------
2.1. Demand Registration Rights. Subject to the conditions of
--------------------------
Section 2.2 below, the Holders may make certain demands on the Company to
register all or a part of the Registrable Securities (each being referred to
hereinafter as a "Demand Registration") as follows:
(a) Series B Purchasers. The holders of at least thirty
-------------------
percent (30%) of the Series B Registrable Securities may make two (2) demands on
the Company to register all or a portion of the Registrable Securities on Form
S-1 or such other form that may be available to the Company to effect such
Demand Registration following the earlier of (x) twelve (12) months from the
date that the Initial Public Offering is consummated and (y) July 30, 2000.
(b) Series D Purchasers. The holders of at least twenty-five
-------------------
percent (25%) of the Series D Registrable Securities may make two (2) demands on
the Company to register all or a portion of the Registrable Securities on Form
S-1 or such other form that may be available to the Company to effect such
Demand Registration following the earlier of (x) twelve (12) months from the
date that the Initial Public Offering is consummated and (y) May 18, 2001.
<PAGE>
2.2. Request for Registration. In the event the Company shall
------------------------
receive a written request from the requisite number of holders of Registrable
Securities, as set forth in Sections 2.1(a) and 2.1(b) hereof (the "Initiating
Holders") that the Company effect a Demand Registration with respect to all or a
part of the Registrable Securities, the Company shall:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent 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 such
portion of such Registrable Securities as is specified in such request, together
with such portion of the Registrable Securities of any Holder or Holders joining
in such request as is specified in a written request given within twenty (20)
days after receipt of such written notice from the Company; provided that the
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section 2:
(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;
(B) during the period following an Initial Public
Offering that is contemplated by Section 12 hereof, provided that the "market
stand-off" effected by any such extension is applicable against the persons
described in Section 12(ii);
(C) if such registration would exceed the number of
registrations specified for the Holders in Section 2.1(a) or 2.1(b), as the case
may be; or
(D) within twelve (12) months after the effective date
of a registration statement previously filed by the Company.
In the event the Company is not obligated to effect any requested
registration by virtue of the foregoing clauses (A) through (D) and does not
effect such requested registration, such request shall not be deemed to be a
demand for registration for purposes of Section 2.1. Subject to the foregoing
clauses (A) through (D), the Company shall file a registration statement
covering the Registrable Securities so requested to be registered as soon as
practicable after receipt of the request of the Initiating Holders; provided,
however, that if the Company shall furnish to the Initiating Holders a
certificate signed by the President of the Company stating that in the good-
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
ninety (90) days after receipt of the request of the Initiating Holders.
<PAGE>
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 2.3 below, include securities
offered by the Company for its own account and/or other securities of the
Company that are held by Other Shareholders.
2.3. Underwriters. 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 2.1 and the Company shall include such information in the written notice
referred to in Section 2.2(i) hereof. The right of any Holder to registration
pursuant to this Section 2 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 the Initiating Holders
and such Holder) to the extent provided herein.
If the Company shall request inclusion in any registration pursuant to
Section 2 of securities being sold for its own account, or if Other Shareholders
shall request inclusion in any registration pursuant hereto, then, subject to
the last sentence of this Section 2.3 with respect to the Company's request, the
Initiating Holders shall, on behalf of all Holders, offer to include such
securities in the underwriting and may condition such offer on their acceptance
of the further applicable provisions of this Agreement. The Company shall
(together with all Holders and Other Shareholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form and containing customary terms reasonably acceptable to the
Initiating Holders, with the representative of the underwriter or underwriters
selected for such underwriting by the Company and reasonably acceptable to the
Initiating Holders; provided, however, that if the Company has not selected an
underwriter reasonably acceptable to the Initiating Holders within thirty (30)
days after the Company's receipt of the request for registration from the
Initiating Holders, then the Initiating Holders may select an underwriter
reasonably acceptable to the Company in connection with such registration.
Notwithstanding any other provision of this Section 2, if the underwriter
representative advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, the securities
of the Company held by Other Shareholders shall first be excluded from such
registration to the extent so required by such limitation, and, to the extent
additional shares need to be excluded in order to conform to such limitation,
the securities requested by the Company to be included, if any, shall next be
excluded, and, finally, to the extent additional shares need to be excluded,
Registrable Securities requested to be included shall be excluded from such
registration to the extent so required, reduced on a pro rata basis in
proportion to the number of shares of Registrable Securities owned by them. The
Company shall advise all holders of securities requesting registration as to the
number of shares of securities that may be included in the registration and
underwriting as allocated in the foregoing manner. If any Other Shareholder or
Holder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
The Company may include its securities for its own account in such underwritten
registration if the underwriter so agrees and if the number of Registrable
Securities and other securities of the Holders that would otherwise have been
included in such registration and underwriting will not be limited thereby.
<PAGE>
2.4. Deferral of Registration. If the Company shall furnish to the
------------------------
Initiating Holders a certificate signed by its President or Chief Executive
Officer stating that, in the good faith judgment of the Company's Board, it
would require the disclosure of material information that would have a Material
Adverse Effect on the Company and its shareholders for such registration to be
effected at such time, the Company shall have the right to defer the filing of
the registration statement for a period of not more than one hundred twenty
(120) days after the receipt of the request of the Holders under this Section 2,
except that the Company shall not utilize this right more than once in any 12-
month period.
3. Company Registration.
--------------------
3.1. If the Company shall determine to register any of its
securities in connection with the public offering of such securities solely for
cash on a form that would permit the registration of the Registrable Securities,
the Company shall promptly give to each Holder written notice of such
registration (a "Piggyback Registration"), which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable blue sky or other state securities laws; and include in
such registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by any Holder or
Holders within fifteen (15) days after receipt of such written notice from the
Company, subject to the underwriter limitations, if any, described in Section
3.5 hereof. The Company shall have the right to withdraw or cease to prepare or
file any registration statement for any offering referred to in this Section 3.1
without any obligation or liability to any Holder.
3.2. Number of Piggyback Registrations. Subject to the underwriter
---------------------------------
limitations, if any, described in Section 3.5 below, each Holder shall be
entitled to have its Registrable Securities included in an unlimited number of
Piggyback Registrations pursuant to this Section 3.
