<PAGE>
As filed with the Securities and Exchange Commission on March 29, 2000
Registration No. 333-32582
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
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. Babak Yaghmaie, Esq.
Esq. Helga L. Leftwich, Esq. Nanci I. Prado, 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. [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US Federal Securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offers to buy them until +
+the registration statement filed with the SEC relating to these securities +
+has been declared effective by the SEC. This prospectus is not an offer to +
+sell these securities or our solicitation of your offer to buy these +
+securities in any jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - MARCH 29, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[LOGO OF SCIQUEST.COM]
SciQuest.com, Inc.
5,000,000 Shares of Common Stock
- --------------------------------------------------------------------------------
SciQuest.com, Inc.: The Offering:
. We provide a Web-
based, . We are offering
interactive 2,000,000 of the
marketplace for shares and the
scientific and selling
laboratory stockholders are
products. offering
3,000,000 of the
shares.
. 5151 McCrimmon
Parkway, Suite
208, Morrisville, . The underwriters
NC 27560 have an option to
purchase an
additional
750,000 shares
from us to cover
over-allotments.
Symbol and Market:
. SQST/Nasdaq
National Market
. The public
offering price is
$ per share.
. There is an
existing market
for these shares.
On March 27,
2000, the last
reported sale
price of our
common stock was
$36.125 per
share.
. Closing: ,
2000
--------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
----------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to SciQuest.com, Inc.:
Proceeds to selling stockholders:
----------------------------------------------------
</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
Chase H&Q
Deutsche Banc Alex. Brown
Banc of America Securities LLC
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray
William Blair & Company
E*OFFERING
DLJdirect Inc.
<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:
"Potential benefits from SciQuest.com include:"
"Scientists spend less time finding, comparing and purchasing
items."
"Purchasing professionals enjoy a streamlined purchasing process,
lower processing costs and better control."
"Suppliers expand their market reach, while reducing customer
acquisitions and order processing costs."
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 search, compare and order
from hundreds of suppliers."
"Custom Purchasing Solutions integrates SciQuest.com with customer
purchasing systems, offering pre-negotiated pricing from their
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. Such companies include:"
Below the above text is the following bulleted text (in two columns):
"Alltech Associates, Inc."
"Ambion, Inc."
"Amersham Pharmacia Biotech, Inc."
"BioWhittaker, a Cambrex Company"
"Endogen, Inc."
"NEN Life Science Products, Inc."
"PerkinElmer, Inc."
"Pierce Chemical Company; and"
"QIAGEN N.V."
"Shimadzu Scientific Instruments, 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
Price Range of Common Stock............................................. 18
Dividend Policy......................................................... 18
Capitalization.......................................................... 19
Dilution................................................................ 20
Unaudited Pro Forma Combined Financial Data............................. 21
Selected Consolidated Financial Data.................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 25
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business................................................................... 35
Management................................................................. 49
Related Party Transactions................................................. 57
Principal and Selling Stockholders......................................... 58
Description of Capital Stock............................................... 62
Shares Eligible for Future Sale............................................ 65
Underwriting............................................................... 67
Legal Matters.............................................................. 69
Experts.................................................................... 70
Change in Accountants...................................................... 70
Where You Can Find More Information........................................ 70
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.
i
<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, Inc. is a Web-based, interactive marketplace for scientific
and laboratory products used by pharmaceutical, clinical, biotechnology,
chemical, industrial and educational organizations worldwide. We have used our
extensive industry experience to design a marketplace that streamlines the
traditionally inefficient scientific products supply chain. Our marketplace
solutions allow buyers of scientific products to cross-search content and
purchase products from multiple suppliers with a single order. Our approach
does not give priority to any particular scientific products distributor, which
allows us to create an open and scalable marketplace that we believe is more
attractive to both buyers and suppliers. We do not carry inventory or directly
supply products.
Since our founding in 1995, we have developed a comprehensive online
database of over 8,000 suppliers with over 650,000 scientific products. Our
Web-based 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. Our e-commerce revenues were $3.0 million for the
year ended December 31, 1999, which represented approximately 77% of our total
revenues in this period. In the last quarter of 1999 and first quarter of 2000,
we 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: Alltech Associates, Inc., Ambion, Inc., Amersham
Pharmacia Biotech, Inc., BioWhittaker, a Cambrex Company, Endogen, Inc., NEN
Life Science Products, Inc., PerkinElmer, Inc., Pierce Chemical Company, QIAGEN
N.V. and Shimadzu Scientific Instruments, Inc. These relationships allow us to
provide thousands of essential non-commodity laboratory products and services
to our customers, which we expect will significantly contribute to the growth
and loyalty of our customer base. In that same period, we also entered into
strategic purchasing agreements with Dow Chemical Company, DuPont
Pharmaceuticals Company and Monsanto Company and a letter of intent with Merck
& Company, Inc. to be their third-party electronic aggregator for purchases of
scientific products in North America for a period of three years.
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 Web-based 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 was 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.
1
<PAGE>
As the demand for scientific products grows, the need for efficient
procurement processes becomes more critical. 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 our brand equity and enhance customer loyalty;
. maintain distributor-neutrality;
. deepen our customer relationships;
. leverage our strategic relationships with suppliers;
. expand our sales and marketing efforts internationally; and
. leverage our existing e-commerce infrastructure.
Recent Developments
In March 2000, we acquired EMAX Solution Partners, Inc., a provider of
electronic research solutions designed to optimize pharmaceutical drug research
operations and expedite drug discovery. The acquisition of EMAX enables us to
provide electronic and Internet-based solutions that are designed to streamline
the drug discovery processes of our customers, including large pharmaceutical,
biotechnology and life science companies, by integrating their supply chains
with critical research processes. In February 2000, we also acquired
SciCentral, Inc., which provides a gateway to online science and technology
resources, news and information, and in January 2000, we acquired Intralogix,
Inc., an Internet provider of chromatography content.
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....... 2,000,000 shares
Common stock offered by the selling
stockholders.............................. 3,000,000 shares
Common stock outstanding after this
offering.................................. 28,464,525 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.
Nasdaq Stock Market symbol................. SQST
</TABLE>
The share information is based on shares outstanding as of February 29,
2000. This information excludes:
. 4,375,825 shares of common stock issuable upon exercise of options
granted or to be granted under our stock incentive plans, of which
2,306,427 shares are subject to outstanding options or awards at a
weighted average exercise price of $15.32 per share;
. 5,887,517 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.01 per share, which
includes 5,035,180 warrants issued to strategic partners at $0.01 per
share; and
. 1,999,833 shares of common stock issued or reserved for issuance in
connection with the acquisition of EMAX.
Unless we indicate otherwise, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
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:
. 4,375,825 shares of common stock issuable upon exercise of options
granted under our stock option plan, of which 2,306,427 shares are
subject to outstanding options as of February 29, 2000 at a weighted
average exercise price of $15.32 per share;
. 5,887,517 shares of common stock issuable upon exercise of outstanding
warrants as of February 29, 2000 at a weighted average exercise price of
$1.01 per share, which includes 5,035,180 warrants issued to strategic
partners at $0.01 per share; and
. 1,999,833 shares of common stock issued or reserved for issuance in
connection with the acquisition of EMAX.
The pro forma statement of operations data for the year ended December 31,
1999 reflect the acquisition of EMAX as if it had occurred on January 1, 1999.
The pro forma net loss per common share reflects the conversion of our
preferred stock into common stock, which occurred upon the closing of our
initial public offering on November 19, 1999, as if such conversion occurred on
January 1, 1999 or the date of the issuance of the preferred stock, if later.
The pro forma net loss per common share on pro forma operating results assumes
the acquisition of EMAX occurred on January 1, 1999, and the resulting issuance
of 1,999,833 shares, in addition to reflecting the conversion of our preferred
stock into common stock, which occurred upon the closing of our initial public
offering on November 19, 1999, as if such conversion occurred on January 1,
1999 or the date of the issuance of the preferred stock, if later.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
Pro Forma
1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues............................... $ 196 $ 478 $ 3,882 $ 10,876
Gross profit........................... 196 436 456 7,449
Operating loss......................... (658) (4,356) (35,266) (78,067)
Net loss............................... $ (690) $(4,222) $ (33,178) $(75,767)
====== ======= ========= ========
Pro forma net loss per common share--
basic and diluted..................... $ (2.09) $ (4.25)
Pro forma weighted average common
shares outstanding.................... 15,846 17,846
Net loss available to common
stockholders.......................... $ (690) $(4,550) $(112,467)
====== ======= =========
Net loss per common share--basic and
diluted............................... $(0.20) $ (1.33) $ (18.10)
Weighted average common shares
outstanding........................... 3,412 3,412 6,215
</TABLE>
4
<PAGE>
The following balance sheet data is presented:
. on an actual basis;
. on an unaudited pro forma basis to reflect the acquisition of EMAX as if
it had occurred on December 31, 1999; and
. on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from our sale of 2,000,000 shares of our common stock at an
estimated public offering price of $36.125 per share, after deducting
underwriting discounts and commissions and offering expenses payable by
us.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $ 98,126 $100,193 $167,931
Working capital.................................. 119,983 121,374 189,112
Total assets..................................... 156,902 282,085 349,823
Long term liabilities............................ 1,257 1,540 1,540
Stockholders' equity............................. 149,819 272,156 339,894
</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
may not achieve profitability.
We incurred a net loss of $33.2 million for the year ended December 31,
1999. As of December 31, 1999, we had an accumulated deficit of $38.6 million.
If our acquisition of EMAX Solution Partners, Inc. had taken place on January
1, 1999, our pro forma net losses for the year ended December 31, 1999 would
have been $83.6 million. We expect to incur substantial operating losses and
continued negative cash flow from operations for the foreseeable future. In
fact, we expect these losses to increase significantly through at least
December 31, 2000 because, as part of our strategy to achieve profitability, we
intend to significantly increase our spending on items such as sales and
marketing, content development, technology and operating infrastructure. If
these expenses do not generate increased revenues, our earnings may be
materially and adversely affected and anticipated net losses may be greater
than expected. We may not be able to increase revenues sufficiently to achieve
profitability.
Unless a broad range of purchasers and suppliers of scientific products adopt
our e-commerce solution, we will not be successful.
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 our Web site;
. 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
6
<PAGE>
these sites already have well-established brands in either online services or
the scientific products industry. As a result, it is critical that we maintain
and enhance our brand. We believe that increased competition may make
establishing and maintaining 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 and/or number of repeat purchases.
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 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 approximately 200
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 second 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 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.
7
<PAGE>
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.
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.
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If suppliers terminate their agreements with us, our product offerings may
suffer.
Following an initial one-year term, many of our standard supplier agreements
may be terminated by either party on 90 days' notice. After expiration of the
initial term, such 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. 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.
If our exclusive suppliers elect to terminate the exclusive nature of their
agreements with us, our business could be adversely affected.
Our exclusive supplier agreements have a five-year term, but the exclusive
nature of such agreements may be terminated after 18 months. If a significant
number of the exclusive suppliers terminate the exclusive nature of such
agreements, the volume of our order flow will be reduced significantly. We may
also be forced to negotiate new agreements with terms that are less favorable
to us.
If we do not enter into definitive agreements by March 31, 2000 with several
buyers and approximately 20 suppliers of scientific products that we have sent
non-binding term sheets to, our business could be adversely affected.
We have sent non-binding term sheets to several buyers and approximately 20
suppliers of scientific products. These non-binding term sheets will expire on
or after March 31, 2000 if we do not enter into definitive agreements before
such time. A failure to enter into mutually satisfactory definitive agreements
with a significant number of these buyers and suppliers could have a material
adverse effect on our business.
We have relied and continue to rely on a limited number of large customers for
a significant portion of our revenues. Losing one or more of these customers
may adversely affect 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 year ended December 31,
1999, two customers accounted for 34% and 14%, respectively, of our 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. As a result, we may not be able to guarantee customer
satisfaction.
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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If our Web sites and transaction processing systems are not able to adequately
service increasing traffic levels, our ability to satisfy our customers and
maintain revenue growth may suffer.
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.
If we are not able to successfully integrate our systems with the internal
systems of our key suppliers and buyers, our operating costs and relationships
with our suppliers and buyers will be adversely affected.
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
makes them more 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.
If our exclusive sales representative does not perform adequately, our
advertising revenues could be adversely affected.
To date, a significant portion 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 our Web sites, which could put a
significant strain on our liquidity and capital resources.
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
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buyers for products purchased would negatively impact our cash flows. As our
transaction volume and average transaction size grow, these risks will
increase. We generally do not process an order from a buyer without a credit
card or other payment confirmation although we do extend credit terms to
certain qualified buyers. However, we cannot be certain that our credit
confirmation practices will be effective to protect us against these payment
obligations. If a significant number of buyers default on their payment
obligations, or suppliers fail to refund payments to us for products returned
by our buyers, or buyers do not pay their obligations to us on time, we could
incur significant and immediate cash payment obligations or suffer significant
cash flow constraints. These obligations could put a significant strain on our
liquidity and capital resources, which could prevent us from using our working
capital to further expand our business or require us to obtain additional
financing.
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.
We have also recently acquired EMAX. We could have difficulty in effectively
assimilating and integrating EMAX into our operations. Any difficulties in this
process could disrupt our ongoing business, distract our management, increase
our expenses and otherwise adversely affect our business.
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.
If we fail to attract and retain key employees, our business may suffer.
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 materially and 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
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technology and systems obsolete. We must continually improve the performance,
features and reliability of our online services, particularly in response to
our competition. Our success will depend, in part, on our ability to:
. enhance our existing services;
. develop new services and technology that address the increasingly
sophisticated and varied needs of our target markets; and
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
We cannot be certain of our success in accomplishing the foregoing. If we
are unable, for technical, legal, financial or other reasons, to adapt to
changing market conditions or buyer requirements, our market share could be
materially adversely affected.
We may become exposed to product liability claims, which could result in
substantial costs and liability.
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.
We will be liable for any third party claims that may rise against EMAX
including claims related to important proprietary rights regarding EMAX's
technology. These claims could adversely affect our business.
In our acquisition of EMAX, we have acquired important proprietary rights
that are embodied in its software technology. This software technology is not
patented and existing copyright laws offer only limited practical protection.
By virtue of this acquisition, we will be liable for any valid third-party
claims that may arise against EMAX in relation to their proprietary rights or
contracts with suppliers and customers. While we have investigated EMAX's
proprietary rights and business practices, we cannot be certain that ownership,
infringement or other claims will not arise against EMAX. A successful claim by
a third-party could result in significant liability on our part and could
materially and adversely affect the value of the technology that we are
acquiring. As a precaution, a portion of the purchase price for EMAX has been
deposited into an escrow fund. If we become liable for any claims against EMAX,
we may be entitled to compensation from this escrow fund. However, this escrow
fund will terminate after two years and may not be sufficient to adequately
compensate us for any claims that do arise.
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 devote 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.
The content of our Web sites may expose us to various claims, which could
result in substantial costs and liabilities.
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
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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.
If we are unable to protect our intellectual property rights, our business
could be materially and adversely affected.
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 the 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. 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 third-party products that are sold on our Web sites 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
third-party products sold on our Web sites 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 businesses that we have acquired or may
acquire could adversely affect our business.
We have acquired and intend to continue to acquire complementary businesses.
In particular, we acquired BioSupplyNet, Inc. in 1998, Internet Auctioneers
International, Inc. in 1999, SciCentral.com, Inc., Intralogix, Inc. and EMAX in
2000. 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.
We may have difficulty in effectively assimilating and integrating these, or
any future joint ventures, acquisitions or alliances, into our operations. Any
difficulties in the process could disrupt our ongoing business,
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distract our management and employees, increase our expenses and otherwise
adversely effect our business. Any problems we encounter in connection with our
acquisitions could have a material adverse effect on our business.
Our planned international expansion will require significant financial
resources and management attention and could have a negative effect on our
earnings.
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.
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.
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.
Unless Web-based purchasing achieves widespread acceptance, we will have
difficulty achieving revenue growth.
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.
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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.
Online commerce and database security concerns could adversely affect traffic
on our Web sites and our revenues.
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.
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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, the
federal government and a number of states are currently reviewing the
appropriate tax treatment of online commerce, and new federal laws or 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 may cause 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 public offering price of our common stock is 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 public offering price
of our common stock. To the extent these options and warrants are exercised,
there will be further substantial dilution. See "Dilution."
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.
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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
The net proceeds to us from this offering, after deducting the underwriting
discounts and offering expenses payable by us, will be approximately $67.7
million, or $93.5 million if the underwriters exercise their over-allotment
option in full, based upon an estimated public offering price of $36.125 per
share. We will not receive any proceeds from the sale of shares by the selling
stockholders.
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 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.
PRICE RANGE OF COMMON STOCK
Since November 19, 1999 our common stock has been traded on The Nasdaq
National Market under the symbol "SQST." The price per share reflected in the
table below represents the range of low and high last sale trading prices for
our common stock as reported by The Nasdaq Stock Market for the quarters
indicated:
<TABLE>
<CAPTION>
Price Range of Common Stock
---------------------------
High Low
<S> <C> <C>
Year Ending December 31, 1999
Fourth Quarter (from November 19, 1999)......... $84.125 $27.375
Year Ending December 31, 2000
First Quarter (through March 27, 2000).......... $ 83.875 $ 33.000
</TABLE>
As of March 27, 2000, the last sale trading price of our common stock as
reported on the Nasdaq National Market was $36.125. As of February 29, 2000,
there were approximately 260 holders of record of our common stock.
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 December 31, 1999.
Our capitalization is presented:
. on an actual basis;
. on an unaudited pro forma basis to reflect the acquisition of EMAX as if
it occurred on December 31, 1999; and
. on an unaudited pro forma as adjusted basis to reflect our receipt of
the net proceeds from our sale of 2,000,000 shares of common stock at an
estimated public offering price of $36.125 per share, after deducting
underwriting discounts and commissions and offering expenses payable by
us.
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
(In Thousands)
<S> <C> <C> <C>
Debt and capital lease obligations, long-term
portion..................................... $ 1,191 $ 1,474 $ 1,474
Stockholders' equity:
Preferred stock, undesignated, $0.001 par
value, 10,000,000 shares authorized; no
shares issued or outstanding actual; no
shares, issued or outstanding pro forma or
pro forma as adjusted...................... -- -- --
Common stock, $0.001 par value; 90,000,000
shares authorized; 26,353,652 shares issued
and outstanding actual; 28,295,714 shares
issued and outstanding pro forma;
30,295,714 shares issued and outstanding
pro forma as adjusted...................... 26 28 30
Additional paid-in capital.................. 591,841 714,179 781,915
Deferred compensation....................... (12,276) (12,276) (12,276)
Deferred customer acquisition costs......... (391,138) (391,138) (391,138)
Accumulated other comprehensive loss........ -- (3) (3)
Accumulated deficit......................... (38,634) (38,634) (38,634)
--------- --------- --------
Total stockholders' equity.................. 149,819 272,156 339,894
--------- --------- --------
Total capitalization....................... $ 151,010 $ 273,630 $341,368
========= ========= ========
</TABLE>
19
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was $146.7 million, or
$5.57 per share. Our net tangible book value per share is equal to the amount
of our total assets less intangible assets and less total liabilities, divided
by the number of shares of common stock outstanding as of December 31, 1999.
Assuming that we sell the 2,000,000 shares offered by us at a public
offering price of $36.125 per share, after deducting estimated underwriting
fees and estimated offering expenses payable by us, our net tangible book value
as of December 31, 1999 would have been $214.4 million, or $7.56 per share.
This represents an immediate increase in net tangible book value of $1.99 per
share to existing stockholders and an immediate dilution in net tangible book
value of $28.565 per share to investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $36.125
Net tangible book value per share as of December 31, 1999.. $5.57
Increase in net tangible book value per share attributable
to new investors.......................................... 1.99
-----
Net tangible book value per share after this offering....... 7.56
-------
Dilution per share to investors purchasing shares in this
offering................................................... $28.565
=======
</TABLE>
Our net tangible book value at December 31, 1999, after this offering and
the acquisition of EMAX would have been $216.2 million or $7.14 per share.
The discussion and table assumes no exercise of options outstanding under
our stock option plans and no exercise of warrants that will remain outstanding
after this offering. As of December 31, 1999, there were 2,193,724 shares of
common stock reserved for issuance upon exercise of outstanding options granted
under our stock option plans, at exercise prices ranging from $0.002 to $47.50
per share and a weighted average exercise price of $11.74 per share. There were
also 5,889,303 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price of
$1.01 per share. The exercise of these options and warrants will have the
effect of increasing the dilution per share to new investors in this offering.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The unaudited pro forma combined balance sheet and statement of operations
data as of and for the year ended December 31, 1999 combines the historical
balance sheets and statement of operations of SciQuest.com and EMAX Solution
Partners, Inc. as if the acquisition of EMAX had been completed on December 31,
1999 and January 1, 1999, respectively. We issued 1,999,833 shares of common
stock in the acquisition, which will be accounted for using the purchase method
of accounting. The unaudited pro forma balance sheet and 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 EMAX appearing elsewhere in this prospectus, and Management's Discussion
and Analysis of Financial Condition and Results of Operations.
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 balance sheet and statement of operations data. The unaudited pro forma
balance sheet and statement of operations data reflects our management'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 EMAX. The pro forma net loss per common
share reflects the conversion of our preferred stock into common stock, which
occurred upon the closing of our initial public offering on November 19, 1999,
as if such conversion occurred on January 1, 1999, or the date of issuance of
the preferred stock, if later, and the acquisition of EMAX.
The unaudited pro forma statement of operations data for the year ended
December 31, 1999 do not purport to represent what the actual results of the
combined businesses would have been if the acquisition of EMAX had occurred on
January 1, 1999, nor does this information purport to project our results for
any future period.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------------------------
Pro Forma Pro Forma
SciQuest.com EMAX Combined Adjustment Combined
(audited) (audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Product and advertising
revenue................ $ 3,882,441 $ -- $ 3,882,441 $ -- $ 3,882,441
Software license,
consulting and
maintenance revenue.... -- 6,993,464 6,993,464 -- 6,993,464
------------ ----------- ------------ ------------ ------------
Total revenues......... 3,882,441 6,993,464 10,875,905 -- 10,875,905
Cost of product and
advertising revenues... 3,426,692 -- 3,426,692 -- 3,426,692
------------ ----------- ------------ ------------ ------------
Gross profit........... 455,749 6,993,464 7,449,213 -- 7,449,213
------------ ----------- ------------ ------------ ------------
Operating expenses:
Development............ 9,008,261 -- 9,008,261 5,481,348 (b) 14,489,609
Sales and marketing.... 10,206,133 -- 10,206,133 1,826,278 (b) 12,034,411
General and
administrative........ 7,075,907 -- 7,075,907 2,346,206 (b) 9,422,113
Operating costs and
expenses.............. -- 5,243,969 5,243,969 (5,243,969)(b) --
Selling, general and
administrative........ -- 4,411,863 4,411,863 (4,411,863)(b) --
Stock based non-cash
employee compensation. 323,676 -- 323,676 -- 323,676
Stock based non-cash
customer acquisition
costs................. 9,107,753 -- 9,107,753 -- 9,107,753
Amortization of
goodwill ............. -- -- -- 40,138,901 (a) 40,138,901
------------ ----------- ------------ ------------ ------------
Total operating
expenses.............. 35,721,730 9,655,832 45,377,562 40,138,901 85,516,463
------------ ----------- ------------ ------------ ------------
Operating loss.......... (35,265,981) (2,662,368) (37,928,349) (47,946,581) (78,067,250)
Other income (expense),
net.................... 1,869,124 212,141 2,081,265 -- 2,081,265
------------ ----------- ------------ ------------ ------------
Loss before income
taxes.................. (33,396,857) (2,450,227) (35,847,084) (47,946,581) (75,985,985)
Income tax benefit...... 218,780 -- 218,780 -- 218,780
------------ ----------- ------------ ------------ ------------
Net loss................ $(33,178,077) $(2,450,227) $(35,628,304) $(47,946,581) $(75,767,205)
============ =========== ============ ============ ============
Pro forma net loss per
common share--basic and
diluted................ $ (2.09) $ (4.25)
Pro forma weighted
average common shares
outstanding............ 15,846,189 17,846,022
</TABLE>
- ----------------
(a) Reflects the amortization of the goodwill and intangible assets recorded
in the acquisition of EMAX using a three year life assuming that the
acquisition occurred on January 1, 1999.
