<PAGE>
As filed with the Securities and Exchange Commission on October 26, 1999
Registration No. 333-87433
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
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. [_]
----------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Proposed Maximum
Proposed Maximum Aggregate Offering
Title of Each Class of Amount Offering Price Price Per Amount of Registration
Securities Registered Registered(1) Per Share(2) Share(2) Fee(3)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $0.001 per
share. 8,212,500 shares $12.00 $98,550,000 $27,397
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 1,012,500 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(3) $25,020 was paid at the time of the original filing of the registration
statement.
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 - October 26, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999
[LOGO OF SCIQUEST.COM]
SciQuest.com, Inc.
7,200,000 Shares of Common Stock
- --------------------------------------------------------------------------------
SciQuest.com, Inc.: The Offering:
. We provide a Web- . We are offering
based, interactive 7,200,000 shares
marketplace for of our common
scientific and stock.
laboratory
products. . The underwriters
have an option to
. 5151 McCrimmon purchase an
Parkway, Suite additional
208, Morrisville, 1,012,500 shares
NC 27560 from us to cover
over-allotments.
Proposed Symbol and . We currently
Market: estimate that the
initial public
. SQST/Nasdaq offering price
National Market will be between
$10.00 and $12.00
per share.
. Dow Chemical
Company and SAS
Institute Inc.
have indicated an
interest in
purchasing 450,000
of the shares we
are offering at a
price equal to 80%
of the initial
public offering
price.
. 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 6.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Deutsche Banc Alex. Brown
Hambrecht & Quist
DLJdirect Inc.
E*OFFERING
<PAGE>
Prospectus Artwork Description
------------------------------
1. Inside front page portrays the following:
In the center of the page appears a computer screen with the following
text on the screen:
"The scientific world has made a new discovery..."
2. On the left page of the gate fold appears a computer screen displaying a
page from the SciQuest.com, Inc. web site. The page is as it appears using a
Netscape browser.
At top of the screen is the URL for this page: "http://www.sciquest.com/"
At the top left corner of the web page is the SciQuest.com, Inc. corporate
logo.
On the left side of the web page is a composite photograph displaying
various types of scientific and laboratory equipment (including various
beakers and microscopes).
At the top of the web page, centered horizontally, appears the following
text:
"The Internet Source for Scientific Products"
Directly underneath this text is a black tab with text that reads as
follows:
"About SciQuest.com / Advanced Search / Site Map / Help"
Directly underneath this text is a light blue tab with text that reads as
follows:
"Quick Order / My Profile/ My Favorites / Track Orders / Order History
/ Shopping Cart"
Beneath this tab, on the left side of the page (but to the right of the
photograph referenced above) appears the following:
(a) a "Search:" line where the web site can be searched.
(b) Beneath the "Search" line is the following text:
"Welcome back, Dr. Smith - Thanks for shopping with us again.
What products can we help you find today?"
(c) Beneath and to the left of this text is the following text:
"Auctions. Buy or sell used and refurbished equipment."
(d) To the right of the text referenced immediately above appears the
following text:
"Lab Deals. Find Surplus Scientific products at discount prices."
(e) Directly beneath the text referenced immediately above appears
the following text:
"What's New. New product announcements, site features and
industry updates."
Beneath the light blue tab mentioned above, but to the right of the text
referenced in subsections (a), (b), (c), (d) and (e) above, and appearing in
a vertical column, appears the following text (from top to bottom):
"Custom Purchasing Solutions. Your Suppliers. Your pricing. Your own
private site."
"Buyer Information. FAQ's, Supplier lists, Links and more."
"Supplier Opportunities. Feature your products, today."
"feedback @ sciquest.com" (a hyper-text link)
"webmaster @ sciquest.com" (a hyper-text link)
"terms & conditions" (a hyper-text link)
a box containing the IBM e-commerce corporate logo and the following
text: "an e-business solution"
3. At the top of the right hand page of the gatefold, in a box, is the
following text:
"Introducing SciQuest.com. A marketplace solution that streamlines the
traditionally inefficient scientific products supply chain"
Beneath this is a box, centered horizontally, containing the following text:
"Benefits for three district customers."
Beneath this box is the following text:
"Scientists, purchasing professionals and suppliers all potentially
benefit from the efficiencies at SciQuest.com:"
"Scientists can spend less time finding, comparing and purchasing
items and more time doing research."
"Purchasing professionals can enjoy a streamlined purchasing process,
lower processing costs and better control."
"Suppliers can expand their market reach, while reducing the costs of
customer acquisitions and order processing."
Beneath this text is a box, centered horizontally, that contains the
following text:
"Marketplace Solutions:"
Beneath this box appears the following text:
"Scientists and purchasing professionals can search, compare and order
from a wide range of suppliers at www.sciquest.com"
"We also offer Custom Purchasing Solutions that fully integrate our
site with customer purchasing systems, offering pre-negotiated pricing
from preferred suppliers"
Beneath this text appears a box, centered horizontally, containing the
following text:
"The SciQuest.com Procurement Process"
Beneath this box appears a chart as follows:
(a) At the top of the chart is a circle containing the text: "Scientific
Buyer"
(b) Beneath and to the left of the circle is a box containing the
SciQuest.com, Inc. corporate logo. There are two lines, with arrows in
opposite directions, connecting this box with the circle referenced
above. Next to these arrows appears the following text:
"1) Searches multiple suppliers, creates one purchase order"
"5) SciQuest.com sends consolidated invoice to customer"
(c) Beneath and to the right of the circle is a box containing the text:
"Supplier's Inventory". There is a line connecting this box and the
circle, with an arrow pointing to the circle. Next to this line
appears the following text:
"3) Items shipped 'directly' to customer"
(d) Directly beneath the circle, beneath and to the right of the box
containing the SciQuest.com, Inc. corporate logo, and beneath and to
the left of the box containing the text "Supplier's Inventory" is a
box containing the text "Supplier's Ordering System".
There are two lines, with arrows in opposite directions, connecting
this box with the box containing the corporate logo. Next to these
arrows appears the following text:
"2) Orders delivered electronically
"4) Suppliers bill SciQuest.com"
There is also a line connecting this box with the box containing the
text "Supplier's Inventory," with an arrow pointing to the latter box.
Below this chart appears the following text:
"A growing portfolio of suppliers has selected SciQuest.com as their
sole third-party provider of electronic marketplace services,
including companies such as:"
Below the above text is the following bulleted text (in two columns):
"Ambion Inc."
"Amersham Pharmacia Biotech Inc."
"Cabrex Corporation"
"Endogen, Inc."
"NEN Life Science Products, Inc."
"Perkin Elmer LLC"
"Pierce Chemical Company; and"
"Qiagen Inc."
At the bottom right of this page is the SciQuest.com stylized logo.
At the very bottom of the page is the following legend:
"[copyright symbol] SciQuest.com Inc. All rights reserved. SciQuest is
a registered trademark of SciQuest.com, Inc. Netscape and the Netscape Name
registered trademarks of Netscape Communications Corporation in the United
States and other countries. IBM and the e-business Logo are trademarks of
IBM Corporation."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Forward-Looking Statements.......... 17
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Pro Forma Consolidated Statements of
Operations......................... 21
Selected Consolidated Financial
Data............................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................ 34
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management.......................... 46
Related Party Transactions ......... 53
Principal Stockholders.............. 54
Description of Capital Stock........ 56
Shares Eligible for Future Sale..... 59
Underwriting........................ 61
Direct Offer........................ 64
Legal Matters....................... 64
Experts............................. 64
Change in Accountants............... 64
Where You Can Find More Information. 64
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 well-recognized, 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.
Since our founding in 1995, we have developed a comprehensive online
database of over 8,000 suppliers with over 550,000 scientific products. Our
online database is a tool used by scientists and purchasing professionals to
locate supplies and products. On September 29, 1998, we acquired BioSupplyNet,
Inc., which publishes the Source Book, an annual printed catalog of vendors of
biomedical research supplies and equipment and scientific products for the
biomedical research industry. In April 1999, we introduced our e-commerce
marketplace solution to this growing community of online scientific product
buyers and suppliers. In October 1999, we entered into exclusive supplier
agreements with the following leading suppliers: Ambion Inc., Amersham
Pharmacia Biotech Inc., Cambrex Corporation, Endogen, Inc., NEN Life Science
Products, Inc., Perkin Elmer LLC, Pierce Chemical Company and Qiagen Inc. We
also entered into an exclusive purchasing agreement with Dow Chemical Company.
Our revenues have consisted primarily of banner advertising revenues from
our Web sites and advertising revenue from the Source Book. Since the
introduction of our marketplace, we have also recognized revenues from the
sales of scientific products.
Our marketplace benefits scientists by reducing the time required to find,
compare, purchase, trace and manage critical laboratory items. Our marketplace
benefits purchasing professionals by reducing 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 marketplace also serves 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 1999 will be approximately $11.8 billion in North America and $36.4 billion
worldwide. 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.
As the demand for scientific products grows, the need for efficient
procurement processes becomes more critical.
1
<PAGE>
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 upon our current brand equity;
. enhance customer loyalty to increase repeat purchases;
. maintain the distributor-neutrality of our marketplace;
. maximize the enterprise software compatibility of our solutions;
. expand our portfolio of solutions; and
. 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.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by SciQuest.com......... 7,200,000 shares
Common stock outstanding after this offering. 24,365,604 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 September 30,
1999. This information excludes:
. 2,372,826 shares of common stock issuable upon exercise of options
granted under our stock option plan, of which 1,577,953 shares are
subject to outstanding options at a weighted average exercise price of
$1.75 per share;
. 3,649,307 shares of common stock issuable upon exercise of warrants to be
issued upon consummation of this offering at an exercise price of $0.01
per share and up to 1,483,112 shares of common stock issuable upon
exercise of additional warrants that may be issued upon consummation of
this offering or afterwards at an exercise price of $0.01 per share; and
. 1,183,183 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $6.87 per share.
. 57,545 shares of series B preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $2.80 per share, which will
convert upon the consummation of this offering into warrants to purchase
87,275 shares of our common stock at an exercise price of $1.85.
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 effectiveness of this offering;
. assumes no exercise of the underwriters' over-allotment option; and
. assumes the effectiveness of a 1.516643-to-one split of common stock
prior to the effective date of this prospectus.
3
<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:
. 2,372,826 shares of common stock issuable upon exercise of options
granted under our stock option plan, of which 1,577,953 shares are
subject to outstanding options as of September 30, 1999 at a weighted
average exercise price of $1.75 per share;
. 3,649,307 shares of common stock issuable upon exercise of warrants to be
issued upon consummation of this offering at an exercise price of $0.01
per share to certain key suppliers and purchasers of scientific products;
and up to 1,483,112 shares of common stock issuable upon exercise of
additional warrants that may be issued upon consummation of this offering
or afterwards at an exercise price of $0.01 per share to other key
suppliers and purchasers of scientific products; and
. 1,183,183 shares of common stock issuable upon exercise of outstanding
warrants as of September 30, 1999 at a weighted average exercise price of
$6.87 per share.
. 57,545 shares of series B preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $2.80 per share, which will
convert upon consummation of this offering into 87,275 warrants to
purchase shares of our common stock at an exercise price of $1.85 per
share.
The pro forma statement of operations data for the year ended December 31,
1998 and the nine months ended September 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>
Nine Months
Years Ended Ended September 30,
December 31, (unaudited)
------------------------------------ --------------------------
Pro
Pro Forma Forma
1996 1997 1998 1998 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 196 $ 478 $ 1,098 $ 308 $ 928 $ 1,244
Gross profit............ -- 196 436 702 308 574 421
Operating loss.......... (536) (658) (4,356) (4,427) (2,077) (2,148) (16,060)
Net loss................ (545) (690) (4,222) (4,140) (2,065) (1,983) (15,141)
Net loss available to
common stockholders.... $ (545) $ (690) $(4,550) $(4,468) $(2,177) $(2,095) $(61,788)
====== ====== ======= ======= ======= ======= ========
Net loss per common
share--basic and
diluted................ $(0.16) $(0.20) $ (1.33) $ (1.31) $ (0.64) $ (0.61) $ (17.60)
Weighted average common
shares outstanding..... 3,412 3,412 3,412 3,412 3,412 3,412 3,511
Pro forma net loss per
common share--basic and
diluted................ $ (0.62) $ (0.61) $ (1.08)
Pro forma weighted
average common shares
outstanding--basic and
diluted................ 6,806 6,806 13,976
</TABLE>
4
<PAGE>
The following balance sheet data is presented:
. on an unaudited 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 6,750,000
shares of our common stock at an assumed initial public offering price of
$11.00 per share and the sale of 450,000 shares of our common stock at an
assumed offering price of $8.80 per share, all after deducting
underwriting discounts and commissions and offering expenses payable by
us.
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 4,911 $4,911 $ 76,737
Working capital................................ 14,950 14,950 86,776
Total assets................................... 34,761 34,761 106,987
Long term liabilities.......................... 1,156 1,156 1,156
Mandatorily redeemable convertible preferred
stock......................................... 92,664 -- --
Stockholders' equity (deficit)................. (62,838) 29,826 101,652
</TABLE>
5
<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.
Risks Relating to Our Business
Since we have a limited operating history, forecasting future performance may
be 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 have a history of losses and anticipate incurring losses in the future.
We incurred net losses of $4.2 million for the year ended December 31, 1998
and $15.1 million for the nine months ended September 30, 1999. As of September
30, 1999, we had an accumulated deficit of $63.8 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.
Purchasers and suppliers of scientific products may not adopt our e-commerce
solution or any e-commerce solution.
Our success will require, among other things, that our solutions gain broad
market acceptance by our customers, suppliers, users and strategic partners.
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;
. 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.
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
6
<PAGE>
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.
If we are unable to increase our transaction volume, our future revenues may
suffer.
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.
Unless we negotiate favorable pricing terms with our suppliers, our profit
margins will be adversely affected.
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.
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.
If we cannot timely and accurately add supplier product data to our e-commerce
database, we may lose sales and customers, which would adversely affect our
revenues.
Currently, we are responsible for loading supplier product information into
our database and categorizing the information for search purposes. We currently
have a backlog of varying amounts of product data from 148 companies to be
loaded in our e-commerce marketplace. We anticipate that a majority of these
products will be loaded into the e-commerce marketplace by the end of the first
quarter of 2000. However, we continuously receive new product data to load. We
will not derive revenue from these products until this data is loaded into our
system. Timely loading of these products into our database depends upon a
number of factors, including the file formats of the data provided to us by
suppliers and our ability to further automate and expand our
7
<PAGE>
operations to accurately load this data into our product database, any of which
could delay the actual loading of these products beyond the dates estimated by
us.
In addition, we are generally obligated under our supplier agreements to
load updated product data into our database for access through our marketplace
within a reasonable period of time following their delivery from the supplier.
Our current supplier data backlog could make it difficult for us to meet these
data update obligations to our suppliers. While we intend to further automate
the loading and updating of supplier data on our system, we cannot assure you
that we will be able to do so in a timely manner. Although we screen our
suppliers' information before we make it available to our customers and users,
we cannot guarantee that the product information available in our e-commerce
marketplace will always be accurate, complete and current, or comply with
governmental regulations. This could expose us to liability or result in
decreased adoption and use of our Internet-based purchasing solution, which
could reduce our revenues and therefore have a negative effect on our results
of operations and financial condition.
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.
If we are unable to list a broad range of products on commercially favorable
terms, our marketplace will be less attractive to potential buyers.
A number of factors could significantly reduce the number of products and
product sources listed on our Web sites, including the following:
. consolidation among suppliers; and
. exclusive arrangements signed by suppliers with our competitors.
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If the number of products and product sources that are available for listing
is reduced, the effectiveness of our Web sites and their attractiveness to
potential buyers could be materially and adversely affected.
If we are unable to retain a critical mass of suppliers and customers, our
ability to grow our business will be adversely affected.
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.
If suppliers terminate their agreements with us, our product offerings may
suffer.
Following an initial one-year term, many 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 result in negotiating new
agreement terms that are less favorable to us, which could have a material
adverse effect on our earnings.
We have relied and continue to rely on a limited number of large customers for
a significant portion of our revenues.
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. For the nine months ended September
30, 1999, one customer accounted for twelve percent of revenues.
Since we rely on third-party suppliers and carriers to fulfill orders for our
customers, we have limited control over the timing and accuracy of order
fulfillment.
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.
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Our Web sites and transaction processing systems may not be able to adequately
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 may not be able to successfully 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.
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 the efforts of our
exclusive sales representative.
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
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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.
If we are not able to effectively manage our growth, our business may suffer.
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. For example, we
may be unable to increase the scale of our operations (including order
fulfillment, customer service, transaction processing and other "back office"
operations) to account for the increase in transaction volume that our supplier
and buyer growth creates. 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 failure to attract and retain key employees could adversely affect 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 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 revenues and profits could 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.
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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.
If we are not able to offer new services, we may not be able 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.
Our ability to compete successfully depends, in part, on our ability to protect
our intellectual property rights, which we may not be able to protect.
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. Failure to protect against the
misappropriation of our intellectual property could have a material adverse
effect on our business operations.
We are dependent on proprietary technology licensed from third parties, the
loss of which could be costly.
We license a portion of 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 content in a timely
and cost-effective manner to create an effective finished product.
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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.
Our products, trademarks and other proprietary rights may infringe on the
proprietary rights of third parties, which may expose us to litigation.
While we believe that our products, trademarks and other proprietary rights
do not infringe upon the proprietary rights of third parties, we cannot provide
any guarantees about the products we sell or 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. If the products we sell infringe
the proprietary rights of third parties, we may be deemed to infringe those
rights by selling such products. Even the successful defense of an infringement
claim could result in substantial costs and diversion of our management's
efforts.
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. In addition,
we are currently contemplating registering our trademarks in other countries.
We cannot assure you that we will be able to do so.
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We rely on our suppliers and carriers in complying with government regulations
regarding the sale and distribution of regulated products, and their failure to
so comply could result in substantial civil and criminal liability.
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. Because of our presence in the distribution chain, we may
be subject to significant liability for violations of these regulations
regardless of our actual involvement in a violation. We could be fined or
exposed to civil or criminal liability, including monetary fines and
injunctions for any violations. 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. We cannot assure you
that our suppliers and carriers will comply with all applicable government
regulations.
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.
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 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. The computers of potential buyers also may not be year
2000 compliant, thus preventing such buyers from accessing and making purchases
through 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.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000" for a more complete discussion of year 2000
related issues.
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Risks Relating To Our Industry
Our future revenue growth would be adversely affected by a reduction in
spending in 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.
Our revenue growth is highly dependent upon the widespread acceptance by buyers
of Web-based purchasing 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;
. emergence of standard and common nomenclature and methodology for e-
commerce; and
. development of complementary services and products.
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.
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Online commerce and database security concerns could adversely affect traffic
on our Web site.
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.
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.
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. The imposition of any such taxes or
other regulations could have a material adverse effect on our revenues and
earnings. In addition, the collection and payment of such taxes causes us to
incur significant administrative effort and expense. Our failure to properly
collect and pay such taxes in any jurisdiction could subject us to penalties
that could adversely affect our earnings.
Risks Relating To Our Offering
Investors will incur immediate dilution and may experience further dilution.
The initial public offering price of our common stock will be substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after the offering. If you purchase common stock in this
offering, you will incur immediate and substantial dilution in the pro forma
net tangible book value per share of the common stock from the price you pay
for common stock. We also have a large number of options and warrants to
purchase the common stock with exercise prices significantly below the
estimated initial public offering price of our common stock. To the extent
these options and warrants are exercised, there will be further substantial
dilution. See "Dilution."
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We may issue shares in this offering to certain investors at a discount to the
initial public offering price, which will result in additional charges against
earnings.
Dow Chemical Company and SAS Institute, Inc. have indicated an interest in
purchasing up to 450,000 shares of our common stock in this offering at 80% of
the initial public offering price. We have recently entered into a purchasing
relationship with Dow and are in discussions with SAS with respect to a
potential strategic alliance. The discount from the initial public offering
price will be offered in connection with these relationships. Investors in this
offering will incur additional dilution in the pro forma net tangible book
value per share as a result of this discount. We will record a charge of
approximately $1.0 million which represents the difference between the assumed
initial public offering price of $11.00 per share and the offering price to Dow
and SAS of $8.80. We cannot assure you that we will in fact enter into a
strategic relationship with SAS. In any event, we cannot assure you that any
benefit we may receive from our relationships with Dow and SAS will adequately
compensate us for the discount we intend to offer.
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.
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 and nature of revenues;
. future expenses and investments;
. future profitability;
. expansion of our products and services;
. sales trends;
. trends in Internet activity generally;
. year 2000 preparations;
. 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.
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USE OF PROCEEDS
Our net proceeds from the sale of 7,200,000 shares of common stock in this
offering are estimated to be approximately $71,825,000. If the underwriters
exercise their over-allotment option in full, our net proceeds from the sale of
8,212,500 shares of common stock in this offering are estimated to be
approximately $82,182,000. These estimates are based on our sale of 6,750,000
shares at an assumed initial public offering price of $11.00 per share and the
sale of 450,000 shares of our common stock at an assumed offering price of
$8.80 per share, all 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.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999.
Our capitalization is presented:
. on an actual basis after giving effect to the 1.516643-to-one common
stock split;
. 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 6,750,000
shares of common stock at an assumed initial public offering price of
$11.00 per share and the sale of 450,000 shares of our common stock at an
assumed offering price of $8.80 per share, all after deducting
underwriting discounts and commissions and offering expenses payable by
us.
<TABLE>
<CAPTION>
As of September 30, 1999
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
(In Thousands)
<S> <C> <C> <C>
Debt and capital lease obligations, long-
term portion............................... $ 1,035 $ 1,035 $ 1,035
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.................................. 56,098 -- --
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.................................. 36,566 -- --
-------- -------- --------
Total mandatorily redeemable convertible
preferred stock......................... 92,664 -- --
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......................... 1,774 -- --
Series E convertible preferred stock,
$0.001 par value, 126,500 shares
designated; 114,995 shares issued and
outstanding actual; no shares designated,
issued or outstanding pro forma or pro
forma as adjusted......................... 1,256 -- --
Preferred stock, undesignated, $0.001 par
value, 10,000,000 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; 90,000,000
shares authorized; 3,727,548 shares
issued and outstanding actual; 17,165,604
shares issued and outstanding pro forma;
24,365,604 shares issued and outstanding
pro forma as adjusted..................... 4 17 24
Class B common stock, $0.001 par value,
250,020 shares authorized, issued and
outstanding actual; no shares issued or
outstanding pro forma or pro forma
adjusted.................................. 100 -- --
Additional paid-in capital................. -- 96,464 168,283
Deferred compensation...................... (2,842) (2,842) (2,842)
Accumulated deficit........................ (63,813) (63,813) (63,813)
-------- -------- --------
Total stockholders' equity (deficit)..... (62,838) 29,826 101,652
-------- -------- --------
Total capitalization................... $ 30,861 $ 30,861 $102,687
======== ======== ========
</TABLE>
19
<PAGE>
DILUTION
As of September 30, 1999, our pro forma net tangible book value was
approximately $28.1 million, or $1.64 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 B common stock and all outstanding shares of our preferred stock into
common stock. After giving effect to our sale of 6,750,000 shares of common
stock in this offering at an assumed initial public offering price of $11.00
per share and 450,000 shares of common stock in this offering at an assumed
offering price of $8.80 per share and the application of the estimated net
proceeds from this sale, our pro forma as adjusted net tangible book value at
September 30, 1999 would have been approximately $99.9 million, or $4.10 per
share of common stock. This represents an immediate increase in such pro forma
as adjusted net tangible book value of $2.46 per share to existing stockholders
and an immediate decrease in pro forma as adjusted net tangible book value of
$6.90 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 (weighted
average)...................................................... $11.00
------
Net tangible book value per share at September 30, 1999...... $1.64
Increase attributable to this offering....................... 2.46
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................. 4.10
------
Dilution per share to new investors in this offering........... $ 6.90
======
</TABLE>
The following table summarizes, as of September 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.... 16,891,182 69.3% $ 48,843,915 38.4% $2.89
Existing option holders
and warrant holders..... 274,422 1.1 32,022 0.0 0.12
New investors............ 7,200,000 29.5 78,210,000 61.6 10.86
---------- ----- ------------ ----- -----
Total.................. 24,365,604 100.0% $127,085,937 100.0% $5.22
========== ===== ============ ===== =====
</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 September 30, 1999, there were 2,372,826 shares of
common stock reserved for issuance upon exercise of options granted under our
stock option plan, of which options to purchase 1,577,953 shares were
outstanding as of September 30, 1999 at exercise prices ranging from $0.002 to
$7.58 per share and a weighted average exercise price of $1.75 per share. There
were also 1,183,183 shares of common stock issuable upon exercise of warrants
outstanding as of September 30, 1999 at a weighted average exercise price of
$6.87 per share. In addition, there were 57,545 warrants outstanding for
purchase of our series B preferred stock at an exercise price of $2.80 per
share, which will convert upon consummation of this offering into 87,275
warrants to purchase our common stock at an exercise price of $1.85 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. In
addition, we have agreed to issue upon consummation of this offering warrants
to acquire up to 3,649,307 shares of common stock at an exercise price of $0.01
per share to certain key suppliers and purchasers of scientific products and
may in the future issue warrants to acquire up to an additional 1,483,112
shares of common stock at an exercise price of $0.01 per share to other key
suppliers and purchasers of scientific products.
Assuming full exercise of the underwriters' over-allotment option, the
percentage of shares held by existing stockholders would be 67.6% 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 8,212,500
shares, or 32.4% of the total number of shares of common stock to be
outstanding after the offering.
20
<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 nine months ended September 30, 1998 combine
the historical statements of operations of SciQuest.com and BioSupplyNet as if
the acquisition of BioSupplyNet, which occurred on September 29, 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 nine months ended September 30, 1998, do 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.................. $ (1.31)
Weighted average common
shares outstanding..... 3,412,447
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------------------------------------
Pro Forma Pro Forma
SciQuest.com BioSupplyNet Combined Adjustments Combined
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 308,365 $ 620,359 $ 928,724 $ -- $ 928,724
Cost of revenues........ -- (354,361) (354,361) -- (354,361)
----------- --------- ----------- -------- -----------
Gross profit.......... 308,365 265,998 574,363 -- 574,363
----------- --------- ----------- -------- -----------
Product development..... 389,901 132,840 522,741 121,383 (d) 644,124
Sales and marketing..... 828,294 370,601 1,198,895 -- 1,198,895
General and
administrative......... 375,793 120,261 496,054 382,801 (d) 878,855
Purchased in-process
research and
development............ 791,102 -- 791,102 (791,102)(b) --
----------- --------- ----------- -------- -----------
Total operating
expenses........... 2,385,090 623,702 3,008,792 (286,918) 2,721,874
----------- --------- ----------- -------- -----------
Operating loss.......... (2,076,725) (357,704) (2,434,429) 286,918 (2,147,511)
Interest income......... 34,259 1,608 35,867 -- 35,867
Interest expense........ (22,638) (12,997) (35,635) -- (35,635)
----------- --------- ----------- -------- -----------
Loss before income
taxes.................. (2,065,104) (369,093) (2,434,197) 286,918 (2,147,279)
Income tax benefit...... -- -- -- 164,085 (e) 164,085
----------- --------- ----------- -------- -----------
Net loss................ (2,065,104) (369,093) (2,434,197) 451,003 (1,983,194)
Accretion on mandatorily
redeemable convertible
preferred stock........ 112,155 -- 112,155 -- 112,155
----------- --------- ----------- -------- -----------
Net loss available to
common stockholders.... $(2,177,259) $(369,093) $(2,546,352) $451,003 $(2,095,349)
=========== ========= =========== ======== ===========
Net loss per common
share.................. $ (0.61)
Weighted average common
shares outstanding..... 3,412,447
</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
September 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 September 30, 1998.
22
<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 the balance
sheet data as of December 31, 1997 and 1998 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 nine months ended
September 30, 1998 and 1999 and the balance sheet data as of September 30, 1999
are 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>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------------- -----------------------------------
Pro Forma Pro Forma
1996 1997 1998 1998 1998 1998 1999
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 196 $ 478 $ 1,098 $ 308 $ 928 $ 1,244
Cost of revenues........ -- -- 42 396 -- 354 823
------ ------ -------- -------- -------- -------- ---------
Gross profit........... -- 196 436 702 308 574 421
Operating expenses:
Product development.... 85 140 1,191 1,445 390 644 6,299
Sales and marketing.... 150 257 1,706 2,077 828 1,199 6,219
General and administra-
tive.................. 301 457 1,104 1,607 376 879 3,963
Purchased in process
research and
development........... -- -- 791 -- 791 -- --
------ ------ -------- -------- -------- -------- ---------
Total operating ex-
penses................. 536 855 4,792 5,129 2,385 2,722 16,481
------ ------ -------- -------- -------- -------- ---------
Operating loss.......... (536) (658) (4,356) (4,427) (2,077) (2,148) (16,060)
Net interest income (ex-
pense)................. (9) (32) 80 69 12 1 755
------ ------ -------- -------- -------- -------- ---------
Loss before income tax-
es..................... (545) (690) (4,276) (4,358) (2,065) (2,147) (15,305)
Income tax benefit...... -- -- 54 218 -- 164 164
------ ------ -------- -------- -------- -------- ---------
Net loss................ (545) (690) (4,222) (4,140) (2,065) 1,983 (15,141)
Accretion on mandatorily
redeemable preferred
stock.................. -- -- 328 328 112 112 46,647
------ ------ -------- -------- -------- -------- ---------
Net loss available to
common stockholders.... $ (545) $ (690) $ (4,550) $ (4,468) $ (2,177) $ (2,095) $ (61,788)
====== ====== ======== ======== ======== ======== =========
Net loss per common
share--basic and dilut-
ed..................... $(0.16) $(0.20) $ (1.33) $ (1.31) $ (0.64) $ (0.61) $ (17.60)
Weighted average common
shares outstanding..... 3,412 3,412 3,412 3,412 3,412 3,412 3,511
Pro forma net loss per
common share--basic and
diluted................ $ (0.62) $ (0.61) $ (1.08)
Pro forma weighted aver-
age common shares
outstanding............ 6,806 6,806 13,976
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
--------------------- September 30,
1996 1997 1998 1999
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................. $ 9 $ 331 $ 5,391 $ 4,911
Working capital (deficit)................. (227) (28) 6,413 14,950
Total assets.............................. 77 385 9,173 34,761
Long-term liabilities..................... 66 79 385 1,156
Mandatorily redeemable convertible pre-
ferred stock............................. -- -- 10,883 92,664
Stockholders' equity (deficit)............ (254) (81) (3,102) (62,838)
</TABLE>
23
<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 well-recognized, 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.
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.
On September 29, 1998, we acquired BioSupplyNet in exchange for the issuance
of 546,405 shares of our series C convertible preferred stock and 162,718
warrants to purchase our common stock at an exercise price of $1.85 per share.
In addition, we issued 192,280 options to purchase our common stock with
exercise prices ranging from $0.002 to $0.18 per share primarily to former
employees of BioSupplyNet who became our employees. The series C convertible
preferred stock, at the option of the holder, is convertible into shares of our
common stock at a 1.516643-to-one conversion ratio and automatically converts
to common stock upon the closing of a firm commitment underwritten public
offering. 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. At the date of the
acquisition, BioSupplyNet's e-commerce technology was approximately 50%
complete. We estimated at the acquisition date that we would incur
approximately $1.9 million to complete the development of this e-commerce
technology and that the development would be completed by March 2000. 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 were based on an management's 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, at the time of acquisition,
BioSupplyNet was in the process of developing e-commerce technology 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 technology. Since the acquisition of BioSupplyNet, we have derived
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. Each share of
series E convertible preferred stock is convertible at the option of the holder
into 1.516643 shares of our common stock and will automatically convert to
common stock upon the closing of this offering. 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.
24
<PAGE>
In October 1999, we entered into strategic relationships with a number of
key suppliers and buyers of scientific products, whereby we agreed to issue
warrants to these suppliers and buyers to purchase approximately 3,649,307
shares of common stock at an exercise price of $0.01 per share. These warrants
will be issued upon consummation of this offering, will vest over a period of
three to five years and will be exercisable until 2004. In addition, we have
set aside warrants to purchase approximately 1,483,112 shares of common stock
at an exercise price of $0.01 per share that may be issued to additional
strategic partners.
We will record a charge of approximately $40.1 million upon consummation of
this offering related to the warrants to purchase 3,649,307 shares of common
stock that we have agreed to issue. In the event the remaining available
warrants are issued prior to consummation of this offering, an additional
charge of approximately $16.3 million will be recorded. These charges will be
amortized to operating expense over the term of the related strategic
relationship, which range from three to five years.
In addition, we have committed to sell 450,000 shares of our common stock to
Dow Chemical Company and SAS Institute Inc. at a price equal to 80% of the
initial public offering price. We will record a charge of approximately $1.0
million related to the sale of these common shares, which represents the
difference between the assumed initial public offering price of $11.00 per
share and the offering price to Dow and SAS of $8.80 per share. This charge
will be amortized to operating expense over the term of the related strategic
agreements.
We have also agreed to issue to Dow and Monsanto Company additional
incentive warrants, the number of which will be based on each purchaser's
volume of purchases through our marketplace during the years 2000, 2001 and
2002. These incentive warrants will be issued on February 15, 2001, 2002 and
2003, at an exercise price equal to the initial public offering price, will be
exercisable upon issuance and will be exercisable for five years after
issuance. A charge will be amortized over the remaining term of the agreement
to operating expense upon each issuance of the incentive warrants in an amount
equal to the difference between the fair market value of our common shares on
the issuance date less the exercise price for these warrants.
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 became a significant source of our
revenues in the third quarter of 1999 and are expected to continue to increase.
For the nine months ended September 30, 1999, one customer accounted for twelve
percent of revenues.
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.
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.
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 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.
25
<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 Nine Months
December 31, Ended September 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 -- 66.2
------ ------- -------- ---------
Gross profit.......................... 100.0 91.2 100.0 33.8
------ ------- -------- ---------
Operating expenses:
Product development................. 71.6 249.3 126.4 506.4
Sales and marketing................. 130.7 357.0 268.6 500.0
General and administrative.......... 232.7 231.0 121.9 318.6
Purchased in process-research and
development........................ -- 165.6 256.6 --
------ ------- -------- ---------
Total operating expenses.............. 435.0 1,002.9 773.5 1,325.0
------ ------- -------- ---------
Operating loss........................ (335.0) (911.7) (673.5) (1,291.2)
------ ------- -------- ---------
Net interest income (expense)......... (16.2) 16.7 3.8 60.7
------ ------- -------- ---------
Loss before income taxes.............. (351.2) (895.0) (669.7) (1,230.5)
Income tax benefit.................... -- 11.5 -- 13.2
------ ------- -------- ---------
Net loss.............................. (351.2) (883.5) (669.7) (1,217.3)
Accretion on mandatorily redeemable
preferred stock...................... -- 68.8 36.4 3,750.4
------ ------- -------- ---------
Net loss available to common
stockholders......................... (351.2)% (952.3)% (706.1)% (4,967.7)%
====== ======= ======== =========
</TABLE>
Nine Months Ended September 30, 1999 and 1998
Revenues
Revenues have been derived primarily from advertising revenues from the
Source Book, the sale of scientific products in e-commerce transactions and
banner advertising.
Revenues increased to $1.2 million for the nine months ended September 30,
1999 from $0.3 million for the nine months ended September 30, 1998. This
increase was primarily due to $0.7 million in advertising revenues generated by
BioSupplyNet for the nine months ended September 30, 1999 compared to zero in
the nine months ended September 30, 1998 as we did not acquire BioSupplyNet
until September 29, 1998. Revenues from the sale of scientific products in e-
commerce transactions totaled $0.4 million for the nine months ended September
30, 1999 as compared to zero for the nine months ended September 30, 1998 as
our e-commerce Web Site was not implemented until April 1999. Banner
advertising revenues decreased to $0.1 million for the nine months ended
September 30, 1999 from $0.3 million for the nine months ended September 30,
1998.