3.3. Participation in Initial Public Offering. If the holders of
----------------------------------------
not less than twenty-five percent (25%) of the Series D Registrable Securities
request that up to twenty-five percent (25%) of the Common Stock issuable upon
conversion of the Series D Preferred Stock be included in the Company's
registration statements on Form S-1, including the Company's filing for its
Initial Public Offering, the Company and its underwriters will use their best
efforts to include such shares of Series D Registrable Securities in the
registration statement on Form S-1 unless the Company and its lead underwriter
determine that it is not in the Company's best interests to do so.
Notwithstanding anything to the contrary contained in this Section 3, if the
underwriter reasonably determines that marketing factors require a limitation of
the number of shares to be underwritten, the number of shares to be underwritten
shall be allocated first to the Company, next to the holders of the Series D
Registrable Securities on a pro rata basis based on the number of shares of
Series D Registrable Securities owned by them and then to all other holders
seeking to participate in the registration.
3.4. Holdback by the Company. If the Company has previously filed a
-----------------------
registration statement with respect to Registrable Securities pursuant to
Section 2 or pursuant to
<PAGE>
this Section 3, and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-4, Form S-8 or any successor forms), whether on its own
behalf or at the request of any Holder or Holders of such securities, until a
period of one hundred eighty (180) days has elapsed from the effective date of
such a previous registration.
3.5. Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, other than
the Company's Initial Public Offering, the Company shall so advise the Holders
as a part of the written notice given pursuant to Section 3.1 hereof. In such
event the right of any Holder to registration pursuant to Section 3.1 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 securities
through such underwriting shall (together with the Company and Other
Shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 3 (but subject to the special exception described in Section 3.3
above), if the underwriter reasonably determines that marketing factors require
a limitation on the number of shares to be underwritten, the number of shares
that may be included in the registration shall first be allocated to the
Company, then allocated pro rata among the holders of Registrable Securities and
Other Shareholders requesting registration in proportion (as nearly as possible)
to the respective amounts of Registrable Securities and other securities that
such Holders and Other Shareholders had requested to be included in such
registration. The Company shall advise all holders of securities requesting
registration as to the number of shares or securities that may be included in
the registration and underwriting as allocated in the foregoing manner. No such
reduction shall be made with respect to securities offered by the Company for
its own account. If any Holder or Other Shareholder disapproves of the terms of
any such underwriting, such person may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall also be withdrawn
from such registration.
4. Form S-3 Registration. If, at a time when Form S-3 is available for
---------------------
the registration of Registrable Securities and the Company is eligible to use
Form S-3 for such registration, the Company shall receive from the Holders of
Registrable Securities a written request that the Company effect a registration
on Form S-3, as a shelf registration or otherwise, of any such Holder's
Registrable Securities, the Company will promptly give written notice of the
proposed registration to all other Holders and, as soon as practicable, effect
such registration and all such related qualifications and compliances as may be
reasonably requested and as would permit or facilitate the sale and distribution
of all Registered Securities as are specified in such request and any written
requests of other Holders given within 20 days after receipt of such notice.
The Company shall have no obligation to effect a registration requested by a
holder of Series B Registrable Securities under this Section 4 unless the
aggregate offering price of the securities requested to be sold pursuant to such
registration is, in the good faith judgment of the Company, expected to be equal
to or greater than $500,000. The Company shall have no
<PAGE>
obligation to effect a registration requested by a holder of Series D
Registrable Securities under this Section 4 unless the aggregate offering price
of the securities requested to be sold pursuant to such registration is, in the
good faith judgment of the Company, expected to be equal to or greater than
$1,000,000.
5. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Sections 2 and 3 of this Agreement and the first two (2) registrations effected
by each of the holders of Series B Registrable Securities and the holders of the
Series D Registrable Securities pursuant to Section 4 of this Agreement shall be
borne by the Company; and all Selling Expenses shall be borne by the Holders and
the Other Shareholders of the securities so registered pro rata on the basis of
the number of their shares so registered; provided, however, that if, as a
result of the withdrawal of a request for registration by the Initiating Holders
pursuant to Section 2 hereof, the registration statement does not become
effective, in which case the Holders and Other Shareholders requesting
registration shall have the option of bearing such Registration Expenses pro
rata on the basis of the number of their shares so included in the registration
request (except for the fees of any counsel for the Holders, which shall be
borne only by the persons whom such counsel represented, pro rata on the basis
of the number of their shares so included in the registration request); in which
case such registration shall not be counted as a registration pursuant to
Section 2.1 hereof; and provided, further, that if any jurisdiction in which the
securities shall be qualified shall require that expenses incurred in connection
with the qualification of the securities in that jurisdiction be borne by the
selling shareholders, then such expenses shall be payable by the selling
shareholders pro rata to the extent required by such jurisdiction.
6. Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Agreement, the Company shall keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense the Company shall use its best efforts to:
6.1. keep such registration effective for a period of one hundred
eighty (180) days unless the registration is a "shelf" registration on Form S-3
pursuant to rule 415 (or any successor rule thereto under the Securities Act),
in which case the time period for effectiveness shall be two (2) years, or until
the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; and
6.2. furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
7. Indemnification.
---------------
7.1. With respect to each Holder whose securities have been
registered or qualified pursuant to this Agreement, the Company shall indemnify
such Holder, each of such Holder's officers, directors and partners, and each
person controlling (as defined in the Securities Act) such Holder and each of
such controlling person's officers, directors and partners, and shall also
indemnify each underwriter, if any, and each person who controls any
underwriter, against
<PAGE>
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which such statements were made, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and shall reimburse each such Holder and each person controlling
such Holder, and each of such controlling person's officers, directors and
partners, each of its officers, directors and partners, each such underwriter,
and each person who controls such underwriter, for any legal and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based upon written information
furnished to the Company in an instrument duly executed by the Holder or
underwriter seeking to be indemnified, where such information was provided
specifically for use in such prospectus, offering circular or related document.
7.2. Each Holder and Other Shareholder shall, if securities held by
him or it are included among the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each person who controls (as defined in the
Securities Act) the Company, and each other such Holder and Other Shareholder
and each of such controlling person's officers, directors and partners, and each
person controlling such Holder or Other Shareholder and each of such controlling
person's officers, directors and partners, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which such statements were made,
and shall reimburse the Company and such Holders, Other Shareholders, directors,
officers, partners, persons, underwriters and control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
or Other Shareholder specifically for use therein; provided, however, that the
obligations of such Holder or Other Shareholder hereunder shall be limited to an
amount equal to the net proceeds to such Holder or Other Shareholder of
securities sold as contemplated herein.