(b) Reflects the reclassification of the operating expenses of EMAX to conform
to our method of presentation.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------
Pro Forma Pro Forma
SciQuest.com EMAX Combined Adjustment Combined
(audited) (audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 98,126,414 $ 2,066,284 $ 100,192,698 $ -- $ 100,192,698
Short-term investments. 24,285,293 -- 24,285,293 -- 24,285,293
Accounts receivable.... 1,771,634 1,767,092 3,538,726 -- 3,538,726
Prepaid expenses and
other assets.......... 1,625,355 120,508 1,745,863 -- 1,745,863
------------- ----------- ------------- ------------ -------------
Total current assets... 125,808,696 3,953,884 129,762,580 -- 128,762,580
------------- ----------- ------------- ------------ -------------
Long-term investments... 23,592,483 -- 23,592,483 -- 23,592,483
Property and equipment,
net.................... 2,869,423 697,252 3,566,675 -- 3,566,675
Capitalized development
costs, net............. 1,392,085 -- 1,392,085 -- 1,392,085
Goodwill and other
intangibles............ -- -- -- 120,416,702 (b) 120,416,702
Other assets............ 3,238,997 115,958 3,354,955 -- 3,354,955
------------- ----------- ------------- ------------ -------------
Total assets........... $ 156,901,684 $ 4,767,094 $ 161,668,778 $120,416,702 $ 282,085,480
============= =========== ============= ============ =============
Liabilities and
Stockholders' Equity
(Deficit)
Current Liabilities:
Accounts payable....... $ 4,250,978 $ 6,923 $ 4,257,901 $ -- $ 4,257,901
Accrued liabilities.... 1,111,395 810,738 1,922,133 -- 1,922,133
Deferred revenue....... -- 1,569,080 1,569,080 -- 1,569,080
Current maturities of
capital lease
obligations........... 463,141 176,625 639,766 -- 639,766
Current maturities of
notes payable......... -- -- -- -- --
------------- ----------- ------------- ------------ -------------
Total current
liabilities........... 5,825,514 2,563,366 8,388,880 -- 8,388,880
------------- ----------- ------------- ------------ -------------
Deferred stock issuance. -- 1,000,000 1,000,000 (1,000,000)(c) --
Deferred income taxes... 66,225 -- 66,225 -- 66,225
Capital lease
obligations, less
current maturities..... 1,190,786 283,057 1,473,843 -- 1,473,843
Stockholders' equity
(deficit): --
Preferred stock........ -- 160,799 160,799 (160,799)(c) --
Common stock........... 26,354 2,308 28,662 2,000 (b) 28,354
(2,308)(c)
Additional paid-in
capital............... 591,841,571 10,240,358 602,085,529 122,337,771 (b) 714,179,342
(10,240,358)(c)
Treasury stock......... -- (5,296) (8,896) 5,296 (c) --
Notes receivable from
officers.............. -- (16,667) (16,667) 16,667 (c) --
Deferred compensation.. (12,276,151) -- (12,276,151) -- (12,276,151)
Deferred customer
acquisition costs..... (391,138,705) -- (391,138,705) -- (391,138,705)
Accumulated other
comprehensive loss.... -- (2,398) (2,398) -- (2,398)
Accumulated deficit.... (38,633,910) (9,458,433) (48,092,343) 9,458,433 (c) (38,633,910)
------------- ----------- ------------- ------------ -------------
Total stockholders'
equity................ 149,819,159 920,671 150,739,830 121,416,702 272,156,532
------------- ----------- ------------- ------------ -------------
Total liabilities and
stockholders' deficit. $ 156,901,684 $ 4,767,094 $ 161,668,778 $120,416,702 $ 282,085,480
============= =========== ============= ============ =============
</TABLE>
- ----------------
(b) Reflects the value of the 1,999,833 shares of our common stock issued to
acquire EMAX, based on the average closing price of our common stock of
$61.175 for the two day period immediately preceding and following the
date of the announcement of the acquisition, March 14, 2000. This purchase
price allocation is based on our best estimates, however, we intend to
have an independent valuation performed to determine the actual allocation
of the purchase price of EMAX. This allocation may result in a portion of
the purchase price being expensed as acquired in-process research and
development expense.
(c) Reflects the elimination of the stockholders' equity balances of EMAX as
this acquisition will be accounted for using the purchase method of
accounting and the repurchase of the intellectual property rights to the
OPTIMA technology by EMAX in accordance with the terms of the agreement
with Polar Investment Partners.
23
<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, 1997, 1998 and 1999, and the historical
balance sheet data as of December 31, 1998 and 1999 are derived from, and are
qualified by reference to, our financial statements which are included herein,
which have been audited by PricewaterhouseCoopers LLP. The historical statement
of operations data for the year ended December 31, 1996 and the balance sheet
data as of December 31, 1996 and 1997 are derived from our audited financial
statements not included in this prospectus. Historical results are not
necessarily indicative of results to be expected in the future.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues............................... $ -- $ 196 $ 478 $ 3,882
Cost of revenues....................... -- -- 42 3,426
------ ------ ------- ---------
Gross profit.......................... -- 196 436 456
Operating expenses:
Development........................... 85 140 1,191 9,008
Sales and marketing................... 150 257 1,706 10,206
General and administrative............ 301 457 1,104 7,076
Stock based employee compensation..... -- -- -- 324
Stock based customer acquisition
costs................................ -- -- -- 9,108
Purchased in process research and
development.......................... -- -- 791 --
Amortization of goodwill.............. -- -- -- --
------ ------ ------- ---------
Total operating expenses............... 536 854 4,792 35,722
------ ------ ------- ---------
Operating loss......................... (536) (658) (4,356) (35,266)
Net interest income (expense).......... (9) (32) 80 1,869
------ ------ ------- ---------
Loss before income taxes............... (545) (690) (4,276) (33,397)
Income tax benefit..................... -- -- 54 219
------ ------ ------- ---------
Net loss............................... $ (545) $ (690) $(4,222) $ (33,178)
====== ====== ======= =========
Pro forma net loss per common share--
basic and
diluted............................... $ (2.09)
Pro forma weighted average common
shares
outstanding........................... 15,846
===
Net loss available to common
stockholders.......................... $ (545) $ (690) $(4,550) $(112,467)
====== ====== ======= =========
Net loss per common share--basic and
diluted............................... $(0.16) $(0.20) $ (1.33) $ (18.10)
Weighted average common shares
outstanding........................... 3,412 3,412 3,412 6,215
<CAPTION>
As of December 31,
----------------------------------
1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............. $ 9 $ 331 $ 5,391 $ 98,126
Working capital (deficit).............. (227) (28) 6,413 119,983
Total assets........................... 77 385 9,173 156,902
Long-term liabilities.................. 66 79 385 1,257
Mandatorily redeemable convertible
preferred stock....................... -- -- 10,883 --
Stockholders' equity (deficit)......... (254) (81) (3,102) 149,819
</TABLE>
24
<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 Web-based, interactive marketplace for scientific and
laboratory products used by pharmaceutical, clinical, biotechnology, chemical,
industrial and educational organizations worldwide. We have used our extensive
industry expertise to design a marketplace that streamlines the traditionally
inefficient scientific products supply chain. Our marketplace solutions allow
buyers of scientific products to cross-search content and purchase products
from multiple suppliers with a single order. Our approach does not give
priority to any particular scientific products distributor, which 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, Inc. This acquisition was
accounted for using the purchase method of accounting with a total purchase
price of approximately $2.0 million. 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. for a total purchase price of $1.4
million. This acquisition was accounted for using the purchase method of
accounting. 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.
On January 14, 2000, we acquired all of the outstanding capital stock of
Intralogix, Inc. for a total purchase price of $2.1 million, which included the
issuance of 26,930 shares of our common stock, $192,000 in cash and the
assumption of $73,000 in liabilities. Intralogix provides tools that enable
scientists to search, compare and purchase chromatography products for their
research needs.
On February 2, 2000, we acquired all of the outstanding capital stock of
SciCentral, Inc. for a total purchase price of $2.5 million, which included the
issuance of 40,000 shares of our common stock and the assumption of
approximately $32,000 in net liabilities. SciCentral, Inc. provides users with
a gateway to online science and technology resources, news and information.
The Internet Auctioneers International, Intralogix and SciCentral
acquisitions were not financially significant as they related to the purchase
price or past results of operations of the acquired entities and therefore pro
forma financial information has not been presented for these acquisitions.
These acquisitions were accounted for using the purchase method of accounting.
In October, November and December 1999, we entered into strategic
relationships with a number of key suppliers and buyers of scientific products,
whereby we issued warrants to these suppliers and buyers to
25
<PAGE>
purchase approximately 5,035,180 shares of common stock at an exercise price of
$0.01 per share. These warrants will vest over a period of three to five years
and will be exercisable until 2004. We have issued these warrants in connection
with these agreements, as we believe that these relationships are an integral
component of our business plan.
These strategic relationships include agreements to be the exclusive third-
party provider of electronic marketplace services in the United States for a
period of five years for ten key suppliers. Under the terms of these
agreements, these suppliers are not required to sell a minimum amount of
products through our electronic marketplace. The warrants to purchase our
common stock that were issued in connection with these agreements vest over a
four or five year period regardless of the level of sales by the suppliers
through our electronic marketplace.
These strategic relationships also include agreements with Dow Chemical
Company, DuPont Pharmaceuticals Company and Monsanto Company and a letter of
intent with Merck & Company, Inc. to be their third-party electronic aggregator
for purchases of scientific products in North America for a period of three
years. Although these buyers have agreed to use reasonable efforts to purchase
at least $5.0 million of scientific products annually through our marketplace,
there are no minimum purchase commitments. The warrants issued in connection
with these relationships vest over a period of three years regardless of their
level of purchases through our electronic marketplace.
We have recorded deferred customer acquisition costs of approximately $400.2
million at December 31, 1999, related to the 5,035,180 warrants to purchase our
common stock issued to these key suppliers and buyers of scientific products
which is included as a separate component of stockholders' equity. Deferred
customer acquisition costs are determined based on the difference between the
closing trading price of our common stock and the $0.01 exercise price of the
stock warrants. The amount of deferred customer acquisition costs recognized
for all of the warrants issued to our key suppliers and buyers will be adjusted
in future reporting periods based on changes in the fair value of the warrants
until such date as the warrants are fully vested. Deferred customer acquisition
costs will be amortized to operating expense over the term of the related
contractual relationship, which in the case of the buyer agreements is three
years and in the case of the supplier agreements is five years, using a
cumulative catch up method.
We have also agreed to issue to Dow Chemical Company, DuPont Pharmaceuticals
Company, Merck & Company, Inc. and Monsanto Company additional incentive
warrants to purchase shares of our common stock with an exercise price of
$16.00 per share, 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,
will be fully vested and exercisable upon issuance and will continue to be
exercisable for a period of five years after the date of issuance. Deferred
customer acquisition costs will be recognized at the date of issuance of these
incentive warrants in an amount equal to the estimated fair value of the
warrants at the date of issuance determined using the Black Scholes valuation
model and will be amortized to operating expense over the remaining term of the
strategic relationship with these key buyers.
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, (3) advertising revenues from the Source Book, and (4)
commissions received from the auction of used scientific equipment. 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 year ended December 31, 1999, two customers accounted for 34% and 14%
of our revenues, respectively.
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
26
<PAGE>
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. We bear all credit risk on sales that we make and we
are obligated to pay the supplier of the products that we purchase regardless
of whether we receive payment from the customer for the products. 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. Product
shipments are made on our designated carriers and we are responsible for
shipping costs which are recorded as cost of revenues.
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.
Recent Developments
In March 2000, we acquired EMAX, a provider of electronic research solutions
designed to optimize pharmaceutical drug research operations and expedite drug
discovery, for 1,999,833 shares of our common stock, which includes 415,692
shares subject to outstanding options and warrants. The acquisition of EMAX
enables us to provide electronic and Internet-based solutions that are designed
to streamline the drug discovery processes of our customers, including large
pharmaceutical, biotechnology and life science companies, by integrating their
supply chains with critical research processes.
EMAX recognizes revenue from the sale of licenses to its software products,
the implementation and customization of its software products and the sale of
maintenance and support contracts. EMAX recognizes revenues from the sale of
licenses to its software products and implementation and customization of these
software products on a percentage of completion basis over the period of the
customization and implementation services, which generally ranges from three to
six months. EMAX recognizes revenues from the sale of maintenance and support
contracts ratably over the period of the maintenance and support agreements,
which is typically twelve months. Revenues from the sale of software licenses
and implementation and customization of software products totaled $6.3 million
for the year ended December 31, 1999 and revenues from maintenance and support
contracts totaled $0.4 million for the same period.
EMAX incurs costs to develop its software products for its own purposes and
in addition incurs development costs in the customization of its software
products for its customers. These costs are primarily comprised of salaries and
related benefits for EMAX's employees. EMAX typically retains the intellectual
property rights to modifications made to its software products for individual
customers and is then able to offer these modifications to future customers.
EMAX capitalizes its software development costs upon the achievement of
technological feasibility and ceases capitalization when the software product
is available for general release. To date, the achievement of technological
feasibility and availability of EMAX's software products for general release
have substantially coincided, therefore the amount of software development cost
capitalized by EMAX has been deminimis. EMAX incurred $5.2 million and $4.4
million in development costs and selling, general and administrative expenses,
respectively, during the year ended December 31, 1999.
Assuming the acquisition of EMAX had occurred on January 1, 1999, our pro
forma revenues, operating loss and net loss would have been $10.9 million,
$85.9 million and $83.6 million, respectively. This represents an increase of
$7.0 million in revenues, $52.6 million in operating loss and $52.4 million in
net loss. These pro forma operating results are not necessarily indicative of
what our results would have been had the acquisition
27
<PAGE>
of EMAX occurred on January 1, 1999, nor can our future combined operating
results be predicted from these amounts. You should read the discussion of our
pro forma operating results in conjunction with the pro forma financial
statements included in this registration statement.
Results of Operations
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.......................................... 100.0% 100.0% 100.0%
Cost of revenues.................................. -- 8.8 88.3
------ ------- --------
Gross profit...................................... 100.0 91.2 11.7
------ ------- --------
Operating expenses:
Development...................................... 71.6 249.3 232.0
Sales and marketing.............................. 130.7 357.0 262.9
General and administrative....................... 232.7 231.0 182.2
Stock based non-cash employee compensation....... -- -- 8.3
Stock based non-cash customer acquisition........ -- -- 234.6
Purchased in process-research and development.... -- 165.6 --
------ ------- --------
Total operating expenses.......................... 435.0 1,002.9 920.0
------ ------- --------
Operating loss.................................... (335.0) (911.7) (908.3)
------ ------- --------
Net interest income (expense)..................... (16.2) 16.7 48.1
------ ------- --------
Loss before income taxes.......................... (351.2) (895.0) (860.2)
Income tax benefit................................ -- 11.5 5.6
------ ------- --------
Net loss.......................................... (351.2) (883.5) (854.6)
------ ------- --------
Net loss available to common stockholders......... (357.2)% (952.3)% (2,896.8)%
====== ======= ========
</TABLE>
Year Ended December 31, 1999 and 1998
Revenues
Revenues have been derived primarily from the sale of scientific products in
e-commerce transactions, advertising revenues from the Source Book and banner
advertising.
Revenues increased to $3.9 million for the year ended December 31, 1999 from
$0.5 million for the year ended December 31, 1998. This increase was primarily
due to $3.0 million in revenues from the sale of scientific products in e-
commerce transactions for the year ended December 31, 1999 as compared to zero
for the year ended December 31, 1998 as our e-commerce marketplace was not
implemented until April 1999. In addition, we had $0.8 million in advertising
revenues generated by BioSupplyNet for the year ended December 31, 1999
compared to zero in the year ended December 31, 1998, as we did not acquire
BioSupplyNet until September 29, 1998. This has been partially offset by a
decline of $0.4 million in revenues from banner advertisements as the sale of
banner advertisements is no longer a significant part of our business. Our 1998
revenues were primarily comprised of revenues from banner advertising.
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.
28
<PAGE>
Total cost of revenues increased to $3.4 million for the year ended December
31, 1999 from $42,000 for the year ended December 31, 1998. Cost of revenues
increased primarily due to $3.0 million in costs related to the sale of
scientific products in e-commerce transactions and $0.4 million in costs
incurred related to BioSupplyNet's advertising revenues during the year ended
December 31, 1999.
Gross Profit
Gross profit increased to $0.5 million for the year ended December 31, 1999
from $0.4 million for the year ended December 31, 1998. Gross profit increased
by $35,000 as product sales began with the launch of the SciQuest.com
marketplace in April 1999.
Operating Expenses
Development Expenses. Development expenses consist primarily of personnel
and related costs to develop the data for, operate and maintain our Web sites
and the amortization of our capitalized development costs. Development costs
increased to $9.0 million for the year ended December 31, 1999 from $1.2
million for the year ended December 31, 1998. This increase resulted from
additional expenses incurred to develop the e-commerce functionality of our e-
commerce marketplace, including an increase in the development staff and the
costs of continuing the development of the e-commerce technology acquired with
BioSupplyNet. We expect that our development expenses will continue to increase
as we add products from additional suppliers to our e-commerce marketplace, as
we develop customized private Web sites for major customers and as we continue
to experience rapid increases in the volume of transactions through our e-
commerce marketplace. In addition, our development expenses will continue to
increase as we amortize development costs related to the development of
additional functionality for our Web sites and the completion of the
development of the e-commerce technology acquired with BioSupplyNet which have
previously been capitalized.
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 $10.2 million for the year ended December 31,
1999 from $1.7 million for the year ended December 31, 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 e-commerce marketplace and to a lesser extent sales and marketing
expenses related to BioSupplyNet and Internet Auctioneers International. We
expect that our sales and marketing expenses will continue to increase in the
next 12 months as we continue to add sales and marketing personnel, and as we
continue to incur expenses to promote the services provided by our e-commerce
marketplace.
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, investor
relations, facilities and information systems expenses. General and
administrative expenses increased to $7.1 million for the year ended December
31, 1999 from $1.1 million for the year ended December 31, 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 an increase in professional fees and facilities costs incurred
to support the growth of our business. In addition, we have experienced an
increase in general and administrative costs as a result of becoming a public
company in November 1999, such as investor relations costs and directors and
officers insurance costs. 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 $1.9 million for the year ended December 31, 1999 from net
interest income of $0.1 million for the year ended
29
<PAGE>
December 31, 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, series D mandatorily
redeemable convertible preferred stock in May and June 1999 and our initial
public offering in November 1999.
Income Tax Benefit
Income tax benefit increased to $0.2 million for the year ended December 31,
1999 from $55,000 for the year ended December 31, 1998. The increase in income
tax benefit was the result of the reduction in net deferred tax liabilities
during the year ended December 31, 1999 due to the amortization of the goodwill
and other intangible assets recorded with our acquisition of BioSupplyNet in
September 1998.
Net Loss Available to Common Stockholders
Net loss available to common stockholders increased to $112.5 million for
the year ended December 31, 1999 from $4.5 million for the year ended December
31, 1998. The increase in net loss available to common stockholders was due to
the increase in our net loss of $29.0 million and the increase in accretion of
mandatorily redeemable preferred stock to $79.3 million for the year ended
December 31, 1999 from $0.3 million for the year ended December 31, 1998. Such
increase accretion resulted from the accretion of our series B mandatorily
redeemable convertible preferred stock to its estimated redemption amount at
the effective date of our initial public offering, November 19, 1999, and
accretion of our 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 had a redemption price that was variable in amount (see note 12 to our
financial statements), and its carrying value was 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 $77.4 million on the
series B mandatorily redeemable preferred stock being recognized during the
period from January 1, 1999 to November 19, 1999, which was recorded as a
charge to additional paid-in-capital and an increase to preferred stock.
Accretion of mandatorily redeemable preferred stock ceased with the conversion
of all of our outstanding mandatorily redeemable preferred stock into shares of
our common stock upon the effectiveness of our initial public offering.
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
Development Expenses. 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.
30
<PAGE>
Development expenses incurred during the year ended December 31, 1997 consisted
primarily of the costs of developing and maintaining our Web sites, 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.
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 feasibility 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 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. Since the
date of the acquisition of BioSupplyNet we have completed the development of
the e-commerce taxonomy and ontology functionality and made significant
progress in the completion of the Web-based directory services and search
engine technology that was being developed by BioSupplyNet. The development of
the BioSupplyNet e-commerce technology was approximately 70% complete at
December 31, 1999 and there have been no significant changes in the estimated
scope of the work to be performed since the date of the acquisition. 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 a management's valuation.
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.
Net Loss Available to Common Stockholders
Net loss available to common stockholders increased to $4.5 million for the
year ended December 31, 1998 from $0.7 million for the year ended December 31,
1997. The increase in net loss available to common
31
<PAGE>
stockholders was due to the increase in our net loss of $2.6 million and the
increase in accretion of mandatorily redeemable convertible preferred stock to
$0.3 million for the year ended December 31, 1998 from zero for the year ended
December 31, 1997. Prior to December 31, 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.
Quarterly Results of Operations
The following is a table of our unaudited quarterly statement of operations
data for each of the periods indicated. This information is unaudited, but in
our opinion, has been prepared substantially on the same basis as our audited
financial statements, which are included elsewhere in this prospectus. All
necessary adjustments, consisting only of normal recurring adjustments, have
been included in these amounts to present fairly the unaudited quarterly
results of operations. You should read these quarterly data in conjunction with
our audited financial statements. You should not view the results of operations
for any period as an indication of the results of operations for any future
period.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 81 $ 110 $ 118 $ 170 $ 63 $ 822 $ 359 $ 2,638
Costs of revenues....... -- -- -- 42 -- 486 337 2,603
----- ----- ------- ------- ------- ------- ------- --------
Gross profit............ 81 110 118 128 63 336 22 35
----- ----- ------- ------- ------- ------- ------- --------
Operating expenses:
Development............ 85 95 210 801 1,235 1,947 3,116 2,710
Sales and marketing.... 317 191 320 878 1,232 1,934 3,020 4,021
General and
administrative........ 77 74 225 728 652 1,542 1,698 3,184
Stock based non-cash
employee compensation. -- -- -- -- -- -- 104 219
Stock based non-cash
customer acquisition
costs................. -- -- -- -- -- -- -- 9,108
Purchased in-process
research and
development........... -- -- 791 -- -- -- -- --
----- ----- ------- ------- ------- ------- ------- --------
Total operating
expenses............... 479 360 1,546 2,407 3,119 5,423 7,939 19,242
----- ----- ------- ------- ------- ------- ------- --------
Loss from operations.... (398) (250) (1,428) (2,279) (3,056) (5,087) (7,017) (19,207)
Interest income, net of
interest expense....... (5) (8) 24 68 37 265 453 1,114
----- ----- ------- ------- ------- ------- ------- --------
Loss before income
taxes.................. (403) (258) (1,404) (2,211) (3,019) (4,822) (6,564) (18,093)
Income tax benefit...... -- -- -- 55 55 55 55 55
----- ----- ------- ------- ------- ------- ------- --------
Net loss................ $(403) $(258) $(1,404) $(2,156) $(2,964) $(4,767) $(6,509) $(18,038)
===== ===== ======= ======= ======= ======= ======= ========
</TABLE>
We have a limited operating history upon which to evaluate our business and
to predict revenues and plan operating expenses. We expect our quarterly
operating results to vary significantly in the future due to a variety of
factors, many of which are outside our control. Our revenues increased
significantly in 1999 as a result of the launch of our e-commerce marketplace
in April 1999.
32
<PAGE>
Liquidity and Capital Resources
We have primarily funded our operations through private placements of our
preferred stock and our initial public offering which closed in November 1999.
As of December 31, 1999, we had cash and cash equivalents of $98.1 million,
short term investments of $24.3 million and long term investments of $23.6
million.