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 $0.8 million for the nine months ended
September 30, 1999 from zero for the nine months ended September 30, 1998. Cost
of revenues increased primarily due to $0.4 million in costs incurred related
to BioSupplyNet's advertising revenues and $0.4 million in costs related to the
sale of scientific products in e-commerce transactions during the nine months
ended September 30, 1999.
26
<PAGE>
Gross Profit
Gross profit increased to $0.4 million for the nine months ended September
30, 1999 from $0.3 million for the nine months ended September 30, 1998. Gross
profit increased as product sales began with the launch of the SciQuest.com
marketplace in April 1999 and as a result of 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 $6.3 million for the nine months ended
September 30, 1999 from $0.4 million for the nine months ended September 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 for major
customers.
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 $6.2 million for the nine months ended
September 30, 1999 from $0.8 million for the nine months ended September 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 $4.0 million for the nine months ended September 30, 1999 from $0.4 million
for the nine months ended September 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 (expense) increased to net
interest income of $0.8 million for the nine months ended September 30, 1999
from net interest income of $12,000 for the nine months ended September 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 $0.2 million the nine months ended September
30, 1999 from zero for the nine months ended September 30, 1998. The increase
in income tax benefit was the result of the reduction in
27
<PAGE>
net deferred tax liabilities during the nine months ended September 30, 1999
due to the amortization of the goodwill and other intangible assets recorded
with our acquisition of BioSupplyNet in September 1998.
Accretion of Mandatorily Redeemable Convertible Preferred Stock
Accretion of mandatorily redeemable preferred stock increased to $46.6
million in the nine months ended September 30, 1999 from $0.1 million in the
nine months ended September 30, 1998 as a result of the accretion of the series
B mandatorily redeemable convertible preferred stock to its estimated
redemption amount at September 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. This
resulted in accretion of $45.2 million on the series B mandatorily redeemable
preferred stock being recognized in the nine month period ended September 30,
1999.
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 year ended December 31, 1998 and substantially all
of our revenues for the year ended December 31, 1997 were generated from the
sale of advertising with the remainder of these revenues being generated from
the 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.
28
<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 our
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. At the date of the acquisition, the e-
commerce technology being developed by BioSupplyNet was approximately 50%
complete. We estimate that we will incur approximately $1.9 million to complete
the development of this e-commerce technology. We expect to complete the
development by March 2000.
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 $55,000 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 with a redemption price that was variable in amount and
was therefore 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.
29
<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 September 30, 1999, we had cash and cash equivalents of
$4.9 million, short term investments of $12.6 million and long term investments
of $12.4 million.
Cash used in operating activities during the nine months ended September 30,
1999 was $12.9 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 nine months ended September 30,
1999 was $23.7 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 nine months ended September
30, 1999 was $36.1 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 1,004,829 warrants to
purchase our common stock at an exercise price of $7.46 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.
30
<PAGE>
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 provides
guidance regarding when software developed or obtained for internal use should
be capitalized. 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.
31
<PAGE>
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 September 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 have received responses from a majority of our
critical suppliers, strategic partners and major customers and expect to
receive responses from the remainder by the middle of November 1999. We are
continuing to develop our contingency plans based 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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<PAGE>
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.
33
<PAGE>
BUSINESS
Overview
SciQuest.com is a well-recognized 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. In October 1999, we
entered into exclusive supplier relationships with the following suppliers:
Ambion Inc., Amersham Pharmacia Biotech Inc., Cambrex Corporation, Endogen,
Inc., NEN Life Science Products, Inc., Perkin Elmer LLC, Pierce Chemical
Company and Qiagen Inc. We also entered into an exclusive purchasing
relationship with Dow Chemical Company.
The illustration below summarizes the procurement process through our online
marketplace:
[Graphic representation of a SciQuest.com procurement process.]
34
<PAGE>
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 1999 will be 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, approximately 200,000 laboratories around the world
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.
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. Buying organizations surveyed by
the Aberdeen Group reported that it typically costs $107 per requisition for
orders processed manually, compared with $30 on average to process an order
through an Internet automated procurement system.
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<PAGE>
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
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., 80% of scientists surveyed had ordered a
consumer product or service through the Internet and approximately 38% of them
had purchased life science 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.
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
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<PAGE>
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
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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 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, a hierarchical classification structure for organizing product
content, 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.
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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 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, a hierarchical classification structure for
organizing product content, 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
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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.
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 September 30, 1999, we had 46 people in our sales and marketing group.
Strategic Relationships
We believe that a key element to the successful implementation of our
business strategy is to establish strategic relationships with prominent buyers
and suppliers of scientific products. We believe these relationships will
assist us in accelerating our aggregation of content, increasing the
transaction volume on the SciQuest marketplace, achieving further brand
awareness and building a critical mass of important core customers.
Purchasing Relationships
We have entered into binding letters of intent with Dow Chemical Company and
Monsanto Company to establish purchasing relationships. Pursuant to these
letters of intent, SciQuest will be the exclusive third party electronic
aggregator for purchases of scientific products for Dow and an approved third
party electronic aggregator for purchases of scientific products for Monsanto
for a period of three years. Each of these letters of intent provides that:
. the purchaser will use its reasonable efforts to purchase at least $5
million of scientific products annually through our marketplace; and
. the purchaser will participate in case studies of our marketplace and
otherwise promote our marketplace within the scientific products
industry.
In connection with these relationships, we have agreed to issue warrants to
purchase 113,748 shares of our common stock at an exercise price of $0.01 per
share to Dow and warrants to purchase 15,166 shares of our common stock at an
exercise price of $0.01 per share to Monsanto. These warrants vest in equal
annual installments over three years. In addition, we have agreed to issue to
each of these purchasers additional incentive warrants, the number of which
will be based on that purchaser's volume of purchases through the SciQuest
marketplace during the years 2000, 2001 and 2002. These incentive warrants will
be issued on February 15, 2001, 2002 and 2003, at an exercise price equal to
the price to the public in this offering, and will be exercisable upon issuance
for a period of five years. Dow has also indicated an interest in purchasing up
to 338,000 shares of our common stock in this offering at a price equal to 80%
of the initial public offering price.
We intend to enter into purchasing agreements with Dow and Monsanto to
supplement the terms of the binding letters of intent.
Supplier Relationships
We have entered into agreements to be the exclusive third party provider of
electronic marketplace services in the United States for a period of five years
for the following suppliers of scientific products:
. Ambion Inc.
. Amersham Pharmacia Biotech Inc.
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. Cambrex Corporation
. Endogen, Inc.
. NEN Life Science Products, Inc.
. Perkin Elmer LLC
. Pierce Chemical Company; and
. Qiagen Inc.
These agreements provide that:
. SciQuest will be the exclusive third party provider of electronic
marketplace services in the United States for a period of five years;
. the suppliers will promote our marketplace, including participating in
co-marketing and advertising programs;
. these suppliers will have the opportunity to participate in our Board of
Governors, which will serve as an advisory board for our management and
will consist of various members of the scientific products industry;
. these suppliers will utilize our marketplace for their purchases of
scientific products;
. these suppliers may terminate the exclusive nature of the agreement
after 18 months, subject to forfeiture of outstanding warrants; and
. these agreements may be terminated by either party for material breach
or upon the occurrence of bankruptcy or similar events.
In connection with these agreements, we have agreed to issue warrants to
purchase up to an aggregate of 3,520,392 shares of our common stock at an
exercise price of $0.01 per share. These warrants generally vest in equal
installments over four years. A supplier's warrants will terminate
automatically if that supplier terminates the exclusive nature of our
relationship or otherwise terminates the agreement.
In addition, we may issue warrants to purchase up to an additional 1,483,112
shares of our common stock at an exercise price of $0.01 per share in
connection with additional strategic relationships that we may enter into in
the future. Any relationships we enter into may be on substantially different
terms than the relationships described above. We cannot assure you that we will
enter into any additional strategic relationships or issue any additional
warrants.
We believe that these exclusive supplier relationships will provide us with
a competitive advantage by assisting us in accelerating our aggregation of
product content and providing potential buyers with a broader range of
products.
Co-Marketing Relationships
We have entered into co-marketing agreements with several leading Web based
scientific communities, such as ChemWeb and BioMedNet. Through the
relationships with ChemWeb and BioMedNet, we gain access to their over 550,000
members. Under these agreements, ChemWeb and BioMedNet maintain on their sites
a hyperlink to a co-branded page from which their members can link directly to
our e-commerce marketplace, in the case of ChemWeb, or, in the case of
BioMedNet, to the BioSupplyNet search directory, from which members then link
to our e-commerce marketplace. Under the agreements with ChemWeb and BioMedNet,
we have agreed to pay usage fees for each month in which a minimum number of
members accesses the co-branded page, plus a per search charge. ChemWeb and
BioMedNet have also agreed to collaborate with us on certain co-marketing
activities and to share certain demographic information. Both agreements
terminate on December 31, 2000.
We also have entered into a Joint Marketing and Cooperation Agreement with
Cold Spring Harbor Laboratory that gives us access to its global audience of
laboratory manual buyers. Under the terms of this agreement, Cold Spring Harbor
Laboratory has agreed to provide marketing support for BioSupplyNet and the
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Source Book until September 29, 2003, including distribution of the Source Book
and promotional materials, publication of advertisements in its publications
and the publications of the Cold Spring Harbor Press, creation of links from
its sites, and access to the Cold Spring Harbor Press customer mailing lists.
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.
In March 1999, we entered into a Collaboration Agreement with Cahners
Business Information, a division of Reed Elsevier, under which we are able to
offer timely new product information to our users for products listed on the
Cahners sites by linking to the new product information contained on certain
Cahners' Web sites. The agreement also provides for the creation of links
between our Web sites and Cahners' Web sites that contain product directories.
Through our relationship with Cahners, we can offer our customers access to
Cahners' analytical and basic laboratory supply taxonomy. Under the agreement,
we have agreed to pay referral fees for all product sales by customers referred
to us from or through Cahners when the aggregate sales exceed a specified
minimum amount in any twelve month period. The agreement also appoints Cahners
as our exclusive sales representative for online advertisements on our public
Web sites and gives us the right to place online or print advertisements on
Cahners' Web sites and in Cahners' publications. The agreement has a two-year
term and is automatically renewed thereafter. Either party may terminate the
agreement upon a material breach by the other party or in the event of
bankruptcy or similar events, or upon 90 days' notice or anytime after August
1, 1999. Under a second agreement with Cahners entered into in August 1999,
Cahners was appointed as our exclusive sales representative for advertisements
for the Source Book for a period of one year. The agreement automatically
renews for one year periods thereafter. The agreement is terminable by us for
breach, by Cahners upon bankruptcy or similar events, at any time by mutual
agreement or by either of us upon 90 days' notice.
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 T-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 September 30, 1999, we had 60 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 $6.3 million through September 30,
1999. We intend to continue to invest significantly in enhancing our
technology.
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,
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technology and processes. We have applied for registration of the marks
SCIQUEST.COM, LABDEALS.COM and the SciQuest.com logo. SCIQUEST, SCIMAIL and
BIOSUPPLYNET are our registered trademarks. 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. Furthermore, the validity, enforceability and scope of
protection of intellectual property in Internet-related industries is uncertain
and still evolving. The laws of some foreign countries do not protect
intellectual property to the same extent as do the laws of the United States.
We believe our products, trademarks and other proprietary rights do not
infringe upon the proprietary rights of third parties. However, we cannot
provide any guarantees about the equipment we sell or 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. If the equipment we sell infringes
the proprietary rights of third parties, we may be deemed to infringe those
rights by selling such equipment. 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.
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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 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 to a
substantial degree, 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
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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.
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 have entered into a five-year lease for an
additional 69,000 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 September 30, 1999, we had 150 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.
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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).
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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
47
<PAGE>
University. Mr. Weglicki is a director of ElderTrust, a healthcare real estate
investment trust, and a number of privately held 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.
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<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. 1999 Stock Incentive Plan. The SciQuest.com Stock
Incentive Plan was adopted by our Board in October 1999. Upon the consummation
of this offering, the incentive plan will replace our original plan, the
Sci.Quest.com, Inc. Stock Option Plan.
A maximum of 2,938,412 shares is authorized for issuance under the incentive
plan. The incentive plan provides for the grant of incentive and nonqualified
stock options, restricted stock or other stock-based awards to our employees,
including directors who are employees, and for the grant of nonqualified stock
options, restricted stock or other stock-based awards to our non-employee
directors, consultants and advisors.
Our incentive plan is administered by our Compensation Committee. For so
long as our common stock is registered under the Securities Exchange Act of
1934, as amended, a Board-appointed committee of not less than two members,
each of whom qualifies as a non-employee director, is empowered to grant awards
and take other action under the incentive plan with respect to individuals
deemded to be insiders for purposes of Section 16 of the Securities Exchange
Act.
Our incentive plan provides that any option granted to a person who is
subject to the provisions of Section 16 of the Securities Exchange Act will not
become exercisable for a period of at least six months following the date of
grant. Other restrictions on the terms applicable to incentive stock options
are imposed under the incentive plan to ensure compliance with the requirements
for incentive stock options under Section 422 of the Internal Revenue Code.
The incentive plan permits common stock purchased upon the exercise of
options to be paid in cash or by check or through a broker-facilitated cashless
exercise procedure, or, to the extent permitted by applicable law, by delivery
of previously owned shares, a promissory note or other means approved by our
Board of Directors.
Our Board may also grant restricted stock awards under the incentive plan.
These awards entitle recipients to acquire shares of our common stock, subject
to our right to repurchase all or a part of the shares. The other terms
applicable to restricted stock awards are determined by our Board. Any
restricted stock award granted to a participant who is subject to the
provisions of Section 16 of the Securities Exchange Act restricts the release
of the shares subject to the award for a period of at least six months
following the date of grant.
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<PAGE>
Our Board has the authority to grant other awards based on our common stock
having terms and conditions as determined by our Board. Except as our Board may
otherwise provide in a particular award, no awards granted under the incentive
plan may be transferred or assigned by the holder other than by will or the
laws of descent or distribution.
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 or successor corporation following the
transaction;
. we sell all or substantially all of our assets;
. we completely liquidate; or
. someone acquires 50% or more of the voting power of our outstanding
securities, except through a merger, consolidation or an acquisition of
our securities directly from us.
then any options, stock appreciation rights and any restricted stock awards
or other then stock-based awards that would have become vested within the next
twelve months become vested and free of all restrictions. Our Board may, in its
discretion, terminate any unexercised options or stock appreciation rights, or
permit the acquiring or succeeding corporation to assume or substitute
equivalent options or stock appreciation rights for ours.
Our Board may terminate or amend the incentive plan at any time. Our
stockholders must approve any increase in the total number of shares available
under the incentive plan. No awards may be made under the incentive plan after
October 2009.
SciQuest.com, Inc. 1997 Stock Option Plan. After its adoption and approval
by our Board and our stockholders in September 1997, the SciQuest, Inc. Stock
Option Plan was amended by our Board (and approved by our stockholders) in
September 1998, February 1999 and August 1999 to increase the number of shares
available for issuance thereunder. The option plan was also amended in March
1999 to change the name of the plan to the SciQuest.com, Inc. Stock Option
Plan.
Under the option plan, our Board has the power to grant incentive and
nonqualified stock options to our employees, including directors who are
employees, and nonqualified stock options to our non-employee directors,
consultants and advisors. The option plan is administered by our Board in
conjunction with the Compensation Committee.
The option 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 change of control. Our 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
accelerated vesting under this provision is conditioned upon the consummation
of the change of control event. Our Board may, in its discretion, terminate any
unexercised options that become vested and exercisable solely because of this
provision.
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<PAGE>
As of September 30, 1999, we had outstanding 1,577,953 stock options under
the option plan, at a weighted average exercise price of $1.75 per share, and
274,421 options have been exercised. Our Board has determined not to grant any
additional options under the option plan subsequent to this offering, and
amended the plan, in October 1999, to decrease the number of shares authorized
under the plan to 1,972,588.
Provisions Applicable to Both Plans. The exercise price of options granted
under both the incentive plan and the option plan is determined by our Board;
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 10% or
more stockholder). 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, each outstanding option held by such optionee will
terminate and cease to be exercisable no later than three months after the date
of such cessation of employment. Should the optionee's employment terminate by
reason of death or disability (including death within three months following
cessation of employment), each outstanding option held by such optionee will
terminate and cease to be exercisable no later than twelve months after the
date of such cessation of employment.
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.
51
<PAGE>
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.
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.
52
<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 warrants to purchase 57,545 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 warrants to purchase 6,705 shares of common stock to
Bruce Boehm and 21,447 shares and warrants to purchase 3,910 shares of common
stock 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 warrants to purchase 1,004,829 shares of common stock at an exercise
price of $7.46 per share, we sold:
. 662,544 shares of series D mandatorily convertible preferred stock and
warrants to purchase 200,969 shares of common stock to affiliates of
Timothy Weglicki, one of our directors;
. 163,469 shares of series D mandatorily redeemable convertible preferred
stock and warrants to purchase 49,584 shares of common stock to
affiliates of Gautam Prakash, one of our directors;
. 111,561 shares of series D mandatorily redeemable convertible preferred
stock and warrants to purchase 33,839 shares of common stock to
affiliates of Alan Taetle, one of our directors;
. 151,638 shares of series D mandatorily redeemable convertible preferred
stock and warrants to purchase 45,995 shares of common stock to
affiliates of Noel Fenton, one of our directors;
. 15,085 shares of series D mandatorily redeemable convertible preferred
stock and warrants to purchase 4,576 shares of common stock to Dwight
Sawin, who was then one of our directors; and
. 7,371 shares of series D mandatorily redeemable convertible preferred
stock and warrants to purchase 2,236 shares of common stock 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
In December 1998, we entered into a Content Conversion Services Agreement
with Requisite Technology, Inc. Under this agreement, Requisite converts
product information content received by us from our suppliers to electronic
catalog format for use on our Web sites. The agreement has an initial 12 month
term with automatic renewal thereafter. It may be terminated by either party
for material breach or upon the occurrence of bankruptcy or similar events.
Noel Fenton, one of our directors, also serves as a director of Requisite
Technology, Inc.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our capital stock as of September 30, 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 17,165,604 shares outstanding as of September 30, 1999. The number of
shares of common stock deemed outstanding after this offering includes an
additional 7,200,000 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, 2,119,096(2) 12.3% 2,119,096(2) 8.7%
L.P.(1).................
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Bessemer Venture Partners 1,653,497(4) 9.6% 1,653,497(4) 6.8%
IV L.P.(3)..............
1400 Old Country Road
Suite 407
Westbury, NY 11590
Noro-Moseley Partners IV, 1,559,028(6) 9.1% 1,559,028(6) 6.4%
L.P.(5).................
9 North Parkway Square
4200 Northside Parkway,
NW
Atlanta, GA 30327
ABS Capital Partners III, 1,205,812(7) 6.9% 1,205,812(7) 4.9%
L.P. ...................
1 South Street, 25th
Floor
Baltimore, MD 21202-3220
M. Scott Andrews......... 840,979 4.9% 840,979 3.5%
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
Peyton C. Anderson....... 853,112 5.0% 853,112 3.5%
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
</TABLE>
54
<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............. 935,417(8) 5.4% 935,417(8) 3.8%
1110 E. Morehead Street
Charlotte, NC 28204
Bruce J. Boehm..................... 210,007(9) 1.2% 210,007(9) 0.9%
Noel J. Fenton..................... 2,119,096(10) 12.3% 2,119,096(10) 8.7%
Gautam A. Prakash.................. 1,653,497(11) 9.6% 1,653,497(11) 6.8%
Alan J. Taetle..................... 1,559,028(12) 9.1% 1,559,028(12) 6.4%
Timothy T. Weglicki................ 1,205,812(13) 6.9% 1,205,812(13) 4.9%
All directors and executive
officers as a group (12 persons)
(9)(10)(11)(12)(13)(14)........... 8,769,832 50% 8,769,832 35.3%
</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 45,995 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 49,584 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 33,840 shares subject to warrants that are currently
exercisable.
(7) Includes 200,969 shares subject to warrants that are currently
exercisable.
(8) Includes 20,304 shares subject to a warrant that is currently
exercisable.
(9) Includes 10,169 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 136,767 shares subject to options that are exercisable within 60
days.
55
<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 September 30, 1999, we had
issued and outstanding 17,165,604 shares of common stock.
Common Stock
Upon the closing of this offering, there will be 24,365,604 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 September 30, 1999, we had outstanding options to purchase an
aggregate of 1,577,953 shares of common stock at a weighted average exercise
price of $1.75 per share and warrants to purchase an aggregate of 1,183,183
shares of common stock at a weighted average exercise price of $6.87 per share.
In addition, we had warrants to purchase an aggregate of 57,545 shares of
series B preferred stock at an exercise price of $2.80 per share, which will
convert upon completion of this offering into warrants to purchase 87,275
shares of our common stock at an exercise price of $1.85 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 1,004,829 warrants provide for antidilution
adjustment in the event of certain dilutive issuances of securities by us at
less than $7.46 per share.
In addition, we have agreed to issue warrants to acquire up to 3,649,306
shares of common stock at an exercise price of $0.01 per share and may in the
future issue warrants to acquire up to an additional 1,483,112 shares of common
stock at an exercise price of $0.01 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, 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
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<PAGE>
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 16,840,971 shares of our common
stock and 1,209,755 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.
57
<PAGE>
On or after July 30, 2000, holders of 5,729,310 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
6,029,043 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 November, 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.
58
<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
24,365,604 shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants. 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 17,165,604 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:
. 1,880,363 shares may be eligible for sale in accordance with the
applicable requirements of Rule 144 beginning 90 days after the date of
this prospectus;
. 14,105,992 shares may be eligible for sale in accordance with the
requirements of Rule 144 upon expiration of the lock-up agreements; and
. 1,004,843 shares may be eligible for sale in accordance with the
requirements of Rule 144 beginning on June 8, 2000, and 174,406 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 243,656 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
59
<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 16,840,971 shares of common
stock and the holders of 1,209,755 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 31,208 shares of our common stock are
fully vested as of September 30, 1999. Of the total shares issuable pursuant to
these vested options, 13,008 are subject to the 180-day lock-up agreements
described above. As of September 30, 1999, options to purchase an additional
1,546,745 shares of common stock were outstanding but subject to future vesting
and an additional 794,874 shares of common stock were available for future
grants under our stock option plan. As of September 30, 1999, 1,183,183 shares
of common stock are subject to currently exercisable warrants. We also had
outstanding warrants to purchase an aggregate of 57,545 shares of series B
preferred stock at an exercise price of $2.80 per share, which will convert
upon the consummation of this offering into warrants to purchase 87,275 shares
of our common stock at an exercise price of $1.85 per share. In addition, we
have agreed to issue upon consummation of this offering warrants to acquire up
to 3,649,306 shares of common stock at an exercise price of $0.01 per share and
may in the future issue warrants to acquire up to an additional 1,483,112
shares of common stock at an exercise price of $0.01 per share.
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.
60
<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 $990,000.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, and E*OFFERING Corp., are
facilitating the distribution of the shares sold in this offering over the
Internet. E*OFFERING Corp. has agreed to allocate a portion of the shares that
it purchases to E*TRADE Securities, Inc., for further distribution to E*TRADE
Securities, Inc. retail customers. E*OFFERING Corp. and E*TRADE Securities,
Inc. will allocate shares to their respective customers in accordance with
usual and customary industry practices. An electronic prospectus is available
on the Web sites maintained by DLJdirect and E*OFFERING Corp. 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.
We have granted to the underwriters an option, exercisable for 30 days after
the date of the underwriting agreement, to purchase up to 1,012,500 additional
shares of common stock at the initial public offering price less
61
<PAGE>
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 stock and the distribution of this prospectus. This prospectus is
not an offer to sell or a solicitation of an offer
62
<PAGE>
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 9,421 shares of class A
common stock at an exercise price of $7.46 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 37,684 shares of class A common stock at an exercise price
of $7.46 per share, which warrants expire in May, 2004.
ABS Capital Partners III, L.P., BT Investment Partners, Inc. and persons
associated with Deutsche Banc Securities, Inc. own 839,222 shares of series D
mandatorily redeemable convertible preferred stock and warrants to purchase
254,561 shares of class A common stock at an exercise price of $7.46 per share,
which warrants expire in May 2004.
Hambrecht & Quist LLC has provided financial advisory services to us in the
past and has received compensation at market rates for these services. In
addition, Donaldson Lufkin & Jenrette has provided and will continue to provide
financial advisory services to us and will receive compensation at market rates
for these services.
63
<PAGE>
DIRECT OFFER
Dow Chemical Company and SAS Institute Inc. have indicated an interest in
purchasing up to 450,000 shares of our common stock in this offering at the
initial public offering price minus twenty percent. We intend to offer the
shares on such terms and to such purchasers pursuant to this prospectus. We
believe that by encouraging these companies to take ownership positions in
SciQuest, they will have a greater incentive to contribute to the success of
our business. Both Dow and SAS are expected to enter into lock-up agreements on
terms substantially similar to those described in "Underwriting."
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 December 31, 1998 and 1997
and for 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
Effective February 8, 1999, 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. In connection with its audits through December 31, 1997
and through February 8, 1999, 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 the applicable 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
64
<PAGE>
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.
65
<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
September 30, 1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998 and
the Nine Months Ended September 30, 1998 and 1999....................... F-4
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1996, 1997 and 1998 and the Nine Months Ended September 30,
1999.................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 and the Nine Months Ended September 30, 1998 and
1999.................................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
BioSupplyNet, Inc.:
Report of Independent Accountants........................................ F-28
Balance Sheets as of June 30, 1997 and 1998.............................. F-29
Statements of Operations for the Years Ended June 30, 1997 and 1998...... F-30
Statements of Stockholders' Deficit for the Years Ended June 30, 1997 and
1998.................................................................... F-31
Statements of Cash Flows for the Years ended June 30, 1997 and 1998...... F-32
Notes to Financial Statements............................................ F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
SciQuest.com, Inc.
The 1.516643-to-1 stock split discussed in Note 16 to the financial
statements has not been consummated at October 25, 1999. When it has been
consummated, we will be in a position to furnish the following audit report:
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
December 31, 1998 and 1997, and the results of their operations and their
cash flows for 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, September 30, September 30,
1997 1998 1999 1999
(unaudited) (unaudited)
(note 1)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............ $ 330,836 $ 5,391,462 $ 4,911,440 $ 4,911,440
Short-term investments.. -- 1,886,693 12,600,275 12,600,275
Accounts receivable..... 20,658 104,082 311,229 311,229
Prepaid expenses and
other assets........... 7,227 37,057 906,876 906,876
----------- ----------- ------------ ------------
Total current assets.. 358,721 7,419,294 18,729,820 18,729,820
----------- ----------- ------------ ------------
Restricted cash.......... -- 82,236 -- --
Long-term investments.... -- -- 12,416,587 12,416,587
Property and equipment,
net..................... 19,412 357,460 1,757,310 1,757,310
Other assets............. 7,152 1,314,109 1,857,531 1,857,531
----------- ----------- ------------ ------------
Total assets.......... $ 385,285 $ 9,173,099 $ 34,761,248 $ 34,761,248
=========== =========== ============ ============
Liabilities and
Stockholders' Deficit
Current liabilities:
Accounts payable........ $ 82,926 $ 694,611 $ 1,982,181 $ 1,982,181
Accrued liabilities..... 142,267 280,003 1,682,651 1,682,651
Current maturities of
capital lease
obligations............ 2,758 18,048 19,190 19,190
Current maturities of
notes payable.......... 159,238 14,060 96,000 96,000
----------- ----------- ------------ ------------
Total current
liabilities.......... 387,189 1,006,722 3,780,022 3,780,022
----------- ----------- ------------ ------------
Deferred income taxes.... -- 285,005 120,920 120,920
Capital lease
obligations, less
current maturities...... -- 35,082 1,034,755 1,034,755
Notes payable, less
current maturities...... 79,188 65,128 -- --
Commitments and
contingencies (Note 14). -- -- -- --
Mandatorily redeemable
convertible preferred
stock................... -- 10,882,702 92,664,441 --
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 September 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
September 30, 1999,
respectively, no
shares designated,
issued or outstanding
pro forma (unaudited).. -- 1,524,470 1,774,470 --
Series E convertible
preferred stock,
$0.001 par value;
126,500 shares
designated; no shares
issued or outstanding
as of December 31,
1997 or 1998, 114,995
shares issued and
outstanding as of
September 30, 1999, no
shares designated,
issued or outstanding
pro forma (unaudited).. -- -- 1,255,616 --
Preferred stock,
undesignated,
10,000,000 shares
authorized; none
issued or outstanding
actual or pro forma
(unaudited)............ -- -- -- --
Common stock, $0.001
par value; 90,000,000
shares authorized;
3,412,447 shares
issued and outstanding
as of December 31,
1997 and 1998 and
3,727,548 shares
issued and outstanding
as of September 30,
1999, actual;
17,165,604 shares
issued and outstanding
pro forma (unaudited).. 3,412 3,412 3,728 17,166
Class B common stock,
$0.001 par value,
250,020 shares
authorized, issued and
outstanding as of
December 31, 1997 and
1998 and September 30,
1999, no shares
authorized, issued or
outstanding pro forma
(unaudited)............ 100,000 100,000 100,000 --
Additional paid-in
capital................. 366,588 49,949 -- 96,464,224
Deferred compensation.... -- -- (2,842,490) (2,842,490)
Accumulated other
comprehensive loss...... -- (6,673) -- --
Accumulated deficit...... (1,234,227) (5,455,833) (63,813,349) (63,813,349)
----------- ----------- ------------ ------------
Total stockholders'
equity (deficit)....... (81,092) (3,101,540) (62,838,890) 29,825,551
----------- ----------- ------------ ------------
Total liabilities and
stockholders'
deficit.............. $ 385,285 $ 9,173,099 $ 34,761,248 $ 34,761,248
=========== =========== ============ ============
</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 Nine Months Ended
------------------------------------- --------------------------
December September
December 31, December 31, 31, September 30, 30,
1996 1997 1998 1998 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 196,381 $ 477,818 $ 308,365 $ 1,243,787
Cost of revenues........ -- -- 41,880 -- 823,236
--------- --------- ----------- ----------- ------------
Gross profit........ -- 196,381 435,938 308,365 420,551
--------- --------- ----------- ----------- ------------
Operating expenses:
Product development... 85,025 140,520 1,191,135 389,901 6,298,444
Sales and marketing... 149,560 256,699 1,706,033 828,294 6,218,888
General and
administrative....... 300,822 457,058 1,104,010 375,793 3,963,188
Purchased in-process
research and
development.......... -- -- 791,102 791,102 --
--------- --------- ----------- ----------- ------------
Total operating
expenses........... 535,407 854,277 4,792,280 2,385,090 16,480,520
--------- --------- ----------- ----------- ------------
Operating loss...... (535,407) (657,896) (4,356,342) (2,076,725) (16,059,969)
--------- --------- ----------- ----------- ------------
Interest income
(expense):
Interest income....... -- 3,235 110,565 34,259 762,287
Interest expense...... (9,113) (35,028) (30,524) (22,638) (7,026)
--------- --------- ----------- ----------- ------------
Net interest income
(expense).......... (9,113) (31,793) 80,041 11,621 755,261
--------- --------- ----------- ----------- ------------
Loss before income
taxes.............. (544,520) (689,689) (4,276,301) (2,065,104) (15,304,708)
Income tax benefit...... -- -- 54,695 -- 164,086
--------- --------- ----------- ----------- ------------
Net loss................ (544,520) (689,689) (4,221,606) (2,065,104) (15,140,622)
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- 328,723 112,155 46,646,901
--------- --------- ----------- ----------- ------------
Net loss available to
common stockholders.... $(544,520) $(689,689) $(4,550,329) $(2,177,259) $(61,787,523)
========= ========= =========== =========== ============
Net loss per common
share--basic and
diluted................ $(0.16) $(0.20) $(1.33) $(0.64) $(17.60)
Weighted average common
shares outstanding--
basic and diluted...... 3,412,447 3,412,447 3,412,447 3,412,447 3,511,340
Pro forma net loss per
common share--basic and
diluted (unaudited).... $(0.62) $(1.08)
Pro forma weighted
average shares
outstanding--basic and
diluted (unaudited).... 6,805,787 13,976,390
</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 Series E Class B
Preferred Stock Preferred Stock Preferred Stock Common Stock Common Stock Additional
---------------- ------------------ ------------------ ---------------- ---------------- Paid in
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............. -- $ -- -- $ -- -- $ -- 3,412,447 $3,412 250,020 $100,000 $ 186,588
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 -- -- -- -- 3,412,447 3,412 250,020 100,000 366,588
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.. -- -- -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- ------- ---------- --------- ------ ------- -------- ----------
Balance at
December 31,
1998............. 769,221 683,135 546,405 1,524,470 -- -- 3,412,447 3,412 250,020 100,000 49,949
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
cash
(unaudited)..... -- -- 89,408 250,000 -- -- -- -- -- -- --
Deferred
compensation
related to grant
of stock options
(unaudited)..... -- -- -- -- -- -- -- -- -- -- 2,547,215
Issuance of
Series E
convertible
preferred stock
at $11.32 per
share in
exchange for
shares of IAI,
Inc.
(unaudited)..... -- -- -- -- 114,995 1,255,616 -- -- -- -- --
Deferred
compensation
related to
acquisition of
IAI, Inc.
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Reclassification
of investments
to held-to-
maturity
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Accretion of
mandatorily
redeemable
preferred stock
(unaudited)..... -- -- -- -- -- -- -- -- -- -- (3,430,007)
Exercise of
common stock
options
(unaudited)..... -- -- -- -- -- -- 274,422 275 -- -- 31,747
Exercise of
common stock
warrants
(unaudited)..... -- -- -- -- -- -- 40,679 41 -- -- 74,959
Issuance of
common stock
warrants in
connection with
Series D
preferred stock
(unaudited)..... -- -- -- -- -- -- -- -- -- -- 726,137
Amortization of
deferred
compensation
related to stock
options
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Amortization of
deferred
compensation
related to
employment
agreement
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- ------- ---------- --------- ------ ------- -------- ----------
Balance at
September 30,
1999 (unaudited). 769,221 $683,135 635,813 $1,774,470 114,995 $1,255,616 3,727,548 $3,728 250,020 $100,000 $ --
======= ======== ======= ========== ======= ========== ========= ====== ======= ======== ==========
<CAPTION>
Other Total
Deferred Compre- Accumu- Stock-
Compen- hensive lated holders'
sation Loss Deficit Deficit
<S> <C> <C> <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) -- (6,673)
------------ -------- ------------- -------------
Balance at
December 31,
1998............. -- (6,673) (5,455,833) (3,101,540)
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
cash
(unaudited)..... -- -- -- 250,000
Deferred
compensation
related to grant
of stock options
(unaudited)..... (2,547,215) -- -- --
Issuance of
Series E
convertible
preferred stock
at $11.32 per
share in
exchange for
shares of IAI,
Inc.
(unaudited)..... -- -- -- 1,255,616
Deferred
compensation
related to
acquisition of
IAI, Inc.