7.3. Each party entitled to indemnification under this Section 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the
<PAGE>
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not be withheld unreasonably), and the Indemnified
Party may participate in such defense at such Indemnified Party's expense. The
failure of any Indemnified Party to give notice as provided herein shall relieve
the Indemnifying Party of its obligations under this Section 7 only if such
failure is prejudicial to the ability of the Indemnifying Party to defend such
action, and such failure shall in no event relieve the Indemnifying Party of any
liability that he or it may have to any Indemnified Party otherwise than under
this Section 7. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim or
litigation.
8. Information by Holders and Other Shareholders. Each Holder or Other
---------------------------------------------
Shareholder of securities included in any registration shall furnish in writing
to the Company duly executed by such Holder or Other Shareholder, such
information regarding such Holder or Other Shareholder and the distribution
proposed by such Holder or Other Shareholder as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement, and the Company shall
not be required to include any Holder's or Other Shareholder's securities in any
such registration unless such information shall have been provided.
9. Limitations on Registration of Issues of Securities. From and after
---------------------------------------------------
the date of this Agreement, without the consent of the holders of a majority of
the Registrable Securities then issued and outstanding and that are issuable
upon the conversion of the Series B Preferred Stock and the Series D Preferred
Stock, the Company shall not enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder rights with respect to the registration of any securities of
the Company that are superior to those granted to the Holders pursuant to this
Agreement. In any event, any registration rights given by the Company to any
holder or prospective holder of its securities shall be consistent with the
registration and other rights provided in this Agreement.
10. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission that may permit the sale of the
Common Stock to the public without registration, the Company shall:
10.1. make and keep public information available as those terms are
understood and defined in Rule 144 promulgated by the Commission under the
Securities Act ("Rule 144"), at all times following the Initial Public Offering;
10.2. file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act at any time after it has become subject to the reporting
requirements thereunder; and
<PAGE>
10.3. so long as any Holder owns any securities constituting or
representing Registrable Securities, furnish to such Holder forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144, and of the Securities Act and the Securities
Exchange Act (at any time after it has become subject to the reporting
requirements thereunder), a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing such Holder to sell any such securities without
registration.
11. Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities of the Company under Sections 2, 3 and 4 hereof may be
assigned by any Holder (a) to an assignee of Registrable Securities consisting
of or derived from conversion of not less than twenty percent (20%) of the
Series B Preferred Stock or the Series D Preferred Stock originally purchased by
such transferring Holder, or (b) upon distribution by the Holder or an assignee
described in (a) that is an entity, of any of the securities described in (a) to
the direct or indirect beneficial owners of the securities of such entity
(including direct or indirect general or limited partners thereof), together
with the securities being transferred, provided that in each case the Company is
given written notice, at the time or within a reasonable time after said
transfer, stating the name and address of said transferee and identifying the
securities with respect to which such registration rights are being assigned. No
such assignment shall be effective unless the transferee shall be required, as a
condition to such transfer, to agree in writing that he or it will receive and
hold such securities subject to the provisions of this Agreement and unless the
Company is given written notice at the time of the assignment or within a
reasonable time after such assignment, stating the name and address of said
transferee and identifying the securities that are being assigned. The above
notwithstanding, in the event that a holder of Registrable Securities transfers
its Registrable Securities to an affiliate, the registration rights granted by
this Agreement shall be transferred with such Registrable Securities.
12. "Market Stand-Off" Agreement. If requested by the Company upon the
----------------------------
recommendation of the Board of Directors of the Company and an underwriter of
Common Stock (or other securities) of the Company, the Holders shall not sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by them during the one hundred eighty (180) day period following
the effective date of a registration statement of the Company filed under the
Securities Act, provided that:
(i) such agreement shall apply only with respect to an underwritten
Initial Public Offering (whether such offering was initiated by the Company or
the Initiating Holders); and
(ii) other Shareholders selling securities pursuant to such
registration statement and all officers and directors of the Company enter into
similar agreements.
Such agreement shall be in writing in form satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with respect
to the shares (or
<PAGE>
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
13. Inclusion of Stock Held by Common Holders. In connection with any
-----------------------------------------
registration effected pursuant to Section 3 hereof, the Founders shall be
entitled to include in such registration (on the same terms and conditions as
Holders selling their Registrable Securities in such registration) shares of
Common Stock held by such Founders; provided that any limitation by the
underwriter on the number of shares to be underwritten in connection with such
registration shall be first applied to the shares so included by such Founders,
as provided in Section 3.4 and provided further that each such Founders' right
to include shares of Common Stock in a registration pursuant to this Section 13
is contingent upon such Founders' execution of an indemnification and hold
harmless agreement substantially in accordance with Section 7.2 and an agreement
to be bound by all other applicable restrictions contained in this Agreement,
including Section 12.
14. Changes in Common Stock or Preferred Stock. If, and as often as,
------------------------------------------
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
15. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants as follows:
(a) The execution, delivery and performance of this Agreement by
the Company have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (except as enforceability may be
limited or affected by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws and equitable principles now or
hereafter in effect and affecting the rights and remedies of creditors
generally).
16. Termination. Except as set forth below, the Registrable Securities
-----------
shall cease to be Registrable Securities upon the earlier to occur of (i) their
sale pursuant to a registration statement or Rule 144 under the Securities Act,
or (ii) when they are eligible for sale under Rule 144 without holding period or
volume limitations. Provided, however, that this termination
<PAGE>
provision shall not apply to the holders of more than 40,000 shares of Series B
or Series D Registrable Securities, so long as they hold at least 40,000 shares
of Series B or Series D Registrable Securities, with regard to the rights
granted pursuant to Sections 2.1 and 4, so long as the registration requested is
a firm commitment underwritten offering.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties hereto with respect to the matters provided for herein, and it
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein. The Series B Purchasers and
the Company specifically agree that this Agreement supersedes entirely Section 8
of the Original Agreement, and the Company has no further obligations, and the
Series B Purchasers have no further rights of any kind under such Section 8.
18. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Shares), whether so expressed or not.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested or overnight courier, or
sent by telecopier or telex, addressed as follows:
if to the Company or any other party hereto, at the address of
such party set forth in the Series B Purchase Agreement or Series D Purchase
Agreement, as appropriate;
if to any subsequent holder of Preferred Shares or Registrable
Securities, to it at such address as may have been furnished to the Company in
writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Preferred Shares
or Registrable Securities) or to the holders of Preferred Shares or Registrable
Securities (in the case of the Company) in accordance with the provisions of
this paragraph.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least 75% of the outstanding shares of Registrable Securities
(determined on an as-if-converted or exercised, as appropriate, basis).
