<PAGE>
As filed with the Securities and Exchange Commission on March 15, 2000
Registration No. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount Offering Price Offering Registration
Securities Registered Registered(1) Per Share(2) Price(2) Fee
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<S> <C> <C> <C> <C>
6,095,000
Common Stock, $0.001 par value... shares $66.25 $403,793,750 $106,602
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</TABLE>
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(1) Includes 795,000 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) based upon the average of the high and low
trading price per share of the Common Stock on the Nasdaq National Market
on March 14, 2000.
----------------
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 - , 2000
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- --------------------------------------------------------------------------------
Prospectus
, 2000
[LOGO OF SCIQUEST.COM]
SciQuest.com, Inc.
5,300,000 Shares of Common Stock
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SciQuest.com, Inc.: The Offering:
. We provide a Web- . We are offering
based, 2,000,000 of the
interactive shares and the
marketplace for selling
scientific and stockholders are
laboratory offering
products. 3,300,000 of the
shares.
. 5151 McCrimmon
Parkway, Suite . The underwriters
208, Morrisville, have an option to
NC 27560 purchase an
additional
795,000 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 ,
2000, the last
reported sale
price of our
common stock was
$ 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.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
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>
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............................................... 60
Shares Eligible for Future Sale............................................ 63
Underwriting............................................................... 65
Legal Matters.............................................................. 67
Experts.................................................................... 68
Change in Accountants...................................................... 68
Where You Can Find More Information........................................ 68
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 and DuPont
Pharmaceuticals Company 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; and
. expand our sales and marketing efforts internationally.
Recent Developments
In March 2000, we entered into an agreement to acquire 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 will enable 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.............................. 3,300,000 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 issuable upon the consummation of the
proposed 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 issuable upon the consummation of the
proposed acquisition of EMAX.
The pro forma statement of operations data for the year ended December 31,
1999 reflect the proposed 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) (85,875)
Net loss............................... $ (690) $(4,222) $ (33,178) (83,575)
====== ======= ========= ========
Pro forma net loss per common share--
basic and diluted..................... $ (2.09) $ (4.68)
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 proposed 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 $72.125 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 $236,606
Working capital.................................. 119,983 121,374 257,787
Total assets..................................... 156,902 305,509 441,921
Long term liabilities............................ 1,257 1,540 1,540
Stockholders' equity............................. 149,819 295,579 431,992
</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 SciQuest.com;
. security and privacy concerns; or
. general reticence about technology or the Internet.
We may not be able to complete our proposed acquisition of EMAX.
We have entered into an agreement to acquire EMAX. The acquisition agreement
is subject to many closing conditions, the satisfaction of which may be beyond
our control. Therefore, we may not be able to complete the acquisition in a
timely manner, or at all.
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 the SciQuest.com 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 SciQuest.com customers;
. degree to which products are critical to our customers;
. extent to which transactions are conducted electronically; and
. extent that costs are shared with us.
Our profit margins may decline in the future, particularly as competition in
the scientific products industry increases. A significant decline in profit
margins without a corresponding increase in transaction volume would adversely
affect our earnings.
If we cannot timely and accurately add supplier product data to our e-commerce
database, we may lose sales and customers, which would adversely affect our
revenues.
Currently, we are responsible for loading supplier product information into
our database and categorizing the information for search purposes. We currently
have a backlog of varying amounts of product data from 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.
8
<PAGE>
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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<PAGE>
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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<PAGE>
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 entered into an agreement to acquire EMAX. If the
acquisition is completed, 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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<PAGE>
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 are acquiring 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 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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<PAGE>
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 and SciCentral.com, Inc. and Intralogix, Inc. in
2000. We have also entered into an agreement to acquire EMAX. 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus. They include statements concerning:
. our business strategy;
. liquidity and capital expenditures;
. our use of the proceeds of the offering;
. future sources 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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<PAGE>
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 $136.4
million, or $190.9 million if the underwriters exercise their over-allotment
option in full, based upon an estimated public offering price of $72.125 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 Price Low Price
<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 13, 2000)........ $ 83.875 $ 56.000
</TABLE>
As of March 10, 2000, the last sale trading price of our common stock as
reported on the Nasdaq National
Market was $72.125. 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.
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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 proposed 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 $72.125 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.................. 591,841 737,602 874,013
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.................. 149,819 295,579 431,992
--------- --------- --------
Total capitalization....................... $ 151,010 $ 297,053 $433,466
========= ========= ========
</TABLE>
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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 $72.125 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 $ 283.1 million, or $ 9.98 per share.
This represents an immediate increase in net tangible book value of $4.41 per
share to existing stockholders and an immediate dilution in net tangible book
value of $62.14 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..................... $72.125
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.......................................... 4.41
-----
Net tangible book value per share after this offering....... 9.98
-------
Dilution per share to investors purchasing shares in this
offering................................................... $ 62.14
=======
</TABLE>
Assuming that we complete the acquisition of EMAX, our net tangible book
value at December 31, 1999, after this offering and the acquisition of EMAX
would have been $283.9 million or $9.37 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 proposed acquisition of EMAX had been completed on
December 31, 1999 and January 1, 1999, respectively. We expect to issue
approximately 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. We cannot assure you that we will complete the acquisition
of EMAX. We have entered into an acquisition agreement to acquire EMAX. The
acquisition agreement is subject to many closing conditions, the satisfaction
of which may be beyond our control. Therefore, we may not be able to complete
the acquisition in a timely manner or at all.
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 ............. -- -- -- 47,946,581 (a) 47,946,581
------------ ----------- ------------ ------------ ------------
Total operating
expenses.............. 35,721,730 9,655,832 45,377,562 47,946,581 93,324,143
------------ ----------- ------------ ------------ ------------
Operating loss.......... (35,265,981) (2,662,368) (37,928,349) (47,946,581) (85,874,930)
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) (83,793,665)
Income tax benefit...... 218,780 -- 218,780 -- 218,780
------------ ----------- ------------ ------------ ------------
Net loss................ $(33,178,077) $(2,450,227) $(35,628,304) $(47,946,581) $(83,574,885)
============ =========== ============ ============ ============
Pro forma net loss per
common share--basic and
diluted................ $ (2.09) $ (4.68)
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............ -- -- -- 143,839,743 (b) 143,839,743
Other assets............ 3,238,997 115,958 3,354,955 -- 3,354,955
------------- ----------- ------------- ------------ -------------
Total assets........... $ 156,901,684 $ 4,767,094 $ 161,668,778 $143,839,743 $ 305,508,521
============= =========== ============= ============ =============
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 10,240,358 602,085,529 145,760,813 (b) 737,602,384
(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................ 149,819,159 920,671 150,739,830 144,839,743 295,579,573
------------- ----------- ------------- ------------ -------------
Total liabilities and
stockholders' deficit. $ 156,901,684 $ 4,767,094 $ 161,668,778 $143,839,743 $ 305,508,521
============= =========== ============= ============ =============
</TABLE>
- ----------------
(b) Reflects the value of the 1,999,833 shares of our common stock issued to
acquire EMAX as if the acquisition had been announced on March 8, 2000,
based on the average closing price of our common stock of $72.8875 for the
two day period immediately preceding and following March 8, 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. 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, Inc. 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, Inc., Intralogix, Inc. and
SciCentral, Inc. 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 and DuPont Pharmaceuticals Company 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 and DuPont
Pharmaceuticals 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 entered into an agreement to acquire EMAX, a provider of
electronic research solutions designed to optimize pharmaceutical drug research
operations and expedite drug discovery. The acquisition of EMAX will enable us
to provide 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
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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.
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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
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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.
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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
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<PAGE>
recognition. SAB 101 is required to be adopted for reporting periods beginning
after January 15, 2000. The adoption of SAB 101 is not expected to have a
material impact on our consolidated financial position or results of
operations.
Year 2000
Impact of Year 2000 Computer Issues
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This
situation could result in system failures or miscalculations causing
disruptions in the operations of any business. As a result, many companies'
software and computer systems may need to be upgraded or replaced to comply
with year 2000 requirements. Our ability to operate is dependent upon delivery
of accurate, electronic information via the Internet. To the extent year 2000
issues result in the long-term inoperability of the Internet or our Web sites,
our business could be materially and adversely affected.
We completed an assessment of our information technology systems for year
2000 problems in June 1999. We have not replaced any of our systems based on
the results of our assessment. However, we have made modifications to some
systems based on our assessment, at a cost to us of approximately $175,000. 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.
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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 partnership agreements with Dow Chemical Company and DuPont
Pharmaceuticals Company 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]
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Proposed Acquisition of EMAX
We have agreed to acquire EMAX Solution Partners, Inc., a provider of
electronic research solutions designed to optimize pharmaceutical drug research
operations and expedite drug discovery, for $150 million in SciQuest common
stock. 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 will enable 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.
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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 proposed 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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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 will enable us to increase the depth of our offerings by adding to our
portfolio of products and services an Internet-based 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 over 624,000 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, online Sourcing
Guide provides a broad database of product information from more than 8,000
suppliers and service providers. Given the large number of industry suppliers
and fragmented nature of the scientific products market, having a comprehensive
database of suppliers and products is an important value-added service for our
customers. If a potential buyer is unable to purchase the desired products
through our e-commerce solutions, our Sourcing Guide provides a means of
identifying an alternative source for that product. We believe this unique
service engenders loyalty, repeat usage and customer satisfaction relative to
competitive offerings.
SciQuest.com Auctions
Our Web-based Auctions service enables customers to buy and sell used and
refurbished capital equipment and instrumentation through online auctions.
Auctions allows suppliers and laboratories to easily sell used equipment while
maximizing its value through the auction process. Auctions provides buyers an
economically attractive alternative to buying new products.
EMAX
In March 2000, we entered into an agreement to acquire EMAX, a leader in
electronic research solutions designed to optimize pharmaceutical drug research
operations and expedite drug discovery. The proposed acquisition of EMAX will
enable 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. We may not be able to complete our proposed
acquisition of EMAX. The acquisition agreement is subject to many closing
conditions, the satisfaction of which may be beyond our control. Therefore, we
may not be able to complete the acquisition in a timely manner or at all.
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 and DuPont
Pharmaceuticals Company to establish purchasing relationships. Pursuant to
these agreements, SciQuest will be the exclusive third party electronic
aggregator for purchases of scientific products in North America for Dow
Chemical Company and DuPont Pharmaceuticals Company. As an exclusive third
party electronic aggregator, SciQuest will be the sole electronic means by
which Dow Chemical Company and DuPont Pharmaceuticals Company 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
. SciQuest 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 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:
. SciQuest will be the exclusive third party provider of electronic
marketplace services in the United States for a period of five years;
. the suppliers will promote our marketplace, including participating in
co-marketing and advertising programs;
. these suppliers will have the opportunity to 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 any 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 suppliers
who offer their products through Oracle's business-to-business electronic
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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 site 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
site 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.
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We have also entered into a sublease for approximately 2,300 square feet of
office space extending to December 31, 2002 for the offices of our subsidiary,
Internet Auctioneers International, Inc., located in Mountain View, California.
Employees
As of 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.
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MANAGEMENT
Directors and Executive Officers
Our directors and executive officers and their ages as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
Name Age Position
M. Scott Andrews....... 34 Chief Executive Officer and Director
<S> <C> <C>
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.
51
<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.
56
<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.
57
<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 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
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)................... 1,907,190 7.2% *
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Bessemer Venture Partners
IV L.P.(2)................ 1,640,868 6.2% *
1400 Old Country Road
Suite 407
Westbury, NY 11590
Noro-Moseley Partners IV,
L.P.(3)................... 1,555,793 5.92% *
9 North Parkway Square
4200 Northside Parkway, NW
Atlanta, GA 30327
</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>
M. Scott Andrews........... 798,934(4) 3.0% *
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
Peyton C. Anderson......... 853,112(5) 3.2% *
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
Bruce J. Boehm............. 210,007(6) 0.79% *
Noel J. Fenton............. 1,907,190(7) 7.2% *
Gautam A. Prakash.......... 1,640,868(8) 6.2% *
Alan J. Taetle............. 1,555,793(9) 5.9% *
Timothy T. Weglicki........ 1,205,812(10) 4.5% *
All directors and executive
officers as a group (12
persons)
(4)(5)(6)(7)(8)(9)(10)(11). 8,603,889 32% *
</TABLE>
- --------
* To be determined, but in no case to exceed the lower of: (a) a pro-rata
portion of the total shares requested to be registered in this offering
by the selling stockholders or (b) for our management, 10% of their pre-
IPO shares and, for our pre-IPO investors, 25% of their pre-IPO shares
held.
(1) Includes shares owned by Trinity VI Side-By-Side Fund, L.P., which is an
affiliate of Trinity Ventures VI, L.P.
(2) Includes shares owned by Bessemer Venture Investors L.P. and Bessec
Ventures IV L.P., which are affiliates of Bessemer Venture Partners IV
L.P.
(3) Includes shares owned by Noro-Moseley Partners IV-B Fund L.P., which is
an affiliate of Noro-Moseley Partners IV, L.P.
(4) Consists of shares owned by Andrews Properties of Wake County LLC.
(5) Consists of shares owned by Peyton C. Anderson and Little Lake Hill LLC.
(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.
(9) 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 120,652 shares subject to options that are exercisable within 60
days.
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<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
60
<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 8,025,000
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:
. shares may be eligible for sale in accordance with the applicable
requirements of Rule 144;
. 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;
. 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; and
. 174,414 shares may be eligible for sale in accordance with the
requirements of Rule 144 on July 30, 2000.
Lock-up Agreements
All of our officers, directors and substantially all of our stockholders
have signed lock-up agreements under which they have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise dispose of, other than by operation of law,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock or enter
into any swap or other arrangement that transfers to another person in whole or
in part, any of the economic consequences of ownership of our common stock
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 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.
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<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. of the 3,300,000 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.
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<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.
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<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 795,000 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
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<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.
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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.
68
<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 subsidiary (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 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 expected to have a material impact on the
Company's consolidated financial position or results of operations.
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).
As of December 31, 1997, 1998, and,1999, the Company had federal and state
net operating loss carryforwards of approximately $1,800,000, $4,400,000, and
$34,000,000, respectively. The use of these federal net operating loss
carryforwards may be subject to limitation under the rules regarding a change
in stock ownership and separate return limitations years as determined by the
Internal Revenue Code. The federal and state net operating loss carryforwards
will begin to expire in 2012.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 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, 1999 and 1998, 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, 1999 and 1998, 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, 1999 and 1998
<TABLE>
<CAPTION>
Assets
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,066,284 $ 10,725
Accounts receivable................................ 1,644,126 586,771
Unbilled revenue................................... 122,966 30,305
Prepaid expenses and other current assets.......... 120,508 31,006
----------- -----------
Total current assets............................. 3,953,884 658,807
----------- -----------
Property and equipment:
Furniture and office equipment..................... 514,876 177,908
Computer hardware.................................. 678,524 647,834
Purchased software................................. 276,198 158,361
Leasehold improvements............................. 65,188 50,620
----------- -----------
1,534,786 1,034,723
Less: accumulated depreciation and amortization.... (837,534) (616,602)
----------- -----------
Net property and equipment....................... 697,252 418,121
----------- -----------
Other assets......................................... 115,958 46,576
----------- -----------
Total assets......................................... $ 4,767,094 $ 1,123,504
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 6,923 $ 3,681
Accrued expenses................................... 810,738 414,553
Note payable, line of credit (note 2).............. -- 385,000
Current installments of obligations under capital
leases (note 8)................................... 176,625 110,943
Deferred maintenance revenue....................... 447,169 249,376
Billings in excess of recognized revenue........... 1,121,911 1,720,580
----------- -----------
Total current liabilities........................ 2,563,366 2,884,133
----------- -----------
Deferred stock issuance (note 5)..................... 1,000,000 1,000,000
----------- -----------
Obligations under capital leases, excluding current
installments (note 8)............................... 283,057 197,818
----------- -----------
Commitments (note 8)
Stockholders' equity (deficit):
Preferred stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
16,079,931 and 14,983,249 shares in 1999 and 1998,
respectively (note 7)............................. 160,799 149,832
Common stock, $.01 par value; authorized 4,500,000
shares in 1999 and 2,500,000 shares in 1998;
issued and outstanding 230,850 and 186,850 shares
in 1999 and 1998, respectively.................... 2,308 1,869
Additional paid-in capital......................... 10,240,358 3,920,021
Accumulated deficit................................ (9,458,433) (7,008,206)
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)............. 920,671 (2,958,447)
----------- -----------
Total liabilities and stockholders' equity (deficit). $ 4,767,094 $ 1,123,504
=========== ===========
</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,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
License fees....................................... $ 1,284,987 $ 790,958
Services........................................... 5,006,259 3,317,756
Software maintenance............................... 448,653 298,291
Hardware sales..................................... 253,565 166,808
----------- -----------
Total revenues.................................... 6,993,464 4,573,813
----------- -----------
Expenses:
Direct operating costs and expenses................ 5,243,969 3,237,657
Selling, general and administrative................ 4,411,863 3,228,116
----------- -----------
Total expenses.................................... 9,655,832 6,465,773
----------- -----------
Net operating loss................................ (2,662,368) (1,891,960)
----------- -----------
Other income (expense):
Interest income.................................... 27,515 10,751
Interest expense................................... (65,374) (44,161)
Gain on sale of EHS division (note 10)............. 250,000 --
----------- -----------
Total other income (expense)...................... 212,141 (33,410)
----------- -----------
Net loss............................................. $(2,450,227) $(1,925,370)
=========== ===========
</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, 1999 and 1998
<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,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows used in operating activities:
Net loss............................................ $(2,450,227) $(1,925,370)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization...................... 220,933 190,072
Gain on sale of EHS division....................... (250,000) --
Changes in other assets and current liabilities:
Accounts receivable............................... (1,057,355) (365,454)
Unbilled revenue.................................. (92,661) 263,103
Prepaid expenses and other current assets......... (70,971) 20,851
Other assets...................................... (12,914) (32,099)
Accounts payable.................................. 3,242 (48,589)
Accrued expenses.................................. 396,185 157,494
Deferred maintenance revenue...................... 197,793 62,399
Billings in excess of recognized revenue.......... (598,669) 1,166,468
----------- -----------
Net cash used in operating activities............ (3,714,644) (511,125)
----------- -----------
Cash flows used in investing activities:
Proceeds from sale of EHS division.................. 175,000 --
Purchases of property and equipment................. (215,260) (37,442)
----------- -----------
Net cash used in investing activities............ (40,260) (37,442)
----------- -----------
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.. (133,883) (87,149)
Foreign currency translation........................ (2,398) --
Proceeds from issuance of preferred stock and common
stock............................................... 6,331,753 5,157
----------- -----------
Net cash provided by financing activities........ 5,810,463 303,008
----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 2,055,559 (245,559)
Cash and cash equivalents at beginning of year....... 10,725 256,284
----------- -----------
Cash and cash equivalents at end of year............. $ 2,066,284 $ 10,725
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.............. $ 53,268 $ 36,394
=========== ===========
Noncash investing and financing activities:
Equipment acquired under capital lease obligations. $ 284,803 $ 258,938
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
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, 1999 and 1998, 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, 1999 and 1998
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 1999 and 1998 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, 1999 and 1998, was
$0 and $385,000, 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, 1999 and 1998
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, 1999 and 1998, the Company has
matched 15% of employee contributions up to 6% of each employee's salary. The
Company's total matching contribution was $28,686 and $19,062 for 1999 and
1998, respectively.
4. Income Taxes
Due to the net losses incurred in 1999 and 1998, no current income tax
expense or benefit has been recorded. The December 31, 1999 and 1998 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>
1999 1998
-------- --------
<S> <C> <C>
Computed expected tax expense (benefit)..................... (833,077) (654,626)
State taxes, net of federal benefit......................... (220,275) (76,169)
Tax effect of permanent differences......................... 88,400 88,173
Other, net.................................................. 1,472 52,566
-------- --------
(963,481) (590,056)
Change in valuation allowance............................... 963,481 590,056
-------- --------
-- --
======== ========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1999 and 1998 are detailed
below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accruals and other reserves............................. 278,616 234,626
Net operating losses (federal and state)................ 2,889,810 1,970,319
Valuation allowance..................................... (3,168,426) (2,204,945)
---------- ----------
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, 1999 and 1998, 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, 1999 and 1998
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>
1999 1998
----------------- -----------------
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............. 365,351 $2.20 311,326 $4.00
Options granted............................ 339,869 4.10 94,951 3.30
Options expired............................ (55,163) 2.90 (37,738) 2.70
Options exercised.......................... (3,000) 2.20 (3,188) 1.60
------- ----- ------- -----
Balance as of end of year................... 647,057 $3.30 365,351 $2.20
======= ===== ======= =====
</TABLE>
F-33
<PAGE>
EMAX Solution Partners, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
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, 1999 and 1998
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, 1999 and 1998, was
$374,700 and $262,613, 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, 1999 and 1998
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 1999 and 1998, four customers
accounted for 81% and 63%, respectively, of total revenues. At December 31,
1999 and 1998, two customers accounted for 67% and 64% 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.
5,300,000 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................ $
--------
National Association of Securities Dealers, Inc. fee............... $
--------
Nasdaq Stock Market listing fee.................................... $
--------
Accountants' fees and expenses..................................... $
--------
Legal fees and expenses............................................ $150,000
--------
Blue Sky fees and expenses......................................... $
--------
Transfer Agent's fees and expenses................................. $
--------
Printing and engraving expenses.................................... $
--------
Miscellaneous...................................................... $
--------
Total Expenses.................................................. $
========
</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 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 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, 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 1,547,145 of such options remain outstanding at a weighted
average exercise price of $ 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).
+ To be filed by amendment
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 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 15th day of March, 2000.
SCIQUEST.COM, INC.
/s/ M. Scott Andrews
By:__________________________________
M. Scott Andrews,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints M. Scott Andrews, Peyton C. Anderson and James
J. Scheuer, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
subsequent registration statements pursuant to Rule 462 of the Securities Act
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorney-in-fact or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ M. Scott Andrews Chief Executive Officer March 15, 2000
______________________________________ and Director (Principal
M. Scott Andrews Executive Officer)
/s/ Peyton C. Anderson Vice President of Business March 15, 2000
______________________________________ Development and Director
Peyton C. Anderson
/s/ James J. Scheuer Chief Financial Officer March 15, 2000
______________________________________ (Principal Financial and
James J. Scheuer Accounting Officer)
/s/ Noel J. Fenton Director March 15, 2000
______________________________________
Noel J. Fenton
/s/ Gautam Prakash Director March 15, 2000
______________________________________
Gautam Prakash
/s/ Alan J. Taetle Director March 15, 2000
______________________________________
Alan J. Taetle
Director March 15, 2000
______________________________________
Bruce J. Boehm
/s/ Timothy T. Weglicki Director March 15, 2000
______________________________________
Timothy T. Weglicki
</TABLE>
II-7
<PAGE>
Page 1
[LOGO]
Exhibit 10.20
STRATEGIC ALLIANCE PLUS AGREEMENT WITH SCIQUEST.COM
================================================================================
Sec. Item Terms
1 Strategic Alliance SciQuest.com ("SciQuest") provides comprehensive
Overview electronic marketplace services for buyers and
sellers of scientific and laboratory products.
SciQuest is forming a Strategic Alliance
("Strategic Alliance" or "Alliance") with certain
qualifying suppliers of scientific products
("Partners" or "Alliance Plus Partners"). Partners
receive significant benefits not available to non-
Alliance suppliers including but not limited to:
preferred positioning in buyers' search results,
reduced commission fees, certain e-marketing
services and other such services as described in
this Strategic Alliance Agreement. Partners that
enter into a Strategic Alliance Plus Agreement no
later than October 20, 1999 with respect to
becoming an Alliance Plus Partner will receive
warrants to purchase equity ownership in SciQuest
as defined herein.
2 Strategic Alliance Partnership in the Strategic Alliance will be
Partnership limited to those suppliers who have annualized
Qualifications global revenues derived from products that will be
made available for sale in SciQuest's electronic
marketplace of approximately $50 million based on
the supplier's most recent calendar quarter's
revenues, or hold a first or second market share
position in at least one product category, as such
product category is defined by SciQuest. SciQuest
reserves the right to determine which companies
shall be invited to participate in the Strategic
Alliance.
3 Definition of "Electronic Marketplace Services" means providing
Electronic one or more of the following services:
Marketplace
Services (i) electronic selling and marketing
(ii) electronic order processing, billing
and collection
(iii) electronic buyer and supplier customer
service
(iv) electronic product data conversion,
management and distribution
(v) buyer and supplier systems integration
(vi) purchasing reports and electronic data
mining
(vii) supplier-specific electronic commerce
storefronts
where the transaction occurs over the internet
using a browser, or using an extranet or intranet,
or by using any system in which the particular
electronic marketplace service is transmitted via
electronic means, and does not include traditional
order processing services (mail, voice telephone,
facsimile).
4 Nature of A. Sole Provider. Subject to the termination and
Preferred conversion provisions of section 16 below, the
Relationship Alliance Plus Partner agrees to and does hereby
appoint SciQuest as its sole third party provider
of Electronic Marketplace Services (defined below)
for the Term; provided however that:
(i) orders received directly by the Partner
from customers or distributors through
regular e-mail or electronic data
interchange,
(ii) orders received by Partner directly
from a customer or distributor where
the order is transmitted by traditional
order processing (mail, facsimile or
voice telephone); and
(iii) operation and order processing by the
Partner using its own electronic
commerce web site not enabled by
SciQuest
shall not be considered Electronic Marketplace
Services for purposes of this section.
B. Protection of Partner-Customer Existing
Relationships. If a customer of Partner requests
<PAGE>
Page 2
================================================================================
Sec. Item Terms
in writing that Partner make use of an Electronic
Marketplace Service other than SciQuest, then the
following provisions apply:
(i) Protection of Partner existing
relationships: (a) if on the effective date of
this Agreement, to the extent that Partner has an
existing relationship with a third party
Electronic Marketplace Service provider other than
SciQuest, Partner may continue to provide product
data and information to such provider, and to
permit such provider to derive revenue from
Partner product data and information which acts
shall not be a breach of this Agreement; and (b)
Partner may, in its discretion, request SciQuest
to provide Electronic Marketplace Services to
coordinate with its existing Electronic
Marketplace Service providers in order to
eliminate Partner's need to interact with multiple
Electronic Marketplace Service providers. The
foregoing notwithstanding, during the Term
described on Exhibit B, the Partner shall not
expand its relationship with such third party
Electronic Marketplace Service provider with
respect to additional customers, or provide
product data and information in the future that is
not provided as of the effective date of this
Agreement with respect to the additional
customers.
(ii) Protection of Partner new
customer Electronic Marketplace Services: Partner
shall use its commercially reasonable efforts to
encourage the customer to use SciQuest Electronic
Marketplace Services. If the customer does not
elect to use SciQuest Electronic Marketplace
Services to directly place orders and otherwise
transact electronic business with Partner and
Partner can demonstrate that its inability to work
with the customer's other Electronic Marketplace
Service provider will result in a material adverse
affect on the business relationship with its
customer, then the parties agree to negotiate in
good faith to find a solution reasonably
acceptable to Partner. Partner shall not enter
into any agreements of any kind with the
customer's alternative Electronic Marketplace
Service provider that would permit the alternative
Electronic Marketplace Service provider to derive
revenue from the use of Partner product data or
information.
C. Migration to SciQuest. Partner shall make best
commercial efforts to migrate to the SciQuest
Electronic Marketplace Services as follows:
(i) Non-cancelable written agreement. If
--------------------------------
the Partner has an existing written agreement with
another third party provider of Electronic
Marketplace Services that conflicts with the
Partner's obligations under section 4., and if the
agreement with the other provider is for a term
and is non-cancelable except upon a breach, then:
(a) the Partner shall advise SciQuest in writing
of the non-cancelable agreement including the
general terms of the relationship between the
parties; and (b) the Partner may continue to
perform the agreement.
(ii) Migration generally. The Partner shall
-------------------
take all reasonable acts to cause a migration to
SciQuest's Electronic Marketplace Services as soon
as the Partner is reasonably able to do so under
the circumstances.
(iii) No adverse effect. SciQuest is
-----------------
committed to facilitate transactions between the
Partner and its customers and to increase
efficiency for each party; therefore, in no event
shall Partner be required to migrate to SciQuest's
Electronic Marketplace Services where such
migration will have a material adverse affect on
its relationship with a customer.
5 Partner's own Partner shall use its best efforts to begin using
purchases the SciQuest Electronic Marketplace Services in
accordance with the guidelines set forth in
Exhibit E at the earliest practicable time and to
the fullest extent possible; however, Partner may
continue to purchase products using existing
methods to conform to current manufacturing,
quality control and/or regulatory standards and/or
Partner's contracts with suppliers.