(unaudited)..... (400,000) -- -- (400,000)
Reclassification
of investments
to held-to-
maturity
(unaudited)..... -- 6,673 -- 6,673
Accretion of
mandatorily
redeemable
preferred stock
(unaudited)..... -- -- (43,216,894) (46,646,901)
Exercise of
common stock
options
(unaudited)..... -- -- -- 32,022
Exercise of
common stock
warrants
(unaudited)..... -- -- -- 75,000
Issuance of
common stock
warrants in
connection with
Series D
preferred stock
(unaudited)..... -- -- -- 726,137
Amortization of
deferred
compensation
related to stock
options
(unaudited)..... 71,392 -- -- 71,392
Amortization of
deferred
compensation
related to
employment
agreement
(unaudited)..... 33,333 -- -- 33,333
Net loss
(unaudited)..... -- -- (15,140,622) (15,140,622)
------------ -------- ------------- -------------
Balance at
September 30,
1999 (unaudited). $(2,842,490) $ -- $(63,813,349) $(62,838,890)
============ ======== ============= =============
</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 Nine Months Ended
-------------------------------------- ---------------------------
December 31, December 31, December 31, September 30, September 30,
1996 1997 1998 1998 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss.............. $(544,520) $(689,689) $(4,221,606) $(2,065,104) $(15,140,622)
Adjustments to
reconcile net loss to
net cash used in
operating activities
Depreciation and
amortization......... 8,773 12,421 205,122 17,285 803,223
Noncash management
compensation expense. 180,000 180,000 -- -- --
Amortization of debt
discount............. -- -- 12,084 12,084 --
Purchased in process
research and
development.......... -- -- 791,102 791,102 --
Deferred tax benefit.. -- -- (54,695) -- (164,086)
Amortization of
deferred
compensation......... -- -- -- -- 104,725
Realized loss on sale
of investments....... -- -- -- -- 1,447
Changes in operating
assets and
liabilities
Accounts receivable.. (27,118) 6,460 (61,425) (60,240) (189,740)
Prepaid expenses and
other assets........ (2,849) (4,830) (47,535) 5,075 (956,847)
Accounts payable..... 69,801 13,125 469,833 89,173 1,287,572
Accrued liabilities.. 53,111 91,659 (184,467) 50,432 1,338,184
--------- --------- ----------- ----------- ------------
Net cash used in
operating
activities......... (262,802) (390,854) (3,091,587) (1,160,193) (12,916,144)
--------- --------- ----------- ----------- ------------
Cash flows from
investing activities
Purchase of property
and equipment........ (27,208) -- (273,341) (110,499) (1,356,166)
Cash received from
acquisitions......... -- -- 9,173 9,173 4,916
Proceeds from sale of
equipment............ -- -- -- -- 704,522
Maturity of
investments.......... -- -- -- -- 5,473,205
Purchase of
investments,
including restricted
cash................. -- -- (1,975,602) -- (28,515,911)
--------- --------- ----------- ----------- ------------
Net cash used in
investing
activities......... (27,208) -- (2,239,770) (101,326) (23,689,434)
--------- --------- ----------- ----------- ------------
Cash flows from
financing activities
Borrowings under notes
payable.............. 197,714 211,581 562,110 547,108 --
Repayment of notes
payable.............. -- (90,869) (206,348) (188,132) (79,188)
Repayment of capital
lease obligations.... -- (8,322) (2,758) (4,959) (13,253)
Proceeds from exercise
of common stock
warrants............. -- -- -- -- 75,000
Proceeds from exercise
of common stock
options.............. -- -- -- -- 32,022
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 4,033,503 --
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 4,387,520 36,125,556
--------- --------- ----------- ----------- ------------
Net increase (decrease)
in cash and cash
equivalents........... 7,704 322,132 5,060,626 3,126,001 (480,022)
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 $ 3,456,837 $ 4,911,440
========= ========= =========== =========== ============
</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 well-recognized 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 it believes
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. 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 nine month periods
ended September 30, 1998 and 1999 and consolidated balance sheet at September
30, 1999 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 nine month periods ended
September 30, 1998 and 1999 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, Series D
and Series E preferred shares into common stock as if such conversion had
occurred as of September 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.
F-7
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 September 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. The unrealized holding
loss of $6,673 on the Company's investments at December 31, 1998 was amortized
to interest income over the period from the date of the transfer of the
investments to held-to-maturity to the maturity date of the related
investments. 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 was comprised of a certificate of deposit which served as
collateral on the Company's bank loan. This certificate of deposit was to be
maintained until the bank loan was repaid. During the nine month period ended
September 30, 1999, the Company repaid the bank 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 September 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.
F-8
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 valuations prepared by management and are
primarily associated with the Source Book and contracts with certain Web sites
(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 and
Internet Auctioneers International, Inc. 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 September 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 September 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 nine month period ended September 30, 1999.
F-9
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 nine months ended September 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 $432,000 for the nine months
ended September 30, 1999.
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
$13,000, $15,000 and $181,000 for the years ended December 31, 1996, 1997 and
1998, respectively and was $782,500 for the nine months ended September 30,
1999.
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.
F-10
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
No single customer accounted for more than 10% of the Company's revenues
during the year ended December 31, 1996 or during the year ended December 31,
1998. In 1997, one customer accounted for 30% of revenues. For the nine month
period ended September 30, 1999, one customer accounted for 12% 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. 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. As of September 30, 1999, two customers comprised
25% and 35% 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
$9,392 during the nine months ended September 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 $1,014,068 during the
nine months ended September 30, 1999.
F-11
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 nine months ended
September 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
September 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 provides
guidance regarding when software developed or obtained for internal use should
be capitalized. 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.
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
F-12
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 nine months ended September 30, 1999, does not include
zero, 545, 5,325,054 and 17,026,675, respectively, potential shares of common
stock equivalents, as their impact would be anti-dilutive.
Pro Forma (Unaudited)
Pro forma net income (loss) per common share is calculated assuming
conversion of all Class B common stock and preferred stock, which converts
automatically upon the completion of a qualified initial public offering (see
Note 11), into 5,343,272 and 8,860,395 shares of common stock (see Note 11) at
December 31, 1998 and September 30, 1999, respectively. Therefore, accretion of
mandatorily redeemable preferred stock of $328,723 for the year ended December
31, 1998 and $46,646,902 for the nine months ended September 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 nine months ended September 30, 1999 does not include
178,568 and 1,154,930, 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.
3.Acquisitions
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 162,718
warrants to purchase the Company's common stock at an exercise price of $1.85
per share. In addition, the Company issued 192,280 options to purchase the
Company's common stock primarily to former employees of BioSupplyNet who became
employees of the Company. Of those options, 189,297 were issued with an
exercise price of $0.18 per share which was the fair value of the Company's
common stock on the date of the grant. The remaining 2,983 options were
replacement options with an exercise price of $0.002 per share. The Company did
not record any compensation expense related to the 2,983 options issued with an
exercise price of $0.002 per share, as the value of the options as calculated
in accordance with SFAS No. 123 was determined to be de minimis. 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 management of the 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 a valuation prepared by the management of the Company 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.
F-13
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Of the total purchase price, $791,102 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 management of the 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
projected that it would generate revenues from its e-commerce technology during
its fiscal year ended June 30, 2000 and positive gross margins beginning in its
fiscal year ended June 30, 2002. A risk adjusted discount rate of 45% was used
to discount the projected cash flows from the e-commerce technology from the
fiscal year ended June 30, 2000 through June 30, 2004, which is the date at
which management of BioSupplyNet projected the e-commerce technology would be
obsolete.
BioSupplyNet had incurred approximately $1,000,000 in development costs
related to its e-commerce technology, which was approximately 50% complete,
prior to its acquisition by SciQuest.com. The Company expects to incur
approximately $1,900,000 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-14
<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 nine months ended September 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 Nine Months Ended
31, 31, September 30,
1997 1998 1998
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenue......................... $ 558,791 $ 1,098,177 $ 928,724
Operating loss.................. $ (919,308) $(4,427,128) $(2,147,511)
Net loss........................ $(1,158,359) $(4,139,696) $(1,983,194)
Net loss available to common
stockholders................... $(1,158,359) $(4,468,419) $(2,095,349)
Net loss per common share....... $ (0.34) $ (1.31) $ (0.61)
</TABLE>
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
stock. 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 voluntarily terminates 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 completion of each 90 day period of
continuous employment, payable either in 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 $1,416,000 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 $160,000 of net liabilities of IAI.
The excess of the purchase price over the fair value of assets acquired less
liabilities assumed was allocated to goodwill. Of the total purchase price,
$22,000 was allocated to the tangible assets of IAI, which were comprised of
cash and accounts receivable. In addition, $400,000 was allocated to the
employment agreement with the former shareholder and recorded as deferred
compensation, and $994,000 was allocated to goodwill.
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.
F-15
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5.Investments
The aggregate fair values of investment securities at December 31, 1998 and
September 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........ $ 1,893,366 $ (6,673) $ 1,886,693
=========== ======== ===========
September 30, 1999 (unaudited)
<CAPTION>
Gross Market
Description Cost Unrealized Loss Value
<S> <C> <C> <C>
Short-Term Investments:
U.S. Government obligations........ $12,600,275 -- $12,600,275
----------- -------- -----------
Long-Term Investments:
U.S. Government obligations........ 12,095,390 -- 12,095,390
Corporate Bonds.................... 321,197 -- 321,197
----------- -------- -----------
$12,416,587 $ -- $12,416,587
=========== ======== ===========
</TABLE>
The Company had no outstanding investment securities at December 31, 1997.
6.Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1997 1998 1999
(unaudited)
<S> <C> <C> <C>
Furniture and equipment.................... $ -- $ 42,094 $ 240,579
Computer software and equipment............ 40,606 408,752 1,780,999
Leasehold improvements..................... -- -- 47,689
-------- -------- ----------
Total costs.............................. 40,606 450,846 2,069,267
Less accumulated depreciation.............. (21,194) (93,386) (311,957)
-------- -------- ----------
Net book value........................... $ 19,412 $357,460 $1,757,310
======== ======== ==========
</TABLE>
The Company leases certain equipment under capital lease agreements. The
cost of equipment under capital leases at September 30, 1999 was approximately
$1,080,000. For the years ended December 31, 1997 and 1998 the cost of
equipment under capital leases was approximately $66,000.
F-16
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7.Other Assets
Other assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
(unaudited)
<S> <C> <C> <C>
Goodwill.................................... $ -- $ 638,416 $1,627,561
Web site agreements......................... -- 80,766 80,766
Source Book................................. -- 378,592 378,592
Capitalized software costs.................. -- 364,148 364,148
Deposits.................................... -- -- 111,642
Other....................................... 7,152 20,248 1,050
------ ---------- ----------
7,152 1,482,170 2,563,759
Less accumulated amortization............... -- (168,061) (706,228)
------ ---------- ----------
$7,152 $1,314,109 $1,857,531
====== ========== ==========
</TABLE>
8.Accrued Liabilities
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
(unaudited)
<S> <C> <C> <C>
Deferred revenues............................ $ 87,750 $136,024 $ 9,305
Accrued compensation......................... 45,921 139,219 870,031
Professional services........................ -- -- 440,000
Other........................................ 8,596 4,760 363,315
-------- -------- ----------
$142,267 $280,003 $1,682,651
======== ======== ==========
</TABLE>
9.Income Taxes
The components of the Company's income tax benefit for the year ended
December 31, 1997, 1998 and the nine months ended September 30, 1999 consist of
the following:
<TABLE>
<CAPTION>
For the Year Ended For the
December 31, Nine Months Ended
------------------ September 30,
1997 1998 1999
(unaudited)
<S> <C> <C> <C>
Current:
Federal.............................. $ -- $ -- $ --
State................................ -- -- --
------- ---------- ---------
-- -- --
------- ---------- ---------
Deferred:
Federal.............................. -- (44,158) (132,474)
State................................ -- (10,537) (31,612)
------- ---------- ---------
-- (54,695) (164,086)
------- ---------- ---------
Total.............................. $ -- $ (54,695) $(164,086)
======= ========== =========
</TABLE>
F-17
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company recognized a deferred tax benefit of $54,695 and $164,086 for
the year ended December 31, 1998 and the nine months ended September 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 acquisitions of BioSupplyNet and IAI.
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 September 30, 1999 the Company had
federal and state net operating loss carryforwards of approximately $1,800,000,
$4,400,000, and $34,000,000, 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 September 30, 1999 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
(unaudited)
<S> <C> <C> <C>
Net operating loss carryforwards....... $ 139,094 $ 1,708,406 $ 6,560,967
Accrual to cash adjustment............. 76,852 324,514 1,124,498
Other.................................. 7,786 30,832 56,359
--------- ----------- -----------
Total deferred tax assets............ 223,732 2,063,752 7,741,824
Valuation allowance for deferred..... (223,732) (2,063,752) (7,741,824)
--------- ----------- -----------
Deferred tax assets.................. -- -- --
--------- ----------- -----------
Acquired intangibles................... -- (285,005) (120,920)
--------- ----------- -----------
Total deferred tax liabilities....... -- (285,005) (120,920)
--------- ----------- -----------
Net deferred tax liability........... $ -- $ (285,005) $ (120,920)
========= =========== ===========
</TABLE>
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 $5,602,531 for the
nine months ended September 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.
F-18
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
--------------------------------------
December 31, December 31, December 31,
1996 1997 1998
<S> <C> <C> <C>
Effective rate.......................... 0% 0% (1%)
--------- --------- -----------
United States Federal tax at statutory
rate................................... $(185,137) $(234,494) $(1,453,942)
State taxes (net of Federal benefit).... (26,954) (34,140) (211,677)
Change in valuation allowance........... 142,374 81,358 1,840,020
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
Other................................... (393) 117,166 (7,718)
--------- --------- -----------
Provision (benefit) for income tax...... $ -- $ -- $ (54,695)
========= ========= ===========
</TABLE>
10.Notes Payable
The Company's debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
(unaudited)
<S> <C> <C> <C>
Notes payable to officers and
stockholders.......................... $ 146,851 $ -- $76,000
Bank loan.............................. 91,575 79,188 --
Other.................................. -- -- 20,000
--------- -------- -------
238,426 79,188 96,000
Less current maturities................ (159,238) (14,060) (96,000)
--------- -------- -------
Long-term debt......................... $ 79,188 $ 65,128 $ --
========= ======== =======
</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 was
collateralized by a certificate of deposit held at a bank, which was shown as
restricted cash in the accompanying consolidated balance sheets. During the
nine month period ended September 30, 1999, the bank loan was repaid.
In connection with the acquisition of IAI (See Note 3) the Company assumed
convertible notes payable to stockholders with interest between 7% and 10% per
annum which are due in April, 2000. The Company also acquired other notes
payable of $20,000 with interest rates of 10% per annum, which are due upon
demand. These notes were repaid in October 1999.
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-19
<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 30,203,689 shares of common stock
with no par value, of which 250,020 shares were designated as Class B common
stock and 29,953,669 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 Class A 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
14,583 warrants, which expire in 2000, for the purchase of common stock with
exercise prices of $1.25 per share. The Company did not record any additional
paid in capital related
F-20
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
In September 1998, the Company issued 546,405 shares of Series C preferred
and 192,280 options and 162,718 warrants to purchase the Company's 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, Series C preferred or Series E 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 common stock,
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 holders of Class A
common stock and Class B common stock, 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 holders of Class A
F-21
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock and Class B common stock, an amount equal to $1.85 and $7.46 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 common shares
and no further distributions will be made to the Class B common stockholders or
to the preferred stockholders unless the amount per share distributed to the
holders of 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, Series C, and Series E preferred shares, and Class B common
stock as of December 31, 1998 and September 30, 1999, in the order of
preference:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
(unaudited)
<S> <C> <C>
Series D mandatorily preferred stock.............. $ -- $36,566,695
Series B mandatorily preferred stock.............. 10,882,702 11,719,480
Series A preferred stock.......................... 683,135 683,135
Series C and E preferred stock.................... 1,524,470 3,076,213
Class B common stock.............................. 100,000 100,000
----------- -----------
Total........................................... $13,190,307 $52,145,523
=========== ===========
</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
and Class B common stock, at the option of the holder, is convertible into
shares of common stock of the Company at 1.516643 to 1 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 $1.65 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 and
E 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.
F-22
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 $45,215,043 for the nine
months ended September 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 and the projected initial public offering
pricing range, respectively.
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 1,004,829 warrants to purchase the Company's
common stock at an exercise price of $7.46 per share and 41,733 warrants to
purchase the Company's common stock at an exercise price of $9.33 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 $3.30 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.
The Company recorded a charge to stockholders' equity of $1,431,858 during the
nine months ended September 30, 1999 to record the accretion on the Series D
Preferred Stock.
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.
F-23
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the Company's outstanding shares and carrying
value of mandatorily redeemable convertible preferred stock at December 31,
1998 and September 30, 1999:
<TABLE>
<CAPTION>
December 31, 1998 September 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 $56,097,746
Series D preferred.............. -- -- 3,312,720 36,566,695
--------- ----------- --------- -----------
3,777,626 $10,882,702 7,090,346 $92,664,441
========= =========== ========= ===========
</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 341,245 employee stock
options. In September 1998, the Plan was amended to provide for the grant of up
to 1,272,299 employee stock options. In February 1999, the Plan was amended to
provide for the grant of up to 1,484,820 employee stock options. In August
1999, the Plan was further amended to allow for the grant of up to 2,647,247
employee stock options. Stock options granted under the Plan are for periods
not to exceed ten years. Options granted under the Plan during the years ended
December 31, 1997 and 1998 and the nine months ended September 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 $71,392 in non-cash
compensation expense related to amortization of deferred compensation during
the nine months ended September 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 nine months ended
September 30, 1999 would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 September 30, 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net loss available to
common stockholders:
As reported........... $689,689 $4,550,329 $61,787,523
Pro Forma............. $691,591 $4,554,641 $61,971,305
</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 nine months ended September 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%. The weighted average fair value of options
granted during the years ended December 31, 1997 and 1998, and the nine months
ended September 30, 1999 according to the Black-Scholes pricing model was
$0.05, $0.02, and $3.42, respectively.
F-24
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Plan as of December 31, 1997 and 1998, and
September 30, 1999 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------- Nine Months Ended
1997 1998 September 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................ -- $ -- 117,596 $0.06 1,004,310 $0.13
Granted................. 117,596 0.06 887,958 0.15 955,746 2.37
Exercised............... -- -- -- -- (274,421) 0.18
Forfeited............... -- -- (1,244) 0.18 (107,682) 0.12
------- ----- --------- ----- --------- -----
Outstanding at end of
period................. 117,596 $0.06 1,004,310 $0.13 1,577,953 $1.75
======= ===== ========= ===== ========= =====
</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 $2,547,215 of deferred compensation during the
nine months ended September 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 following table summarizes information about the Company's stock
options at September 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>
$0.002 - 0.07............... 166,223 8.3 $0.03 146,997
$0.18....................... 791,921 9.1 0.18 124,840
$2.08....................... 88,074 9.6 2.08 1,500
$3.30....................... 374,914 9.9 3.30 --
$7.58....................... 156,821 10 7.58 --
--------- --- ----- -------
1,577,953 9.3 $1.75 273,337
========= === ===== =======
</TABLE>
Stock option grants subsequent to September 30, 1999 (unaudited) are as
follows:
<TABLE>
<CAPTION>
Shares Weighted Average
Month of Grant Underlying Options Exercise Price
<S> <C> <C>
October 1999.......................... 44,438 $7.58
</TABLE>
The Company recorded approximately $346,000 of deferred compensation
related to this grant to reflect the difference between the aggregate fair
market value and exercise price of these options.
Warrants
At December 31, 1997 and 1998, and September 30, 1999, the Company had
14,583, 177,300, and 1,183,183, respectively, warrants outstanding and
exercisable to purchase the Company's Class A common stock at prices ranging
from $0.82 to $9.33. These warrants expire at various dates between 2000 and
2004. At December 31, 1998 and September 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.
F-25
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 zero, $3,400 and
$34,490 for the years ended December 31, 1996, 1997 and 1998, respectively. For
the nine months ended September 30, 1999, rent expense under operating leases
totaled $278,370.
In February 1999, the Company entered into a lease agreement for additional
office space for a period of three years with a monthly rental of $16,771.
During the nine months ended September 30, 1999, the Company entered into a
leasing agreement with a leasing Company. The Company obtained a total
commitment amount of $2,500,000 from the leasing Company which expires in
August 2000. The Company may purchase furniture and equipment and lease the
items over a three and a half year term. Payments are due monthly. Prior to the
end of the lease term, the Company has the option to either purchase the
equipment or renew the lease at a price not to exceed fifteen percent of the
equipment cost.
In connection with this agreement, the Company was entitled to enter into a
sale and leaseback transaction of approximately $700,000 for its existing
furniture and equipment located at the facility in North Carolina. No gain or
loss was recognized on this transaction. For accounting purposes, the Company
has treated the transaction as a financing agreement and has recognized the
resulting liability for future lease payments as a capital lease obligation.
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. Strategic Partnerships (unaudited)
In late October 1999, the Company entered into strategic relationships with
a number of key suppliers and buyers of scientific products. As a part of these
arrangements, the Company committed to issue to these companies approximately
3,649,307 warrants to purchase the Company's common stock at an exercise price
of $0.01 per share upon consummation of the Company's planned initial public
offering. These warrants will be issued concurrent with the effectiveness of
this offering. In addition, the Company has available 1,483,112 warrants with
an exercise price of $0.01 per share to issue as additional strategic
relationships are formed. The Company will record a charge of approximately
$40,100,000 upon the consummation of the offering which will be amortized to
operating expense over the related term of the strategic relationships, which
are for period from three to five years. In the event that the Company commits
to issue additional warrants to purchase its common stock as more strategic
relationships are formed, the Company will be required to record a charge equal
to the difference between the fair value of the Company's common stock on the
date the warrants are issued and the exercise price of the warrants of $0.01.
F-26
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company has agreed to issue to Dow Chemical and Monsanto
Company additional incentive warrants, the number of which will be based on
each purchaser's volume of purchases through the Company's market place during
the years 2000, 2001 and 2002. These incentive warrants will be issued on
February 15, 2001, 2002 and 2003, at an exercise price equal to the price in
the Company's initial public offering, and will be exercisable upon issuance. A
charge will be amortized over the remaining term of the agreement to operating
expense upon each issuance of the incentive warrants in an amount equal to the
difference between the fair market value of the Company's common shares on the
issuance date, less the exercise price for these warrants.
The Company has also committed to sell 450,000 shares of the Company's
common stock to certain key buyers of scientific products at a price equal to
80% of the Company's initial public offering price. The Company will record a
charge of approximately $1.0 million related to the sale of these common shares
which represents the difference between the assumed initial public offering
price of $11.00 per share and the offering price to the key buyers of
scientific products of $8.80 per share. This charge will be amortized to
operating expense over the term of the related strategic agreements with these
key buyers, which is three to five years.
16. Stock Split
On October 22, 1999, the Board of Directors approved a 1.516643-to-1 Class A
common stock split to be effective concurrent with the effective date of the
Company's planned initial public offering. The Company's $0.001 par value Class
A common stock will be split and then converted to common stock with a par
value of $0.001 per share. All share and per share information has been
retroactively restated to reflect the effect of this stock split and the
conversion of the Company's Class A common stock to common stock. In addition,
the number of authorized shares of the Company's common stock was increased to
90,000,000 shares and the Company authorized 10,000,000 shares of preferred
stock.
F-27
<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-28
<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.............................. 488,003 108,008
---------- -----------
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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO OF SCIQUEST.COM]
SciQuest.com, Inc.
7,200,000 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................ $ 27,397
National Association of Securities Dealers, Inc. fee............... $ 9,000
Nasdaq Stock Market listing fee.................................... $ 90,000
Accountants' fees and expenses..................................... $270,000
Legal fees and expenses............................................ $430,000
Blue Sky fees and expenses......................................... $ 10,000
Transfer Agent's fees and expenses................................. $ 20,000
Printing and engraving expenses.................................... $125,000
Miscellaneous...................................................... $ 8,603
--------
Total Expenses................................................... $990,000
========
</TABLE>
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.
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 1,004,829 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., and (ii) issued stock purchase warrants
exercisable into an aggregate of 162,718 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 $1.85 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 14,583 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 September 30, 1999, we issued options to
certain employees, consultants and others to purchase an aggregate of 1,961,300
shares of common stock at a weighted average exercise price of $1.58 per share.
As of September 30, 1999, 274,421 of such options have been exercised, 108,926
of such options have been terminated and 1,577,953 of such options remain
outstanding at a weighted average exercise price of $1.75 per share.
In October 1999, we agreed to issue warrants to acquire an aggregate of
3,649,307 shares of common stock at an exercise price of $0.01 to Ambion Inc.,
Amersham Pharmacia Biotech Inc., Cambrex Biotechnology Group, Dow Chemical
Company, Monsanto Company, Endogen, Inc., NEN Life Science Products, Inc.,
Perkin Elmer LLC, Pierce Chemical Company and Qiogen Inc.
(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.
10.16 Merger Agreement by and among the Registrant, SciQuest Merger
Subsidiary, Inc., Internet Auctioneers International, Inc. and Mark
Atlas as dated July 27, 1999.
10.17 Merger Agreement by and among the Registrant, SciQuest Acquisition,
Inc. and BioSupplyNet, Inc. dated September 29, 1998.
10.18 Lease Agreement by and between Duke-Weeks Realty Limited Partnership
and the Registrant dated as of October 19, 1999.
10.19** Content Conversion Services Agreement by and between the Registrant
and Requisite Technology, Inc. dated December 18, 1998.
10.20** Form of Strategic Alliance Plus Agreement with SciQuest.com.
10.21** Letter Agreement between the Registrant and Monsanto Company dated
October 21, 1999.
10.22** Letter Agreement between the Registrant and Dow Chemical Co. dated
October 20, 1999.
10.23* Amendment No. 5 to SciQuest.com, Inc. Stock Option Plan dated as of
, 1999.
10.24* SciQuest.com, Inc. 1999 Stock Incentive Plan dated as of October ,
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 the signature page to the original
filing of this registration statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** We intend to request confidential treatment of certain portions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement will be filed separately with the Securities and Exchange
Commission.
+ Previously filed.
II-4
<PAGE>
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 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 Amendment No. 1 to the 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 25th day of October, 1999.
SciQuest.com, Inc.
/s/ M. Scott Andrews
By: _________________________________
M. Scott Andrews,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the 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 October 25, 1999
______________________________________ Officer and Director
M. Scott Andrews (Principal Executive
Officer)
* Vice President of Business October 25, 1999
______________________________________ Development and Director
Peyton C. Anderson
* Chief Financial Officer October 25, 1999
______________________________________ (Principal Financial and
James J. Scheuer Accounting Officer)
* Director October 25, 1999
______________________________________
Noel J. Fenton
* Director October 25, 1999
______________________________________
Gautam A. Prakash
* Director October 25, 1999
______________________________________
Alan J. Taetle
* Director October 25, 1999
______________________________________
Bruce J. Boehm
* Director October 25, 1999
______________________________________
Timothy T. Weglicki
/s/ M. Scott Andrews
*By __________________________________
M. Scott Andrews
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT 4.2
[LOGO OF SCIQUEST.COM(TM) APPEARS HERE]
[NUMBER] [SHARES]
SQ
COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
$.001 PAR VALUE
CUSIP 80908Q 10 7
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
SciQuest.com, Inc.
transferable on the books of the Corporation in person or by duly authorized
attorney, upon the surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Peyton C. Anderson /s/ M. Scott Andrews
SECRETARY [SEAL] PRESIDENT AND
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
SunTrust Bank, Atlanta
BY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
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SciQuest.com, Inc.
The Corporation will furnish without charge to each shareholder who so
requests a statement or summary of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof which the Corporation is authorized to issue and of the
qualifications, limitations or restrictions of such preferences and/or rights.
Such request may be made to the office of the Secretary of the Corporation or
the Transfer Agent named on the face of this Certificate.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT- ___________Custodian____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform gifts to Minors
survivorship and not as tenants Act ____________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------
- -----------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
__________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: __________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
EXHIBIT 10.16
MERGER AGREEMENT
THIS MERGER AGREEMENT (together with the Exhibits and Schedules hereto, the
"Agreement"), dated July 27, 1999, is entered into by and among SciQuest.com,
Inc., a Delaware corporation ("Buyer"), SciQuest Merger Subsidiary, Inc., a
Delaware corporation and a wholly-owned subsidiary of Buyer ("SciQuest Sub"),
Internet Auctioneers International, Inc., a California corporation ("IAI"), and
Mark Atlas (the "Founding Stockholder").
WHEREAS, this Agreement contemplates the merger of SciQuest Sub with and
into IAI, with IAI surviving the merger as a wholly-owned subsidiary of Buyer
(the "Merger"); and
WHEREAS, in the Merger, the stockholders of IAI will receive shares of
Series E Convertible Preferred Stock, par value $0.001 per share, of Buyer (the
"Buyer Preferred Stock") in exchange for their capital stock of IAI; and
WHEREAS, this transaction is intended by the parties to be a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time, SciQuest Sub shall merge with and
----------
into IAI through the filing of a Certificate of Merger with the Office of the
Secretary of State of the State of Delaware, in accordance with the applicable
provisions of the Delaware General Corporation Law, and an Agreement of Merger
and related Certificates of Approval of Agreement of Merger with the Office of
the Secretary of State of the State of California, in accordance with the
applicable provisions of the General Corporation Law of the State of California
(the "California Corporation Law") (the time of the later of such filings
(collectively, the "Merger Filings") is hereinafter referred to as the
"Effective Time"). From and after the Effective Time, the separate existence of
SciQuest Sub shall cease and IAI shall continue as the surviving corporation
(the "Surviving Corporation").
1.2 The Closing. The closing of the Merger (the "Closing") shall take
-----------
place at the offices of Hutchison & Mason PLLC in Raleigh, North Carolina,
immediately prior to the filing of the Merger Filings. The Closing shall take
place within five (5) business days after the approval of the Merger by the
stockholders of IAI, or on such other date as the parties may agree (the
"Closing Date"). At the Closing, each party shall execute and deliver to the
other all such agreements, documents, and instruments as may be required or
contemplated by this Agreement
<PAGE>
or as may be reasonably requested by any party to effect and evidence the
consummation of the Merger, all of which shall be in a form and substance
reasonably satisfactory to the other parties.
1.3 Conversion of IAI Stock; Exchange Ratio.
---------------------------------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Buyer, SciQuest Sub, IAI or their respective stockholders,
each share of the capital stock of IAI issued and outstanding immediately prior
to the Effective Time (the "IAI Shares") shall be canceled and converted
automatically into the right to receive a number of unregistered shares of Buyer
Preferred Stock equal to the Exchange Ratio (as defined in Section 1.3(b)
hereof).
(b) The Merger Shares (as defined below) shall constitute all of the
consideration (the "Merger Consideration") to be issued to the stockholders of
IAI (collectively with the Founding Stockholder, the "Stockholders") or any
other person in respect of the shares of capital stock of IAI. The Merger
Consideration shall consist of 115,000 shares of Buyer Preferred Stock (the
"Merger Shares"). The Merger Consideration shall be allocated among the
Stockholders by multiplying the number of IAI shares held by each such
Stockholder immediately prior to the Effective Time by the Exchange Ratio. The
"Exchange Ratio" means the quotient obtained by dividing the aggregate number of
Merger Shares delivered as the Merger Consideration by the number of IAI shares
outstanding immediately prior to the Effective Time. Such number of shares is
set forth for each Stockholder on Schedule 1.3 attached hereto, which schedule
------------
also sets forth the number of whole shares of Buyer Preferred Stock to be
received by each Stockholder. For purposes of this Agreement, the Exchange
Ratio is 0.030384696.
(c) No fractional shares will be issued as Merger Consideration. Any
Stockholder entitled to receive a fractional share but for the preceding
sentence will, in lieu of such fractional share, receive cash representing such
fractional portion of a full share of Buyer Preferred Stock. The cash payments
due to each Stockholder, if any, in respect of fractional shares are set forth
on Schedule 1.3.
------------
1.4 Surrender of Certificates for IAI Stock. At the Closing, each
---------------------------------------
Stockholder shall deliver to Buyer certificates evidencing all of the IAI Shares
owned by such Stockholder in exchange for certificates representing the shares
of Buyer Preferred Stock to be delivered to such Stockholder in exchange
therefor pursuant to Section 1.3 hereof, subject to the provisions of Section
1.5 hereof and the escrows required by Section 1.8 hereof.
1.5 Delivery of Merger Consideration. Each Stockholder shall be entitled
--------------------------------
to receive at the Effective Time a number of shares of Buyer Preferred Stock
equal to 90% of the Merger Consideration that such Stockholder is entitled to
receive pursuant to Section 1.3 hereof, and the balance of the Merger
Consideration that such Stockholder is entitled to receive pursuant to Section
1.3 hereof shall be deposited into escrow pursuant to Section 1.8(a) hereof.
1.6 Dissenting Shares.
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2
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(a) For purposes of this Agreement, "Dissenting Shares" means IAI
Shares held as of the Effective Time by a Stockholder who has not voted such
Shares in favor of the adoption of this Agreement and the Merger and with
respect to which appraisal shall have been duly demanded and perfected, and not
effectively withdrawn or forfeited, in accordance with the applicable provisions
of the California Corporation Law. Dissenting Shares shall not be converted into
or represent the right to receive the Merger Consideration, unless the
Stockholder holding such Dissenting Shares shall have forfeited such
Stockholder's right to appraisal under the California Corporation Law or
withdrawn such Stockholder's demand for appraisal. If such Stockholder has so
forfeited or withdrawn such Stockholder's right to appraisal of Dissenting
Shares, then, (i) as of the occurrence of such event, such Stockholder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Merger Consideration payable in
respect of such IAI Shares pursuant to Section 1.3 hereof, and (ii) promptly
following the occurrence of such event, the Buyer or the Surviving Corporation
shall deliver to such Stockholder shares of Buyer Preferred Stock representing
90% of the Merger Consideration to which such Stockholder is entitled pursuant
to Section 1.3 hereof and shall deposit with the Escrow Agent (as defined below)
shares of Buyer Preferred Stock representing the balance of the Merger
Consideration to which such Stockholder is entitled pursuant to Section 1.3
hereof.
(b) IAI shall give the Buyer (i) prompt notice of any written demands
for appraisal of any Shares, withdrawals of such demands, and any other
instruments that relate to such demands received by IAI and (ii) the opportunity
to direct all negotiations and proceedings with respect to demands for appraisal
under the California Corporation Law. IAI shall not, except with the prior
written consent of the Buyer, make any payment with respect to any demands for
appraisal of Shares or offer to settle or settle any such demands.
1.7 Options and Warrants.
--------------------
(a) At the Effective Time, (i) each outstanding option to acquire
shares of capital stock of IAI (individually, an "Option" and collectively, the
"Options") shall be cancelled and terminated; (ii) all outstanding warrants to
acquire shares of capital stock of IAI (the "Warrants") shall be cancelled and
terminated; and (iii) all other rights to acquire shares of capital stock of IAI
shall be terminated.
(b) Immediately prior to the Effective Time, IAI shall terminate all
stock option plans and other stock or equity-related plans of IAI (the "Stock
Plans").
1.8 Escrow.
------
(a) As of the Effective Time, the Buyer or SciQuest Sub shall deposit
with the Escrow Agent a number of shares of Buyer Preferred Stock equal to 10%
of the total number of shares of Buyer Preferred Stock constituting the Merger
Consideration, as described in Section 1.3 hereof, subject to Section 1.6(a)
hereof and including any amounts to be deposited into escrow pursuant to the
last sentence of Section 1.6(a) (collectively, the "Indemnification Escrowed
Shares"), for the purpose of securing the indemnification obligations of the
Stockholders (including the Founding Stockholder) set forth in Article VII of
this Agreement.
3
<PAGE>
The number of shares of Buyer Preferred Stock to be placed in the
Indemnification Escrow for each Stockholder is set forth on Schedule 1.3. The
------------
Indemnification Escrowed Shares shall be held by the Escrow Agent under and
pursuant to the terms of an escrow agreement, in the form of Exhibit A attached
---------
hereto, by and among the Buyer, the Escrow Agent, the Indemnification
Representative (each as defined herein) and each of the Stockholders (the
"Escrow Agreement"). The Indemnification Escrowed Shares shall remain in escrow
(the "Indemnification Escrow") following the Effective Time, in accordance with
the terms of the Escrow Agreement, in order to secure the Stockholders'
indemnification obligations under Article VII hereof. During such period, all
cash dividends, if any, paid with respect to the Indemnification Escrowed Shares
shall be the property of, and shall be delivered to, the Stockholders, each in
accordance with their respective ownership interests, and each of the
Stockholders shall have the sole power to exercise all voting rights pertaining
to their pro rata portion of Indemnification Escrowed Shares. All shares issued
in respect of the Indemnification Escrowed Shares (including, without
limitation, shares issued in connection with stock dividends, stock splits,
recapitalizations, reorganizations or similar transactions affecting the Buyer
Preferred Stock) shall, upon issuance, be deposited in the Indemnification
Escrow, held subject to the terms and conditions of the Escrow Agreement and
treated for all purposes as Indemnification Escrowed Shares.