(e) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
(f) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
<PAGE>
[SIGNATURES TO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove set forth.
THE COMPANY:
-----------
SCIQUEST.COM, INC.
By: /s/ M. Scott Andrews
---------------------------------------
M. Scott Andrews, President and
Chief Executive Officer
THE STOCKHOLDERS:
----------------
ABS CAPITAL PARTNERS III, L.P.
By: ABS Partners III, LLC
Its: General Partner
By: /s/ Timothy T. Weglicki
---------------------------------------
Timothy T. Weglicki, Managing Member
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
---------------------------------------
Robert N. Savoie
Its: Tax Director, Attorney-in-Fact
HAMBRECHT & QUIST EMPLOYEE VENTURE FUND, L.P., II
By: H&Q VENTURE MANAGEMENT, L.L.C.
Its: General Partner
By: /s/ Robert N. Savoie
---------------------------------------
Robert N. Savoie
Its: Tax Director, Attorney-in-Fact
<PAGE>
ACCESS TECHNOLOGY PARTNERS, L.P.
By: ACCESS TECHNOLOGY MANAGEMENT, L.L.C.
Its: General Partner
By: /s/ Robert N. Savoie
---------------------------------------
Robert N. Savoie
Its: Tax Director, Attorney-in-Fact
By: H&Q VENTURE MANAGEMENT, L.L.C.
Its: Managing Member
By: /s/ Robert N. Savoie
---------------------------------------
Robert N. Savoie
Its: Tax Director, Attorney-in-Fact
ACCESS TECHNOLOGY PARTNERS BROKERS FUND, L.P.
By: H&Q VENTURE MANAGEMENT, L.L.C.
Its: General Partner
By: /s/ Robert N. Savoie
---------------------------------------
Robert N. Savoie
Its: Tax Director, Attorney-in-Fact
/s/ Jamie Streator
---------------------------------------
Jamie Streator
/s/ James Zanze
---------------------------------------
James Zanze
/s/ Eric Johnson
---------------------------------------
Eric Johnson
/s/ Steve Fitzgibbons
---------------------------------------
Steve Fitzgibbons
<PAGE>
PARTECH U.S. PARTNERS III C.V.
By: /s/ Thomas G. McKinley
---------------------------------------
Thomas G. McKinley
Its: General Partner of Par SF LLC
as General Partner of Par 7 LLC
as Investment General Partner of
Partech U.S. Partners III C.V.
AXA U.S. GROWTH FUND LLC
By: /s/ Thomas G. McKinley
---------------------------------------
Thomas G. McKinley
Its: General Partner of Par SF LLC
as Managing Member of Pax V LLC
as Managing Member of Axa U.S. Growth
Fund LLC
PARALLEL CAPITAL I LLC
By: /s/ Thomas G. McKinley
---------------------------------------
Thomas G. McKinley
Its: General Partner of Par SF LLC
as Managing Member of 45th Parallel LLC
as Managing Member of Parallel Capital I LLC
PARALLEL CAPITAL II LLC
By: /s/ Thomas G. McKinley
---------------------------------------
Thomas G. McKinley
Its: General Partner of Par SF LLC
as Managing Member of 45th Parallel LLC
as Managing Member of Parallel Capital II LLC
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Anton Simunovic
---------------------------------------
Anton Simunovic
Its: Senior Vice President
<PAGE>
VECTOR LATER-STAGE EQUITY FUND II (QP), L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By: /s/ Joyce A. Lonergan
---------------------------------------
Joyce A. Lonergan
Its: Director
VECTOR LATER-STAGE EQUITY FUND II L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By: /s/ Joyce A. Lonergan
---------------------------------------
Joyce A. Lonergan
Its: Director
WAKEFIELD GROUP II LLC
By: /s/ Michael F. Elliott
---------------------------------------
Michael F. Elliott
Its: Managing Director
NORO-MOSELEY PARTNERS IV, L.P.
By: /s/ Alan J. Taetle
---------------------------------------
MKFJ IV, L.L.C., General Partner
By: A Member
NORO-MOSELEY PARTNERS IV B FUND, L.P.
By: /s/ Alan J. Taetle
---------------------------------------
MKFJ IV, L.L.C., General Partner
By: A Member
<PAGE>
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Robert H. Buescher
---------------------------------------
Robert H. Buescher, Manager
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Robert H. Buescher
----------------------------------------
Robert H. Buescher, Manager
TRINITY VENTURES VI, L.P.
By: Trinity TVL VI, LLC
By: /s/ Noel Fenton
----------------------------------------
Noel Fenton, A Member
TRINITY VI SIDE-BY-SIDE FUND, L.P.
By: Trinity TVL VI, LLC
By: /s/ Noel Fenton
----------------------------------------
Noel Fenton, A Member
STANFORD UNIVERSITY
By: /s/ Georganne F. Perkins
----------------------------------------
Georganne F. Perkins
Its: Private Equity Investment Officer
Stanford Management Company
<PAGE>
BT INVESTMENT PARTNERS, INC.
By: /s/ Joe Wood
----------------------------------------
Joe Wood
Its: Managing Director
COMDISCO INC.
By: /s/ Jill C. Hanses
----------------------------------------
Jill C. Hanses
Its: Senior Vice President
U.S. DEVELOPMENT CAPITAL INVESTMENT COMPANY
By: /s/ Ray Moss
----------------------------------------
Ray Moss
Its: Secretary
ASPENTREE CAPITAL
By: /s/ William M. Tomei
----------------------------------------
William M. Tomei
Its:
<PAGE>
/s/ Sara Brooks Creagh /s/ William P. Few
- ----------------------------------------- ------------------------------------
Sara Brooks Creagh William P. Few
/s/ Ralph L. Haga, Jr. /s/ Nancy A. Haga
- ----------------------------------------- ------------------------------------
Ralph L. Haga, Jr. (Joint Tenant with Nancy A. Haga (Joint Tenant with
Nancy A. Haga) Ralph L. Haga, Jr.)