<PAGE>
Page 3
================================================================================
Sec. Item Terms
6 Foreign Markets SciQuest currently provides Electronic Marketplace
Services in the United States (the "Territory").
SciQuest intends, directly and through
subsidiaries to be formed, to expand its services
to other geographic areas of the world outside the
Territory (hereafter the "Foreign Market").
(i) SciQuest shall keep Partner reasonably
apprised of its plans to expand directly and
indirectly into Foreign Markets.
(ii) To the extent that Partner is using
Electronic Marketplace Services in a particular
Foreign Market as of the date of this Agreement
other than through SciQuest or its subsidiary,
Partner shall inform SciQuest in writing and
SciQuest may, within one hundred twenty days of
being so advised, propose to Partner that it or
its subsidiary assume the provision of such
services. To the extent not (a) in conflict with
Partner's contractual obligations to any third
party, (b) violative of any of the laws of the US
or the relevant Foreign Market and (c) having
adverse tax consequences to Partner, when
SciQuest's services become available, Partner
shall contract with SciQuest or its subsidiary on
business terms no less favorable than those on
which Partner is presently using Electronic
Marketplace Services to provide SciQuest's
Electronic Marketplace Services or, at the
election of Partner, to provide Electronic
Marketplace Services of SciQuest's subsidiary. If
the Partner and SciQuest are unable to reach an
agreement, Partner shall not enter an agreement
with the foreign Electronic Marketplace Services
that would prevent SciQuest from providing
Electronic Marketplace Services to Partner in the
Foreign Market in the future.
(iii) To the extent that Partner decides in
the future to use Electronic Marketplace Services
in a particular Foreign Market in which SciQuest
or its subsidiary does not offer Electronic
Marketplace Services and to the extent not in
conflict with Partner's contractual obligations to
any third party, Partner shall offer to SciQuest
or its pertinent subsidiary the opportunity to
establish the Electronic Marketplace Services for
Partner in the particular Foreign Market. If
Partner and SciQuest (or a subsidiary of
SciQuest), acting in good faith cannot reach
agreement on the terms of the provision of such
services within a reasonable period of time, or if
Partner's contractual obligations with third
parties preclude Partner from using SciQuest as
the provider in the particular Foreign Market,
then Partner may use Electronic Marketplace
Services provided by itself or by another and such
will not be a breach of this Agreement; provided
however, that Partner shall not enter into an
agreement with another Electronic Marketplace
Service provider on terms more favorable than the
Partner offered to SciQuest.
(iv) To the extent that Partner decides in
the future to use Electronic Marketplace Services
in a particular Foreign Market in which SciQuest
or its subsidiary offers Electronic Marketplace
Services and to the extent not (a) in material
conflict with Partner's business plans or
contractual obligations to any third party, (b)
violative of any of the laws of the US or the
relevant Foreign Market and (c) having adverse tax
consequences to Partner, Partner and SciQuest
shall negotiate mutually agreeable terms to use
SciQuest's Electronic Marketplace Services or, at
the election of Partner, to use Electronic
Marketplace Services of SciQuest's subsidiary.
7 Equity Incentives SciQuest agrees to issue a warrant (the "Warrant")
to Alliance Plus Partners that enter into a
Strategic Alliance Agreement with SciQuest on or
before October 20, 1999. Alliance Plus Partners
will be issued warrants to acquire shares of
SciQuest common stock ("Warrant Shares") based on
Revenue Potential as described in Exhibit A.
Subject to Exhibit A each Alliance Plus Partner
will be issued Warrant Shares based on its pro-
rata contribution to Revenue Potential among all
Alliance Plus suppliers entering into a Strategic
Alliance Plus Agreement on or before October 20,
1999. Warrants that have been earned shall be
issued on the earlier of the business day
following the closing of the initial public
offering of the
<PAGE>
Page 4
================================================================================
Sec. Item Terms
Company's common stock ("IPO") or December 31,
1999 (the "Issuance Date"). Warrants shall vest as
follows: 25% as of the eighteen month anniversary
of the Issuance Date, 25% as of the second annual
anniversary of the Issuance Date, 25% as of the
third annual anniversary of the Issuance Date, and
25% as of the fourth annual anniversary of the
Issuance Date. Warrants shall terminate
automatically upon termination of the Strategic
Alliance Agreement, and in any event, shall
terminate ten (10) years from issuance. The
exercise price and other terms of the Warrant
shall be as set forth in Exhibit A. This section
shall be subject to the terms of the Warrant
issued by SciQuest to Partner.
8 Commissions Partners agree to pay SciQuest a
commission/discount on all sales (excluding
shipping, handling, taxes and other special fees)
ordered through the SciQuest electronic channel
and any SciQuest enabled Partner storefront per
Exhibit B. SciQuest shall not earn commissions on
sales by Partner described in section 4.A.(i)-
(iii).
9 Preferred SciQuest agrees to provide Partners with preferred
Positioning in positioning in search results as described in
Buyer's Search Exhibit C such that Partners' products are
Results differentiated from non-Partners' products on
search results pages.
10 E-commerce At the request of a Partner and as part of its
Storefront service, SciQuest shall provide Partners a co-
branded e-commerce storefront so that customers
are able to conduct electronic commerce directly
with the Partner. Such sales shall be considered
to have been provided through SciQuest, because
SciQuest will be providing the Electronic
Marketplace Services through which the order will
traverse. 'The e-commerce storefront for Alliance
Plus Partners will be developed and maintained
free of charge by SciQuest. As part of the
Electronic Marketplace Services provided to
Partner, SciQuest shall provide Partner the full
range of electronic catalog e-commerce
functionality and services currently available on
its public and private web sites, which includes
the provision of a reasonable number of customer
specific pricing storefronts, and a reasonable
frequency and number of updates of customer
specific pricing for no additional fee.'
11 SciQuest Core SciQuest's core services are those as described
Services in Exhibit D.
12 Board of Alliance Plus Partners shall have the opportunity
Governors to participate in the election of 4 of 7 members
of the Alliance Board of Governors. The purpose of
the Alliance Board of Governors is to advise
SciQuest senior management and to recommend
additional value added services for development,
and changes to policies and procedures of benefit
to the Partners and customers.
13 Partner Partner agrees to promote SciQuest's Electronic
Co-marketing Marketplace Services so as to maximize positive
Support publicity and accelerate buyer adoption of the
SciQuest electronic marketplace. This includes,
but is not limited to, mutually agreed co-
marketing, co-selling and advertising programs, an
exclusive and prominent SciQuest logo on the
Partner's web site, inclusion of the SciQuest logo
on Partner's other marketing materials and direct
mail announcements to Partner's customer list. In
addition, the Partner agrees to enable SciQuest to
initiate mutually agreed upon co-marketing
programs utilizing the Partner's current customer
mailing list, and electronic mail list, if
available.
14 Product Pricing Partner agrees to establish competitive pricing
and sales terms through SciQuest such that
customers of products of the Partner will not be
disadvantaged by purchasing through
<PAGE>
Page 5
================================================================================
Sec. Item Terms
SciQuest as opposed to purchasing directly through
the Alliance Partner's web site, through any
permitted means of Electronic Marketplace
Services, or through traditional purchasing
channels. This covenant of competitive pricing
extends to all customers, including by example and
not limitation, customers with negotiated price
agreements (i.e. the customer who has privately
negotiated pricing or terms with the Partner shall
not be disadvantaged by buying through SciQuest).
Upon SciQuest's reasonable prior written request,
but no more often than annually, Partner shall
provide certification of its compliance with this
provision.
15 Payment Terms SciQuest agrees to pay the Partner as follows: Net
30 days for purchases of Partner products. At
Partner's option, Partner may provide a prompt
payment discount. Partner may charge twelve
percent (12%) simple interest on payments not made
within 30 days that are not reasonably in dispute
by SciQuest.
16 Term and A. Term. The term of the Strategic Alliance shall
Termination be that as described in Exhibit B.
B. Partner conversion to non-exclusive
arrangement. Partner may convert this Agreement to
a non-exclusive arrangement pursuant to the
Addendum or at any time after eighteen (18) months
have elapsed from the first date that SciQuest
provides Electronic Marketplace Services to or for
the benefit of the Partner (the "Preferred
Provider Period"). If the Partner seeks to convert
this Agreement to a non-exclusive Agreement under
this paragraph, it shall provide written notice of
such election not less than 120 days prior to the
date upon which it commences use of another
Electronic Marketplace Service (in the absence of
which all of the terms of this agreement shall
remain in effect through the remainder of the
term). If Partner makes the election to a non
exclusive arrangement under this paragraph, then
Partner may at any time after eighteen (18) months
from the effective date of such election,
terminate this entire Agreement without cause,
upon not less than 120 days prior written notice
to SciQuest.
C. Upon a conversion under section 16.B. or the
Addendum, all warrants that have not vested or
that remain un-exercised on the effective date of
the notice of conversion shall automatically
terminate and be of no further force, and
Partner's commission rate shall convert to the
rate charged as provided in Exhibit B. In such
event, all other provisions of this Agreement
except for section 4. Shall continue in force
during the remainder of the term of this Agreement
following such conversion, and Partner shall
continue to offer its goods and services through
SciQuest with the same or substantially similar
pricing, functionality, system integration,
product data information, customer service,
fulfillment service and other operational service
levels so as not to disadvantage SciQuest in
respect to the Partner's other Electronic
Marketplace Service providers.
D. Renewal. This agreement shall renew per
Exhibit B unless written notice is given to the
other party not less than 120 days before the
anniversary date.
E. Termination for cause. Either party may
terminate this Agreement for cause upon thirty
(30) days written notice to the other party.
"Cause" shall mean any of the following:
(i). Failure by the non-terminating party to
timely fulfill any obligation of that party as
contained in this Agreement, unless the non-
terminating party shall correct, within the notice
period and to the reasonable satisfaction of the
terminating party, the action or omission
constituting the cause, in which event the notice
of termination shall be without effect.
(ii). Filing by the non-terminating party or
any other person or entity in any forum of notice
of bankruptcy of the non-terminating party.
<PAGE>
Page 6
================================================================================
Sec. Item Terms
(iii). Reorganization of the non-terminating
party for the benefit of creditors or other
similar proceeding or action.
(iv). Admission in writing of insolvency by
the non-terminating party.
(v). Transfer of ownership of 50% or more
of the outstanding voting equity in the non-
terminating party to any direct competitor of the
terminating party.
F. Effect of Breach by Partner. If, after
consideration of any applicable notice and cure
period, the Partner is in breach of this Agreement
the Partner shall forfeit all Warrants, whether
vested or not, and shall be liable (subject to the
provisions of section 27) for the damages suffered
by SciQuest as a result of such breach.
G. If substantially all of Partner's assets (or
majority control of its voting stock) are acquired
by a third party in an arm's length transaction,
the acquiror may terminate this Agreement without
cause at any time after expiration of the
Preferred Provider Period, upon not less than 120
days prior written notice to SciQuest. In the
event that an acquiror makes the election to
terminate under this paragraph, all unexpired
and/or unexercised warrants shall automatically
terminate and be of no further force or effect as
of the effective date of such notice.
H. Upon termination or expiration of this
Agreement, SciQuest shall remove all Partner
product data and other Partner information from
its web sites, and upon reasonable request, shall
return Partner specific information to Partner.
17 Product Data Partner shall promptly provide SciQuest with all
available rich product data for products
designated by Partner (in no event less than
product data available on its own web site), in no
event later than 30 days after the date of
execution of this Agreement. Partner shall also
promptly provide to SciQuest all updated and
current changes and modifications in Partner's
rich product data. Rich product data includes, by
example and not limitation, textual and image
data, pricing and all other information reasonably
related to such products that is available to
Partner. With respect to new product
introductions, the terms of section 19 apply.
SciQuest agrees to not make available Partner
specific product data to other parties (unless
required by law or valid subpoena).
18 Purchaser Data A. Full and complete data and information related
to sales of Partner's designated products bought
through SciQuest Electronic Marketplace Services
shall be provided by SciQuest to Partner at the
point of sale during the Term; provided however,
that SciQuest may redact information from
customers that is subject to a non-disclosure
obligation or for which the customer has requested
such information not be disclosed. SciQuest will
provide Partner with demographic, transactional,
and trend information in detail and summary
formats concerning customers and purchasers
ordering the Partner's products through SciQuest
to the same level and quality of information as
Partner presently receives from its own channel
and from other channels. With respect to new
product introductions, the terms of section 19
apply. SciQuest agrees to not make available
Partner specific purchaser data to other parties
(unless required by law or valid subpoena).
19 New product Partner shall decide the manner and means of new
introductions product introductions; provided however, that if
Partner determines to offer a new product via any
electronic channel or Electronic Marketplace
Service (including on its own website), Partner
shall promptly provide SciQuest at the earliest
time possible all rich product data (as set forth
in section 17 above) relating to the new product
offering, and Partner shall insure that SciQuest
is not disadvantaged in
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respect of the timing, nature or content of such
product introduction via an Electronic Marketplace
Service.
20 Sales Force Partner agrees that it will treat sales through
Incentive SciQuest equal to direct sales for the purpose of
Alignment calculating commissions for its sales force and
will not institute sales commission schedules for
its direct sales force, or other management
incentive programs that discourage or in any
manner provide disincentives to its direct sales
force, other personnel or management from fully
supporting and promoting the Strategic Alliance.
21 Implementation To provide a smooth and expeditious implementation
of the SciQuest Electronic Marketplace Services,
SciQuest agrees to provide Partner with an
Implementation Consultant ("IC") over a mutually
agreed time period. The IC will establish a team-
based structure comprising representatives from
Partner and SciQuest. The Partner will appoint a
project leader to facilitate implementation.
During the implementation phase of this agreement,
the Board of Governors and SciQuest will mutually
agree within a commercially reasonable period not
to exceed 120 days of the execution of this
agreement on objective, definable performance
criteria for SciQuest, including by way of
example, system up-time, order processing
response, integration with electronic data
interchange processes, system performance and
speed, and other objective criteria, determined to
the parties mutual reasonable satisfaction. These
criteria shall be used to determine whether
SciQuest is performing as required by this
Agreement. If the parties cannot agree on
objective and commercially reasonable performance
criteria for SciQuest, either party may request
that an independent third party electronic
commerce expert be appointed. If the parties
cannot agree on the expert, each party shall
select a representative who is not an employee of
the party, and the two representatives shall then
appoint the expert. The parties shall pay the
reasonable costs, expenses and fees of the expert
equally. The determination by the expert of the
objective, commercially reasonable performance
criteria shall be final.
22 Ordering & A. SciQuest has established contracts with all
Shipping major carriers at advantageous rates. Under these
arrangements, suppliers would normally ship
SciQuest orders to buyers using these SciQuest's
designated carriers and charging the SciQuest
carrier's account number. SciQuest will, however,
allow Partner to use its own shipping carriers.
B. SciQuest will order products from the Partner
using a method and format agreed on by both
parties. No purchase order will be binding on the
Partner until the Partner accepts the order. By
accepting an order, the Partner agrees to ship the
products and comply with the terms of the order.
C. The Partner will ship the products directly
to the customer or to the location designated by
SciQuest. Product title and risk of loss will pass
to SciQuest FOB shipping point. SciQuest will
provide the Partner with an order number
("SciQuest Order Number"), shipping carrier data
and all other necessary order information
("Shipping Information").
D. Upon shipment, the Partner will notify
SciQuest promptly of the SciQuest Order Number and
its bill of lading number or carrier tracking
number.
E. The Partner will be solely responsible for
obtaining and maintaining all licenses, permits
and other approvals required to sell and ship the
products, unless SciQuest is otherwise required by
law to obtain or maintain such licenses, permits
and/or approvals.
F. When applicable, the Partner will include
with the products: Material Safety Data Sheets (as
required by 29 CFR 1910.1200), the Partner's
standard warnings about product use and all other
information required by law. The Partner will pack
and ship products only
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to authorized purchasers and end-users at
authorized locations according to all applicable
laws and regulations.
G. Refunds and Returns. All product refunds and
returns will be governed by the Partner's existing
policies and procedures, which the Partner will
provide to SciQuest. The Partner will refund to
SciQuest any payments for authorized returned
products less any reasonable restocking fees
within thirty (30) days after receiving the
returned products.
H. Insurance. The Partner will maintain adequate
product liability and general liability business
insurance, will maintain the insurance throughout
the term of this Agreement and Partner shall use
its best efforts to include SciQuest on its
blanket vendor insurance coverage.
23 Electronic SciQuest considers its electronic commerce system
Marketplace to be a mission critical application, and takes
Performance commercially reasonable efforts to maintain
maximum system up-time, up-to-date database
indexes, disaster recovery, battery backup,
redundant servers, and proper load balancing, and
to maintain, in light of currently available and
in-use technology, the highest quality performing
system that can reasonably be provided.
24 Computer Security SciQuest agrees to use its best commercial efforts
in light of reasonably available technology to
maintain the data and information provided by the
Partner secure from unauthorized access; provided
however, that the Partner acknowledges that
despite such best efforts, no data made available
on a public network can be secured from all
unauthorized access. SciQuest agrees to notify the
Partner if it becomes aware of any material
unauthorized access to the Partner's data, to
cooperate with the Partner in recovery of such
information, and to itself take reasonable
measures to recover the materials that were
accessed without authority. If an unauthorized
access is discovered, SciQuest agrees to take
prompt actions to protect the system in light of
reasonably available technology, to minimize the
possibility of such event occurring in the future.
Further, SciQuest adheres to a very strict
security policy and procedures both internally and
externally. Some of these policies include regular
scans and reviews of both our internal and
external systems for possible breaches in
security. SciQuest also regularly reviews reports
from CERT (Computer Emergency Response Team) and
other sources. From a web perspective, SciQuest
uses encryption via SSL (Secure Socket Layer) to
provide our customers with a secure connection.
25 Confidentiality; A. The parties may disclose to each other
No employee information that is confidential and
Raid proprietary, which may include by way of
example and not limitation: ideas, concepts,
accounting information, customer lists,
supplier lists, data, research knowledge,
compositions, marketing plans, trademark
information, financial information,
competitive analysis, customer
communications, information obtained from
other persons under agreements to keep such
information confidential, trade secrets as
defined under applicable law, and other
internal secret and proprietary information
(the "Proprietary Information"). Proprietary
Information shall not include: (i)
information in the possession of the
recipient before the date of this Agreement
(and recipient shall bear the burden of
proving this fact); (ii) information that
comes into the possession of recipient from a
source other than the other party, even if
the same information was previously
transmitted, or is subsequently transmitted;
(iii) information that is or has become
publicly available in a manner other than by
a breach of this Agreement or by a
misappropriation of trade secret within the
meaning of the Uniform Trade Secrets Act.
B. The recipient of Proprietary Information will
take all reasonable precautions necessary to
ensure the confidentiality of the Proprietary
Information, including, without limitation,
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taking at least the following actions: (i)
Permitting access to the Proprietary
Information only to employees who have a need
to know of or use the Proprietary
Information; (ii) Maintaining Proprietary
Information in a secured location when the
same is not in use; (iii) Implementing
guidelines for employee's use and access to
the Proprietary Information that protect the
Proprietary Information from being disclosed,
intentionally, or inadvertently, to any
person who is not under an express or implied
contractual obligation not to disclose or
disseminate the information; (iv) Copying
Proprietary Information only when reasonably
necessary, and when making electronic
reproductions (including incorporation into
memos or other internal documents),
maintaining reasonable electronic security
over access to such electronically or other
mechanically stored documents that contain,
refer or relate to the Proprietary
Information; and (v) Implementing such other
practices as may be reasonably requested by
SciQuest or Partner, or which may reasonably
be required to comply with the terms of this
Agreement.
C. The recipient of Proprietary Information will
only use such information for purposes of
performing this Agreement, and for no other
purpose. In addition, SciQuest agrees that it
will not distribute or in any manner share
Partner specific data, except as authorized
by Partner in writing.
D. Neither party will solicit or hire the
other's employees while they are employed
with a party, without first notifying the
other party in writing of their desire to
hire such employee, and negotiating with the
party to determine the conditions under which
such employee may be hired.
26 Intellectual Neither party shall have any right, title or
Property Rights interest in the other's services or data as a
result of this Agreement, except as expressly
provided herein. Neither party shall use the
other's trademarks or service marks except as
provided for in this Agreement or as otherwise
expressly agreed to in writing, which consent
shall not be unreasonably withheld if such use is
reasonably necessary to carry out the purposes of
this Agreement. Each party retains all of its
intellectual property rights which are not hereby
assigned, transferred, or licensed to the other
unless otherwise expressly set forth in writing in
this Agreement or in a later agreement signed by
both parties. During the term of this Agreement,
Partner grants SciQuest a royalty-free, non-
exclusive, worldwide, limited license to use,
copy, reproduce and distribute material from the
product data, the Partner's name, logo and
stylized form, and other applicable trademarks or
service marks relating to its products
(collectively, "Marks"). This license will be used
only for the marketing, promotion or sale of
products through the Electronic Marketplace,
according to any written specifications provided
by Partner and mutually agreed on by both parties.
Partner represents and warrants that: (i) it owns
the entire right, title and interest in and to all
its product data or has obtained sufficient rights
to grant the licenses described above, and (ii) no
product data infringes or will infringe any
intellectual or proprietary rights of any third
party, including any copyright, patent, trade
secret or trademark rights. SciQuest will retain
all copyrights and other proprietary rights to all
aspects of the Electronic Marketplace.
27 Representations A. Each party represents and warrants to the
and Warranties other that: (i) the person signing below has
actual authority to bind their principal in this
transaction; and (ii) the execution and
performance of this Agreement does not violate or
cause a default in any agreement to which the
party so signing is bound. EXCEPT FOR THE EXPRESS
WARRANTIES SET OUT IN THIS AGREEMENT, NEITHER
PARTY MAKES ANY OTHER WARRANTY OF ANY KIND, AND
EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES TO THE
FULLEST EXTENT PERMITTED BY LAW, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
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B. Partner and SciQuest warrant that they have
evaluated and taken reasonable steps to ensure
that their computer operating systems' hardware
and software for information processing (i.e. in
SciQuest's case, its Electronic Marketplace
Services), manufacturing, sales and distribution
systems, communications, buildings and plant
facilities, support services, and other critical
applications (the "Systems") are Year 2000
Compliant. Partner warrants that Partner's
products are Year 2000 Compliant.
(i). In this Agreement, "Year 2000
Compliant" means that the Systems or products can
accurately process, provide and/or receive date
data between the 20th and 21st centuries,
including the years 1999 and 2000, and leap year
calculations. The Partner warrants that it has
contacted its critical partners and service
providers regarding their Year 2000 readiness and
that it has received assurances from them that its
business operations will not be substantially
affected by their failure to be Year 2000 ready.
(ii). The parties agree to provide each other
with their current Year 2000 compliance plan or
readiness statement upon reasonable request.
C. The Partner warrants that: (i) SciQuest will
receive free and clear title to the products; (ii)
the products are free of security interests and
other liens and encumbrances, (iii) (a) the sale
by SciQuest of the Partner's products for their
intended purpose, and (b) the use by SciQuest of
product information and data provided by Partner
in accordance with the terms of this Agreement,
will not violate any copyright, patent, trade
secret, trademark or other proprietary right of
any third party recognized in the Territory (or in
the Foreign Market if applicable); and (iv) that
the sales information in respect of SKU numbers
for products identified in Appendix A to Exhibit A
are true and correct.
D. The Partner acknowledges that SciQuest will
offer the products to Customers and agrees that
all warranties for the products will be passed
through to Customers.
28 Limitation of A. Except in the case of a claim of Indemnity
Remedy under section 29, neither party shall be liable to
the other for any economic, consequential,
indirect, incidental, special or exemplary loss or
damage, whether arising under tort, contract or
any other legal theory, and regardless of whether
a party foresaw such damages.
B. Except for a claim for unpaid invoices for
purchased products or for unpaid commissions, both
parties aggregate and total liability hereunder
shall be limited to proved pecuniary loss not to
exceed the total amount of commissions earned by
SciQuest with respect to such partner in the
preceding 12-month period, provided however that
this limitation shall not apply to a proven claim
that the other party engaged in gross negligence
or intentional misconduct.
C. In the case of a claim for defective product
where the receiving party did not engage in misuse
or negligent handling or storage, the aggrieved
party's sole remedy shall be repair or replacement
of the product. If the product was defective upon
receipt, or if the shipment was not conforming to
the order and the entire lot is rejected, the
party shipping the goods shall be liable for all
shipping costs.
29 Indemnity and Except for damages, injury or expense suffered as
Insurance a result of a party's own negligent or intentional
act or omission, each party (the "Indemnifying
Party") agrees to defend, indemnify and hold
harmless the other party, and its agents,
employees, officers, directors and other persons
acting on its behalf (the "Indemnified Party")
from all damages, losses, expenses (including
attorneys' fees) or other claims of a third-party
that arise from or are related to any violation of
Federal or State laws by the indemnifying party
and any breach of warranty set forth in section
27; provided that in the case of a claim of breach
of section 27.A(i), the party
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claimed to be in default shall have a reasonable
opportunity to cure the breach by obtaining a
license, removing the objectionable material, or
otherwise curing the infringement prior to being
obligated to provide indemnification. Both parties
agree to maintain in force reasonable commercial
general liability insurance, including coverage
for business risk and contract liability, which
would cover anticipated claims under this
provision, and upon request, will cooperate in
recognizing the other party as an additional
insured, if the transaction or matter reasonably
requires such confirmation. SciQuest agrees to use
its best efforts to include Partner on its blanket
vendor insurance coverage.
30 Publicity The parties shall make press releases or other
statements to the public concerning the nature of
this relationship with the consent of the other
party, which consent shall not be unreasonably
withheld. All links, disclosures and
representations concerning the nature of this
relationship, whether presented in a press release
or on a website or otherwise, shall be approved by
the parties before dissemination or public
display, except that SciQuest shall be permitted
to disclose such information as may be required to
be disclosed in its registration statement filed
in connection with its initial public offering.
31 Most Favored If, prior to the earlier of the date Partner makes
Terms an election to become non-exclusive, or the end of
the Term, and provided Partner is not then in
default, SciQuest enters into a written agreement
with a person or company other than a party that
became an Alliance Plus Partner under this
Agreement under the same program as offered herein
and with a similar revenue potential, and if such
agreement contains in the aggregate more favorable
terms and conditions than this Agreement, then the
net effect of the more favorable terms and
conditions of the subsequent Agreement shall be
automatically incorporated herein. SciQuest shall
provide reasonable notice to the Partner
concerning any execution of an agreement that
would trigger the provisions of this section.
32 Miscellaneous and A. This Agreement shall be binding upon and
Legal inure to the benefit of the parties hereto and
their respective successors and assigns.
B. This Agreement, including the Exhibits
attached hereto, and together with the Warrant and
Addendum are the final, complete, entire and
exclusive statement of the agreement between the
parties concerning the subject matter hereof and
may not be amended except by the written agreement
of the parties. In the event of any conflict
between this Agreement and any Exhibit, this
Agreement shall control. In the event of any
conflict between this Agreement and the Warrant or
the Addendum, the Warrant/Addendum shall control.
C. No waiver of any right or consent to any
breach hereunder shall be effective unless made in
writing and signed by the party claimed to have
waived or consented. No waiver of any right or
consent to any breach shall constitute a waiver of
any other right or consent to any other breach.
D. The validity of this Agreement, the
construction of its terms, and the interpretation
of the rights and duties of the parties hereto
shall be governed by and construed in accordance
with the substantive laws of the State of Delaware
and without reference to laws relating to
conflicts of law. Disputes involving money damages
shall be arbitrated under American Arbitration
Association Rules for Commercial Arbitration, in
Raleigh, North Carolina. A claim for equitable
relief shall not be limited to arbitration, and
may be brought by either party against the other
only in the defendant's forum state where it's
principal place of business is located.
E. The captions of clauses throughout this
Agreement are for convenience only and are not
material with respect to interpretation of this
Agreement.
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F. Any notice required or allowed under this
Agreement shall be deemed properly given upon
actual delivery, if delivery is by hand, upon
receipt by the transmitting party of confirmation
or answer back, if delivery is by telex, telegram,
facsimile, or electronic mail, or upon delivery
into the regular mail, postage prepaid by
registered or certified return receipt-requested
to the parties at the following addresses:
If to SciQuest:
P.O. Box 121156 Research Triangle Park, NC 27709
ATTENTION: Chief Financial Officer
FAX: 919.659.2195
If to the Alliance Plus Partner:
___________________________
ATTENTION: ____________________
FAX: (___) ___-____
or at such other address as the parties may
designate by notice given pursuant to this clause.
G. This Agreement may be executed in duplicate
original counterparts, and facsimile signatures
shall be deemed originals. If any portion of this
Agreement is held to be unenforceable, said
portion shall be severed from this Agreement, the
remainder of which shall continue in effect.