(b) The adoption of this Agreement and the approval of the Merger by
the Stockholders shall constitute full approval by the Stockholders of the
Escrow Agreement and the appointment of Centura Bank as the escrow agent under
the Escrow Agreement (the "Escrow Agent") and of all of the arrangements
relating thereto, including, without limitation, the indemnification provisions
and obligations set forth in Article VII of this Agreement, the placement in
escrow of the Indemnification Escrowed Shares, and the appointment of Glen Haubl
to serve as the Indemnification Representative (the "Indemnification
Representative") to act as the representative of the Stockholders for purposes
of the Escrow Agreement and this Agreement.
1.9 Legend. Each certificate of the Buyer Preferred Stock issued in
------
connection with the Merger will bear a legend to evidence restrictions upon its
transferability by virtue of the requirements of the Securities Act of 1933, as
amended (the "Securities Act") and state securities laws. The legend shall read
substantially as follows:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ALL
APPLICABLE STATE SECURITIES LAWS COVERING SUCH SHARES, COMPLIANCE WITH
AN EXEMPTION FROM SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
1.10 Conversion of Subsidiary Stock. At the Effective Time, by virtue of
------------------------------
the Merger and without any action on the part of the Buyer, SciQuest Sub, IAI or
their respective
4
<PAGE>
stockholders, each share of Common Stock, having a par value per share of
$0.001, of SciQuest Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation,
and, upon surrender of the certificate(s) representing such shares of SciQuest
Sub Common Stock, the Surviving Corporation shall promptly issue to the owner
thereof a certificate representing the share of Common Stock of the Surviving
Corporation into which it has been converted. Such share shall be the only
issued and outstanding capital stock of the Surviving Corporation and shall be
owned by the Buyer.
1.11 Certificate of Incorporation. After the Effective Time, the Articles
----------------------------
of Incorporation of IAI as in effect immediately prior to the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation until
amended in accordance with applicable law.
1.12 Bylaws. After the Effective Time, the Bylaws of IAI as in effect
------
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until amended or repealed in accordance with the provisions thereof
and applicable law.
1.13 Directors and Officers. Immediately after the Effective Time, the
----------------------
directors and officers of SciQuest Sub immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation and shall serve
in such capacities until their respective successors are duly elected and
qualified.
1.14 No Further Rights. As of the Effective Time, the Stockholders shall
-----------------
cease to have any rights as stockholders of IAI.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF IAI
AND THE FOUNDING STOCKHOLDER
IAI and the Founding Stockholder, jointly and severally, represent and
warrant to Buyer as follows:
2.1 Organization and Good Standing. IAI is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of California.
IAI has all requisite power and authority to own, operate and/or license and
lease the IAI Assets (as defined below) and the other properties owned or used
in its business license or (including, without limitation, intangible property)
(collectively with the IAI Assets, the "IAI Business Assets") and to conduct the
operations of its business as presently conducted. IAI is duly qualified to do
business as a foreign corporation and is in good standing in the jurisdictions
listed on Schedule 2.1, which are all the jurisdictions in which it is required
------------
to be so qualified other than such jurisdictions where the failure to be so
qualified would not have a Material Adverse Effect (as defined in Section 2.4)
on IAI.
2.2 Authority. IAI has all requisite power and authority to execute and
---------
deliver this Agreement and the other documents, certificates and instruments
contemplated hereby
5
<PAGE>
(collectively with the Merger Agreement, the "Transaction Documents") to which
it is a party and to perform the transactions contemplated hereby and thereby.
The execution, delivery and performance of the Transaction Documents to which
IAI is a party, and the consummation of the transactions contemplated thereby,
have been duly and validly authorized by all necessary corporate and stockholder
action. The Founding Stockholder has all requisite power and authority to
execute and deliver the Transaction Documents to which he is a party, to perform
his obligations thereunder, and to consummate the transactions contemplated by
the Transaction Documents. The Founding Stockholder has all requisite power and
authority to vote the outstanding shares of IAI Common Stock held by the
Founding Stockholder to approve this Agreement and the transactions contemplated
hereby and in the Transaction Documents and the transactions contemplated hereby
and thereby in compliance with all applicable laws and the Articles and Bylaws
of IAI. Each of the Transaction Documents to which IAI or the Founding
Stockholder is a party has been duly executed and delivered by IAI and the
Founding Stockholder and constitutes a valid and binding obligation of each of
IAI and the Founding Stockholder, enforceable against them in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and by general
equitable principles (regardless of whether enforceability is considered in a
proceeding in equity or at law).
2.3 Capitalization. The authorized capital stock of IAI consists of (a)
--------------
10,000,000 shares of common stock (the "IAI Common Stock"), of which 3,784,800
shares are issued and outstanding and no shares are held in the treasury of IAI,
and (b) 400,000 shares of IAI Common Stock are reserved for issuance upon
exercise of Warrants and Options for the purchase of the IAI Common Stock. No
class or series of preferred stock is authorized or outstanding. Schedule 2.3
------------
sets forth a complete and accurate list of (i) all stockholders of IAI,
indicating the number of shares held by each stockholder, (ii) all holders of
Options and Warrants and other rights to acquire shares of capital stock of IAI
("Rights"), including the number of shares subject to each Option, Warrant and
Right, and (iii) all of the Stock Plans. All of the issued and outstanding
shares of IAI Common Stock are, and all shares that may be issued prior to the
Effective Time upon exercise of Options, Warrants and Rights will be, duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. There are no outstanding or authorized options, warrants, rights,
agreements or commitments to which IAI or the Founding Stockholder is a party or
which are binding upon IAI or the Founding Stockholder providing for the
issuance, disposition or acquisition of any of IAI's capital stock, other than
as listed in Schedule 2.3. There are no plans providing for stock options or
------------
similar rights other than the Stock Plans listed in Schedule 2.3. There are no
------------
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the capital stock of IAI. There are no agreements, voting
trusts, proxies or understandings with respect to the voting, or registration
under the Securities Act, of any shares of IAI other than as listed in Schedule
--------
2.3. All of the IAI Shares, and the outstanding Options, Warrants and Rights
- ---
were issued in compliance with applicable federal and state securities laws.
2.4 Effect of Agreement. Except as disclosed on Schedule 2.4, the
------------------- ------------
execution, delivery and performance of the Transaction Documents to which IAI is
a party do not and will not: (a) conflict with the [Certificate] of
Incorporation or Bylaws of IAI; (b) violate any law or
6
<PAGE>
any rule or regulation of any governmental body or administrative agency, or
conflict with any judicial or administrative order or decree relating to IAI or
the IAI Business Assets, except for any such violations or conflicts which would
not, individually or in the aggregate, have a material adverse effect on the
business, IAI Business Assets, liabilities, results of operations or condition
(financial or otherwise) (a "Material Adverse Effect") of IAI or impair the
ability of IAI or the Founding Stockholder to consummate the transactions
contemplated by this Agreement; (c) constitute a breach or default under any of
the IAI Contracts (as defined below); (d) create any security interest,
mortgage, lien, claim, or encumbrance of any kind on any of the IAI Business
Assets; or (e) except for the filing of an Agreement of Merger and related
Certificates of Approval of Agreement of Merger with the Secretary of State of
the State of California and a Certificate of Merger with the Secretary of State
of the State of Delaware, require any consent, notice to or filing with any
governmental authority or administrative agency or any third party on behalf of
IAI or the Founding Stockholder. The matters described on Schedule 2.4 are
------------
referred to as the "IAI Required Consents."
2.5 Financials; Books. Attached hereto as Schedule 2.5 are true and
----------------- ------------
complete copies of the unaudited balance sheet (including detailed schedules of
all accounts thereon), statements of operations, changes in stockholders' equity
and cash flows for the fiscal years ended December 31, 1997 and December 31,
1998, and the unaudited balance sheet (including detailed schedules of all
accounts thereon) and statements of operations, changes in stockholders' equity
and cash flows for the six month period ended June 30, 1999 (collectively, the
"IAI Financial Statements"). The Financial Statements (a) are true, complete
and correct in all material respects; (b) are in accordance with the books and
records of IAI; and (c) present fairly, in all material respects, the assets,
liabilities and financial condition of IAI as of the respective dates thereof,
and the results of operations for the periods then ending applied on a
consistent basis throughout the periods involved. IAI has no liability or
obligation that is not reflected or reserved against on the balance sheet for
the twelve months ending December 31, 1998 (the "IAI Balance Sheet"), except for
those that are not required by generally accepted accounting principles to be
included therein or those that have been incurred in the ordinary course of
business since the date of the IAI Balance Sheet (none of which may reasonably
be expected to have a Material Adverse Effect on IAI). The books and records of
IAI are true, accurate and complete in all material respects and have been
maintained on a consistent basis.
2.6 Title to and Sufficiency of Assets and other Property. Set forth on
-----------------------------------------------------
Schedule 2.6 is a true and complete list of all material inventory, machinery,
- ------------
equipment, furniture, office equipment, supplies, materials, vehicles and other
material items of tangible personal property of every kind owned by IAI and used
in connection with its business (the "IAI Assets"). IAI has good and marketable
title to all of the IAI Business Assets, free and clear of all security
interests, mortgages, liens, claims and encumbrances of every kind except for
liens for current taxes not yet due and payable and as disclosed on Schedule
--------
2.6. The IAI Business Assets constitute all of the assets of any nature
- ---
required to operate IAI's business in the manner presently operated by IAI. The
IAI Assets (a) are in good operating order, condition and repair (ordinary wear
and tear excepted), (b) are suitable for use in the ordinary course of business
of IAI's business and (c) are free from material defects.
2.7 Real Property. IAI neither owns nor leases any real property.
-------------
7
<PAGE>
2.8 Contracts and Leases. Schedule 2.8 lists all contracts, commitments,
-------------------- ------------
agreements, understandings, obligations, whether written or oral (including,
without limitation, agreements for the borrowing of money or the extension of
credit that involve a commitment or expenditure by, or revenue to, IAI in excess
of $1,000.00, and agreements with employees, consultants and other contractors),
leases (including, without limitation, leases for the IAI Leased Real Property)
and licenses, whether written or oral, to which IAI or the Founding Stockholder
(on behalf of IAI) is party or by which IAI or the IAI Business Assets or the
Founding Stockholder (on behalf of IAI) is bound (collectively, the "IAI
Contracts"). Each of the IAI Contracts is valid, binding and enforceable in
accordance with its terms and is in full force and effect, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at law).
There are no existing defaults on the part of IAI or, to the knowledge of IAI
and the Founding Stockholder, any other party to the IAI Contracts, and, to the
knowledge of IAI and the Founding Stockholder, no events or circumstances have
occurred which, with or without notice or lapse of time or both, would
constitute defaults under any of the IAI Contracts. The execution, delivery and
performance of the Transaction Documents do not and will not, with respect to
any IAI Contract, (a) constitute a default or accelerate the obligations
thereunder, (b) require the consent of any person or party, except for the IAI
Required Consents, or (c) affect the enforceability or validity thereof or the
terms thereof.
2.9 Receivables. Attached hereto as Schedule 2.9 hereto is a true,
-----------
complete and accurate detailed listing of all accounts receivable of IAI (the
"IAI Receivables"). The IAI Receivables are, and will be at the Effective Time,
legal, valid and binding obligations and arose in the ordinary course of
business. To the best of IAI's and the Founding Stockholder's knowledge, the
IAI Receivables are not subject to any counterclaim, set off, defense, security
interest, claim or encumbrance. IAI has made available to Buyer complete and
correct copies of all instruments, documents and agreements evidencing such IAI
Receivables, including, without limitation, an aging schedule related to the IAI
Receivables.
2.10 Intellectual Property.
---------------------
(a) Intellectual Property Rights. Schedule 2.10(a) hereto sets forth
---------------------------- ----------------
a complete and correct list of (i) all patents (the "IAI Patents"), trademarks,
trade names (including all federal and state registrations pertaining thereto,
or applications for such registrations and a description of the status of such
applications), proprietary databases and registered copyrights owned by IAI
(collectively with all unregistered copyrights, the "IAI Proprietary
Intellectual Property") and (ii) all patents, trademarks, trade names,
copyrights, technology and processes used by IAI in its businesses which are
material to its business and are used pursuant to a license or other right
granted by a third party, and all agreements related thereto (collectively, the
"IAI Licensed Intellectual Property", and together with the IAI Proprietary
Intellectual Property referred to as "IAI Intellectual Property"). Each of the
federal, state and other governmental registrations with any country pertaining
to the IAI Proprietary Intellectual Property is valid and in full force and
effect. IAI owns, or has the right to use pursuant to valid and effective
agreements, all IAI Intellectual Property, and the consummation of the
transactions contemplated hereby will not materially adversely alter or impair
any such rights. No claims are pending
8
<PAGE>
against IAI by any person with respect to the use of any IAI Intellectual
Property or challenging or questioning the validity or effectiveness of any
license or agreement relating to the same that would be likely to have a
Material Adverse Effect on IAI, and, to the knowledge of IAI and the Founding
Stockholder, the current use by IAI of the Intellectual Property does not in any
material respect infringe upon the rights of any third party. Schedule 2.10(a)
----------------
sets forth a list of all jurisdictions in which IAI is operating under a trade
name, and each jurisdiction in which any such trade name is registered. No IAI
Patent has been or is now involved in any interference, reissue, reexamination
or opposition proceeding of which IAI has received notice, nor is IAI aware of
any potentially interfering patent or patent application of any third party. To
the knowledge of IAI, no person or entity is presently selling or marketing a
product which is covered by the Patents, and, to the knowledge of IAI, the
Patents have not been challenged or threatened in any way. No current or former
IAI employee is named as an inventor on any pending patent application. All of
the IAI Patents are currently in compliance with formal legal requirements
(including payment of filing, examination and maintenance fees and proofs of
working or use) and to the knowledge of IAI, there is no currently existing
circumstance which would render the IAI Patents invalid or unenforceable, and
they are not subject to any maintenance fees or taxes or actions falling due
within ninety days after the date of Closing.
(b) IAI Computer Software and Hardware.
----------------------------------
(i) Schedule 2.10(b) hereto sets forth a true and complete list
----------------
of: (a) all software and associated documentation owned by or developed by or
for IAI material to the business of IAI (such items set forth on Schedule
--------
2.10(b) are hereinafter referred to as the "IAI Proprietary Software"); (b) all
- -------
software (other than the IAI Proprietary Software and "shrink-wrap" software)
used by IAI or its employees in connection with the business of IAI (the "IAI
Licensed Software" and together with the IAI Proprietary Software, the "IAI
Software"). IAI has all rights that are necessary or appropriate to distribute,
license or sublicense the IAI Software to third parties and to appoint others to
do any of the foregoing to the extent that distribution, licensing or
sublicensing of such software is necessary to the conduct of business of IAI.
IAI has or has the right to use all technical and descriptive materials to run
its business in accordance with its historical practices, except as would not
have a Material Adverse Effect on IAI. The IAI Proprietary Software consists of:
(a) source and object code embodied in magnetic media; and (b) all Proprietary
development and procedural tools, documentation and manuals necessary to
maintain, enhance, develop derivative works, support and service the IAI
Proprietary Software in accordance with historical practice, including licenses
to use compilers, assemblers, libraries and other aids.
(ii) Except as disclosed on Schedule 2.10(b), IAI has sole and
----------------
exclusive rights, title and interest in and to all intellectual property rights
in the IAI Proprietary Software, including all worldwide copyrights, trade
secrets, trademarks, moral rights and proprietary and confidential information
rights therein. The IAI Proprietary Software is free and clear of all liens,
claims and encumbrances. The use by IAI of the IAI Licensed Software and the use
and distribution of the IAI Proprietary Software in the manner currently used
and distributed by IAI complies with the terms of all contracts and agreements
to which IAI is a party or by which it is bound and is in compliance with all
applicable laws, regulations and codes of any foreign, U.S., state or local
authority, including without limitation, all U.S. Export Administration
Regulations, except where such failure to comply would not have a Material
9
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Adverse Effect. IAI has been granted under the license agreements relating to
the IAI Licensed Software (the "IAI License Agreements") valid and subsisting
license rights with respect to all software comprising the IAI Licensed Software
and such rights are sufficient in all respects to conduct the business of IAI as
presently conducted and as currently proposed to be conducted. IAI is in
compliance with each of the terms and conditions of each of the IAI License
Agreements except to the extent failure to so comply, individually or in the
aggregate, would not have a Material Adverse Effect on IAI. Except at disclosed
on Schedule 2.10(b), in the case of any commercially available "shrink-wrap"
----------------
software programs (such as Lotus 1-2-3 or Microsoft Word), IAI has not made and
is not, to the knowledge of IAI and the Founding Stockholder, using any
unauthorized copies of any such software programs and, to the knowledge of IAI,
none of the employees, agents or representatives of IAI have made or are using
any such unauthorized copies, except as would not have a Material Adverse Effect
on IAI.
(iii) To the best of IAI's and the Founding Stockholder's
knowledge, the IAI Proprietary Software and such of the IAI Licensed Software as
is bundled with or is otherwise an integral part of the IAI Proprietary Software
does not infringe the patent, copyright or trade secret rights or any other
intellectual property right of any third party which may exist anywhere in the
world.
(iv) IAI has not granted rights in the IAI Software to any third
party other than as set forth on Schedule 2.10(b).
----------------
(v) Except as disclosed on Schedule 2.10(b), there have been no
----------------
problems experienced by IAI in the past twelve (12) months with respect to the
IAI Software, the related computer hardware used by IAI in its operations or the
provision of services to IAI clients which have arisen outside the ordinary
course of business and would have a Material Adverse Effect on IAI.
(vi) Except as disclosed on Schedule 2.10(b), the IAI
----------------
Proprietary Software is, and such of the IAI Licensed Software as is bundled
with or is otherwise an integral part of the IAI Proprietary Software (to the
knowledge of IAI and the Founding Stockholder, after due inquiry of the
licensors of such IAI Licensed Software) is, "Millennium Compliant" (defined
below). For the purposes of this Agreement, "Millennium Compliant" means that
such software accurately accepts and processes date/time data (including, but
not limited to, calculating, comparing, sorting and sequencing) ("Processes")
and returns and displays date/time data in a consistent manner and without
interruption regardless of dates used, whether before, on or after January 1,
2000, and regardless of the date in time which such Processes are performed, and
such software accurately processes all leap year calculations, including without
limitation recognizing the year 2000 as a leap year.
(vii) Prior to any export or re-export either directly or
indirectly by IAI of any software or other technical data, IAI has first
obtained the written approval or required export license for such export or re-
export from the United States Department of Commerce or any other agency of the
U.S. Government having jurisdiction over such export or re-export unless the
export or re-export of software or other technical data is covered by a license
exemption.
10
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2.11 Litigation. There are no claims, actions, suits or investigations
----------
pending, or to the knowledge of IAI and the Founding Stockholder, threatened,
against IAI or its business or affecting the IAI Business Assets or against the
Founding Stockholder.
2.12 Compliance with Laws; Permits. There is not outstanding or, to the
-----------------------------
knowledge of IAI and the Founding Stockholder, threatened, any order or decree
of any court, governmental agency or arbitration tribunal against or involving
IAI or its business or the IAI Business Assets. IAI is currently, and has been
at all times, in full compliance with all laws, rules, regulations and licensing
requirements of all federal, state, local and, to the best knowledge of IAI and
the Founding Stockholder, foreign authorities applicable to the IAI Business
Assets and operations of its business, except for failures to comply which would
not, individually or in the aggregate, have a Material Adverse Effect on IAI.
IAI has obtained all permits, certificates and licenses required for the conduct
of its business and the ownership of the IAI Business Assets, all of which are
described on Schedule 2.12 (the "IAI Permits"). IAI is not in violation of any
-------------
of the IAI Permits, and no proceedings are pending or, to the knowledge of IAI
and the Founding Stockholder, threatened to revoke or limit any IAI Permit.
2.13 Taxes.
-----
(a) IAI has properly completed and timely filed all federal, state,
local and foreign tax returns and reports required to be filed by it (the "Tax
Returns"). All Tax Returns are accurate, complete and correct as filed, and IAI
has paid in full or made adequate provision in the IAI Financial Statements for
all amounts shown to be due thereon. IAI is not delinquent in the payment of
any tax assessment or other governmental charge (including, without limitation,
withholding taxes).
(b) IAI has not been notified by any governmental authority that an
audit or review of any tax matter is contemplated. IAI knows of no tax
deficiency or claim for additional taxes asserted or threatened to be asserted
against it by any taxing authority and IAI knows of no grounds for any such
assessment. No extension of time with respect to any date on which a tax return
was or is to be filed by IAI is in force, and no waiver or agreement by IAI is
in force for the extension of time for the assessment or payment of any tax.
For purposes of this Agreement, the term "tax" includes all federal, state,
local and foreign taxes or assessments, including income, sales, gross receipts,
excise, use, value added, royalty franchise, payroll, withholding, property and
import taxes and any interest or penalties applicable thereto.
(c) The Seller has not agreed to, and is not required to, make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(d) The Seller is not and has never been a member of a consolidated
group or combined group or combined group of corporations.
(e) There has been no change in ownership of the Seller that would
limit the Buyer's ability to utilize the net operating losses of the Seller.
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2.14 Insurance. Schedule 2.14 describes all insurance policies maintained
--------- -------------
by IAI with respect to its business and the IAI Business Assets. Such policies
are valid, binding and enforceable in accordance with their terms, are in full
force and effect, and all premiums due thereon have been paid.
2.15 Employment and Labor Matters. No employees of IAI have entered into
----------------------------
employment or other agreements regarding compensation with IAI. No employees of
IAI have been or are represented by a union or other labor organization or
covered by any collective bargaining agreement. There is no unfair labor
practice complaint, labor organizational effort, strike, slowdown or similar
labor matter pending or, to the knowledge of IAI and the Founding Stockholder,
threatened against IAI or its business. IAI is in compliance with all federal,
state and local laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours, and there is
no unfair labor practice complaint against IAI pending or, to the knowledge of
IAI and the Founding Stockholder, threatened. Upon termination of the
employment of any employees, neither IAI nor the Buyer nor the Surviving
Corporation will by reason of the Merger or anything done prior to the Effective
Time be liable to any of such employees for severance pay or any other payments
(other than accrued salary, vacation or sick pay in accordance with IAI's normal
policies). Set forth on Schedule 2.15 is a true and complete list of all
-------------
current directors, officers, employees or consultants of IAI, including, in each
case, name, current job title, base salary, bonus potential, commissions, and
termination obligations.
2.16 Employee Benefits. Except as set forth on Schedule 2.16, there are no
----------------- -------------
Plans, as defined below, contributed to, maintained or sponsored by IAI, or to
which IAI is obligated to contribute or with respect to which IAI has any
liability or potential liability, whether direct or indirect (including all
Plans contributed to, maintained or sponsored by each member of the controlled
group of companies, within the meaning of Sections 414(b), 414(c), and 414(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), of which IAI is a
member, to the extent IAI has any potential liability with respect to such
Plans). For purposes of this Agreement, the term "Plans" shall mean: (a)
employee benefit plans as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not funded and
whether or not terminated, (b) employment agreements, and (c) personnel policies
or fringe benefit plans, policies, programs and arrangements, whether or not
subject to ERISA, whether or not funded, and whether or not terminated,
including without limitation, stock bonus, deferred compensation, pension,
severance, bonus, vacation, travel, incentive, and health, disability and
welfare plans.
2.17 Absence of Changes. Except as disclosed on Schedule 2.17, since
------------------ -------------
December 31, 1998, IAI has conducted the operations of its business only in the
ordinary course, and has not:
(a) Suffered any damage to any IAI Business Asset, whether or not
covered by insurance, except damage that could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on IAI;
12
<PAGE>
(b) Sold or disposed of any IAI Business Assets, except such sales or
dispositions made in the ordinary course of business that would not, either
individually or in the aggregate, have a Material Adverse Effect on IAI;
(c) Made any general wage increase for its employees as a group other
than in the ordinary course of business;
(d) Amended or terminated any IAI Contract;
(e) Incurred any obligation or liability, except normal trade or
business obligations incurred in the ordinary course of business;
(f) Introduced any new method of management, operations or
accounting;
(g) Suffered any adverse change in the condition (financial or
otherwise), or any other event, that might reasonably be expected to have
a Material Adverse Effect on IAI; or
(h) Agreed, whether in writing or otherwise, to take any action
described in this Section 2.17.
2.18 Related Party Transactions. Except as set forth on Schedule 2.18,
-------------------------- -------------
the IAI Contracts do not include any agreement with or any other commitment to
(a) any officer or director of IAI; (b) any person related by blood or marriage
to any such officer or director; or (c) any corporation, partnership, trust or
other entity in which IAI or any such officer, director or related person has an
equity or participating interest, and no such other agreement or commitment
exists.
2.19 Disclosure. No representation, warranty or statement made by IAI or
----------
the Founding Stockholder in this Agreement or the exhibits or schedules hereto,
or in any financial statement, other written financial information or schedules,
or any other document, certificate or other instrument furnished or to be
furnished to Buyer by or on behalf of IAI at or prior to the Closing pursuant to
this Agreement, contains or will contain any untrue statement of a Material
fact, or omits to state any material fact necessary, in light of the
circumstances in which they were made, to make the statements contained herein
or therein not misleading. There is no event, fact or condition that has had,
or that reasonably could be expected to have, a material Adverse Effect on IAI,
that has not been set forth in this Agreement or the Schedules hereto.
2.20 Subsidiaries. IAI has no wholly owned or partially owned
------------
subsidiaries.
2.21 Brokers' Fees. Neither IAI nor the Founding Stockholder has retained
-------------
any broker, finder or agent, or has any liability or obligation, nor will either
of them, or anyone on their behalf, incur any liability or obligation, to pay
any fees, commissions or similar payments to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
13
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to IAI as follows:
3.1 Organization and Good Standing. Buyer is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite power and authority to own, operate and/or lease the
Buyer Assets (as defined below) and the other properties owned or used in its
business (including, without limitation, intangible property) (collectively with
the Buyer Assets, the "Buyer Business Assets") and to conduct the operations of
its business as presently conducted. Buyer is duly qualified to do business as a
foreign corporation and is in good standing in the jurisdictions listed on
Schedule 3.1, which are all the jurisdictions in which it is required to be so
- ------------
qualified other than such jurisdictions where the failure to be so qualified
would not have a Material Adverse Effect on Buyer.
3.2 Authority. Each of Buyer and SciQuest Sub has all requisite power and
---------
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the transactions contemplated thereby. The execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions contemplated thereby, have been duly and validly authorized by
all necessary corporate and stockholder action on the part of each of Buyer and
SciQuest Sub. Each of the Transaction Documents to which Buyer or SciQuest Sub
is a party has been duly executed and delivered by such party and each
constitutes a valid and binding obligation of Buyer and SciQuest Sub,
enforceable against them in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at law).
3.3 Capitalization. Immediately prior to the Effective Time, the
--------------
authorized capital stock of Buyer consists of (a) 20,000,000 shares of common
stock, $0.001 par value (the "Buyer Common Stock"), of which 19,749,980 shares
are designated Class A Common Stock, 2,370,726 shares of which are issued and
outstanding, 250,020 shares are designated Class B Common Stock, 250,020 shares
of which are issued and outstanding and no shares are held in the treasury of
Buyer; and (b) 10,000,000 shares of Preferred Stock, $0.001 par value ("Buyer
Preferred"), of which 769,231 shares are designated Series A Convertible
Preferred Stock, 769,221 shares of which are issued and outstanding, of which
3,835,180 shares are designated Series B Convertible Preferred Stock, 3,777,626
shares of which are issued and outstanding, of which 700,000 shares are
designated Series C Convertible Preferred Stock, 635,813 shares of which are
issued and outstanding, of which 3,312,720 shares are designated Series D
Convertible Preferred Stock, 3,312,720 shares of which are issued and
outstanding, and of which 126,500 shares are designated Series E Convertible
Preferred Stock, none of which are issued and outstanding. 1,693,489 shares of
Class A Common Stock are reserved for issuance upon the exercise of outstanding
warrants, options and other rights (collectively, "Rights") for the purchase of
shares of capital stock of Buyer, and 8,745,400 shares of Class A Common Stock
are reserved for issuance upon the conversion of the Buyer Preferred and any
other securities convertible into shares of Class A Common Stock. Schedule 3.3
------------
sets forth a complete and accurate list of (i) all
14
<PAGE>
stockholders of Buyer, indicating the number of shares held by each stockholder,
(ii) all holders of Rights, including the number of shares subject to each
Right, and (iii) all of stock option and other stock and equity-related plans of
Buyer. All of the issued and outstanding shares are, and all shares that may be
issued prior to the Effective Time upon exercise of Rights, will be, duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. There are no outstanding or authorized options, warrants, rights,
agreements or commitments to which Buyer is a party or which are binding upon
Buyer providing for the issuance, disposition or acquisition of any of its
capital stock, other than as listed in Schedule 3.3. There are no plans
------------
providing for stock options or similar rights other than the Stock Plans listed
in Schedule 3.3. There are with respect to the capital stock of Buyer. Except
------------
as set forth on Schedule 3.3, there are no agreements, voting trusts, proxies or
------------
understandings with respect to the voting, or registration under the Securities
Act of any shares of Buyer. All of the issued and outstanding shares of capital
stock of Buyer, and the outstanding Rights, were issued in compliance with
applicable federal and state securities laws.
3.4 Effect of Agreement. Except as disclosed on Schedule 3.4, the
------------------- ------------
execution, delivery and performance of the Transaction Documents to which Buyer
is a party do not and will not: (a) conflict with the Certificate of
Incorporation or Bylaws of Buyer; (b) violate any law or any rule or regulation
of any governmental body or administrative agency, or conflict with any judicial
or administrative order or decree relating to Buyer or the Buyer Business
Assets, except for any such violations or conflicts which would not,
individually or in the aggregate, have a Material Adverse Effect on Buyer or
impair the ability of Buyer to consummate the transactions contemplated by this
Agreement; (c) constitute a breach or default under any of the Buyer Contracts
(as defined below); (d) create any security interest, mortgage, lien, claim, or
encumbrance of any kind on any of the Buyer Business Assets; or (e) except for
the filing of an Agreement of Merger and related Certificates of Approval of
Agreement of Merger with the Secretary of State of the State of California and a
Certificate of Merger with the Secretary of State of the State of Delaware,
respectively, require any consent, notice to or filing with any governmental
authority or administrative agency or any third party on behalf of Buyer. The
matters described on Schedule 3.4 are referred to as the "Buyer Required
------------
Consents."
3.5 Litigation. Except as set forth on Schedule 3.5, there are no claims,
---------- ------------
actions, suits or investigations pending, or to the knowledge of Buyer,
threatened, against Buyer or its business or affecting the Buyer Business
Assets.
3.6 Issuance of Series D Preferred Stock. In May and June 1999, Buyer
------------------------------------
received gross proceeds in the aggregate amount of $37,506,615.00 from the
issuance and sale of shares of its Series D Convertible Preferred Stock (and
attached warrants).
3.7 Disclosure. No representation, warranty or statement made by Buyer in
----------
this Agreement or the exhibits or schedules hereto, or in any other document,
certificate or other instrument furnished or to be furnished to IAI pursuant to
this Agreement, contains or will contain any untrue statement of a material
fact, or omits to state any material fact necessary, in light of the
circumstances in which they were made, to make the statements contained herein
or therein not misleading.
15
<PAGE>
3.8 Brokers' Fees. Buyer has not retained any broker, finder or agent,
-------------
nor has any liability or obligation, nor will it, or anyone on its behalf, incur
any liability or obligation, to pay any fees, commissions or similar payments to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
3.9 Buyer Preferred Stock. The shares of Buyer Preferred Stock to be
---------------------
issued in connection with the Merger, when delivered hereunder, will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances. The shares of Buyer Common issuable upon conversion of the Buyer
Preferred Stock have been duly and validly reserved and, upon issuance in
accordance with the Certificate of Incorporation of the Buyer, such shares will
be validly issued, fully paid and nonassessable.
ARTICLE IV
COVENANTS
4.1 Conduct of Business. Between the date of this Agreement and the
-------------------
Effective Time, IAI and the Founding Stockholder shall:
(a) Conduct the operations of IAI's business in the normal and
customary manner in the ordinary course of business;
(b) Maintain the IAI Assets in good operating order, repair and
condition;
(c) Keep in full force and effect the insurance described in Section
2.15;
(d) Perform all of its obligations under all IAI Contracts and not
amend any provision thereof other than amendments that involve a commitment
or expenditure, or revenue to IAI, of less than $500.00;
(e) Use its best efforts to preserve IAI's organization intact and
maintain its relationships with its employees, suppliers and customers;
(f) Promptly advise Buyer of any adverse change in the condition
(financial or otherwise) of IAI's business or the IAI Business Assets;
(g) Promptly advise Buyer of the occurrence of any event or
circumstance which affects the consummation of the transactions
contemplated by this Agreement or which, if in existence on the date of
this Agreement, would have been required to have been disclosed in a
Schedule to this Agreement;
(h) Not create or permit to exist any security interest, mortgage,
lien, claim, or encumbrance of any kind with respect to any of the IAI
Business Assets;
(i) Not sell or dispose of any of the IAI Business Assets, except in
the ordinary course of business of IAI's business;
16
<PAGE>
(j) Promptly advise Buyer of any change in the list of employees
referred to in Section 2.16 or in the compensation payable to any such
employee;
(k) Not make any capital improvement or expenditure without the prior
consent of Buyer, other than improvements or expenditures in the ordinary
course of business in amounts of less than $500.00; and
(l) Maintain and collect the IAI Receivables and extend credit terms
to its customers in the ordinary course of business consistent with past
practices.
4.2 Access and Information. IAI and the Founding Stockholder shall permit
----------------------
Buyer and its counsel, accountants and other representatives full access during
normal business hours to all the properties, assets, books, records, agreements
and other documents of IAI. IAI shall furnish to Buyer and its representatives
all information concerning the IAI Business Assets or IAI's business as Buyer
may request. IAI shall permit and facilitate communications between Buyer and
IAI's suppliers, customers, landlords and other persons having relationships
with IAI's business.
4.3 No Other Solicitations. Until the earlier of the Effective Time or
----------------------
the termination of this Agreement, IAI and the Founding Stockholder shall not,
and IAI and the Founding Stockholder shall use their best efforts to cause each
of their respective officers, directors, employees, representatives and agents
or affiliates of such officers, directors, employees, representatives and agents
not to, directly or indirectly, solicit, initiate or encourage any offer,
proposal or inquiry from, or engage in any discussions or negotiations with, any
person regarding the sale or lease of the capital stock of IAI, its business, or
any of the IAI Business Assets. IAI shall immediately notify Buyer of, and
shall disclose to Buyer all details of, any inquiries, discussions or
negotiations of the nature described above.
4.4 Stockholders' Consent.
---------------------
(a) IAI shall, acting through its Board of Directors and in accordance
with the California Corporation Law, as soon as practicable, obtain the
affirmative vote at a meeting of the Stockholders duly noticed and held or
solicit and obtain written consents of the required number of the Stockholders
for the purpose of adopting and approving this Agreement (including without
limitation the matters referred to in Section 1.8 and Article VII hereof) and
the approval of the Merger in accordance with the provisions of the IAI Articles
of Incorporation and the California Corporation Law (the "Stockholders' Vote").