/s/ John B. Lewis /s/ Walt Newman
- ----------------------------------------- ------------------------------------
John B. Lewis Walt Newman
/s/ Arthur M. Pappas /s/ Michael A. Recny
- ----------------------------------------- ------------------------------------
Arthur M. Pappas Michael A. Recny
/s/ Dwight H. Sawin, III /s/ William C. Schuler
- ----------------------------------------- ------------------------------------
Dwight H. Sawin, III William C. Schuler
/s/ John H. Varner /s/ Anne T. Varner
- ----------------------------------------- ------------------------------------
John H. Varner (Joint Tenant with Anne T. Varner (Joint Tenant with
Anne T. Varner) John H. Varner)
/s/ J. Morgan Anderson /s/ Anita H. Garland
- ----------------------------------------- ------------------------------------
J. Morgan Anderson Anita H. Garland
/s/ Hunter R. Watson
- -----------------------------------------
Hunter R. Watson
<PAGE>
FIRST ADDENDUM TO
REGISTRATION RIGHTS AGREEMENT
THIS FIRST ADDENDUM TO REGISTRATION RIGHTS AGREEMENT (this "Addendum"), is
made as of this 8th day of June, 1999, by and among SciQuest.com, Inc., a
Delaware corporation (the "Company"), and ABS Capital Partners III, L.P.,
Bessemer Venture Partners IV L.P., Bessec Ventures IV L.P., Noro-Moseley
Partners IV, L.P., Noro-Moseley Partners IV-B Fund, L.P., Parallel Capital I
LLC, Parallel Capital II LLC, Partech U.S. Partners II C.V., Trinity Ventures
VI, L .P., Trinity VI Side-By-Side Fund, L.P., Vector Later-Stage Equity Fund
II, L.P. and Vector Later-Stage Equity Fund II (QP), L.P. (collectively, the
"Requisite Holders"); and the investors listed on Exhibit A to the First
---------
Addendum to Stock and Warrant Purchase Agreement ( collectively, the "Additional
Purchasers").
W I T N E S S E T H:
WHEREAS, the Company and the Stockholders (as that term is defined in the
Registration Rights Agreement dated May 18, 1999 (the "Registration Rights
Agreement")) entered into the Registration Rights Agreement, in connection with
the acquisition by the Series D Purchasers of 2,650,176 shares of the Series D
Preferred Stock, par value $0.001 per share of the Company and Common Stock
Purchase Warrants to purchase 530,036 shares of Class A Common Stock, par value
$0.001 per share of the Company;
WHEREAS, pursuant to Section 18 of the Registration Rights Agreement, the
Registration Rights Agreement may be amended with the written consent of the
Company and the holders of at least 75% of the outstanding shares of Registrable
Securities (the "Requisite Shares");
WHEREAS, the Company has agreed to issue and sell to the Additional
Purchasers and the Additional Purchasers have agreed to purchase from the
Company additional Series D Registrable Securities; and
WHEREAS, the Company and the Requisite Holders (as holders of the Requisite
Shares) have consented to the execution of this Addendum for the purpose of
providing registration rights to the Additional Purchasers, with respect to
their acquisition of additional shares of Series D Preferred Stock and Common
Stock Purchase Warrants (together, the "Additional Securities");
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Additional Purchasers do
hereby agree as follows:
1. Adoption of Registration Rights Agreement. As a condition to the sale
-----------------------------------------
of the Additional Securities to the Additional Purchasers from the Company, the
Additional Purchasers adopt and agree to be bound by the terms and conditions of
the Registration Rights Agreement, with respect to their acquisition of the
Additional Securities.
<PAGE>
2. Governing Priority. The Registration Rights Agreement and this
------------------
Addendum and any Exhibits thereto are intended by the parties to be
complementary and additive, so that the requirements of any one document shall
be deemed to be required by all, except to the extent that a clear inconsistency
or conflict exists or unless otherwise expressly provided in this Addendum, in
which event the terms of this Addendum and any exhibits of this Addendum shall
control.
3. Titles. The titles of the sections of this Addendum are for
------
convenience of reference only and are not to be considered in construing this
Addendum.
4. Counterparts. This Addendum may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5. Governing Law. This Addendum shall be governed by the provisions of
-------------
the law of the State of Delaware.
6. Entire Agreement; Amendment. This Addendum constitutes the full and
---------------------------
entire understanding and agreement among the parties with regard to the subjects
hereof. Neither this Addendum nor any term hereof may be amended, waived,
discharged or terminated orally, except by a written instrument signed by all
parties hereto.
7. Defined Terms. Each capitalized term that is used but not otherwise
-------------
defined herein shall have the meaning assigned to it in the Registration Rights
Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
-2-
<PAGE>
[SIGNATURES TO ADDENDUM]
IN WITNESS WHEREOF, the parties hereto have executed this Addendum either
themselves or by their duly authorized representatives as of the day and year
first written above.
THE COMPANY:
-----------
SCIQUEST.COM, INC.
By: /s/ M. Scott Andrews
-------------------------------
M. Scott Andrews, President and
Chief Executive Officer
ABS CAPITAL PARTNERS III, L.P.
By: ABS Partners III, LLC
Its: General Partner
By: /s/ Timothy T. Weglicki
-------------------------------
Timothy T. Weglicki
Managing Member
PARTECH U.S. PARTNERS III C.V.
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: General Partner of Par SF LLC
as General Partner of Par 7 LLC
as Investment General Partner of
Partech U.S. Partners III C.V.
PARALLEL CAPITAL I LLC
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: General Partner of Par SF LLC
as Managing Member of 45th Parallel LLC
as Managing Member of Parallel I LLC
-3-
<PAGE>
PARALLEL CAPITAL II LLC
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: General Partner of Par SF LLC
as Managing Member of 45th Parallel LLC
as Managing Member of Parallel Capital II LLC
DOUBLE BLACK DIAMOND II LLC
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: Managing Member
45TH PARALLEL LLC
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: Managing Member
MULTINVEST LLC
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: Managing Member
WEBER FAMILY TRUST DATED 1/6/89
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: Attorney-in-Fact
JRSL FAMILY LLC
By: /s/ Thomas G. McKinley
-------------------------------
Thomas G. McKinley
Its: Attorney-in-Fact
-4-
<PAGE>
OXFORD BIOSCIENCE PARTNERS II L. P.
By: OBP Management II L. P.