H. Notwithstanding the use of the term
"partner", the parties do not intend to establish
a partnership, and the relationship of the parties
is that of independent contractors, and no agency,
employment, joint venture/partnership, or any
other fiduciary relationship is created by this
Agreement.
I. The sections of this Agreement that address
confidentiality, warranties, and indemnification
and other provisions to the extent the context
requires, shall survive termination or expiration
of this Agreement.
J. In no event shall either party be liable to
the other party (except for the payment of money
which obligation is not subject to this section)
for any delay or failure to perform hereunder,
which delay or failure to perform is due to acts
of God, acts of the public enemy, acts of the
United States of America, or any State, territory
or political subdivision thereof or of the
District of Columbia, acts of other governments,
fires, storms, floods, epidemics, quarantine
restrictions, work stoppages, strikes, failures or
delays in transportation or communication,
failures or substitutions of equipment, accidents
and similar occurrences. Notwithstanding the
foregoing, in every case the delay or failure to
perform must be without the material fault or
negligence of the non-performing party.
WHEREFORE the parties intending to create a binding agreement, set their
hands and seals:
ALLIANCE PLUS PARTNER SCIQUEST.COM, INC.
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________________________________(SEAL) _____________________________(SEAL)
By: __________________________ By: __________________________
Date: __ / __ / ___ Date: __ / __ / ___
<PAGE>
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EXHIBIT A
EQUITY INCENTIVES
FOR ALLIANCE PLUS PARTNERS
A. SciQuest has established a total available pool of Warrant Shares in the
amount of up to 20% of the total outstanding capital stock of SciQuest (on
a fully diluted basis) existing as of October 20, 1999 (the "Warrant
Pool").
B. Warrants shall be earned as follows:
1. If the Total Revenue Potential (defined below) is less than
$500,000,000, no warrants shall be earned. If the Total Revenue
Potential is equal to or greater than $500,000,000 but less than
$1,400,000,000, then the size of the Warrant Pool shall be calculated
by multiplying the Total Revenue Potential divided by $100,000,000
times 1.4286%. If the Total Revenue Potential is equal to or greater
than $1,400,000,000, then the size of the Warrant Pool shall be 20%.
The number of Warrants earned by a particular Partner shall be
calculated, in all cases, by multiplying (i) the percentage of the
Total Revenue Potential such Partner's Revenue Potential represents by
(ii) the total number of Warrants available in the Warrant Pool. In no
event shall the entire Warrant Pool exceed 20% of the total
outstanding capital stock of SciQuest (on a fully diluted basis).
2. The aggregate total annualized Revenue Potential from all Partners
that are committed prior to October 20, 1999 (the "Total Revenue
Potential") shall be determined as soon as reasonably possible after
October 20, 1999.
3. In this Exhibit, "Revenue Potential", with respect to any particular
Partner, means the annualized total global revenue derived from sales
of products that are predominantly sold by the Partner in the United
States direct to the customer (i.e. not using traditional distribution
channels) and which are to be made available for sale on the SciQuest
e-channel, based upon the most recent fiscal quarter of such Partner,
calculated as though the Partner in question was using the SciQuest
system for 100% of its order processing for those products. For
example, if Partner A designates 1000 SKU's for sale on the SciQuest
system, which products resulted in world-wide sales of $12.5 million
in the most recently completed fiscal quarter, then such Partner's
Revenue Potential shall be $50 million. Any product whose unit price
exceeds $30,000 shall not be eligible for inclusion in the Revenue
Potential for a Partner. A list of the SKU's of such products shall be
attached and incorporated as an Appendix to this Exhibit.
Example 1: Ten (10) Partners having a Total Revenue Potential of
$1,200,000,000 execute the Agreement before October 20, 1999. Assume that
10,000,000 shares of SciQuest's capital stock are outstanding. Using the
above formula, the calculation would be: $1,200,000,000/$100,000,000 x
1.4286% 17.1432%, or a Warrant Pool of 1,714,320 shares.
Example 2: Fifteen (15) Partners having a Total Revenue Potential of
$2,450,000,000 execute the Agreement before October 20, 1999. Assume that
10,000,000 shares of SciQuest's capital stock are outstanding. The Warrant
Pool would equal 20% of the total outstanding capital stock of SciQuest, or
2,000,000 shares.
C. Warrants that have been earned shall be issued on the earlier of the
business day following the closing of the initial public offering of the
Company's common stock ("IPO") or December 31, 1999.
D. Warrants shall vest as follows: 25% as of the eighteen month anniversary of
the Issuance Date, 25% as of the second annual anniversary of the Issuance
Date, 25% as of the third annual anniversary of the Issuance Date, and 25%
as of the fourth annual anniversary of the Issuance Date. Warrants may be
exercised only to the extent that such Warrant is vested. If a Partner
converts its relationship with the Company to a non-exclusive relationship
pursuant to the terms of the Agreement for any reason or otherwise breaches
this agreement, then upon such conversion or breach, all unexercised
warrants, whether vested or unvested, held by such Partner shall
immediately terminate and be of no further force or effect. The exercise
price of the Warrants shall be equal to $.01 per share.
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Page 15
E. If requested by the Company's underwriters in connection with the Company's
IPO, any Partner receiving Warrants agrees to enter into a lockup agreement
identical to that entered into by the Company's directors, officers and
shareholders.
F. SciQuest (or its designated professionals) shall be entitled, upon
reasonable advance written notice, to inspect the books and records of
Partner to determine the accuracy of the determination of the Revenue
Potential in this Exhibit. Partner shall maintain books and records in
accordance with good accounting practices and provide all information
reasonably requested by SciQuest to perform the audit. If a dispute
arises concerning the calculation of the Revenue Potential, the provisions
of the Alliance Agreement concerning dispute resolution shall be
applicable.
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EXHIBIT B
COMMISSIONS and TERM
1. SciQuest Commission/Discount Rate/*/
<TABLE>
------------------------------------------------------------------------------------
Year 1 2 3 4 5 Term
<S> <C> <C> <C> <C> <C> <C>
Alliance Plus Partner [++] [++] [++] [++] [++] 5 years
------------------------------------------------------------------------------------
</TABLE>
/*/ Applies to those products on the listing of SKU numbers set forth on the
appendix to Exhibit A and for SKUs subsequently added for new standard catalog
items but does not apply to Auction Sales, to LabDeals, and to other products
that are dynamically configured or custom priced products for which separate
Electronic Marketplace Services may be utilized.
2. Strategic Alliance Term
. For Alliance Plus Partners - right to renew for another 5 years after the
initial Term [++++++] SciQuest Commission
3. Effect of Non-Exclusivity Election on Commission/Discount Rate
. The SciQuest Commission/Discount rate shall increase by [++++++] per the
schedule in Section 1 above, however, the maximum Commission/Discount Rate:
(i) shall not exceed [++++++] in the eighteen month period immediately after
the conversion to non-exclusive; and (ii) thereafter shall not exceed
[++++++] during the remainder of the Term.
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EXHIBIT C
PREFERRED POSITIONING IN BUYERS' SEARCH RESULTS
SciQuest agrees to provide Partners with preferred positioning in search results
such that Partners' products are differentiated from other suppliers' products
on search results pages.
Criteria for determining preferred positioning include the supplier's status
(Partner/non-Partner) and the supplier's market share position within a product
category based upon independent market research information.
SciQuest Public Sites
Priority preferred positioning will be given to suppliers in the following order
provided that each is one of the top three market share leaders in a product
category:
1. Alliance Plus Partners
2. Other Suppliers
Note: The date of execution of the Strategic Alliance Agreement between the
Partner and SciQuest will determine the prioritization within the Alliance Plus
group.
In the future, SciQuest will use customer preference to order search results
with respect to each product within each product category to determine preferred
positioning for Partner's products, subject to review by the Board of Governors.
Further, SciQuest will not include a price per unit comparison as a default
design and any changes to this particular design aspect will be subject to a
review by the Board of Governors.
SciQuest Private Sites
In those instances where SciQuest has provided certain customers with a private
site, SciQuest will deliver the site with the Preferred Positioning described
above as the default. However, the private site customer reserves the right to
determine supplier positioning on search results pages.
SciQuest will, however, make commercially reasonable efforts to include Partner
products on such private sites.
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EXHIBIT D
SCIQUEST CORE SERVICES FOR CUSTOMERS
SciQuest is building an electronic marketplace rich in information content that
will be the dominant electronic commerce channel for scientists and purchasers
of scientific and laboratory products. Our goal is to create the best purchase
experience for the customer. SciQuest offers extensive electronic marketplace
services for customers. The following charts provide examples of current and
planned system functions, but do not constitute guaranteed functionality. All
Electronic Marketplace Services shall be determined in the discretion of
SciQuest subject to its obligations in the Alliance Agreement:
Pre-purchasing environment
- --------------------------------------------------------------------------------
. Provide e-catalog rendering of listed product information (e.g., cXML, OBI,
BizTalk, CBL, EDI, etc.) to provide consistent customer presentation.
. Incorporate product information into proprietary taxonomy from Cold Spring
Harbor Laboratory with UN/SPSC coding to facilitate efficient, accurate
product selection.
. Provide advanced, extremely fast search capability by supplier name, brand
name, product name, category, text based product description, or part number
to improve the customer satisfaction in electronic product location.
. Utilize an integrated "shopping cart" that inputs all necessary information
automatically onto a buyer's electronic purchase order to reduce purchase
time and eliminate transcription errors.
. Display product availability and the estimated time for delivery (if this
functionality is available from supplier) to provide the customer with
improved inventory management capabilities.
. Offer different payment options: procurement card, credit card, or purchase
order to meet customers payment preferences.
. List past purchases and favorite products which provides the ability to
seamlessly select products for re-purchase.
. Identify market leaders within a product category.
. "Ask Joe" rapid response technical support manned by personnel including
staff Ph.D. to assist in product and protocol identification and
implementation.
. Provide links for in-depth product descriptions and documentation (e.g., MSDS
sheets, protocols, and references) to improve the customer's product
selection process.
- --------------------------------------------------------------------------------
Purchasing transaction
- --------------------------------------------------------------------------------
. Order taking (SKU, volume, unit price, delivery date, location, terms, etc.).
. Reporting product availability (link to suppliers' inventory control system
where available).
. Credit checking.
. Centralized order processing through a single site.
. Order acknowledgment and tracking.
. Consolidated billing.
. Returns.
. Customer service (non-technical) provided by SciQuest Customer Care to
address purchasing procedure questions, order expediting, and to facilitate
communication with supplier
- --------------------------------------------------------------------------------
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Post-purchasing environment
- --------------------------------------------------------------------------------
. Send periodic targeted information about Alliance Partners' products based on
purchase history.
. Share testimonials from buyers about products to assist customers in keeping
abreast of product offerings and associated performance.
. Provide links for in-depth product descriptions and documentation (e.g., MSDS
sheets, protocols, and references) to improve customers product use
experience.
. Utilize purchase data from SciQuest Auctions to recommend complementary
accessories and consumables.
- --------------------------------------------------------------------------------
<PAGE>
Page 20
SCIQUEST CORE SERVICES FOR SUPPLIERS
SciQuest provides comprehensive electronic marketplace services for its Alliance
Partners to cost effectively market and sell their products to customers. These
services provide significant benefits to the Alliance Partner in terms of higher
brand visibility, increased sales, improved operating efficiency, and enhanced
customer satisfaction. The following charts provide examples of current and
planned system functions, but do not constitute guaranteed functionality. All
Electronic Marketplace Services shall be determined in the discretion of
SciQuest subject to its obligations in the Alliance Agreement:
Pre-purchasing environment
- --------------------------------------------------------------------------------
. Provide a "state of the art" e-commerce storefront for product search,
selection, and ordering.
. Provide preferential display of Alliance Partner products in search results.
. Provide co-marketing programs to accelerate new product adoption such as
announcements when predecessor products are selected, e-mail to targeted
users, new product announcements in content sections of the SciQuest site,
prominent placement in the SciQuest Featured Products section, and joint
marketing programs with complementary product suppliers.
. Access to SciQuest Auctions and SciQuest LabDeals sites for efficient
inventory management by offering a channel for used, excess and obsolete
product inventory.
. E-catalog data manipulation and warehousing services including an on-line
content maintenance system and publishing platform to distribute data to
Partner's sales channels.
. Classification of products using proprietary taxonomy from Cold Spring Harbor
Laboratory with UN/SPSC coding to ensure accurate product identification in
customer search environments.
. Data sorting and categorization using proprietary, advanced, extremely fast
search capability by supplier name, brand name, product name, category,
description or part number. Search engine allows truncated, partial matching,
and wild card matching product identification by the customer.
. Seamless integration of product selection and order generation to eliminate
transcription errors and improve customer satisfaction.
. Payment options to meet customer purchasing preferences.
. Purchase history and favorite product designations to provide the ability to
select products for re-purchase using a single mouse click to increase
customer retention and increase customer order size.
. Provide links for in-depth product descriptions and documentation (e.g., MSDS
sheets, protocols) assuring customer receives current product information.
- --------------------------------------------------------------------------------
<PAGE>
Page 21
Purchasing transaction
- --------------------------------------------------------------------------------
. Process customer orders (SKU, volume, unit price, delivery date, location,
terms, etc.).
. Integrate with order entry and inventory management systems to provide the
customer with product availability (NOT quantity on hand) and the estimated
time for delivery if available from supplier.
. Eliminate Credit risk.
. Transmit orders electronically.
. Assume order acknowledgment and tracking responsibility and communication
with customer.
. Assume credit card transaction costs.
. Manage the integration of the Alliance Partner into the SciQuest system by
utilizing a SciQuest Integration Consultant.
. SciQuest Supplier Care provides support for purchasing procedure and business
integration.
. Provide customer transaction data (no disintermediation).
. Automatic integration with ERP/ORMS legacy software vendors (e.g., Ariba,
Oracle SAP, PeopleSoft, Lawson, AMS, A.G. Edwards, CommerceOne, etc.).
- --------------------------------------------------------------------------------
Post-purchasing environment
- --------------------------------------------------------------------------------
. Distribute periodic statements detailing purchase information including sales
demographics, transactions, and trends in detail and summary formats for
customers and purchasers.
. Communicate feedback from buyers about Alliance Partners' products.
. Provide appropriate technical data to the buyer to support product use.
- --------------------------------------------------------------------------------
<PAGE>
Page 22
EXHIBIT E
PREFERRED RELATIONSHIP -
BUYING THROUGH SCIQUEST
Partner agrees to make its best and commercially feasible efforts to purchase
laboratory and scientific products used in its businesses through SciQuest in
accordance with the following guidelines:
1. SciQuest will provide the Partner with functionality equal to that offered
to its best customers including, but not limited to:
. private intranet site
. access to the entire SciQuest offering
. robust measurement and metrics package
. supplier diversity reports
. customer-specific pricing based on pre-negotiated pricing between Partner
and its contracted suppliers
. user defined search results order
. system upgrades provided at no cost to Partner
2. SciQuest agrees to not charge the Partner for developing its private site or
for its use of the procurement solution.
3. Partner agrees to make its best efforts to use SciQuest's procurement system
unless a) the supplier of choice for the Partner is not available through
SciQuest, and SciQuest is unable or refuses after written notice of such
situation, to provide the supplier's products through its channel; or b)
SciQuest's pricing to Partner is higher than offered by another vendor in a
bona-fide arm's length transaction under similar circumstances, and SciQuest is
unable or refuses after written notice of such situation, to reduce its prices
to meet competition.
4. Partner agrees to pay SciQuest invoices Net 30 days.
5. SciQuest will provide an Implementation Consultant to assist in defining
requirements and implement the procurement solution including end user training.
<PAGE>
EXHIBIT 10.21
SCIQUEST.COM
STRATEGIC PURCHASING AGREEMENT
This STRATEGIC PURCHASING AGREEMENT is made effective as of
---------------
("Effective Date"), by and between Buyer Company, a Delaware corporation
("Buyer" or "you") and SciQuest.com, Inc., a Delaware corporation ("SciQuest").
In consideration of the mutual covenants contained herein and other good and
valuable consideration, the parties agree as follows.
1. Background. SciQuest is in the business of providing an online
distribution and ordering system for scientific and laboratory products
("SciQuest Marketplace"), which includes listings of products ("Products") of
certain third party manufacturers and suppliers ("Suppliers") who have entered
into a Supplier Services Agreement with SciQuest. Buyer desires to purchase
Products of certain Suppliers from SciQuest through the SciQuest Marketplace and
SciQuest desires to sell such products to Buyer. Additionally, the parties wish
to create a mutually beneficial strategic alliance under the terms of this
Agreement and the attached Exhibits.
2. Buyer Purchasing Site. SciQuest shall create, develop and maintain a
private purchasing site accessible by Buyer ("Buyer Site"). The Buyer Site shall
be a Buyer-specific version of the SciQuest Marketplace. SciQuest shall have
control over the development of the Buyer Site subject to Buyer's final approval
with respect to the Buyer-specific customization of the aesthetic look and feel
of the Buyer Site and the use of any tradenames, trademarks, logos or other
marks of Buyer, which shall not be unreasonably withheld.
3. Use of the SciQuest Marketplace. SciQuest agrees to provide Buyer access
to and use of the SciQuest Marketplace through the Buyer Site, and Buyer agrees
to utilize the SciQuest Marketplace for its purchasing needs for scientific and
laboratory products in accordance with the terms of this Agreement. From time to
time Buyer may supply (subject to existing confidentially obligations between
Buyer and its suppliers) SciQuest a list of Suppliers from which Buyer wishes to
purchase through the Buyer Site ("Buyer Designated Suppliers"). If Buyer has a
purchasing arrangement with any Buyer Designated Supplier, Buyer shall authorize
SciQuest to act for the benefit of Buyer under such arrangement, and shall
assist SciQuest in entering into an agreement for purchase and resale with such
Buyer Designated Supplier.
4. Prices; Invoicing; Taxes. The prices for Products listed in the Buyer
Site shall not exceed the Supplier's published list price of such Products. Upon
written notice to SciQuest from any Buyer Designated Supplier, SciQuest shall
offer to Buyer Buyer's negotiated discounts and/or prices from such Supplier for
Products purchased through the Buyer Site. SciQuest shall send a summary invoice
on a monthly basis. Buyer shall pay SciQuest within ten (10) days of the receipt
of invoice. Any payment not made within thirty (30) days from the due date shall
accrue the lessor rate of 1 1/2 percent per month from due date or the maximum
amount allowable under applicable law. All prices are in U.S. dollars and
exclusive of any sales/use taxes or similar charges assessed against Buyer's
purchase of Products. Buyer agrees to be directly responsible for such sales/use
taxes or similar charges, and any interest or penalties assessed, and will
reimburse and indemnify SciQuest for all such sales/use taxes or similar charges
paid by us for the Products. If Buyer is exempt from sales tax, Buyer must
deliver the appropriate exemption certificate(s) to SciQuest.
5. Additional Terms. The parties mutually agree to the obligations, terms
and conditions set forth in Exhibit A (Additional Terms) and Exhibit B (SciQuest
Marketplace Guide).
6. Term. This Agreement shall commence on the Effective Date and continue in
effect for a term of three (3) years unless earlier terminated as provided
herein. This Agreement shall renew for successive one (1) year terms if so
agreed in writing by the parties. Notwithstanding the foregoing, this Agreement
shall terminate: (i) upon thirty (30) days written notice by either party if the
other party materially breaches any provision of this Agreement and such breach
remains uncured for a period of thirty (30) days after delivery of written
notice of such breach; (ii) immediately upon written notice by either party if
the other party terminates or suspends its business or operations, becomes
insolvent or makes a general assignment for the benefit of creditors or files
(or has filed against it) a petition in bankruptcy; or (iii) as otherwise set
forth in Exhibit A. No termination of this Agreement shall affect any obligation
or liability which shall have accrued prior to such termination.
7. Confidential Information. In the performance of this Agreement, either
party may disclose to the other certain Proprietary Information. For the
purposes of this Agreement, (i) "Proprietary Information" means Trade Secrets
and Confidential Information; (ii) "Trade Secrets" means trade secrets as
defined under the Uniform Trade Secret Act; and (iii) "Confidential Information"
means information that is of value to its owner and is treated as confidential
other than Trade Secrets. Proprietary Information includes, without limitation,
all information regarding all financial information, business plans, procedures,
formulas, discoveries, inventions, improvements, innovations, concepts and
ideas. The receiving party agrees to hold the Proprietary Information disclosed
by the other party in strictest confidence and not to, directly or indirectly,
copy, use, reproduce, distribute, manufacture, duplicate, reveal, report,
publish, disclose, cause to be disclosed, or otherwise transfer the Proprietary
Information for any purpose whatsoever other than as expressly provided by this
Agreement.
Both parties acknowledge and agree that the Proprietary Information shall remain
the sole and exclusive property of the disclosing party or a third party
providing such information to the disclosing party. The disclosure of the
Proprietary Information does not confer upon the receiving party any license,
interest, or rights of any kind in or to the Proprietary Information, except as
expressly provided under this Agreement. Subject to the terms set forth herein,
the receiving party shall protect the Proprietary Information of the disclosing
party with the same degree of protection and care the receiving party uses to
protect its own Proprietary Information, but in no event less than reasonable
care. With regard to Trade Secrets, the obligations in this Section shall
continue for so long as such information constitutes a Trade Secret. With
regard to Confidential Information, the obligations in this Section shall
continue for the longer of (i) the duration dictated under governing law, or
(ii) the term of this Agreement and for a period of five (5) years thereafter.
Nothing in this Section shall prohibit or limit the receiving party's use of
information if (i) at the time of disclosure hereunder such information is
generally available to the public; (ii) after disclosure hereunder such
information becomes generally available to the public, except through breach of
this Agreement by the receiving party; (iii) the receiving party can demonstrate
such information was in its possession prior to the time of disclosure by the
disclosing party; (iv) the information becomes available to the receiving party
from a third party which is not legally prohibited from disclosing such
information; (v) the receiving party can demonstrate the information was
developed by or for it independently without the use of such information; or
(vi) if disclosure is required under applicable law or regulation. Neither
party shall disclose the terms of this Agreement except (i) as required by
applicable law or regulation including, without limitation, to the extent
disclosure is required in connection with filings with the Securities and
Exchange Commission, (ii) as necessary to perform its obligations or exercise
its rights hereunder, or (iii) in connection with a potential merger or sale of
all or substantially all of its assets; provided that the receiving party agrees
in writing to be bound by the restrictions of this Agreement.
8. Limitations of Warranties and Liability. EXCEPT AS EXPRESSLY SET FORTH IN
THIS AGREEMENT AND ALL EXHIBITS HERETO, NETHER PARTY MAKES AND SPECIFICALLY
DISCLAIMS ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE
1
<PAGE>
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AS TO
THE SCIQUEST MARKETPLACE, THE SERVICES PROVIDED UNDER THIS AGREEMENT AND THE
PRODUCTS. Except for breaches by either party of Section 7 (Confidential
Information), in no event shall either party be liable for special, incidental,
consequential or other indirect damages arising out of or relating in any manner
to this Agreement under any cause of action, including, without limitation, lost
profits, loss of business, down time or failure to realize savings, even if the
parties have been advised of the possibility of such damages. Nothing herein
will excuse Buyer from its obligation to pay any fees due under this Agreement.
9. Governing Law; Interpretation. This Agreement shall be governed by the
laws of the State of North Carolina without regard to conflict of law
provisions. Headings of particular Sections are inserted only for convenience
and are not to be considered a part of this Agreement or be used to define,
limit or construe the scope of any term or provision of this Agreement. Should
any provision of this Agreement require judicial interpretation, the parties
agree that the court or arbitrators construing the same shall not apply a
presumption that the terms of this Agreement shall be more strictly construed
against one party than against another. Notwithstanding the content of any
purchase order, sale order, sale confirmation or any other document relating to
the subject matter of this Agreement, this Agreement shall take precedence over
any such document, and any conflicting, inconsistent, or additional terms
contained therein shall be null and void.
10. Arbitration; Injunctive Relief. Except as provided below, all disputes
or claims relating in any manner to this Agreement shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The decision of the arbitrators shall be final and
binding upon the parties and judgment upon the award may be entered in any court
having competent jurisdiction. Notwithstanding, the parties may apply to a court
of competent jurisdiction for any appropriate equitable or injunctive relief.
The parties acknowledge that any use or threatened misuse of the Proprietary
Information of either party will cause immediate irreparable harm to the non-
breaching party for which there is no adequate remedy at law. Accordingly, the
parties agree that the non-breaching party shall be entitled to immediate and
permanent injunctive relief from a court of competent jurisdiction in the event
of any such breach or threatened breach. Nothing contained herein shall limit
either party's right to any remedies at law, including the recovery of damages.
The prevailing party in any arbitration or action for equitable relief shall be
entitled to collect its reasonable attorneys' fees and costs from the losing
party.
11. Joint Promotions and Press Releases. Subject to Buyer's advance written
approval as to form and content, which approval shall not be unreasonably
withheld, SciQuest may issue a press release concerning the existence of this
Agreement and the parties' business arrangement hereunder.
12. Miscellaneous. Neither party shall be responsible for delays or failures
to perform their respective duties and obligations hereunder to the extent that
such delays or failures result from acts of God, other catastrophic economic or
natural events or any other act beyond such party's reasonable control. Except
as provided in Exhibit B, any notice provided for under this Agreement shall be
in writing and shall be given by certified mail, return receipt requested, and
shall be deemed sufficiently given if and when received by the party to be
notified at its address set forth on the signature page hereto. Either party
may, by notice to the other, change such address at any time. Except as provided
below, neither party may assign this Agreement in whole or in part without the
prior written consent of the other party. Either party may freely assign this
Agreement in conjunction with (i) a sale of all or substantially all of its
assets, or (ii) a merger, reorganization or similar transaction. This Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns. Each party shall act solely as an independent contractor and
nothing herein shall be construed to create the relationship of partner,
principal and agent or joint venturer between Buyer and SciQuest. This Agreement
and the attached Exhibits constitute the entire agreement between the parties
with reference to the subject matter hereof, supersedes any prior agreements
with respect to such subject matter. The parties may only change or modify this
Agreement in a written instrument, signed by the parties. The invalidity or
unenforceability of any term or provision of this Agreement shall not affect the
validity or enforceability of any other term or provision. No provision of this
Agreement is intended or shall be construed to provide or create any third party
beneficiary right or any other right of any kind in any third party or any
client, customer, affiliate, insurer, lender, shareholder, partner, officer,
director, employee or agent of any party hereto, or in any other person. This
Agreement may be executed simultaneously or in two counterparts, each of which
together shall constitute one and the same instrument and shall be deemed an
original hereof. All provisions of this Agreement, which by their nature are
intended to survive the expiration or termination of this Agreement, shall
survive and remain in full force and effect. Neither SciQuest nor anyone
employed by it shall be, represent themselves as, act or purport to act as or be
deemed to be the agent, representative, employee or servant of Buyer. Buyer and
SciQuest shall each comply with all applicable governmental laws, ordinances,
codes, rules, regulations and orders in the performance of this Agreement.
[SIGNATURES FOLLOW ON THE NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives
BUYER COMPANY SciQuest.com, Inc.
By: By:
---------------------------- -------------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
------------------------- ----------------------------
Date: Date:
-------------------------- ----------------------------
Address: Address: 5151 McCrimmon Parkway,
Suite 208
Morrisville, North Carolina 27560
3
<PAGE>
EXHIBIT A
---------
ADDITIONAL TERMS
----------------
1. Exclusivity. During the term of this Agreement, Buyer shall SciQuest and
the SciQuest Marketplace as its exclusive provider of an online distribution
and ordering system for scientific and laboratory products worldwide. During
the term of this Agreement, Buyer shall also use SciQuest as its exclusive
third party electronic channel for marketing and selling its used,
refurbished and surplus scientific equipment through an electronic
distribution system.
2. Minimum Volume. Buyer shall use purchase a minimum of $5 million in
"Qualified Scientific Products" through the SciQuest Marketplace in each
calendar year or portion thereof (excluding 1999) during the term of this
Agreement. Qualified Scientific Products shall be defined as scientific and
laboratory products or supplies sold through the SciQuest Marketplace under
the Standard SciQuest Supplier Agreement negotiated by SciQuest directly
with the supplier. Buyer Subsidiaries shall be defined as any foreign or
domestic subsidiary, including any incorporated or unincorporated company,
joint venture or partnership, which is at least fifty percent (50%) owned,
directly or indirectly by Buyer, or if not fifty percent (50%) owned, then
the maximum percent ownership permitted by law in the relevant country, and
shall include any company or enterprise which, irrespective of ownership, is
operated by Buyer or a "Buyer Subsidiary". Only subsidiaries having the
express authorization of Buyer shall be included.