Cash used in operating activities during the year ended December 31, 1999
was $23.5 million and during the years ended December 31, 1998 and 1997 was
$3.1 million and $0.4 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 year ended December 31, 1999
was $48.4 million and during the years ended December 31, 1998 and 1997 was
$2.2 million and zero, respectively. Cash used in investing activities has
primarily been comprised of purchases of investments in US government
obligations, commercial paper and corporate bonds, net of maturities, and
purchases of computer equipment.
Cash provided by financing activities during the year ended December 31,
1999 was $164.7 million and during the years ended December 31, 1998 and 1997
was $10.4 million and $0.7 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
$0.6 million 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 $0.5 million 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 $10.0 million 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 per share. In May and
June 1999, we raised an aggregate of $37.5 million 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 $0.2 million, or $2.80 per share. In November 1999, we
received $126.9 million in net proceeds from the sale of 8,625,000 shares of
our common stock in our initial public offering. All of our outstanding
preferred shares were converted into shares of our common stock upon the
completion of our initial public offering.
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 36 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 December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101) which addresses certain criteria for revenue
33
<PAGE>
recognition. SAB 101 is required to be adopted for reporting periods beginning
after January 15, 2000. The adoption of SAB 101 is not currently expected to
have a material impact on our consolidated financial position or results of
operations based on current interpretations of SAB 101, however, as the SEC
continues to provide additional guidance regarding the interpretation and
application of this pronouncement its expected impact on the Company's
financial position and results of operations could change.
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. We
have not experienced any material adverse effects as a result of the year 2000
computer problem.
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.
34
<PAGE>
BUSINESS
Overview
SciQuest.com is a Web-based, interactive marketplace for scientific and
laboratory products used by pharmaceutical, clinical, biotechnology, chemical,
industrial and educational organizations worldwide. We have used our extensive
industry expertise to design a marketplace that streamlines the traditionally
inefficient scientific products supply chain. Our marketplace solutions allow
buyers of scientific products to cross-search content and purchase products
from multiple suppliers with a single order. Our approach does not give
priority to any particular scientific products distributor, which 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 developed a comprehensive online
database of over 8,000 suppliers with over 650,000 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 the last quarter of 1999 and first quarter of 2000, we
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: Alltech Associates, Inc., Ambion, Inc., Amersham Pharmacia
Biotech, Inc., BioWhittaker, a Cambrex Company, Endogen, Inc., NEN Life Science
Products, Inc., PerkinElmer, Inc., Pierce Chemical Company, QIAGEN N.V. and
Shimadzu Scientific Instruments, Inc. In that same period, we also entered into
strategic purchasing agreements with Dow Chemical Company, DuPont
Pharmaceuticals Company and Monsanto Company and a letter of intent with Merck
& Company, Inc. to be their third-party electronic aggregator for purchases of
scientific products in North America for a period of three years.
The illustration below summarizes the procurement process through our online
marketplace:
[CHART]
35
<PAGE>
Acquisition of EMAX
We have recently acquired EMAX Solution Partners, Inc., a provider of
electronic research solutions designed to optimize pharmaceutical drug research
operations and expedite drug discovery, for 1,999,833 shares of our common
stock, which includes 415,692 shares subject to outstanding options and
warrants. EMAX helps clients in life sciences gain a competitive advantage
through the application of information technology to speed the process of
scientific discovery that leads to drug development. EMAX's OPTIMA software for
the management of both proprietary and commercial research substances is
designed to enable faster drug development, while decreasing cost per
scientific discovery by helping research operations realize the potential of
high throughput drug discovery. OPTIMA provides applications for reagent and
substance inventory, tracking, requisitioning, receiving, stockroom management
and experiment management which are being used by leading pharmaceutical
research operations and their supply chain partners.
We intend to integrate EMAX's proprietary compound and experiment management
solution and inventory and tracking solutions with our comprehensive,
interactive business-to-business e-commerce marketplace to create a seamless
tool that research scientists can use to streamline the drug discovery process.
The solutions provided by EMAX furthers our goal of empowering the research
scientist to be as productive as possible by making many of the administrative
activities that all research scientists must perform, as efficient and cost-
effective as possible. The acquisition of EMAX enables us to provide electronic
and Internet-based solutions to streamline the drug discovery processes of our
customers, including large pharmaceutical, biotechnology and life science
companies, by integrating their supply chains with critical research processes.
Industry Background
The Scientific Products Market
Based upon data from the Laboratory Products Association, a trade
association for laboratory product businesses, and Strategic Directions
International, an international management consulting firm specializing in
analytical instruments, we estimate that the market for scientific products in
1999 was approximately $11.8 billion in North America and $36.4 billion
worldwide. These expenditures are driven, to a large extent, by increases in
scientific research and development investments, which are expected to continue
to grow. Every year, 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.
36
<PAGE>
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 in a variety
of industries that were surveyed by the Aberdeen Group, a computer and
communications research and consulting organization, 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.
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 the 680 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. We believe this
indicates that scientists will be comfortable adopting e-commerce solutions for
purchases of scientific products. The following percentage of scientists
responding to the study rated e-commerce superior to traditional purchasing in
each of the following areas:
.82% of the 650 respondents rated e-commerce superior in reducing
administrative costs;
.73% of the 656 respondents rated e-commerce superior in speed of delivery
to end users; and
.70% of the 663 respondents rated e-commerce superior in fast, accurate
ordering.
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Source: BioInformatics, Inc., telephone: 301-961-1985. BioInformatics, Inc.
is a market research and consulting firm, specializing in supporting marketing
and sales executives in the life science, medical device and pharmaceutical
industries.
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 suppliers.
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 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:
. market and sell products more cost-effectively through access to our
global audience of scientists and purchasing professionals;
. access valuable market and customer data;
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. 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 Our Brand Equity and Enhance Customer Loyalty. We intend to
leverage our strong brand identity to continue to grow our base of qualified
scientific buyers and participating suppliers. We will continue to invest
heavily in the SciQuest.com brand as well as in the delivery of a high level of
customer service. We believe that our strong brand identity coupled with
superior customer service will allow us to enhance customer loyalty and
facilitate repeat purchases by our customers.
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.
Deepen Our Customer Relationships. We intend to continue to broaden our
scientific product and service offerings that provide a comprehensive and
efficient solution to the various supply chain and research needs of the
scientific community. We believe that the continued extension of our products
and services will enhance loyalty and accelerate adoption by scientists. We
intend to develop these additional services and functionalities internally as
well as explore acquisitions of complementary service offerings. For example,
our acquisition of EMAX will enable us to integrate our interactive marketplace
with the chemical and reagent management software e-solutions that EMAX has
developed and that research scientists and many large pharmaceutical and
biotechnology companies use every day to streamline the drug discovery process.
Leverage Our Strategic Relationships with Suppliers. We intend to leverage
our strategic relationships with key suppliers to continue to grow our base of
scientific buyers in North America and internationally. These relationships
allow us to provide thousands of significant non-commodity laboratory products
and services to our customers, which we expect will significantly contribute to
the growth and loyalty of our customer base relationships. At the time of our
initial public offering, we entered into strategic relationship agreements with
eight key suppliers: Ambion, Inc., Amersham Pharmacia Biotech, Inc.,
BioWhittaker, a Cambrex Company, Endogen, Inc., NEN Life Science Products,
Inc., PerkinElmer, Inc., Pierce Chemical Company and QIAGEN N.V. Since our
initial public offering, we have added Alltech Associates, Inc. and Shimadzu
Scientific Instruments, Inc. to our list of strategic supplier relationships,
and we intend to continue to enter into similar agreements with additional key
suppliers. These strategic suppliers benefit from our growing base of large
buyers of scientific products, from our value added e-commerce service, from
our distributor neutral position, from our strong brand, and from the
efficiency that results from having only one provider of electronic marketplace
services.
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 leverage our strategic partnerships with key suppliers and buyers in
order to accelerate our international expansion since a significant number of
our partners already conduct business on a global scale. In addition, 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.
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Leverage Our Existing E-Commerce Infrastructure. We intend to leverage our
e-commerce infrastructure to expand our marketplace services beyond the
scientific products market. For example, we intend to provide services and
products that streamline our current customers' research and development
processes such as effective procurement and management of proprietary chemicals
and substances. We also intend to apply our acquired business-to-business
knowledge, market making capabilities, and e-infrastructure across new market
segments where there are synergies with our existing customer and supplier
base. For example, we intend to expand our Internet based solutions to
streamline the processes of buying and selling all scientific and other
products and services used by science intensive companies, to create new
comprehensive e-commerce "exchanges" for each vertical customer segment.
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. In addition, the acquisition
of EMAX enables us to increase the depth of our offerings by adding to our
portfolio of products and services an electronic solution designed to
streamline the drug discovery processes of our customers, including large
pharmaceutical, biotechnology and life science companies, by integrating their
supply chain processes with critical research processes. Set forth below is a
detailed description of our products and services. We believe this
comprehensive service offering provides our customers with a unique online
marketplace for scientific products.
SciQuest.com Marketplace Solutions
A primary component of the SciQuest.com marketplace solution is our
electronic purchasing service that allows users to buy chemicals, supplies, lab
equipment and other scientific products from our growing database of over 430
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, Web-based 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.
EMAX
In March 2000, we acquired EMAX, a provider of electronic research solutions
designed to optimize pharmaceutical drug research operations and expedite drug
discovery. The acquisition of EMAX enables us to provide electronic and
Internet-based solutions to streamline the drug discovery processes of our
customers, including large pharmaceutical biotechnology and life science
companies, by integrating their supply chains with critical research processes.
Intralogix
Our Web-based comprehensive chromatography product selection tools provide
scientists greater search, retrieval and comparison capabilities for
chromatography-based products. Intralogix Selection Tool and Chromatogram
Library enable scientists to search, compare and purchase chromatography
products for their research needs. The Automatic Cross-Reference allows "one-
click" identical product cross-referencing.
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 SciCentral area provides users with a gateway to online science
and technology resources, news and information and identifies and centralizes
access on a timely basis to valuable scientific information. 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
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structure for organizing product content, developed by Cold Spring Harbor
Laboratory and contains product listings from more than 1,400 suppliers. In
2000, we expect 70,000 copies of the Source Book to be distributed to
scientists in pharmaceutical, clinical, biotechnology, chemical, industrial and
educational organizations. Its corresponding Web site, www.biosupplynet.com,
which went online in 1995, was the first Web-based product directory for the
biomedical research community. The Source Book helps accelerate buyer adoption
of our Web-based purchasing solutions.
Sales & Marketing
We market and sell our portfolio of solutions through direct sales,
traditional and Internet marketing initiatives and co-marketing relationships.
Our primary audiences in the pharmaceutical, clinical, biotechnology, chemical,
industrial and educational markets are laboratory scientists, who drive the
decision-making process, and purchasing professionals, who drive the
procurement process.
Our experienced sales force concentrates on selling our enterprise
compatible solutions to larger purchasing organizations. We also sell our
purchasing solutions to medium-sized and smaller buyers. In addition, our sales
team assists suppliers in offering their products through our e-commerce
solutions. Our sales professionals average over 17 years of scientific products
industry experience. By leveraging their experience, we expect to continue to
attract and retain scientists, purchasing professionals and suppliers, thereby
growing our installed customer base and increasing repeat purchases.
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 December 31, 1999, we had 51 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.
Strategic Relationships--Purchasing
We have entered into agreements with Dow Chemical Company, DuPont
Pharmaceuticals Company and Monsanto Company and a letter of intent with Merck
& Company, Inc. to establish purchasing relationships. Pursuant to these
agreements, we will be the exclusive third-party electronic aggregator for
purchases of scientific products in North America for Dow Chemical Company,
DuPont Pharmaceuticals Company and Merck & Company, Inc. and an approved third-
party electronic aggregator for purchases of scientific products in North
America for Monsanto Company. As an exclusive third-party electronic
aggregator, we will be the sole electronic means by which Dow Chemical Company,
DuPont Pharmaceuticals Company and Merck & Company, Inc. purchase scientific
products that are not sold primarily through traditional distributors. As a
third-party electronic aggregator, we will be an electronic means by which
Monsanto may purchase scientific products that are not sold primarily through
traditional distributors. Each of these agreements provides that:
. the purchaser will use its reasonable efforts to purchase at least $5.0
million of scientific products annually through our marketplace but
otherwise there are no minimum purchase commitments;
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. the purchaser will participate in case studies of our marketplace and
otherwise promote our marketplace within the scientific products
industry; and
. we will be the exclusive third-party electronic channel for marketing and
selling its used, refurbished and surplus scientific equipment.
In connection with these relationships, we have issued warrants to purchase
an aggregate of 328,914 shares of our common stock at an exercise price of
$0.01 per share. 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.com 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 of $16.00, and will be
exercisable upon issuance for a period of five years.
In addition, we have sent non-binding term sheets to several buyers to be
their third-party provider of electronic marketplace services. We have issued
warrants to purchase 185,000 shares in connection with these term sheets. The
warrants issued to any buyer will terminate as of March 31, 2000 unless a
definitive agreement incorporating the provisions of the term sheet is entered
into by that date. We cannot assure you that we will enter into definitive
agreements with any of these buyers.
Strategic Relationships--Suppliers
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:
. Alltech Associates, Inc.;
. Ambion, Inc.;
. Amersham Pharmacia Biotech, Inc.;
. BioWhittaker, a Cambrex Company;
. Endogen, Inc.;
. NEN Life Science Products, Inc.;
. PerkinElmer, Inc.;
. Pierce Chemical Company;
. QIAGEN N.V.; and
. Shimadzu Scientific Instruments, Inc.
These agreements provide that:
. we 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 elect four of the seven
members of our Board of Governors, which will consist of various members
of the scientific products industry and will serve as an advisory board
for our management by providing suggestions and feedback and reviewing
potential new services;
. 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 issued warrants to purchase up
to an aggregate of 3,770,266 shares of our common stock at an exercise price of
$0.01 per share. These warrants generally vest in equal installments over four
or five years. A supplier's warrants will terminate automatically if that
supplier terminates the exclusive nature of our relationship or otherwise
terminates the agreement.
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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.
In addition, we have sent non-binding term sheets to approximately 20
suppliers to be their third-party provider of electronic marketplace services.
We have issued warrants to purchase 751,000 shares in connection with these
term sheets. The warrants issued to a supplier will terminate as of March 31,
2000 unless a definitive agreement incorporating the provisions of the term
sheet is entered into by that date. We cannot assure you that we will enter
into definitive agreements with any of these suppliers.
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 725,000
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, or to the BioSupplyNet search directory. 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
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.
In January and February 2000, we entered into relationships with several
prominent providers of e-commerce solutions to business. We became a member of
Oracle Corp.'s Oracle Supplier Network. This network is comprised of over 270
suppliers who offer their products through Oracle's business-to-business
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electronic marketplace. We also joined the network of enterprise buyers and
business-to-business purchasing communities of Intelisys Electronic Commerce,
Inc., a provider of electronic marketplace services to more than two million
businesses. We also began utilizing Commerce One, Inc.'s suite of electronic
commerce products, services and portal solutions to further expand our domestic
and international channels. We also joined forces with DoubleTwist, Inc., which
provides a portal for on-line genetic research, in a marketing partnership
aimed at life sciences researchers.
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 December 31, 1999, we had 75 people in our development and data
management groups. Development expenses were $140,000 in 1997, $1.2 million in
1998 and $9.0 million in 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,
technology and processes. We pursue the registration of our trademarks in the
United States and internationally, however, we may not be able to secure
adequate protection for our trademarks in the United States and other
countries. We have applied for registration of the marks SCIQUEST.COM,
LABDEALS.COM and the SciQuest.com logo in the United States and for SCIQUEST in
the European Union. SCIQUEST, SCIMAIL and BIOSUPPLYNET are our registered
trademarks in the United States. In addition, we acquired CHROMATOGRAPHY.NET,
an Illinois registered trademark, pursuant to our acquisition of Intralogix,
Inc. in January 2000. 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 third-party products sold on our Web sites 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 products sold on our Web
sites 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.
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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 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 businesses such as
Chemdex Corporation, a subsidiary of Ventro Corporation.
Online Scientific Communities. There are a number of Web sites that have
created e-communities to serve the information needs of the scientists.
Traditionally, these communities have provided a means of retrieving scientific
information as well as providing discussion groups, bulletin boards and
directories. Increasingly, these communities include an e-commerce function
that may compete with our product offerings. These communities are operated by
companies such as VerticalNet.
Suppliers' E-Commerce Initiatives. Many suppliers have developed their own
e-commerce enabled Web sites. As the online market for scientific products and
services grows, we expect that these and other scientific suppliers will
further develop their own online services.
We believe that companies in this market compete based on:
. brand recognition;
. number and quality of product offerings;
. price;
. ease of use; and
. customer service and fulfillment capabilities.
Competition is likely to intensify as this market matures. As competitive
conditions intensify, competitors may:
. enter into strategic or commercial relationships with larger, more
established and well-financed companies;
. 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.
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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 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 41,000 square feet of office space. This lease
expires in February 2002. We have entered into a five-year lease for an
additional 93,000 square feet of office space at our headquarters location. 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.
47
<PAGE>
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.
As a result of our acquisition of EMAX, we lease approximately 22,000 square
feet of office space in Newtown Square, Pennsylvania. EMAX will continue to
conduct its business from this location. This lease expires on June 30, 2003.
Employees
As of December 31, 1999, we had 198 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.
48
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers and their ages as of the date of this
prospectus are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
M. Scott Andrews........ 34 Chief Executive Officer and Director
W. Andrew McKenna....... 53 President
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....... 33 Chief Information Officer
Cecil Kost.............. 46 Executive Vice President
James J. Scheuer........ 53 Chief Financial Officer
Donna LeGrand........... 48 General Counsel
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
Chief Executive Officer and as a director. From November 1995 to January 2000,
Mr. Andrews also served as our President. 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.
W. Andrew McKenna joined SciQuest.com in January 2000 as our President. From
1990 to December 1999, Mr. McKenna served in several management positions with
Home Depot, Inc., including Senior Vice President responsible for strategic
business development, President of the Midwest division and Chief Information
Officer. From 1974 to 1990, Mr. McKenna served with Deloitte & Touche LLP as a
partner in charge of providing consulting services to manufacturing and service
companies. Mr. McKenna received an M.S. in industrial administration from
Purdue University and a B.S. in industrial engineering from Georgia Institute
of Technology.
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
49
<PAGE>
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, 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).
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.
Donna LeGrand has served as our General Counsel since February 2000. From
1998 to February 2000, Ms. LeGrand served as Division Counsel for the Strategic
and Global Licensing Division of SAS Institute Inc., a software company. From
1994 to 1998, Ms. LeGrand was a technology partner at Moore & Van Allen, a law
firm in Raleigh, North Carolina. From 1993 to 1994, Ms. LeGrand was a partner
at Graham & James, a law firm in Raleigh, North Carolina. From 1985 to 1993,
Ms. LeGrand was an associate at law firms in Raleigh, N.C. and Dallas, Texas.
Ms. LeGrand received a J.D. from Duke University School of Law and a B.S. in
political science from Portland State University.
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.
50
<PAGE>
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 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
The board of directors is divided into three classes, with members serving
for staggered three-year terms. The board is 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, Weglicki and Boehm 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.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or will be an executive officer
of SciQuest.com.
Executive Compensation
The following table sets forth the total compensation paid by SciQuest.com
during the year ended December 31, 1999 to our Chief Executive Officer and our
four other most highly compensated executive officers who earned more than
$100,000 during 1999. We may refer to these persons as our named executive
officers elsewhere in this prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------- ------------
Number of
Securities
Name and Principal All Other Underlying
Position Fiscal Year Salary Bonus Compensation(1) Options
<S> <C> <C> <C> <C> <C>
M. Scott Andrews........ 1999 $ 99,196 $150,000 $3,362 $ --
Chief Executive Officer
Robert M. Fusillo....... 1999 142,481 105,000 4,370 150,123(2)
Chief Information
Officer
Lyle A. Brecht.......... 1999 177,311 75,000 4,266 146,648(3)
Chief Business
Development Officer
James J. Scheuer........ 1999 125,085 125,000 3,197 91,175(4)
Chief Financial Officer
Antony Francis.......... 1999 134,895 75,000 3,166 150,123(5)
Vice President of
Operations
</TABLE>
- ----------------
(1) These amounts represent primarily life and health insurance premiums paid
by the Company on behalf of the named executive officers.
(2) Reflects total grants of 191,831 options, of which 41,708 have been
exercised.
(3) Reflects total grants of 230,250 options, of which 83,602 have been
exercised.
(4) Reflects total grants of 141,782 options, of which 50,607 have been
exercised.
(5) Reflects total grants of 150,123 options, none of which have been
exercised.
52
<PAGE>
Options Granted During Last Fiscal Year
The following table sets forth certain information regarding options
granted in 1999 to the executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of
Securities Options Exercise Stock Price Appreciation for
Underlying Granted to Price Option Term (4)
Options Employees Per Expiration -----------------------------
Name Granted (1) in Fiscal Year Share Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
M. Scott Andrews........ -- -- -- -- -- --
Robert Fusillo.......... 25,000(2) 1.53% $47.50 12/16/09 $ 1,934,312 $ 3,080,069
Lyle A. Brecht.......... 103,890(3) 6.35% $ 0.18 02/09/09 31,242 49,748
45,000(2) 2.75% $47.50 12/16/09 3,481,762 5,544,125
James J. Scheuer........ 25,000(2) 1.53% $47.50 12/16/09 1,934,312 3,080,069
Antony Francis.......... 125,123(3) 7.65% $ 0.18 02/09/09 37,628 59,916
25,000(2) 1.53% $47.50 12/16/09 1,934,312 3,080,069
</TABLE>
- ----------------
(1) Unless otherwise indicated, each option vests and becomes exercisable as
follows: 25% on the one year anniversary of the employee's employment, and
in equal monthly increments of 2.084% per month for 36 months, with full
vesting at 48 months from the employee's initial date of employment.
(2) Options were granted under the SciQuest.com, Inc. Stock Incentive Plan.
(3) Options were granted under the SciQuest.com, Inc. Stock Option Plan.
(4) The potential realizable value of the options reported above was
calculated by assuming 5% and 10% annual rates of appreciation of our
common stock based on the exercise price of the option from the date of
grant of the options until the expiration of the options. These assumed
annual rates of appreciation were used in compliance with the rules of the
Securities and Exchange Commission and are not intended to forecast future
price appreciation of the common stock. The actual value realized from the
options could be substantially higher or lower than the values reported
above, depending upon the future appreciation or depreciation of the
common stock during the option period and the timing of exercise of the
options. The potential realizable value computation does not take into
account federal or state income tax consequences of option exercised or
sales of appreciated stock.
Aggregated Option Exercises in Last Fiscal year and Fiscal Year-End Option
Values
The following table sets forth certain information concerning option
exercises by executive officers named in the Summary Compensation Table during
1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options at
Shares End Fiscal Year End (2)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
M. Scott Andrews........ -- -- -- -- -- --
Robert M. Fusillo....... 41,708 $ 611,664 6,953 150,123 $ 551,388 $10,723,953
Lyle A. Brecht.......... 83,602 1,226,025 13,274 146,648 1,052,808 9,502,067
James J. Scheuer........ 50,607 742,171 7,785 91,175 617,456 6,048,576
Antony Francis.......... -- -- -- 150,123 -- 10,723,953
</TABLE>
- ----------------
(1) Upon exercise of the option, an option holder did not receive the amount
reported above under the column Value Realized. The amounts reported above
under Value Realized merely reflect the amount by which the value of our
common stock exceeded the exercise price of the option on the date of
exercise of the option. The option holder does not realize any cash until
the shares of common stock issued upon exercise of the options are sold.
(2) The value of our common stock at December 31, 1999 was $79.50 per share,
based on the closing price of the common stock on that date as reported by
Nasdaq. The value of options was determined by subtracting the aggregate
exercise prices of the options from the value of the common stock issuable
upon exercise of the options.