Its: General Partner
By: /s/ Cornelius T. Ryan
-------------------------------
Cornelius T. Ryan
OXFORD BIOSCIENCE PARTNERS
(BERMUDA) II LIMITED PARTNERSHIP
By: OBP Management (Bermuda)
II Limited Partnership
Its: General Partner
By: /s/ Cornelius T. Ryan
-------------------------------
Cornelius T. Ryan
OXFORD BIOSCIENCE PARTNERS
(GS-ADJUNCT) II L. P.
By: OBP Management
II L.P.
Its: General Partner
By: /s/ Cornelius T. Ryan
-------------------------------
Cornelius T. Ryan
-5-
<PAGE>
OXFORD BIOSCIENCE PARTNERS
(ADJUNCT) II L. P.
By: OBP Management
II L.P.
Its: General Partner
By: /s/ Cornelius T. Ryan
-------------------------------
Cornelius T. Ryan
TYSON STREET PARTNERS
By: /s/ Paul Rasmussen
-------------------------------
Paul Rasmussen
Its: Chief Executive Officer
VECTOR LATER-STAGE EQUITY FUND II (QP), L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By: /s/ Joyce A. Lonergan
-------------------------------
Joyce A. Lonergan
Its: Director
VECTOR LATER-STAGE EQUITY FUND II L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By: /s/ Joyce A. Lonegan
-------------------------------
Joyce A. Lonegan
Its: Director
WAKEFIELD GROUP II LLC
By: /s/ Michael F. Elliott
-------------------------------
Michael F. Elliott
Its: Managing Director
-6-
<PAGE>
NORO-MOSELEY PARTNERS IV, L.P.
By: /s/ Jack R. Kelly
------------------------------------
MKFJ IV, L.L.C., General Partner
By: A Member
NORO-MOSELEY PARTNERS IV-B FUND, L.P.
By: /s/ Jack R. Kelly
MKFJ IV, L.L.C., General Partner
By: A Member
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Robert H. Buescher
-------------------------------
Robert H. Buescher, Manager
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC, General Parner
By: /s/ Robert H. Buescher
-------------------------------
Robert H. Buescher, Manager
-7-
<PAGE>
TRINITY VENTURES VI, L.P.
By: Trinity TVL VI, LLC
By: /s/ Noel Fenton
-------------------------------
Noel Fenton, A Member
TRINITY VI SIDE-BY-SIDE FUND, L.P.
By: Trinity TVL VI, LLC
By: /s/ Noel Fenton
-------------------------------
Noel Fenton, A Member
/s/ Michael A. Recny
-------------------------------
Michael A. Recny
KINGDON ASSOCIATES
By: /s/ Peter Cobos
-------------------------------
Its: General Partner
KINGDON PARTNERS
By: /s/ Peter Cobos
-------------------------------
Its: General Partner
KINGDON FAMILY PARTNERSHIP, LP
By: /s/ Peter Cobos
-------------------------------
Its: General Partner
M. KINGDON OFFSHORE, NV
By: /s/ Peter Cobos
-------------------------------
Peter Cobos
Chief Financial Officer
Kingdon Capital
-8-
<PAGE>
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of this 30/th/ day of July 1999, by and among SCIQUEST.COM, INC., a
Delaware corporation (the "Company"), and the undersigned holders of Series E
Convertible Preferred Stock of the Company, (individually, a "Series E Holder"
and collectively, the "Series E Holders").
WHEREAS, pursuant to the terms of the Merger Agreement (the "Merger
Agreement") dated July 27, 1999, by and among the Company, SciQuest Merger
Subsidiary, Inc., a Delaware corporation ("Acquisition"), and Internet
Auctioneers International, Inc., a California corporation ("IAI"), the Series E
Holders are acquiring an aggregate of 114,595 shares (the "Shares") (plus cash
payments in lieu of fractional shares for a total aggregate value of 115,000
shares), of the Company's Series E Convertible Preferred Stock, no par value per
share (the "Series E Preferred Stock"); and
WHEREAS, the Company has agreed to provide the Series E Holders with
certain rights relating to the registration and sale of the Shares.
NOW, THEREFORE, in consideration of the covenants and promises contained
herein, the parties agree as follows:
ARTICLE 1 - REGISTRATION RIGHTS
-------------------------------
1.1 Definitions. For purposes of this Article 1, the following terms
-----------
shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute enacted hereafter, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
(b) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Act.
(c) "Common Stock" shall mean the Class A Common Stock, no par value per
share, of the Company.
(d) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the Commission.
(e) "Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Shares and (ii) any other shares of Common
Stock issued in respect of the Shares (on account of stock splits, stock
dividends, reclassifications, recapitalizations or similar
<PAGE>
events); provided, however that shares of Common Stock which are Registrable
-------- -------
Shares shall cease to be Registrable Shares (i) upon any sale pursuant to a
Registration Statement or Rule 144 under the Act, (ii) upon any sale in any
manner to a person or entity which, by virtue of Section 1.10 of this Agreement,
is not entitled to the rights provided by this Agreement, or (iii) with respect
to each Series E Holder, at such time as such Series E Holder's Registrable
Securities may be sold pursuant to Rule 144 without holding period or volume
limitations.
1.2 Piggyback Registration. Subject to Section 1.8 of this Agreement, if
----------------------
at any time the Company proposes to register any of its securities under the
Act, either for its own account or for the account of others, in connection with
the public offering of such securities solely for cash, on a registration form
that would also allow the registration of the Registrable Securities, the
Company shall, each such time, promptly give each Series E Holder written notice
of such proposed registration. This provision shall not apply to a registration
solely of securities issued or issuable in connection with any stock option plan
or other employee benefit plan or in connection with a merger or acquisition.
Upon receipt by the Company of the written request of any Series E Holder given
within twenty (20) days after mailing of any such notice by the Company, the
Company shall use its best efforts to cause to be included in such registration
under the Act all the Registrable Securities that each such Series E Holder has
requested be registered.
1.3 Obligations of the Company. Whenever required under this Agreement
--------------------------
to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement covering
such Registrable Securities and use its best efforts to cause such registration
statement to be declared effective by the Commission as expeditiously as
possible and to keep such registration effective until the earlier of (i) the
date when all Registrable Securities covered by the registration statement have
been sold or (ii) 180 days from the effective date of the registration
statement.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
1.3(a) and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement, and cause
the prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed with the Commission pursuant to Rule 424 under the
Act.