3. Buyer's Suppliers. Buyer shall use its best efforts to direct its Suppliers
to use SciQuest as the third party aggregator for Buyer purchases. Buyer
agrees to the use of customary and reasonable letters, meetings and other
communications designed to lead to the acceptance by such suppliers of
SciQuest as Buyer's electronic purchasing intermediary.
4. Participation in Case Study. Buyer shall, if it deems appropriate,
participate in reasonable case studies to be conducted by SciQuest regarding
electronic distribution of scientific and laboratory products and supplies
and the SciQuest Marketplace. Buyer acknowledges that by so agreeing it may
incur certain reasonable expenses and that the results of such case studies
may be used by SciQuest in its marketing efforts, provided that SciQuest
does not disclose Proprietary Information in violation of its obligations
under this Agreement. Buyer specifically agrees to allow SciQuest to use the
fact that Buyer is a customer of SciQuest in all reasonable business uses
and, if specifically agreed to in writing, may consider allowing SciQuest to
use its name in publications, etc.
5. Promotion of SciQuest Solution. Buyer shall promote the SciQuest solution in
the scientific and laboratory products industry, to scientific product
suppliers and to other buyers of scientific products and supplies.
6. Initial Warrants. In partial consideration for Buyer performing its
obligations under this Agreement, SciQuest shall issue to Buyer on the
Effective Date, a warrant to acquire shares of SciQuest common
-----------
stock at an exercise price of $0.01 per share ("Initial Warrant"). One-third
of the Initial Warrant shall be exercisable upon each anniversary of the
Effective Date. If there is any inconsistency between the terms of the
Agreement and the Initial Warrant, the terms of the Initial Warrant shall
govern.
7. Incentive Warrants. To encourage maximum utilization of the SciQuest
Marketplace by Buyer, SciQuest shall issue to Buyer, on February 15th 2001,
2002 and 2003, additional warrants to acquire that number of shares of
SciQuest common stock determined below, at an exercise price of $
------
("Incentive Warrants"). The number of shares of common stock eligible to be
purchased pursuant to the Incentive Warrants for each calendar year shall be
determined as follows:
. For 2000 (which shall consist of the period from the Effective Date until
December 31, 2000), the number of shares shall be equal to the quotient of
(i) the annual volume of Qualified Scientific Products sold to Buyer through
the SciQuest system divided by (ii) .
-------
. For 2001, the number of shares shall be equal to the quotient of (i) the
annual volume of Qualified Scientific Products sold to Buyer through the
SciQuest system less year 2000 volume) divided by (ii) .
-------
. For 2002, the number of shares shall be equal to the quotient of (i) the
annual volume of Qualified Scientific Products sold to Buyer through the
SciQuest system less year 2001 volume) divided by (ii) .
--------
. Incentive Warrants shall be exercisable upon issuance.
4
<PAGE>
8. Termination of Warrants. The Initial Warrant and the Incentive Warrants
shall terminate, to the extent not already exercised, upon the earlier of
(i) termination of the Agreement, or (ii) five years after issuance.
9. Adjustment of Shares. All references to share information, including number
of shares and price per share, shall be deemed automatically adjusted to
reflect any stock dividend, stock split, reverse stock dividend or reverse
stock split or any recapitalization of SciQuest occurring after the
Effective Date.
10. Successors. All the covenants and provisions of the Initial Warrant and
Incentive Warrants by or for the benefit of SciQuest or any holder of such
Warrants shall bind and inure to the benefit of their respective successors
and assigns thereunder.
5
<PAGE>
EXHIBIT B
---------
SCIQUEST MARKETPLACE USER GUIDE
-------------------------------
Order acceptance: Orders will not be binding on SciQuest.com or the Suppliers
until the applicable Supplier accepts them.
Order changes, cancellations, returns and refunds: SciQuest.com will process
requests for order changes, cancellations, returns and refunds with the
applicable Supplier. All order changes, cancellations, returns or refunds are
governed by the Supplier's policies, and Buyer agrees to pay additional shipment
costs or restocking charges imposed by the Supplier. Orders may be changed by
canceling the unwanted order by emailing Customer Care by email at
[email protected] or calling the Customer Care Hotline at (800) 233-
- -------------------------
1121, then placing a new order through the Buyer Site. The order change or
cancellation will be processed if the order has not been shipped from the
Supplier(s). Please address questions about order changes, cancellations and
refunds, email SciQuest.com Customer Care by email at [email protected]
-------------------------
or by telephone at (800) 233-1121.
Shipment: All sales are shipped FOB place of shipment unless otherwise noted.
Products will be shipped via carriers designated by SciQuest.com. The method of
shipment will be determined from information provided by you during the order
process. You will be responsible for paying shipping and freight, insurance and
other Product shipment charges. SciQuest.com will not be liable for loss, damage
or penalty resulting from delivery delays or delivery failures due to any cause
beyond reasonable control.
Title: Title to the Products will pass from the Supplier to SciQuest at the
Supplier shipping point. Title will pass from SciQuest to you upon delivery.
Product Release: SciQuest.com serves to manage the ordering, shipping and
billing processes and has no control over the quality or safety of the Products,
the truth or accuracy of the Product listings or the ability of the Suppliers to
sell the Products listed. You release SciQuest.com and its affiliated entities,
and their officers, directors, employees, agents and successors from any
actions, claims, demands, damages, liabilities or suits of any nature in law or
in equity arising from or in connection with the Products, your use of the
Products.
Product Use: You agree and warrant that you will use the Products you order
through the Site according to all federal, state or municipal laws or
regulations. You agree to use the Products as they are intended to be used as
described in the Supplier's Product listing on the Buyer Site, on the Products'
labels or documentation, in the Supplier's catalog or in other literature
furnished to you in connection with the Products.
Certain Products contain materials that may be hazardous or harmful if misused.
You recognize and acknowledge that SciQuest does not test the Products for
safety and efficacy. You have the responsibility to understand the hazards
involved in using the Products. It is your duty to warn your employees and
auxiliary consultants of any risks involved in using or handling the Products
and you will comply with instructions for Product use furnished by Supplier. No
Products will be considered to be food, drugs or medical devices unless clearly
stated in the Product listing on the Buyer Site.
User Indemnification: You expressly agree that you will test and use any
Products and/or materials produced from the Products according to the practices
standard in the industry and in strict compliance with all applicable laws and
regulations. You agree to indemnify and hold harmless SciQuest.com, its
officers, directors, employees, agents, successor and assigns from and against
any suits losses, claims, demands, liabilities, costs and expenses, including
attorneys' fees, that they may sustain or incur as a result of any claim against
them based upon negligence, breach of warranty, strict liability in tort,
contract or any other theory of law brought by you, your customers, by auxiliary
personnel (such as freight handlers) or by other third parties arising out of,
directly or indirectly, the use of any Products or by reason of your failure to
perform your obligations described in this Agreement.
You agree to notify SciQuest.com in writing within ten (10) days of your receipt
of knowledge of any accident or incident involving any Products which results in
personal injury or damage to property. You
6
<PAGE>
will help SciQuest.com or the Supplier in the investigation and determination of
the cause of an accident and you will make available to SciQuest.com or the
Supplier all statements, reports and tests made by you or made available to you
by others. Furnishing SciQuest.com with this information and any investigation
by SciQuest.com will not constitute assumption of any liability for the accident
or incident by SciQuest.com.
Passwords and Binding Orders:
You agree:
(i) to keep your password confidential and notify SciQuest within 24 hours of
any unauthorized disclosure or use of your password. If you do not notify
SciQuest, you will be responsible for the charges incurred by the use of your
password, and
(ii) that, unless canceled or changed as set forth above, you agree that all
orders placed by you, your employees or agents shall be binding on you.
Infringement: SciQuest.com does not warrant that the use of any Products will
not infringe the claims of any United States or other country's patents,
trademarks, copyrights, trade secrets or other intellectual property rights
which cover the Product itself or its use in combination with other products or
in the operation of any process.
Product Warranty: Products purchased through the Buyer Site will be subject to
the Product warranty provided by the Supplier. SciQuest does not provided any
Product warranties or representations to you. You agree to deal directly with
the Supplier regarding warranty issues.
SciQuest.com Intellectual Property Rights: The graphics, images, content,
compilation, magnetic translation, digital conversion and other matters related
to the Buyer Site are protected under applicable copyright, trademark and other
proprietary rights, including but not limited to intellectual property laws. You
are not permitted to copy, redistribute, use or publish any of the content or
any part of the Site, except as required to use the Site.
SciQuest.com(R) and SciMail(R) are registered service marks of SciQuest.com. The
SciQuest.com logo is a servicemark of SciQuest.com. SciQuest.com makes use of
Suppliers' trademarks, service marks, trade names or other identifying
information ("Third Party Trademarks"), and those Third Party Trademarks remain
the sole and exclusive property of the applicable third parties.
Links: Links on the Buyer Site are provided for your convenience and
SciQuest.com does not necessarily endorse or support them. Please direct your
concerns regarding any external link to the relevant website administrator or
webmaster.
Regulatory Matters: You acknowledge that certain Products may be subject to
certain regulatory standards.
The Products listed by Suppliers may be exempt from the pre-manufacturing notice
requirements of the Toxic Substance Control Act (TSCA). The TSCA requires any
person who intends to manufacture or import a new chemical substance for a
commercial purpose to submit a pre-manufacturing notice (PMN) at least 90 days
before the substance is manufactured and/or imported. TSCA Section 5(h)(3)
exempts from PMN chemical substances that are used solely for research and
development purposes. Some of the Products listed may be exempt under this
provision and any non-exempt use may trigger PMN requirements by you. You agree
to the responsibility of understanding and adhering to the TSCA, if it is
applicable.
Material Data Safety Sheets, required by Occupational Safety and Health
Administration (OSHA), 29 CFR 1910.1200, should be sent to you directly from
Supplier with the Product. You are responsible for providing the MSDS to all
personnel who may handle and use the Product. The Supplier also provides
comprehensive warnings on the Product labels. Only qualified, trained
professionals who are familiar with the potential hazards should handle all
chemicals. The absence of warnings should not be interpreted to mean that the
products have no risks upon exposure. If there is little or no health and safety
information available on any of the Products, you are responsible to follow
standard laboratory safety procedures and avoid any contact with the Products.
7
<PAGE>
Certain Products may be subject to the control of the Nuclear Regulatory
Commission ("NRC"). If you purchase any radioactive compounds or other Products
under the control of the NRC, you agree that you are authorized to purchase
those Products and that you hold the proper government approvals, certificates
and authorizations required to make those purchases.
Only Products labeled with USP, NF and FCC designations are offered for use in
food, drug and cosmetic products.
Notice: Unless stated otherwise, all notices relating to your orders will be
sent by email:
(i) by you, to [email protected] or
-------------------------
(ii) by SciQuest.com, to the email address you provide in writing.
E-mail notices will be read within 24 hours after they are sent, unless the
sender is notified that the email address is invalid or returned undeliverable.
Alternatively, SciQuest.com may provide notice as otherwise provided in the
Agreement.
8
<PAGE>
EXHIBIT 10.22
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of this 14th day of January 2000, by and among SCIQUEST.COM, INC., a
Delaware corporation (the "Company"), and the undersigned holders of Common
Stock of the Company (individually, a "Holder" and collectively, the "Holders").
WHEREAS, pursuant to the terms of the Merger Agreement (the "Merger
Agreement") dated January 14, 2000, by and among the Company, Lujack
Subsidiary, Inc., a Delaware corporation, and Intralogix, Inc., an Illinois
corporation, the Holders are acquiring an aggregate of 26,930 shares (the
"Shares"), of the Company's Common Stock, $0.001 par value per share (the
"Common Stock"); and
WHEREAS, the Company has agreed to provide the Holders with certain rights
relating to the registration and sale of the Shares.
NOW, THEREFORE, in consideration of the covenants and promises contained
herein, the parties agree as follows:
ARTICLE 1 - REGISTRATION RIGHTS
-------------------------------
1.1 Definitions. For purposes of this Article 1, the following terms
-----------
shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute enacted hereafter, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
(b) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Act.
(c) "Common Stock" shall mean the Common Stock, $.001 par value per share,
of the Company.
(d) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the Commission.
(e) "Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Shares and (ii) any other shares of Common
Stock issued in respect of the Shares (on account of stock splits, stock
dividends, reclassifications, recapitalizations or similar events); provided,
--------
however, that shares of Common Stock which are Registrable Shares shall cease to
- -------
be Registrable Shares (i) upon any sale pursuant to a Registration Statement or
Rule 144 under the Act, (ii) upon any sale in any manner to a person or entity
which, by virtue of Section
<PAGE>
1.10 of this Agreement, is not entitled to the rights provided by this
Agreement, or (iii) with respect to each Holder, at such time as such Holder's
Registrable Securities may be sold pursuant to Rule 144 without holding period
or volume limitations.
1.2 Piggyback Registration. Subject to Section 1.8 of this Agreement, if
----------------------
at any time the Company proposes to register any of its securities under the
Act, either for its own account or for the account of others, in connection with
the public offering of such securities solely for cash, on a registration form
that would also allow the registration of the Registrable Securities, the
Company shall, each such time, promptly give each Holder written notice of such
proposed registration. This provision shall not apply to a registration solely
of securities issued or issuable in connection with any stock option plan or
other employee benefit plan or in connection with a merger or acquisition. Upon
receipt by the Company of the written request of any Holder given within twenty
(20) days after mailing of any such notice by the Company, the Company shall use
its best efforts to cause to be included in such registration under the Act all
the Registrable Securities that each such Holder has requested be registered.
1.3 Obligations of the Company. Whenever required under this Agreement to
--------------------------
use its best efforts to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement covering
such Registrable Securities and use its best efforts to cause such registration
statement to be declared effective by the Commission as expeditiously as
possible and to keep such registration effective until the earlier of (i) the
date when all Registrable Securities covered by the registration statement have
been sold or (ii) 180 days from the effective date of the registration
statement.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
1.3(a) and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement, and cause
the prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed with the Commission pursuant to Rule 424 under the
Act.
(c) Furnish to the selling Holders such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), and each
supplement thereto as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the Registrable
Securities under the securities laws of such jurisdictions in which the Company
shall also register securities to be sold by the Company pursuant to the same
registration under the Act.
(e) Promptly notify each selling Holder of such Registrable Securities at
any time when a prospectus relating thereto is required to be delivered under
the Act of the happening of any event as a result of which the prospectus
included in such registration statement contains an
2
<PAGE>
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading and, at the request of any such Holder, the
Company will prepare promptly a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any fact necessary to make the statements therein not misleading.
(f) Provide a transfer agent for all such Registrable Securities not later
than the effective date of such registration statement.
(g) Enter into underwriting agreements and related agreements in customary
form for any primary offering.
(h) Promptly notify the selling Holders of Registrable Securities and the
underwriters, if any, of the following events and (if requested by any such
person) confirm such notification in writing: (1) the filing of the prospectus
or any prospectus supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the effectiveness of
such documents, (2) any requests by the Commission for amendments or supplements
to the registration statement or the prospectus or for additional information,
(3) the issuance of any stop order suspending the effectiveness of the
registration statement, and (4) the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction.
(i) Whenever any provision of this Agreement requires the Company to
furnish any information to the Holders or the agents or representatives of the
Holders, the Company may require any such person or entity to execute and
deliver a reasonable confidentiality agreement, agreement to refrain from
trading or any other agreement necessary or prudent to protect the Company or
its officers, directors and employees against insider trading liabilities and
may restrict access to confidential trade secret information.
1.4 Furnish Information. In the event of any registration by the Company,
-------------------
the Holders shall furnish to the Company such information regarding them, the
Registrable Securities and other securities of the Company held by them, and the
intended method of disposition of such Registrable Securities as the Company
shall reasonably request and as shall be required in connection with the action
to be taken by the Company. It shall be a condition precedent to the obligation
of the Company to include any Registrable Securities of an Holder in a
registration effected pursuant to this Agreement for such Holder to have
provided the Company with such written information regarding the registration of
such Registrable Securities as the Company shall reasonably request.
1.5 Suspension of Disposition of Registrable Securities. Each selling
---------------------------------------------------
Holder of Registrable Securities agrees by acquisition of such Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 1.3(e) or 1.3(h)(2), 1.3(h)(3) or
1.3(h)(4) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities until such Holder's receipt of copies of a supplemented
or
3
<PAGE>
amended prospectus contemplated by Section 1.3(e) hereof, or until it is advised
in writing by the Company that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the prospectus, or in the case of Section 1.3(h)(2), 1.3(h)(3)
or 1.3(h)(4), until the Company notifies the Holder in writing that sales of
Registrable Securities may continue. If so directed by the Company, such Holder
will deliver to the Company (at the expense of the Company) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
1.6 Expenses of Registration.
------------------------
The Holders shall bear the fees and expenses of their own counsel and shall
bear any additional registration and qualification fees and expenses (including
underwriters' discounts and commissions and transfer taxes), and any additional
costs and disbursements of counsel for the Company that result solely from the
inclusion of Registrable Securities held by the Holders in such registration,
with such additional expenses of the registration being borne by all selling
Holders pro rata on the basis of the total number of Registrable Securities so
registered; provided, however, that if any such cost or expense is attributable
solely to one selling Holder and does not constitute a normal cost or expense of
a registration, such cost or expense shall be allocated solely to that selling
Holder. All other expenses of such registrations shall be borne by the Company.
1.7 Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall have the right to select the investment banker(s)
and/or manager(s) to administer any offering to which this Agreement is
applicable. If a registration is an underwritten registration, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold at the desired price in such offering, the Company will
include in such registration (i) first, securities the Company proposes to sell,
(ii) second, the securities requested to be included therein by holders of
securities with contractual registration rights that are senior to those of the
Holders, pro rata among the holders of such securities on the basis of the
number of shares requested to be included therein, (iii) third, the securities
requested to be included therein by Holders and by the holders of securities
with contractual registration rights that are in parity with the rights of the
Holders, pro rata among such Holders and other holders on the basis of the
number of shares requested to be included therein, and (iv) fourth, other
securities requested to be included in such registration, including securities
to be sold by holders without contractual registration rights.
(b) No Holder may participate in any underwritten registration hereunder
unless such Holder (i) agrees to sell such Holder's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
4
<PAGE>
1.8 Limitation of the Company's Obligations.
---------------------------------------
(a) The Company may, in its sole discretion, postpone or withdraw any
registration in which Registrable Securities have been included pursuant to this
Agreement without obligation to the Holders.
(b) The Company shall not be obligated under this Agreement to register or
include in any registration Registrable Securities that any Holder has requested
to be registered if the Company shall furnish such Holder with a written opinion
of counsel reasonably satisfactory to such Holder, that all Registrable
Securities that such Holder holds may be publicly offered, sold and distributed
without registration under the Act pursuant to Rule 144 promulgated by the
Commission under the Act in any three-month period without restriction as to the
amount of securities that can be sold.
(c) The Company may, in its sole discretion, grant to any owner of
securities of the Company registration rights of any kind or nature.
1.9 Lock-up Agreement. For so long as a Holder has the right to have
-----------------
Registrable Securities included in any registration pursuant to this Agreement,
the Holder agrees in connection with any registration of the Company's
securities, upon the request of the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of,
pledge, grant any option for the purchase of or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, during the seven (7) days prior to and during the 180-day period beginning
on the effective date of such registration, as the Company or the underwriters
may specify. This provision shall apply whether or not any Registrable
Securities of the Holder are included in the offering.
1.10 Transfer of Registration Rights. Provided that the Company is given
-------------------------------
written notice by the Holder at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being assigned and such transferee agrees in
writing to be bound by the terms of this Agreement, the registration rights
under this Agreement may be transferred in whole or in part at any time to any
transferee of Registrable Securities. Upon such transfer, the transferee shall
be deemed to be a Holder for all purposes hereunder.
1.11 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify and hold harmless each Holder whose Registrable Securities are
included in a registration, each director, officer, partner, employee, or agent
for such Holder, any underwriter (as defined in the Act) for such Holder, and
each person, if any, who controls such Holder or underwriter within the meaning
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which they may become subject under the Act and applicable state
securities
5
<PAGE>
laws insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein in light of the circumstances under which they were made or
necessary to make the statements therein not misleading or arise out of any
violation by the Company of any rule or regulation promulgated under the Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration; and will reimburse each such
person or entity for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld) nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in connection with such registration
statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by or on behalf
of any such Holder, underwriter or controlling person.
(b) To the fullest extent permitted by law, each Holder whose Registrable
Securities are included in a registration under this Agreement, severally and
not jointly, will, and hereby does, indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act, and any underwriter for the Company (within the meaning of the Act),
each other selling Holder and each person, if any, who controls such other
selling Holder or underwriter within the meaning of the Act against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer, controlling person, selling Holder or underwriter may
become subject, under the Act and applicable state securities laws, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such registration statement, preliminary or final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, selling Holder or underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity shall not apply to amounts paid in
settlement of any such loss, claim, damage,
6
<PAGE>
liability or action if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld).
In no event shall the liability by reason of this contractual indemnity of
any selling Holder hereunder be greater than the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. Any Holder required to indemnify the Company
as provided above shall cease to have the right to participate in any other
registration pursuant to this Agreement.
(c) In order to provide for just and equitable contribution to joint
liability under the Act in circumstances in which the indemnity provisions
provided for in this section are for any reason held to be unavailable to the
indemnified parties although applicable in accordance with its terms; then, in
each such case, the Company and such Holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportions as shall be appropriate to reflect
the relative fault of the Company, on the one hand, and the Holder, on the other
hand, with such relative fault determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holder, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
-------- -------
Holder will be required to contribute any amount in excess of the proceeds to it
of all Registrable Securities sold by it pursuant to such registration
statement, and (B) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
ARTICLE 2 - MISCELLANEOUS
-------------------------
2.1 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given, by
written consent of the Company and the Holders of at least fifty five percent
(55%) of the outstanding Registrable Securities; provided, that this Agreement
--------
may be amended with the consent of the holders of less than all Registrable
Securities only in a manner which affects all Registration Securities in the
same fashion. No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
2.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
7
<PAGE>
2.3 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
2.4 Notices. All notices required or permitted to be sent shall be sent
-------
to the addresses of the parties set forth on their respective signature pages,
or to such other address as any party shall provide to the other parties in a
notice sent in accordance with this Agreement. Any notice sent by registered or
certified mail, return receipt requested, or by Federal Express or other
reputable nationwide overnight delivery service, shall be deemed to have been
received by the party to whom it was sent upon receipt of confirmation of
delivery if sent by registered or certified mail and one day following the date
it was sent if sent by Federal Express or other reputable nationwide overnight
delivery service. Any notice sent by any other means shall be deemed to have
been received when it is actually received at the address provided above.
2.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
2.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
2.7 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. Nothing
in this Agreement shall preclude the Company from entering into any other
agreement having the same or different terms with any Holder or any third party
with respect to registration rights or related matters.
2.8 Parties Benefited. Nothing in this Agreement, express or implied, is
-----------------
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
[Remainder of page intentionally left blank]
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement under seal
as of the date provided below:
THE COMPANY:
SCIQUEST.COM, INC.
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
THE HOLDERS:
____________________________________
Mary T. Romac
____________________________________
Dale L. Young
____________________________________
Timothy M. Brady
9
<PAGE>
EXHIBIT 10.25
FIRST AMENDMENT
OF SCIQUEST.COM, INC.
1999 STOCK INCENTIVE PLAN
THIS FIRST AMENDMENT of SciQuest.com, Inc. 1999 Stock Incentive Plan is
dated as of January 13, 2000.
WHEREAS, the Board of Directors of SciQuest.com, Inc. (the "Company") has
adopted and the stockholders of the Company have approved the SciQuest.com, Inc.
1999 Stock Incentive Plan (the "Plan"); and
WHEREAS, the Board of Directors deems it to be in the best interest of the
Company to amend the Plan in order to modify Section 5(h)(3)(i) to change the
phrase "at least six (6) months" to "at least one (1) year".
NOW, THEREFORE, the Plan shall be amended as follows:
1. The phrase "at least six (6) months" in Section 5(h)(3)(i) shall be
amended to read "at least one (1) year".
2. Except as herein amended, the terms and provisions of the Plan shall
remain in full force and effect as originally adopted and approved.
IN WITNESS WHEREOF, the undersigned hereby certifies that this First
Amendment was duly adopted by the Board of Directors of the Company as of the
13th day of January, 2000.
SCIQUEST.COM, INC.
[CORPORATE SEAL]
By: ______________________________
ATTEST: M. Scott Andrews
President
By: ______________________________
Peyton C. Anderson
Secretary
<PAGE>
EXHIBIT 10.26
MERGER AGREEMENT
THIS MERGER AGREEMENT (together with the Exhibits and Schedules hereto, the
"Agreement"), dated January 14, 2000, is entered into by and among
SciQuest.com, Inc., a Delaware corporation ("Parent"), Lujack Subsidiary, Inc.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Mergersub"),
Intralogix, Inc., an Illinois corporation (the "Company"), and Mary T. Romac,
Timothy M. Brady and Dale L. Young (collectively, the "Founders").
RECITALS
A. The Board of Directors of the Company and the shareholders of the
Company have approved the proposed merger (the "Merger") of Mergersub with and
into the Company in accordance with the Business Corporation Act of 1938 of the
State of Illinois (the "Illinois BCA Corporation Law") and on the terms and
conditions set forth herein.
B. The Board of Directors of Mergersub and Parent, the sole shareholder of
Mergersub, have approved the Merger in accordance with the Delaware General
Corporation Law (the "DGCL") and on the terms and conditions set forth herein.
C. The parties intend for the Merger, for federal income tax purposes, to
qualify as a "reorganization" within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"); however, nothing in this
Agreement shall be construed as a representation or warranty by Parent, or an
agreement by Parent to indemnify any party, with respect to the tax treatment or
tax effects of the transaction.
NOW, THEREFORE, in consideration of the recitals and the mutual covenants,
representations, warranties, conditions, and agreements hereinafter expressed,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time, Mergersub shall merge with and into
----------
the Company through the filing of a Certificate of Merger with the Office of the
Secretary of State of the State of Delaware, in accordance with the applicable
provisions of the Delaware General Corporation Law, and a Certificate of Merger
with the Office of the Secretary of State of the State of Illinois, in
accordance with the applicable provisions of the Illinois BCA (the time of the
later of such filings (collectively, the "Merger Filings") is hereinafter
referred to as the "Effective Time"). From and after the Effective Time, the
separate existence of Mergersub shall cease and the Company shall continue as
the surviving corporation (the "Surviving Corporation").
1.2 The Closing. The closing of the Merger (the "Closing") shall take
-----------
place at the offices of Hutchison & Mason PLLC, 3110 Edwards Mill Road, Suite
100, Raleigh, North Carolina 27612, immediately prior to the filing of the
Merger Filings. The Closing shall take place within five (5) business days
after the approval of the Merger by the shareholders of the
<PAGE>
Company, or on such other date as the parties may agree (the "Closing Date"). At
the Closing, each party shall execute and deliver to the other all such
agreements, documents, and instruments as may be required or contemplated by
this Agreement or as may be reasonably requested by any party to effect and
evidence the consummation of the Merger, all of which shall be in a form and
substance reasonably satisfactory to the other parties.
1.3 Conversion of the Company Stock.
-------------------------------
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Mergersub, the Company or their respective stockholders,
each share of the capital stock of the Company issued and outstanding
immediately prior to the Effective Time (the "Company Stock") shall be canceled
and converted automatically into the right to receive the types and amounts of
consideration as set forth opposite each shareholder's name on Schedule 1.3
------------
attached hereto. All undeclared or unpaid dividends on the capital stock of the
Company immediately prior to the Effective Time shall be cancelled at the
Effective Time. All the Company stock held in the treasury of the Company
immediately prior to the Effective Time shall be cancelled and no consideration
of any kind shall be delivered in exchange therefor under this Agreement.