53
<PAGE>
Stock Plans
SciQuest.com, Inc. 1999 Stock Incentive Plan. The SciQuest.com Stock
Incentive Plan was adopted by our Board in October 1999 and approved by our
stockholders in November 1999. The incentive plan replaced our original plan,
the SciQuest.com, Inc. Stock Option Plan.
A maximum of 2,854,998 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
deemed 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.
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.
54
<PAGE>
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.
As of December 31, 1999, we had outstanding 649,100 stock options under the
incentive plan, at an average exercise price of $32.86 per share, and no
options have been exercised.
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 that portion of any outstanding options that would have become vested
within the next twelve months will 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.
As of December 31, 1999, we had outstanding 1,544,628 stock options under
the option plan, at a weighted average exercise price of $2.86 per share, and
436,874 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 November 1999, to decrease the number of shares authorized
under the plan to 2,056,060.
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.
55
<PAGE>
401(k) Profit Sharing Plan. We maintain a 401(k) Profit Sharing Plan. In
general, all of our employees who have completed 30 days of service are
eligible to participate. Our 401(k) Plan includes a salary deferral
arrangement pursuant to which participants may contribute, subject to certain
Code limitations, a maximum of 15% of their salary or $10,000 on a pre-tax
basis. We currently do not match any portion of the employee's contribution. A
separate account is maintained for each participant in the 401(k) Plan.
Distributions from our 401(k) Plan may be made in the form of a lump-sum cash
payment or in installment payments.
Employment Agreements
Our principal employees, including executive officers, are required to sign
an agreement prohibiting their disclosure of any of our confidential or
proprietary information and restricting their ability to compete with us
during their employment and for a period of two years thereafter, restricting
solicitation of customers and employees following their employment with us and
providing for ownership and assignment of intellectual property rights to us.
Limitation of Liability and Indemnification of Officers and Directors
Our certificate of incorporation limits personal liability for breach of
the fiduciary duty of our directors to the fullest extent provided by the
Delaware General Corporation Law. Our certificate of incorporation provides
that no director of SciQuest.com shall have personal liability to us or to our
stockholders for monetary damages for breach of fiduciary duty of care or
other duty as a director. However, these provisions do not eliminate or limit
the liability of a director:
.for any breach of a director's duty of loyalty to us or our stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
.for voting or assenting to unlawful distributions; or
.for any transaction from which the director derived an improper personal
benefit.
Any amendment to or repeal of such provisions will not eliminate or reduce
the effect of such provisions in respect of any act or failure to act, or any
cause of action, suit or claim that would accrue or arise prior to any
amendment, repeal or adoption of such an inconsistent provision. If the
Delaware General Corporation Law is subsequently amended to provide for
further limitations on the personal liability of directors of corporations for
breach of duty of care or other duty as a director, then the personal
liability of our directors will be further limited to the greatest extent
permitted by the Delaware General Corporation Law.
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 directors' and officers' liability insurance policies in
the total amount of $15 million.
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<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, October and November 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.
All references in the foregoing to number of shares and exercise price for
preferred stock do not reflect the effect of the 1.516643 to 1 common stock
split effected in November 1999. All of our outstanding preferred shares were
converted into shares of our common stock upon the completion of our initial
public offering and all of the outstanding warrants to purchase our preferred
shares were converted into warrants to purchase shares of our common stock.
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 AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our capital stock as of February 29, 2000 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 named executive officers;
. each of our directors;
. all executive officers and directors as a group; and
. each selling stockholder.
For purposes of calculating the percentage beneficially owned, the number of
shares of common stock deemed outstanding prior to this offering consists of
26,464,525 shares outstanding as of February 29, 2000. The number of shares of
common stock deemed outstanding after this offering includes an additional
2,000,000 shares that are being offered for sale by us in this offering.
Options that are exercisable within sixty days of February 29, 2000 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 Owned
Prior to Offering After Offering
--------------------------- ---------------------
Name Shares Percent Shares Offered Shares Percent
- ---- ------------ ---------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
Trinity Ventures VI, L.P. 1,907,190(1) 7.2% 466,365 1,440,825(1) 5.1%
Bessemer Venture Partners
IV L.P. 1,640,868(2) 6.2% 401,241 1,239,627(2) 4.4%
Noro-Moseley Partners IV,
L.P. 1,555,793(3) 5.9% 380,437 1,175,356(3) 4.1%
M. Scott Andrews 798,934(4) 3.0% 73,359 725,575(4) 2.5%
Peyton C. Anderson 853,112(5) 3.2% 81,528 771,584(5) 2.7%
Bruce J. Boehm 210,007(6) * 48,906 161,101(6) *
Noel J. Fenton 1,907,190(7) 7.2% 466,365 1,440,825(7) 5.1%
Gautam A. Prakash 1,640,868(8) 6.2% 401,241 1,239,627(8) 4.4%
Alan J. Taetle 1,555,793(9) 5.9% 380,437 1,175,356(9) 4.1%
Timothy T. Weglicki 1,205,812(10) 4.5% 294,857 910,955(10) 3.2%
All directors and
executive officers as a
group (14 persons)
(4)(5)(6)(7)(8)(9)(10)(44) 8,604,683 32.1% 1,778,873 6,825,790 23.7%
ABS Capital Partners III,
L.P. 1,205,812(11) 4.5% 294,857 910,955(11) 3.2%
Raymond Anderson 3,446(12) * 489 2,957(12) *
Mohamed Bacchus 6,912 * 489 6,423 *
Joan Boyce 98,325(13) * 5,640 92,685(13) *
Lyle Brecht 112,316(14) * 9,781 102,535(14) *
BT Investment Partners,
Inc 895,399(15) 3.4% 218,952 676,447(15) 2.4%
Mario and Karen Cardullo 6,000 * 1,467 4,533 *
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Shares
Shares Beneficially Beneficially
Owned Owned
Prior to Offering After Offering
-------------------------- -------------------
Name Shares Percent Shares Offered Shares Percent
- ---- ----------- ---------- -------------- ------- -------
<S> <C> <C> <C> <C> <C>
Comdisco, Inc. 80,390(16) * 19,658 60,732(16) *
Sara Brooks Creagh 48,989(17) * 11,979 37,010(17) *
Daniel Egger 37,500(18) * 9,170 28,330(18) *
Daniel Egger & Helen
Link Egger,
JT TEN 422 * 104 318 *
Daniel Egger
Irrevocable Insurance
Trust FBO: Alexander
Egger 5,424 * 1,326 4,098 *
Daniel Egger
Irrevocable Insurance
Trust FBO: Rebecca
Egger 5,424 * 1,326 4,098 *
Helen Link Egger
Irrevocable
Insurance Trust FBO:
Alexander 5,424 * 1,326 4,098 *
Helen Link Egger
Irrevocable
Insurance Trust FBO:
Rebecca Egger 5,424 * 1,326 4,098 *
Bobby Feigler 771,747(19) 2.9% 73,359 698,388(19) 2.5%
William P. Few 23,752(20) * 5,808 17,944(20) *
Steve Fitzgibbons 5,625(21) * 1,375 4,250(21) *
Antony Francis 172,096(22) * 11,737 160,359(22) *
Robert Fusillo 62,568(23) * 5,771 56,797(23) *
O. Gene Gabbard 46,793 * 11,442 35,351 *
GE Capital Equity
Investments, Inc. 803,875(24) 3.0% 163,804 640,071(24) 2.2%
Worth Godwin 379,192 1.4% 23,157 356,035 1.3%
Doug Grady 114,619(25) * 4,891 109,728(25) *
Keith Gunter 840,213 3.2% 80,266 759,947 2.7%
Roberta B. Hardy 25,270 * 6,180 19,090 *
Susan M. Harwood 15,167 * 1,761 13,406 *
Emil W. Henry, Jr. 21,698 * 5,306 16,392 *
Roger Hoit 10,850 * 2,654 8,196 *
Max Holmes 5,426 * 1,326 4,100 *
John Huwiler 5,426 * 1,326 4,100 *
Eric Johnson 5,625(26) * 978 4,647(26) *
Willie H. Johnson, III 11,072(27) * 2,707 8,365(27) *
Laura E. Jones,
Custodian for
Paul Alexander Jones 684 * 167 517 *
Laura E. Jones,
Custodian for
Victoria Margaret
Jones 684 * 167 517 *
Paul A. Jones, IV 8,977(28) * 2,195 6,782(28) *
Paul A. Jones, Sr. 1,864(29) * 456 1,408(29) *
Paul A. & Laura E.
Jones, JT TEN 36,815 * 9,003 27,812 *
Paul A. Jones Trust,
Paula Jones Tarta,
Trustee 6,082 * 1,488 4,594 *
Carol B. Jones Trust,
Paula Jones Tarta,
Trustee 31,850 * 7,789 24,601 *
Kingdon Associates 69,938(30) * 17,102 52,836(30) *
Kingdon Family
Partnership, LP 18,910(31) * 4,625 14,285(31) *
Kingdon Partners 55,467(32) * 13,564 41,903(33) *
M. Kingdon Offshore, NV 337,627(33) 1.3% 82,560 255,067(33) *
Cloyd Laporte 6,000 * 1,467 4,533 *
Micheil McCarty 14,917 * 3,647 11,270 *
David Mills 2,714 * 664 2,050 *
N.C. Technological
Developmental
Authority, Inc. 199,631(34) * 48,816 150,815(34) *
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Shares
Shares Beneficially Beneficially
Owned Owned
Prior to Offering After Offering
-------------------------- -------------------
Name Shares Percent Shares Offered Shares Percent
- ---- ----------- ---------- -------------- ------- -------
<S> <C> <C> <C> <C> <C>
Guy Orgambide 10,800 * 1,056 9,744 *
M. Page B. Page 5,451(35) * 510 4,941(35) *
Arthur M. Pappas 136,516 * 33,382 103,134 *
Thomas P. Riley 8,137 * 1,989 6,148 *
James J. Scheuer 73,967(36) * 4,891 69,076(36) *
David Skowron 52,380(37) * 4,942 47,438(37) *
Kathryn Shea Tarta 759 * 186 573 *
Paula Jones Tarta 1,517 * 371 1,146 *
Paula Jones Tarta,
Custodian for
Margaret Marie Tarta 759 * 186 573 *
Paula Jones Tarta,
Custodian for
Elizabeth Jo Tarta 759 * 186 573 *
Paula Jones Tarta,
Custodian for
Suzanne Alexander Tarta 759 * 186 573 *
Jeffrey H. Tepper 5,426 * 1,327 4,099 *
TreeLodge Partners, LP 14,407 * 3,523 10,884 *
U.S. Development Capital
Investment Company 211,164(38) * 51,636 159,528(38) *
John H. and Anne T.
Varner 18,995(39) * 1,956 17,039(39) *
Cliff Waits 39,431(40) * 3,668 35,763(40) *
Wakefield Group II LLC 935,418(41) 3.5% 228,738 706,680(41) 2.5%
Hunter R. Watson 8,774(42) * 2,146 6,628(42) *
Westport Partners 130,194(43) * 31,837 98,357(43) *
</TABLE>
- --------
* Less than 1.0%.
(1) Includes shares owned by Trinity VI Side-By-Side Fund, L.P., which is an
affiliate of Trinity Ventures VI, L.P. Trinity Ventures VI, L.P.'s
address is 3000 Sand Hill Road, Building 1, Suite 240, Menlo Park,
California 94025.
(2) 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. Bessemer Venture Partners IV L.P.'s address is 1400 Old Country
Road, Suite 407, Westbury, NY 11590.
(3) Includes 10,192 shares subject to warrants that are currently
exercisable. Includes shares owned by Noro-Moseley Partners IV-B Fund
L.P., which is an affiliate of Noro-Moseley Partners IV, L.P. Noro-
Moseley Partners IV, L.P.'s address is 9 North Parkway Square, 4200
Northside Parkway, N.W., Atlanta, Georgia 30327.
(4) Consists of shares owned by Andrews Properties of Wake County LLC. Mr.
Andrew's address is 5151 McCrimmon Parkway, Suite 208, Morrisville, North
Carolina 27560.
(5) Consists of shares owned by Peyton C. Anderson and Little Lake Hill LLC.
Mr. Anderson's address is 5151 McCrimmon Parkway, Suite 208, Morrisville,
North Carolina 27560.
(6) Includes 10,170 shares subject to a warrant that is currently
exercisable.
(7) 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.
(8) 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.
60
<PAGE>
(9) Includes 10,192 shares subject to warrants that are currently
exercisable. 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.
(10) Includes 200,969 shares subject to warrants that are currently
exercisable. 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.
(11) Includes 200,969 shares subject to warrants that are currently
exercisable.
(12) Includes 847 shares subject to warrants that are currently exercisable.
(13) Includes 40,680 shares subject to warrants that are currently exercisable
and 6,231 shares subject to options that are exercisable within 60 days.
(14) Includes 28,176 shares subject to options that are exercisable within 60
days.
(15) Includes 53,593 shares subject to warrants that are currently
exercisable.
(16) Includes 13,399 shares subject to warrants that are currently
exercisable.
(17) Includes 1,214 shares subject to warrants that are currently exercisable.
(18) Includes 6,780 shares subject to warrants that are currently exercisable.
(19) Includes shares owned by Robert and Jeanne Feigler, Joint Tenants, the
Feigler Limited Partnership No. 1 and the Robert J. Feigler Irrevocable
Trust.
(20) Includes 1,052 shares subject to warrants that are currently exercisable.
(21) Includes 938 shares subject to warrants that are currently exercisable.
(22) Includes 36,495 shares subject to options that are exercisable within 60
days.
(23) Includes 20,860 shares subject to options that are exercisable within 60
days.
(24) Includes 133,979 shares subject to warrants that are currently
exercisable.
(25) Includes 7,588 shares subject to options that are exercisable within 60
days.
(26) Includes 938 shares subject to warrents that are currerntly exercisiable.
(27) Includes 594 shares subject to warrants that are currently exercisable.
(28) Includes 2,118 shares subject to warrants that are currently exercisable.
(29) Includes 1,864 shares subject to warrants that are currently exercisable.
(30) Includes 11,656 shares subject to warrants that are currently
exercisable.
(31) Includes 3,152 shares subject to warrants that are currently exercisable.
(32) Includes 9,244 shares subject to warrants that are currently exercisable.
(33) Includes 56,271 shares subject to warrants that are currently
exercisable.
(34) Includes 8,474 shares subject to warrants that are currently exercisable.
(35) Includes 1,423 shares subject to options that are exercisable within 60
days.
(36) Includes 23,360 shares subject to options that are exercisable within 60
days.
(37) Includes 35,696 shares subject to options that are exercisable within 60
days.
(38) Includes 40,195 shares subject to warrants that are currently
exercisable.
(39) Includes 841 shares subject to warrants that are currently exercisable.
(40) Includes 13,743 shares subject to options that are exercisable within 60
days.
(41) Includes 20,304 shares subject to warrants that are currently
exercisable.
(42) Includes 107 shares subject to warrants that are currently exercisable.
(43) Includes 4,576 shares subject to warrants that are currently exercisable.
(44) Includes 120,652 shares subject to options that are exercisable within 60
days.
61
<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 December 31, 1999, we had
issued and outstanding 26,353,652 shares of common stock.
Common Stock
Upon completion of this offering, there will be 28,464,525 shares of common
stock outstanding assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants. 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
We have 10,000,000 shares of preferred stock authorized, none of which is
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 February 29, 2000, we had outstanding options to purchase an aggregate
of 2,306,427 shares of common stock at a weighted average exercise price of
$15.32 per share and warrants to purchase an aggregate of 5,887,517 shares of
common stock at a weighted average exercise price of $1.01 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 716,577 warrants provide for antidilution
adjustment in the event of certain dilutive issuances of securities by us at
less than $7.46 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
is entitled to vote at the meeting and who has delivered timely written notice
in proper form to our Secretary of
62
<PAGE>
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
Holders of 17,257,525 shares of our common stock and 757,257 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. The shares being offered by the selling stockholders
have been included in this offering pursuant to these registration rights.
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.
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<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 our initial public offering, subject to specified limitations,
holders of 6,013,177 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
Our common stock is quoted on the Nasdaq National Market under the trading
symbol "SQST."
Transfer Agent
The transfer agent for our common stock is SunTrust Bank, Atlanta.
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<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
28,464,525 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, and the 8,625,000
shares sold in the initial public 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. Of the remaining shares, 217,367 shares are freely tradeable
without restriction or registration under the Securities Act and 14,921,758
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 contractual restrictions and 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:
. 12,136 shares may be eligible for sale in accordance with the applicable
requirements of Rule 144;
. 2,522,707 shares may be eligible for sale in accordance with the
applicable requirements of Rule 144 upon expiration of lock-up agreements
expiring 180 days after the date of our initial public offering.
. 66,274 shares may be eligible for sale in accordance with the
requirements of Rule 144 upon expiration of lock-up agreements expiring
60 days after the date of this prospectus;
. 11,459,188 shares may be eligible for sale in accordance with the
requirements of Rule 144 upon expiration of lock-up agreements expiring
90 days after the date of this prospectus;
. 543,692 shares may be eligible for sale in accordance with the
requirements of Rule 144 on June 8, 2000;
. 173,925 shares may be eligible for sale in accordance with the
requirements of Rule 144 on July 30, 2000; and
. 143,836 shares may be eligible for sale in accordance with the
requirements of Rule 144 in December 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
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, for a period of 90 days after the date of this prospectus in the
case of our officers, directors and selling stockholders, and for a period of
60 days after the date of this prospectus or 180 days after the date of our
initial public offering in the case of our other stockholders.
Rule 144
In general, under Rule 144 as currently in effect, 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 284,641
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.
65
<PAGE>
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 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 purchased shares from us in
connection with a compensatory stock plan or other written agreement prior to
our initial public offering is eligible to resell such shares 90 days after the
date of the prospectus filed in connection with our initial public offering 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
After the completion of this offering, certain stockholders holding
approximately 17,257,525 shares of common stock and 757,257 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. 2,648,460 of the 3,000,000 shares being
offered by the selling stockholders have been included in this offering
pursuant to these registration rights.
Stock Options and Warrants
Options to purchase an aggregate of 178,113 shares of our common stock are
fully vested as of December 31, 1999. All of such shares are subject to either
the 60 or 90 day lock-up agreements described above. As of December 31, 1999,
options to purchase an additional 2,022,580 shares of common stock were
outstanding but subject to future vesting and an additional 2,205,898 shares of
common stock were available for future grants under our stock incentive plans.
Generally, options granted to employees vest and become exercisable as follows:
25% on the one year anniversary of the employee's employment and in equal
monthly increments of 2.084% per month thereafter for 36 months, with full
vesting in 4 years from the employee's initial date of employment. As of
December 31, 1999, 5,889,303 shares of common stock are subject to currently
exercisable warrants at an average exercise price of $1.01 per share.
We have filed a registration statement 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 plans. Subject to the lock-up
agreements, shares covered by this registration statement 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.
We have filed a registration statement on Form S-8 to register all shares of
common stock issuable under our stock option and stock incentive plans. Shares
covered by this registration statement are eligible for sale in the public
market, subject to Rule 144 limitations applicable to affiliates and the lock-
up agreements, if applicable.
66
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
, 2000, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Deutsche Banc Securities Inc., Chase
Securities Inc., Banc of America Securities LLC, Thomas Weisel Partners LLC,
U.S. Bancorp Piper Jaffray Inc., William Blair & Company L.L.C., E*OFFERING
Corp. and DLJdirect Inc. have severally agreed to purchase from SciQuest.com
and the selling stockholders, the respective number of shares of common stock
shown opposite their names below.
<TABLE>
<CAPTION>
Number
of Shares
<S> <C>
Underwriters:
Donaldson, Lufkin & Jenrette Securities Corporation..................
Chase Securities Inc.................................................
Deutsche Banc Securities Inc.........................................
Banc of America Securities LLC.......................................
Thomas Weisel Partners LLC...........................................
U.S. Bancorp Piper Jaffray Inc.......................................
William Blair & Company L.L.C........................................
E*OFFERING Corp......................................................
DLJdirect Inc........................................................
------
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>
Paid by Paid by Selling
SciQuest.com Stockholders
----------------- -----------------
No Full No Full
Exercise Exercise Exercise Exercise
<S> <C> <C> <C> <C>
Per share................................... $ $ $ $
Total.......................................
</TABLE>
We will pay the offering expenses, estimated to be $900,000.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998 Thomas Weisel Partners has been named as a lead or co-manager on
138 filed public offerings of equity securities, of which 102 have been
completed, and has acted as a syndicate member in an additional 75 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractural relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
67
<PAGE>
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 E*OFFERING Corp. and DLJdirect Inc., an
affiliate of Donaldson, Lufkin & Jenrette Securities Corporation. 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 750,000 additional
shares of common stock at the initial public offering price less the
underwriting fees. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to various conditions, to purchase a number of additional
shares proportionate to such underwriter's initial purchase commitment.
In the event any selling stockholder fails to sell to the underwriters the
shares the selling stockholder is required to sell in the offering, we will
sell additional shares to the underwriters to make up the shortfall.
We and the selling stockholders 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 either have agreed, or are contractually bound not to, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation,
for a period of 90 days after the date of this prospectus in the case of
SciQuest, our executive officers, directors and selling stockholders and 60
days after the date of this prospectus in the case of our other stockholders:
. 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.
Our common stock is quoted on the Nasdaq National Market under the symbol
"SQST."
Other than in the United States, no action has been taken by us, the selling
stockholders 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
68
<PAGE>
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 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.
In the event our common stock does not constitute an excepted security under
the provisions of Regulation M promulgated by the SEC, the underwriters and
dealers may engage in passive market making transactions in accordance with
Rule 103. In general, a passive market maker may not bid for or purchase shares
of common stock at a price that exceeds the highest independent bid. In
addition, the net daily purchases made by any passive market maker generally
may not exceed 30% of its average daily trading volume in the common stock
during a specified two-month prior period, or 200 shares, whichever is greater.
A passive market maker must identify passive market making bids as such on the
Nasdaq electronic inter-dealer reporting system. Passive market making may
stabilize or maintain the market price of the common stock above independent
market levels. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.
Chase Securities Inc. and persons associated with Chase Securities Inc.
beneficially own 47,107 shares of our common stock and warrants to purchase
14,288 shares of 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 Chase Securities
Inc., owns 188,421 shares of our common stock and warrants to purchase 37,685
shares of 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 1,272,801 shares of our
common stock and warrants to purchase 254,462 shares of common stock at an
exercise price of $7.46 per share, which warrants expire in May 2004.
Chase Securities Inc. 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.
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 Morris, Manning & Martin, L.L.P., Atlanta, Georgia, and other
legal matters relating to this offering will be passed on for us by Hutchison &
Mason PLLC, Raleigh, North Carolina. Legal matters in connection with this
offering will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, New York, New York.
69
<PAGE>
EXPERTS
The financial statements of SciQuest.com as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999, included
in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. The financial statements of
EMAX Solution Partners, Inc. included in this prospectus to the extent and for
the periods indicated in their reports have been audited by KPMG LLP,
independent public accountants and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
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.