In connection with the Stockholders' Vote, IAI, acting through its Board of
Directors, shall recommend that the Stockholders of IAI consent to the adoption
of this Agreement and the approval of the Merger, shall prepare and send any
information required to be provided to the Stockholders in accordance with
applicable law and not include in the materials sent to the Stockholders any
false or misleading statement or omit to state any fact required to be stated in
order to make the statements therein not false or misleading, and shall
otherwise use its best efforts to obtain the Stockholders' Vote and any other
consents or approvals from the Stockholders necessary to consummate the
transactions contemplated herein.
17
<PAGE>
(b) The Founding Stockholder agrees to (i) vote all shares that are
beneficially owned by him, or for which he has voting authority, in favor of the
adoption of this Agreement and the approval of the Merger and (ii) otherwise use
his best efforts to obtain the Stockholders' Vote.
4.5 Agreements. IAI shall use all reasonable efforts to deliver to the
----------
Buyer prior to the Closing Date all agreements of the Stockholders required to
be executed by them under this Agreement.
4.6 Repayment of Working Capital Loans. Within ninety (90) days after the
----------------------------------
date hereof, Buyer will pay in cash the principal amounts owed pursuant to
certain loans made by certain of the Stockholders and other parties to IAI as
set forth on Schedule 4.6 hereto, up to a maximum of $96,000 (plus accrued
------------
interest on such principal amounts).
4.7 Further Assurances. From and after the Closing Date, the parties
------------------
shall take such steps and execute such documents, and instruments as may be
reasonably required to make effective the transactions contemplated hereby.
4.8 Confidentiality. In recognition of the confidential nature of certain
---------------
of the information which will be provided to any party by the other parties,
each of Buyer, IAI and the Founding Stockholder agrees to retain in confidence,
and to require its directors, officers, employees, consultants, professional
representatives and agents (collectively, its "Representatives") to retain in
confidence all information transmitted or disclosed to it by any other party,
and further agrees that it shall not use for its own benefit (other than in
connection with the transactions contemplated by this Agreement) and shall not
use or disclose to any third party, or permit the use or disclosure to any third
party of, any information obtained from or revealed by any other party, except
that each of Buyer, IAI and the Founding Stockholder may disclose the
information to those of its Representatives who need the information for the
proper performance of their assigned duties with respect to the consummation of
the transactions contemplated hereby. In making such information available to
its Representatives, each of Buyer, IAI and the Founding Stockholder shall take
all precautions to ensure that its Representatives use the information only as
permitted hereby. Notwithstanding anything to the contrary in the foregoing
provisions, such information may be disclosed: (a) where it is legally
necessary, to any regulatory authorities or governmental agencies; (b) if it is
required by court order or decree or applicable law; (c) if it is ascertainable
or obtained from public or published information; (d) if it is received from a
third party not known to the recipient to be under an obligation to keep such
information confidential; or (e) if the recipient can demonstrate that such
information was in its possession prior to disclosure thereof in connection with
this Agreement. If any party is required to make disclosure of any such
information by operation of law, such disclosing party will give the other
parties prior notice of the making of such disclosure and will use all
reasonable efforts to afford such other parties an opportunity to contest the
making of such disclosure. In the event that the Closing does not occur, each
of Buyer, IAI and the Founding Stockholder shall immediately deliver, or cause
to be delivered, to the other (without retaining any copies thereof) any and all
documents, statements or other written information obtained from the other that
contain confidential information.
18
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ARTICLE V
CONDITIONS PRECEDENT TO BUYER'S AND
SCIQUEST SUB'S OBLIGATIONS
The obligations of Buyer and SciQuest Sub to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions on or before the Effective Time:
5.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of IAI and the Founding Stockholder contained in this Agreement shall
have been true and correct on date of this Agreement and shall be true and
correct as of the Effective Time as though made on and as of the Effective Time,
and IAI and the Founding Stockholder shall have duly performed and complied with
all covenants and required by this Agreement to be performed or complied with by
it or them on or prior to the Closing.
5.2 Absence of Litigation. As of the Effective Time, no action or
---------------------
proceeding shall be pending or, in the reasonable opinion of IAI or the Founding
Stockholder, threatened by or before any court or other governmental body or
agency seeking to restrain, prohibit or invalidate the transactions contemplated
by this Agreement or which would adversely affect the right of Buyer to own,
operate or control the IAI Business Assets or IAI's business after the Effective
Time.
5.3 Absence of Change. Between the date of this Agreement and the
-----------------
Effective Time, no adverse change shall have occurred in the business,
operations or financial or other condition of IAI, its business or the IAI
Business Assets, nor shall there have occurred any casualty loss or destruction
of, or damage to, any of the IAI Assets.
5.4 Consents and Approvals. All (a) IAI Required Consents, (b) licenses,
----------------------
(c) other orders or notifications of, or registrations, declarations or filings
with, or expiration of waiting periods imposed by, any applicable governmental
or judicial authority and (d) consents, approvals, authorizations or
notifications of any other third parties, all as required in connection with
consummation of the transactions contemplated by this Agreement, including the
operation of IAI's business by Buyer, shall have been made or obtained or shall
have occurred.
5.5 Stockholders' Vote; Dissenting Shares. This Agreement and the Merger
-------------------------------------
shall have received the Stockholders' Vote and the number of Dissenting Shares
shall not exceed 4% of the number of outstanding shares of IAI Stock as of the
Effective Time.
5.6 Compliance Certificate. Each of IAI and the Founding Stockholder
----------------------
shall have delivered to Buyer and SciQuest Sub a certificate (without
qualification as to knowledge or materiality or otherwise except as may be set
forth in the representations and warranties themselves) to the effect that each
of the conditions specified in Sections 5.1 through 5.5 is satisfied in all
respects.
19
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5.7 Secretary's Certificate. IAI shall have delivered to Buyer and
-----------------------
SciQuest Sub a certificate of the Secretary of IAI, dated as of the Effective
Time, in form and substance reasonably satisfactory to Buyer and SciQuest Sub,
certifying (i) the names of its officers authorized to sign this Agreement, the
certificates and the other documents and instruments delivered pursuant to this
Agreement by IAI or any of its officers, together with true signatures of such
officers; (ii) that the copies of the Articles of Incorporation and Bylaws of
IAI attached thereto are true, correct and complete; (iii) that the resolutions
of the Board of Directors of IAI attached thereto evidencing the approval of
this Agreement and the transactions contemplated herein were duly adopted, have
not been amended or rescinded and are in full force and effect; and (iv) that
the resolutions of the Stockholders attached thereto evidencing approval of the
Agreement and the transactions contemplated herein were duly adopted, have not
been rescinded or amended and are in full force and effect; (v) that notice of
the action of the Stockholders, if taken by written consent of fewer than all of
the Stockholders, has been sent to the remaining Stockholders in accordance with
the applicable provisions of the General Corporation Law of the State of
California; and (vi) that the number of Dissenting Shares does not exceed four
percent (4%) of the number of outstanding shares of IAI as of the Effective
Time.
5.8 Legal Opinion. Buyer and SciQuest Sub shall have received an opinion
-------------
of Burriss & Monahan, counsel to IAI, dated as of the Effective Time, in the
form of Exhibit B attached hereto.
---------
5.9 Inventions Agreements. Buyer shall have received a Non-Disclosure and
---------------------
Invention Agreement in the form of Exhibit C attached hereto (the "Inventions
---------
Agreement"), duly executed by all employees of IAI.
5.10 Stockholder Investment Representation Letter. Buyer shall have
--------------------------------------------
received a Stockholder Investment Representation Letter in the form of Exhibit D
---------
attached hereto, duly executed by each of the Stockholders.
5.11 Escrow Agreement. Buyer shall have received the Escrow Agreement,
----------------
duly executed by the Indemnification Representative and each of the
Stockholders.
5.12 IAI Stock Certificates. Each of the Stockholders shall have endorsed
----------------------
in blank or executed stock powers with respect to the certificates evidencing
the IAI Shares.
5.13 SciQuest Sub Stock Certificate. Buyer shall have received a
------------------------------
certificate evidencing one (1) share of IAI Common Stock, dated the Effective
Time and issued in the name of Buyer.
5.14 Resignations. The Buyer shall have received resignations, duly
------------
executed, by all officers and directors of IAI, of their respective positions
with IAI, effective as of the Effective Time.
5.15 Termination Agreement. Buyer shall have received an agreement in
---------------------
form satisfactory to Buyer terminating all rights under the Stock Buy-Sell
Agreement dated September
20
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17, 1997, as amended, by and between IAI and the other signatories thereto, and
all related agreements, duly executed by IAI and the other signatories thereto.
5.16 Stock Plans. Buyer shall have received written evidence,
-----------
satisfactory to Buyer, of the termination of all Stock Plans.
5.17 Employment / Consulting Agreements. Buyer shall have received
----------------------------------
employment and/or consulting agreement in forms reasonably satisfactory to the
Buyer (the "Compensation Agreements"), duly executed by each of the Founding
Stockholder and such other individuals as Buyer may request.
5.18 Stockholder Agreements. Buyer shall have received Confidentiality
----------------------
Agreements between each of the Stockholders and the Buyer, in the form of
Exhibit E attached hereto (the "Stockholder Agreements"), duly executed by each
- ---------
of the Stockholders.
5.19 Registration Rights Agreement. Buyer shall have received a
-----------------------------
Registration Rights Agreement by and between the Buyer and the Stockholders in
the form of Exhibit F attached hereto (the "Registration Rights Agreement"),
---------
duly executed by all of the Stockholders.
5.20 Buyer Preferred Stock Powers. Buyer shall have received executed
----------------------------
stock powers from each of the Stockholders with respect to the Merger Shares.
5.21. Cybernet Agreement. Buyer shall have received an agreement by and
------------------
between IAI and Cybernet Software Systems, Inc. ("Cybernet") in the form of
Exhibit G attached hereto (the "Cybernet Agreement"), duly executed by IAI and
- ---------
Cybernet.
5.22 Kane Agreement. Buyer shall have received an agreement by and between
--------------
IAI and Dennis Kane("Kane"), on behalf of Kane's firm, in the form of Exhibit H
---------
attached hereto, duly executed by IAI and Kane, as the authorized representative
of such firm.
5.23 Other Documents. Buyer shall have received such other agreements,
---------------
documents, and instruments as Buyer has reasonably requested to effect and
evidence the consummation of the transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO IAI's AND
THE FOUNDING STOCKHOLDER'S OBLIGATIONS
The obligations of IAI and the Founding Stockholder to consummate the
transactions contemplated by this Agreement are subject to the satisfaction of
each of the following conditions on or before the Effective Time:
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Buyer and SciQuest Sub contained in this Agreement shall have been
true and correct on the date of this Agreement, and shall be true and correct as
if the Effective Time as though made on
21
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and as of the Effective Time, and Buyer and SciQuest Sub shall have duly
performed and complied with all covenants and obligations required by this
Agreement to be performed or complied with by it on or before the Closing.
6.2 Compliance Certificate. Each of Buyer and SciQuest Sub shall have
----------------------
delivered to IAI a certificate (without qualification as to knowledge or
materiality or otherwise except as may be set forth in the representations and
warranties themselves) to the effect that each of the conditions specified in
Section 6.1 is satisfied in all respects.
6.3 Absence of Litigation. As of the Effective Time, no action or
---------------------
proceeding shall be pending by or before any court or other governmental body or
agency seeking to restrain, prohibit or invalidate the transactions contemplated
by this Agreement.
6.4 Secretary's Certificates. IAI shall have received a certificate of the
------------------------
Secretary of each of the Buyer and SciQuest Sub, dated as of the Effective Time,
in form and substance reasonably satisfactory to IAI, certifying (i) the names
of its officers authorized to sign this Agreement, the certificates and the
other documents and instruments delivered pursuant to this Agreement by Buyer or
SciQuest Sub, as the case may be, or any of its officers, together with true
signatures of such officers; (ii) that the copies of the Certificate of
Incorporation and Bylaws attached thereto are true, correct and complete; and
(iii) that the resolutions of the Board of Directors attached thereto evidencing
the approval of this Agreement and the transactions contemplated herein were
duly adopted, have not been amended or rescinded and are in full force and
effect.
6.5 Legal Opinion. IAI shall have received an opinion of Hutchison &
-------------
Mason PLLC, counsel to Buyer, dated as of the Effective Time, in the form of
Exhibit I attached hereto.
- ---------
6.6 Escrow Agreement. IAI shall have received the Escrow Agreement, duly
----------------
executed by the Buyer and the Escrow Agent.
6.7 Stock Certificates. The certificates evidencing the shares of Buyer
------------------
Preferred Stock (other than the Escrowed Shares which are being delivered to the
Escrow Agent simultaneously with the Closing) shall have been delivered pursuant
to Sections 1.3 and 1.8 hereof.
6.8 Inventions Agreements. IAI shall have received the Inventions
---------------------
Agreement, duly executed by Buyer.
6.9 Employment / Consulting Agreements. IAI shall have received the
----------------------------------
Compensation Agreements, duly executed by Buyer.
6.10 Stockholder Agreements. IAI shall have received the Stockholder
----------------------
Agreements, duly executed by Buyer.
6.11 Registration Rights Agreement. IAI shall have received the
-----------------------------
Registration Rights Agreement, duly executed by Buyer.
22
<PAGE>
6.12 Other Documents. IAI shall have received such other agreements,
---------------
documents, and instruments as IAI has reasonably requested to effect and
evidence the consummation of the transactions contemplated by the Agreement.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification.
---------------
(a) The Stockholders, jointly and severally (including the Founding
Stockholder), shall indemnify the Surviving Corporation and the Buyer (the
"Buyer Indemnified Persons") in respect of, and hold the Buyer Indemnified
Persons harmless against, any and all debts, obligations and other liabilities,
monetary damages, fines, fees, penalties, interest obligations, deficiencies,
losses and expenses (including without limitation amounts paid in settlement,
interest, court costs, costs of investigators, reasonable fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) incurred or suffered by the Buyer Indemnified Persons ("Buyer
Damages"):
(i) resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of IAI or the Founding Stockholder contained in this Agreement or the
certificate delivered pursuant to Section 5.6; or
(ii) resulting from any failure of any of the Stockholders to
have good, valid and marketable title to the issued and outstanding IAI Shares
held by any such Stockholder, free and clear of all liens, claims, pledges,
options, adverse claims or charges of any nature whatsoever;
(iii) resulting from any claim by a Stockholder or former security
holder of IAI, or any other person, firm, corporation or entity, seeking to
assert, or based upon: (A) ownership or a right to ownership of any shares of
capital stock of IAI which is claimed to have arisen prior to the Effective
Time; (B) any rights of a stockholder of IAI (other than the right to receive
the Merger Consideration pursuant to this Agreement or appraisal rights under
the applicable provisions of the California Corporation Law), including, without
limitation, rights with respect to any option, preemptive rights or rights to
notice or to vote, in each case with respect to capital stock of IAI owned or
claimed to have been owned prior to the Effective Time; (C) any rights under the
Articles of Incorporation or Bylaws of IAI as in effect at any time prior to the
Effective Time; or (D) any claim that his, her or its shares of IAI were
wrongfully repurchased by IAI prior to the Effective Time; or
(iv) resulting from, relating to or arising out of or in
connection with the inclusion on IAI's web site or in other statements or
information disclosed or disseminated by IAI at any time prior to the Effective
Time of information to the effect that IAI has or uses in connection with its
business a patented escrow process.
23
<PAGE>
(b) The Buyer shall indemnify each of the Stockholders (collectively,
the "Seller Indemnified Persons") in respect of, and hold each of the Seller
Indemnified Persons harmless against, any and all debts, obligations and other
liabilities, monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) incurred or suffered by such Seller Indemnified Person ("Seller
Damages" and collectively with the Buyer Damages, the "Damages"), resulting
from, relating to or constituting any misrepresentation, breach of warranty or
failure to perform any covenant or agreement of Buyer or SciQuest Sub contained
in this Agreement.
7.2 Method of Asserting Claims.
--------------------------
(a) All claims for indemnification ("Claims") by a Buyer Indemnified
Person or a Seller Indemnified Person (collectively, the "Indemnified Persons")
pursuant to this Article VII shall be made in accordance with the provisions of
this Agreement, Schedule 7.2 hereto (with respect to Claims by Seller
------------
Indemnified Persons) ("Schedule 7.2") and the Escrow Agreement.
(b) If a third party asserts that an Indemnified Person is liable to
such third party for a monetary or other obligation which may constitute or
result in Damages for which such Indemnified Person may be entitled to
indemnification pursuant to this Article VII, and such Indemnified Person
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Person shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnification
Representative (with respect to Claims of Buyer Indemnified Persons) or the
Buyer (with respect to Claims of Seller Indemnified Persons), (ii) such
Indemnified Person may make a Claim for indemnification pursuant to this Article
VII in accordance with the provisions of the Escrow Agreement (if applicable),
this Article VII and Schedule 7.2 (if applicable), and (iii) such Indemnified
Person shall be reimbursed in accordance with the provisions of the Escrow
Agreement (if applicable), this Article VII and Schedule 7.2 (if applicable),
for any such Damages for which it is entitled to indemnification pursuant to
this Article VII (subject to the right of the Indemnification Representative or
the Buyer, as the case may be, to dispute the Indemnified Person's entitlement
to indemnification under the terms of the Escrow Agreement (if applicable), this
Article VII and Schedule 7.2 (if applicable).
(c) The Indemnified Person shall give prompt written notification to
the Indemnification Representative or the Buyer, as the case may be, of the
commencement of any action, suit or proceeding relating to a third party claim
for which indemnification pursuant to this Article VII may be sought; provided,
however, that no delay on the part of the Indemnified Person in notifying the
Indemnification Representative or the Buyer, as the case may be, shall relieve
the Stockholders or the Buyer, as the case may be, of any liability or
obligation hereunder except to the extent of any damage or liability caused by
or arising out of such failure. Within thirty (30) days after delivery of such
notification, the Indemnification Representative or the Buyer, as the case may
be, may, upon written notice thereof to the Indemnified Person, assume control
of the defense of such action, suit or proceeding provided the Indemnification
Representative or the Buyer, as the case may be, acknowledges in writing to the
Indemnified
24
<PAGE>
Person that any damages, fines, costs or other liabilities that may be assessed
against the Indemnified Person in connection with such action, suit or
proceeding constitute Damages for which the Indemnified Person shall be entitled
to indemnification pursuant to this Article VII. If the Indemnification
Representative or the Buyer, as the case may be, does not so assume control of
such defense, the Indemnified Person shall control such defense. The party not
controlling such defense may participate therein at its own expense; provided
that if the Indemnification Representative or the Buyer, as the case may be,
assumes control of such defense and the Indemnified Person reasonably concludes
that the indemnifying parties and the Indemnified Person have conflicting
interests or different defenses available with respect to such action, suit or
proceeding, the reasonable fees and expenses of counsel to the Indemnified
Person shall be considered "Damages" for purposes of this Agreement. The party
controlling such defense shall keep the other party advised of the status of
such action, suit or proceeding and the defense thereof. The Indemnified Person
shall not agree to any settlement of such action, suit or proceeding without the
prior written consent of the Indemnification Representative or the Buyer, as the
case may be, which shall not be unreasonably withheld. The Indemnification
Representative or the Buyer, as the case may be, shall not agree to any
settlement of such action, suit or proceeding without the prior written consent
of the Indemnified Person, which shall not be unreasonably withheld.
7.3 Satisfaction and Treatment of Indemnity Payments.
------------------------------------------------
(a) In the event that the Stockholders are required to provide
indemnification hereunder to the Buyer Indemnified Persons, such indemnification
obligations shall be satisfied solely by the delivery of shares of Buyer
Preferred Stock held in the Escrow (with each share valued at the Reference
Price (as defined below)) in accordance with the terms of this Agreement and the
Escrow Agreement. Any payment so made to a Buyer Indemnified Person pursuant to
this Article VII or the Escrow Agreement shall be treated as a reduction in the
Merger Consideration. For purposes of this provision, the "Reference Price"
shall mean (i) the average closing price for the Escrowed Shares quoted on any
national securities exchange or in the Nasdaq trading system, as applicable, for
the ten (10) trading days preceding the date of the notice by the Buyer
Indemnified Person of any Claim (the "Measurement Date"), (ii) if the Buyer's
stock is not publicly traded, the price at which the Buyer issued and sold
shares of its capital stock in its most recent financing, if such financing
occurred within three (3) months of the Measurement Date, or (iii) if no such
financing has occurred, the price determined in good faith by the Board of
Directors of the Buyer.
(b) In the event that the Buyer is required to provide indemnification
hereunder to one or more of the Seller Indemnified Persons, such indemnification
obligations shall be satisfied solely by the issuance to such Seller Indemnified
Persons, at no additional consideration, pro rata in accordance with their
ownership of IAI Stock, of additional shares of Buyer Preferred Stock (the
"Additional Shares") (with each share valued at the Reference Price) in
accordance with the terms of this Agreement and Schedule 7.2. Any payment so
made to a Seller Indemnified Person pursuant to this Article VII shall be
treated as an increase in the Merger Consideration.
7.4. Survival.
--------
25
<PAGE>
(a) The representations, warranties and covenants set forth in this
Agreement (the "Representations") shall survive the Closing and the consummation
of the transactions contemplated by this Agreement and continue until the first
anniversary of the Effective Time (the "Termination Date"). If notice of a Claim
is given in accordance with the Escrow Agreement, this Article VII or Schedule
7.2 before the Termination Date, then the Representation applicable to such
Claim shall survive until, but only for purposes of, the resolution of such
Claim.
(b) Notwithstanding the provisions of Section 7.4(a) above, with
respect to any Claims for indemnification by a Buyer Indemnified Person or a
Seller Indemnified Person based on, arising from, resulting from or related to
fraud or willful misrepresentation, the Representations shall survive the
Termination Date and shall remain in force and effect for the duration of the
applicable statute of limitations. All Representations shall be deemed to be
material and relied upon by the party or parties to whom they were made,
notwithstanding any investigation or inspection made by or on behalf of such
party or parties.
7.5 Limitation.
----------
(a) Notwithstanding anything to the contrary herein, with respect to
Claims other than claims based on fraud or willful misrepresentation, for which
the liability of the Stockholders shall not be limited in amount or to the
Escrow, the sole and exclusive remedy for indemnification Claims by the Buyer or
SciQuest Sub under this Article VII is the Escrow and the aggregate liability of
the Stockholders for Buyer Damages under this Article VII shall not exceed the
total number of shares of Buyer Preferred Stock held in the Escrow. No
Stockholder shall have any right of contribution against IAI or the Surviving
Corporation with respect to any breach by IAI of any of the representations,
warranties, covenants or agreements.
(b) Notwithstanding anything to the contrary herein, with respect to
Claims other than Claims based on fraud or willful misrepresentations, for which
the liability shall not be limited in amount or to the Additional Shares, the
total liability of the Buyer for Seller Damages under this Article VII shall not
exceed a maximum aggregate number of Additional Shares equal to the total number
of Escrowed Shares placed in the Escrow at Closing as set forth on Schedule 1.3
------------
(as such number of Escrowed Shares may be adjusted from time to time to reflect
stock splits, stock dividends, recapitalizations, reorganizations or similar
transactions affecting the Buyer Preferred Stock), and the sole and exclusive
remedy for indemnification Claims by the Stockholders, or any of them, under
this Article VII is the issuance of the Additional Shares.
ARTICLE VIII
COVENANTS OF FOUNDING STOCKHOLDER
8.1 Covenant Against Competition.
-----------------------------
26
<PAGE>
(a) In order to induce the Buyer to enter into this Agreement and
consummate the Merger as provided therein, the Founding Stockholder agrees that,
for a period of three (3) years beginning on the Closing Date and ending at
12:01 a.m. on the day following the third anniversary thereof, neither the
Founding Stockholder nor any business entity directly or indirectly owned or
controlled by the Founding Stockholder shall, without the prior written consent
of the Buyer, for his own account or jointly with another, directly or
indirectly, for or on behalf of any individual, partnership, corporation or
other legal entity, as principal, agent, director, employee, agent, consultant,
member of a partnership, firm, corporation or other entity, or as a holder of or
investor in as much as 5% of any security of any class of any corporation or
other business:
(i) engage in, consult with, assist in the promotion or
development of, or own, control, manage or otherwise participate in the
ownership, control or management of any business other than the business of the
Buyer or IAI engaged in (i) the provision of distribution, auction and/or
buyers' guide services or information for the scientific and/or medical products
market through any electric commerce medium, including, without limitation, the
Internet, any private computer network or otherwise, or (ii) the development,
maintenance, integration and customization of software and World Wide Web sites
for the provision of such services (the "Business"); or
(ii) solicit, call upon, or attempt to solicit, or encourage or
cause others to solicit, call upon or attempt to solicit, the patronage of any
Customers (as defined herein), for the purpose of obtaining the patronage of any
such Customer for the purchase of any products or services comparable to the
products or services of the Business from anyone other than Buyer or IAI; or
otherwise interfere, or seek to interfere or encourage or cause others to
interfere or seek to interfere, with the relationship between Buyer or IAI, or
any affiliate of Buyer or IAI, and any Customer or supplier of IAI existing at
Closing, at any time within the two (2) years preceding the Closing or the three
(3) years following the Closing; or
(iii) solicit or induce, or in any manner attempt to solicit or
induce or encourage or cause others to solicit or induce, any officer or
employee to leave his or her employment with Buyer or IAI, or any affiliate of
Buyer or IAI, whether or not such employment is pursuant to a written contract
or otherwise, or hire or in any other manner interfere, or attempt to interfere,
with the relationship between Buyer or IAI, or any affiliate of Buyer or IAI,
and any such officer or employee.
(b) For purposes of this Section 8.1, "Customer" shall mean any
individual, partnership, corporation or other entity to whom the Buyer or IAI
sold or distributed or attempted to sell or otherwise distribute any products or
services of the Business (as defined herein) during the two (2) year period
immediately preceding the Closing Date, or sells or attempts to sell or
otherwise distributes any products or services of the Business (as defined
herein) during the three (3) year period following the Closing.
(c) The Founding Stockholder agrees that neither he nor any business
entity directly or indirectly owned or controlled by him shall, without the
prior written consent of the Buyer, for its own account or jointly with another,
directly or indirectly, for or on behalf of any
27
<PAGE>
individual, partnership, corporation or other entity, as principal, agent or
otherwise, use or authorize any other person to use the name "SciQuest" or
"IAI," or any name similar thereto, in connection with a business which competes
with the Business.
(d) Notwithstanding anything herein to the contrary, it shall not be a
breach of the covenants contained in this Section 8.1 for the Founding
Stockholder, or any business entity directly or indirectly owned or controlled
by the Founding Stockholder, to own not more than five percent (5%) of the
capital stock of any corporation whose shares are publicly traded.
8.2 Reasonableness of Restrictions. The Founding Stockholder has carefully
------------------------------
read and considered the provisions of Section 8.1 and, having done so, agrees
that the restrictions set forth therein are fair and reasonable, do not unfairly
restrict or penalize the Founding Stockholder and are reasonably required for
the protection of the interests of Buyer and IAI in consummating the
transactions contemplated in this Agreement. In the event that, notwithstanding
the foregoing, any of the covenants set forth in Section 8.1 hereof shall be
deemed to be too restrictive in any court proceeding, the parties agree that the
court may reduce such restrictions to ones which it deems reasonable under the
circumstances.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time:
(a) By the mutual written consent of all of the parties to this
Agreement;
(b) By Buyer (if it is not then in breach of any term of this
Agreement), if IAI or the Founding Stockholder: (i) fail(s) to perform in any
material respect their agreements contained herein required to be performed on
or prior to the Effective Time, or (ii) materially breaches any of their
representations or warranties contained herein, which failure or breach is not
cured within ten (10) days after Buyer shall have notified IAI and the Founding
Stockholder of its intent to terminate this Agreement pursuant to this
subparagraph;
(c) By IAI or the Founding Stockholder (if they are not then in breach
of any term of this Agreement), if Buyer: (i) fails to perform in any material
respect its agreements contained herein required to be performed on or prior to
the Effective Time, or (ii) materially breaches any of its representations or
warranties contained herein, which failure or breach is not cured within ten
(10) days after IAI and the Founding Stockholder have notified Buyer of their
intent to terminate this Agreement pursuant to this subparagraph;
(d) By any of the parties, if there is any order, writ, injunction or
decree of any court or governmental or regulatory agency binding on such party
which prohibits or restrains such party from consummating the transactions
contemplated hereby; or
(e) By either the Buyer or IAI, if the requisite Stockholders' Vote is
not obtained; or
28
<PAGE>
(f) By any of the parties, if the Closing has not occurred by July 31,
1999, for any reason other than delay or nonperformance of the party seeking
such termination.
9.2 Effect on Obligations. Termination of this Agreement pursuant to this
---------------------
Article VIII shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 10.1 (with respect to expenses), 10.2 (with
respect to publicity), and 4.7 (with respect to confidentiality); provided,
however, that termination pursuant to subparagraphs (b) or (c) of Section 9.1
hereof shall not relieve the defaulting or breaching party from any liability to
the other parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, whether or not the Merger is consummated; provided,
--------
however, that if the Merger is consummated, any legal fees and expenses incurred
- -------
by IAI coded `IAII/SCIQ' which are solely and directly related to the Merger, up
to a maximum of $27,000, shall be paid by Buyer to Burriss & Monahan, A
Professional Corporation, at the Effective Time; any additional legal fees and
expenses, any investment banking, accounting and other out-of-pocket fees and
expenses incurred by IAI in excess of $27,000 and all other expenses of IAI or
the Stockholders of any kind shall be paid directly by the Stockholders, and
neither the Buyer nor the Surviving Corporation shall have any liability or
obligation therefor.
10.2 Publicity. No party to this Agreement shall issue any press release
---------
or public disclosure relating to the subject matter of this Agreement or the
terms hereof without the prior written approval of the Buyer. Any press
releases or other announcements concerning the transactions contemplated by this
Agreement shall be approved by the Buyer prior to their issuance.
10.3 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two (2)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, one (1) business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to IAI: Copy to:
--------- -------
Internet Auctioneers International, Inc. Burriss & Monahan
18780 Tilson Avenue Old Mill Office Center
Cupertino, CA 95129 201 San Antonio Circle,
Attn: Mark Atlas Suite 160
Mountain View, CA 94040
Attn: Alan Foster, Esq.
29
<PAGE>
If to the Buyer: Copy to:
--------------- -------
SciQuest.com, Inc. Hutchison & Mason PLLC
5151 McCrimmon Parkway 4011 Westchase Boulevard
Suite 208 Suite 400
Morrisville, North Carolina 27560 Raleigh, North Carolina 27607
Attn: James J. Scheuer, Jr. Attn: Helga L. Leftwich, Esq.
If to SciQuest Sub: Copy to:
------------------ -------
SciQuest Merger Subsidiary, Inc. Hutchison & Mason PLLC
5151 McCrimmon Parkway 4011 Westchase Boulevard
Suite 208 Suite 400
Morrisville, North Carolina 27560 Raleigh, North Carolina 27607
Attn: James J. Scheuer, Jr. Attn: Helga L. Leftwich, Esq.
Any party to this Agreement may give any notice, request, demand, claim, or
other communication hereunder using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner set forth in this Agreement.
10.4 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of North Carolina applicable to agreements made and to be performed
entirely within such state.
10.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.6 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any of the parties hereto without
the prior written consent of all other parties hereto, and any purported
assignment without such consent shall be void.
10.7 Headings. The Article and Section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement.
10.8 Amendments. Any waiver, amendment, modification or supplement of or
----------
to any term or condition of this Agreement shall be effective only if in writing
and signed by a majority in interest of the Stockholders and by all parties
hereto, and the parties hereto waive the right to amend the provisions of this
Section orally. Any amendment effected subsequent to the Stockholders' Consent
shall be subject to the restrictions contained in the Delaware General
30
<PAGE>
Corporation Law. No waiver of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
10.9 Severability. In the event that any provision in this Agreement
------------
shall be determined to be invalid, illegal or unenforceable in any respect, the
remaining provisions of this Agreement shall not be in any way impaired, and the
illegal, invalid or unenforceable provision shall be fully severed from this
Agreement and there shall be automatically added in lieu thereof a provision as
similar in terms and intent to such severed provision as may be legal, valid and
enforceable.
10.10 Entire Agreement. This Agreement, and the Schedules and Exhibits
----------------
hereto, constitute the entire Agreement between the parties hereto pertaining to
the subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings between the parties with respect to such subject
matter.
10.11 Risk of Loss. The risk of loss, damage or condemnation of any of the
------------
IAI Business Assets from any cause whatsoever shall be borne by IAI at all
times prior to the Effective Time.
10.12 Best Efforts. Each party agrees to use its best efforts to satisfy
------------
the conditions to the Closing set forth in this Agreement and otherwise to
consummate the transactions contemplated by this Agreement.
10.13 Letter of Intent. This Agreement supersedes and replaces the letter
----------------
agreement between the Buyer and IAI dated May 24, 1999, which shall be of no
further force and effect.
[Remainder of this page intentionally left blank]
31
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its duly authorized officer as of the date first above written.
BUYER:
SCIQUEST.COM, INC.
By: /s/ M. Scott Andrews
-------------------------------------
M. Scott Andrews
President and Chief Executive Officer
SCIQUEST SUB:
SCIQUEST MERGER SUBSIDIARY, INC.
By: /s/ M. Scott Andrews
-------------------------------------
M. Scott Andrews
President and Chief Executive Officer
IAI:
INTERNET AUCTIONEERS
INTERNATIONAL, INC.
By: /s/ Mark Atlas
-------------------------------------
Mark Atlas
President
FOUNDING STOCKHOLDER:
/s/ Mark Atlas
-----------------------------------------
Mark Atlas
32
<PAGE>
List of Exhibits and Schedules for Merger Agreement
----------------------------------------------------
Dated July 27, 1999 By and Among
--------------------------------
SciQuest.com, Inc., SciQuest Merger Subsidiary, Inc.,
-----------------------------------------------------
Internet Auctioneers International, Inc., and Mark Atlas
--------------------------------------------------------
Exhibits:
- --------
Exhibit A Escrow Agreement
Exhibit B Legal Opinion of Burriss & Monahan
Exhibit C Non-Disclosure and Invention Agreements
Exhibit D Stockholder Investment Representation Letter
Exhibit E Confidentiality Agreements
Exhibit F Registration Rights Agreement
Exhibit G Cybernet Agreement
Exhibit H Kane Agreement
Exhibit I Legal Opinion of Hutchison & Mason PLLC
Schedules:
- ---------
Schedule 1.3 Allocation of Merger Consideration
Disclosure Schedules for Internet Auctioneers International, Inc.
Disclosure Schedules for SciQuest.com, Inc.
Schedule 4.6 Schedule Regarding Payment of Working Capital Loans
Schedule 7.2 Procedures for Indemnification
<PAGE>
EXHIBIT 10.17
MERGER AGREEMENT
THIS MERGER AGREEMENT (together with the Exhibits and Schedules hereto, the
"Agreement"), dated September 29, 1998, is entered into by and among SciQuest,
Inc., a North Carolina corporation ("Buyer"), SciQuest Acquisition, Inc., a
North Carolina corporation and a wholly-owned subsidiary of Buyer
("Acquisition"), and BioSupplyNet, Inc., a Delaware corporation
("BioSupplyNet").
WHEREAS, this Agreement contemplates the merger of Acquisition with and
into BioSupplyNet, with BioSupplyNet surviving the merger as a wholly-owned
subsidiary of Buyer (the "Merger"); and
WHEREAS, in the Merger, the stockholders of BioSupplyNet will receive
shares of Series C Convertible Preferred Stock, par value $0.001 per share, of
Buyer (the "Buyer Preferred Stock") in exchange for their capital stock of
BioSupplyNet.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Concurrently with the execution hereof, Acquisition is
----------
merging with and into BioSupplyNet through the filing of Articles of Merger with
the Office of the Secretary of State of the State of North Carolina, in
accordance with the applicable provisions of the North Carolina Business
Corporation Act, and a Certificate of Merger with the Office of the Secretary of
State of the State of Delaware, in accordance with the applicable provisions of
the Delaware General Corporation Law (the time of the later of such filings is
hereinafter referred to as the "Effective Time"). From and after the Effective
Time, the separate existence of Acquisition shall cease and BioSupplyNet shall
continue as the surviving corporation (the "Surviving Corporation").