(b) At the Closing, each of the shareholders of the Company (the
"Shareholders") shall surrender and deliver to Parent the certificates
evidencing all of the issued and outstanding shares of the Company Stock, in
accordance with the provisions of Section 1.7, in exchange for the aggregate
consideration payable to the Shareholders in the Merger, as described below (the
"Merger Consideration"). The Merger Consideration (which shall constitute all of
the consideration to be delivered to the Shareholders or any other person in
respect of the shares of capital stock, or rights to acquire shares of capital
stock, of the Company) shall be subject to adjustment as described in Sections
1.4 (Post-Closing Adjustment), 1.5 (Escrow Agreement), 1.6 (Holdback) and
Article VII (Indemnification). The Merger Consideration shall consist of (i) a
number of unregistered shares of the Common Stock, $0.001 par value, of Parent
("Parent Common Stock"), as described below (the "Merger Shares"), and (ii) a
total of $192,000.00 in cash (the "Cash Consideration"). The Merger Shares
shall be divided into two categories, (i) 19,250 unregistered shares of Parent
Common Stock (the "Initial Shares") and (ii) that number of unregistered shares
of Parent Common Stock equal to the quotient of $500,000 divided by the Average
Stock Price (the "Escrowed Shares"). The "Average Stock Price" shall mean the
average closing price of the Parent Common Stock as reported on the Nasdaq Stock
Market for the ten (10) trading day period ending on and including the second
trading day prior to the Closing Date. The Merger Consideration shall be payable
as follows:
(i) Each Shareholder shall receive a certificate or certificates
representing a number of Initial Shares, which shall be delivered to such
Shareholder as soon as practicable following the Effective Time (subject to
compliance by the Shareholder with the requirements relating thereto set
forth in Section 1.7), and a portion of the Cash Consideration (subject to
subparagraph (iii) below), each in the amounts set forth opposite such
holder's name on Schedule 1.3 under the headings titled "Closing Payment -
------------
Cash" and "Closing Payment - Initial Shares"; and
<PAGE>
(ii) The Escrowed Shares payable to the Shareholders shall be
withheld by Parent and delivered to Hutchison & Mason PLLC (the "Escrow
Agent") in accordance with Section 1.5; and
(iii) $25,000 of the Cash Consideration payable to the
Shareholders (the "Holdback ") shall be withheld by Parent as deferred
Merger Consideration and issued to the Shareholders in accordance with the
provisions of Section 1.6.
(c) Notwithstanding anything to the contrary herein, no fractional
shares of Parent Common Stock will be issued. Any person who would be entitled
to receive a fractional share of Parent Common Stock but for this Section will,
in lieu of such fractional share and upon surrender of such person's certificate
or certificates of the Company Capital Stock, receive cash (without interest) in
an amount equal to such fractional portion of a full share of Parent Common
Stock multiplied by the Average Stock Price.
(d) Each Shareholder's pro rata portion of the Initial Merger
Consideration, which includes the Escrowed Shares and the Holdback, is set forth
on Schedule 1.3 under the appropriately titled columns. Shares of Parent Common
------------
Stock shall be valued for all purposes at the Average Stock Price.
1.4 Post-Closing Adjustment. Within ten (10) business days of the
-----------------------
Closing, the Company shall deliver to Parent, in a form satisfactory to Parent,
financial statements and other documentation necessary to determine the total
amount of liabilities of the Company outstanding as of the Closing Date (the
"Closing Date Liabilities"). Parent shall have such access to the Company'
books and records as it deems necessary to verify the amount of such Closing
Date Liabilities. Based on the Closing Date Liabilities, the Cash Consideration
payable to the Shareholders shall be reduced (the "Cash Adjustment") pro rata
among the Shareholders based on their respective ownership of the Company Stock,
on a dollar for dollar basis in an amount equal to the amount by which the
Closing Date Liabilities exceed $73,000 in the aggregate (inclusive of the
Company' January advertisement in American Laboratory), such reductions to be
--------------------
paid from the Holdback described in Section 1.6.
1.5 Escrow Agreement.
----------------
(a) On the Closing Date, Parent, each of the Shareholders and the Escrow
Agent shall execute an escrow agreement in the form of Exhibit A (the "Escrow
---------
Agreement"), pursuant to which Parent shall deposit into escrow the Escrowed
Shares in payment of part of the Initial Merger Consideration. The Escrowed
Shares shall be available on the terms and conditions set forth herein and in
the Escrow Agreement (i) for the satisfaction of certain performance milestones
of the Company, and (ii) to secure the payment of any Indemnified Losses for
which the Shareholders are obligated to indemnify the Indemnified Persons under
Article VII hereof. During the period such Escrowed Shares are held in escrow,
all cash dividends, if any, paid with respect to the Escrowed Shares shall be
the property of, and shall be delivered to, the Shareholders, each in accordance
with their respective ownership interests, and each of the Shareholders shall
have the sole power to exercise all voting rights pertaining to their pro rata
portion of Escrowed Shares. All shares issued in respect of the Escrowed Shares
(including,
<PAGE>
without limitation, shares issued in connection with stock dividends, stock
splits, recapitalizations, reorganizations or similar transactions affecting the
Parent Common Stock) shall, upon issuance, be deposited in the escrow, held
subject to the terms and conditions of the Escrow Agreement and treated for all
purposes as Escrowed Shares.
(b) The adoption of this Agreement and the approval of the Merger by the
Shareholders shall constitute full approval by the Shareholders of the Escrow
Agreement and the appointment of Hutchison & Mason PLLC as the escrow agent
under the Escrow Agreement (the "Escrow Agent") and of all of the arrangements
relating thereto, including, without limitation, the indemnification provisions
and obligations set forth in Article VII of this Agreement, the placement in
escrow of the Escrowed Shares, and the appointment of Mary T. Romac to serve as
the Shareholders' representative (the "Shareholder Representative") to act as
the representative of the Shareholders for purposes of the Escrow Agreement and
this Agreement.
1.6 Holdback. The Holdback portion of the Merger Consideration payable to
--------
the Shareholders shall be withheld at Closing for satisfaction of any Cash
Adjustment determined in accordance with Section 1.4. Accordingly, the parties
agree that Parent shall be entitled to withhold at Closing the amount of cash
set forth opposite each Shareholder's name under the column titled "Holdback" on
Schedule 1.3. Promptly after the Cash Adjustment has been finally and
- ------------
conclusively determined, Parent shall (subject to any reduction of the Holdback
pursuant to Section 1.5 hereof) pay to each Shareholder cash equal to such
Shareholder's portion of the Holdback as set forth on Schedule 1.3. The payment
------------
of the Holdback shall be accompanied by a cash payment of interest accrued on
such installment payment since the Closing Date at the rate of eight percent
(8%) per annum. Parent will be entitled to any interest earned on the portion,
if any, of the Holdback that is reduced as a result of the Cash Adjustment.
1.7 Surrender and Exchange of Certificates. At the Closing, each of the
--------------------------------------
Shareholders shall surrender and deliver to Parent the certificates evidencing
all of the issued and outstanding shares of the Company Stock, duly endorsed by
such Shareholders, and upon such surrender, each such certificate shall
represent the right to receive such Shareholder's pro rata portion of the Merger
Consideration. As soon as practicable following the Closing, Parent shall
instruct the transfer agent of Parent Common Stock to issue the Merger Shares
and to deliver such Merger Shares to the Shareholders or the Escrow Agent, as
provided in this Agreement.
1.8 Intentionally deleted.
1.9 Intentionally deleted.
1.10 Legend. The shares of Parent Common Stock issued in connection with
------
the Merger will be issued in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), by reason of Rule 506
of Regulation D thereof and, as such, will constitute restricted securities
within the meaning of Rule 144 promulgated thereunder. Each certificate of the
Parent Common Stock issued in connection with the Merger will bear appropriate
legends to evidence such privately placed shares as being restricted under the
<PAGE>
Securities Act, and any other applicable restrictions upon the transferability
of the shares or otherwise. It is acknowledged and understood that Parent is
relying on certain representations made by the Shareholders in the Stockholder
Investment Representation Letters (as herein defined). The Securities Act
legend shall read substantially as follows:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ALL
APPLICABLE STATE SECURITIES LAWS COVERING SUCH SHARES, COMPLIANCE WITH
AN EXEMPTION FROM SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
1.11 Conversion of Subsidiary Stock. At the Effective Time, by virtue of
------------------------------
the Merger and without any action on the part of the Parent, Mergersub, the
Company or their respective stockholders, each share of Common Stock, having a
par value per share of $0.001, of Mergersub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation, and, upon surrender of the certificate(s) representing
such shares of Mergersub Common Stock, the Surviving Corporation shall promptly
issue to the owner thereof a certificate representing the share of Common Stock
of the Surviving Corporation into which it has been converted. Such share shall
be the only issued and outstanding capital stock of the Surviving Corporation
and shall be owned by the Parent.
1.12 Certificate of Incorporation. After the Effective Time, the
----------------------------
Certificate of Incorporation of Mergersub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until amended in accordance with applicable law.
1.13 Bylaws. After the Effective Time, the Bylaws of Mergersub as in
------
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until amended or repealed in accordance with the
provisions thereof and applicable law.
1.14 Directors and Officers. Immediately after the Effective Time, the
----------------------
directors and officers of Mergersub immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation and shall serve
in such capacities until their respective successors are duly elected and
qualified. The Surviving Corporation may designate such other officers as it
determines.
1.15 No Further Rights. As of the Effective Time, the Shareholders shall
-----------------
cease to have any rights as stockholders of the Company.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE FOUNDERS
The Company and each of the Founders, jointly and severally, represent and
warrant to Parent as follows:
2.1 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Illinois. The Company has all requisite power and authority to own, operate
and/or license and lease the Company Assets (as defined below) and the other
properties owned or used in its business license or (including, without
limitation, intangible property) (collectively with the Company Assets, the "the
Company Business Assets") and to conduct the operations of its business as
presently conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in the jurisdictions listed on Schedule 2.1,
------------
which are all the jurisdictions in which it is required to be so qualified other
than such jurisdictions where the failure to be so qualified would not have a
Material Adverse Effect (as defined in Section 2.4) on the Company.
2.2 Authority. The Company has all requisite power and authority to
---------
execute and deliver this Agreement and the other documents, certificates and
instruments contemplated hereby (collectively with the Merger Agreement, the
"Transaction Documents") to which it is a party and to perform the transactions
contemplated hereby and thereby. The execution, delivery and performance of the
Transaction Documents to which the Company is a party, and the consummation of
the transactions contemplated thereby, have been duly and validly authorized by
all necessary corporate and stockholder action. Each of the Founders has all
requisite power and authority to execute and deliver the Transaction Documents
to which such Founder is a party, to perform his obligations thereunder, and to
consummate the transactions contemplated by the Transaction Documents. Each of
the Founders has all requisite power and authority to vote the outstanding
shares of the Company Common Stock held by such Founder, to approve this
Agreement and the transactions contemplated hereby and in the Transaction
Documents and the transactions contemplated hereby and thereby in compliance
with all applicable laws and the Articles and Bylaws of the Company. Each of
the Transaction Documents to which the Company or the Founders is a party has
been duly executed and delivered by the Company and the Founders and constitutes
a valid and binding obligation of each of the Company and the Founders,
enforceable against them in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at law).
2.3 Capitalization. The authorized capital stock of the Company consists
--------------
of 10,000 shares of common stock, par value $1.00 per share (the "the Company
Stock"), of which 4,175 shares are issued and outstanding and 5,825 shares are
held in the treasury of the Company. Schedule 2.3 sets forth a complete and
------------
accurate list of all stockholders of the Company, indicating the number of
shares held by each stockholder, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are no outstanding or
authorized options,
<PAGE>
warrants, rights, agreements or commitments to which the Company or the Founders
is a party or which are binding upon the Company or the Founders providing for
the issuance, disposition or acquisition of any of the Company's capital stock,
other than as listed in Schedule 2.3. There are no plans providing for stock
------------
options or similar rights. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the capital stock
of the Company. There are no agreements, voting trusts, proxies or
understandings with respect to the voting, or registration under the Securities
Act, of any shares of the Company. All of the issued and outstanding Company
Stock was issued in compliance with applicable federal and state securities
laws.
2.4 Effect of Agreement. Except as disclosed on Schedule 2.4, the
------------------- ------------
execution, delivery and performance of the Transaction Documents to which the
Company is a party do not and will not: (a) conflict with the Articles of
Incorporation or Bylaws of the Company; (b) violate any law or any rule or
regulation of any governmental body or administrative agency, or conflict with
any judicial or administrative order or decree relating to the Company or the
Company Business Assets, except for any such violations or conflicts which would
not, individually or in the aggregate, have a material adverse effect on the
business, the Company Business Assets, liabilities, results of operations or
condition (financial or otherwise) (a "Material Adverse Effect") of the Company
or impair the ability of the Company or the Founders to consummate the
transactions contemplated by this Agreement; (c) constitute a breach or default
under any of the Company Contracts (as defined below); (d) create any security
interest, mortgage, lien, claim, or encumbrance of any kind on any of the
Company Business Assets; or (e) except for the filing of a Certificate of Merger
with the Secretary of State of the State of Illinois and a Certificate of Merger
with the Secretary of State of the State of Delaware, require any consent,
notice to or filing with any governmental authority or administrative agency or
any third party on behalf of the Company or the Founders. The matters described
on Schedule 2.4 are referred to as the "Company Required Consents."
------------
2.5 Financials; Books. Attached hereto as Schedule 2.5 are true and
----------------- ------------
complete copies of the balance sheet, statements of operations, changes in
stockholders' equity and cash flows for the fiscal years ended December 31,
1999, December 31, 1998 and December 31, 1997 and for the interim period ended
January 7, 2000 (collectively, the "Company Financial Statements"). The Company
Financial Statements (a) are true, complete and correct in all material
respects; (b) are in accordance with the books and records of the Company; and
(c) present fairly, in all material respects, the assets, liabilities and
financial condition of the Company as of the respective dates thereof, and the
results of operations for the periods then ending in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved. The Company has no liability or obligation that is not
reflected or reserved against on the balance sheet for the twelve months ending
December 31, 1999 (the "the Company Balance Sheet"), except for those that are
not required by generally accepted accounting principles to be included therein
or those that have been incurred in the ordinary course of business since the
date of the Company Balance Sheet (none of which may reasonably be expected to
have a Material Adverse Effect on the Company). The books and records of the
Company are true, accurate and complete in all material respects and have been
maintained in accordance with generally accepted accounting principles applied
on a consistent basis.
<PAGE>
2.6 Title to and Sufficiency of Assets and other Property. Set forth on
-----------------------------------------------------
Schedule 2.6 is a true and complete list of all material inventory, machinery,
- ------------
equipment, furniture, office equipment, supplies, materials, vehicles and other
material items of tangible personal property of every kind owned by the Company
and used in connection with its business (the "the Company Assets"). the Company
has good and marketable title to all of the Company Business Assets, free and
clear of all security interests, mortgages, liens, claims and encumbrances of
every kind except for liens for current taxes not yet due and payable and as
disclosed on Schedule 2.6. The Company Business Assets constitute all of the
------------
assets of any nature required to operate the Company's business in the manner
presently operated by the Company. The Company Assets (a) are in good operating
order, condition and repair (ordinary wear and tear excepted), (b) are suitable
for use in the ordinary course of business of the Company's business and (c) are
free from material defects.
2.7 Real Property. The Company neither owns nor leases any real
-------------
property.
2.8 Contracts and Leases. Schedule 2.8 lists all contracts, commitments,
-------------------- ------------
agreements, understandings, obligations, whether written or oral (including,
without limitation, agreements for the borrowing of money or the extension of
credit that involve a commitment or expenditure by, or revenue to, the Company
in excess of $1,000.00, and agreements with employees, consultants and other
contractors), leases (including, without limitation, leases for the Company
Leased Real Property) and licenses, whether written or oral, to which the
Company or any of the Founders (on behalf of the Company) is party or by which
the Company or the Company Business Assets or any of the Founders (on behalf of
the Company) is bound (collectively, the "Company Contracts"). Each of the
Company Contracts is valid, binding and enforceable in accordance with its terms
and is in full force and effect, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights and
by general equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law). There are no existing defaults
on the part of the Company or, to the knowledge of the Company and the Founders,
any other party to the Company Contracts, and, to the knowledge of the Company
and the Founders, no events or circumstances have occurred which, with or
without notice or lapse of time or both, would constitute defaults under any of
the Company Contracts. The execution, delivery and performance of the
Transaction Documents do not and will not, with respect to any the Company
Contract, (a) constitute a default or accelerate the obligations thereunder, (b)
require the consent of any person or party, except for the Company Required
Consents, or (c) affect the enforceability or validity thereof or the terms
thereof.
2.9 Receivables. Attached hereto as Schedule 2.9 hereto is a true,
-----------
complete and accurate detailed listing of all accounts receivable of the Company
(the "Company Receivables"). The Company Receivables are, and will be at the
Effective Time, legal, valid and binding obligations and arose in the ordinary
course of business. The Company Receivables are not subject to any
counterclaim, set off, defense, security interest, claim or encumbrance. the
Company has made available to Parent complete and correct copies of all
instruments, documents and agreements evidencing such the Company Receivables,
including, without limitation, an aging schedule related to the Company
Receivables.
<PAGE>
2.10 Intellectual Property.
---------------------
(a) Intellectual Property Rights. Schedule 2.10(a) hereto sets forth
---------------------------- ----------------
a complete and correct list of (i) all patents (the "Company Patents"),
trademarks, trade names (including all federal and state registrations
pertaining thereto, or applications for such registrations and a description of
the status of such applications), proprietary databases and registered
copyrights owned by the Company (collectively with all unregistered copyrights,
the "Company Proprietary Intellectual Property") and (ii) all patents,
trademarks, trade names, copyrights, technology and processes used by the
Company in its businesses which are material to its business and are used
pursuant to a license or other right granted by a third party, and all
agreements related thereto (collectively, the "Company Licensed Intellectual
Property", and together with the Company Proprietary Intellectual Property
referred to as "the Company Intellectual Property"). Each of the federal, state
and other governmental registrations with any country pertaining to the Company
Proprietary Intellectual Property is valid and in full force and effect. The
Company owns, or has the right to use pursuant to valid and effective
agreements, all the Company Intellectual Property, and the consummation of the
transactions contemplated hereby will not materially adversely alter or impair
any such rights. No claims are pending against the Company by any person with
respect to the use of any the Company Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement relating
to the same that would be likely to have a Material Adverse Effect on the
Company, and, to the knowledge of the Company and the Founders, the current use
by the Company of the Intellectual Property does not in any material respect
infringe upon the rights of any third party. Schedule 2.10(a) sets forth a list
----------------
of all jurisdictions in which the Company is operating under a trade name, and
each jurisdiction in which any such trade name is registered. No the Company
Patent has been or is now involved in any interference, reissue, reexamination
or opposition proceeding of which the Company has received notice, nor is the
Company aware of any potentially interfering patent or patent application of any
third party. To the knowledge of the Company, no person or entity is presently
selling or marketing a product which is covered by the Patents, and, to the
knowledge of the Company, the Patents have not been challenged or threatened in
any way. No current or former the Company employee is named as an inventor on
any pending patent application. All of the Company Patents are currently in
compliance with formal legal requirements (including payment of filing,
examination and maintenance fees and proofs of working or use) and to the
knowledge of the Company, there is no currently existing circumstance which
would render the Company Patents invalid or unenforceable, and they are not
subject to any maintenance fees or taxes or actions falling due within ninety
days after the date of Closing.
(b) Company Computer Software and Hardware.
--------------------------------------
(i) Schedule 2.10(b) hereto sets forth a true and complete list
---------------
of: (a) all software and associated documentation owned by or developed by or
for the Company material to the business of the Company (such items set forth on
Schedule 2.10(b) are hereinafter referred to as the "Company Proprietary
- ---------------
Software"); (b) all software (other than the Company Proprietary Software and
"shrink-wrap" software) used by the Company or its employees in connection with
the business of the Company (the "Company Licensed Software" and together with
the Company Proprietary Software, the "Company Software"). The Company has all
rights that are necessary or appropriate to distribute, license or sublicense
the Company Software to
<PAGE>
third parties and to appoint others to do any of the foregoing to the extent
that distribution, licensing or sublicensing of such software is necessary to
the conduct of business of the Company. The Company has or has the right to use
all technical and descriptive materials to run its business in accordance with
its historical practices, except as would not have a Material Adverse Effect on
the Company. The Company Proprietary Software consists of: source and object
code embodied in magnetic media.
(ii) The Company has sole and exclusive rights, title and
interest in and to all intellectual property rights in the Company Proprietary
Software, including all worldwide copyrights, trade secrets, trademarks, moral
rights and proprietary and confidential information rights therein. The Company
Proprietary Software is free and clear of all liens, claims and encumbrances.
The use by the Company of the Company Licensed Software and the use and
distribution of the Company Proprietary Software in the manner currently used
and distributed by the Company complies with the terms of all contracts and
agreements to which the Company is a party or by which it is bound and is in
compliance with all applicable laws, regulations and codes of any foreign, U.S.,
state or local authority, including without limitation, all U.S. Export
Administration Regulations, except where such failure to comply would not have a
Material Adverse Effect. The Company has been granted under the license
agreements relating to the Company Licensed Software (the "the Company License
Agreements") valid and subsisting license rights with respect to all software
comprising the Company Licensed Software and such rights are sufficient in all
respects to conduct the business of the Company as presently conducted and as
currently proposed to be conducted. The Company is in compliance with each of
the terms and conditions of each of the Company License Agreements except to the
extent failure to so comply, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. In the case of any commercially
available "shrink-wrap" software programs (such as Lotus 1-2-3 or Microsoft
Word), the Company has not made and is not, to the knowledge of the Company and
the Founders, using any unauthorized copies of any such software programs and,
to the knowledge of the Company, none of the employees, agents or
representatives of the Company have made or are using any such unauthorized
copies, except as would not have a Material Adverse Effect on the Company.
(iii) The Company Proprietary Software and such of the
Company Licensed Software as is bundled with or is otherwise an integral part of
the Company Proprietary Software does not infringe the patent, copyright or
trade secret rights or any other intellectual property right of any third party
which may exist anywhere in the world. To the Company's knowledge, there are no
threatened or pending claims or actions against it with respect to the Company
Proprietary Software.
(iv) The Company has not granted rights in the Company
Software to any third party other than as set forth on Schedule 2.10(b).
----------------
(v) There have been no problems experienced by the Company
in the past twelve (12) months with respect to the Company Software, the related
computer hardware used by the Company in its operations or the provision of
services to the Company clients which have arisen outside the ordinary course of
business and would have a Material Adverse Effect on the Company.
<PAGE>
(vi) The Company Proprietary Software is, and such of the
Company Licensed Software as is bundled with or is otherwise an integral part of
the Company Proprietary Software (to the knowledge of the Company and the
Founders, after due inquiry of the licensors and the Company Proprietary
Software developers of such Company Licensed Software) is, "Millennium
Compliant" (defined below). For the purposes of this Agreement, "Millennium
Compliant" means that such software accurately accepts and processes date/time
data (including, but not limited to, calculating, comparing, sorting and
sequencing) ("Processes") and returns and displays date/time data in a
consistent manner and without interruption regardless of dates used, whether
before, on or after January 1, 2000, and regardless of the date in time which
such Processes are performed, and such software accurately processes all leap
year calculations, including without limitation recognizing the year 2000 as a
leap year.
(vii) Prior to any export or re-export either directly or
indirectly by the Company of any software or other technical data, the Company
has first obtained the written approval or required export license for such
export or re-export from the United States Department of Commerce or any other
agency of the U.S. Government having jurisdiction over such export or re-export
unless the export or re-export of software or other technical data is covered by
a license exemption.
2.11 Litigation. There are no claims, actions, suits or investigations
----------
pending, or to the knowledge of the Company and the Founders, threatened,
against the Company or its business or affecting the Company Business Assets or
against the Founders.
2.12 Compliance with Laws; Permits. There is not outstanding or, to the
-----------------------------
knowledge of the Company and the Founders, threatened, any order or decree of
any court, governmental agency or arbitration tribunal against or involving the
Company or its business or the Company Business Assets. The Company is
currently, and has been at all times, in full compliance with all laws, rules,
regulations and licensing requirements of all federal, state, local and foreign
authorities applicable to the Company Business Assets and operations of its
business, except for failures to comply which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. The Company has
obtained all permits, certificates and licenses required for the conduct of its
business and the ownership of the Company Business Assets, all of which are
described on Schedule 2.12 (the "the Company Permits"). The Company is not in
-------------
violation of any of the Company Permits, and no proceedings are pending or, to
the knowledge of the Company and the Founders, threatened to revoke or limit any
the Company Permit.
2.13 Taxes.
-----
(a) The Company has properly completed and timely filed all federal,
state, local and foreign tax returns and reports required to be filed by it (the
"Tax Returns"). All Tax Returns are accurate, complete and correct as filed,
and the Company has paid in full or made adequate provision in the Company
Financial Statements for all amounts shown to be due thereon. the Company is
not delinquent in the payment of any tax assessment or other governmental charge
(including, without limitation, withholding taxes).
<PAGE>
(b) The Company has not been notified by any governmental authority
that an audit or review of any tax matter is contemplated. The Company knows of
no tax deficiency or claim for additional taxes asserted or threatened to be
asserted against it by any taxing authority and the Company knows of no grounds
for any such assessment. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any tax. For purposes of this Agreement, the term
"tax" includes all federal, state, local and foreign taxes or assessments,
including income, sales, gross receipts, excise, use, value added, royalty
franchise, payroll, withholding, property and import taxes and any interest or
penalties applicable thereto.
(c) The Company has not agreed to, and is not required to, make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(d) The Company is not and has never been a member of a consolidated
group or combined group or combined group of corporations.
2.14 Insurance. Schedule 2.14 describes all insurance policies maintained
--------- -------------
by the Company with respect to its business and the Company Business Assets.
Such policies are valid, binding and enforceable in accordance with their terms,
are in full force and effect, and all premiums due thereon have been paid.
2.15 Employment and Labor Matters. No employees of the Company have
----------------------------
entered into employment or other agreements regarding compensation, whether
written or oral, with the Company. No employees of the Company have been or are
represented by a union or other labor organization or covered by any collective
bargaining agreement. There is no unfair labor practice complaint, labor
organizational effort, strike, slowdown or similar labor matter pending or, to
the knowledge of the Company and the Founders, threatened against the Company or
its business. the Company is in compliance with all federal, state and local
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours, and there is no unfair labor
practice complaint against the Company pending or, to the knowledge of the
Company and the Founders, threatened. Upon termination of the employment of any
employees, neither the Company nor the Parent nor the Surviving Corporation will
by reason of the Merger or anything done prior to the Effective Time be liable
to any of such employees for severance pay or any other payments (other than
accrued salary, vacation or sick pay in accordance with the Company's normal
policies). Set forth on Schedule 2.15 is a true and complete list of all
-------------
current directors, officers, employees or consultants of the Company, including,
in each case, name, current job title, base salary, bonus potential,
commissions, and termination obligations.
2.16 Employee Benefits. Except as set forth on Schedule 2.16, there are no
----------------- -------------
Plans, as defined below, contributed to, maintained or sponsored by the Company,
or to which the Company is obligated to contribute or with respect to which the
Company has any liability or potential liability, whether direct or indirect
(including all Plans contributed to, maintained or sponsored by each member of
the controlled group of companies, within the meaning of Sections
<PAGE>
414(b), 414(c), and 414(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), of which the Company is a member, to the extent the Company has any
potential liability with respect to such Plans). For purposes of this Agreement,
the term "Plans" shall mean: (a) employee benefit plans as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not funded and whether or not terminated, (b) employment
agreements, and (c) personnel policies or fringe benefit plans, policies,
programs and arrangements, whether or not subject to ERISA, whether or not
funded, and whether or not terminated, including without limitation, stock
bonus, deferred compensation, pension, severance, bonus, vacation, travel,
incentive, and health, disability and welfare plans.
2.17 Absence of Changes. Except as disclosed on Schedule 2.17, since
------------------ -------------
January 7, 2000, the Company has conducted the operations of its business only
in the ordinary course, and has not:
(a) Suffered any damage to any of the Company Business Asset, whether
or not covered by insurance, except damage that could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect on the Company;
(b) Sold or disposed of any of the Company Business Assets, except
such sales or dispositions made in the ordinary course of business that
would not, either individually or in the aggregate, have a Material Adverse
Effect on the Company;
(c) Made any general wage increase for its employees as a group other
than in the ordinary course of business;
(d) Amended or terminated any Company Contract;
(e) Incurred any obligation or liability, except normal trade or
business obligations incurred in the ordinary course of business;
(f) Introduced any new method of management, operations or accounting;
(g) Suffered any adverse change in the condition (financial or
otherwise), or any other event, that might reasonably be expected to have
a Material Adverse Effect on the Company; or
(h) Agreed, whether in writing or otherwise, to take any action
described in this Section 2.17.
2.18 Intentionally deleted.
2.19 Related Party Transactions. Except as set forth on Schedule 2.19,
-------------------------- -------------
the Company Contracts do not include any agreement with or any other commitment
to (a) any officer or director of the Company; (b) any person related by blood
or marriage to any such officer or director; or (c) any corporation,
partnership, trust or other entity in which the Company or any
<PAGE>
such officer, director or related person has an equity or participating
interest, and no such other agreement or commitment exists.
2.20 Disclosure. No representation, warranty or statement made by the
----------
Company or the Founders in this Agreement or the exhibits or schedules hereto,
or in any financial statement, other written financial information or schedules,
or any other document, certificate or other instrument furnished or to be
furnished to Parent by or on behalf of the Company at or prior to the Closing
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact, or omits to state any material fact necessary, in light of the
circumstances in which they were made, to make the statements contained herein
or therein not misleading. There is no event, fact or condition that has had,
or that reasonably could be expected to have, a Material Adverse Effect on the
Company, that has not been set forth in this Agreement or the Schedules hereto.