In addition, we file reports and other information with the SEC. You may
read and copy all or any portion of the registration statement and the exhibits
at the SEC's public reference room at 450 Fifth Street N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents, upon payment of a duplication fee, by writing to the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the SEC's public reference rooms. Also, the SEC maintains a World Wide Web
site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
70
<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, 1998 and 1999.............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999...................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
EMAX Solution Partners, Inc.:
Independent Auditors' Report.............................................. F-25
Consolidated Balance Sheets as of December 31, 1998 and 1999.............. F-26
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1999............................................................ F-27
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1998 and 1999............................................... F-28
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1999............................................................ F-29
Notes to Consolidated Financial Statements................................ F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
SciQuest.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit), and
of cash flows present fairly, in all material respects, the financial position
of SciQuest.com, Inc. and its subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 2, 2000
Raleigh, North Carolina
F-2
<PAGE>
SciQuest.com, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 5,391,462 $ 98,126,414
Short-term investments............................ 1,886,693 24,285,293
Accounts receivable............................... 104,082 1,771,634
Prepaid expenses and other assets................. 37,057 1,625,355
----------- -------------
Total current assets............................ 7,419,294 125,808,696
----------- -------------
Restricted cash.................................... 82,236 --
Long-term investments.............................. -- 23,592,483
Property and equipment, net........................ 357,460 2,869,423
Capitalized development costs, net................. -- 1,392,085
Other assets....................................... 1,314,109 3,238,997
----------- -------------
Total assets.................................... $ 9,173,099 $ 156,901,684
=========== =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable.................................. $ 694,611 $ 4,250,978
Accrued liabilities............................... 280,003 1,111,395
Current maturities of capital lease obligations... 18,048 463,141
Current maturities of notes payable............... 14,060 --
----------- -------------
Total current liabilities....................... 1,006,722 5,825,514
----------- -------------
Deferred income taxes.............................. 285,005 66,225
Capital lease obligations, less current maturities. 35,082 1,190,786
Notes payable, less current maturities............. 65,128 --
Commitments and contingencies (Note 14)............ -- --
Mandatorily redeemable convertible preferred stock. 10,882,702 --
Stockholders' equity (deficit):
Series A convertible preferred stock, $0.001 par
value; 769,231 and no shares designated; 769,221
and no shares issued and outstanding as of
December 31, 1998, and 1999, respectively........ 683,135 --
Series C convertible preferred stock, $0.001 par
value; 700,000 and no shares designated,
respectively; 546,405 and no shares issued and
outstanding as of December 31, 1998 and 1999,
respectively..................................... 1,524,470 --
Preferred stock, undesignated, 10,000,000 shares
authorized; none issued or outstanding .......... -- --
Common stock, $0.001 par value; 90,000,000 shares
authorized; 3,412,447 and 26,353,652 shares
issued and outstanding as of December 31, 1998,
and 1999, respectively........................... 3,412 26,354
Class B common stock, $0.001 par value, 250,020
and no shares authorized, issued and outstanding
as of December 31, 1998, and 1999, respectively
................................................. 100,000 --
Additional paid-in capital........................ 49,949 591,841,571
Deferred compensation............................. -- (12,276,151)
Deferred customer acquisition costs............... -- (391,138,705)
Accumulated other comprehensive loss.............. (6,673) --
Accumulated deficit............................... (5,455,833) (38,633,910)
----------- -------------
Total stockholders' equity (deficit).............. (3,101,540) 149,819,159
----------- -------------
Total liabilities and stockholders' equity
(deficit)...................................... $ 9,173,099 $ 156,901,684
=========== =============
</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 December 31,
---------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Revenues.............................. $ 196,381 $ 477,818 $ 3,882,441
Cost of revenues...................... -- 41,880 3,426,692
---------- ----------- --------------
Gross profit...................... 196,381 435,938 455,749
---------- ----------- --------------
Operating expenses:
Development......................... 140,520 1,191,135 9,008,261
Sales and marketing................. 256,699 1,706,033 10,206,133
General and administrative.......... 457,058 1,104,010 7,075,907
Stock based non-cash employee
compensation....................... -- -- 323,676
Stock based non-cash customer
acquisition costs.................. -- -- 9,107,753
Purchased in-process research and
development........................ -- 791,102 --
---------- ----------- --------------
Total operating expenses.......... 854,277 4,792,280 35,721,730
---------- ----------- --------------
Operating loss........................ (657,896) (4,356,342) (35,265,981)
---------- ----------- --------------
Interest income (expense):
Interest income..................... 3,235 110,565 1,897,115
Interest expense.................... (35,028) (30,524) (27,991)
---------- ----------- --------------
Net interest income (expense)..... (31,793) 80,041 1,869,124
---------- ----------- --------------
Loss before income taxes.............. (689,689) (4,276,301) (33,396,857)
Income tax benefit.................... -- 54,695 218,780
---------- ----------- --------------
Net loss.............................. (689,689) (4,221,606) (33,178,077)
========== =========== ==============
Pro forma net loss per common share --
basic and diluted.................... $(2.09)
Pro forma weighted average common
shares outstanding................... 15,846,189
Net loss available to common
stockholders......................... $ (689,689) $(4,550,329) $(112,467,099)
========== =========== ==============
Net loss per common share--basic and
diluted.............................. $(0.20) $(1.33) $(18.10)
Weighted average common shares
outstanding--basic and diluted....... 3,412,447 3,412,447 6,214,893
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SciQuest.com, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Series C Series E Class B
Preferred Stock Preferred Stock Preferred Stock Common Stock Common Stock
------------------ -------------------- -------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............. -- $ -- -- $ -- -- $ -- 3,412,447 $ 3,412 250,020 $100,000
Noncash
management
compensation
expense......... -- -- -- -- -- -- -- -- -- --
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
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.. -- -- -- -- -- -- -- -- -- --
Accretion of
mandatorily
redeemable
preferred
stock........... -- -- -- -- -- -- -- -- -- --
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
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
cash............ -- -- 89,408 250,000 -- -- -- -- -- --
Issuance of
Series E
convertible
preferred stock
at $11.32 per
share in
exchange for
shares of IAI,
Inc............. -- -- -- -- 114,995 1,255,616 -- -- -- --
Issuance of
Common Stock
warrants in
connection with
Series D
preferred stock. -- -- -- -- -- -- -- -- -- --
Realized loss on
sale of
investments..... -- -- -- -- -- -- -- -- -- --
Accretion of
mandatorily
redeemable
preferred stock. -- -- -- -- -- -- -- -- -- --
Deferred
compensation
related to
acquisition of
IAI, Inc........ -- -- -- -- -- -- -- -- -- --
Deferred
compensation
related to
issuance of
stock options... -- -- -- -- -- -- -- -- -- --
Deferred partner
acquisition
costs related to
issuance stock
warrants........ -- -- -- -- -- -- -- -- -- --
Conversion of
preferred stock
into common
stock........... (769,221) (683,135) (635,813) (1,774,470) (114,995) (1,255,616) 13,438,185 13,438 (250,020) (100,000)
Proceeds from
sale of common
stock in initial
public offering. -- -- -- -- -- -- 8,625,000 8,625 -- --
Exercise of
common stock
options......... -- -- -- -- -- -- 436,874 437 -- --
Exercise of
common stock
warrants........ -- -- -- -- -- -- 441,146 442 -- --
Amortization of
deferred
compensation
related to stock
options......... -- -- -- -- -- -- -- -- -- --
Amortization of
deferred
compensation
related to
acquisition of
IAI, Inc. ...... -- -- -- -- -- -- -- -- -- --
Amortization of
deferred partner
acquisition
costs........... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- -------- -------- ---------- -------- ---------- ---------- ------- -------- --------
Total at December
31, 1999......... -- $ -- -- $ -- -- $ -- 26,353,652 $26,354 -- $ --
======== ======== ======== ========== ======== ========== ========== ======= ======== ========
<CAPTION>
Accumulated
Deferred Other Total
Additional Deferred Customer Comprehensive Accumu- Stockholders'
Paid in Compen- Acquisition Income lated Equity
Capital sation Costs (Loss) Loss (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............. $ 186,588 $ -- $-- $ -- $ (544,538) $ (254,538)
Noncash
management
compensation
expense......... 180,000 -- -- -- -- 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............. 366,588 -- -- -- (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 -- -- -- -- 12,084
Accretion of
mandatorily
redeemable
preferred
stock........... (328,723) -- -- -- -- (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............. 49,949 -- -- (6,673) (5,455,833) (3,101,540)
Issuance of
Series C
convertible
preferred stock
at $2.80 per
share in
exchange for
cash............ -- -- -- -- -- 250,000
Issuance of
Series E
convertible
preferred stock
at $11.32 per
share in
exchange for
shares of IAI,
Inc............. -- -- -- -- -- 1,255,616
Issuance of
Common Stock
warrants in
connection with
Series D
preferred stock. 726,137 -- -- -- -- 726,137
Realized loss on
sale of
investments..... -- -- -- 6,673 -- 6,673
Accretion of
mandatorily
redeemable
preferred stock. (79,289,022) -- -- -- -- (79,289,022)
Deferred
compensation
related to
acquisition of
IAI, Inc........ -- (400,000) -- -- -- (400,000)
Deferred
compensation
related to
issuance of
stock options... 12,199,827 (12,199,827) -- -- -- --
Deferred partner
acquisition
costs related to
issuance stock
warrants........ 400,246,458 -- (400,246,458) -- -- --
Conversion of
preferred stock
into common
stock........... 129,106,344 -- -- -- -- 125,306,561
Proceeds from
sale of common
stock in initial
public offering. 126,916,635 -- -- -- -- 126,925,260
Exercise of
common stock
options......... 60,351 -- -- -- -- 60,788
Exercise of
common stock
warrants........ 1,824,892 -- -- -- -- 1,825,334
Amortization of
deferred
compensation
related to stock
options......... -- 240,341 -- -- -- 240,341
Amortization of
deferred
compensation
related to
acquisition of
IAI, Inc. ...... -- 83,335 -- -- -- 83,335
Amortization of
deferred partner
acquisition
costs........... -- -- 9,107,753 -- -- 9,107,753
Net loss........ -- -- -- -- (33,178,077) (33,178,077)
------------- ------------- -------------- ------------- ------------- --------------
Total at December
31, 1999......... $591,841,571 $(12,276,151) $(391,138,705) $ -- $(38,633,910) $149,819,159
============= ============= ============== ============= ============= ==============
</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 December 31,
------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Cash flows from operating activities
Net loss................................ $(689,689) $(4,221,606) $(33,178,077)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization........... 12,421 205,122 1,264,120
Noncash management compensation
expense................................ 180,000 -- --
Amortization of debt discount........... -- 12,084 --
Purchased in process research and
development............................ -- 791,102 --
Deferred tax benefit.................... -- (54,695) (218,780)
Amortization of deferred compensation... -- -- 323,676
Amortization of deferred customer
acquisition costs...................... -- -- 9,107,753
Amortization of discount on
investments............................ -- -- (215,069)
Changes in operating assets and
liabilities
Accounts receivable.................... 6,460 (61,425) (1,650,144)
Prepaid expenses and other assets...... (4,830) (47,535) (594,544)
Accounts payable....................... 13,125 469,833 3,556,367
Other assets........................... -- -- (2,688,588)
Accrued liabilities.................... 91,659 (184,467) 766,928
--------- ----------- ------------
Net cash used in operating activities. (390,854) (3,091,587) (23,526,358)
--------- ----------- ------------
Cash flows from investing activities
Purchase of property and equipment...... -- (273,341) (3,420,505)
Proceeds from sale of equipment......... -- -- 704,522
Cash received from acquisitions......... -- 9,173 4,918
Maturity of investments................. -- -- 11,854,602
Purchase of investments, including
restricted cash........................ -- (1,975,602) (57,541,707)
--------- ----------- ------------
Net cash used in investing activities. -- (2,239,770) (48,398,170)
--------- ----------- ------------
Cash flows from financing activities
Borrowings under notes payable.......... 211,581 562,110 --
Repayment of notes payable.............. (90,869) (206,348) (175,188)
Repayment of capital lease obligations.. (8,322) (2,758) (87,689)
Proceeds from exercise of common stock
warrants............................... -- -- 1,825,334
Proceeds from exercise of common stock
options................................ -- -- 60,788
Proceeds from issuance of Class B common
stock, net............................. -- -- --
Proceeds from issuance of Series A
convertible preferred stock, net....... 600,596 -- --
Proceeds from issuance of Series C
convertible preferred stock, net....... -- -- 250,000
Proceeds from issuance of Series B
mandatorily redeemable convertible
preferred stock, net................... -- 10,038,979 --
Proceeds from issuance of Series D
mandatorily redeemable convertible
preferred stock, net................... -- -- 35,860,975
Proceeds from sale of common stock in
initial public offering, net........... -- -- 126,925,260
--------- ----------- ------------
Net cash provided by financing
activities........................... 712,986 10,391,983 164,659,480
--------- ----------- ------------
Net increase in cash and cash
equivalents............................. 322,132 5,060,626 92,734,952
Cash and cash equivalents at beginning of
period.................................. 8,704 330,836 5,391,462
--------- ----------- ------------
Cash and cash equivalents at end of
period.................................. $ 330,836 $ 5,391,462 $ 98,126,414
========= =========== ============
</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 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
management's 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 suppliers. 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") and on
commissions received for the auction, through one of the Company's Web sites of
used scientific equipment by the Company's subsidiary, Internet Auctioneers
International, Inc. ("IAI"). 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
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 subsidiaries, BioSupplyNet, Inc. and Internal
Auctioneers International, Inc. All significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
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 December 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. Realized gains and losses on sales of investment securities are
determined based on the specific identification method.
F-7
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 year ended December 31,
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 of $37,000 and $39,000 at December 31, 1998 and
1999, respectively.
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.
Development Costs
Development costs include expenses incurred by the Company to develop,
enhance, manage, monitor and operate the Company's Web sites and costs of
managing and integrating data on this Company's web sites. In March 1998, the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants ("AICPA") issued Statements of Position No. 98-1 "Accounting
for the Costs of Computer Software Developed or obtained 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 standards 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. With the adoption of SOP No. 98-1, the Company began accounting for
the software development component of development costs in accordance with SOP
No. 98-1 which requires certain costs associated with the development of the
Company's Web sites to be capitalized and amortized over the useful life of the
related applications, which generally range from three months to one year.
Capitalized development cost are amortized over the estimated life of the
related application.
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 which are included in capitalized development 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. 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
F-8
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 three to five years.
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 approximated their fair value
due to the short-term nature of these items. The Company considers its short-
term and long-term investments to be held-to-maturity and therefore these
investments are carried at amortized cost. The fair value of the Company's
short-term and long-term investments at December 31, 1998 and 1999, based on
market quotes, is presented in note 5.
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, 1997, 1998, and
1999.
Revenue Recognition
The Company's revenues have historically been derived from services provided
to customers for development of Internet services, short term contracts for
banner advertising on its Web sites and from the sale of advertising included
in the Source Book. In April 1999, the Company began selling scientific
products through its e-commerce Web sites.
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 the sale of scientific products in 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 Company's suppliers. Product revenues
totaled approximately $2,979,000 for the year ended December 31, 1999.
F-9
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues received from the auction of used scientific products by the
Company's subsidiary, IAI, represents commissions which are determined based on
a percentage of the value of the scientific products sold. The Company
recognizes these commissions in revenue at the date the related piece of
scientific equipment is sold.
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, shipping and
handling fees and the cost of maintaining such Web sites. The Company generally
takes legal title to the scientific products purchased at the date of shipment
and relinquish title to our customers upon delivery.
In addition, the Company bears all credit risk for its sales of scientific
products in e-commerce transactions.
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
approximately $15,000, $181,000 and $1,900,000 for the years ended December 31,
1997, and 1998, and 1999, respectively.
Income Taxes
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and for tax carryforwards at enacted statutory
tax rates in effect for the years in which the differences are expected to
reverse. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Stock Based Compensation
The Company accounts for non-cash 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 related stock option. The Company recognized $323,676
in noncash compensation expense related to amortization of deferred
compensation during the year ended December 31, 1999. The Company did not
recognize any noncash compensation expense related to stock options during the
years ended December 31, 1997 and 1998, as no options were granted with
exercise prices below fair value until 1999. 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.
F-10
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
In 1997, one customer accounted for 30% of revenues. No single customer
accounted for more than 10% of the Company's revenues during the year ended
December 31, 1998. During 1999, two customers comprised 14% and 34%,
respectively, of the Company's revenue. 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. At December 31, 1998, one customer comprised 30% of the
accounts receivable balance. At December 31, 1999, two customers comprised 21%
and 27%, respectively, of the accounts receivable balance. All of the Company's
revenues are from sales transactions originating in the United States.
The Company relies on a number of third party suppliers for various
services, including e-commerce fulfillment services. While the Company 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 $33,416, $18,521, and $27,681
during the years ended December 31, 1997, 1998, and 1999, respectively.
The Company acquired property and equipment through the assumption of
capital lease obligations amounting to $0, $55,130, and $1,688,485 during the
years ended December 31, 1997,1998, and 1999 respectively.
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"). 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 the year ended December 31, 1998 was the unrealized
gain on investments in debt securities considered as available-for-sale. The
Company had no items of other comprehensive income for the year ended December
31, 1999.
Segment Reporting
The Company has determined that it does not have any separately reportable
operating segments as of December 31, 1998 and 1999.
Net Income (Loss) Per Common Share
Historical
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
F-11
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
income (loss) per common share ("Diluted EPS") is computed by dividing net
income (loss) available to common stockholders by the weighted average number
of common shares and dilutive potential common share equivalents then
outstanding. Potential common shares consist of shares issuable upon the
exercise of stock options and warrants and shares issuable upon conversion of
Class B common stock and convertible preferred stock. The calculation of the
net loss per share available to common stockholders for the years ended
December 1997, 1998, and 1999, does not include 545, 5,325,054 and 6,662,854,
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 the
reclassification of all outstanding shares of Class A common stock to common
stock and the conversion of all outstanding shares of Class B common stock and
all outstanding shares of preferred stock into common stock which occurred upon
the effectiveness of the Company's initial public offering on November 19, 1999
as if such conversion occurred on January 1, 1999, or the date of issuance of
the applicable preferred stock if later. Therefore, accretion of mandatorily
redeemable preferred stock of $79,289,022 for the year ended December 31, 1999
is excluded from the calculation of pro forma net loss per common share.
The calculation of pro forma net loss per common share for the year ended
December 31, 1999 does not include , respectively, potential shares of
common stock equivalents, as their impact would be anti-dilutive.
The calculation of the Company's pro forma net loss per common share before
stock based noncash charges for the year ended December 31, 1999, is presented
below:
<TABLE>
<S> <C>
Net Loss......................................................... $(33,178,077)
Stock based noncash charges...................................... 9,431,429
------------
Net loss before stock based noncash charges...................... $(23,746,648)
============
Pro forma net loss per common share.............................. $ (1.50)
============
Pro forma weighted average common stock shares outstanding....... 15,846,189
</TABLE>
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 quarter's of fiscal years beginning after June 15, 2000. The Company
currently does not and does not presently intend in the future to invest in
derivative financial instruments and therefore does not expect that the
adoption of SFAS No. 133 will have a material impact on the consolidated
financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") which addresses certain criteria for revenue
recognition. SAB 101 is required to be adopted for reporting periods beginning
after January 15, 2000. The adoption of SAB 101 is not currently expected to
have a material impact on the Company's consolidated financial position or
results of operations based on current interpretations of SAB 101, however, as
the SEC continues to provide additional guidance regarding the interpretation
and application of this pronouncement, its expected impact on the Company's
financial position and results of operations could change.
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
F-12
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 purchase price 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.
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.
F-13
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 to be amortized to compensation expense over a period of three
years, and $994,000 was allocated to goodwill.
On January 14, 2000, the Company purchased all of the outstanding stock of
Intralogix, Inc. ("Intralogix") in exchange for the issuance of 26,930 shares
of the Company's common stock with a value of $1,880,000 at the closing date of
the acquisition, cash payments in the amount of $234,000 and assumption of
$81,000 in net liabilities of Intralogix. This acquisition will be accounted
for using the purchase method of accounting.
On February 2, 2000, the Company purchased all of the outstanding stock of
SciCentral, Inc. in exchange for the issuance of 40,000 shares of the Company's
common stock with a value of $2,476,000 at the closing date of the acquisition
and the assumption of approximately $32,000 in net liabilities of SciCentral.
This acquisition will be accounted for using the purchase method of accounting.
4.Management Services
During the year ended December 31, 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 was 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-14
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Investments
The aggregate fair values of investment securities at December 31, 1998 and
1999 along with unrealized gains and losses determined on an individual
investment security basis are as follows:
December 31, 1998
<TABLE>
<CAPTION>
Gross
Unrealized Gain Market
Description Cost (Loss) Value
<S> <C> <C> <C>
Short-Term Investments:
U.S. Government obligations......... $1,893,366 $ (6,673) $1,886,693
========== ======== ==========
</TABLE>
December 31, 1999
<TABLE>
<CAPTION>
Gross
Unrealized
Amortized Gain Market
Description Cost (Loss) Value
<S> <C> <C> <C>
Short-Term Investments:
Commercial paper...................... $ 6,866,942 $ (442) $ 6,866,500
Corporate bonds....................... 9,977,792 4,408 9,982,200
U.S. Government obligations 7,440,559 (9,464) 7,431,095
----------- --------- -----------
$24,285,293 $ (5,498) $24,279,795
=========== ========= ===========
Long-Term Investments:
Corporate bonds....................... $ 9,510,225 $ (12,647) $ 9,497,578
U.S. Government obligations........... 14,082,258 (259,492) 13,822,766
----------- --------- -----------
$23,592,483 $(272,139) $23,320,344
=========== ========= ===========
</TABLE>
6. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
<S> <C> <C>
Furniture and equipment................................ $ 42,094 $ 304,928
Computer software and equipment........................ 408,752 3,005,479
Leasehold improvements................................. -- 46,675
-------- ----------
Total costs.......................................... 450,846 3,357,082
Less accumulated depreciation.......................... (93,386) (487,659)
-------- ----------
Net book value....................................... $357,460 $2,869,423
======== ==========
</TABLE>
The Company leases certain equipment under capital lease agreements. The
cost of equipment under capital leases at December 31, 1998 and 1999 was
approximately $66,000 and $1,700,000, respectively.
7. Capitalized Development Costs
Development cost represent the cost of development of the applications
developed for the Company's e-commerce web sites. The Company capitalized
development costs of $1,498,234 during the year ended December 31, 1999 and has
accumulated amortization of $106,149 at December 31, 1999 related to
capitalized development costs.
F-15
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Other Assets
Other assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
<S> <C> <C>
Goodwill............................................. $ 638,416 $1,627,561
Prepaid customer acquisition costs................... -- 1,600,000
Web site agreements.................................. 80,766 80,766
Source Book.......................................... 378,592 378,592
Capitalized software costs........................... 364,148 364,148
Deposits............................................. -- 111,642
Other................................................ 20,248 8,049
---------- ----------
1,482,170 4,170,758
Less accumulated amortization........................ (168,061) (931,761)
---------- ----------
$1,314,109 $3,238,997
========== ==========
</TABLE>
9. Accrued Liabilities
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
<S> <C> <C>
Deferred revenues......................................... $136,024 45,275
Accrued compensation...................................... 139,219 626,404
Accrued consulting........................................ -- 365,000
Other..................................................... 4,760 74,716
-------- ---------
$280,003 1,111,395
======== =========
</TABLE>
10. Income Taxes
The components of the Company's income tax benefit for the years ended
December 31, 1997, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ -- $ --
State........................................... -- -- --
----- -------- ---------
-- -- --
----- -------- ---------
Deferred:
Federal......................................... -- (44,158) (176,654)
State........................................... -- (10,537) (42,126)
----- -------- ---------
-- (54,695) (218,780)
----- -------- ---------
Total......................................... $ -- $(54,695) $(218,780)
===== ======== =========
</TABLE>
The Company recognized a deferred tax benefit of $54,695 and $218,780 for
the years ended December 31, 1998 and 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.
F-16
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company did not have an income tax provision for the year ended December
31, 1997 due to net operating losses incurred during the portion of the year
that the Company was a taxable entity (see Note 2).
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Net operating loss carryforwards................. $ 1,708,406 $ 11,206,025
Accrual to cash adjustment....................... 324,514 221,545
Research and development......................... -- 102,122
Allowance for doubtful accounts.................. -- 19,057
Compensation accruals............................ -- 147,337
Stock and warrant based compensation............. -- 3,556,165
Other............................................ 30,832 26,790
----------- ------------
Total deferred tax assets...................... 2,063,752 15,279,041
Valuation allowance for deferred............... (2,063,752) (14,776,590)
----------- ------------
Deferred tax assets............................ -- 502,451
----------- ------------
Acquired intangibles............................. (285,005) (66,225)
Capital development costs........................ -- (502,451)
----------- ------------
Total deferred tax liabilities................. (285,005) (568,676)
----------- ------------
Net deferred tax liability..................... $ (285,005) $ (66,225)
=========== ============
</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 $81,358,
$1,840,020 and $12,712,814 in 1997, 1998 and 1999, respectively. The charge
primarily relates to additional operating losses in those years. The 1998 and
1999 deferred tax assets have been adjusted to reflect the net operating loss
carryforwards of BioSupplyNet and Internet Auctioneers International. The
increase in valuation allowance primarily resulted from the generation of net
operating loss carryforwards.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of $28,771,000. These net operating loss carryforwards begin
to expire in 2012. The utilization of the federal net operating loss
carryforwards may be subject to limitation under the rules regarding a change
in stock ownership as determined by the Internal Revenue Code.