(c) Furnish to the selling Series E Holders such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), and each
supplement thereto as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
2
<PAGE>
(d) Use its best efforts to register and qualify the Registrable
Securities under the securities laws of such jurisdictions in which the Company
shall also register securities to be sold by the Company pursuant to the same
registration under the Act.
(e) Promptly notify each selling Series E Holder of such Registrable
Securities at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading and, at the request of any such Series E Holder, the Company will
prepare promptly a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading.
(f) Provide a transfer agent for all such Registrable Securities not later
than the effective date of such registration statement.
(g) Enter into underwriting agreements and related agreements in customary
form for any primary offering.
(h) Promptly notify the selling Series E Holders of Registrable Securities
and the underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (1) the filing of the
prospectus or any prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment thereto, the declaration
of the effectiveness of such documents, (2) any requests by the Commission for
amendments or supplements to the registration statement or the prospectus or for
additional information, (3) the issuance of any stop order suspending the
effectiveness of the registration statement, and (4) the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction.
(i) Whenever any provision of this Agreement requires the Company to
furnish any information to the Series E Holders or the agents or representatives
of the Series E Holders, the Company may require any such person or entity to
execute and deliver a reasonable confidentiality agreement, agreement to refrain
from trading or any other agreement necessary or prudent to protect the Company
or its officers, directors and employees against insider trading liabilities and
may restrict access to confidential trade secret information.
1.4 Furnish Information. In the event of any registration by the
-------------------
Company, the Series E Holders shall furnish to the Company such information
regarding them, the Registrable Securities and other securities of the Company
held by them, and the intended method of disposition of such Registrable
Securities as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company. It shall be a condition
precedent to the obligation of the Company to include any Registrable Securities
of an Series E
3
<PAGE>
Holder in a registration effected pursuant to this Agreement for such Series E
Holder to have provided the Company with such written information regarding the
registration of such Registrable Securities as the Company shall reasonably
request.
1.5 Suspension of Disposition of Registrable Securities. Each selling
---------------------------------------------------
Series E Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 1.3(e) or 1.3(h)(2),
1.3(h)(3) or 1.3(h)(4) hereof, such Series E Holder will forthwith discontinue
disposition of Registrable Securities until such Series E Holder's receipt of
copies of a supplemented or amended prospectus contemplated by Section 1.3(e)
hereof, or until it is advised in writing by the Company that the use of the
prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus, or
in the case of Section 1.3(h)(2), 1.3(h)(3) or 1.3(h)(4), until the Company
notifies the Series E Holder in writing that sales of Registrable Securities may
continue. If so directed by the Company, such Series E Holder will deliver to
the Company (at the expense of the Company) all copies, other than permanent
file copies then in such Series E Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
1.6 Expenses of Registration.
------------------------
The Series E Holders shall bear the fees and expenses of their own counsel
and shall bear any additional registration and qualification fees and expenses
(including underwriters' discounts and commissions and transfer taxes), and any
additional costs and disbursements of counsel for the Company that result solely
from the inclusion of Registrable Securities held by the Series E Holders in
such registration, with such additional expenses of the registration being borne
by all selling Series E Holders pro rata on the basis of the total number of
Registrable Securities so registered; provided, however, that if any such cost
or expense is attributable solely to one selling Series E Holder and does not
constitute a normal cost or expense of a registration, such cost or expense
shall be allocated solely to that selling Series E Holder. All other expenses
of such registrations shall be borne by the Company.
1.7 Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall have the right to select the investment banker(s)
and/or manager(s) to administer any offering to which this Agreement is
applicable. If a registration is an underwritten registration, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold at the desired price in such offering, the Company will
include in such registration (i) first, securities the Company proposes to sell,
(ii) second, the securities requested to be included therein by holders of
securities with contractual registration
4
<PAGE>
rights that are senior to those of the Series E Holders, pro rata among the
holders of such securities on the basis of the number of shares requested to be
included therein, (iii) third, the securities requested to be included therein
by Series E Holders and by the holders of securities with contractual
registration rights that are in parity with the rights of the Series E Holders,
pro rata among such Series E Holders and other holders on the basis of the
number of shares requested to be included therein, and (iv) fourth, other
securities requested to be included in such registration, including securities
to be sold by holders without contractual registration rights.
(b) No Series E Holder may participate in any underwritten registration
hereunder unless such Series E Holder (i) agrees to sell such Series E Holder's
securities on the basis provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
1.8 Limitation of the Company's Obligations.
---------------------------------------
(a) The Company may, in its sole discretion, postpone or withdraw any
registration in which Registrable Securities have been included pursuant to this
Agreement without obligation to the Series E Holders.
(b) The Company shall not be obligated under this Agreement to register or
include in any registration Registrable Securities that any Series E Holder has
requested to be registered if the Company shall furnish such Series E Holder
with a written opinion of counsel reasonably satisfactory to such Series E
Holder, that all Registrable Securities that such Series E Holder holds may be
publicly offered, sold and distributed without registration under the Act
pursuant to Rule 144 promulgated by the Commission under the Act in any three-
month period without restriction as to the amount of securities that can be
sold.
(c) The Company may, in its sole discretion, grant to any owner of
securities of the Company registration rights of any kind or nature.
1.9 Lock-up Agreement. For so long as a Series E Holder has the right to
-----------------
have Registrable Securities included in any registration pursuant to this
Agreement, the Series E Holder agrees in connection with any registration of the
Company's securities, upon the request of the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, pledge, grant any option for the purchase of or otherwise dispose of
any Registrable Securities (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, during the seven (7) days prior to and during the 180-day period
beginning on the effective date of such registration, as the Company or the
underwriters may specify. This provision shall apply whether or not any
Registrable Securities of the Series E Holder are included in the offering.
1.10 Transfer of Registration Rights. Provided that the Company is given
-------------------------------
written notice by the Series E Holder at the time of such transfer stating the
name and address of the transferee and identifying the securities with respect
to which the rights under this Agreement are
5
<PAGE>
being assigned and such transferee agrees in writing to be bound by the terms of
this Agreement, the registration rights under this Agreement may be transferred
in whole or in part at any time to any transferee of Registrable Securities.
Upon such transfer, the transferee shall be deemed to be a Series E Holder for
all purposes hereunder.