1.2 The Closing. The closing of the Merger (the "Closing") is taking
-----------
place at the offices of Hutchison & Mason PLLC in Raleigh, North Carolina,
simultaneously with the execution hereof. At the Closing, each party is
executing and delivering to the other all such agreements, documents, and
instruments as may be required or contemplated by this Agreement or as may be
reasonably requested by any party to effect and evidence the consummation of the
Merger, all of which are in a form and substance reasonably satisfactory to the
other parties.
<PAGE>
1.3 Conversion of BioSupplyNet Stock; Exchange Ratio.
-------------------------------- ---------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Buyer, Acquisition, BioSupplyNet or their respective
stockholders, each share of BioSupplyNet Common and BioSupplyNet Preferred (each
as defined in Section 2.3 hereof and collectively, the "BioSupplyNet Stock")
issued and outstanding immediately prior to the Merger (the "Shares") is being
canceled and converted automatically into the right to receive a number of
unregistered shares of Buyer Preferred Stock equal to the Exchange Ratio (as
defined in Section 1.3(b) hereof) (the "Merger Shares"). The Merger Shares
constitute all of the consideration (the "Merger Consideration") to be issued to
the stockholders of BioSupplyNet (collectively, the "Stockholders") or any other
person in respect of BioSupplyNet Common or BioSupplyNet Preferred. No
fractional shares are being issued as Merger Consideration. If any Stockholder
would be entitled to receive a fractional share but for the preceding sentence,
such Stockholder will, in lieu of such fractional share, receive a full share of
Buyer Preferred Stock
(b) The number of unregistered shares of Buyer Preferred Stock being
issued in cancellation of and exchange for each Share is 0.3576290 shares of
Buyer Preferred Stock (the "Exchange Ratio").
1.4 Surrender of Certificates for BioSupplyNet Stock. At the Closing,
------------------------------------------------
each Stockholder is delivering to Buyer certificates evidencing all of the
Shares owned by such Stockholder in exchange for certificates representing the
shares of Buyer Preferred Stock to be delivered to such Stockholder in exchange
therefor pursuant to Section 1.3 hereof, subject to the escrow required by
Section 1.8 hereof (the "Escrow").
1.5 Delivery of Merger Consideration. At the Closing, each Stockholder is
--------------------------------
receiving a number of shares of Buyer Preferred Stock equal to 90% of the Merger
Consideration that such Stockholder is entitled to receive pursuant to Section
1.3 hereof (rounded to the nearest whole share), and the balance of the Merger
Consideration that such Stockholder is entitled to receive pursuant to Section
1.3 hereof is being deposited into escrow pursuant to Section 1.8(a) hereof.
1.6 Dissenting Shares.
-----------------
(a) For purposes of this Agreement, "Dissenting Shares" means Shares
held as of the Effective Time by a Stockholder who has not voted such Shares in
favor of the adoption of this Agreement and the Merger and with respect to which
appraisal shall have been duly demanded and perfected, and not effectively
withdrawn or forfeited, in accordance with Section 262 of the Delaware General
Corporation Law. Dissenting Shares shall not be converted into or represent the
right to receive the Merger Consideration, unless the Stockholder holding such
Dissenting Shares shall have forfeited such Stockholder's right to appraisal
under the Delaware General Corporation Law or withdrawn such Stockholder's
demand for appraisal. If such Stockholder has so forfeited or withdrawn such
Stockholder's right to appraisal of Dissenting Shares, then, (i) as of the
occurrence of such event, such Stockholder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the Merger Consideration payable in respect of such Shares pursuant to Section
1.3 hereof, and (ii) promptly following the occurrence of such event, the Buyer
or the Surviving Corporation shall
2
<PAGE>
deliver to such Stockholder shares of Buyer Preferred Stock representing 90% of
the Merger Consideration to which such Stockholder is entitled pursuant to
Section 1.3 hereof and shall deposit with the Escrow Agent (as defined below)
shares of Buyer Preferred Stock representing the balance of the Merger
Consideration to which such Stockholder is entitled pursuant to Section 1.3
hereof.
(b) BioSupplyNet shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Shares, withdrawals of such demands, and any other
instruments that relate to such demands received by BioSupplyNet and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the Delaware General Corporation Law. BioSupplyNet shall
not, except with the prior written consent of the Buyer, make any payment with
respect to any demands for appraisal of Shares or offer to settle or settle any
such demands.
1.7 Options and Warrants.
--------------------
(a) At the Closing, (i) each outstanding option to acquire shares of
capital stock of BioSupplyNet (individually, an "Option" and collectively, the
"Options") is being cancelled and exchanged for an option to acquire, on
equivalent terms and conditions as were applicable to such Option prior to the
Merger, a number of shares of Buyer Common (as defined in Section 3.3 hereof),
and at an exercise price per share, as set forth on Schedule 1.7 hereto
(individually, a "Buyer Option" and collectively, the "Buyer Options"); (ii) all
outstanding warrants to acquire shares of capital stock of BioSupplyNet (the
"Warrants") are being cancelled and terminated and, simultaneously with the
Closing, the Buyer is issuing the Buyer Warrants (as defined in Section 4.2
hereof); and (iii) all other rights to acquire shares of capital stock of
BioSupplyNet are being terminated.
(b) Effective as of the Closing, BioSupplyNet is terminating all stock
option plans and other stock or equity-related plans of BioSupplyNet (the "Stock
Plans").
1.8 Escrow.
------
(a) Simultaneously with the execution hereof, the Buyer or Acquisition
is depositing with the Escrow Agent a number of shares of Buyer Preferred Stock
equal to 10% of the Merger Consideration, as described in Section 1.3 hereof,
including any amounts to be deposited into escrow pursuant to the last sentence
of Section 1.6(a) hereof (collectively, the "Escrowed Shares"), for the purpose
of satisfying the indemnification obligations of the Stockholders set forth in
Article VI of this Agreement. The Escrowed Shares shall be held by the Escrow
Agent under and pursuant to the terms of an Escrow Agreement, in the form of
Exhibit A, by and among the Buyer, the Escrow Agent, the Indemnification
- ---------
Representative (each as defined herein) and each of the Stockholders (the
"Escrow Agreement"). The Escrowed Shares shall remain in the Escrow for one (1)
year following the Effective Time in order to satisfy the Stockholders'
indemnification obligations under Article VI hereof. During such one (1) year
period, all cash dividends, if any, paid with respect to the Escrowed Shares
shall be the property of, and shall be delivered to, the Stockholders, each in
accordance with their respective ownership interests, and each of the
Stockholders shall have the sole power to exercise all voting
3
<PAGE>
rights pertaining to their pro rata portion of Escrowed Shares. All shares
issued in respect of the Escrowed Shares (including, without limitation, shares
issued in connection with stock dividends, stock splits, recapitalizations,
reorganizations or similar transactions affecting the Buyer Preferred Stock)
shall, upon issuance, be deposited in the Escrow, held subject to the terms and
conditions of the Escrow Agreement and treated for all purposes as Escrowed
Shares.
(b) The adoption of this Agreement and the approval of the Merger by
the Stockholders shall constitute approval by the Stockholders of the Escrow
Agreement and the appointment of Centura Bank as the escrow agent (the "Escrow
Agent") thereunder and of all of the arrangements relating thereto, including,
without limitation, the placement in escrow of the Escrowed Shares and the
appointment of Harris & Harris Group, Inc., a New York corporation ("Harris"),
to serve as the Indemnification Representative (the "Indemnification
Representative") to act as the representative of the Stockholders for purposes
of the Escrow Agreement and this Agreement.
1.9 Legend. Each certificate of the Buyer Preferred Stock issued in
------
connection with the Merger will bear a legend to evidence restrictions upon its
transferability by virtue of the requirements of the Securities Act of 1933, as
amended (the "Securities Act") and state securities laws. The legend shall read
substantially as follows:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ALL
APPLICABLE STATE SECURITIES LAWS COVERING SUCH SHARES, COMPLIANCE WITH
AN EXEMPTION FROM SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
1.10 Conversion of Subsidiary Stock. At the Closing, by virtue of the
------------------------------
Merger and without any action on the part of the Buyer, Acquisition,
BioSupplyNet or their respective stockholders, each share of Common Stock,
having no par value per share, of Acquisition issued and outstanding immediately
prior to the Merger is being converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation. Each stock certificate of Acquisition evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
1.11 Certificate of Incorporation. After the Effective Time, the
----------------------------
Certificate of Incorporation of BioSupplyNet as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until amended in accordance with applicable law.
4
<PAGE>
1.12 Bylaws. After the Effective Time, the Bylaws of BioSupplyNet as in
------
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until amended or repealed in accordance with the
provisions thereof and applicable law.
1.13 Directors and Officers. Immediately after the Effective Time, the
----------------------
directors and officers of Acquisition immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation and shall serve
in such capacities until their respective successors are duly elected and
qualified.
1.14 No Further Rights. As of the Effective Time, the Stockholders shall
-----------------
cease to have any rights as stockholders of BioSupplyNet.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BIOSUPPLYNET
BioSupplyNet represents and warrants to Buyer as follows:
2.1 Organization and Good Standing. BioSupplyNet is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. BioSupplyNet has all requisite power and authority to own, operate
and/or lease the BioSupplyNet Assets (as defined below) and the other properties
owned or used in its business (including, without limitation, intangible
property) (collectively with the BioSupplyNet Assets, the "BioSupplyNet Business
Assets") and to conduct the operations of its business as presently conducted.
BioSupplyNet is duly qualified to do business as a foreign corporation and is in
good standing in the jurisdictions listed on Schedule 2.1, which are all the
------------
jurisdictions in which it is required to be so qualified other than such
jurisdictions where the failure to be so qualified would not have a Material
Adverse Effect (as defined in Section 2.4) on BioSupplyNet.
2.2 Authority. BioSupplyNet has all requisite power and authority to
---------
execute and deliver this Agreement and the other documents, certificates and
instruments contemplated hereby (collectively with the Merger Agreement, the
"Transaction Documents") to which it is a party and to perform the transactions
contemplated hereby and thereby. The execution, delivery and performance of the
Transaction Documents to which BioSupplyNet is a party, and the consummation of
the transactions contemplated thereby, have been duly and validly authorized by
all necessary corporate and stockholder action. Each of the Transaction
Documents to which BioSupplyNet is a party has been duly executed and delivered
by BioSupplyNet and constitutes a valid and binding obligation of BioSupplyNet,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at law).
2.3 Capitalization. The authorized capital stock of BioSupplyNet consists
--------------
of (a) 3,000,000 shares of common stock, $.001 par value (the "BioSupplyNet
Common"), of which 327,833 shares are issued and outstanding and no shares are
held in the treasury of BioSupplyNet
5
<PAGE>
and (b) 1,200,000 shares of Preferred Stock, $.001 par value ("BioSupplyNet
Preferred"), of which 1,200,000 shares are designated Series A Convertible
Preferred Stock, 1,200,000 shares of which are issued and outstanding. [947,500]
shares of BioSupplyNet Common are reserved for issuance upon exercise of
Warrants and Options for the purchase of the BioSupplyNet Common. Schedule 2.3
------------
sets forth a complete and accurate list of (i) all stockholders of BioSupplyNet,
indicating the number of shares held by each stockholder, (ii) all holders of
Options and Warrants and other rights to acquire shares of capital stock of
BioSupplyNet ("Rights"), including the number of shares subject to each Option,
Warrant and Right, and (iii) all of the Stock Plans. All of the issued and
outstanding shares of BioSupplyNet Common and BioSupplyNet Preferred are, and
all shares that may be issued prior to the Effective Time upon exercise of
Options, Warrants and Rights will be, duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights. There are no outstanding
or authorized options, warrants, rights, agreements or commitments to which
BioSupplyNet is a party or which are binding upon BioSupplyNet providing for the
issuance, disposition or acquisition of any of its capital stock, other than as
listed in Schedule 2.3. There are no plans providing for stock options or
------------
similar rights other than the Stock Plans listed in Schedule 2.3. There are no
------------
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the capital stock of BioSupplyNet. There are no agreements,
voting trusts, proxies or understandings with respect to the voting, or
registration under the Securities Act, of any shares of BioSupplyNet other than
as listed in Schedule 2.3. All of the Shares, and the outstanding Options,
------------
Warrants and Rights were issued in compliance with applicable federal and state
securities laws.
2.4 Effect of Agreement. The execution, delivery and performance of the
-------------------
Transaction Documents to which BioSupplyNet is a party do not and will not: (a)
conflict with the Certificate of Incorporation or Bylaws of BioSupplyNet; (b)
violate any law or any rule or regulation of any governmental body or
administrative agency, or conflict with any judicial or administrative order or
decree relating to BioSupplyNet or the BioSupplyNet Business Assets, except for
any such violations or conflicts which would not, individually or in the
aggregate, have a material adverse effect on the business, BioSupplyNet Business
Assets, liabilities, results of operations or condition (financial or otherwise)
(a "Material Adverse Effect") of BioSupplyNet or impair the ability of
BioSupplyNet to consummate the transactions contemplated by this Agreement; (c)
constitute a breach or default under any of the BioSupplyNet Contracts (as
defined below); (d) create any security interest, mortgage, lien, claim, or
encumbrance of any kind on any of the BioSupplyNet Business Assets; or (e)
except for the filing of Articles of Merger and a Certificate of Merger with the
Secretaries of State of the States of North Carolina and Delaware, respectively,
require any consent, notice to or filing with any governmental authority or
administrative agency or any third party on behalf of BioSupplyNet. The matters
described on Schedule 2.4 are referred to as the "BioSupplyNet Required
------------
Consents."
2.5 Financials; Books. The audited balance sheet, statements of
-----------------
operations, changes in stockholders' equity and cash flows for the fiscal years
ended June 30, 1997 and June 30, 1998 (collectively, the "BioSupplyNet Financial
Statements"), true and complete copies of which are attached hereto as Schedule
--------
2.5, (a) are true, complete and correct in all material respects; (b) are in
- ---
accordance with the books and records of BioSupplyNet; and (c) present fairly,
in all material respects, the assets, liabilities and financial condition of
BioSupplyNet as of the respective dates thereof, and the results of operations
for the periods then ending in conformity
6
<PAGE>
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. BioSupplyNet has no liability or obligation
that is not reflected or reserved against on the audited balance sheet for the
twelve months ending June 30, 1998 (the "BioSupplyNet Balance Sheet"), except
for those that are not required by generally accepted accounting principles to
be included therein or those that have been incurred in the ordinary course of
business since the date of the BioSupplyNet Balance Sheet (none of which may
reasonably be expected to have a Material Adverse Effect on BioSupplyNet). The
books and records of BioSupplyNet are true, accurate and complete in all
material respects and have been maintained in accordance with generally accepted
accounting principles applied on a consistent basis.
2.6 Title to and Sufficiency of Assets and other Property. Set forth on
-----------------------------------------------------
Schedule 2.6 is a true and complete list of all material inventory, machinery,
- ------------
equipment, furniture, office equipment, supplies, materials, vehicles and other
material items of tangible personal property of every kind owned by BioSupplyNet
and used in connection with its business (the "BioSupplyNet Assets").
BioSupplyNet has good and marketable title to all of the BioSupplyNet Business
Assets, free and clear of all security interests, mortgages, liens, claims and
encumbrances of every kind except for liens for current taxes not yet due and
payable and as disclosed on Schedule 2.6. The BioSupplyNet Business Assets
------------
constitute all of the assets of any nature required to operate BioSupplyNet's
business in the manner presently operated by BioSupplyNet. The BioSupplyNet
Assets (a) are in good operating order, condition and repair (ordinary wear and
tear excepted), (b) are suitable for use in the ordinary course of business of
BioSupplyNet's business and (c) are free from material defects.
2.7 Real Property. BioSupplyNet owns no real property. Schedule 2.7
------------- ------------
contains true and correct descriptions of all real property leased by
BioSupplyNet (the "BioSupplyNet Leased Real Property") and used in connection
with its business, and all buildings, fixtures and improvements thereon (the
"Improvements"). All Improvements effected by BioSupplyNet and, to the knowledge
of BioSupplyNet, all Improvements, conform in all material respects to all
applicable state and local laws, health and safety ordinances and zoning and
building ordinances. None of the Improvements effected by BioSupplyNet and, to
the knowledge of BioSupplyNet, none of the Improvements, encroach on the
property of any third person. To the knowledge of BioSupplyNet, the BioSupplyNet
Leased Real Property is zoned for the purposes for which such property is
presently being used, or has a valid variance therefrom.
2.8 Contracts and Leases. Schedule 2.8 lists all contracts, commitments,
-------------------- ------------
agreements, understandings, obligations (including agreements for the borrowing
of money or the extension of credit) that involve a commitment or expenditure
by, or revenue to, BioSupplyNet of in excess of $10,000, leases (including
leases for the BioSupplyNet Leased Real Property) and licenses, whether written
or oral, to which BioSupplyNet is party or by which BioSupplyNet or the
BioSupplyNet Business Assets is bound (collectively, the "BioSupplyNet
Contracts"). Each of the BioSupplyNet Contracts is valid, binding and
enforceable against BioSupplyNet in accordance with its terms and is in full
force and effect, except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and by general
equitable principles (regardless of whether enforceability is considered in a
proceeding in equity or at law).
7
<PAGE>
There are no existing defaults on the part of BioSupplyNet or, to the knowledge
of BioSupplyNet, any other party to the BioSupplyNet Contracts, and, to the
knowledge of BioSupplyNet, no events or circumstances have occurred which, with
or without notice or lapse of time or both, would constitute defaults under any
of the BioSupplyNet Contracts. The execution, delivery and performance of this
Agreement does not and will not, with respect to any BioSupplyNet Contract, (a)
constitute a default or accelerate the obligations thereunder, (b) require the
consent of any person or party, except for the BioSupplyNet Required Consents,
or (c) affect the enforceability or validity thereof or the terms thereof.
2.9 Receivables. All accounts receivables of BioSupplyNet (the
-----------
"BioSupplyNet Receivables") are, and will be at the Effective Time, legal, valid
and binding obligations and arose in the ordinary course of business. To the
knowledge of BioSupplyNet, the BioSupplyNet Receivables are not subject to any
counterclaim, set off, defense, security interest, claim or encumbrance.
BioSupplyNet has made available to Buyer complete and correct copies of all
instruments, documents and agreements evidencing such BioSupplyNet Receivables,
including, without limitation, an aging schedule related to the BioSupplyNet
Receivables.
2.10 Intellectual Property.
---------------------
(a) Intellectual Property Rights. Schedule 2.10(a) hereto sets forth a
---------------------------- ----------------
complete and correct list of (i) all patents (the "BioSupplyNet Patents"),
trademarks, trade names (including all federal and state registrations
pertaining thereto), proprietary databases and registered copyrights owned by
BioSupplyNet (collectively with all unregistered copyrights, the "BioSupplyNet
Proprietary Intellectual Property") and (ii) all patents, trademarks, trade
names, copyrights, technology and processes used by BioSupplyNet in its
businesses which are material to its business and are used pursuant to a license
or other right granted by a third party, and all agreements related thereto
(collectively, the "BioSupplyNet Licensed Intellectual Property", and together
with the BioSupplyNet Proprietary Intellectual Property referred to as
"BioSupplyNet Intellectual Property"). Each of the federal, state and other
governmental registrations with any country pertaining to the BioSupplyNet
Proprietary Intellectual Property is valid and in full force and effect.
BioSupplyNet owns, or has the right to use pursuant to valid and effective
agreements, all BioSupplyNet Intellectual Property, and the consummation of the
transactions contemplated hereby will not materially adversely alter or impair
any such rights. No claims are pending against BioSupplyNet by any person with
respect to the use of any BioSupplyNet Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement relating
to the same that would be likely to have a Material Adverse Effect on
BioSupplyNet, and, to the knowledge of BioSupplyNet, the current use by
BioSupplyNet of the Intellectual Property does not in any material respect
infringe upon the rights of any third party. Schedule 2.10(a) sets forth a list
----------------
of all jurisdictions in which BioSupplyNet is operating under a trade name, and
each jurisdiction in which any such trade name is registered. No BioSupplyNet
Patent has been or is now involved in any interference, reissue, reexamination
or opposition proceeding of which BioSupplyNet has received notice, nor is
BioSupplyNet aware of any potentially interfering patent or patent application
of any third party. To the knowledge of BioSupplyNet, no person or entity is
presently selling or marketing a product which is covered by the Patents, and,
to the knowledge of BioSupplyNet, the Patents have not been challenged or
threatened in any way. No current or former BioSupplyNet employee is named as an
inventor on any pending patent application. All of the BioSupplyNet Patents are
currently in compliance with
8
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formal legal requirements (including payment of filing, examination and
maintenance fees and proofs of working or use) and to the knowledge of
BioSupplyNet, there is no currently existing circumstance which would render the
BioSupplyNet Patents invalid or unenforceable, and they are not subject to any
maintenance fees or taxes or actions falling due within ninety days after the
date of Closing.
(b) BioSupplyNet Computer Software and Hardware.
-------------------------------------------
(i) Schedule 2.10(b) hereto sets forth a true and complete list
----------------
of: (a) all software and associated documentation owned by BioSupplyNet material
to the business of BioSupplyNet, other than custom-developed software developed
for and assigned to a BioSupplyNet customer, that was owned by BioSupplyNet as
of the date of its incorporation (such items set forth on Schedule 2.10(b)
----------------
together with all software and associated documentation material to the business
of BioSupplyNet developed by BioSupplyNet since the date of its incorporation
are hereinafter referred to as the "BioSupplyNet Proprietary Software"); (b) all
software (other than the BioSupplyNet Proprietary Software and "shrink-wrap"
software) used by BioSupplyNet or its employees in connection with the business
of BioSupplyNet (the "BioSupplyNet Licensed Software" and together with the
BioSupplyNet Proprietary Software, the "BioSupplyNet Software"). BioSupplyNet
has all rights that are necessary or appropriate to distribute, license or
sublicense the BioSupplyNet Software to third parties and to appoint others to
do any of the foregoing to the extent that distribution, licensing or
sublicensing of such software is necessary to the conduct of business of
BioSupplyNet. BioSupplyNet has or has the right to use all technical and
descriptive materials to run its business in accordance with its historical
practices, except as would not have a Material Adverse Effect on BioSupplyNet.
The BioSupplyNet Software consists of: (a) source and object code embodied in
magnetic media; and (b) all development and procedural tools, documentation and
manuals necessary to maintain, enhance, develop derivative works, support and
service the BioSupplyNet Proprietary Software in accordance with historical
practice, including licenses to use compilers, assemblers, libraries and other
aids.
(ii) BioSupplyNet has a valid right, title and interest in and to
all intellectual property rights in the BioSupplyNet Proprietary Software,
including all worldwide copyrights, trade secrets, trademarks, moral rights and
proprietary and confidential information rights therein. The BioSupplyNet
Proprietary Software is free and clear of all liens, claims and encumbrances.
The use by BioSupplyNet of the BioSupplyNet Licensed Software and the use and
distribution of the BioSupplyNet Proprietary Software in the manner currently
used and distributed by BioSupplyNet complies with the terms of all contracts
and agreements to which BioSupplyNet is a party or by which it is bound and is
in compliance with all applicable laws, regulations and codes of any foreign,
U.S., state or local authority, including without limitation, all U.S. Export
Administration Regulations. BioSupplyNet has been granted under the license
agreements relating to the BioSupplyNet Licensed Software (the "BioSupplyNet
License Agreements") valid and subsisting license rights with respect to all
software comprising the BioSupplyNet Licensed Software and such rights may be
exercised anywhere in the world. BioSupplyNet is in compliance with each of the
terms and conditions of each of the BioSupplyNet License Agreements except to
the extent failure to so comply, individually or in the aggregate, would not
have a Material Adverse Effect on BioSupplyNet. In the case of any commercially
available "shrink-wrap" software programs (such as Lotus 1-2-3 or Microsoft
9
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Word), BioSupplyNet has not made and is not, to the knowledge of BioSupplyNet,
using any unauthorized copies of any such software programs and, to the
knowledge of BioSupplyNet, none of the employees, agents or representatives of
BioSupplyNet have made or are using any such unauthorized copies, except as
would not have a Material Adverse Effect on BioSupplyNet.
(iii) To the knowledge of BioSupplyNet, the BioSupplyNet
Proprietary Software and such of the BioSupplyNet Licensed Software as is
bundled with or is otherwise an integral part of the BioSupplyNet Proprietary
Software does not infringe the patent, copyright or trade secret rights or any
other intellectual property right of any third party which may exist anywhere in
the world.
(iv) BioSupplyNet has not granted rights in the BioSupplyNet
Software to any third party except for rights granted to customers in the
ordinary course of business pursuant to contracts with customers.
(v) There have been no problems experienced by BioSupplyNet in
the past twelve (12) months with respect to the BioSupplyNet Software, the
related computer hardware used by BioSupplyNet in its operations or the
provision of services to BioSupplyNet clients which have arisen outside the
ordinary course of business and would have a Material Adverse Effect on
BioSupplyNet.
(vi) The BioSupplyNet Proprietary Software is, and such of the
BioSupplyNet Licensed Software as is bundled with or is otherwise an integral
part of the BioSupplyNet Proprietary Software (to the knowledge of BioSupplyNet,
after inquiry of the licensors of such BioSupplyNet Proprietary Software) is,
"Millennium Compliant" (defined below). For the purposes of this Agreement,
"Millennium Compliant" means:
(A) the functions, calculations, and other computing
processes of such software (collectively, "Processes") perform in a consistent
manner regardless of the date in time on which the Processes are actually
performed and regardless of the date input to such software, whether before, on,
or after January 1, 2000 and whether or not the dates are affected by leap
years;
(B) such software accepts, calculates, compares, sorts,
extracts, sequences and otherwise processes date inputs and date values, and
returns and displays date values, in a consistent manner regardless of the dates
used, whether before, on or after January 1, 2000;
(C) such software will function without interruptions caused
by the date in time on which the Processes are actually performed or by the date
input to the Software, whether before, on or after January 1, 2000;
(D) such software accepts and responds to two-digit year-
date input in a manner that resolves any ambiguities as to the century in a
defined, predetermined and appropriate manner; and
(E) such software stores and displays date information in
ways that are unambiguous as to the determination of the century.
10
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(vii) Prior to any export or re-export either directly or
indirectly by BioSupplyNet of any software or other technical data, BioSupplyNet
has first obtained the written approval or required export license for such
export or re-export from the United States Department of Commerce or any other
agency of the U.S. Government having jurisdiction over such export or re-export
unless the export or re-export of software or other technical data is covered by
a license exemption.
2.11 Litigation. There are no claims, actions, suits or investigations
----------
pending, or to the knowledge of BioSupplyNet, threatened, against BioSupplyNet
or its business or affecting the BioSupplyNet Business Assets.
2.12 Compliance with Laws; Permits. There is not outstanding or, to the
-----------------------------
knowledge of BioSupplyNet, threatened, any order or decree of any court,
governmental agency or arbitration tribunal against or involving BioSupplyNet or
its business or the BioSupplyNet Business Assets. BioSupplyNet is currently,
and has been at all times, in full compliance with all laws, rules, regulations
and licensing requirements of all federal, state, local and foreign authorities
applicable to the BioSupplyNet Business Assets and operations of its business,
except for failures to comply which would not, individually or in the aggregate,
have a Material Adverse Effect on BioSupplyNet. BioSupplyNet has obtained all
permits, certificates and licenses required for the conduct of its business and
the ownership of the BioSupplyNet Business Assets, all of which are described on
Schedule 2.12 (the "BioSupplyNet Permits"). BioSupplyNet is not in violation of
- -------------
any of the BioSupplyNet Permits, and no proceedings are pending or, to the
knowledge of BioSupplyNet, threatened to revoke or limit any BioSupplyNet
Permit.
2.13 Taxes. BioSupplyNet has properly completed and timely filed all tax
-----
returns and reports required to be filed by it (the "Tax Returns"). All Tax
Returns are accurate, complete and correct as filed, and BioSupplyNet has paid
in full or made adequate provision in the BioSupplyNet Financial Statements for
all amounts shown to be due thereon. BioSupplyNet has not been notified by any
governmental authority that an audit or review of any tax matter is
contemplated.
2.14 Environmental Protection. No substances that are defined by laws or
------------------------
regulations concerning the environment as toxic materials, hazardous wastes or
hazardous substances (including without limitation any asbestos, oils,
petroleum-derived compound or pesticides) (collectively, "Hazardous
Materials"), to the knowledge of BioSupplyNet, are or have been located in, on
or about the BioSupplyNet Leased Real Property or the Improvements. To the
knowledge of BioSupplyNet, the BioSupplyNet Leased Real Property has not been
used for the storage, manufacture or disposal of Hazardous Materials, and
BioSupplyNet has not used, or provided permission to others to use, the
BioSupplyNet Leased Real Property for the storage, manufacture or disposal of
Hazardous Materials. To the knowledge of BioSupplyNet, no Hazardous Materials
have been transported off site from the BioSupplyNet Leased Real Property.
Specifically, but without limitation, to the knowledge of BioSupplyNet, there
are and have been no storage tanks located on the BioSupplyNet Leased Real
Property. BioSupplyNet has complied in all material respects with all federal,
state and local environmental laws and regulations.
11
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2.15 Insurance. Schedule 2.15 describes all insurance policies maintained
--------- -------------
by BioSupplyNet with respect to its business and the BioSupplyNet Business
Assets. Such policies are valid, binding and enforceable in accordance with
their terms, are in full force and effect, and all premiums due thereon have
been paid.
2.16 Labor Matters. No employees of BioSupplyNet have been or are
-------------
represented by a union or other labor organization or covered by any collective
bargaining agreement. There is no unfair labor practice complaint, labor
organizational effort, strike, slowdown or similar labor matter pending or, to
the knowledge of BioSupplyNet, threatened against BioSupplyNet or its business.
BioSupplyNet is in compliance with all federal, state and local laws and
regulations respecting employment and employment practices, terms and conditions
of employment and wages and hours, and there is no unfair labor practice
complaint against BioSupplyNet pending or, to the knowledge of BioSupplyNet,
threatened.
2.17 Employee Benefits. Except as set forth on Schedule 2.17, there are no
----------------- -------------
Plans, as defined below, contributed to, maintained or sponsored by
BioSupplyNet, to which BioSupplyNet is obligated to contribute or with respect
to which BioSupplyNet has any liability or potential liability, whether direct
or indirect (including all Plans contributed to, maintained or sponsored by each
member of the controlled group of companies, within the meaning of Sections
414(b), 414(c), and 414(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), of which BioSupplyNet is a member, to the extent BioSupplyNet has any
potential liability with respect to such Plans). For purposes of this Agreement,
the term "Plans" shall mean: (a) employee benefit plans as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not funded and whether or not terminated, (b) employment
agreements, and (c) personnel policies or fringe benefit plans, policies,
programs and arrangements, whether or not subject to ERISA, whether or not
funded, and whether or not terminated, including without limitation, stock
bonus, deferred compensation, pension, severance, bonus, vacation, travel,
incentive, and health, disability and welfare plans.
2.18 Absence of Changes. Since June 30, 1998, BioSupplyNet has conducted
------------------
the operations of its business only in the ordinary course, and has not:
(a) Suffered any damage to any BioSupplyNet Business Asset, whether
or not covered by insurance, except damage that could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect on BioSupplyNet;
(b) Sold or disposed of any BioSupplyNet Business Assets, except such
sales or dispositions made in the ordinary course of business that would
not, either individually or in the aggregate, have a Material Adverse
Effect on BioSupplyNet;
(c) Made any general wage increase for its employees as a group other
than in the ordinary course of business;
(d) Amended or terminated any BioSupplyNet Contract;
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(e) Incurred any obligation or liability, except normal trade or
business obligations incurred in the ordinary course of business;
(f) Introduced any new method of management, operations or
accounting;
(g) Suffered any adverse change in the condition (financial or
otherwise), or any other event, that might reasonably be expected to have
a Material Adverse Effect on BioSupplyNet; or
(h) Agreed, whether in writing or otherwise, to take any action
described in this Section 2.18.
2.19 Related Party Transactions. Except as set forth on Schedule 2.19,
-------------------------- -------------
the BioSupplyNet Contracts do not include any agreement with or any other
commitment to (a) any officer or director of BioSupplyNet; (b) any person
related by blood or marriage to any such officer or director; or (c) any
corporation, partnership, trust or other entity in which BioSupplyNet or any
such officer, director or related person has an equity or participating
interest.
2.20 Disclosure. No representation, warranty or statement made by
----------
BioSupplyNet in this Agreement or the exhibits or schedules hereto, or in any
other document, certificate or other instrument furnished or to be furnished to
Buyer by or on behalf of BioSupplyNet at or prior to the Closing pursuant to
this Agreement, contains or will contain any untrue statement of a material
fact, or omits to state any material fact necessary, in light of the
circumstances in which they were made, to make the statements contained herein
or therein not misleading.
2.21 Subsidiaries. BioSupplyNet has no wholly owned or partially owned
------------
subsidiaries.
2.22 Brokers' Fees. BioSupplyNet has not retained any broker, finder or
-------------
agent, nor has any liability or obligation, nor will it, or anyone on its
behalf, incur any liability or obligation, to pay any fees, commissions or
similar payments to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Stockholders as follows:
3.1 Organization and Good Standing. Buyer is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of North
Carolina. Buyer has all requisite power and authority to own, operate and/or
lease the Buyer Assets (as defined below) and the other properties owned or used
in its business (including, without limitation, intangible property)
(collectively with the Buyer Assets, the "Buyer Business Assets") and to conduct
the operations of its business as presently conducted. Buyer is duly qualified
to do business as a foreign corporation and is in good standing in the
jurisdictions listed on Schedule 3.1, which are
------------
13
<PAGE>
all the jurisdictions in which it is required to be so qualified other than such
jurisdictions where the failure to be so qualified would not have a Material
Adverse Effect on Buyer.
3.2 Authority. Each of Buyer and Acquisition has all requisite power and
---------
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the transactions contemplated thereby. The execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions contemplated thereby, have been duly and validly authorized by
all necessary corporate and stockholder action on the part of each of Buyer and
Acquisition. Each of the Transaction Documents to which Buyer or Acquisition is
a party has been duly executed and delivered by such party and each constitutes
a valid and binding obligation of Buyer and Acquisition, enforceable against
them in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights and
by general equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).
3.3 Capitalization. Immediately prior to the Effective Time, the
--------------
authorized capital stock of Buyer consists of (a) 20,000,000 shares of common
stock, no par value (the "Buyer Common"), of which 19,749,980 shares are
designated Class A Common Stock, 2,250,000 shares of which are issued and
outstanding, 250,020 shares are designated Class B Common Stock, 250,020 shares
of which are issued and outstanding and no shares are held in the treasury of
Buyer; and (b) 10,000,000 shares of Preferred Stock no par value ("Buyer
Preferred"), of which 769,231 shares are designated Series A Convertible
Preferred Stock, 769,221 shares of which are issued and outstanding, of which
3,821,238 shares are designated Series B Convertible Preferred Stock, 1,629,894
shares of which are issued and outstanding, and of which 601,046 shares are
designated Series C Convertible Preferred Stock, no shares of which are issued
and outstanding. 267,197 shares are reserved for issuance upon exercise of
warrants, options and other rights (collectively, "Rights") for the purchase of
shares of capital stock of Buyer. Schedule 3.3 sets forth a complete and
------------
accurate list of (i) all stockholders of Buyer, indicating the number of shares
held by each stockholder, (ii) all holders of Rights, including the number of
shares subject to each Right, and (iii) all of stock option and other stock and
equity-related plans of Buyer. All of the issued and outstanding shares are,
and all shares that may be issued prior to the Effective Time upon exercise of
Rights, will be, duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights. There are no outstanding or authorized options,
warrants, rights, agreements or commitments to which Buyer is a party or which
are binding upon Buyer providing for the issuance, disposition or acquisition of
any of its capital stock, other than as listed in Schedule 3.3. There are no
------------
plans providing for stock options or similar rights other than the Stock Plans
listed in Schedule 3.3. There are no outstanding or authorized stock
------------
appreciation, phantom stock or similar rights with respect to the capital stock
of Buyer. Except as set forth on Schedule 3.3, there are no agreements, voting
------------
trusts, proxies or understandings with respect to the voting, or registration
under the Securities Act of any shares of Buyer. All of the issued and
outstanding shares of capital stock of Buyer, and the outstanding Rights, were
issued in compliance with applicable federal and state securities laws.