2.20 Subsidiaries. The Company has no wholly owned or partially owned
------------
subsidiaries.
2.21 Brokers' Fees. Neither the Company nor any of the Founders has
-------------
retained any broker, finder or agent, or has any liability or obligation, nor
will either of them, or anyone on their behalf, incur any liability or
obligation, to pay any fees, commissions or similar payments to any broker,
finder or agent with respect to the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGERSUB
Parent and Mergersub, jointly and severally, represent and warrant to the
Company as follows:
3.1 Organization and Good Standing. Each of Parent and its subsidiaries,
------------------------------
including Mergersub, is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction and has all
requisite power and authority to own, operate and/or lease its assets and the
other properties owned or used in its business (including, without limitation,
intangible property) and to conduct the operations of its business as presently
conducted. Each of Parent and its subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in the jurisdictions
listed on Schedule 2.1, which are all the jurisdictions in which they are
------------
required to be so qualified other than such jurisdictions where the failure to
be so qualified would not have a material adverse effect on the Company on the
business or condition of Parent.
3.2 Authority. Each of Parent and Mergersub has all requisite power and
---------
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the transactions contemplated thereby. The execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions contemplated thereby, have been duly and validly authorized by
all necessary corporate and stockholder action on the part of each of Parent and
Mergersub (as applicable). Each of the Transaction Documents to which Parent or
<PAGE>
Mergersub is a party has been duly executed and delivered by such party and each
constitutes a valid and binding obligation of Parent and Mergersub, enforceable
against them in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law).
3.3 Capitalization. Immediately prior to the Effective Time, the
--------------
authorized capital stock of Parent consists of (a) 90,000,000 shares of common
stock, $0.001 par value, and 10,000,000 shares of Preferred Stock, $0.001 par
value, of which no shares of Preferred Stock are designated or issued and
outstanding. All of the issued and outstanding shares of capital stock of
Parent were issued in compliance with applicable federal and state securities
laws.
3.4 Effect of Agreement. Except for (i) the filing of the Merger Filings,
-------------------
(ii) such filings, consents, approvals as may be required under federal and
state securities laws, (iii) the filing with the Nasdaq National Market of an
application for listing of the Merger Shares, and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, could be expected to have a material adverse effect on Parent and its
subsidiaries, taken as a whole, the execution, delivery and performance of the
Transaction Documents to which Parent is a party do not and will not: (a)
conflict with the Certificate of Incorporation or Bylaws of Parent; (b) violate
any law or any rule or regulation of any governmental body or administrative
agency, or conflict with any judicial or administrative order or decree relating
to Parent or the Parent's assets, except for any such violations or conflicts
which would not, individually or in the aggregate, have a material adverse
effect on Parent and its subsidiaries, taken as a whole, or impair the ability
of Parent to consummate the transactions contemplated by this Agreement; (c)
constitute a breach or default under any instrument, contract or other agreement
to which the Parent is party to which it or any of its assets or properties is
bound or subject; (d) create any security interest, mortgage, lien, claim, or
encumbrance of any kind on any of the Parent's assets; or (e) require any
consent, notice to or filing with any governmental authority or administrative
agency.
3.5 Litigation. There are no claims, actions, suits or investigations
----------
pending, or to the knowledge of Parent, threatened, against Parent that in the
aggregate could have a material adverse effect upon the transactions
contemplated hereby or Parent and its subsidiaries, taken as a whole.
3.6 Disclosure. No representation, warranty or statement made by Parent
----------
in this Agreement or the exhibits or schedules hereto, contains or will contain
any untrue statement of a material fact, or omits to state any material fact
necessary, in light of the circumstances in which they were made, to make the
statements contained herein or therein not misleading.
3.7 Brokers' Fees. Parent has not retained any broker, finder or agent,
-------------
nor has any liability or obligation, nor will it, or anyone on its behalf, incur
any liability or obligation, to pay any fees, commissions or similar payments to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
<PAGE>
3.8 Merger Shares. The shares of Parent Common Stock to be issued in
-------------
connection with the Merger, when delivered hereunder, will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances.
3.9 Effect of Agreement. The execution, delivery and performance of the
--------------------
Transaction Documents to which the Parent and Merger Sub (as applicable) is a
party do not and will not: (a) conflict with the Certificate of Incorporation or
Bylaws of the Parent or Mergersub, as the case may be; or (b) violate any law or
any rule or regulation of any governmental body or administrative agency, or
conflict with any judicial or administrative order or decree relating to the
Parent or the Mergersub, except for any such violations or conflicts which would
not, individually or in the aggregate, have a material adverse effect on the
business, the assets, liabilities, results of operations or condition (financial
or otherwise) of the Parent or impair the ability of the Parent to consummate
the transactions contemplated by this Agreement.
3.10 Governmental Filings; No Violations. Except as disclosed on Schedule
------------------------------------
3.10, no notices, reports or other filings are required to be made by Parent and
its subsidiaries with, nor are any consents, registrations, approvals, permits
or authorizations required to be obtained by Parent and its subsidiaries from,
any government entity, in connection with the execution and delivery of the
Transaction Documents and the consummation by Parent and Mergersub of the
transactions contemplated herein, except those that the failure to make or
obtain are not, individually or in the aggregate, reasonably likely to prevent,
materially burden or materially impair the ability of Parent and Mergersub to
consummate the transactions contemplated by the Transaction Documents.
3.11 Financial Capability. As of the Closing Date, Parent and Mergersub
--------------------
have access to and will have sufficient funds to purchase the Company Stock and
satisfy all of their respective obligations under the Transaction Documents and
the transactions contemplated herein. Parent's and Mergersub's obligations
hereunder are not subject to any conditions regarding Parent's or Mergersub's
ability to obtain financing for the consummation of the transactions
contemplated herein.
3.12 Securities Act. Parent and Mergersub are acquiring the Company Stock
---------------
solely for the purpose of investment and not with a view to, or for sale in
connection with, any distribution thereof in violation of the Securities Act.
Parent acknowledges that the Company Stock is not registered under the
Securities Act or any applicable state securities law, and that such Company
Stock may not be sold or otherwise transferred except pursuant to the
registration provisions of the Securities Act or an applicable exemption
therefrom and pursuant to any applicable state and other securities law.
ARTICLE IV
COVENANTS
4.1 Conduct of Business. Between the date of this Agreement and the
-------------------
Effective Time, the Company and the Founders shall:
<PAGE>
(a) Conduct the operations of the Company's business in the normal and
customary manner in the ordinary course of business;
(b) Maintain the Company Assets in good operating order, repair and
condition;
(c) Keep in full force and effect the insurance described in Section
2.15;
(d) Perform all of its obligations under all of the Company Contracts
and not amend any provision thereof other than amendments that involve a
commitment or expenditure, or revenue to the Company, of less than $500.00;
(e) Use its best efforts to preserve the Company's organization intact
and maintain its relationships with its employees, suppliers and customers;
(f) Promptly advise Parent of any adverse change in the condition
(financial or otherwise) of the Company's business or the Company Business
Assets;
(g) Promptly advise Parent of the occurrence of any event or
circumstance which affects the consummation of the transactions
contemplated by this Agreement or which, if in existence on the date of
this Agreement, would have been required to have been disclosed in a
Schedule to this Agreement;
(h) Not create or permit to exist any security interest, mortgage,
lien, claim, or encumbrance of any kind with respect to any of the Company
Business Assets;
(i) Not sell or dispose of any of the Company Business Assets, except
in the ordinary course of business of the Company's business;
(j) Promptly advise Parent of any change in the list of employees
referred to in Section 2.16 or in the compensation payable to any such
employee;
(k) Not make any capital improvement or expenditure without the prior
consent of Parent, other than improvements or expenditures in the ordinary
course of business in amounts of less than $500.00; and
(l) Maintain and collect the Company Receivables and extend credit
terms to its customers in the ordinary course of business consistent with
past practices.
4.2 Access and Information. The Company and the Founders shall permit
----------------------
Parent and its counsel, accountants and other representatives full access during
normal business hours to all the properties, assets, books, records, agreements
and other documents of the Company. the Company shall furnish to Parent and its
representatives all information concerning the Company Business Assets or the
Company's business as Parent may request. the Company shall permit and
facilitate communications between Parent and the Company's suppliers, customers,
landlords and other persons having relationships with the Company's business.
<PAGE>
4.3 No Other Solicitations. Until the earlier of the Effective Time or
----------------------
the termination of this Agreement, the Company and the Founders shall not, and
the Company and the Founders shall use their best efforts to cause each of their
respective officers, directors, employees, representatives and agents or
affiliates of such officers, directors, employees, representatives and agents
not to, directly or indirectly, solicit, initiate or encourage any offer,
proposal or inquiry from, or engage in any discussions or negotiations with, any
person regarding the sale or lease of the capital stock of the Company, its
business, or any of the Company Business Assets. The Company shall immediately
notify Parent of, and shall disclose to Parent all details of, any inquiries,
discussions or negotiations of the nature described above.
4.4 Shareholders' Consent.
---------------------
(a) The Company shall, acting through its Board of Directors and in
accordance with the Illinois BCA, as soon as practicable, obtain the
affirmative vote at a meeting of the Shareholders duly noticed and held or
solicit and obtain written consents of the required number of the Shareholders
for the purpose of adopting and approving this Agreement and the approval of
the Merger in accordance with the provisions of the Company Articles of
Incorporation and the Illinois BCA (the "Shareholders' Vote"). In connection
with the Shareholders' Vote, the Company, acting through its Board of Directors,
shall recommend that the Shareholders of the Company consent to the adoption of
this Agreement and the approval of the Merger, shall prepare and send any
information required to be provided to the Shareholders in accordance with
applicable law and not include in the materials sent to the Shareholders any
false or misleading statement or omit to state any fact required to be stated in
order to make the statements therein not false or misleading, and shall
otherwise use its best efforts to obtain the Shareholders' Vote and any other
consents or approvals from the Shareholders necessary to consummate the
transactions contemplated herein.
(b) Each of the Founders agrees to (i) vote all shares that are
beneficially owned by him or her, or for which he or she has voting authority,
in favor of the adoption of this Agreement and the approval of the Merger and
(ii) otherwise use his or her best efforts to obtain the Shareholders' Vote.
4.5 Agreements. The Company shall use all reasonable efforts to deliver to
----------
the Parent prior to the Closing Date all agreements of the Shareholders required
to be executed by them under this Agreement.
4.6 Further Assurances. From and after the Closing Date, the parties
------------------
shall take such steps and execute such documents, and instruments as may be
reasonably required to make effective the transactions contemplated hereby.
4.7 Confidentiality. In recognition of the confidential nature of certain
---------------
of the information which will be provided to any party by the other parties,
each of Parent and its subsidiaries, the Company and the Founders agrees to
retain in confidence, and to require its directors, officers, employees,
consultants, professional representatives and agents (collectively, its
"Representatives") to retain in confidence all information transmitted or
disclosed to it by any
<PAGE>
other party, and further agrees that it shall not use for its own benefit (other
than in connection with the transactions contemplated by this Agreement) and
shall not use or disclose to any third party, or permit the use or disclosure to
any third party of, any information obtained from or revealed by any other
party, except that each of Parent and its subsidiaries, the Company and the
Founders may disclose the information to those of its Representatives who need
the information for the proper performance of their assigned duties with respect
to the consummation of the transactions contemplated hereby. In making such
information available to its Representatives, each of Parent, the Company and
the Founders shall take all precautions to ensure that its Representatives use
the information only as permitted hereby. Notwithstanding anything to the
contrary in the foregoing provisions, such information may be disclosed: (a)
where it is legally necessary, to any regulatory authorities or governmental
agencies; (b) if it is required by court order or decree or applicable law; (c)
if it is ascertainable or obtained from public or published information; (d) if
it is received from a third party not known to the recipient to be under an
obligation to keep such information confidential; or (e) if the recipient can
demonstrate that such information was in its possession prior to disclosure
thereof in connection with this Agreement. If any party is required to make
disclosure of any such information by operation of law, such disclosing party
will give the other parties prior notice of the making of such disclosure and
will use all reasonable efforts to afford such other parties an opportunity to
contest the making of such disclosure. In the event that the Closing does not
occur, each of Parent, the Company and the Founders shall immediately deliver,
or cause to be delivered, to the other (without retaining any copies thereof)
any and all documents, statements or other written information obtained from the
other that contain confidential information.
4.8 Prior Agreement. Each party acknowledges that Parent and the company
---------------
have executed an Agreement dated November 12, 1999, which contains certain no-
shop and confidentiality provisions, which Agreement shall continue in full
force and effect in accordance with its terms.
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO PARENT'S AND
MERGERSUB'S OBLIGATIONS
The obligations of Parent and Mergersub to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions on or before the Effective Time:
5.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Company and the Founders contained in this Agreement shall
have been true and correct on date of this Agreement and shall be true and
correct as of the Effective Time as though made on and as of the Effective Time,
and the Company and the Founders shall have duly performed and complied with all
covenants and obligations required by this Agreement to be performed or complied
with by it or them on or prior to the Closing.
5.2 Absence of Litigation. As of the Effective Time, no action or
---------------------
proceeding shall be pending or, in the reasonable opinion of the Company or the
Founders, threatened by or before any court or other governmental body or agency
seeking to restrain, prohibit or invalidate the transactions contemplated by
this Agreement or which would adversely affect the right of Parent to own,
operate or control the Company Business Assets or the Company's business after
the Effective Time.
5.3 Absence of Change. Between the date of this Agreement and the
-----------------
Effective Time, no adverse change shall have occurred in the business,
operations or financial or other condition of the Company, its business or the
Company Business Assets, nor shall there have occurred any casualty loss or
destruction of, or damage to, any of the Company Assets.
5.4 Consents and Approvals. All (a) the Company Required Consents, (b)
----------------------
licenses, (c) other orders or notifications of, or registrations, declarations
or filings with, or expiration of waiting periods imposed by, any applicable
governmental or judicial authority and (d) consents, approvals, authorizations
or notifications of any other third parties, all as required in connection with
consummation of the transactions contemplated by this Agreement, including the
operation of the Company's business by Parent, shall have been made or obtained
or shall have occurred.
5.5 Shareholders' Vote; Dissenting Shares. This Agreement and the Merger
-------------------------------------
shall have received the Shareholders' Vote and the number of dissenting shares
shall not exceed 2% of the number of outstanding shares of the Company Stock as
of the Effective Time.
5.6 Compliance Certificate. Each of the Company and the Founders shall
----------------------
have delivered to Parent and Mergersub a certificate (without qualification as
to knowledge or materiality or otherwise except as may be set forth in the
representations and warranties themselves) to the effect that each of the
conditions specified in Sections 5.1 through 5.5 is satisfied in all respects.
5.7 Secretary's Certificate. The Company shall have delivered to Parent
-----------------------
and Mergersub a certificate of the Secretary of the Company, dated as of the
Effective Time, in form
<PAGE>
and substance reasonably satisfactory to Parent and Mergersub, certifying (i)
the names of its officers authorized to sign this Agreement, the certificates
and the other documents and instruments delivered pursuant to this Agreement by
the Company or any of its officers, together with true signatures of such
officers; (ii) that the copies of the Articles of Incorporation and Bylaws of
the Company attached thereto are true, correct and complete; (iii) that the
resolutions of the Board of Directors of the Company attached thereto evidencing
the approval of this Agreement and the transactions contemplated herein were
duly adopted, have not been amended or rescinded and are in full force and
effect; and (iv) that the resolutions of the Shareholders attached thereto
evidencing approval of the Agreement and the transactions contemplated herein
were duly adopted, have not been rescinded or amended and are in full force and
effect; (v) that notice of the action of the Shareholders, if taken by written
consent of fewer than all of the Shareholders, has been sent to the remaining
Shareholders in accordance with the applicable provisions of the Illinois BCA;
and (vi) that the number of dissenting shares does not exceed two percent (2%)
of the number of outstanding shares of the Company as of the Effective Time.
5.8 Legal Opinion. Parent and Mergersub shall have received an opinion of
-------------
Williams & Lee LLC, counsel to the Company, dated as of the Effective Time, in
the form of Exhibit B attached hereto.
---------
5.9 Inventions Agreements. Parent shall have received a Non-Disclosure,
---------------------
and Invention and Non-Competition Agreement in the form attached to the
Employment Agreements, duly executed by all employees of the Company.
5.10 Shareholder Investment Representation Letter. Parent shall have
--------------------------------------------
received a Shareholder Investment Representation Letter in the form of Exhibit C
---------
attached hereto, duly executed by each of the Shareholders.
5.11 Escrow Agreement. Parent shall have received the Escrow Agreement,
----------------
duly executed by the Shareholder Representative and each of the Shareholders.
5.12 Mergersub Stock Certificate. Parent shall have received a
---------------------------
certificate evidencing one (1) share of the Company Common Stock, dated the
Effective Time and issued in the name of Parent.
5.13 Resignations. The Parent shall have received resignations, duly
------------
executed, by all officers and directors of the Company, of their respective
positions with the Company, effective as of the Effective Time.
5.14 Intentionally deleted.
---------------------
5.15 Employment / Consulting Agreements. Parent shall have received
----------------------------------
employment and/or consulting agreement in forms reasonably satisfactory to the
Parent (the "Employment Agreements"), duly executed by each of the Founders and
such other individuals as Parent may request.
<PAGE>
5.16 Registration Rights Agreement. Parent shall have received a
-----------------------------
Registration Rights Agreement by and between the Parent and the Shareholders in
the form of Exhibit D attached hereto (the "Registration Rights Agreement"),
---------
duly executed by all of the Shareholders.
5.17 Stock Powers. Parent shall have received executed stock powers from
------------
each of the Shareholders with respect to the Escrowed Shares.
5.18 Surrendered Stock Certificates. Parent shall have received stock
------------------------------
certificates representing all the issued and outstanding Company Stock, duly
endorsed by the Shareholders.
5.19 Listing of Merger Shares. The Merger Shares shall have been approved
------------------------
for listing and quotation on the Nasdaq Stock Market.
5.20 Securities Laws. Parent shall have received all federal or state
---------------
securities permits, approvals or other approvals necessary to issue shares of
Parent Common Stock pursuant to the Merger.
5.21 Other Documents. Parent shall have received such other agreements,
---------------
documents, and instruments as Parent has reasonably requested to effect and
evidence the consummation of the transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO THE COMPANY'S AND
THE FOUNDERS' OBLIGATIONS
The obligations of the Company and the Founders to consummate the
transactions contemplated by this Agreement are subject to the satisfaction of
each of the following conditions on or before the Effective Time:
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Parent and Mergersub contained in this Agreement shall have been
true and correct on the date of this Agreement, and shall be true and correct as
if the Effective Time as though made on and as of the Effective Time, and Parent
and Mergersub shall have duly performed and complied with all covenants and
obligations required by this Agreement to be performed or complied with by it on
or before the Closing.
6.2 Compliance Certificate. Each of Parent and Mergersub shall have
----------------------
delivered to the Company a certificate (without qualification as to knowledge or
materiality or otherwise except as may be set forth in the representations and
warranties themselves) to the effect that each of the conditions specified in
Sections 6.1, 6.3, 6.5 and 6.6 is satisfied in all respects.
6.3 Absence of Litigation. As of the Effective Time, no action or
---------------------
proceeding shall be pending or, to the knowledge of Parent, threatened by or
before any court or other government body or agency seeking to restrain,
prohibit or invalidate the transactions contemplated by this Agreement or which
would adversely affect the right of Parent to own, operate or control the
<PAGE>
Company Business Assets or the Company's business after the Effective Time or
otherwise affect Parent's ability to consummate the transactions contemplated by
this Agreement.
6.4 Secretary's Certificates. The Company shall have received a
------------------------
certificate of the Secretary of each of the Parent and Mergersub, dated as of
the Effective Time, in form and substance reasonably satisfactory to the
Company, certifying (i) the names of its officers authorized to sign this
Agreement, the certificates and the other documents and instruments delivered
pursuant to this Agreement by Parent or Mergersub, as the case may be, or any of
its officers, together with true signatures of such officers; (ii) that the
copies of the Certificate of Incorporation and Bylaws attached thereto are true,
correct and complete; and (iii) that the resolutions of the Board of Directors
attached thereto evidencing the approval of this Agreement and the transactions
contemplated herein were duly adopted, have not been amended or rescinded and
are in full force and effect;
6.5 Absence of Change. Between the date of this Agreement and the
------------------
Effective Time, no adverse change shall have occurred in the business,
operations or financial or other condition of Parent that would affect Parent's
ability to consummate the transactions contemplated by this Agreement.
6.6 Consents and Approvals. All licenses, other orders or notifications
----------------------
of, or registrations, declarations or filing with, or expiration of waiting
periods imposed by, any applicable governmental or judicial authority and
consents, approvals, authorizations or notifications of any other third parties,
all as required in connection with consummation of the transactions contemplated
by this Agreement, including the operation of the Company's business by Parent,
shall have been made or obtained or shall have occurred. That the resolutions
of Parent and Mergersub attached thereto evidencing approval of the Agreement
and the transactions contemplated herein were duly adopted, have been rescinded
or amended and are in full force and effect.
6.7 Legal Opinion. The Company shall have received an opinion of
-------------
Hutchison & Mason PLLC, counsel to Parent, dated as of the Effective Time, in
the form of Exhibit E attached hereto.
---------
6.8 Escrow Agreement. The Company shall have received the Escrow
----------------
Agreement, duly executed by the Parent and the Escrow Agent.
6.9 Employment Agreements. The Company shall have received the
---------------------
Compensation Agreements, duly executed by Parent.
6.10 Shareholder Agreements. The Company shall have received the
----------------------
Shareholder Agreements, duly executed by Parent.
6.11 Registration Rights Agreement. The Company shall have received the
-----------------------------
Registration Rights Agreement, duly executed by Parent.
<PAGE>
6.12 Other Documents. The Company shall have received such other
---------------
agreements, documents, and instruments as the Company has reasonably requested
to effect and evidence the consummation of the transactions contemplated by the
Agreement.
<PAGE>
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. The Shareholders, jointly and severally (including
---------------
the Founders), shall, up to the number of the Escrowed Shares, indemnify the
Surviving Corporation and the Parent (the "Indemnified Persons") in respect of,
and hold the Indemnified Persons harmless against, any and all debts,
obligations and other liabilities, monetary damages, fines, fees, penalties,
interest obligations, deficiencies, losses and expenses (including without
limitation amounts paid in settlement, interest, court costs, costs of
investigators, reasonable fees and expenses of attorneys, accountants, financial
advisors and other experts, and other expenses of litigation) incurred or
suffered by the Indemnified Persons ("Damages"):
(i) resulting from, relating to or constituting any (1)
misrepresentation, (2) breach of warranty or (3) failure to perform any
covenant or agreement of the Company or the Founders contained in this Agreement
or the certificate delivered pursuant to Section 5.6; or
(ii) resulting from any failure of any of the Shareholders to
have good, valid and marketable title to the issued and outstanding the Company
Stock held by any such Shareholder, free and clear of all liens, claims,
pledges, options, adverse claims or charges of any nature whatsoever; or
(iii) resulting from any claim by a Shareholder or former
security holder of the Company, or any other person, firm, corporation or
entity, seeking to assert, or based upon: (A) ownership or a right to ownership
of any shares of capital stock of the Company which is claimed to have arisen
prior to the Effective Time; (B) any rights of a shareholder of the Company
(other than the right to receive the Merger Consideration pursuant to this
Agreement or appraisal rights under the applicable provisions of the Illinois
BCA, including, without limitation, rights with respect to any option,
preemptive rights or rights to notice or to vote, in each case with respect to
capital stock of the Company owned or claimed to have been owned prior to the
Effective Time; (C) any rights under the Articles of Incorporation or Bylaws of
the Company as in effect at any time prior to the Effective Time; or (D) any
claim that his, her or its shares of the Company were wrongfully repurchased by
the Company prior to the Effective Time.
7.2 Method of Asserting Claims.
--------------------------
(a) All claims for indemnification as specified in Section 7.1
("Claims") by an Indemnified Person pursuant to this Article VII shall be made
in accordance with the provisions of this Agreement and the Escrow Agreement.
(b) If a third party asserts that an Indemnified Person is liable to
such third party for a monetary or other obligation which may constitute or
result in Damages for which such Indemnified Person may be entitled to
indemnification pursuant to this Article VII, then the Indemnified Person shall
give prompt written notification of the assertion to the Shareholder
Representative. If within thirty (30) days after delivery of such notification,
the Shareholder
<PAGE>
Representative has not contested or otherwise notified the indemnified Person of
any objection to the assertion and such Indemnified Person reasonably determines
that it has a valid business reason to fulfill such obligation, then (i) such
Indemnified Person shall be entitled to satisfy such obligation, without prior
notice to or consent from the Shareholder Representative, (ii) such Indemnified
Person may make a Claim for indemnification pursuant to this Article VII in
accordance with the provisions of the Escrow Agreement (if applicable) and this
Article VII, and (iii) such Indemnified Person shall be reimbursed in accordance
with the provisions of the Escrow Agreement (if applicable) and this Article
VII, for any such Damages for which it is entitled to indemnification pursuant
to this Article VII (subject to the right of the Shareholder Representative to
dispute the Indemnified Person's entitlement to indemnification under the terms
of the Escrow Agreement (if applicable) and this Article VII.
(c) The Indemnified Person shall give prompt written notification to
the Shareholder Representative of the commencement of any action, suit or
proceeding relating to a third party claim for which indemnification pursuant to
this Article VII may be sought; provided, however, that no delay on the part of
the Indemnified Person in notifying the Shareholder Representative shall relieve
the Shareholders of any liability or obligation hereunder except to the extent
of any damage or liability caused by or arising out of such failure. Within
thirty (30) days after delivery of such notification, the Shareholder
Representative may, upon written notice thereof to the Indemnified Person,
assume control of the defense of such action, suit or proceeding provided the
Shareholder Representative acknowledges in writing to the Indemnified Person
that any damages, fines, costs or other liabilities that may be assessed against
the Indemnified Person in connection with such action, suit or proceeding
constitute Damages for which the Indemnified Person shall be entitled to
indemnification pursuant to this Article VII. If the Shareholder Representative
does not so assume control of such defense, the Indemnified Person shall control
such defense. The party not controlling such defense may participate therein at
its own expense; provided that if the Shareholder Representative assumes control
of such defense and the Indemnified Person reasonably concludes that the
indemnifying parties and the Indemnified Person have conflicting interests or
different defenses available with respect to such action, suit or proceeding,
the reasonable fees and expenses of counsel to the Indemnified Person shall be
considered "Damages" for purposes of this Agreement. The party controlling such
defense shall keep the other party advised of the status of such action, suit or
proceeding and the defense thereof. The Indemnified Person shall not agree to
any settlement of such action, suit or proceeding without the prior written
consent of the Shareholder Representative, which shall not be unreasonably
withheld. The Shareholder Representative shall not agree to any settlement of
such action, suit or proceeding without the prior written consent of the
Indemnified Person, which shall not be unreasonably withheld.
7.3 Satisfaction and Treatment of Indemnity Payments. In the event that
------------------------------------------------
the Shareholders are required to provide indemnification hereunder to the
Indemnified Persons, such indemnification obligations shall be satisfied
initially by the delivery of the Escrowed Shares (with each share for this
purpose valued at the Average Stock Price in accordance with the terms of this
Agreement and the Escrow Agreement. Any payment so made to an Indemnified
Person pursuant to this Article VII or the Escrow Agreement shall be treated as
a reduction in the Merger Consideration.
<PAGE>
7.4 Limitation. Notwithstanding anything to the contrary herein, with
----------
respect to Claims other than claims based on fraud or willful misrepresentation,
for which the liability of the Shareholders shall not be limited in amount or to
the Escrow, the sole and exclusive remedy for indemnification Claims by the
Parent or Mergersub under this Article VII is the Merger Consideration received
by the Shareholders. No Shareholder shall have any right of contribution
against the Company or the Surviving Corporation with respect to any breach by
the Company of any of the representations, warranties, covenants or agreements.
ARTICLE VIII Intentionally Deleted
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time:
(a) By the mutual written consent of all of the parties to this
Agreement;
(b) By Parent (if it is not then in breach of any term of this
Agreement), if the Company or the Founders: (i) fail(s) to perform in any
material respect their agreements contained herein required to be performed on
or prior to the Effective Time, or (ii) materially breaches any of their
representations or warranties contained herein, which failure or breach is not
cured within ten (10) days after Parent shall have notified the Company and the
Founders of its intent to terminate this Agreement pursuant to this
subparagraph;
(c) By the Company or the Founders (if they are not then in breach of
any term of this Agreement), if Parent: (i) fails to perform in any material
respect its agreements contained herein required to be performed on or prior to
the Effective Time, or (ii) materially breaches any of its representations or
warranties contained herein, which failure or breach is not cured within ten
(10) days after the Company and the Founders have notified Parent of their
intent to terminate this Agreement pursuant to this subparagraph;
(d) By any of the parties, if there is any order, writ, injunction or
decree of any court or governmental or regulatory agency binding on such party
which prohibits or restrains such party from consummating the transactions
contemplated hereby; or
(e) By either the Parent or the Company, if the requisite
Shareholders' Vote is not obtained; or
(f) By any of the parties, if the Closing has not occurred by January
31, 2000, for any reason other than delay or nonperformance of the party seeking
such termination.