F-17
<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,
1997 1998 1999
<S> <C> <C> <C>
Effective rate......................... 0% (1)% (1)%
--------- ----------- ------------
United States Federal tax at statutory
rate.................................. $(234,494) $(1,453,942) $(11,354,932)
State taxes (net of Federal benefit)... (34,140) (211,677) (1,630,433)
Change in valuation allowance.......... 81,358 1,840,020 12,712,814
Acquired research and development
write-off............................. -- 312,963 --
Nondeductible compensation............. 70,110 -- --
Acquired net operating losses.......... -- (583,029) --
Other nondeductible expenses........... -- 48,688 155,998
Research and development credits....... -- -- (94,362)
Other.................................. 117,166 (7,718) (7,865)
--------- ----------- ------------
Provision (benefit) for income tax..... $ -- $ (54,695) $ (218,780)
========= =========== ============
</TABLE>
11. Notes Payable
At December 31, 1998 the Company had an outstanding balance on the bank loan
of $75,188 of which $14,060 was reflected as a current liability. During the
year ended December 31, 1999, the bank loan was repaid.
In connection with the acquisition of IAI (See Note 3) the Company assumed
convertible notes payable to stockholders which were due in April, 2000. The
Company also assumed other notes payable totaling $20,000 with interest rates
of 10% per annum, which are due upon demand. These notes were all repaid in
October 1999.
12. 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. 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.
On October 22, 1999, the Board of Directors approved a 1.516643-for-1 Class
A common stock split which was declared effective on November 12 , 1999. The
Company's Class A common stock was also reclassified as common stock with a par
value of $0.001 per share. All share and per share information in the
accompanying financial statements has been retroactively restated to reflect
the effect of this stock split and the reclassification of the Company's Class
A common stock to common stock.
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
F-18
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. Upon the effectiveness of the
Company's initial public offering on November 12, 1999, the number of
authorized shares of the Company's common stock was increased to 90,000,000
shares and 10,000,000 shares of preferred stock were authorized. At all times,
the Company shall reserve a number of shares of unissued common stock for the
purpose of effecting the conversion of its issued and outstanding shares of all
outstanding warrants and options to purchase the Company's common stock.
In August 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 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:
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-for-1 conversion ratio,
subject to certain adjustments as defined. All outstanding shares of Series A,
Series B, Series C, Series D, and Series F preferred stock converted into
13,438,185 shares of the Company's common stock upon the closing of the
Company's initial public offering.
F-19
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. 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 was required to redeem the Series B preferred
in three equal annual installments. The redemption price was to 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 was redemption price of the Series B preferred was variable in amount,
its carrying value was 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 period from January 1, 1999 to November 22, 1999, the
effective date of the Company's initial public offering, 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 price, 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 $1,639,025. 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. Accretion of all mandatorily redeemable preferred stock ceased upon
the effectiveness of the Company's initial public offering on November 22,
1999.
Upon any request by any holder of Series D preferred shares at any time
after the Initial Redemption Exercise Date, the Company was required to 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.
14. 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
F-20
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. In December 1999, the Company adopted the
Sciquest.com, Inc. 1999 Stock Option Plan which provides for the grant of up to
2,854,998 employee stock option. Options granted under the Plans during the
years ended December 31, 1997, 1998 and December 31, 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 continues to apply APB No. 25 and related interpretations in
accounting for the Plans. The Company recognized $323,676 in non-cash
compensation expense related to amortization of deferred compensation during
the year ended December 31, 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 Plans been
determined based on the fair value at the grant dates for awards under the
Plans consistent with the methods of SFAS No. 123, the Company's net loss for
the years ended December 31, 1997, and 1998, and 1999 would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 December 31, 1999
<S> <C> <C> <C>
Net loss available to
common stockholders:
As reported........... $(689,689) $(4,550,329) $(112,467,099)
SFAS 123.............. $(691,591) $(4,554,641) $(113,233,101)
Pro Forma SFAS 123.... $ (33,944,079)
</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, 1998, and
1999: risk free interest of 5.5%, 6.0%, and 6.1%, 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, 1998, and 1999 according to the Black-Scholes pricing model was
$0.05, $0.02, and $3.42, respectively.
A summary of the status of the Plans as of December 31, 1997, and 1998, and
1999 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1999
-------------------- -------------------
Weighted Weighted
Shares Average Shares Average
Underlying Exercise Underlying Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 117,596 $0.06 1,004,310 $ 0.13
Granted................................. 887,958 0.15 1,733,970 14.82
Exercised............................... -- -- (436,874) .14
Forfeited............................... (1,244) 0.18 (107,682) .12
--------- ----- --------- ------
Outstanding at end of period............ 1,004,310 $0.13 2,193,724 $11.74
========= ===== ========= ======
</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 $12,199,827 of deferred compensation as a
charge to stockholders equity during the year ended December 31, 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.
F-21
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the Company's outstanding
stock options at December 31, 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............... 136,801 8.3 $ 0.03 68,340
$0.18....................... 659,648 9.1 0.18 99,952
$2.08....................... 87,317 9.6 2.08 2,852
$3.30....................... 374,994 9.9 3.30 --
$7.58....................... 201,564 10 7.58 --
$16.00...................... 84,300 10 16.00 --
$23.75...................... 400,000 10 23.75 --
$47.50...................... 249,100 10 47.50 --
--------- --- ------ -------
2,193,724 9.3 $11.74 171,144
========= === ====== =======
</TABLE>
Warrants
At December 31, 1998, and 1999, the Company had 177,300, and 5,889,303,
respectively, warrants outstanding and exercisable to purchase the Company's
common stock at prices ranging from $0.01 to $9.33, which includes the warrants
issued to strategic partners discussed in Note 15. These warrants expire at
various dates between 2000 and 2004. At December 31, 1998, the Company had
57,545 warrants outstanding and exercisable to purchase the Company's Series B
preferred at exercise prices of $2.80 which were converted into warrants to
purchase 87,275 shares of the Company's common stock at an exercise price of
$1.85 per share upon the effectiveness of the Company's IPO.
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,
1999 are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
<S> <C> <C>
2000........................................ $ 570,968 $ 566,483
2001........................................ 563,988 626,895
2002........................................ 549,468 350,735
2003........................................ 192,033 229,534
2004........................................ -- 235,029
Thereafter.................................. -- 98,725
---------- ----------
Total minimum lease payments.............. 1,876,457 $2,107,404
==========
Less amount representing interest from 12 to
32%........................................ (222,530)
----------
Present value of net minimum lease payment.. 1,653,927
Less current maturities..................... (463,141)
----------
Long-term maturities of capital lease
obligations................................ $1,190,786
==========
</TABLE>
Rent expense recognized under operating leases totaled $3,400, $34,490, and
$439,314 for the years ended December 31, 1997, 1998, and 1999 respectively.
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.
F-22
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year ended December 31, 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. To
date the Company has borrowed $1,700,000. 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
In October, November, and December 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 issued to these companies
5,035,180 warrants to purchase the Company's common stock at an exercise price
of $0.01 per share. At December 31, 1999 the Company has recorded deferred
customer acquisition costs of approximately $400,246,458 related to these
warrants. 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 additional deferred customer acquisition
costs 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. The amount of deferred customer acquisition costs will be
adjusted in future reporting periods based on changes in the fair value of the
warrants until such date as the warrants are fully vested. Deferred customer
acquisition costs will be amortized to operating expense over the term of the
related contractual relationship, which in the case of the buyer agreements is
three years and in the case of the supplier agreements is five years, using a
cumulative catch-up method. The Company recognized $9,107,753 in stock based
noncash customer acquisition expense during the fourth quarter of 1999 related
to the amortization of deferred customer acquisition costs.
These strategic relationships include agreements to be the exclusive third
party provider of electronic marketplace services in the United States for a
period of five years for eight key suppliers. Under the terms of these
agreements, these suppliers are not required to sell a minimum amount of
products through the Company's electronic marketplace. The warrants to purchase
the Company's common stock that will be issued in connection with these
agreements will vest over a four or five year period regardless of the level of
sales by the suppliers through the Company's electronic marketplace.
These strategic relationships also include agreements with several major
enterprise buyers to be their third party electronic aggregator for purchases
of scientific products in North America for a period of three years. Although
these enterprise buyers have agreed to use reasonable efforts to purchase at
least $5 million of scientific products annually through the Company's
marketplace, there are no minimum purchase commitments. The warrants issued in
connection with these relationships vest over a period of three years
regardless of their level of purchases through the Company's electronic
marketplace.
F-23
<PAGE>
SciQuest.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company has agreed to issue to certain major enterprise
buyers 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 per share of
common stock in the Company's initial public offering, and will be exercisable
upon issuance. Deferred partner acquisition costs will be recognized 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
and will be amortized over the remaining term of the related strategic
relationship as determined by the Black Scholes Model of the agreement to
operating expense upon each issuance of the incentive warrants.
16. Subsequent Event (unaudited)
In March 2000, we entered into an agreement to acquire all of the
outstanding stock of EMAX Solution Partners, Inc., a provider of electronic
research solutions that optimize pharmaceutical drug research operations and
speed discovery, in exchange for the issuance of 1,999,833 shares of our common
stock. This acquisition will be accounted for using the purchase method of
accounting.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EMAX Solution Partners, Inc.:
We have audited the accompanying consolidated balance sheets of EMAX
Solution Partners, Inc. and subsidiaries as of December 31, 1998 and 1999, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EMAX
Solution Partners, Inc. and subsidiaries as of December 31, 1998 and 1999, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 6, 2000, except for note 11, which is as of March 13, 2000
F-25
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
Assets
1998 1999
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 10,725 $ 2,066,284
Accounts receivable................................ 586,771 1,644,126
Unbilled revenue................................... 30,305 122,966
Prepaid expenses and other current assets.......... 31,006 120,508
----------- -----------
Total current assets............................. 658,807 3,953,884
----------- -----------
Property and equipment:
Furniture and office equipment..................... 177,908 514,876
Computer hardware.................................. 647,834 678,524
Purchased software................................. 158,361 276,198
Leasehold improvements............................. 50,620 65,188
----------- -----------
1,034,723 1,534,786
Less: accumulated depreciation and amortization.... (616,602) (837,534)
----------- -----------
Net property and equipment....................... 418,121 697,252
----------- -----------
Other assets......................................... 46,576 115,958
----------- -----------
Total assets......................................... $ 1,123,504 $ 4,767,094
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 3,681 $ 6,923
Accrued expenses................................... 414,553 810,738
Note payable, line of credit (note 2).............. 385,000 --
Current installments of obligations under capital
leases (note 8)................................... 110,943 176,625
Deferred maintenance revenue....................... 249,376 447,169
Billings in excess of recognized revenue........... 1,720,580 1,121,911
----------- -----------
Total current liabilities........................ 2,884,133 2,563,366
----------- -----------
Deferred stock issuance (note 5)..................... 1,000,000 1,000,000
----------- -----------
Obligations under capital leases, excluding current
installments (note 8)............................... 197,818 283,057
----------- -----------
Commitments (note 8)
Stockholders' equity (deficit):
Preferred stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
14,983,249 and 16,079,931 shares in 1998 and 1999,
respectively (note 7)............................. 149,832 160,799
Common stock, $.01 par value; authorized 2,500,000
shares in 1998 and 4,500,000 shares in 1999;
issued and outstanding 186,850 and 230,850 shares
in 1998 and 1999, respectively.................... 1,869 2,308
Additional paid-in capital......................... 3,920,021 10,240,358
Accumulated deficit................................ (7,008,206) (9,458,433)
Accumulated other comprehensive loss............... -- (2,398)
Less:
Officer stock loans............................... (16,667) (16,667)
Treasury stock, at cost: 52,961 common shares and
100,000 Series A convertible preferred shares.... (5,296) (5,296)
----------- -----------
Total stockholders' equity (deficit)............. (2,958,447) 920,671
----------- -----------
Total liabilities and stockholders' equity (deficit). $ 1,123,504 $ 4,767,094
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenue:
License fees....................................... $ 790,958 $ 1,284,987
Services........................................... 3,317,756 5,006,259
Software maintenance............................... 298,291 448,653
Hardware sales..................................... 166,808 253,565
----------- -----------
Total revenues.................................... 4,573,813 6,993,464
----------- -----------
Expenses:
Direct operating costs and expenses................ 3,237,657 5,243,969
Selling, general and administrative................ 3,228,116 4,411,863
----------- -----------
Total expenses.................................... 6,465,773 9,655,832
----------- -----------
Net operating loss................................ (1,891,960) (2,662,368)
----------- -----------
Other income (expense):
Interest income.................................... 10,751 27,515
Interest expense................................... (44,161) (65,374)
Gain on sale of EHS division (note 10)............. -- 250,000
----------- -----------
Total other income (expense)...................... (33,410) 212,141
----------- -----------
Net loss............................................. $(1,925,370) $(2,450,227)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Preferred Stock
Common ----------------------------------------------------------------------------------
Stock Series A Series B Series C Series D Series E
-------------- ----------------- -------------- ------------- ----------------- -----------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------- ------ --------- ------- ------- ------ ------ ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997............ 183,663 $1,837 9,150,000 $91,500 833,249 $8,332 -- $-- 5,000,000 $50,000 -- $ --
Exercise of
options......... 3,187 32 -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --- --- --------- ------- --------- -------
Balance at
December 31,
1998............ 186,850 1,869 9,150,000 91,500 833,249 8,332 -- -- 5,000,000 50,000 -- --
Issuance of
common stock ... 41,000 410 -- -- -- -- -- -- -- -- -- --
Exercise of
options......... 3,000 29 -- -- -- -- -- -- -- -- -- --
Cash paid for
fractional
shares.......... -- -- -- -- -- -- -- -- -- -- -- --
Issuance of
preferred
stock........... -- -- -- -- -- -- -- -- -- -- 1,096,682 10,967
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --- --- --------- ------- --------- -------
Balance at
December 31,
1999............ 230,850 $2,308 9,150,000 $91,500 833,249 $8,332 -- $-- 5,000,000 $50,000 1,096,682 $10,967
======= ====== ========= ======= ======= ====== === === ========= ======= ========= =======
<CAPTION>
Accumulated
Additional Treasury Stock other Total
Paid-In Officers --------------- Accumulated comprehensive stockholders'
Capital loans Shares Amount deficit loss deficit
------------ --------- ------ -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997............ $ 3,914,896 $(16,667) 52,961 $(5,296) $(5,082,836) $ -- $(1,038,234)
Exercise of
options......... 5,125 -- -- -- -- -- 5,157
Net loss........ -- -- -- -- (1,925,370) -- (1,925,370)
------------ --------- ------ -------- ------------ ------------- -------------
Balance at
December 31,
1998............ 3,920,021 (16,667) 52,961 (5,296) (7,008,206) -- (2,958,447)
Issuance of
common stock ... 40,590 -- -- -- -- -- 41,000
Exercise of
options......... 6,871 -- -- -- -- -- 6,900
Cash paid for
fractional
shares.......... (9) -- -- -- -- -- (9)
Issuance of
preferred
stock........... 6,272,885 -- -- -- -- -- 6,283,852
Net loss........ -- -- -- -- (2,450,227) -- (2,450,227)
Foreign currency
translation
adjustment...... -- -- -- -- -- (2,398) (2,398)
-------------
Comprehensive
loss............ -- -- -- -- -- -- (2,452,625)
------------ --------- ------ -------- ------------ ------------- -------------
Balance at
December 31,
1999............ $10,240,358 $(16,667) 52,961 $(5,296) $(9,458,433) $(2,398) $ 920,671
============ ========= ====== ======== ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows used in operating activities:
Net loss............................................ $(1,925,370) $(2,450,227)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization...................... 190,072 220,933
Gain on sale of EHS division....................... -- (250,000)
Changes in other assets and current liabilities:
Accounts receivable............................... (365,454) (1,057,355)
Unbilled revenue.................................. 263,103 (92,661)
Prepaid expenses and other current assets......... 20,851 (70,971)
Other assets...................................... (32,099) (12,914)
Accounts payable.................................. (48,589) 3,242
Accrued expenses.................................. 157,494 396,185
Deferred maintenance revenue...................... 62,399 197,793
Billings in excess of recognized revenue.......... 1,166,468 (598,669)
----------- -----------
Net cash used in operating activities............ (511,125) (3,714,644)
----------- -----------
Cash flows used in investing activities:
Proceeds from sale of EHS division.................. -- 175,000
Purchases of property and equipment................. (37,442) (215,260)
----------- -----------
Net cash used in investing activities............ (37,442) (40,260)
----------- -----------
Cash flows provided by financing activities:
Payments on notes payable........................... -- (385,000)
Proceeds from notes payable......................... 385,000 --
Payment for fractional shares--reverse split........ -- (9)
Principal payments under capital lease obligations.. (87,149) (133,883)
Foreign currency translation........................ -- (2,398)
Proceeds from issuance of preferred stock and common
stock............................................... 5,157 6,331,753
----------- -----------
Net cash provided by financing activities........ 303,008 5,810,463
----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... (245,559) 2,055,559
Cash and cash equivalents at beginning of year....... 256,284 10,725
----------- -----------
Cash and cash equivalents at end of year............. $ 10,725 $ 2,066,284
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.............. $ 36,394 $ 53,268
=========== ===========
Noncash investing and financing activities:
Equipment acquired under capital lease obligations. $ 258,938 $ 284,803
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1999
1. Summary of Significant Accounting Policies
a. Description of Business
EMAX Solution Partners, Inc. (the Company) is an information technology
solution development company that specializes in integrating chemical
information systems to improve productivity and compliance for major
corporations.
b. Principles of Consolidation
The consolidated financial statements include the accounts of EMAX Solution
Partners, Inc. and its wholly owned subsidiaries, EMAX Delaware, Inc. and EMAX
Solution Partners (UK) Ltd. Appropriate eliminations have been made of all
intercompany transactions and account balances.
c. Cash Equivalents
Cash equivalents at December 31, 1998 and 1999, consist of money market
investment accounts and certificates of deposit. For purposes of the statements
of cash flows, the Company considers all money market accounts and certificates
of deposit to be cash equivalents.
d. Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is provided on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized on the straight-line
method over the shorter of the lease term or estimated useful life of the
asset. Useful lives for other property and equipment range from three to five
years.
e. Revenue Recognition
Revenues from software related services are recognized using one of two
methods and depend on the contract terms. Revenues from fixed fee contracts are
recognized on the percentage-of-completion method based on costs incurred to
total costs. The cumulative impact of revisions in total cost estimates during
the progress of work is reflected in the year in which these changes become
known. Revenues from time and material contracts are recognized concurrently
with the effort and material costs incurred by the Company, at billable rates
specified in the terms of the contract.
Software license fee revenue is recognized on the percentage-of-completion
method when there are significant Company obligations beyond delivery of the
related software. When significant Company obligations beyond delivery are
nonexistent and collection is probable, then license fee revenue is recognized
upon delivery of the software. Hardware sales revenue is recognized upon
delivery of the hardware unless the Company has obligations beyond delivery.
Losses expected to be incurred on contracts in process, after consideration
of estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known.
The Company sells maintenance contracts to provide updates and standard
enhancements to its software products. Maintenance fee revenue is recognized
ratably over the life of the arrangements, generally one year.
The Company adopted the provisions of Statement of Position (SOP) 97-2
issued by the American Institute of Certified Public Accountants for all
computer software-related transactions. SOP 97-2 does not affect transactions
entered into prior to adoption, as retroactive application to prior years is
prohibited.
F-30
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
SOP 97-2 generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on relative fair values
of the elements and on evidence that is specific to the vendor. If a vendor
does not have evidence of the fair value of each element in a multiple element
arrangement, then all revenue is deferred until such evidence exists or until
all elements are delivered.
f. Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates. Such estimates include percentage of completion and total costs to
complete certain fixed price contracts. Actual results could differ from those
estimates.
g. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 and utilizes the asset-and-
liability method of accounting for income taxes. Under this method, deferred
income taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
h. Stock Options
The Company has elected to continue to apply Accounting Principles Board
Opinion (APB) No. 25 for stock options and stock-based awards to employees and
has disclosed a pro forma net loss as if the fair value method had been applied
(note 6).
i. Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," the Company
periodically evaluates the carrying value of long-lived assets when events and
circumstances warrant such review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than the carrying value. In that event,
a loss is recognized based on the amount by which the carrying value exceeds
the fair market value of the long-lived asset. The Company has identified no
such impairment losses.
j. Reverse Stock Split
During 1999, the Company's Board of Directors approved a 10-for-1 reverse
stock split of the Company's common stock and the reduction in authorized
shares outstanding to 3,000,000. The effects of the reverse stock split have
been reflected in the 1998 and 1999 financial statements. Also, in August 1999,
the authorized shares of common stock were increased to 4,500,000.
2. Liquidity
The Company relies on both cash on hand and a $400,000 line of credit at
December 31, 1999. This line of credit is secured by the Company's accounts
receivable, and the amount available is determined based on the level of
accounts receivable. The balance outstanding at December 31, 1998 and 1999, was
$385,000 and $0, respectively. Interest is charged based upon the prime rate
plus 2%.
On August 17, 1999, the Company issued 1,096,682 shares of Series E
Convertible Preferred Stock for an aggregate price of $7,000,000, resulting in
net proceeds of $6,283,852. The Series E Convertible Preferred Stock contains
terms and rights described in note 7.
F-31
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
The Company has been dependent on financing and financial support from the
issuance of equity interests to its shareholders since inception. The Company
anticipates its monthly operating cash flows to become positive during year
2000 and that its future cash flow needs will be met substantially through cash
remaining from the proceeds of the preferred stock issuance, operating cash
flow, and borrowings on the line of credit. If cash flows are less than
expected, management of the Company believes that other measures to reduce
costs or to raise additional equity financing could be taken to assure the
Company remains liquid.
3. 401(k) Profit Sharing Plan and Trust
The Company has a 401(k) Profit Sharing Plan and Trust (the Plan) that
qualifies for treatment under Section 401(k) of the Internal Revenue Code. All
eligible employees may participate by electing to contribute up to 15% of gross
pay to the Plan. The Company at its discretion makes a matching contribution to
the Plan. For the years ended December 31, 1998 and 1999, the Company has
matched 15% of employee contributions up to 6% of each employee's salary. The
Company's total matching contribution was $19,062 and $28,686 for 1998 and
1999, respectively.
4. Income Taxes
Due to the net losses incurred in 1998 and 1999, no current income tax
expense or benefit has been recorded. The December 31, 1998 and 1999 income tax
expense (benefit) differed from the amounts computed by applying the federal
statutory rate of 34% to pre-tax loss as a result of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Computed expected tax expense (benefit)..................... (654,626) (833,077)
State taxes, net of federal benefit......................... (76,169) (220,275)
Tax effect of permanent differences......................... 88,173 88,400
Other, net.................................................. 52,566 1,472
-------- --------
(590,056) (963,481)
Change in valuation allowance............................... 590,056 963,481
-------- --------
-- --
======== ========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1998 and 1999 are detailed
below:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Accruals and other reserves............................. 234,626 278,616
Net operating losses (federal and state)................ 1,970,319 2,889,810
Valuation allowance..................................... (2,204,945) (3,168,426)
---------- ----------
Net deferred tax asset.................................. -- --
========== ==========
</TABLE>
The Company believes it is more likely than not that such benefits will not
be realized through future taxable income; therefore, the net deferred tax
asset as of December 31, 1998 and 1999, is fully reserved.
As of December 31, 1999, the Company has approximately $12,100,000 of net
operating loss carryforwards for federal and state tax purposes that are
available to offset future federal taxable income, if any, through 2019.