1.11 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify and hold harmless each Series E Holder whose Registrable
Securities are included in a registration, each director, officer, partner,
employee, or agent for such Series E Holder, any underwriter (as defined in the
Act) for such Series E Holder, and each person, if any, who controls such Series
E Holder or underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the Act and applicable state securities laws insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based on any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein in light of the
circumstances under which they were made or necessary to make the statements
therein not misleading or arise out of any violation by the Company of any rule
or regulation promulgated under the Act applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration; and will reimburse each such person or entity for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity 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
an untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by or on behalf of any such Series E Holder, underwriter
or controlling person.
(b) To the fullest extent permitted by law, each Series E Holder whose
Registrable Securities are included in a registration under this Agreement,
severally and not jointly, will, and hereby does, 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 Act, and any underwriter for the Company (within the meaning of
the Act), each other selling Series E Holder and each person, if any, who
controls such other selling Series E Holder or underwriter within the meaning of
the Act against any losses, claims, damages or liabilities, joint or several, to
which the Company or any such director, officer, controlling
6
<PAGE>
person, selling Series E Holder or underwriter may become subject, under the Act
and applicable state securities laws, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon 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 in light of the circumstances, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by such Series E Holder expressly for use in connection with such registration;
and each such Series E Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, selling Series E Holder or underwriter in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity 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 such Series E Holder (which consent shall not be
unreasonably withheld).
In no event shall the liability by reason of this contractual indemnity of
any selling Series E Holder hereunder be greater than the dollar amount of the
proceeds received by such Series E Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. Any Series E Holder
required to indemnify the Company as provided above shall cease to have the
right to participate in any other registration pursuant to this Agreement.
(c) In order to provide for just and equitable contribution to joint
liability under the Act in circumstances in which the indemnity provisions
provided for in this section are for any reason held to be unavailable to the
indemnified parties although applicable in accordance with its terms; then, in
each such case, the Company and such Series E Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportions as shall be appropriate to
reflect the relative fault of the Company, on the one hand, and the Series E
Holder, on the other hand, with such relative fault determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Series E Holder, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
-------- -------
(A) no such Series E Holder will be required to contribute any amount in excess
of the proceeds to it of all Registrable Securities sold by it pursuant to such
registration statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Act, shall be
entitled to contribution from any person or entity who is not guilty of such
fraudulent misrepresentation.
7
<PAGE>
ARTICLE 2 - MISCELLANEOUS
-------------------------
2.1 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given, by
written consent of the Company and the Series E Holders of at least seventy
percent (70%) of the outstanding Registrable Securities; provided, that this
--------
Agreement may be amended with the consent of the holders of less than all
Registrable Securities only in a manner which affects all Registration
Securities in the same fashion. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
2.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
2.3 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
2.4 Notices. All notices required or permitted to be sent shall be sent
-------
to the addresses of the parties set forth on their respective signature pages,
or to such other address as any party shall provide to the other parties in a
notice sent in accordance with this Agreement. Any notice sent by registered or
certified mail, return receipt requested, or by Federal Express or other
reputable nationwide overnight delivery service, shall be deemed to have been
received by the party to whom it was sent upon receipt of confirmation of
delivery if sent by registered or certified mail and one day following the date
it was sent if sent by Federal Express or other reputable nationwide overnight
delivery service. Any notice sent by any other means shall be deemed to have
been received when it is actually received at the address provided above.
2.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
2.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
2.7 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the
8
<PAGE>
Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. Nothing
in this Agreement shall preclude the Company from entering into any other
agreement having the same or different terms with any Series E Holder or any
third party with respect to registration rights or related matters.
2.8 Parties Benefited. Nothing in this Agreement, express or implied, is
-----------------
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
[Remainder of page intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement under seal
as of the date provided below:
THE COMPANY:
SCIQUEST.COM, INC.
By: /s/ M. Scott Andrews
----------------------------
Name: M. Scott Andrews
Title: President and Chief Executive Officer
THE SERIES E HOLDERS:
/s/ Mark Atlas
- ------------------------
Mark Atlas
/s/ Victor Chinn
- ------------------------
Victor Chinn
/s/ Arnold Wong
- ------------------------
Arnold Wong
/s/ Jason Wong
- ------------------------
Jason Wong
/s/ Harold Wong
- ------------------------
Harold Wong
/s/ Joseph G. Chong
- ------------------------
Joseph G. Chong
/s/ Mohamed Bacchus
- ------------------------
Mohamed Bacchus
/s/ Kevin Ching
- ------------------------
Kevin Ching
/s/ Glen Haubl
- ------------------------
Glen Haubl
10
<PAGE>
[Letterhead of Hughes, Pittman and Gupton LLP]
September 20, 1999 Exhibit 16.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by SciQuest.com concerning Change in
Independent Accountants which we understand will be filed with the Commission,
as part of the Company's Form S-1 dated September 20, 1999. We agree with the
statements concerning our Firm in such Form S-1.
Very truly yours,
/s/Tim C. Gupton
<PAGE>
EXHIBIT 21.1
SCIQUEST.COM, INC.
LIST OF SUBSIDIARIES
BioSupplyNet, Inc.
Internet Auctioneers International, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated August 20, 1999 relating to the financial statements of
SciQuest.com, Inc., and our report dated April 1, 1999 relating to the financial
statements of BioSupplyNet, Inc., which appear in such Registration Statement.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Raleigh, NC
September 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 5,391,462 10,495,700
<SECURITIES> 1,886,693 15,732,620
<RECEIVABLES> 104,082 307,898
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,419,294 26,923,953
<PP&E> 450,846 1,237,208
<DEPRECIATION> (93,386) (190,844)
<TOTAL-ASSETS> 9,173,099 37,351,897
<CURRENT-LIABILITIES> 1,006,722 2,722,474
<BONDS> 0 0
10,882,702 54,477,590
2,207,605 2,457,605
<COMMON> 110,000 2,606
<OTHER-SE> (5,462,506) (20,685,811)
<TOTAL-LIABILITY-AND-EQUITY> 9,173,099 39,351,387
<SALES> 477,818 885,260
<TOTAL-REVENUES> 477,818 885,260
<CGS> 41,880 486,208
<TOTAL-COSTS> 4,792,280 8,541,094
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 30,524 6,077
<INCOME-PRETAX> (4,276,301) (7,839,606)
<INCOME-TAX> 54,695 109,390
<INCOME-CONTINUING> (4,221,606) (7,730,216)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,221,606) (7,730,216)
<EPS-BASIC> (1.82) (6.39)
<EPS-DILUTED> (1.82) (6.39)
</TABLE>