3.4 Effect of Agreement. The execution, delivery and performance of the
-------------------
Transaction Documents to which Buyer is a party do not and will not: (a)
conflict with the Articles of
14
<PAGE>
Incorporation or Bylaws of Buyer; (b) violate any law or any rule or regulation
of any governmental body or administrative agency, or conflict with any judicial
or administrative order or decree relating to Buyer or the Buyer Business
Assets, except for any such violations or conflicts which would not,
individually or in the aggregate, have a Material Adverse Effect on Buyer or
impair the ability of Buyer to consummate the transactions contemplated by this
Agreement; (c) constitute a breach or default under any of the Buyer Contracts
(as defined below); (d) create any security interest, mortgage, lien, claim, or
encumbrance of any kind on any of the Buyer Business Assets; or (e) except for
the filing of Articles of Merger and a Certificate of Merger with the
Secretaries of State of the States of North Carolina and Delaware, respectively,
require any consent, notice to or filing with any governmental authority or
administrative agency or any third party on behalf of Buyer. The matters
described on Schedule 3.4 are referred to as the "Buyer Required Consents."
------------
3.5 Financials; Books. The audited balance sheet, statement of income,
-----------------
changes in stockholders' equity and cash flows for fiscal year ended December
31, 1997, and the unaudited, internally prepared balance sheet, statements of
income and cash flows for the six months ended June 30, 1998 (collectively, the
"Buyer Financial Statements"), true and complete copies of which are attached
hereto as Schedule 3.5, (a) are true, complete and correct in all material
------------
respects; (b) are in accordance with the books and records of Buyer; and (c)
present fairly, in all material respects, the assets, liabilities and financial
condition of Buyer as of the respective dates thereof, and the results of
operations for the periods then ending in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved. Buyer has no liability or obligation that is not reflected or reserved
against on the unaudited, internally prepared balance sheet for the six months
ended June 30, 1998 (the "Buyer Balance Sheet"), except for those that are not
required by generally accepted accounting principles to be included therein or
those that have been incurred in the ordinary course of business since the date
of the Buyer Balance Sheet (none of which may reasonably be expected to have a
Material Adverse Effect on the Buyer). The books and records of Buyer are true,
accurate and complete in all material respects and have been maintained in
accordance with generally accepted accounting principles applied on a consistent
basis.
3.6 Title to and Sufficiency of Assets. Set forth on Schedule 3.6 is a
---------------------------------- ------------
true and complete list of all material inventory, machinery, equipment,
furniture, office equipment, supplies, materials, vehicles and other material
items of tangible personal property of every kind owned by Buyer and used in
connection with its business (the "Buyer Assets"). Buyer has good and marketable
title to all of the Buyer Business Assets, free and clear of all security
interests, mortgages, liens, claims and encumbrances of every kind except for
liens for current taxes not yet due and payable and as disclosed on Schedule
--------
3.6. The Buyer Business Assets constitute all of the assets of any nature
- ---
required to operate Buyer's business in the manner presently operated by Buyer.
The Buyer Assets (a) are in good operating order, condition and repair (ordinary
wear and tear excepted), (b) are suitable for use in the ordinary course of
business of Buyer's business and (c) are free from material defects.
3.7 Real Property. Buyer owns no real property. Schedule 3.7 contains
------------- ------------
true and correct descriptions of all real property leased by Buyer (the "Buyer
Leased Real Property") and used in connection with its business, and all
buildings, fixtures and improvements thereon (the
15
<PAGE>
"Buyer Improvements"). All Buyer Improvements effected by Buyer and, to the
knowledge of Buyer, all Improvements, conform in all material respects to all
applicable state and local laws, health and safety ordinances and zoning and
building ordinances. None of the Buyer Improvements effected by the Buyer, and,
to the knowledge of the Buyer, none of the Improvements, encroach on the
property of any third person. To the knowledge of Buyer, the Buyer Leased Real
Property is zoned for the purposes for which such property is presently being
used or has a valid variance therefrom.
3.8 Contracts and Leases. Schedule 3.8 lists all contracts, commitments,
-------------------- ------------
agreements, understandings, obligations (including agreements for the borrowing
of money or the extension of credit) that involve a commitment or expenditure
by, or revenue to, Buyer of in excess of $10,000, leases (including leases for
the Buyer Leased Real Property) and licenses, whether written or oral, to which
Buyer is party or by which Buyer or the Buyer Business Assets is bound
(collectively, the "Buyer Contracts"). Each of the Buyer Contracts is valid,
binding and enforceable against the Buyer in accordance with its terms and is in
full force and effect, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights and
by general equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law). There are no existing defaults
on the part of Buyer or, to the knowledge of Buyer, any other party to the Buyer
Contracts, and, to the knowledge of Buyer, no events or circumstances have
occurred which, with or without notice or lapse of time or both, would
constitute defaults under any of the Buyer Contracts. The execution, delivery
and performance of this Agreement does not and will not, with respect to any
Buyer Contract, (a) constitute a default or accelerate the obligations
thereunder, (b) require the consent of any person or party, except for the Buyer
Required Consents, or (c) affect the enforceability or validity thereof or the
terms thereof.
3.9 Receivables. All accounts receivables of Buyer (the "Buyer
-----------
Receivables") are, and will be at the Effective Time, legal, valid and binding
obligations and arose in the ordinary course of business. To the knowledge of
the Buyer, the Buyer Receivables are not subject to any counterclaim, set off,
defense, security interest, claim or encumbrance. The Buyer has made available
to BioSupplyNet complete and correct copies of all instruments, documents and
agreements evidencing receivables, including, without limitation, an aging
schedule related to the Buyer Receivables.
3.10 Intellectual Property.
---------------------
(a) Intellectual Property Rights. Schedule 3.10(a) hereto sets forth
---------------------------- ----------------
a complete and correct list of (i) all patents (the "Buyer Patents"),
trademarks, trade names (including all federal and state registrations
pertaining thereto), proprietary data bases and registered copyrights owned by
Buyer (collectively with all unregistered copyrights, the "Buyer Proprietary
Intellectual Property") and (ii) all patents, trademarks, trade names,
copyrights, technology and processes used by Buyer in its business which are
material to its business and are used pursuant to a license or other right
granted by a third party, and all agreements related thereto (collectively, the
"Buyer Licensed Intellectual Property", and together with the Buyer Proprietary
Intellectual Property referred to as "Buyer Intellectual Property"). Each of the
federal, state and other governmental registrations with any country pertaining
to the Buyer
16
<PAGE>
Proprietary Intellectual Property is valid and in full force and effect. Buyer
owns, or has the right to use pursuant to valid and effective agreements, all
Buyer Intellectual Property, and the consummation of the transactions
contemplated hereby will not materially adversely alter or impair any such
rights. No claims are pending against Buyer by any person with respect to the
use of any Buyer Intellectual Property or challenging or questioning the
validity or effectiveness of any license or agreement relating to the same that
would be likely to have a Material Adverse Effect on Buyer, and, to the
knowledge of Buyer, the current use by Buyer of the Buyer Intellectual Property
does not in any material respect infringe upon the rights of any third party.
Schedule 3.10(a) sets forth a list of all jurisdictions in which Buyer is
- ----------------
operating under a trade name, and each jurisdiction in which any such trade name
is registered. No Buyer Patent has been or is now involved in any interference,
reissue, reexamination or opposition proceeding of where Buyer received notice,
nor is Buyer aware of any potentially interfering patent or patent application
of any third party. To the knowledge of Buyer, no person or entity is presently
selling or marketing a product which is covered by the Buyer Patents, and the
Buyer Patents have not been challenged or threatened in any way. No current or
former Buyer employee is named as an inventor on any pending patent
application. All of the Buyer Patents are currently in compliance with formal
legal requirements (including payment of filing, examination and maintenance
fees and proofs of working or use) and to the knowledge of Buyer, there is no
currently existing circumstance which would render the Patents invalid or
unenforceable, and they are not subject to any maintenance fees or taxes or
actions falling due within ninety days after the date of Closing.
(b) Buyer Computer Software and Hardware.
------------------------------------
(i) Schedule 3.10(b) hereto sets forth a true and complete list
----------------
of: (a) all software and associated documentation owned by Buyer material to the
business of Buyer, other than custom-developed software developed for and
assigned to a Buyer customer, that was owned by Buyer as of the date of its
incorporation (such items set forth on Schedule 3.10(b) together with all
----------------
software and associated documentation material to the business of Buyer
developed by Buyer since the date of its incorporation are hereinafter referred
to as the "Buyer Proprietary Software"); (b) all software (other than the Buyer
Proprietary Software and "shrink-wrap" software) used by Buyer or its employees
in connection with the business of Buyer (the "Buyer Licensed Software" and
together with the Buyer Proprietary Software, the "Buyer Software"). Buyer has
all rights that are necessary or appropriate to distribute, license or
sublicense the Buyer Software to third parties and to appoint others to do any
of the foregoing to the extent that distribution, licensing or sublicensing of
such software is necessary to the conduct of business of Buyer. Buyer has or has
the right to use all technical and descriptive materials to run its business in
accordance with its historical practices, except as would not have a Material
Adverse Effect on Buyer. The Buyer Software consists of: (a) source and object
code embodied in magnetic media; and (b) all development and procedural tools,
documentation and manuals necessary to maintain, enhance, develop derivative
works, support and service the Buyer Proprietary Software, in accordance with
historical practice, including licenses to use compilers, assemblers, libraries
and other aids.
(ii) Buyer has a valid right, title and interest in and to all
intellectual property rights in the Buyer Proprietary Software, including all
worldwide copyrights, trade secrets, trademarks, moral rights and proprietary
and confidential information rights therein. The
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Buyer Proprietary Software is free and clear of all liens, claims and
encumbrances. The use by Buyer of the Buyer Licensed Software and the use and
distribution of the Buyer Proprietary Software in the manner currently used and
distributed by Buyer complies with the terms of all contracts or agreements to
which Buyer is a party or by which it is bound and is in compliance with all
applicable laws, regulations and codes of any foreign, U.S., state or local
authority, including without limitation, all U.S. Export Administration
Regulations. Buyer has been granted under the license agreements relating to the
Buyer Licensed Software (the "Buyer License Agreements") valid and subsisting
license rights with respect to all software comprising the Buyer Licensed
Software and such rights may be exercised anywhere in the world. Buyer is in
compliance with each of the terms and conditions of each of the Buyer License
Agreements except to the extent failure to so comply, individually or in the
aggregate, would not have a Material Adverse Effect on Buyer. In the case of any
commercially available "shrink-wrap" software programs (such as Lotus 1-2-3 or
Microsoft Word), Buyer has not made and is not, to the knowledge of Buyer, using
any unauthorized copies of any such software programs and, to the knowledge of
Buyer, none of the employees, agents or representatives of Buyer have made or
are using any such unauthorized copies, except as would not have a Material
Adverse Effect on Buyer.
(iii) To the knowledge of Buyer, the Buyer Proprietary Software
and such of the Buyer Licensed Software as is bundled with or is otherwise an
integral part of the Buyer Proprietary Software does not infringe the patent,
copyright or trade secret rights or any other intellectual property right of any
third party which may exist anywhere in the world.
(iv) Buyer has not granted rights in the Buyer Software to any
third party except for rights granted to customers in the ordinary course of
business pursuant to contracts with customers.
(v) There have been no problems experienced by Buyer in the
past twelve (12) months with respect to the Buyer Software, the related computer
hardware used by Buyer in its operations or the provision of services to Buyer
clients, which have arisen outside the ordinary course of business and would
have a Material Adverse Effect on Buyer.
(vi) Except as set forth on Schedule 3.10, the Buyer Proprietary
-------------
Software is, and such of the Buyer Licensed Software as is bundled with or is
otherwise an integral part of the Buyer Proprietary Software (to the knowledge
of the Buyer, after inquiry of the licensors of such BioSupplyNet Proprietary
Software) is, Millennium Compliant.
(vii) Prior to any export or re-export either directly or
indirectly by Buyer of any software or other technical data, Buyer has first
obtained the written approval or required export license for such export or re-
export from the United States Department of Commerce or any other agency of the
U.S. Government having jurisdiction over such export or re-export unless the
export or re-export of software or other technical data is covered by a license
exemption.
3.11 Litigation. There are no claims, actions, suits or investigations
----------
pending, or to the knowledge of Buyer, threatened, against Buyer or its business
or affecting the Buyer Business Assets.
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3.12 Compliance with Laws; Permits. There is not outstanding or, to the
-----------------------------
knowledge of Buyer, threatened, any order or decree of any court, governmental
agency or arbitration tribunal against or involving Buyer or its business or the
Buyer Business Assets. Buyer is currently, and has been at all times, in full
compliance with all laws, rules, regulations and licensing requirements of all
federal, state, local and foreign authorities applicable to the Buyer Business
Assets and operations of its business, except for failures to comply which would
not, individually or in the aggregate, have a Material Adverse Effect on Buyer.
Buyer has obtained all permits, certificates and licenses required for the
conduct of its business and the ownership of the Buyer Business Assets, all of
which are described on Schedule 3.12 (the "Buyer Permits"). Buyer is not in
-------------
violation of any of the Buyer Permits, and no proceedings are pending or, to the
knowledge of Buyer, threatened to revoke or limit any Buyer Permit.
3.13 Taxes. Except as set forth on Schedule 3.13, Buyer has properly
----- -------------
completed and timely filed all tax returns and reports required to be filed by
it (the "Buyer Tax Returns"). All Buyer Tax Returns are accurate, complete and
correct as filed, and Buyer has paid in full or made adequate provision in the
Buyer Financial Statements for all amounts shown to be due thereon. Buyer has
not been notified by any governmental authority that an audit or review of any
tax matter is contemplated.
3.14 Environmental Protection. No substances that are defined by laws or
------------------------
regulations concerning the environment as toxic materials, hazardous wastes or
hazardous substances (including without limitation any asbestos, oils,
petroleum-derived compound or pesticides) (collectively, "Hazardous Materials"),
to the knowledge of Buyer, are or have been located in, on or about the Buyer
Leased Real Property or the Improvements. To the knowledge of Buyer, the Buyer
Leased Real Property has not been used for the storage, manufacture or disposal
of Hazardous Materials, and the Buyer has not used, or provided permission to
others to use the Buyer Leased Real Property, for the storage, manufacture or
disposal of Hazardous Materials. To the knowledge of Buyer, no Hazardous
Materials have been transported off site from the Buyer Leased Real Property.
Specifically, but without limitation, to the knowledge of Buyer, there are and
have been no storage tanks located on the Buyer Leased Real Property. Buyer has
complied in all material respects with all federal, state and local
environmental laws and regulations.
3.15 Insurance. Schedule 3.15 describes all insurance policies maintained
--------- -------------
by Buyer with respect to its business and the Buyer Business Assets. Such
policies are valid, binding and enforceable in accordance with their terms, are
in full force and effect, and all premiums due thereon have been paid.
3.16 Labor Matters. No employees of Buyer have been or are represented
-------------
by a union or other labor organization or covered by any collective bargaining
agreement. There is no unfair labor practice complaint, labor organizational
effort, strike, slowdown or similar labor matter pending or, to the best
knowledge of Buyer, threatened against Buyer or its business. Buyer is in
compliance with all federal, state and local laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and
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hours, and there is no unfair labor practice complaint against Buyer pending or,
to the best knowledge of Buyer, threatened.
3.17 Employee Benefits. Except as set forth on Schedule 3.17, there are no
----------------- -------------
Plans, as defined below, contributed to, maintained or sponsored by Buyer, to
which Buyer is obligated to contribute or with respect to which Buyer has any
liability or potential liability, whether direct or indirect (including all
Plans contributed to, maintained or sponsored by each member, of the controlled
group of companies, within the meaning of Sections 414(b), 414(c), and 414(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), of which Buyer is a
member to the extent Buyer has any potential liability with respect to such
Plans). For purposes of this Agreement, the term "Plans" shall mean: (a)
employee benefit plans as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not funded and
whether or not terminated, (b) employment agreements, and (c) personnel policies
or fringe benefit plans, policies, programs and arrangements, whether or not
subject to ERISA, whether or not funded, and whether or not terminated,
including without limitation, stock bonus, deferred compensation, pension,
severance, bonus, vacation, travel, incentive, and health, disability and
welfare plans.
3.18 Absence of Changes. Since December 31, 1997, Buyer has conducted the
------------------
operations of its business only in the ordinary course, and has not:
(a) Suffered any damage to any Buyer Business Asset, whether or not
covered by insurance, except damage that could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on
Buyer;
(b) Sold or disposed of any Buyer Business Assets, except such sales
or dispositions made in the ordinary course of business that would not,
either individually or in the aggregate, have a Material Adverse Effect on
Buyer;
(c) Made any general wage increase for its employees as a group other
than in the ordinary course of business;
(d) Amended or terminated any Buyer Contract;
(e) Incurred any obligation or liability, except normal trade or
business obligations incurred in the ordinary course of business;
(f) Introduced any new method of management, operations or accounting;
(g) Suffered any adverse change in the condition (financial or
otherwise), results of operations or its business or assets, or any other
event, that might reasonably be expected to have a Material Adverse Effect
on Buyer; or
(h) Agreed, whether in writing or otherwise, to take any action
described in this Section 3.18.
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3.19 Related Party Transactions. Except, as disclosed on Schedule 3.19,
-------------------------- -------------
the Buyer Contracts do not include any agreement with, or any other commitment
to (a) any officer or director of Buyer; (b) any person related by blood or
marriage to any such officer or director; or (c) any corporation, partnership,
trust or other entity in which Buyer or any such officer, director or related
person has an equity or participating interest.
3.20 Disclosure. No representation, warranty or statement made by Buyer
----------
in this Agreement or the exhibits or schedules hereto, or in any other document,
certificate or other instrument furnished or to be furnished to BioSupplyNet
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact, or omits to state any material fact necessary, in light of the
circumstances in which they were made, to make the statements contained herein
or therein not misleading.
3.21 Subsidiaries. Buyer has no wholly owned or partially owned
------------
subsidiaries.
3.22 Brokers' Fees. Except as set forth in Schedule 3.23, Buyer has not
------------- -------------
retained any broker, finder or agent, nor has any liability or obligation, nor
will it, or anyone on its behalf, incur any liability or obligation, to pay any
fees, commissions or similar payments to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
3.23 Buyer Preferred Stock. The shares of Buyer Preferred Stock to be
---------------------
issued in connection with the Merger, when delivered hereunder, will be validly
issued, fully paid and nonassessable, will be free of any liens or encumbrances,
and will not be subject to any preemptive rights other than as provided in the
Articles of Incorporation of the Buyer, as amended. The shares of Buyer Common
issuable upon conversion of the Buyer Preferred Stock have been duly and validly
reserved, and neither such shares nor the issuance thereof are subject to any
preemptive rights (other than as provided in the Articles of Incorporation of
the Buyer, as amended) and, upon issuance, such shares will be validly issued,
fully paid and nonassessable.
ARTICLE IV
CLOSING DELIVERIES
At the Closing, the parties are making the following deliveries:
4.1 Deliveries by BioSupplyNet. BioSupplyNet is delivering or causing to
--------------------------
be delivered to Buyer the following:
(a) Compliance Certificate. A certificate of BioSupplyNet (without
----------------------
qualification as to knowledge or materiality or otherwise except as may be set
forth in the representations and warranties themselves) to the effect that the
representations and warranties of BioSupplyNet contained in this Agreement are
true and correct as of the date hereof.
(b) Consents and Approvals. All BioSupplyNet Required Consents.
----------------------
(c) Secretary's Certificate. A certificate of the Secretary of
-----------------------
BioSupplyNet, dated as of the date hereof, in form and substance reasonably
satisfactory to Buyer and
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Acquisition, certifying (i) the names of its officers authorized to sign this
Agreement, the certificates and the other documents and instruments delivered
pursuant to this Agreement by BioSupplyNet or any of its officers, together with
true signatures of such officers; (ii) that the copies of the Certificate of
Incorporation and Bylaws of BioSupplyNet attached thereto are true, correct and
complete; (iii) that the resolutions of the Board of Directors of BioSupplyNet
attached thereto evidencing the approval of this Agreement and the transactions
contemplated herein were duly adopted, have not been amended or rescinded and
are in full force and effect; (iv) that the resolutions of the Stockholders
attached thereto evidencing approval of the Agreement and the transactions
contemplated herein were duly adopted, have not been rescinded or amended and
are in full force and effect; (v) that notice of the action of the Stockholders,
if taken by written consent of fewer than all of the Stockholders, has been sent
to the remaining Stockholders in accordance with the applicable provisions of
the Delaware General Corporation Law; and (vi) that the number of Dissenting
Shares does not exceed five percent (5%) of the number of outstanding shares of
BioSupplyNet as of the date hereof.
(d) Legal Opinion. An opinion of Skadden, Arps, Slate, Meagher & Flom
-------------
LLP, counsel to BioSupplyNet, dated the date hereof, in the form of Exhibit B.
---------
(e) Inventions Agreements. Non-Disclosure, Invention and Non-
---------------------
Competition Agreements between Buyer and the employees of BioSupplyNet in the
form of Exhibit C (the "Inventions Agreements"), duly executed by all employees
---------
of BioSupplyNet.
(f) Cold Spring Agreement. An Amendment Agreement in the form of
---------------------
Exhibit D, duly executed by Cold Spring Harbor Laboratory, a New York
- ---------
corporation ("Cold Spring") and BioSupplyNet.
(g) Proxy. An irrevocable proxy in the form of Exhibit E, duly
----- ---------
executed by each of the Stockholders.
(h) Stockholder Investment Representation Letter. A Stockholder
--------------------------------------------
Investment Representation Letter in the form of Exhibit F, duly executed by each
---------
of the Stockholders.
(i) Consents to Termination of Warrants. Written Consents of all
-----------------------------------
holders of Warrants to the termination of such holders' Warrants.
(j) Escrow Agreement. The Escrow Agreement, duly executed by the
----------------
Indemnification Representative and each of the Stockholders.
(k) Stock Certificates. The certificates evidencing the Shares, duly
------------------
endorsed in blank or accompanied by executed stock powers.
(l) Acquisition Stock Certificate. A certificate evidencing one (1)
-----------------------------
share of BioSupplyNet Common, dated the date hereof and issued in the name of
Buyer.
(m) Resignations. Resignations, duly executed, by all officers and
------------
directors of BioSupplyNet, of their respective positions with BioSupplyNet,
effective as of the date hereof.
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(n) Termination Agreement. An agreement in form satisfactory to Buyer
---------------------
terminating all rights under the Series A Stock Purchase Agreement and the
Common Stock Acquisition Agreement by and between BioSupplyNet and the other
signatories thereto, and all related agreements, duly executed by BioSupplyNet
and the other signatories thereto.
(o) Stock Plans. Written evidence, satisfactory to Buyer, of the
-----------
termination of all Stock Plans.
(p) Employment/Consulting Agreements. Employment and/or consulting
--------------------------------
agreements between Buyer and each of Lyle Brecht and Joan Boyce in forms
reasonably satisfactory to the Buyer and such individuals (the "Employee
Agreements"), duly executed by such employees of BioSupplyNet.
(q) Major Stockholder Agreements. Confidentiality and Non-
----------------------------
Solicitation or Non-Competition Agreements between each of Harris and Cold
Spring and the Buyer, in the forms of Exhibit G (the "Major Stockholder
---------
Agreements"), duly executed by Harris and Cold Spring, respectively.
(r) Registration Rights Agreement. A Registration Rights Agreement by
-----------------------------
and between the Buyer and the Stockholders in the form of Exhibit H (the
---------
"Registration Rights Agreement"), duly executed by all of the Stockholders.
(s) Other Documents. Such other agreements, documents, and
---------------
instruments as Buyer has reasonably requested to effect and evidence the
consummation of the transactions contemplated by this Agreement.
4.2 Deliveries by Buyer. The Buyer is delivering or causing to be
-------------------
delivered to BioSupplyNet the following:
(a) Compliance Certificate. A certificate of each of Buyer and
----------------------
Acquisition (without qualification as to knowledge or materiality or otherwise
except as may be set forth in the representations and warranties themselves) to
the effect that the representations and warranties of Buyer and Acquisition
contained in this Agreement are true and correct as of the date hereof.
(b) Secretary's Certificates. A certificate of the Secretary of each
------------------------
of the Buyer and Acquisition, dated as of the date hereof, in form and substance
reasonably satisfactory to BioSupplyNet, certifying (i) the names of its
officers authorized to sign this Agreement, the certificates and the other
documents and instruments delivered pursuant to this Agreement by Buyer or
Acquisition, as the case may be, or any of its officers, together with true
signatures of such officers; (ii) that the copies of the Articles of
Incorporation and Bylaws attached thereto are true, correct and complete; (iii)
that the resolutions of the Board of Directors attached thereto evidencing the
approval of this Agreement and the transactions contemplated herein were duly
adopted, have not been amended or rescinded and are in full force and effect;
and (iv) if applicable, that the resolutions of the shareholders of the
corporation attached thereto evidencing
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approval of the Agreement and the transactions contemplated herein were duly
adopted, have not been rescinded or amended and are in full force and effect.
(c) Legal Opinion. An opinion of Hutchison & Mason PLLC, counsel to
-------------
Buyer, dated the date hereof, in the form of Exhibit I.
(d) Escrow Agreement. The Escrow Agreement, duly executed by the Buyer
----------------
and the Escrow Agent.
(e) Stock Certificates. The certificates evidencing the shares of
------------------
Buyer Preferred Stock (other than the Escrowed Shares which are being delivered
to the Escrow Agent simultaneously with the Closing) to be delivered pursuant to
Section 1.3 hereof.
(f) Inventions Agreements. The Inventions Agreements, duly executed by
---------------------
Buyer.
(g) Employment / Consulting Agreements. The Employee Agreements, duly
----------------------------------
executed by Buyer.
(h) Major Stockholder Agreements. The Major Stockholder Agreements,
----------------------------
duly executed by Buyer.
(i) Registration Rights Agreement. The Registration Rights Agreement,
-----------------------------
duly executed by Buyer.
(j) Warrants. Warrants to each of Harris and Cold Spring to purchase
--------
53,644 shares of Buyer Common, respectively, in the form of Exhibit J hereto
---------
(the "Buyer Warrants"), duly executed by the Buyer.
(k) Options. Buyer Options issued to each individual listed on
-------
Schedule 1.7, duly executed by the Buyer.
- ------------
(l) Other Documents. Such other agreements, documents, and instruments
---------------
as BioSupplyNet has reasonably requested to effect and evidence the consummation
of the transactions contemplated by the Agreement.
ARTICLE V
COVENANTS
5.1 Repayment of Working Capital Loans. Within ninety (90) days after the
----------------------------------
date hereof, Buyer will pay to Harris in cash the principal amount owed pursuant
to certain working capital loans (the "Working Capital Loans") made by Harris to
BioSupplyNet, up to a maximum of $285,000 (plus accrued interest on such
principal amount). Buyer shall pay the remaining outstanding balance due under
the Working Capital Loans at the earlier of (i) the closing by
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Buyer or the Surviving Corporation or any of their respective successors or
affiliates of a round of equity financing resulting in aggregate gross proceeds
to the Buyer or the Surviving Corporation or any of their respective successors
or affiliates of at least Two Million Five Hundred Thousand Dollars ($2,500,000)
(other than the closing or closings, after the date hereof, of any issuances and
sales by Buyer of a further tranche of its shares of its Series B Convertible
Preferred Stock) or (ii) December 31, 1999.
5.2 Further Assurances. From and after the Closing, the parties shall
------------------
take such steps and execute such documents, and instruments as may be reasonably
required to make effective the transactions contemplated hereby.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification.
---------------
(a) The Stockholders shall indemnify the Surviving Corporation and
the Buyer (the "Buyer Indemnified Persons") in respect of, and hold the Buyer
Indemnified Persons harmless against, any and all debts, obligations and other
liabilities, monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, reasonable fees and
expenses of attorneys, accountants, financial advisors and other experts, and
other expenses of litigation) incurred or suffered by the Buyer Indemnified
Persons ("Buyer Damages"):
(i) resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of BioSupplyNet; or
(ii) resulting from any failure of any of the Stockholders to
have good, valid and marketable title to the issued and outstanding Shares held
by any such Stockholder, free and clear of all liens, claims, pledges, options,
adverse claims or charges of any nature whatsoever; or
(iii) resulting from any claim by a Stockholder or former
security holder of BioSupplyNet, or any other person, firm, corporation or
entity, seeking to assert, or based upon: (A) ownership or a right to ownership
of any shares of capital stock of BioSupplyNet which is claimed to have arisen
prior to the Effective Time; (B) any rights of a stockholder of BioSupplyNet
(other than the right to receive the Merger Consideration pursuant to this
Agreement or appraisal rights under the applicable provisions of the Delaware
General Corporation Law), including rights with respect to any option,
preemptive rights or rights to notice or to vote, in each case with respect to
capital stock of BioSupplyNet owned or claimed to have been owned prior to the
Effective Time; (C) any rights under the Certificate of Incorporation or Bylaws
of BioSupplyNet as in effect at any time prior to the Effective Time; or (D) any
claim that his, her or its shares of BioSupplyNet were wrongfully repurchased by
BioSupplyNet prior to the Effective Time.
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(b) The Buyer shall indemnify each of the Stockholders (collectively,
the "Seller Indemnified Persons") in respect of, and hold each of the Seller
Indemnified Persons harmless against, any and all debts, obligations and other
liabilities, monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) incurred or suffered by such Seller Indemnified Person or any
affiliate thereof ("Seller Damages" and collectively with the Buyer Damages, the
"Damages"), resulting from, relating to or constituting any misrepresentation,
breach of warranty or failure to perform any covenant or agreement of Buyer or
Acquisition contained in this Agreement.
6.2 Method of Asserting Claims.
--------------------------
(a) All claims for indemnification by a Buyer Indemnified Person or a
Seller Indemnified Person (collectively, the "Indemnified Persons") pursuant to
this Article VI shall be made in accordance with the provisions of this
Agreement, Schedule 6.2 hereto (if applicable) ("Schedule 6.2") and the Escrow
------------
Agreement.
(b) If a third party asserts that an Indemnified Person is liable to
such third party for a monetary or other obligation which may constitute or
result in Damages for which such Indemnified Person may be entitled to
indemnification pursuant to this Article VI, and such Indemnified Person
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Person shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnification
Representative (with respect to claims of Buyer Indemnified Persons) or the
Buyer (with respect to claims of Seller Indemnified Persons), (ii) such
Indemnified Person may make a claim for indemnification pursuant to this Article
VI in accordance with the provisions of the Escrow Agreement (if applicable),
this Article VI and Schedule 6.2 (if applicable), and (iii) such Indemnified
Person shall be reimbursed in accordance with the provisions of the Escrow
Agreement (if applicable), this Article VI and Schedule 6.2 (if applicable), for
any such Damages for which it is entitled to indemnification pursuant to this
Article VI (subject to the right of the Indemnification Representative or the
Buyer, as the case may be, to dispute the Indemnified Person's entitlement to
indemnification under the terms of the Escrow Agreement (if applicable), this
Article VI and Schedule 6.2 (if applicable).
(c) The Indemnified Person shall give prompt written notification to
the Indemnification Representative or the Buyer, as the case may be, of the
commencement of any action, suit or proceeding relating to a third party claim
for which indemnification pursuant to this Article VI may be sought; provided,
however, that no delay on the part of the Indemnified Person in notifying the
Indemnification Representative or the Buyer, as the case may be, shall relieve
the Stockholders or the Buyer, as the case may be, of any liability or
obligation hereunder except to the extent of any damage or liability caused by
or arising out of such failure. Within thirty (30) days after delivery of such
notification, the Indemnification Representative or the Buyer, as the case may
be, may, upon written notice thereof to the Indemnified Person, assume control
of the defense of such action, suit or proceeding provided the Indemnification
Representative or the Buyer, as the case may be, acknowledges in writing to the
Indemnified Person that any damages, fines, costs or other liabilities that may
be assessed against the
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<PAGE>
Indemnified Person in connection with such action, suit or proceeding constitute
Damages for which the Indemnified Person shall be entitled to indemnification
pursuant to this Article VI. If the Indemnification Representative or the Buyer,
as the case may be, does not so assume control of such defense, the Indemnified
Person shall control such defense. The party not controlling such defense may
participate therein at its own expense; provided that if the Indemnification
Representative or the Buyer, as the case may be, assumes control of such defense
and the Indemnified Person reasonably concludes that the indemnifying parties
and the Indemnified Person have conflicting interests or different defenses
available with respect to such action, suit or proceeding, the reasonable fees
and expenses of counsel to the Indemnified Person shall be considered "Damages"
for purposes of this Agreement. The party controlling such defense shall keep
the other party advised of the status of such action, suit or proceeding and the
defense thereof. The Indemnified Person shall not agree to any settlement of
such action, suit or proceeding without the prior written consent of the
Indemnification Representative or the Buyer, as the case may be, which shall not
be unreasonably withheld. The Indemnification Representative or the Buyer, as
the case may be, shall not agree to any settlement of such action, suit or
proceeding without the prior written consent of the Indemnified Person, which
shall not be unreasonably withheld.
6.3 Satisfaction and Treatment of Indemnity Payments.
------------------------------------------------
(a) In the event that the Stockholders are required to provide
indemnification hereunder to the Buyer Indemnified Persons, such indemnification
obligations shall be satisfied solely by the delivery of shares of Buyer
Preferred Stock held in the Escrow (valued at $2.796194 per share) in accordance
with the terms of this Agreement and the Escrow Agreement. Any payment so made
to a Buyer Indemnified Person pursuant to this Article VI or the Escrow
Agreement shall be treated as a reduction in the Merger Consideration.
(b) In the event that the Buyer is required to provide indemnification
hereunder to one or more of the Seller Indemnified Persons, such indemnification
obligations shall be satisfied solely by the issuance to such Seller Indemnified
Persons, at no additional consideration, pro rata in accordance with their
ownership of BioSupplyNet Stock, of additional shares of Buyer Preferred Stock
(the "Additional Shares") (valued at $2.796194 per share of Buyer Preferred
Stock) in accordance with the terms of this Agreement and Schedule 6.2. Any
payment so made to a Seller Indemnified Person pursuant to this Article VI shall
be treated as an increase in the Merger Consideration. Notwithstanding anything
in this Agreement to the contrary, Harris shall be entitled to utilize any legal
or equitable means at its disposal to enforce its right to repayment of Working
Capital Loans in cash in accordance in Section 5.1 hereof.
(c) No indemnification for any Buyer Damages or Seller Damages, as the
case may be, shall be made by the Stockholders or the Buyer pursuant to the
Escrow Agreement (if applicable), Schedule 6.2 (if applicable) or this Article
VI until the aggregate amount of all Buyer Damages or Seller Damages, as the
case may be, first exceeds $10,000 (the "Indemnification Minimum"), in which
event the Stockholders or the Buyer, as the case may be, shall be liable for the
aggregate amount of such Buyer Damages or Seller Damages, which amount shall
include the Indemnification Minimum.