9.2 Effect on Obligations. Termination of this Agreement pursuant to this
---------------------
Article IX shall terminate all obligations of the parties hereunder, except for
the obligations under Sections
<PAGE>
10.1 (with respect to expenses), 10.3 (with respect to publicity), and 4.7 (with
respect to confidentiality); provided, however, that termination pursuant to
subparagraphs (b) or (c) of Section 9.1 hereof shall not relieve the defaulting
or breaching party from any liability to the other parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, whether or not the Merger is consummated; provided,
--------
however, that if the Merger is consummated, the reasonable legal fees and
- -------
expenses incurred by the Company which are solely and directly related to the
Merger, up to a maximum of $17,500, shall be paid by Parent; any additional
legal fees and expenses in excess of $17,500, and any investment banking,
accounting and other out-of-pocket fees and expenses incurred by the Company and
all other expenses of the Company or the Shareholders of any kind shall be paid
directly by the Shareholders, and neither the Parent nor the Surviving
Corporation shall have any liability or obligation therefor.
10.2 Survival of Representations and Covenants. The representations,
-----------------------------------------
warranties and covenants of the Company and the Shareholders set forth in this
Agreement (the "Representations") shall survive the Closing and the consummation
of the transactions contemplated by this Agreement and continue until thirty
months following the Effective Time (the "Termination Date"). If notice of a
Claim is given in accordance with the Escrow Agreement or Article VII before the
Termination Date, then the Representation applicable to such Claim shall survive
until, but only for purposes of, the resolution of such Claim. Notwithstanding
the foregoing, with respect to any Claims for indemnification based on, arising
from, resulting from or related to fraud or willful misrepresentation, the
Representations shall survive the Termination Date and shall remain in force and
effect for the duration of the applicable statute of limitations. All
representations and warranties of Parent or Mergersub contained in this
Agreement shall terminate as of the Effective Time. All covenants and other
agreements of Parent shall survive the Closing until fulfilled or waived.
10.3 Publicity. No party to this Agreement shall issue any press release
---------
or make any public disclosure relating to the subject matter of this Agreement
or the terms hereof or the existence of this Agreement without the prior written
approval of the Parent. Any press releases or other announcements concerning
the transactions contemplated by this Agreement shall be approved by the Parent
in writing prior to their issuance.
10.4 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered four (4)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, one (1) business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
<PAGE>
If to the Company: Copy to:
----------------- -------
Intralogix, Inc. William & Lee, LLC
647 Bryan Avenue 333 North Michigan Avenue, Suite 728
Elmhurst, Illinois 60126 Chicago, Illinois 60601
Attn: Mary K. Romac Attn: Michael S. Lee
<PAGE>
If to the Parent: Copy to:
----------------- --------
SciQuest.com, Inc. Hutchison & Mason PLLC
5151 McCrimmon Parkway, Suite 208 3110 Edwards Mill Road, Suite 100
Morrisville, North Carolina 27560 Raleigh, North Carolina 27612
Attn: Peyton C. Anderson Attn: Helga L. Leftwich
If to Mergersub: Copy to:
--------------- -------
Lujack Subsidiary, Inc. Hutchison & Mason PLLC
5151 McCrimmon Parkway, Suite 208 3110 Edwards Mill Road, Suite 100
Morrisville, North Carolina 27560 Raleigh, North Carolina 27612
Attn: Peyton C. Anderson Attn: Helga L. Leftwich
Any party to this Agreement may give any notice, request, demand, claim, or
other communication hereunder using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner set forth in this Agreement.
10.5 Tax Matters. Although the parties acknowledge and agree that the
-----------
Merger is intended to qualify as a "tax free" exchange under Section 368 of the
Code, all parties to this Agreement acknowledge and agree that no representation
or warranty has been or is being made by Parent to any party or by Parent's
officers, employees, agents, accountants or attorneys, with respect to the
federal income or other tax consequences of the transactions contemplated by
this Agreement and the Merger or that such transactions are or will be "tax
free".
10.6 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of North Carolina applicable to agreements made and to be performed
entirely within such state.
10.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any of the parties hereto
without the prior written consent of all other parties hereto, and any purported
assignment without such consent shall be void.
10.9 Headings. The Article and Section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement.
<PAGE>
10.10 Amendments. Any waiver, amendment, modification or supplement of or
----------
to any term or condition of this Agreement shall be effective only if in writing
and signed by a majority in interest of the Shareholders and by all parties
hereto, and the parties hereto waive the right to amend the provisions of this
Section orally. Any amendment effected subsequent to the Shareholders' Consent
shall be subject to the restrictions contained in the Delaware General
Corporation Law and the Illinois BCA to the extent applicable. No waiver of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.11 Severability. In the event that any provision in this Agreement
------------
shall be determined to be invalid, illegal or unenforceable in any respect, the
remaining provisions of this Agreement shall not be in any way impaired, and the
illegal, invalid or unenforceable provision shall be fully severed from this
Agreement and there shall be automatically added in lieu thereof a provision as
similar in terms and intent to such severed provision as may be legal, valid and
enforceable.
10.12 Entire Agreement. This Agreement, and the Schedules and Exhibits
----------------
hereto, constitute the entire Agreement between the parties hereto pertaining to
the subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings between the parties with respect to such subject
matter.
10.12 Risk of Loss. The risk of loss, damage or condemnation of any of the
------------
Company Business Assets from any cause whatsoever shall be borne by the Company
at all times prior to the Effective Time.
10.13 Best Efforts. Each party agrees to use its best efforts to satisfy
------------
the conditions to the Closing set forth in this Agreement and otherwise to
consummate the transactions contemplated by this Agreement.
10.14 Letter of Intent. This Agreement supersedes and replaces the letter
----------------
agreement between the Parent and the Company dated December 23, 1999, which
shall be of no further force and effect.
[Remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its duly authorized officer as of the date first above written.
PARENT:
SCIQUEST.COM, INC.
By: _____________________________________
M. Scott Andrews
President and Chief Executive Officer
MERGERSUB:
LUJACK SUBSIDIARY, INC.
By: _____________________________________
M. Scott Andrews
President and Chief Executive Officer
THE COMPANY:
INTRALOGIX, INC.
By: _____________________________________
Mary T. Romac
President
FOUNDERS:
_________________________________________
Mary T. Romac
_________________________________________
Dale L. Young
_________________________________________
Timothy M. Brady
SHAREHOLDER REPRESENTATIVE:
_________________________________________
Mary T. Romac
<PAGE>
EXHIBIT 10.27
MERGER AGREEMENT
THIS MERGER AGREEMENT (together with the Exhibits and Schedules hereto, the
"Agreement"), dated February 2, 2000, is entered into by and among
SciQuest.com, Inc., a Delaware corporation ("Parent"), SciCentral Acquisition
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent
("Mergersub"), SciCentral.com, Inc., a Delaware corporation (the "Company"), and
Ellen S. Uffen, Robert Uffen, Guy Orgambide, Janeen Malco, Jerry Malco, Mario
Cardullo, Karen Cardullo and Cloyd Laporte III (collectively, the
"Stockholders").
RECITALS
A. The Board of Directors of the Company and the Stockholders of the
Company have approved the proposed merger (the "Merger") of Mergersub with and
into the Company in accordance with the Delaware General Corporation Law (the
"DGCL") and on the terms and conditions set forth herein.
B. The Board of Directors of Mergersub and Parent, the sole stockholder of
Mergersub, have approved the Merger in accordance with the DGCL and on the terms
and conditions set forth herein.
C. The parties intend for the Merger, for federal income tax purposes, to
qualify as a "reorganization" within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"); however, nothing in this
Agreement shall be construed as a representation or warranty by Parent, or an
agreement by Parent to indemnify any party, with respect to the tax treatment or
tax effects of the transaction.
NOW, THEREFORE, in consideration of the recitals and the mutual covenants,
representations, warranties, conditions, and agreements hereinafter expressed,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time, Mergersub shall merge with and into
----------
the Company through the filing of a Certificate of Merger with the Office of the
Secretary of State of the State of Delaware, in accordance with the applicable
provisions of the Delaware General Corporation Law (the time of such filing (the
"Merger Filing") is hereinafter referred to as the "Effective Time"). From and
after the Effective Time, the separate existence of Mergersub shall cease and
the Company shall continue as the surviving corporation (the "Surviving
Corporation").
1.2 The Closing. The closing of the Merger (the "Closing") shall take
-----------
place at the offices of Hutchison & Mason PLLC, in Raleigh, North Carolina,
immediately prior to the filing of the Merger Filing. The Closing shall take
place within five (5) business days after the approval of the Merger by the
stockholders of the Company, or on such other date as the parties
<PAGE>
may agree (the "Closing Date"). At the Closing, each party shall execute and
deliver to the other all such agreements, documents, and instruments as may be
required or contemplated by this Agreement or as may be reasonably requested by
any party to effect and evidence the consummation of the Merger, all of which
shall be in a form and substance reasonably satisfactory to the other parties.
1.3 Conversion of the Company Stock.
-------------------------------
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Mergersub, the Company or their respective stockholders,
each share of the capital stock of the Company issued and outstanding
immediately prior to the Effective Time (the "Company Stock") shall be canceled
and converted automatically into the right to receive the types and amounts of
consideration as set forth opposite each Stockholder's name on Schedule 1.3
------------
attached hereto. All undeclared or unpaid dividends on the capital stock of the
Company immediately prior to the Effective Time shall be cancelled at the
Effective Time. All the Company stock held in the treasury of the Company
immediately prior to the Effective Time shall be cancelled and no consideration
of any kind shall be delivered in exchange therefor under this Agreement.
(b) At the Closing, each of the Stockholders of the Company shall
surrender and deliver to Parent the certificates evidencing all of the issued
and outstanding shares of the Company Stock, in accordance with the provisions
of Section 1.7, in exchange for the aggregate consideration payable to the
Stockholders in the Merger, as described below (the "Merger Consideration"). The
Merger Consideration (which shall constitute all of the consideration to be
delivered to the Stockholders or any other person in respect of the shares of
capital stock, or rights to acquire shares of capital stock, of the Company)
shall be subject to adjustment as described in Sections 1.4 (Post-Closing
Adjustment), 1.5 (Escrow Agreement), 1.6 (Holdback) and Article VII
(Indemnification). The Merger Consideration shall consist of 40,000 unregistered
shares of the Common Stock, $0.001 par value, of Parent ("Parent Common Stock"),
as described below (the "Merger Shares"). The Merger Shares shall be divided
into three categories as follows: (i) 32,000 or 80% of the Merger Shares to be
delivered at Closing (the "Initial Shares"); (ii) 4,000 or 10% of the Merger
Shares to be held pursuant to the Post-Closing Adjustment set forth in Section
1.4 (the "Holdback Shares") and (iii) 4,000 or 10% of the Merger Shares to be
held in escrow pursuant to Section 1.5 (the "Escrowed Shares"). The "Average
Stock Price" shall mean the average closing price of the Parent Common Stock as
reported on the Nasdaq Stock Market for the ten (10) trading day period ending
on and including the third trading day prior to the Closing Date. The Merger
Consideration shall be payable as follows:
(i) Each Stockholder shall receive a certificate or certificates
representing a number of Initial Shares, which shall be delivered to such
Stockholder as soon as practicable following the Effective Time (subject to
compliance by the Stockholder with the requirements relating thereto set
forth in Section 1.7) in the amounts set forth opposite such holder's name
on Schedule 1.3 under the heading titled "Closing Payment - Initial
------------
Shares"; and
2
<PAGE>
(ii) The Escrowed Shares payable to the Stockholders shall be
withheld by Parent and delivered to Centura Bank (the "Escrow Agent") in
accordance with Section 1.5; and
(iii) The Holdback Shares shall be withheld by Parent as deferred
Merger Consideration and issued to the Stockholders in accordance with the
provisions of Section 1.6 (the "Holdback").
(c) Notwithstanding anything to the contrary herein, no fractional shares
of Parent Common Stock will be issued. Any person who would be entitled to
receive a fractional share of Parent Common Stock but for this Section will, in
lieu of such fractional share and upon surrender of such person's certificate or
certificates of the Company Capital Stock, receive cash (without interest) in an
amount equal to such fractional portion of a full share of Parent Common Stock
multiplied by the Average Stock Price.
(d) Each Stockholder's pro rata portion of the Initial Merger
Consideration, which includes the Escrowed Shares and the Holdback, is set forth
on Schedule 1.3 under the appropriately titled columns. Shares of Parent Common
------------
Stock shall be valued for all purposes at the Average Stock Price.
1.4 Post-Closing Adjustment. Within fifteen (15) business days of the
-----------------------
Closing, the Company shall deliver to Parent, in a form satisfactory to Parent,
financial statements and other documentation necessary to determine the total
amount of liabilities of the Company outstanding as of the Closing Date (the
"Closing Date Liabilities"). Parent shall have such access to the Company'
books and records as it deems necessary to verify the amount of such Closing
Date Liabilities. Based on the Closing Date Liabilities, the Holdback Shares
payable to the Stockholders shall be reduced (the "Holdback Shares Adjustment")
as follows: If the Closing occurs on or before February 4, 2000 (the
"Anticipated Closing Date"), the Holdback Shares payable to the Stockholders
shall be reduced, pro rata among the Stockholders based on their respective
ownership of the Company Stock, on a dollar for dollar basis in an amount equal
to the amount by which the Closing Date Liabilities exceed $15,000 in the
aggregate if such excess has not been paid by the Stockholders personally, at
their sole discretion. If the Closing occurs after the Anticipated Closing Date
(other than due solely to the fault of Parent), the Holdback Shares payable to
the Stockholders shall be reduced on a dollar for dollar basis in an amount
equal to the total amount of the Closing Date Liabilities if the total amount of
the Closing Date Liabilities has not been paid by the Stockholders personally,
at their sole discretion. It shall not be considered the fault of Parent if the
Closing is delayed due to unanticipated issues that arise during Parent's due
diligence review of the Company.
1.5 Escrow Agreement.
----------------
(a) On the Closing Date, Parent, each of the Stockholders and the Escrow
Agent shall execute an escrow agreement in the form of EXHIBIT A (the "Escrow
---------
Agreement"), pursuant to which Parent shall deposit into escrow the Escrowed
Shares in payment of part of the Initial Merger Consideration. The Escrowed
Shares shall be available on the terms and conditions set forth herein and in
the Escrow Agreement to secure the payment of any Indemnified Losses for which
the Stockholders are obligated to indemnify the Indemnified Persons under
Article VII
3
<PAGE>
hereof. During the period such Escrowed Shares are held in escrow, all cash
dividends, if any, paid with respect to the Escrowed Shares shall be the
property of, and shall be delivered to, the Stockholders, each in accordance
with their respective ownership interests, and each of the Stockholders shall
have the sole power to exercise all voting rights pertaining to their pro rata
portion of Escrowed Shares. All shares issued in respect of the Escrowed Shares
(including, without limitation, shares issued in connection with stock
dividends, stock splits, recapitalizations, reorganizations or similar
transactions affecting the Parent Common Stock) shall, upon issuance, be
deposited in the escrow, held subject to the terms and conditions of the Escrow
Agreement and treated for all purposes as Escrowed Shares.
(b) The adoption of this Agreement and the approval of the Merger by the
Stockholders shall constitute full approval by the Stockholders of the Escrow
Agreement and the appointment of Centura Bank as the escrow agent under the
Escrow Agreement (the "Escrow Agent") and of all of the arrangements relating
thereto, including, without limitation, the indemnification provisions and
obligations set forth in Article VII of this Agreement, the placement in escrow
of the Escrowed Shares, and the appointment of Cloyd Laporte III to serve as the
Stockholders' representative (the "Stockholder Representative") to act as the
representative of the Stockholders for purposes of the Escrow Agreement and this
Agreement.
1.6 Holdback. The Holdback portion of the Merger Consideration payable to
--------
the Stockholders shall be withheld at Closing for satisfaction of any Holdback
Shares Adjustment determined in accordance with Section 1.4. Accordingly, the
parties agree that Parent shall be entitled to withhold at Closing the number of
Holdback Shares set forth opposite each Stockholder's name under the column
titled "Holdback" on Schedule 1.3. Promptly after the Holdback Shares
------------
Adjustment has been finally and conclusively determined, Parent shall (subject
to any reduction of the Holdback pursuant to Section 1.5 hereof) pay to each
Stockholder Holdback Shares equal to such Stockholder's portion of the Holdback
as set forth on Schedule 1.3.
------------
1.7 Surrender and Exchange of Certificates. At the Closing, each of the
--------------------------------------
Stockholders shall surrender and deliver to Parent the certificates evidencing
all of the issued and outstanding shares of the Company Stock, duly endorsed by
such Stockholders, and upon such surrender, each such certificate shall
represent the right to receive such Stockholder's pro rata portion of the Merger
Consideration. As soon as practicable following the Closing, Parent shall
instruct the transfer agent of Parent Common Stock to issue the Merger Shares
and to deliver such Merger Shares to the Stockholders or the Escrow Agent, as
provided in this Agreement.
1.8 Dissenting Shares.
-----------------
(a) For purposes of this Agreement, "Dissenting Shares" means the
Company Shares held as of the Effective Time by a Stockholder who has not voted
such Shares in favor of the adoption of this Agreement and the Merger and with
respect to which appraisal shall have been duly demanded and perfected, and not
effectively withdrawn or forfeited, in accordance with the applicable provisions
of the DGCL. Dissenting Shares shall not be converted into or represent the
right to receive the Merger Consideration, unless the Stockholder holding such
Dissenting Shares shall have forfeited such Stockholder's right to appraisal
under the DGCL or
4
<PAGE>
withdrawn such Stockholder's demand for appraisal. If such Stockholder has so
forfeited or withdrawn such Stockholder's right to appraisal of Dissenting
Shares, then, (i) as of the occurrence of such event, such Stockholder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Merger Consideration payable in
respect of such Company Shares pursuant to Section 1.3 hereof, and (ii) promptly
following the occurrence of such event, the Parent or the Surviving Corporation
shall deliver to such Stockholder shares of Parent Common Stock and cash to
which such Stockholder is entitled pursuant to Section 1.3 hereof and shall
deposit with the Escrow Agent (as defined below) shares of Parent Common Stock
representing the portion of the Merger Consideration to which such Stockholder
is entitled pursuant to Section 1.3 hereof.
(b) The Company shall give the Parent (i) prompt notice of any
written demands for appraisal of any Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of the Parent, make any payment with respect to any
demands for appraisal of Shares or offer to settle or settle any such demands.
1.9 Options and Warrants.
--------------------
(a) Prior to the Effective Time, (i) each outstanding option to
acquire shares of capital stock of the Company (individually, an "Option" and
collectively, the "Options") shall be accelerated and exercised in full or
otherwise cancelled and terminated; (ii) all outstanding warrants to acquire
shares of capital stock of the Company (the "Warrants") shall be accelerated
and exercised in full or otherwise cancelled and terminated; and (iii) all other
rights to acquire shares of capital stock of the Company shall be accelerated
and exercised in full or otherwise terminated.
(b) Prior to the Effective Time, the Company shall terminate all
stock option plans and other stock or equity-related plans of the Company (the
"Stock Plans").
1.10 Legend. The shares of Parent Common Stock issued in connection with
------
the Merger will be issued in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), by reason of Rule 506
of Regulation D thereof and, as such, will constitute restricted securities
within the meaning of Rule 144 promulgated thereunder. Each certificate of the
Parent Common Stock issued in connection with the Merger will bear appropriate
legends to evidence such privately placed shares as being restricted under the
Securities Act, and any other applicable restrictions upon the transferability
of the shares or otherwise. It is acknowledged and understood that Parent is
relying on certain representations made by the Stockholders in the Stockholder
Investment Representation Letters (as herein defined). The Securities Act
legend shall read substantially as follows:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
MORTGAGED, PLEDGED,
5
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HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ALL APPLICABLE
STATE SECURITIES LAWS COVERING SUCH SHARES, COMPLIANCE WITH AN
EXEMPTION FROM SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
The Parent shall be obligated to reissue promptly unlegended certificates
at the request of any Stockholder if the Stockholder shall have obtained, at
Stockholder's sole expense, an opinion of counsel (which may be counsel to the
Parent) reasonably acceptable to the Parent to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
1.11 Conversion of Subsidiary Stock. At the Effective Time, by virtue of
------------------------------
the Merger and without any action on the part of the Parent, Mergersub, the
Company or their respective stockholders, each share of Common Stock, having a
par value per share of $0.001, of Mergersub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation, and, upon surrender of the certificate(s) representing
such shares of Mergersub Common Stock, the Surviving Corporation shall promptly
issue to the owner thereof a certificate representing the share of Common Stock
of the Surviving Corporation into which it has been converted. Such share shall
be the only issued and outstanding capital stock of the Surviving Corporation
and shall be owned by the Parent.
1.12 Certificate of Incorporation. After the Effective Time, the
----------------------------
Certificate of Incorporation of the Company as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until amended in accordance with applicable law.
1.13 Bylaws. After the Effective Time, the Bylaws of Mergersub as in
------
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until amended or repealed in accordance with the
provisions thereof and applicable law.
1.14 Directors and Officers. Immediately after the Effective Time, the
----------------------
directors and officers of Mergersub immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation and shall serve
in such capacities until their respective successors are duly elected and
qualified. The Surviving Corporation may designate such other officers as it
determines.
1.15 No Further Rights. As of the Effective Time, the Stockholders shall
-----------------
cease to have any rights as stockholders of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
6
<PAGE>
The Company and each of the Stockholders, jointly and severally, represent
and warrant to Parent as follows:
2.1 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite power and authority to own, operate
and/or license and lease the Company Assets (as defined below) and the other
properties owned or used in its business license or (including, without
limitation, intangible property) (collectively with the Company Assets, the "the
Company Business Assets") and to conduct the operations of its business as
presently conducted. the Company is duly qualified to do business as a foreign
corporation and is in good standing in the jurisdictions listed on Schedule 2.1,
------------
which are all the jurisdictions in which it is required to be so qualified other
than such jurisdictions where the failure to be so qualified would not have a
Material Adverse Effect (as defined in Section 2.4) on the Company.
2.2 Authority. The Company has all requisite power and authority to
---------
execute and deliver this Agreement and the other documents, certificates and
instruments contemplated hereby (collectively with the Merger Agreement, the
"Transaction Documents") to which it is a party and to perform the transactions
contemplated hereby and thereby. The execution, delivery and performance of the
Transaction Documents to which the Company is a party, and the consummation of
the transactions contemplated thereby, have been duly and validly authorized by
all necessary corporate and stockholder action. Each of the Stockholders has all
requisite power and authority to execute and deliver the Transaction Documents
to which such Stockholder is a party, to perform his obligations thereunder, and
to consummate the transactions contemplated by the Transaction Documents. Each
of the Stockholders has all requisite power and authority to vote the
outstanding shares of the Company Common Stock held by such Stockholder, to
approve this Agreement and the transactions contemplated hereby and in the
Transaction Documents and the transactions contemplated hereby and thereby in
compliance with all applicable laws and the Articles and Bylaws of the Company.
Each of the Transaction Documents to which the Company or the Stockholders is a
party has been duly executed and delivered by the Company and the Stockholders
and constitutes a valid and binding obligation of each of the Company and the
Stockholders, enforceable against them in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and by general equitable principles
(regardless of whether enforceability is considered in a proceeding in equity
or at law).
2.3 Capitalization. The authorized capital stock of the Company consists
--------------
of (a) 8,000,000 shares of common stock, par value $.001 per share (the "the
Company Common Stock"), of which 900,000 shares are issued and outstanding and
no shares are held in the treasury of the Company, and (b) and 2,000,000 shares
of Preferred Stock, par value $.001 per share (the "the Company Preferred
Stock"), of which no shares are issued and outstanding (the Company Common Stock
and Company Preferred Stock together, the "Company Stock"). No additional
shares of the Company Stock are reserved for issuance. Schedule 2.3 sets forth
------------
a complete and accurate list of (i) all stockholders of the Company, indicating
the number of shares held by each stockholder, (ii) all holders of Options and
Warrants and other rights to
7
<PAGE>
acquire shares of capital stock of the Company ("Rights"), including the number
of shares subject to each Option, Warrant and Right, and (iii) all of the Stock
Plans. All of the issued and outstanding shares of the Company Stock are, and
all shares that may be issued prior to the Effective Time upon exercise of
Options, Warrants and Rights will be, duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights. There are no outstanding
or authorized options, warrants, rights, agreements or commitments to which the
Company or the Stockholders is a party or which are binding upon the Company or
the Stockholders providing for the issuance, disposition or acquisition of any
of the Company's capital stock, other than as listed in Schedule 2.3. There are
------------
no plans providing for stock options or similar rights other than the Stock
Plans listed in Schedule 2.3. There are no outstanding or authorized stock
------------
appreciation, phantom stock or similar rights with respect to the capital stock
of the Company. There are no agreements, voting trusts, proxies or
understandings with respect to the voting, or registration under the Securities
Act, of any shares of the Company other than as listed in Schedule 2.3. All of
------------
the issued and outstanding Company Stock, and the outstanding Options, Warrants
and Rights were issued in compliance with applicable federal and state
securities laws.
2.4 Effect of Agreement. Except as disclosed on Schedule 2.4, the
------------------- ------------
execution, delivery and performance of the Transaction Documents to which the
Company is a party do not and will not: (a) conflict with the Articles of
Incorporation or Bylaws of the Company; (b) violate any law or any rule or
regulation of any governmental body or administrative agency, or conflict with
any judicial or administrative order or decree relating to the Company or the
Company Business Assets, except for any such violations or conflicts which would
not, individually or in the aggregate, have a material adverse effect on the
business, the Company Business Assets, liabilities, results of operations or
condition (financial or otherwise) (a "Material Adverse Effect") of the Company
or impair the ability of the Company or the Stockholders to consummate the
transactions contemplated by this Agreement; (c) constitute a breach or default
under any of the Company Contracts (as defined below); (d) create any security
interest, mortgage, lien, claim, or encumbrance of any kind on any of the
Company Business Assets; or (e) except for the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware, require any consent,
notice to or filing with any governmental authority or administrative agency or
any third party on behalf of the Company or the Stockholders. The matters
described on Schedule 2.4 are referred to as the "Company Required Consents."
------------
2.5 Financials; Books. Attached hereto as Schedule 2.5 are true and
----------------- ------------
complete copies of the unaudited balance sheet, statements of operations,
changes in stockholders' equity and cash flows for the fiscal years ended
December 31, 1999, December 31, 1998 and December 31, 1997 (collectively, the
"Company Financial Statements"). The Company Financial Statements (a) are true,
complete and correct in all material respects; (b) are in accordance with the
books and records of the Company; and (c) present fairly, in all material
respects, the assets, liabilities and financial condition of the Company as of
the respective dates thereof, and the results of operations for the periods then
ending in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The Company has no liability
or obligation that is not reflected or reserved against on the balance sheet for
the twelve months ending December 31, 1999 (the "the Company Balance Sheet"),
except for those that are not required by generally accepted accounting
principles to be included therein or those that have been incurred in the
ordinary course of business since the date of the Company Balance Sheet
8
<PAGE>
(none of which may reasonably be expected to have a Material Adverse Effect on
the Company). The books and records of the Company are true, accurate and
complete in all material respects and have been maintained in accordance with
generally accepted accounting principles applied on a consistent basis.
2.6 Title to and Sufficiency of Assets and other Property. Set forth on
-----------------------------------------------------
Schedule 2.6 is a true and complete list of all material inventory, machinery,
- ------------
equipment, furniture, office equipment, supplies, materials, vehicles and other
material items of tangible personal property of every kind owned by the Company
and used in connection with its business (the "the Company Assets"). the Company
has good and marketable title to all of the Company Business Assets, free and
clear of all security interests, mortgages, liens, claims and encumbrances of
every kind except for liens for current taxes not yet due and payable and as
disclosed on Schedule 2.6. The Company Business Assets constitute all of the
------------
assets of any nature required to operate the Company's business in the manner
presently operated by the Company. The Company Assets (a) are in good operating
order, condition and repair (ordinary wear and tear excepted), (b) are suitable
for use in the ordinary course of business of the Company's business and (c) are
free from material defects.