The Company's net operating losses may be subject to the provisions of
Internal Revenue Code Section 382, as established by the Tax Reform Act of
1986, related to changes in stock ownership. Presently, no
F-32
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
determination has been made to evaluate what effect the application of these
regulations may have on the utilization of the net operating losses. Should
these regulations apply, the amount of the net operating losses that can be
utilized to offset taxable income in future periods may be subject to an annual
limitation and it is possible that some portion of the net operating losses may
never be utilized.
5. Software Arrangements
On December 20, 1994, the Company entered into an agreement to transfer all
of its right, title and interest in and to its OPTIMA software (formerly called
"ChemTrol") to Polar Investment Partners (Polar) for total consideration of
$4,500,000, comprised of $1,000,000 payable in quarterly installments and a
$3,500,000 promissory note (the Note). The first cash payment of $250,000 was
made upon closing, and the Note bears interest at 7%. In 1995, the Company
received from Polar the remaining quarterly installments, which totaled
$750,000. Principal and accrued interest on the Note are due December 2004.
Contemporaneously, the parties also entered into a Joint Enterprise Agreement
(the Agreement) whereby Polar granted the Company the sole and exclusive right
to distribute and sell copies of the software, in exchange for a percentage of
the revenues generated. Under certain circumstances, the Company may reacquire
the software. This agreement will remain in effect until such time as the
Company does so. Such reacquisition is triggered by the occurrence, on or after
January 1, 1997, of any one of several events, the occurrence of which requires
Polar to convey all rights it has to the software to the Company in exchange
for a number of shares of common stock to be determined in accordance with the
Agreement. The Agreement also defines the terms of payment by Polar on the
Note, which is based upon Polar's percentage of revenues earned under the
Agreement.
As the arrangements with Polar give the Company rights to exclusively sell
and distribute the software and provide under certain circumstances for the
reacquisition of the software as described above, the Company retains an
ongoing economic interest in the software. Therefore, the OPTIMA software sale
has been reflected in the financial statements as a financing arrangement and
the Note has not been established as a receivable on the Company's balance
sheet.
6. Stock Options
The Company has a qualified employee incentive stock option plan allowing
for the issuance of options for 5,000,000 shares of common stock. The options
generally expire in eight years and are exercisable in annual installments of
25%, starting one year from the date of grant.
A summary of stock option activity follows (all amounts reflect the 10 for 1
reverse stock split):
<TABLE>
<CAPTION>
1998 1999
----------------- -----------------
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance as of beginning of year............. 311,326 $4.00 365,351 $2.20
Options granted............................ 94,951 3.30 339,869 4.10
Options expired............................ (37,738) 2.70 (55,163) 2.90
Options exercised.......................... (3,188) 1.60 (3,000) 2.20
------- ----- ------- -----
Balance as of end of year................... 365,351 $2.20 647,057 $3.30
======= ===== ======= =====
</TABLE>
F-33
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
At December 31, 1999, 185,626 options with a weighted-average exercise price
of $1.50 were fully vested and exercisable.
The following summarizes information about the Company's stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------- --------------------------
Weighted Weighted
average average
Number remaining Number remaining
outstanding at contractual outstanding at contractual
December 31, life December 31, life
Range of exercise prices 1999 (years) 1999 (years)
- ------------------------ -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
$.1 - .5................. 103,488 3.3 98,951 3.3
$1.50.................... 34,125 5.1 17,063 5.1
$3.00 - 4.79............. 509,444 7.0 69,612 6.1
------- -------
Totals................... 647,057 185,626
======= =======
</TABLE>
Had compensation cost been recognized pursuant to SFAS No. 123, the
Company's loss would have been increased to the pro forma amount indicated
below:
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Net loss, as reported............................................. $2,450,227
Pro Forma net loss................................................ $2,632,352
</TABLE>
The per-share weighted-average fair value of stock options issued by the
Company during 1999 was $1.25 on the date of grant.
The following range of assumptions was used by the Company to determine the
fair value of stock options granted using a minimum value option-price model:
<TABLE>
<CAPTION>
<S> <C>
Dividend yield....................................................... 0%
Average expected option life......................................... 6 years
Risk-free interest rate.............................................. 5.60%
</TABLE>
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma loss amounts presented above
because compensation cost is reflected over an option's vesting period and
compensation cost for options granted prior to January 1, 1996, is not
considered. Compensation costs of $613,860 will be recognized in the pro forma
net loss in future years.
7. Convertible and Redeemable Preferred Stock
The Company is authorized to issue up to 20,000,000 shares of preferred
stock, including shares which can be designated by the Board of Directors as
$.01 Convertible Preferred Stock--Series A, B, C, D and E or Redeemable
preferred stock--Series F and 2,773,304 shares of undesignated preferred stock.
As of December 31, 1999, the Board of Directors issued 9,150,000, 833,249, 0,
5,000,000, and 1,096,682 shares of Series A, B, C, D, and E Convertible
Preferred Stock, respectively. All convertible shares are voting and with
respect to Series A, B, C and D, convertible at the option of the holder at any
time into the Company's common stock at a conversion rate of one share of
common stock per ten shares of preferred stock. Series E
F-34
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
preferred stock is convertible into a conversion unit that includes one share
of common stock and one share of Series F preferred stock per share of Series E
preferred stock converted. Series E preferred stock is automatically converted
to conversion units upon an initial public offering or sale transaction. Series
F redeemable preferred stock is redeemable upon an initial public offering with
gross cash proceeds of at least $30,000,000 or upon a sale of the company for
$7,000,000 plus all accrued but unpaid dividends. The conversion rates are
subject to adjustment based on the occurrence of certain events.
Participating dividends on Series A, B, C and D are payable upon the
approval of the Board of Directors, and holders of preferred stock must be paid
such dividends before dividends can be paid on common stock. The Series A, B, C
and D preferred stockholders are entitled to the amount of dividends per share
as would be declared payable on the largest number of whole and fractional
shares of common stock into which each share of convertible preferred stock
could be converted as of the record date.
Series E preferred stock accrues cumulative dividends commencing July 1,
2001 at an annual rate of 8%. Series F redeemable preferred accrues cumulative
dividends at 8% from the date of issue.
In the event of liquidation, the holders of each share of preferred stock
shall be entitled to be paid first out of the assets available for
distribution, an amount equal to $.20 per share for Series A and B, $.40 per
share for Series D, $6.38 per share for Series E and F, plus total dividends in
arrears on each share. The remaining assets shall be distributed among the
holders of common and preferred stock in proportion to the shares of common
stock held and the shares of common stock that the preferred stockholders have
the right to acquire upon conversion of such shares of preferred stock held by
them.
All convertible preferred shares are subject to certain anti-dilution
provisions.
8. Leases
The Company is obligated under several noncancelable operating leases and
capital leases that expire over the next five years. During 1999, the Company
entered into capital lease arrangements for computer hardware totaling
$284,803. Rent expense for the years ended December 31, 1998 and 1999, was
$262,613 and $374,700, respectively. Future minimum lease payments under
noncancelable operating leases and the capital lease (with initial or remaining
lease terms in excess of one year) as of December 31, 1999, are:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, leases leases
- ------------------------ --------- ----------
<S> <C> <C>
2000..................................................... $ 255,735 $ 381,969
2001..................................................... 108,327 396,099
2002..................................................... 119,433 397,543
2003..................................................... 37,535 209,646
2004..................................................... 21,686 20,116
Thereafter............................................... -- --
--------- ----------
Total minimum lease payments........................... 542,716 $1,405,373
==========
Less: amount representing interest....................... (83,034)
---------
Present value of net minimum capital lease payments.... 459,682
Less: current installments of obligations under capital
leases.................................................. (176,625)
---------
Obligations under capital leases, excluding current
installments............................................ $ 283,057
=========
</TABLE>
F-35
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
9. Business and Credit Concentrations
The Company sells its services directly to or as a subcontractor to
chemical, pharmaceutical and other manufacturing companies located primarily in
the Eastern region of the United States. During 1998 and 1999, four customers
accounted for 63% and 81%, respectively, of total revenues. At December 31,
1998 and 1999, two customers accounted for 64% and 67% of the accounts and
unbilled receivable balances, respectively.
10. Sale of SAP EHS Business
In July 1998, the Company entered into an agreement to sell its SAP EHS
environmental software business unit in exchange for cash and warrants for
equity in the newly formed company. The SAP EHS business provided consulting
services to customers who used the Company's SAP R/3 EHS software. The Company
sold the rights, title and interests to the contracts related to the SAP EHS
business and any related permits and customer certifications.
Proceeds from the sale were contingent upon the formation and success of the
new entity which would continue the SAP EHS business. The new entity was
formed, however, the business did not materialize to the extent anticipated.
Although EMAX had the rights to exercise warrants and was entitled to $310,000
in 1998, the gain on the sale was not recorded due to the uncertainty of
collection of the amounts due under the agreement and the dependency of the
consideration on the future results of the business sold by EMAX. EMAX
management decided to recognize a gain on the sale only to the extent cash
consideration was collected or probable of collection. $250,000 has been
collected and recognized as a gain.
11. Subsequent Event
On March 13, 2000 the Company entered into an Agreement and Plan of Merger
and Reorganization with SciQuest.com, Inc. and its subsidiary SciQuest
Acquisition, Inc. whereby all shares of capital stock of the Company, including
common and preferred stock, would be converted to shares of SciQuest.com, Inc.
Additionally, all Company options would become exercisable for SciQuest.com,
Inc. common stock.
F-36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO OF SCIQUEST.COM]
SciQuest.com, Inc.
5,000,000 Shares of Common Stock
----------------------
PROSPECTUS
----------------------
Donaldson, Lufkin & Jenrette
Chase H&Q
Deutsche Banc Alex. Brown
Banc of America Securities LLC
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray
William Blair & Company
E*OFFERING
DLJdirect Inc.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $106,602
--------
National Association of Securities Dealers, Inc. fee.............. $ 30,500
--------
Nasdaq Stock Market listing fee................................... $ 17,500
--------
Accountants' fees and expenses.................................... $160,000*
--------
Legal fees and expenses........................................... $150,000*
--------
Blue Sky fees and expenses........................................ $ 2,000*
--------
Transfer Agent's fees and expenses................................ $ 10,000*
--------
Printing and engraving expenses................................... $125,000*
--------
Miscellaneous..................................................... $298,398*
--------
Total Expenses................................................. $900,000
========
</TABLE>
- --------
* Estimated.
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 7 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
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 March 22, 2000, we issued an aggregate of 1,999,833 shares of common
stock in connection with the acquisition of EMAX Solution Partners, Inc. to the
stockholders of EMAX.
On January 14, 2000, we issued an aggregate of 26,930 shares of common stock
in connection with the acquisition of Intralogix, Inc. to the shareholders of
Intralogix, Inc. On February 2, 2000, we issued an aggregate of 40,000 shares
of common stock in connection with the acquisition of SciCentral.com, Inc. to
the shareholders of SciCentral.com, Inc.
In October and December 1999, we agreed to issue warrants to acquire an
aggregate of 3,724,307 shares of common stock at an exercise price of $0.01 to
Ambion, Inc., Amersham Pharmacia Biotech, Inc., BioWhittaker, a Cambrex
Company, Dow Chemical Company, DuPont Pharmaceuticals Company, Merck & Company,
Inc., Monsanto Company, Endogen, Inc., NEN Life Science Products, Inc.,
PerkinElmer, Inc., Pierce Chemical Company and QIAGEN N.V.
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 February 29, 2000, we issued options to
certain employees, consultants and others to purchase under our stock option
plan and stock incentive plan an aggregate of 2,876,027 shares of common stock
at a weighted average exercise price of $1.58 per share. As of February 29,
2000, 460,675 of such options have been exercised, 108,925 of such options have
been terminated and 2,306,427 of such options remain outstanding at a weighted
average exercise price of $15.32 per share.
(b) Hambrecht & Quist, LLC, served as placement agent in connection with the
offer and sale by us of our Series D convertible preferred stock and related
warrants to purchase Class A common stock and has received compensation in the
form of cash and warrants for such services. Except as so noted, underwriters
were involved in connection with the sales of securities referred to in
paragraph (a) of this Item 15.
(c) The convertible promissory notes, the warrants and the shares of Class A
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, Series E
convertible preferred stock and common 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.
II-3
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* 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 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 Morris, Manning & Martin, L.L.P., 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.
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
Preferred Stock dated October 17, 1997, as amended.
10.12* Registration Rights Agreement by and among the Registrant and the
purchasers of Series C 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 Preferred Stock and the purchasers of Series D Preferred
Stock dated May 18, 1999, as amended.
10.15* Registration Rights Agreement by and among the Registrant and the
holders of Series E Preferred Stock dated July 27, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.16* Merger Agreement by and among the Registrant, SciQuest Merger
Subsidiary, Inc., Internet Auctioneers International, Inc. and Mark
Atlas 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.
10.21** Form of Strategic Purchasing Agreement.
10.22** Registration Rights Agreement by and among the Registrant and the
former holders of Intralogix, Inc. stock dated January 14, 2000.
10.23* Amendment No. 5 to SciQuest.com, Inc. Stock Option Plan.
10.24* SciQuest.com, Inc. 1999 Stock Incentive Plan dated as of October 12,
1999.
10.25** First Amendment to 1999 Stock Incentive Plan.
10.26** Merger Agreement by and among the Registrant, Lujack Subsidiary, Inc.,
Intralogix, Inc., Mary T. Romac, Timothy M. Brady and Dale L. Young
dated January 14, 2000.
10.27** Merger Agreement by and among the Registrant, SciCentral Acquisition
Subsidiary, Inc., SciCentral.com, Inc. and the shareholders of
SciCentral.com, Inc. dated February 2, 2000.
10.28** Registration Rights Agreement by and among the Registrant and the
former holders of SciCentral, Inc. stock dated February 2, 2000.
10.29** Restricted Stock Agreement between the Registrant and W. Andrew
McKenna dated January 31, 2000.
10.30** Agreement and Plan of Merger and Reorganization between the
Registrant, ESP Acquisition, Inc. and EMAX Solution Partners, Inc.
dated March 13, 2000.
10.31** Registration Rights Agreement by and among the Registrant and the
former holders of EMAX Solution Partners, Inc. stock dated March 13,
2000.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1).
24.1** Powers of Attorney (included on signature page).
27.1** Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (Reg. No. 333-87433).
** Previously filed.
II-5
<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-6
<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 28th day of March, 2000.
SCIQUEST.COM, INC.
/s/ M. Scott Andrews
By:__________________________________
M. Scott Andrews,
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ M. Scott Andrews Chief Executive Officer March 28, 2000
______________________________________ and Director (Principal
M. Scott Andrews Executive Officer)
* Vice President of Business March 28, 2000
______________________________________ Development and Director
Peyton C. Anderson
* Chief Financial Officer March 28, 2000
______________________________________ (Principal Financial and
James J. Scheuer Accounting Officer)
* Director March 28, 2000
______________________________________
Noel J. Fenton
* Director March 28, 2000
______________________________________
Gautam Prakash
* Director March 28, 2000
______________________________________
Alan J. Taetle
* Director March 28, 2000
______________________________________
Bruce J. Boehm
* Director March 28, 2000
______________________________________
Timothy T. Weglicki
* /s/ M. Scott Andrews March 28, 2000
______________________________________
As Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT 1.1
___________________ Shares
SCIQUEST.COM, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 2000
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
DEUTSCHE SECURITIES, INC.
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY INC.
WILLIAM BLAIR & COMPANY LLC
E*OFFERING CORP.
DLJdirect INC.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
SciQuest.com, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several underwriters named in Schedule I hereto (the
"Underwriters") and certain stockholders of the Company named in Schedule II
hereto (the "Selling Stockholders") severally propose to sell to the several
Underwriters, an aggregate of _______________ shares of the common stock $0.001
per share of the Company (the "Firm Shares"), of which _____________ shares are
to be issued and sold by the Company and _____________ shares are to be sold by
the Selling Stockholders, each Selling Stockholder selling the amount set forth
opposite such Selling Stockholder's name in Schedule II hereto. The Company
also proposes to issue and sell to the several Underwriters not more than an
additional __________ shares of its common stock, $0.001 par value per share
(the "Additional Shares"), if requested by the Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter
referred to collectively as the "Shares". The shares of common stock of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Stock". The Company and the Selling
Stockholders are hereinafter sometimes referred to collectively as the
"Sellers."
SECTION 1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the
<PAGE>
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement on Form S-1, including a prospectus, relating to the
Shares. The registration statement, as amended at the time it became effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the Act, is
hereinafter referred to as the "Registration Statement"; and the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to as the
"Prospectus". If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "Rule 462(b) Registration
Statement"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
______________ Firm Shares, (ii) each Selling Stockholder agrees, severally and
not jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$______ (the "Purchase Price") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedules I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Company within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof, which date shall be
a business day (i) no earlier than two business days after such notice has been
given (and, in any event, no earlier than the Closing Date (as hereinafter
defined)) and (ii) no later than ten business days after such notice has been
given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I bears to the total
number of Firm Shares.
Each Seller hereby agrees not to (i) 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 (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences
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associated with the ownership of any Common Stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise),
except to the Underwriters pursuant to this Agreement, for a period of 90 days
after the date of the Prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. Notwithstanding the foregoing, during
such period (i) the Company may grant stock options pursuant to the Company's
existing 1997 Stock Option Plan and 1999 Stock Incentive Plan; (ii) the Company
may issue shares of Common Stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof; and (iii) the
Company may issue shares of Common Stock and other securities convertible into
or exercisable or exchangeable for shares of Common Stock in connection with
acquisitions (including asset acquisitions) and strategic partner relationships;
provided that each holder of such Common Stock or such other securities shall,
prior to or concurrently with the issuance of such Common Stock or other
securities, agree in writing to be bound by restrictions set forth in the
agreements described in the last sentence of this paragraph. The Company also
agrees not to file any registration statement (other than a registration
statement on Form S-8 registering Common Stock issuable under the Company's
existing stock option and incentive plans) with respect to any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock for a period of 90 days after the date of the Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, each Selling Stockholder agrees that, for a period of
30 days after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, it will not make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock. The Company shall, prior to or concurrently with the execution
of this Agreement, deliver an agreement executed by (i) each Selling
Stockholder, (ii) each of the directors and officers of the Company who is not a
Selling Stockholder and (iii) each stockholder listed on Annex I hereto to the
effect that such person will not, during the period commencing on the date such
person signs such agreement and ending 90 days after the date of the Prospectus,
without the prior written consent of Donaldson, Lufkin & Jenrette Corporation,
(A) engage in any of the transactions described in the first sentence of this
paragraph or (B) make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock.
SECTION 3. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers with any transfer taxes
thereon duly paid by the respective Sellers, to Donaldson, Lufkin & Jenrette
Securities Corporation through the facilities of The Depository Trust Company
("DTC"), for the respective accounts of the several Underwriters, against
payment to the Sellers of the Purchase Price
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therefore by wire transfer of Federal or other funds immediately available in
New York City. The certificates representing the Shares shall be made available
for inspection not later than 9:30 A.M., New York City time, on the business day
prior to the Closing Date or the applicable Option Closing Date, as the case may
be, at the office of DTC or its designated custodian (the "Designated Office").
The time and date of delivery and payment for the Firm Shares shall be 9:00
A.M., New York City time, on November 24, 1999 or such other time on the same or
such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the
Company shall agree in writing. The time and date of delivery and payment for
the Firm Shares are hereinafter referred to as the "Closing Date". The time and
date of delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such other
time on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. The time and date of
delivery and payment for any Additional Shares are hereinafter referred to as
the "Option Closing Date".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, New York 10019 and the Shares shall be delivered
at the Designated Office, all on the Closing Date or such Option Closing Date,
as the case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such advice in
writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information, (ii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
the suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes, (iii)
when any amendment to the Registration Statement becomes effective, (iv) if
the Company is required to file a Rule 462(b) Registration Statement after
the effectiveness of this Agreement, when the Rule 462(b) Registration
Statement has become effective and (v) of the happening of any event during
the period referred to in Section 5(d) below which makes any statement of a
material fact made in the Registration Statement or the Prospectus untrue
or which requires any additions to or changes in the Registration Statement
or the Prospectus in order to make the statements therein not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish to each representative one signed copy of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter
designated by you such number of conformed copies of the Registration
Statement as so filed and of each amendment to it, without exhibits, as you
may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period
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specified in Rule 424(b) under the Act; during the period specified in
Section 5(d) below, not to file any further amendment to the Registration
Statement and not to make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall
reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or amendment or
supplement to the Prospectus which may be necessary or advisable in
connection with the distribution of the Shares by you, and to use its best
efforts to cause any such amendment to the Registration Statement to become
promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day after
the date of this Agreement and from time to time thereafter for such period
as in the opinion of counsel for the Underwriters a prospectus is required
by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as
many copies of the Prospectus (and of any amendment or supplement to the
Prospectus) as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur or
condition shall exist as a result of which, in the opinion of counsel for
the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of counsel for the Underwriters, it is
necessary to amend or supplement the Prospectus to comply with applicable
law, forthwith to prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in the
Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such registration or
qualification in effect so long as required for distribution of the Shares
and to file such consents to service of process or other documents as may
be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required in connection
therewith to qualify as a foreign corporation in any jurisdiction in which
it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters
and transactions relating to the Prospectus, the Registration Statement,
any preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve month period ending
March 31, 2001 that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
(h) During the period of three years after the date of this Agreement, to
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of
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Common Stock or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is
listed and such other publicly available information concerning the Company
and its subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel, the Company's accountants and any Selling Stockholder's
counsel (in addition to the Company's counsel) in connection with the
registration and delivery of the Shares under the Act and all other fees
and expenses in connection with the preparation, printing, filing and
distribution of the Registration Statement (including financial statements
and exhibits), any preliminary prospectus, the Prospectus and all
amendments and supplements to any of the foregoing, including the mailing
and delivering of copies thereof to the Underwriters and dealers in the
quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares,
(iv) all expenses in connection with the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any Preliminary and
Supplemental Blue Sky Memoranda in connection therewith (including the
filing fees and reasonable fees and disbursements of one counsel for the
Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and reasonable fees and
disbursements of one counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the National
Association of Securities Dealers, Inc., (vi) all costs and expenses
incident to the listing of the Shares on the Nasdaq National Market , (vii)
the cost of printing certificates representing the Shares, (viii) the costs
and charges of any transfer agent, registrar and/or depositary, and (ix)
all other costs and expenses incident to the performance of the obligations
of the Company and the Selling Stockholders hereunder for which provision
is not otherwise made in this Section. The provisions of this Section shall
not supersede or otherwise affect any agreement that the Company and the
Selling Stockholders may otherwise have for allocation of such expenses
among themselves.
(j) Shares are registered pursuant to Section 12(a) of the Exchange Act and are
listed on the Nasdaq National Market and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration
of the Shares under the Exchange Act or delisting the Shares from the
Nasdaq National Market, nor has the Company received any notification that
the Commission or the National Association of Securities Dealers, LLC (the
"NASD") is contemplating terminating such registration or listing.
(k) To use its best efforts to do and perform all things required or necessary
to be done and performed under this Agreement by the Company prior to the
Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of this
Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission
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registering the Shares not so covered in compliance with Rule 462(b) by
10:00 P.M., New York City time, on the date of this Agreement and to pay to
the Commission the filing fee for such Rule 462(b) Registration Statement
at the time of the filing thereof or to give irrevocable instructions for
the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00
P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the Company's
best knowledge, threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this
Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the Registration Statement
(other than any Rule 462(b) Registration Statement to be filed by the
Company after the effectiveness of this Agreement) and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Act, (iii) if the Company is required to file a
Rule 462(b) Registration Statement after the effectiveness of this
Agreement, such Rule 462(b) Registration Statement and any amendments
thereto, when they become effective (A) will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and
(iv) the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph
do not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter furnished
to the Company in writing by such Underwriter through you expressly for use
therein.