27
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6.4. Survival. The representations and warranties set forth in this
--------
Agreement shall survive the Closing and the consummation of the transactions
contemplated by this Agreement and continue until the first anniversary of the
Closing (the "Termination Date"). If a notice is given in accordance with the
Escrow Agreement, this Article VI or Schedule 6.2 before the Termination Date,
then the representation or warranty applicable to such claim shall survive
until, but only for purposes of, the resolution of such claim.
6.5 Limitation.
----------
(a) Notwithstanding anything to the contrary herein, the sole and
exclusive remedy for indemnification claims by the Buyer or Acquisition under
this Article VI is the Escrow and the aggregate liability of the Stockholders
for Buyer Damages under this Article VI shall not exceed the total number of
shares of Buyer Preferred Stock held in the Escrow. No Stockholder shall have
any right of contribution against BioSupplyNet with respect to any breach by
BioSupplyNet of any of their representations, warranties, covenants or
agreements.
(b) Notwithstanding anything to the contrary herein, the total
liability of the Buyer for Seller Damages under this Article VI shall not exceed
a maximum aggregate number of Additional Shares equal to the total number of
Escrowed Shares placed in the Escrow at Closing (as such number of Escrowed
Shares may be adjusted from time to time to reflect stock splits, stock
dividends, recapitalizations, reorganizations or similar transactions affecting
the Buyer Preferred Stock), and the sole and exclusive remedy for
indemnification claims by the Stockholders, or any of them, under this Article
VI is the issuance of the Additional Shares.
ARTICLE VII
MISCELLANEOUS
7.1 Survival of Representations. All representations and warranties of the
---------------------------
parties hereto contained in this Agreement or otherwise made in writing in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement and the Closing for a period of one (1) year.
7.2 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, whether or not the Merger is consummated; provided,
--------
however, that any investment banking, legal, accounting and other out-of-pocket
- -------
fees and expenses in connection with the Merger incurred by BioSupplyNet in
excess of $12,000 shall be paid directly by the Stockholders.
7.3 Publicity. No party to this Agreement shall issue any press release
---------
or public disclosure relating to the subject matter of this Agreement or the
terms hereof without the prior written approval of the Buyer. Any press
releases or other announcements concerning the transactions contemplated by this
Agreement shall be approved by the Buyer prior to their issuance.
28
<PAGE>
7.4 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two (2)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, one (1) business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to BioSupplyNet: Copy to:
------------------ -------
BioSupplyNet, Inc. Skadden, Arps, Slate, Meagher &
10 Skyline Drive Flom LLP
Plainview, NY 11803 One Beacon Street, 31/st/ Floor
Attn: Lyle A. Brecht Boston, MA 02108
Attn: Kent Coit, Esq.
If to the Buyer: Copy to:
--------------- -------
SciQuest, Inc. Hutchison & Mason PLLC
4100 Betterton Drive 4011 Westchase Boulevard
Raleigh, North Carolina 27613 Suite 400
Attn: President Raleigh, North Carolina 27607
Attn: Helga L. Leftwich, Esq.
If to Acquisition: Copy to:
----------------- -------
SciQuest Acquisition, Inc. Hutchison & Mason PLLC
4100 Betterton Drive 4011 Westchase Boulevard
Raleigh, North Carolina 27613 Suite 400
Attn: President Raleigh, North Carolina 27607
Attn: Helga L. Leftwich, Esq.
Any party to this Agreement may give any notice, request, demand, claim, or
other communication hereunder using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner set forth in this Agreement.
7.5 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Delaware applicable to agreements made and to be performed entirely
within such state.
29
<PAGE>
7.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any of the parties hereto
without the prior written consent of all other parties hereto, and any purported
assignment without such consent shall be void.
7.8 Third Party Beneficiaries. None of the provisions of this Agreement
-------------------------
or any document contemplated hereby is intended to grant any right or benefit to
any person or entity which is not a party to this Agreement, except the
Stockholders and, under Section 5.1 hereof, Harris (which shall be entitled to
enforce the provisions of Section 5.1 against Buyer in accordance with its
terms, and the parties hereto acknowledge and agree that neither this Section
7.8 nor Section 5.1 may be amended without the express written consent of
Harris).
7.9 Headings. The Article and Section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement.
7.10 Amendments. Any waiver, amendment, modification or supplement of or
----------
to any term or condition of this Agreement shall be effective only if in writing
and signed by a majority in interest of the Stockholders and by all parties
hereto, and the parties hereto waive the right to amend the provisions of this
Section orally. Any amendment effected subsequent to the Stockholders' Consent
shall be subject to the restrictions contained in the Delaware General
Corporation Law. No waiver of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
7.11 Severability. In the event that any provision in this Agreement
------------
shall be determined to be invalid, illegal or unenforceable in any respect, the
remaining provisions of this
Agreement shall not be in any way impaired, and the illegal, invalid or
unenforceable provision shall be fully severed from this Agreement and there
shall be automatically added in lieu thereof a provision as similar in terms and
intent to such severed provision as may be legal, valid and enforceable.
7.12 Entire Agreement. This Agreement and the Schedules and Exhibits
----------------
hereto, constitute the entire Agreement between the parties hereto pertaining to
the subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings between the parties with respect to such subject
matter.
30
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its duly authorized officer as of the date first above written.
BUYER:
SCIQUEST, INC.
By: /s/ Scott Andrews
----------------------------
Scott Andrews
President
ACQUISITION:
SCIQUEST ACQUISITION, INC.
By: /s/ Scott Andrews
----------------------------
Scott Andrews
President
BIOSUPPLYNET:
BIOSUPPLYNET, INC.
By: /s/ Lyle Brecht
----------------------------
Lyle Brecht
President
31
<PAGE>
List of Exhibits and Schedules
------------------------------
for Merger Agreement
--------------------
Dated September 28, 1998
------------------------
By and Among
------------
SciQuest, Inc., SciQuest Acquisition, Inc., and BioSupplyNet, Inc.,
-------------------------------------------------------------------
Exhibits:
- --------
Exhibit A Escrow Agreement
Exhibit B Legal Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit C Form of Non-Disclosure, Invention and Non-Competition Agreement
Exhibit D Amendment Agreement with Cold Spring Harbor Laboratory
Exhibit E Form of Irrevocable Proxy
Exhibit F Form of Stockholder Investment Representation Letter
Exhibit G Major Stockholder Agreements
Exhibit H Registration Rights Agreement
Exhibit I Legal Opinion of Hutchison & Mason PLLC
Exhibit J Warrants
Schedules:
- ---------
Schedule 1.7 Options
Disclosure Schedules for BioSupplyNet, Inc.
Disclosure Schedules for SciQuest, Inc.
Schedule 6.2 Procedures for Indemnification
<PAGE>
EXHIBIT 10.18
LEASE AGREEMENT BY AND BETWEEN
DUKE-WEEKS REALTY LIMITED PARTNERSHIP, as Landlord
AND
SCIQUEST.COM, INC., as Tenant
AT
ENTERPRISE CENTER II,
MORRISVILLE, NORTH CAROLINA
<PAGE>
TABLE OF CONTENTS
-----------------
1. PREMISES AND TERM.
2. BASE RENT, EXPENSES, AND LETTER OF CREDIT.
3. UTILITIES.
4. COMPLIANCE WITH LAWS AND USE.
5. REPAIR AND MAINTENANCE.
6. ALTERATIONS.
7. SIGNS.
8. INSPECTION.
9. ASSIGNMENT AND SUBLETTING.
10. FIRE AND CASUALTY DAMAGE.
11. LIABILITY AND INSURANCE.
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. COVENANT OF TENANT.
26. MISCELLANEOUS.
EXHIBIT A - THE LAND
EXHIBIT B - FLOOR PLAN
EXHIBIT C - FINAL PLANS AND SPECIFICATIONS
EXHIBIT C-1 - PRELIMINARY PLANS AND SPECIFICATIONS
EXHIBIT C-2 - PROJECT SCHEDULE
EXHIBIT D - RULES AND REGULATIONS
EXHIBIT E - SIGN CRITERIA
2
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), is made and entered into as of the 19th
-----
day of October, 1999, by and between DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an
Indiana limited partnership (the "Landlord"), and SCIQUEST.COM, INC. (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 as described below
(referred to herein collectively as the "Premises") in a building known as
Enterprise Center II (the "Building") on certain land (the "Land") in the
-------- ----
County of Wake, Town of Morrisville, 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. The Premises shall include the following space:
(i) Approximately 17,601 rentable square feet (the "Phase I Expansion
Space")
(ii) Approximately 27,200 rentable square feet (the "Phase II Expansion
Space")
(iii) Approximately 24,175 rentable square feet (the "Phase III Expansion
Space").
(iv) Approximately 24,153 rentable square feet (the "Phase IV Expansion
Space").
All measurements of the Premises shall be performed using the dripline
standard of Landlord.
A floor plan of the Premises is attached hereto and made a part
hereof as Exhibit B. Except as provided herein, Tenant is leasing the
---------
Premises "as is." 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 latent defects, and to a punchlist of items requiring repair
which shall be prepared by Landlord and Tenant on the Phase I Commencement
Date (as defined below). 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 Phase I 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.
Any 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 using building standard materials of
Landlord. The Plans are subject to the mutual and reasonable approval of
Landlord and Tenant, and upon the mutual and reasonable approval of
Landlord and Tenant, a copy of the Plans shall be attached hereto and made
a part hereof as Exhibit C. Preliminary plans and specifications for the
---------
Premises are attached hereto and made a part hereof as Exhibit C-1. Upon
-----------
the attachment of Exhibit C, Exhibit C-1 shall be null and void. A schedule
--------- -----------
for the completion of the upfit of the Premises is attached hereto and made
a part hereof as Exhibit C-2. Each party shall act in good faith and
-----------
respond promptly to any request of the other party hereto for approval of
any portion of the Plans. Landlord shall provide Tenant with an upfit
allowance for the Premises at the rate of $1.00 per rentable square foot
per year of the Lease term to complete the upfit in accordance with the
mutually approved Plans (the "Upfit Allowance"). Any cost and expense
---------------
incurred by Landlord in upfitting the Premises in excess of the Upfit
Allowance (the "Excess") due to modifications to the Plans requested by
------
Tenant shall be borne by Tenant and payable by Tenant to Landlord within
thirty days of demand therefor. Failure by Tenant to pay any portion of the
Excess as aforesaid is an event of default hereunder and shall entitle
Landlord to exercise all remedies available at law, or in equity for such
event of default. Each party shall act in good faith and respond promptly
to any request of the other party hereto for approval of any portion of the
Plans.
3
<PAGE>
Tenant shall have the right to use architectural, engineering, and
contracting providers of its selection for the performance of the design
and construction work at the Premises but Tenant shall allow the related
entities of Landlord to bid to perform such services. Should Tenant hire a
general contractor for the upfit of the Premises other than Duke-Weeks
Construction Services, Inc., Landlord shall charge a three percent
supervisory fee for its review of the work performed at the Premises.
Should Tenant fail to exhaust the Upfit Allowance in its upfit of the
Premises, the base rent over the term of the Lease shall be adjusted in an
equal amount each month as shall be mutually and reasonably determined by
the parties hereto. Tenant shall have no further rights to use the Upfit
Allowance after the first anniversary of the Phase I Commencement Date.
Landlord shall ensure that all Building systems are in good and
working order as of the Phase I Commencement Date.
(b) TERM.
----
TO HAVE AND TO HOLD the same for a term as follows:
(i) the term of this Lease for the Phase I Expansion Space shall commence
upon the date that a temporary certificate of occupancy is issued for same
by the Town of Morrisville, NC (the "Phase I Commencement Date"),
-------------------------
(ii) the term of this Lease for the Phase II Expansion Space shall
commence upon the date which is sixty days after the Phase I Commencement
Date (the "Phase II Commencement Date"), and
--------------------------
(iii) the term of this Lease for the Phase III Expansion Space shall
commence upon the date which is ninety days after the Phase I Commencement
Date (the "Phase III Commencement Date"), and
---------------------------
(iv) the term of this Lease for the Phase IV Expansion Space shall commence
upon the end of the term of the sublease by and between Tenant and Applied
Innovation, Inc. which is scheduled for February 9, 2002 (the "Phase IV
--------
Commencement Date").
-----------------
The term of the Lease for the Premises shall end on the date which is
sixty-three (63) months after the Phase I Commencement Date, (the
"Termination Date") unless sooner terminated pursuant to the provisions
-----------------
hereof.
The commencement date of any portion of the Premises, and Termination
Date of same may be extended, at the option of the Landlord, due to delays
beyond the control of Landlord, including, but not limited to, permitting,
availability of materials, acts of God, delays caused by Tenant, its
agents, employees, invitees, licensees, or independent contractors, and/or
inclement weather (collectively, "Excused Delays"). In the event the
--------------
Commencement Date for the Phase I Expansion Space has not occurred by March
1, 2000 (with such date being extended for any Excused Delays), Landlord
shall credit against the first installment(s) of base rent due hereunder
from Tenant an amount equal to one day's base rent for each day the
Commencement Date for the Phase I Expansion Space is delayed beyond March
1, 2000. The aforesaid monetary amounts shall act as a full and complete
remedy to Tenant for the delay by Landlord in delivering the Premises. In
the event the Commencement Date for the Phase I Expansion Space has not
occurred by March 1, 2000 due to delays caused by Tenant, its agents,
employees, invitees, licensees, or independent contractors (a "Tenant
------
Delay"), including, but not limited to, the failure of Tenant to deliver
the Security (as hereinafter defined) to Landlord in accordance with the
provisions of Paragraph 2(f) below, Tenant shall remit to Landlord on or
prior to the Phase I Commencement Date one day of base rent for each day of
delay beyond March 1, 2000.
(c) OPTION TO RENEW. Tenant shall have the option to renew the term
---------------
of the Lease for one renewal period (the "Renewal Term") of three (3) lease
------------
years in
4
<PAGE>
duration, provided that Tenant shall not be in default under the Lease on
the date such rights are exercised, or on the date the Renewal Term shall
commence. The date of the commencement of the Renewal Term shall be the day
after the expiration of the then current term of the Lease, as renewed
(unless sooner terminated as provided herein).
All terms and conditions of this Lease shall be in effect during the
Renewal Term, except that (i) the base rent paid by Tenant during the
Renewal Term shall increase each lease year by three percent over the base
rent paid the previous lease year, as reasonably determined, and (ii) upon
the exercise of the right to renew for the Renewal Term, all rights of
Tenant to renew the term of this Lease shall lapse. Tenant shall deliver
Landlord written notice of its election to exercise its option to renew no
less than nine (9) months prior to the expiration of the then current Lease
term; failing which Tenant's right to renew for the Renewal Term shall be
null and void. Notwithstanding the foregoing, in no event shall the base
rent due and payable by Tenant during the Renewal Term be less than the
base rent paid the final year of the initial term hereof. This option to
renew is personal to Tenant and shall not inure to the benefit of any
successor or assign of Tenant.
(d) FUTURE SPACE. Provided there is no default or event of default
------------
under this Lease by Tenant at the time such right is exercised or upon the
Election Date (as defined below), and that upon Tenant's notice ("Notice")
------
to Landlord sent after January 1, 2002 of its need for a minimum of 40,000
additional rentable square feet (the "Future Space"), Landlord shall notify
------------
Tenant within three months of its receipt of the Notice that Landlord shall
be unable to provide space for the expansion of Tenant in the Building, or
the relocation of Tenant to any other building owned by Landlord or a
related entity of Landlord within twelve months of the receipt by Landlord
of the Notice (the "Landlord Notice"), Tenant shall have the right and
---------------
option to terminate this Lease by providing Landlord written notice of such
termination within ten business days of its receipt of the Landlord Notice.
The Notice shall advise Landlord as to whether or not Tenant desires multi-
story or single-story space; if multi-story, the yield to Landlord shall be
eleven and one-quarter percent (11.25%), and if single-story, the yield to
Landlord shall be eleven and one-half percent (11.50%). If Tenant shall
elect to terminate this Lease as aforesaid and provided that all of the
aforesaid conditions precedent are satisfied in full by Tenant, this Lease
shall terminate as of January 1, 2003 (the "Election Date"). In the event
-------------
Tenant elects to terminate this Lease in accordance with the terms hereof,
Tenant shall vacate the Premises on or prior to the Election Date in
accordance with the terms of this Lease, remove its personal property
therefrom in accordance with the terms of this Lease, this Lease shall
terminate, and the parties hereto shall have no further liability to each
other hereunder except as expressly provided herein. Tenant acknowledges
and agrees that in order for Landlord to provide the Future Space to
Tenant, the term remaining under the initial lease term shall be extended
for a period of seven years from the date of occupancy of the New Space.
Should Landlord be able to provide the Future Space as aforesaid, and
should (i) the parties hereto enter into a lease agreement (the "New
---
Lease") for a space with a rentable square footage at least equal to that
-----
of the Premises and the Future Space (collectively, the ("New Space"), and
---------
upon such additional terms as the Landlord and Tenant shall mutually agree,
(ii) Tenant enter into occupancy of the New Space, and (iii) there be no
default or event of default by Tenant under the New Lease, or this Lease on
the date the New Space is delivered by Landlord to Tenant for occupancy
thereunder, this Lease shall terminate, and the parties hereto shall have
no further liability to each other hereunder, except as expressly provided
herein.
Should Tenant fail to comply with the conditions precedent to the exercise
of its right under this subparagraph (d) strictly in accordance with this
subparagraph (d), the rights provided to Tenant hereunder shall be null and
void and of no further force and effect.
5
<PAGE>
2. BASE RENT, TAXES, INSURANCE, CAM EXPENSE, AND SECURITY DEPOSIT.
--------------------------------------------------------------
(a) BASE RENT.
---------
Commencing upon the Phase I Commencement Date and continuing until the
Termination Date, 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 following
amounts:
Time Period Base rent per rentable square foot
For fifteen months following the Phase I Commencement Date $ 8.50
For months sixteen thru twenty-seven thereafter $ 8.76
For months twenty-eight thru thirty-nine thereafter $ 9.02
For months forty thru fifty-one thereafter $ 9.29
For months fifty-two thru sixty-three thereafter $ 9.57.
Rent payments for any fractional calendar month at the end, or the
beginning of the term of the Lease, shall be prorated. Notwithstanding the
foregoing, no base rent shall be due and payable for the (i) Phase II
Expansion Space until the first day of the third month after the Phase II
Commencement Date, and (ii) Phase III Expansion Space until the first day
of the fourth month after the Phase III Commencement Date.
(b) TAXES.
-----
Beginning on the Phase I 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 $.56 per square
foot per year.
(c) INSURANCE EXPENSE.
-----------------
Beginning on the Phase I 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 $.02 per square
foot per year.
(d) CAM EXPENSE.
-----------
Beginning on the Phase I 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, reasonable
management and supervisory fees,
6
<PAGE>
exterior lighting maintenance, snow removal, repair and maintenance of
paved areas, cleaning supplies, miscellaneous building supplies, sweeper
brushes, 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 costs for exterior
lighting and lighting in common areas, 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, heat, air conditioning,
labor, materials, supplies, equipment and tools, permits, licenses,
inspection fees, window glass replacement and repair, compensation
(including employment taxes and fringe benefits) of all persons who perform
actual duties in connection with the operation and/or maintenance of the
Building, and costs for janitorial expense, maintenance, repair, and
replacement of HVAC systems and other Building systems, and trash removal
from the Premises (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 $1.28 per square
foot per year.
(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 thirty (30) 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 thirty (30)
days following receipt by Tenant of Landlord's letter.
(f) SECURITY FOR LEASE OBLIGATIONS. To secure the performance by
------------------------------
Tenant of its duties and obligations under this Lease, Tenant shall provide
to Landlord on or prior to the date that Landlord shall commence the upfit
of the first portion of the Premises one of the following, as approved by
Landlord, in its sole discretion, in form and substance: (i) a clean,
irrevocable, and unconditional letter of credit for the account of Tenant
and payable to the order of Landlord, its successor and assigns, as
beneficiary in the Required Amount (as hereinafter defined) from a
financial institution acceptable to Landlord (the "Letter of Credit"), (ii)
----------------
an escrow of the Required Amount with Investors Title Insurance Corporation
(the "Title Company"), pursuant to an escrow agreement by and among the
-------------
Title Company, Tenant, and Landlord, its successors and assigns (the
"Escrow Account") under which Landlord may draw unilaterally upon the
---------------
letter of credit upon written notice to the Title Company, or (iii) a cash
deposit to Landlord in the amount of $500,000.00 to be held by Landlord in
an interest-bearing account (the "Security Deposit"). The Letter of
----------------
Credit, Security Deposit, and the Escrow Account shall be referred to
herein collectively as the "Security". The Security shall act to secure
--------
all of the duties and obligations of Tenant under this Lease for the term
of this Lease, and any extensions or renewals thereof, and may be pursued
by Landlord for any default or event of default hereunder by Tenant. The
Required Amount shall be $500,000.00.
7
<PAGE>
Provided there is no default or event of default hereunder, Landlord shall
advise Tenant in writing that the Required Amount shall be reduced on each
anniversary of the Phase III Commencement Date by twenty percent of the
Required Amount. Should there be a default or event of default at the time
of the scheduled reduction, or at any time prior thereto, Landlord shall
not be required to reduce the Required Amount. Notwithstanding the
foregoing, if the net worth of Tenant as computed in accordance with
generally accepted accounting principles, shall equal or exceed
$30,000,000.00, Landlord shall release the Security to Tenant; provided,
however, if at any time during the term of this Lease, and any renewals or
extensions hereof, the net worth of Tenant shall be less than
$30,000,000.00, Tenant shall be required to deliver the Security in the
current Required Amount to Landlord within thirty days of the date that the
net worth of Tenant falls below $30,000,000.00. If Tenant shall fail to
deliver the Security to Landlord within thirty days of the date that the
net worth of Tenant falls below $30,000,000.00, it shall be an event of
default hereunder, without the requirement of notice or any cure period by
Landlord to Tenant.
Any portion of the Security which has not been appropriated by
Landlord in accordance with the provisions hereof shall be released to
Tenant upon the Termination Date.
If Landlord conveys Landlord's interest under this Lease, the
Security, 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 Paragraph 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.
Any mortgagee or ground lessor shall not be responsible to Tenant for
the return or application of the Security, whether or not it succeeds to
the position of Landlord hereunder, unless the Security shall have been
received in hand by such mortgagee or ground lessor. Landlord shall
endeavor to provide Tenant with written notice of any transfer of the
Security but shall not be in default hereunder due to any failure to do so.
Any fee due and payable for the Escrow Account shall be paid by
Landlord.
(g) PROVISIONS TO SURVIVE LEASE TERMINATION.
---------------------------------------
Any unperformed obligations of Landlord and Tenant under this
Paragraph 2 shall survive the termination of the Lease, for whatever
reason, or any extension or renewal hereof.
3. UTILITIES.
----------
(a) 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.
(b) Landlord shall in no event be liable for any interruption or
failure of utility services on the Premises unless any such interruption or
failure is due to the negligence or willful acts of Landlord and in such
event the sole liability of Landlord shall the costs to restore same.
Landlord agrees to provide at its cost, all utility line connections and
metering of services into the Premises.
4. COMPLIANCE WITH LAWS AND USE.
----------------------------
(a) The Premises shall be used only for the following purposes: the
operation of a company conducting business over the internet and general
office use related thereto. Tenant shall conduct no activity that will
result in the discharge of harmful gases, effluents or other wastes or
toxic substances. Outside storage, including, without limitation, trucks
and other vehicles, is prohibited without Landlord's prior written
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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 in all material respects with all governmental laws, ordinances and
regulations relating to the use of the Premises, 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 as
required in the ordinary course of the operation of the business of Tenant
and in compliance with all applicable laws. 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 ("ADA"), and with recorded covenants, conditions and
restrictions applicable for the Land and Building.
(c) Landlord shall use all reasonable efforts to ensure that as of
the Phase I Commencement Date, the Premises are in compliance with all
applicable laws. Landlord warrants and represents that the upfit of the
Premises performed by Landlord shall be free from any defect in materials
used or workmanship performed for a period of one year from the Phase I
Commencement Date.
5. REPAIRS AND MAINTENANCE.
------------------------
(a) Landlord shall maintain, repair and replace only the roof,
downspouts, gutters, foundation, utility lines located outside the Premises
and the structural soundness and sufficiency for water repellence of the
exterior walls and exterior doors of the Building in good operating
condition, repair, reasonable wear and tear excepted. Tenant shall repair,
replace and pay for, any damage to the foregoing caused by the negligence
of 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, exterior 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, or which have been
damaged due to the negligence or willful acts of Landlord) in good
condition except for ordinary wear and tear, 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 from the Premises. Tenant shall not be
obligated to repair any casualty covered by the insurance to be maintained
by Landlord pursuant to subparagraph 10(a) below.
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(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 and the removal of all trash and debris. 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 thirty 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.
(f) Tenant and its employees, customers and licensees shall have the
non-exclusive right to use the parking areas 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. 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. Tenant shall have the non-exclusive right to use parking on the
Land of up to four parking spaces per each 1,000 rentable square foot of
the Premises.
6. ALTERATIONS.
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(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. 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,
Landlord shall so notify Tenant and if Tenant shall fail to correct same
within ten days of demand made therefor, 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,
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agents, invitees, or contractors to the Premises unless such requirement is
in writing by Landlord at the time of termination of the Lease. Should
Tenant fail to conduct any such repair within ten business 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.
7. SIGNS. All signage of Tenant is subject to prior approval in writing
-----
by Landlord 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. The sign criteria of
Landlord is attached hereto and made a part hereof as Exhibit E.
---------
8. 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 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 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 Premises 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.
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 Landlord shall not unreasonably withhold;
provided, however, Tenant shall have the right to sublease its interest in the
Phase II Expansion Space for a term not to exceed twenty-four months from the
Phase I Commencement Date. Tenant shall not have the right to subdivide the
Phase III Expansion Space in preparing it for sublease as aforesaid, and if
Tenant should receive rent from any subtenant of the Phase III Expansion Space
during any period of time that Tenant is not paying rent for such space to
Landlord, Tenant shall remit all rent due and payable from a subtenant to
Landlord. 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.
In no event shall this Lease be assignable by operation of any law, and
Tenant's rights hereunder may not become, and shall not be listed by Tenant as
an asset under any bankruptcy, insolvency, or reorganization proceedings. 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 one-half of the full excess of each such payment of rent or other
consideration (net of leasing commissions and upfit costs) received by Tenant
promptly after its receipt.
Tenant shall provide Landlord with prior written notice of any change in
its ownership, or management; provided, however, upon becoming a publicly traded
company, Tenant shall not be required to notify Landlord of changes in
ownership. In the event of any change in management of Tenant, whether or not
Tenant has notified Landlord thereof, Landlord may terminate this
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Lease by notice to Tenant effective ninety (90) days from the date of such
notice from Tenant, or the date on which Landlord first has knowledge of such
transfer, whichever shall first occur; provided, however, if such change in
ownership or management does not have a material adverse effect on the financial
or operating condition of Tenant, as reasonably determined by Landlord, Landlord
shall not have the right to terminate this Lease.
If Tenant is a partnership and if any partner or partners withdraw from the
partnership, or if the partnership is otherwise dissolved, Tenant shall so
notify Landlord. In the event of such withdrawal or dissolution, Landlord may
terminate this Lease by notice to Tenant effective thirty (30) days from the
date of such notice from Tenant or the date on which Landlord first has
knowledge of such withdrawal or dissolution, whichever shall first occur.
Notwithstanding any provision of this Lease to the contrary, should Tenant
receive consent from Landlord to sublease or assign all or a portion of 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 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) and 10(e) 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.
(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.
(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 unless
any of same was paid for from the Upfit Allowance. 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 reasonably determined by Landlord and Tenant.
(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 as
of the date of the casualty by delivering written notice of termination to
Tenant within fifteen (15) days after such requirement is made by any such
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holder, whereupon all rights and obligations hereunder thereafter accruing
shall cease and terminate.
(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 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 occasioned by
force majeure.
(i) Should Landlord fail to complete the repair and restoration
described above within the time periods provided above, as extended due to
force majeure (the "Estimated Completion Date"), and provided there is no
default or event of default hereunder by Tenant, Tenant shall have the
right to terminate this Lease by written notice to Landlord provided no
later than five days prior to the Estimated Completion Date.
11. LIABILITY AND INSURANCE. 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 gross negligence, 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 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.
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 a breach by Landlord of any provision of this Lease, or the
operation by Landlord of the Building.
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
13
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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 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 satisfactory to Landlord. Certificates with respect to such policies
(provided the certificates provide satisfactory evidence of the coverage
included with no exclusions), together with receipt evidencing payments of
premiums thereof, shall be delivered to Landlord prior to the Phase I
Commencement Date. Not less than fifteen (15) days prior to the expiration date
of any such policies, certified copies of the renewals thereof (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 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.
(b) If a portion of the Premises 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.
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-quarter (1-1/4) 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.
(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 loss by
insured casualty that is the responsibility of Landlord to repair excepted,
and Tenant shall remove its personal property from the Premises in
accordance with this Lease. Should any of the personal property or trade
14
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fixtures of Tenant remain upon the Premises five days 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 therefore, and Tenant hereby releases Landlord from all liability
therefor.
14. QUIET ENJOYMENT. 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, 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, the aforesaid five day period shall be extended to
ten days for any one instance in a twelve month period in which Tenant
shall make a payment after the five day 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; 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.
(e) Tenant shall vacate all or a portion 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, Landlord shall act reasonably to provide Tenant with additional
time to effect any such cure if Tenant shall have proceeded to complete a
cure and shall be acting diligently and in good faith but no more than an
additional fifteen days.
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
15
<PAGE>
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.
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 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
16
<PAGE>
was executed before or after said mortgage or deed of trust. Tenant shall at any
time hereafter on demand execute and provide to Landlord within five business
days of a request therefor, 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. At the written request of Tenant, Landlord shall act reasonably to
obtain a subordination, attornment, and nondisturbance agreement in customary
form from any lender with a lien upon the Land.
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 in connection with any work performed on the Premises 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 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 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
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:
Duke-Weeks Realty Limited Partnership
1800 Perimeter Park Drive
Suite 200
Morrisville, North Carolina 27560
Attention: Mr. Robert Cutlip
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With a copy to:
Dave Lindner
Duke-Weeks Realty Limited Partnership
1800 Perimeter Park Drive
Suite 200
Morrisville, NC 27560
Cathy M. Rudisill, Esq.
Smith Helms Mulliss & Moore, L.L.P.
2800 Two Hannover Square
Raleigh, NC 27601
TENANT:
SciQuest.Com, Inc.
5151 McCrimmon Parkway
Morrisville, NC 27560
With a copy to:
Fred Hutchison, Esq.
Hutchison and Mason, PLLC
3110 Edwards Mill Road
Suite 100
Raleigh, NC 27612
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 Corporate Realty Advisors, 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 Corporate Realty Advisors, 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 the contrary
--------------------
contained in this Lease, Tenant agrees and understands that Tenant shall look
solely to the estate and property of Landlord in the Building 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
Lease, 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
18
<PAGE>
such default or breach, this exculpation of liability to be absolute and without
exception whatsoever.
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 with respect to which Landlord
notifies Tenant.
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 as required in the ordinary
course of the operation of the business of Tenant and in compliance with
all Applicable Laws (as defined below). 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.
(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.
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(e) To the best of the knowledge of the Landlord, no Hazardous
Materials shall have been released or discharged upon the Premises, or used
in the construction of the Premises prior to the Commencement Date, and
Landlord shall indemnify, defend and hold harmless Tenant of and from any
inaccuracy in the foregoing representation.
25. 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.
26. 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 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 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 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 accrued and unperformed obligations of Tenant and Landlord
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. 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 for 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, 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
20
<PAGE>
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 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 shall 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)
after written notice by Tenant to Landlord, and to any mortgagee with a
lien on the Land or the Building, properly specifying wherein Landlord has
failed to perform any such duty or obligation. Neither party hereto shall
have any liability to the other party hereto for any incidental or
consequential damages of a party hereto, or anyone claiming by, through or
under a party hereto, 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.
21
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(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.
(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 ninety days of the close
of its fiscal year, and thereafter within ten days of the reasonable
request of Landlord, 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, and Landlord will agree
to maintain confidentiality of same and disclose only to its employees,
agents, and independent contractors with a need to know such information.
(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.
(x) The provisions of this Lease and any information regarding
Landlord, including, its upfit and construction process, and the materials
and standards used shall be maintained confidential by Tenant, its agents,
employees, officers, and legal and tax advisors; provided, however, Tenant
may (i) share the aforesaid information with its agents, employees,
officers, and legal and tax advisors with a need for such information
provided that all such persons have been advised of the requirement that
all such information be confidential to Landlord, or (ii) release any such
information as required by a court order, subpoena, or by applicable law.
Tenant acknowledges that the release of information concerning the contents
of this Lease, or regarding Landlord to existing or prospective tenants of
the Landlord or other third parties would cause damage to Landlord. Any
deliberate, willful or intentional violation of the terms of this
subparagraph (x) shall constitute an event of default under the Lease for
which Landlord shall have recourse to any and all of the remedies set forth
herein.
22
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IN WITNESS WHEREOF, the parties hereto have executed this Lease under
seal as of the day and year first above written.
LANDLORD:
DUKE-WEEKS REALTY LIMITED
PARTNERSHIP (SEAL), an Indiana
limited partnership
BY: DUKE-WEEKS REALTY
CORPORATION, an Indiana
corporation, its sole general partner
By: /s/ Robert G. Cutlip
--------------------------------------
Robert G. Cutlip,
Regional Executive Vice President
TENANT:
SCIQUEST.COM, INC.
By:______________________________________
Print Name:______________________________
Title:___________________________________
Witness/Attest:
________________________
Print Name:_____________
Title:__________________
[CORPORATE SEAL]
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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 II, 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.
24
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EXHIBIT B
FLOOR PLAN
25
<PAGE>
EXHIBIT C
PLANS AND SPECIFICATIONS
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND
TENANT.]
26
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EXHIBIT C-1
PRELIMINARY PLANS AND SPECIFICATIONS
27
<PAGE>
EXHIBIT C-2
PROJECT SCHEDULE
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND
TENANT.]
28
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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 bicycles, 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 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, walls, accessways, 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
29
<PAGE>
duplicate key or access card, as applicable, is delivered to Landlord. Tenant
shall, upon the termination of its tenancy (i) return to Landlord all keys for
the Premises and for any area of the Building, or common areas, either furnished
to, or otherwise procured by Tenant, (ii) restore the locks, walls, accessways,
windows, and doors to their original condition on the date of this Lease by
removing any security measures installed by Tenant, repairing any damage to the
Premises or to the Building as a result of the restoration and removal, and
(iii) in the event of the loss of any keys furnished to Tenant by Landlord,
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, and 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. In the event the Premises constitute an outdoor patio, exterior
generator area, or any open area adjacent to the Premises or on the Land
designated under the Lease for the exclusive use of Tenant, Tenant shall use
furniture and other equipment in any such areas in form, coloring, substance,
design and quality subject to the prior approval of Landlord. In addition, any
outdoor patio, exterior generator area, or other open area must be screened on
all sides using materials in form, substance, coloring, design, and quality are
subject to the prior approval of Landlord, and must be designed and constructed
in accordance in accordance with plans and specifications that are subject to
the prior approval of Landlord.
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. 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.
30
<PAGE>
EXHIBIT E
SIGN CRITERIA OF LANDLORD
31
<PAGE>
[Letterhead of Hughes, Pittman and Gupton LLP]
October 25, 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 Amendment No. 1 to the Company's Form S-1 dated October 26, 1999. We
agree with the statements concerning our Firm in such Amendment No. 1 to
Form S-1.
Very truly yours,
/s/Tim C. Gupton
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Amendment No. 1 to the 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
October 25, 1999
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