(c) Each preliminary prospectus filed as part of the registration statement as
originally filed or as part of any amendment thereto, or filed pursuant to
Rule 424 under the Act, complied when so filed in all material respects
with the Act, and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in any preliminary prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
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(d) Each of the Company and its subsidiaries has been duly incorporated, is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
carry on its business as described in the Prospectus and to own, lease and
operate its properties, and each is duly qualified and is in good standing
as a foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options, calls,
convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person
to purchase or otherwise to acquire any shares of the capital stock of the
Company or any of its subsidiaries, except as otherwise disclosed in the
Registration Statement.
(f) All the outstanding shares of capital stock of the Company (including the
Shares to be sold by the Selling Stockholders) have been duly authorized
and validly issued and are fully paid, non-assessable and not subject to
any preemptive or similar rights; and the Shares have been duly authorized
and, when issued and delivered to the Underwriters against payment therefor
as provided by this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued and are fully
paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms, in all material
respects, as to legal matters to the description thereof contained in the
Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of its
respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition that is material to the
Company and its subsidiaries, taken as a whole, contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the Company,
the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require
any consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency (except such as may be
required under the Act and securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its subsidiaries or any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound, (iii) violate or conflict with any
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applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (iv)
result in the suspension, termination or revocation of any Authorization
(as defined below) of the Company or any of its subsidiaries or any other
impairment of the rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or, to the Company's
best knowledge, threatened to which the Company or any of its subsidiaries
is or could be a party or to which any of their respective property is or
could be subject that are required to be described in the Registration
Statement or the Prospectus and are not so described; nor are there any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed
as required.
(l) Neither the Company nor any of its subsidiaries has violated any foreign,
federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants ("Environmental Laws"), any
provisions of the Employee Retirement Income Security Act of 1974, as
amended, or any provisions of the Foreign Corrupt Practices Act, or the
rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a material adverse effect
on the business, prospects, financial condition or results of operation of
the Company and its subsidiaries, taken as a whole.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each,
an "Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including, without limitation, under
any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except
where the failure to have any such Authorization or to make any such filing
or notice would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole. Each
such Authorization is valid and in full force and effect and each of the
Company and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto; and, to the
Company's best knowledge, no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow,
revocation, suspension or termination of any such Authorization or results
or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such Authorization; except
where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints
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on operating activities and any potential liabilities to third parties)
which would, singly or in the aggregate, have a material adverse effect on
the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered by the
Company.
(p) PricewaterhouseCoopers LLP are independent public accountants with respect
to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
together with related schedules and notes, present fairly the consolidated
financial position, results of operations and changes in financial position
of the Company and its subsidiaries on the basis stated therein at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; the
supporting schedules, if any, included in the Registration Statement
present fairly in accordance with generally accepted accounting principles
the information required to be stated therein; and the other financial and
statistical information and data set forth in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) are, in all
material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company.
(r) The Company is not and, after giving effect to the offering and sale of the
Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(s) Except as disclosed in the Registration Statement, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares registered
pursuant to the Registration Statement other than such rights as have been
waived.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus, including the
financial statements (and notes thereto) contained therein (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii)
there has not been any material adverse change or any development involving
a prospective material adverse change in the capital stock or in the long-
term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and delivered to the
Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
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(v) The Company and its Subsidiaries have good and marketable title to all
personal property owned by them that is material to the business of the
Company and its subsidiaries, taken as a whole, in each case free and clear
of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries,
taken as a whole, in each case except as described in the Prospectus.
(w) The Company and its subsidiaries own, or possess valid and enforceable
licenses to, or rights to use, all patents, patent rights, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names ("Intellectual
Property") currently employed by the Company and its subsidiaries in
connection with the business now operated by them, except where the failure
to own or possess licenses for or rights to use such Intellectual Property
would not, singly or in the aggregate, have a material adverse effect on
the business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole. Neither the Company, nor
its subsidiaries, has received any written notice, nor are they aware of
facts which would form a reasonable basis for any such claim, that: (i)
challenges the Company's or its subsidiaries' rights in or to any
Intellectual Property; (ii) challenges the validity or scope of any
Intellectual Property; (iii) any third party has or will be able to
establish any rights in the Intellectual Property, except for the ownership
rights of the owners of the Intellectual Property which is licensed to the
Company or the rights of parties to whom the Company has granted licenses
of such Intellectual Property; (iv) the Intellectual Property infringes or
otherwise violates any patent, copyright, trade secret, trademark or other
proprietary right of any third party; or (v) there is infringement of the
Intellectual Property by any third party, which, in the case of any such
claim specified in clauses (i), (ii), (iii), (iv) or (v) above, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(x) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are, in the reasonable judgment of the Company, prudent and
customary in the businesses in which they are engaged; and neither the
Company nor any of its subsidiaries (i) has received notice from any
insurer or agent of such insurer that substantial capital improvements or
other material expenditures will have to be made in order to continue such
insurance or (ii) has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers at a cost that would not
have a material adverse effect on the business, prospects, financial
conditions or results of operations of the Company and its subsidiaries,
taken as a whole.
(y) No relationship, direct or indirect, exists between or among the Company or
any of its subsidiaries on the one hand, and the directors, officers,
shareholders, customers or suppliers of
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the Company or any of its subsidiaries on the other hand, which is required
by the Act to be described in the Registration Statement or the Prospectus
which is not so described.
(z) There is no (i) significant unfair labor practice complaint, grievance or
arbitration proceeding pending or, to the Company's best knowledge,
threatened against the Company or any of its subsidiaries before the
National Labor Relations Board or any state or local labor relations board,
(ii) strike, labor dispute, slowdown or stoppage pending or, to the
Company's best knowledge, threatened against the Company or any of its
subsidiaries, or (iii) union representation question existing with respect
to the employees of the Company and its subsidiaries, except for such
actions specified in clause (i), (ii) or (iii) above, which, singly or in
the aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole. To the best of the Company's
knowledge, no collective bargaining organizing activities are taking place
with respect to the Company or any of its subsidiaries.
(aa) The Company and each of its subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(bb) All material tax returns required to be filed by the Company and each of
its subsidiaries in any jurisdiction have been filed, other than when
extensions to file have been obtained or as to those filings being
contested in good faith, and all material taxes, including withholding
taxes, penalties and interest, assessments, fees and other charges due
pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(cc) The Company has reviewed its operations and is in the process of reviewing
any third parties with which the Company has a material relationship to
evaluate the extent to which the business or operations of the Company will
be affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect on the business, prospects,
financial condition or results of operation of the Company. The "Year 2000
Problem" as used herein means any significant risk that computer hardware
or software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind will not be able
to reliably distinguish dates beginning on January 1, 2000 from dates prior
to January 1, 2000.
(dd) The Company has not at any time during the last five (5) years (i) made any
unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental
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officer or official, or other person charged with similar public or quasi-
public duties, other than payments required or permitted by the laws of the
United States or any jurisdiction thereof.
(ee) The Company has not taken and will not take, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
SECTION 7. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities
and claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly authorized
and are validly issued, fully paid and non-assessable.
(c) Such Selling Stockholder has, and on the Closing Date will have, full legal
right, power and authority, and all authorization and approval required by
law, to enter into this Agreement, the Custody Agreement signed by such
Selling Stockholder and _______________, as Custodian, relating to the
deposit of the Shares to be sold by such Selling Stockholder (the "Custody
Agreement") and the Power of Attorney of such Selling Stockholder
appointing certain individuals as such Selling Stockholder's attorneys-in-
fact (the "Attorneys") to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement and the
Custody Agreement (the "Power of Attorney") and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder in the manner
provided herein and therein.
(d) This Agreement has been duly authorized, executed and delivered by or on
behalf of such Selling Stockholder.
(e) The Custody Agreement of such Selling Stockholder has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and
binding agreement of such Selling Stockholder, enforceable in accordance
with its terms.
(f) The Power of Attorney of such Selling Stockholder has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and
binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one
of them, to execute and deliver on such Selling Stockholder's behalf this
Agreement and any other document that they, or any one of them, may deem
necessary or desirable in connection with the transactions contemplated
hereby and thereby and to deliver the Shares to be sold by such Selling
Stockholder pursuant to this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such Selling
Stockholder pursuant to this Agreement, good and clear title to such Shares
will pass to the Underwriters, free
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of all restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever.
(h) The execution, delivery and performance of this Agreement and the Custody
Agreement and Power of Attorney of such Selling Stockholder by or on behalf
of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (ii) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling Stockholder, if
such Selling Stockholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or any
property of such Selling Stockholder is bound or (iii) violate or conflict
with any applicable law or any rule, regulation, judgment, order or decree
of any court or any governmental body or agency having jurisdiction over
such Selling Stockholder or any property of such Selling Stockholder.
(i) The information in the Registration Statement under the caption "Principal
and Selling Stockholders" which specifically relates to such Selling
Stockholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(j) At any time during the period described in Section 5(d), if there is any
change in the information referred to in Section 7(i), such Selling
Stockholder will immediately notify you of such change.
(k) Each certificate signed by or on behalf of such Selling Stockholder and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to
the Underwriters as to the matters covered thereby.
SECTION 8. Indemnification. (a) The Sellers, jointly and severally, agree
to indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any reasonable legal
or other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement thereto)
or any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the
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foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter who failed to deliver a Prospectus,
as then amended or supplemented (so long as the Prospectus and any amendments or
supplements thereto was provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages,
liabilities or judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in such preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Prospectus, as so amended or supplemented, and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person. Notwithstanding the foregoing, the
aggregate liability of any Selling Stockholder pursuant to this Section 8(a)
shall be limited to an amount equal to the total proceeds (before deducting
underwriting discounts and commissions and expenses) received by such Selling
Stockholder from the Underwriters for the sale of the Shares sold by such
Selling Stockholder hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
Selling Stockholder and each person, if any, who controls such Selling
Stockholder within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, to the same extent as the foregoing indemnity from the
Sellers to such Underwriter but only with reference to information relating
to such Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto)
or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect of
which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party")
in writing and the indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all reasonable fees and expenses of
such counsel, as incurred (except that in the case of any action in respect
of which indemnity may be sought pursuant to both Sections 8(a) and 8(b),
the Underwriter shall not be required to assume the defense of such action
pursuant to this Section 8(c), but may employ separate counsel and
participate in the defense thereof, but the fees and expenses of such
counsel, except as provided below, shall be at the expense of such
Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the
reasonable fees and expenses of such counsel shall be at the expense of the
indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action
or employ counsel reasonably satisfactory to the indemnified party, or
(iii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party, and
the indemnified party shall have been advised by such counsel that there
may be one or more legal defenses available to it which are different from
or additional
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to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
(i) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act,
(ii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Company, its directors, its officers
who sign the Registration Statement and all persons, if any, who control
the Company within the meaning of either such Section and (iii) the fees
and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all Selling Stockholders and all persons, if any,
who control any Selling Stockholder within the meaning of either such
Section, and all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such
firm shall be designated in writing by Donaldson, Lufkin & Jenrette
Securities Corporation. In the case of any such separate firm for the
Company and such directors, officers and control persons of the Company,
such firm shall be designated in writing by the Company. In the case of any
such separate firm for the Selling Stockholders and such control persons of
any Selling Stockholders, such firm shall be designated in writing by the
Attorneys. The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written
consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement
request. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement or compromise of, or consent
to the entry of judgment with respect to, any pending or threatened action
in respect of which the indemnified party is or could have been a party and
indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of the indemnified
party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as
a result of such losses, claims, damages, liabilities and judgments (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Sellers on the one hand and the Underwriters on the other hand from
the offering of the Shares or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Sellers on the one hand
and the Underwriters on the other hand in connection with the
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statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one
hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after
deducting underwriting discounts and commissions, but before deducting
expenses) received by the Sellers, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the
public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholders
on the one hand or the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or judgments referred
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses incurred by such indemnified party in connection with
investigating or defending any matter, including any action, that could
have given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective number of Shares purchased by each of the
Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates SciQuest.com, Inc., 5151
McCrimmon Parkway, Suite 208, Morrisville, North Carolina 27560, as its
authorized agent, upon which process may be served in any action which may
be instituted in any state or federal court in the State of New York by any
Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each Selling
Stockholder will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense
based upon lack of personal jurisdiction or venue. A copy of any such
process shall be
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sent or given to such Selling Stockholder, at the address for notices specified
in Section 12 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in this
Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement shall have become effective by 10:00 P.M., New York City time, on
the date of this Agreement; and no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings for
that purpose shall have been commenced or shall be pending before or
contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the Closing
Date, signed by M. Scott Andrews and James J. Scheuer, in their capacities
as the President and Chief Executive Officer and Chief Financial Officer of
the Company, confirming the matters set forth in Sections 6(t), 9(a) and
9(b) and that the Company has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be
complied with or satisfied by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the
Company and its subsidiaries, taken as a whole, (ii) there shall not have
been any change or any development involving a prospective change in the
capital stock or in the long-term debt of the Company or any of its
subsidiaries and (iii) neither the Company nor any of its subsidiaries
shall have incurred any liability or obligation, direct or contingent, the
effect of which, in any such case described in clause 9(d)(i), 9(d)(ii) or
9(d)(iii), in your judgment, is material and adverse and, in your judgment,
makes it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date
with the same force and effect as if made on and as of the Closing Date and
you shall have received on the Closing Date a certificate dated the Closing
Date from each Selling Stockholder to such effect and to the effect that
such Selling Stockholder has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be
complied with or satisfied by such Selling Stockholder on or prior to the
Closing Date.
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(f) You shall have received on the Closing Date an opinion (satisfactory to you
and counsel for the Underwriters), dated the Closing Date, of Morris,
Manning & Martin L.L.P. and Hutchison & Mason PLLC, counsel for the Company
and the Selling Stockholders, to the effect that:
(i) each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus
and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified and is in
good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except
where the failure to be so qualified or in good standing would not
have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have
been duly authorized and validly issued and are fully paid, non-
assessable and not subject to any preemptive or, to the knowledge of
such counsel, similar contractual rights;
(iv) the Shares have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any
preemptive or, to the knowledge of such counsel, similar contractual
rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
directly or indirectly through one or more subsidiaries, free and
clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature;
(vi) this Agreement has been duly authorized, executed and delivered by
the Company and by or on behalf of each Selling Stockholder;
(vii) the authorized capital stock of the Company conforms, in all
material respects, as to legal matters to the description thereof
contained in the Prospectus;
(viii) the Registration Statement has become effective under the Act, no
stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to such counsel's knowledge after
due inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "Risk Factors--Our certificate of
incorporation and bylaws and Delaware law could make an acquisition
by a third party more difficult", "Business--Government
Regulations", "Legal Proceedings", "Description of Capital Stock",
"Shares Eligible for Future Sale" and "Underwriting" in
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the Prospectus and Items 14 and 15 of Part II of the Registration
Statement, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, fairly
present, in all material respects, the information called for with
respect to such legal matters, documents and proceedings;
(x) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the Act and the
securities or Blue Sky laws of the various states), (B) conflict
with or constitute a breach of any of the terms or provisions of, or
a default under, the charter or by-laws of the Company or any of its
subsidiaries or any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is filed as an exhibit to the
Registration Statement, (C) to such counsel's knowledge, violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or
their respective property or (D) result in the suspension,
termination or revocation of any Authorization of the Company or any
of its subsidiaries that is material to the business of the Company
and its subsidiaries, taken as a whole;
(xi) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is or could be a party or to which any of
their respective property is or could be subject that are required
to be described in the Registration Statement or the Prospectus and
are not so described, or of any statutes, regulations, contracts or
other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not so described or filed as
required;
(xii) the Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended;
(xiii) to such counsel's knowledge, except as disclosed in the Registration
Statement, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company or to require the
Company to include such securities with the Shares registered
pursuant to the Registration Statement other than such rights as
have been waived;
(xiv) each Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has
good and clear title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and
claims whatsoever;
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(xv) each Selling Stockholder has full legal right, power and authority,
and all authorization and approval required by law, to enter into
this Agreement and the Custody Agreement and the Power of Attorney
of such Selling Stockholder and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder in the
manner provided herein and therein;
(xvi) the Custody Agreement of each Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and
is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms;
(xvii) the Power of Attorney of each Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and
is a valid and binding instrument of such Selling Stockholder,
enforceable in accordance with its terms, and, pursuant to such
Power of Attorney, such Selling Stockholder has, among other
things, authorized the Attorneys, or any one of them, to execute
and deliver on such Selling Stockholder's behalf this Agreement and
any other document they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby
and thereby and to deliver the Shares to be sold by such Selling
Stockholder pursuant to this Agreement;
(xviii) upon delivery of and payment for the Shares to be sold by each
Selling Stockholder pursuant to this Agreement, good and clear
title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever; and
(xix) the execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of each Selling Stockholder
by such Selling Stockholder, the compliance by such Selling
Stockholder with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue
Sky laws of the various states), (B) conflict with or constitute a
breach of any of the terms or provisions of, or a default under,
the organizational documents of such Selling Stockholder, if such
Selling Stockholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to
which such Selling Stockholder is a party or by which any property
of such Selling Stockholder is bound or (C) violate or conflict
with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having
jurisdiction over such Selling Stockholder or any property of such
Selling Stockholder.
In addition, such counsel shall state that (A) the Registration
Statement and the Prospectus and any supplement or amendment thereto
(except for the financial statements and other financial data included
therein as to which no opinion need be expressed) comply as to form with
the Act, (B) no facts have come to the attention of such counsel that cause
such counsel to have reason to believe that at the time the Registration
Statement became effective or on the date of this Agreement, the
Registration Statement
21
<PAGE>
and the prospectus included therein (except for the financial statements
and other financial data as to which such counsel need not express any
belief) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (C) no facts have come to the
attention of such counsel that cause such counsel to have reason to believe
that the Prospectus, as amended or supplemented, if applicable (except for
the financial statements and other financial data, as aforesaid) contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The opinions of Morris, Manning & Martin, L.L.P. and Hutchison &
Mason PLLC described in Section 9(f) above shall be rendered to you at the
request of the Company and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the Closing
Date, of Brobeck, Phleger & Harrison LLP, counsel for the Underwriters, as
to the matters referred to in Sections 9(f)(iv), 9(f)(vi), 9(f)(ix) (but
only with respect to the statements under the caption "Description of
Capital Stock" and "Underwriting") and 9(f)(xvii).
In giving such opinions with respect to the matters covered by
Section 9(f)(xvii), Morris, Manning & Martin, L.L.P., Hutchison & Mason
PLLC, and Brobeck, Phleger & Harrison LLP may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(h) You shall have received, on each of the date hereof and the Closing Date, a
letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from PriceWaterhouseCoopers, LLP,
independent public accountants, containing the information and statements
of the type ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified in Section
2 hereof which agreements shall be in full force and effect on the Closing
Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq National
Market.
(k) The Company and the Selling Stockholders shall not have failed on or prior
to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or
the Selling Stockholders, as the case may be, on or prior to the Closing
Date.
(l) You shall have received on the Closing Date, a certificate of each Selling
Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not
a U.S. Person, which certificate may be in the form of a properly completed
and executed United States Treasury Department Form W-8 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof).
22
<PAGE>
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-
23
<PAGE>
tenth of the aggregate number of Firm Shares to be purchased by all
Underwriters and arrangements satisfactory to you, the Company and the
Selling Stockholders for purchase of such Firm Shares are not made within
48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholders. In any such case which does not result in termination
of this Agreement, either you or the Sellers shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and
the Prospectus or any other documents or arrangements may be effected. If,
on an Option Closing Date, any Underwriter or Underwriters shall fail or
refuse to purchase Additional Shares and the aggregate number of Additional
Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Additional Shares to be purchased on such date, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the
absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default
of any such Underwriter under this Agreement.
SECTION 11. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in connection with
the transfer of the Shares to be sold by such Selling Stockholder to the
Underwriters.
(b) To do and perform all things to be done and performed by such Selling
Stockholder under this Agreement prior to the Closing Date and to satisfy
all conditions precedent to the delivery of the Shares to be sold by such
Selling Stockholder pursuant to this Agreement.
SECTION 12. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to SciQuest.com,
Inc., 5151 McCrimmon Parkway, Suite 208, Morrisville, North Carolina 27560,
Attention: James Scheuer, Chief Financial Officer, (ii) of to the Selling
Stockholders, to [NAME OF ATTORNEY-IN-FACT] c/o [ADDRESS OF ATTORNEY-IN-FACT]
and (iii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin &
Jenrette Securities and (iii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder; (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
24
<PAGE>
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all reasonable out-of-pocket expenses
(including the fees and disbursements of counsel) incurred by them.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all expenses which it has agreed to pay pursuant to Section 5(i) hereof.
The Sellers also agree, jointly and severally, to reimburse the several
Underwriters, their directors and officers and any persons controlling any of
the Underwriters for any and all fees and expenses (including, without
limitation, the reasonable fees disbursements of counsel) incurred by them in
connection with enforcing their rights hereunder (including, without limitation,
pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
25
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
SCIQUEST.COM, INC.
By:
------------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE BANC SECURITIES, INC.
HAMBRECHT & QUIST LLC
DLJdirect Inc.
E*OFFERING CORP.
[OTHER CO-MANAGERS]
Acting severally on behalf of themselves
and the several Underwriters named
in Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------------
26
<PAGE>
SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
- ------------ ---------------------
Donaldson, Lufkin & Jenrette Securities Corporation.......
Deutsche Banc Securities, Inc. ...........................
Hambrecht & Quist LLC.....................................
DLJdirect Inc. ...........................................
E*OFFERING Corp. .........................................
Total.....................................................
<PAGE>
SCHEDULE II
-----------
Selling Stockholders
--------------------
Number of Firm
Name Shares Being Sold
- ---- -----------------
Total
<PAGE>
Annex I
-------
LIST OF SHAREHOLDERS SUBJECT TO LOCK-UP AGREEMENT
-------------------------------------------------
29
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MORRIS, MANNING & MARTIN LLP APPEARS HERE]
March 28, 1999
SciQuest.com, Inc.
5151 McCrimmon Parkway, Suite 208
Morrisville, North Carolina 27560
Re: Registration Statement on Form S-1
Gentlemen:
We have acted as counsel for SciQuest.com, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended, pursuant to a Registration Statement on Form S-1 (the
"Registration Statement"), of a proposed offering of an aggregate of 5,000,000
shares of the Company's common stock, $.001 par value per share (the "Common
Stock"), consisting of 2,000,000 shares of Common Stock offered by the Company
(the "Company Shares") and 3,000,000 shares of Common Stock offered by certain
selling stockholders. In addition, the Company has granted to the underwriters
an option to purchase from the Company 750,000 shares of Common Stock to cover
over-allotments, if any (the "Over-Allotment Shares").
We have examined such documents, corporate records, and other instruments
as we have considered necessary and advisable for purposes of rendering this
opinion.
In making the foregoing examinations, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies. As to various questions of fact
material to this opinion, we have relied, to the extent we deem reasonably
appropriate, upon representations or certificates of officers or directors of
the Company and upon documents, records and instruments furnished to us by the
Company, without independent check or verification of their accuracy.
Based upon and subject to the foregoing, we are of the opinion that the
Company Shares and any Over-Allotment Shares being sold by the Company, when
issued, sold and delivered as contemplated in the Registration Statement, will
be duly authorized and validly issued and fully paid and nonassessable.
We hereby consent to the filing of this Opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
MORRIS, MANNING & MARTIN
a Limited Liability Partnership
By: /s/ Grant W. Collingsworth
---------------------------------------
Grant W. Collingsworth, Partner
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
BioSupplyNet, Inc.
Internet Auctioneers International, Inc.
SciCentral, Inc.
Intralogix, Inc.
EMAX Solution Partners, Inc.
<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 SciQuest.com of our report dated February 2, 2000
relating to the financial statements of SciQuest.com, 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
March 28, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
EMAX Solution Partners, Inc.
We consent to the inclusion of our report dated March 6, 2000, except for note
11, which is as of March 13, 2000, with respect to the consolidated balance
sheets of EMAX Solution Partners, Inc. and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years then ended, and to the reference
to our firm under the heading "Experts" in the prospectus of this Form S-1
registration statement of SciQuest.com, Inc.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 28, 2000