2.7 Real Property. The Company owns no real property. Schedule 2.7
------------- ------------
contains true and correct descriptions of all real property leased by the
Company (the "Company Leased Real Property") and used in connection with its
business, and all buildings, fixtures and improvements thereon (the
"Improvements"). All Improvements conform in all material respects to all
applicable state and local laws, health and safety ordinances and zoning and
building ordinances. None of the Improvements encroaches on the property of any
third person. The Company Leased Real Property is zoned for the purposes for
which such property is presently being used, or has a valid variance therefrom.
2.8 Contracts and Leases. Schedule 2.8 lists all contracts, commitments,
-------------------- ------------
agreements, understandings, obligations, whether written or oral (including,
without limitation, agreements for the borrowing of money or the extension of
credit that involve a commitment or expenditure by, or revenue to, the Company
in excess of $1,000.00, and agreements with employees, consultants and other
contractors), leases (including, without limitation, leases for the Company
Leased Real Property) and licenses, whether written or oral, to which the
Company or any of the Stockholders (on behalf of the Company) is party or by
which the Company or the Company Business Assets or any of the Stockholders (on
behalf of the Company) is bound (collectively, the "Company Contracts"). Each
of the Company Contracts is valid, binding and enforceable in accordance with
its terms and is in full force and effect, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law). There are no
existing defaults on the part of the Company or, to the knowledge of the Company
and the Stockholders, any other party to the Company Contracts, and, to the
knowledge of the Company and the Stockholders, no events or circumstances have
occurred which, with or without notice or lapse of time or both, would
constitute material defaults under any of the Company Contracts. The execution,
delivery and performance of the Transaction Documents do not and will not, with
respect to any the Company Contract, (a) constitute a default or accelerate
9
<PAGE>
the obligations thereunder, (b) require the consent of any person or party,
except for the Company Required Consents, or (c) affect the enforceability or
validity thereof or the terms thereof.
2.9 Receivables. Attached hereto as Schedule 2.9 hereto is a true,
-----------
complete and accurate detailed listing of all accounts receivable of the Company
(the "Company Receivables"). The Company Receivables are, and will be at the
Effective Time, legal, valid and binding obligations and arose in the ordinary
course of business. The Company Receivables are not subject to any
counterclaim, set off, defense, security interest, claim or encumbrance. the
Company has made available to Parent complete and correct copies of all
instruments, documents and agreements evidencing such the Company Receivables,
including, without limitation, an aging schedule related to the Company
Receivables.
2.10 Intellectual Property.
---------------------
(a) Intellectual Property Rights. Schedule 2.10(a) hereto sets
---------------------------- ----------------
forth a complete and correct list of (i) all patents (the "the Company
Patents"), trademarks, trade names (including all federal and state
registrations pertaining thereto, or applications for such registrations and a
description of the status of such applications), proprietary databases and
registered copyrights owned by the Company (collectively with all unregistered
copyrights, the "Company Proprietary Intellectual Property") and (ii) all
patents, trademarks, trade names, copyrights, technology and processes used by
the Company in its businesses which are material to its business and are used
pursuant to a license or other right granted by a third party, and all
agreements related thereto (collectively, the "Company Licensed Intellectual
Property", and together with the Company Proprietary Intellectual Property
referred to as "the Company Intellectual Property"). Each of the federal, state
and other governmental registrations with any country pertaining to the Company
Proprietary Intellectual Property is valid and in full force and effect. The
Company owns, or has the right to use pursuant to valid and effective
agreements, all the Company Intellectual Property, and the consummation of the
transactions contemplated hereby will not materially adversely alter or impair
any such rights. No claims are pending against the Company by any person with
respect to the use of any the Company Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement relating
to the same that would be likely to have a Material Adverse Effect on the
Company, and, to the knowledge of the Company and the Stockholders, the current
use by the Company of the Intellectual Property does not in any material respect
infringe upon the rights of any third party. Schedule 2.10(a) sets forth a list
----------------
of all jurisdictions in which the Company is operating under a trade name, and
each jurisdiction in which any such trade name is registered. No the Company
Patent has been or is now involved in any interference, reissue, reexamination
or opposition proceeding of which the Company has received notice, nor is the
Company aware of any potentially interfering patent or patent application of any
third party. To the knowledge of the Company, no person or entity is presently
selling or marketing a product which is covered by the Patents, and, to the
knowledge of the Company, the Patents have not been challenged or threatened in
any way. No current or former the Company employee is named as an inventor on
any pending patent application. All of the Company Patents are currently in
compliance with formal legal requirements (including payment of filing,
examination and maintenance fees and proofs of working or use) and to the
knowledge of the Company, there is no currently existing circumstance which
would render the
10
<PAGE>
Company Patents invalid or unenforceable, and they are not subject to any
maintenance fees or taxes or actions falling due within ninety days after the
date of Closing.
(b) Company Computer Software and Hardware.
--------------------------------------
(i) Schedule 2.10(b) hereto sets forth a true and complete list
----------------
of: (a) all software and associated documentation owned by or developed by or
for the Company material to the business of the Company (such items set forth on
Schedule 2.10(b) are hereinafter referred to as the "the Company Proprietary
- ----------------
Software"); (b) all software (other than the Company Proprietary Software and
"shrink-wrap" or other "off the shelf" software) used by the Company or its
employees in connection with the business of the Company (the "the Company
Licensed Software" and together with the Company Proprietary Software, the "the
Company Software"). The Company has all rights that are necessary or
appropriate to distribute, license or sublicense the Company Software to third
parties and to appoint others to do any of the foregoing to the extent that
distribution, licensing or sublicensing of such software is necessary to the
conduct of business of the Company. The Company has or has the right to use all
technical and descriptive materials to run its business in accordance with its
historical practices, except as would not have a Material Adverse Effect on the
Company. The Company Proprietary Software consists of: (a) source and object
code embodied in magnetic media; and (b) all development and procedural tools,
documentation and manuals necessary to maintain, enhance, develop derivative
works, support and service the Company Proprietary Software in accordance with
historical practice, including licenses to use compilers, assemblers, libraries
and other aids.
(ii) The Company has sole and exclusive rights, title and
interest in and to all intellectual property rights in the Company Proprietary
Software, including all worldwide copyrights, trade secrets, trademarks, moral
rights and proprietary and confidential information rights therein. The Company
Proprietary Software is free and clear of all liens, claims and encumbrances.
The use by the Company of the Company Licensed Software and the use and
distribution of the Company Proprietary Software in the manner currently used
and distributed by the Company complies with the terms of all contracts and
agreements to which the Company is a party or by which it is bound and is in
compliance with all applicable laws, regulations and codes of any foreign, U.S.,
state or local authority, including without limitation, all U.S. Export
Administration Regulations, except where such failure to comply would not have a
Material Adverse Effect. The Company has been granted under the license
agreements relating to the Company Licensed Software (the "the Company License
Agreements") valid and subsisting license rights with respect to all software
comprising the Company Licensed Software and such rights are sufficient in all
respects to conduct the business of the Company as presently conducted and as
currently proposed to be conducted. The Company is in compliance with each of
the terms and conditions of each of the Company License Agreements except to the
extent failure to so comply, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. In the case of any commercially
available "shrink-wrap" software programs (such as Lotus 1-2-3 or Microsoft
Word), the Company has not made and is not, to the knowledge of the Company and
the Stockholders, using any unauthorized copies of any such software programs
and, to the knowledge of the Company, none of the employees, agents or
representatives of the Company have made or are using any such unauthorized
copies, except as would not have a Material Adverse Effect on the Company.
11
<PAGE>
(iii) The Company Proprietary Software and such of the Company
Licensed Software as is bundled with or is otherwise an integral part of the
Company Proprietary Software does not infringe the patent, copyright or trade
secret rights or any other intellectual property right of any third party which
may exist anywhere in the world.
(iv) The Company has not granted rights in the Company Software
to any third party other than as set forth on Schedule 2.10(b).
----------------
(v) There have been no problems experienced by the Company in
the past twelve (12) months with respect to the Company Software, the related
computer hardware used by the Company in its operations or the provision of
services to the Company clients which have arisen outside the ordinary course of
business and would have a Material Adverse Effect on the Company.
(vi) The Company Proprietary Software is, and such of the
Company Licensed Software as is bundled with or is otherwise an integral part of
the Company Proprietary Software (to the knowledge of the Company and the
Stockholders, after due inquiry of the licensors of such the Company Licensed
Software) is, "Millennium Compliant" (defined below). For the purposes of this
Agreement, "Millennium Compliant" means that such software accurately accepts
and processes date/time data (including, but not limited to, calculating,
comparing, sorting and sequencing) ("Processes") and returns and displays
date/time data in a consistent manner and without interruption regardless of
dates used, whether before, on or after January 1, 2000, and regardless of the
date in time which such Processes are performed, and such software accurately
processes all leap year calculations, including without limitation recognizing
the year 2000 as a leap year.
(vii) Prior to any export or re-export either directly or
indirectly by the Company of any software or other technical data, the Company
has first obtained the written approval or required export license for such
export or re-export from the United States Department of Commerce or any other
agency of the U.S. Government having jurisdiction over such export or re-export
unless the export or re-export of software or other technical data is covered by
a license exemption.
2.11 Litigation. Except as disclosed on Schedule 2.11, there are no
----------
claims, actions, suits or investigations pending, or to the knowledge of the
Company and the Stockholders, threatened, against the Company or its business or
affecting the Company Business Assets or against the Stockholders.
2.12 Compliance with Laws; Permits. There is not outstanding or, to the
-----------------------------
knowledge of the Company and the Stockholders, threatened, any order or decree
of any court, governmental agency or arbitration tribunal against or involving
the Company or its business or the Company Business Assets. The Company is
currently, and has been at all times, in full compliance with all laws, rules,
regulations and licensing requirements of all federal, state, local and foreign
authorities applicable to the Company Business Assets and operations of its
business, except for failures to comply which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. The Company has
obtained all permits, certificates and licenses required for the conduct of its
business and the ownership of the Company Business Assets, all
12
<PAGE>
of which are described on Schedule 2.12 (the "the Company Permits"). The Company
-------------
is not in violation of any of the Company Permits, and no proceedings are
pending or, to the knowledge of the Company and the Stockholders, threatened to
revoke or limit any the Company Permit.
2.13 Taxes.
-----
(a) The Company has properly completed and timely filed all federal,
state, local and foreign tax returns and reports required to be filed by it (the
"Tax Returns"). All Tax Returns are accurate, complete and correct as filed,
and the Company has paid in full or made adequate provision in the Company
Financial Statements for all amounts shown to be due thereon. the Company is
not delinquent in the payment of any tax assessment or other governmental charge
(including, without limitation, withholding taxes).
(b) Except as disclosed on Schedule 2.13, the Company has not been
notified by any governmental authority that an audit or review of any tax matter
is contemplated. The Company knows of no tax deficiency or claim for additional
taxes asserted or threatened to be asserted against it by any taxing authority
and the Company knows of no grounds for any such assessment. No extension of
time with respect to any date on which a tax return was or is to be filed by the
Company is in force, and no waiver or agreement by the Company is in force for
the extension of time for the assessment or payment of any tax. For purposes of
this Agreement, the term "tax" includes all federal, state, local and foreign
taxes or assessments, including income, sales, gross receipts, excise, use,
value added, royalty franchise, payroll, withholding, property and import taxes
and any interest or penalties applicable thereto.
(c) The Company has not agreed to, and is not required to, make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(d) The Company is not and has never been a member of a consolidated
group or combined group or combined group of corporations.
(e) There has been no change in ownership of the Company that would
limit the Parent's ability to utilize the net operating losses of the Company.
2.14 Insurance. Schedule 2.14 describes all insurance policies maintained
--------- -------------
by the Company with respect to its business and the Company Business Assets.
Such policies are valid, binding and enforceable in accordance with their terms,
are in full force and effect, and all premiums due thereon have been paid.
2.15 Employment and Labor Matters. No employees of the Company have
----------------------------
entered into employment or other agreements regarding compensation, whether
written or oral, with the Company. No employees of the Company have been or are
represented by a union or other labor organization or covered by any collective
bargaining agreement. There is no unfair labor practice complaint, labor
organizational effort, strike, slowdown or similar labor matter pending or, to
the knowledge of the Company and the Stockholders, threatened against the
Company or its business. the Company is in compliance with all federal, state
and local laws and regulations
13
<PAGE>
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and there is no unfair labor practice complaint
against the Company pending or, to the knowledge of the Company and the
Stockholders, threatened. Upon termination of the employment of any employees,
neither the Company nor the Parent nor the Surviving Corporation will by reason
of the Merger or anything done prior to the Effective Time be liable to any of
such employees for severance pay or any other payments (other than accrued
salary, vacation or sick pay in accordance with the Company's normal policies).
Set forth on Schedule 2.15 is a true and complete list of all current directors,
-------------
officers, employees or consultants of the Company, including, in each case,
name, current job title, base salary, bonus potential, commissions, and
termination obligations.
2.16 Employee Benefits. Except as set forth on Schedule 2.16, there are no
----------------- -------------
Plans, as defined below, contributed to, maintained or sponsored by the Company,
or to which the Company is obligated to contribute or with respect to which the
Company has any liability or potential liability, whether direct or indirect
(including all Plans contributed to, maintained or sponsored by each member of
the controlled group of companies, within the meaning of Sections 414(b),
414(c), and 414(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), of which the Company is a member, to the extent the Company has any
potential liability with respect to such Plans). For purposes of this
Agreement, the term "Plans" shall mean: (a) employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not funded and whether or not terminated, (b) employment
agreements, and (c) personnel policies or fringe benefit plans, policies,
programs and arrangements, whether or not subject to ERISA, whether or not
funded, and whether or not terminated, including without limitation, stock
bonus, deferred compensation, pension, severance, bonus, vacation, travel,
incentive, and health, disability and welfare plans.
2.17 Absence of Changes. Except as disclosed on Schedule 2.17, since
------------------ -------------
December 31, 1998, the Company has conducted the operations of its business only
in the ordinary course, and has not:
(a) Suffered any damage to any of the Company Business Asset, whether
or not covered by insurance, except damage that could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect on the Company;
(b) Sold or disposed of any of the Company Business Assets, except
such sales or dispositions made in the ordinary course of business that
would not, either individually or in the aggregate, have a Material Adverse
Effect on the Company;
(c) Made any general wage increase for its employees as a group other
than in the ordinary course of business;
(d) Amended or terminated any Company Contract;
(e) Incurred any obligation or liability, except normal trade or
business obligations incurred in the ordinary course of business;
14
<PAGE>
(f) Introduced any new method of management, operations or
accounting;
(g) Suffered any adverse change in the condition (financial or
otherwise), or any other event, that might reasonably be expected to have
a Material Adverse Effect on the Company; or
(h) Agreed, whether in writing or otherwise, to take any action
described in this Section 2.17.
2.18 Environmental Protection. No substances that are defined by laws or
------------------------
regulations concerning the environment as toxic materials, hazardous wastes or
hazardous substances (including without limitation any asbestos, oils,
petroleum-derived compound or pesticides) (collectively, "Hazardous Materials")
are or have been located in, on or about the Company Leased Real Property or the
Improvements. The Company Leased Real Property has not been used for the
storage, manufacture or disposal of Hazardous Materials, and the Company has not
used, or provided permission to others to use, the Company Leased Real Property
for the storage, manufacture or disposal of Hazardous Materials. No Hazardous
Materials have been transported off site from the Company Leased Real Property.
Specifically, but without limitation, there are and have been no storage tanks
located on the Company Leased Real Property. The Company has complied in all
material respects with all federal, state and local environmental laws and
regulations.
2.19 Related Party Transactions. Except as set forth on Schedule 2.18,
-------------------------- -------------
the Company Contracts do not include any agreement with or any other commitment
to (a) any officer or director of the Company; (b) any person related by blood
or marriage to any such officer or director; or (c) any corporation,
partnership, trust or other entity in which the Company or any such officer,
director or related person has an equity or participating interest, and no such
other agreement or commitment exists.
2.20 Disclosure. No representation, warranty or statement made by the
----------
Company or the Stockholders in this Agreement or the exhibits or schedules
hereto, or in any financial statement, other written financial information or
schedules, or any other document, certificate or other instrument furnished or
to be furnished to Parent by or on behalf of the Company at or prior to the
Closing pursuant to this Agreement, contains or will contain any untrue
statement of a material fact, or omits to state any material fact necessary, in
light of the circumstances in which they were made, to make the statements
contained herein or therein not misleading. There is no event, fact or
condition that has had, or that reasonably could be expected to have, a Material
Adverse Effect on the Company, that has not been set forth in this Agreement or
the Schedules hereto.
2.20 Subsidiaries. The Company has no wholly owned or partially owned
------------
subsidiaries.
2.21 Brokers' Fees. Neither the Company nor any of the Stockholders has
-------------
retained any broker, finder or agent, or has any liability or obligation, nor
will either of them, or anyone on their behalf, incur any liability or
obligation, to pay any fees, commissions or similar payments to any broker,
finder or agent with respect to the transactions contemplated by this Agreement.
15
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGERSUB
Parent and Mergersub, jointly and severally, represent and warrant to the
Company as follows:
3.1 Organization and Good Standing. Each of Parent and it subsidiaries,
------------------------------
including Mergersub, is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction and has all
requisite power and authority to own, operate and/or lease its assets and the
other properties owned or used in its business (including, without limitation,
intangible property) and to conduct the operations of its business as presently
conducted.
3.2 Authority. Each of Parent and Mergersub has all requisite power and
---------
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the transactions contemplated thereby. The execution,
delivery and performance of the Transaction Documents, and the consummation of
the transactions contemplated thereby, have been duly and validly authorized by
all necessary corporate and stockholder action on the part of each of Parent and
Mergersub (as applicable). Each of the Transaction Documents to which Parent or
Mergersub is a party has been duly executed and delivered by such party and each
constitutes a valid and binding obligation of Parent and Mergersub, enforceable
against them in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law).
3.3 Capitalization. Immediately prior to the Effective Time, the
--------------
authorized capital stock of Parent consists of (a) 90,000,000 shares of common
stock, $0.001 par value, of which 26,380,673 shares are issued and outstanding,
and 10,000,000 shares of Preferred Stock, $0.001 par value, of which no shares
are designated or issued and outstanding. All of the issued and outstanding
shares of capital stock of Parent were issued in compliance with applicable
federal and state securities laws.
3.4 Effect of Agreement. Except for (i) the filing of the Merger Filing,
-------------------
(ii) such filings, consents, approvals as may be required under federal and
state securities laws, (iii) the filing with the Nasdaq National Market of an
application for listing of the Merger Shares, and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, could be expected to have a material adverse effect on Parent and its
subsidiaries, taken as a whole, the execution, delivery and performance of the
Transaction Documents to which Parent is a party do not and will not: (a)
conflict with the Certificate of Incorporation or Bylaws of Parent; (b) violate
any law or any rule or regulation of any governmental body or administrative
agency, or conflict with any judicial or administrative order or decree relating
to Parent or the Parent's assets, except for any such violations or conflicts
16
<PAGE>
which would not, individually or in the aggregate, have a material adverse
effect on Parent and its subsidiaries, taken as a whole, or impair the ability
of Parent to consummate the transactions contemplated by this Agreement; (c)
constitute a breach or default under any instrument, contract or other agreement
to which the Parent is party to which it or any of its assets or properties is
bound or subject; (d) create any security interest, mortgage, lien, claim, or
encumbrance of any kind on any of the Parent's assets; or (e) require any
consent, notice to or filing with any governmental authority or administrative
agency.
3.5 Litigation. There are no claims, actions, suits or investigations
----------
pending, or to the knowledge of Parent, threatened, against Parent that in the
aggregate could have a material adverse effect upon the transactions
contemplated hereby or Parent and its subsidiaries, taken as a whole.
3.6 Disclosure. No representation, warranty or statement made by Parent
----------
in this Agreement or the exhibits or schedules hereto or other written financial
information or schedule or any other instrument furnished or to be furnished to
the Company by or on behalf of Parent at or prior to Closing, pursuant to this
Agreement, contains or will contain any untrue statement of a material fact, or
omits to state any material fact necessary, in light of the circumstances in
which they were made, to make the statements contained herein or therein not
misleading. There is no event, fact or condition that has had, or that
reasonably could be expected to have, a Material Adverse Effect on the Parent or
its business that has not been disclosed to the Company.
3.7 Brokers' Fees. Parent has not retained any broker, finder or agent,
-------------
nor has any liability or obligation, nor will it, or anyone on its behalf, incur
any liability or obligation, to pay any fees, commissions or similar payments to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
3.8 Merger Shares. The shares of Parent Common Stock to be issued in
-------------
connection with the Merger, when delivered hereunder, will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances.
3.9 Financials; Books. The financial statements of Parent as filed with
-----------------
the Securities and Exchange Commission (a) are true complete and correct in all
material respects; (b) are in accordance with the books and records of the
Parent; and (c) present fairly, in all material respects, the assets,
liabilities and financial condition of the Parent as of the date thereof, and
the results of operations for the period then ending in conformity with
generally accepted accounting principles.
ARTICLE IV
COVENANTS
4.1 Conduct of Business. Between the date of this Agreement and the
-------------------
Effective Time, the Company and the Stockholders shall (other than pursuant to
the written consent of Parent):
17
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(a) Conduct the operations of the Company's business in the normal
and customary manner in the ordinary course of business;
(b) Maintain the Company Assets in good operating order, repair and
condition;
(c) Keep in full force and effect the insurance described in Section
2.15;
(d) Perform all of its obligations under all of the Company Contracts
and not amend any provision thereof other than amendments that involve a
commitment or expenditure, or revenue to the Company, of less than $500.00;
(e) Use its best efforts to preserve the Company's organization
intact and maintain its relationships with its employees, suppliers and
customers;
(f) Promptly advise Parent of any adverse change in the condition
(financial or otherwise) of the Company's business or the Company Business
Assets;
(g) Promptly advise Parent of the occurrence of any event or
circumstance which affects the consummation of the transactions
contemplated by this Agreement or which, if in existence on the date of
this Agreement, would have been required to have been disclosed in a
Schedule to this Agreement;
(h) Not create or permit to exist any security interest, mortgage,
lien, claim, or encumbrance of any kind with respect to any of the Company
Business Assets;
(i) Not sell or dispose of any of the Company Business Assets, except
in the ordinary course of business of the Company's business;
(j) Promptly advise Parent of any change in the list of employees
referred to in Section 2.16 or in the compensation payable to any such
employee;
(k) Not make any capital improvement or expenditure without the prior
consent of Parent, other than improvements or expenditures in the ordinary
course of business in amounts of less than $500.00; and
(l) Maintain and collect the Company Receivables and extend credit
terms to its customers in the ordinary course of business consistent with
past practices.
4.2 Access and Information. The Company and the Stockholders shall permit
----------------------
Parent and its counsel, accountants and other representatives full access during
normal business hours to all the properties, assets, books, records, agreements
and other documents of the Company. The Company shall furnish to Parent and its
representatives all information concerning the Company Business Assets or the
Company's business as Parent may request. The Company shall permit and
facilitate communications between Parent and the Company's suppliers, customers,
landlords and other persons having relationships with the Company's business.
18
<PAGE>
4.3 No Other Solicitations. Until the earlier of the Effective Time or
----------------------
the termination of this Agreement, the Company and the Stockholders shall not,
and the Company and the Stockholders shall use their best efforts to cause each
of their respective officers, directors, employees, representatives and agents
or affiliates of such officers, directors, employees, representatives and agents
not to, directly or indirectly, solicit, initiate or encourage any offer,
proposal or inquiry from, or engage in any discussions or negotiations with, any
person regarding the sale or lease of the capital stock of the Company, its
business, or any of the Company Business Assets. The Company shall immediately
notify Parent of, and shall disclose to Parent all details of, any inquiries,
discussions or negotiations of the nature described above.
4.4 Stockholders' Consent.
---------------------
(a) The Company shall, acting through its Board of Directors and in
accordance with the DGCL, as soon as practicable, obtain the affirmative vote at
a meeting of the Stockholders duly noticed and held or solicit and obtain
written consents of the required number of the Stockholders for the purpose of
adopting and approving this Agreement (including without limitation the matters
referred to in Section 1.8 and Article VII hereof) and the approval of the
Merger in accordance with the provisions of the Company Certificate of
Incorporation and the DGCL (the "Stockholders' Vote"). In connection with the
Stockholders' Vote, the Company, acting through its Board of Directors, shall
recommend that the Stockholders of the Company consent to the adoption of this
Agreement and the approval of the Merger, shall prepare and send any information
required to be provided to the Stockholders in accordance with applicable law
and not include in the materials sent to the Stockholders any false or
misleading statement or omit to state any fact required to be stated in order to
make the statements therein not false or misleading, and shall otherwise use its
best efforts to obtain the Stockholders' Vote and any other consents or
approvals from the Stockholders necessary to consummate the transactions
contemplated herein.
(b) Each of the Stockholders agrees to (i) vote all shares that are
beneficially owned by him or her, or for which he or she has voting authority,
in favor of the adoption of this Agreement and the approval of the Merger and
(ii) otherwise use his or her best efforts to obtain the Stockholders' Vote.
4.5 Agreements. The Company shall use all reasonable efforts to deliver
----------
to the Parent prior to the Closing Date all agreements of the Stockholders
required to be executed by them under this Agreement.
4.6 Further Assurances. From and after the Closing Date, the parties
------------------
shall take such steps and execute such documents, and instruments as may be
reasonably required to make effective the transactions contemplated hereby.
4.7 Confidentiality. In recognition of the confidential nature of certain
---------------
of the information which will be provided to any party by the other parties,
each of Parent, the Company and the Stockholders agrees to retain in confidence,
and to require its directors, officers, employees, consultants, professional
representatives and agents (collectively, its
19
<PAGE>
"Representatives") to retain in confidence all information transmitted or
disclosed to it by any other party, and further agrees that it shall not use for
its own benefit (other than in connection with the transactions contemplated by
this Agreement) and shall not use or disclose to any third party, or permit the
use or disclosure to any third party of, any information obtained from or
revealed by any other party, except that each of Parent, the Company and the
Stockholders may disclose the information to those of its Representatives who
need the information for the proper performance of their assigned duties with
respect to the consummation of the transactions contemplated hereby. In making
such information available to its Representatives, each of Parent, the Company
and the Stockholders shall take all precautions to ensure that its
Representatives use the information only as permitted hereby. Notwithstanding
anything to the contrary in the foregoing provisions, such information may be
disclosed: (a) where it is legally necessary, to any regulatory authorities or
governmental agencies; (b) if it is required by court order or decree or
applicable law; (c) if it is ascertainable or obtained from public or published
information; (d) if it is received from a third party not known to the recipient
to be under an obligation to keep such information confidential; or (e) if the
recipient can demonstrate that such information was in its possession prior to
disclosure thereof in connection with this Agreement. If any party is required
to make disclosure of any such information by operation of law, such disclosing
party will give the other parties prior notice of the making of such disclosure
and will use all reasonable efforts to afford such other parties an opportunity
to contest the making of such disclosure. In the event that the Closing does not
occur, each of Parent, the Company and the Stockholders shall immediately
deliver, or cause to be delivered, to the other (without retaining any copies
thereof) any and all documents, statements or other written information obtained
from the other that contain confidential information.
4.8 FIRPTA. The Company shall, prior to the Closing Date, provide Parent
------
with a properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") FIRPTA Notification Letter which states that shares of capital stock
of the Company do not constitute "United States real property interests" under
Section 897(c) of the Internal Revenue Code, as amended (the "Code"), for
purposes of satisfying Parent's obligations under Treasury Regulation Section
1.1445-2(c)(3). Further, the Company shall provide Parent a form of notice to
the Internal Revenue Service in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2), along with written authorization for Parent to
deliver such notice form to the Internal Revenue Service on behalf of the
Company upon the Closing of the Merger.
ARTICLE V
CONDITIONS PRECEDENT TO PARENT'S AND
MERGERSUB'S OBLIGATIONS
The obligations of Parent and Mergersub to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions on or before the Effective Time:
5.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Company and the Stockholders contained in this Agreement shall
have been true and correct on date of this Agreement and shall be true and
correct as of the Effective Time as though made on and as of the Effective Time,
and the Company and the Stockholders shall have duly
20
<PAGE>
performed and complied with all covenants and required by this Agreement to be
performed or complied with by it or them on or prior to the Closing.
5.2 Absence of Litigation. As of the Effective Time, no action or
---------------------
proceeding shall be pending or, in the reasonable opinion of the Company or the
Stockholders, threatened by or before any court or other governmental body or
agency seeking to restrain, prohibit or invalidate the transactions contemplated
by this Agreement or which would adversely affect the right of Parent to own,
operate or control the Company Business Assets or the Company's business after
the Effective Time.
5.3 Absence of Change. Between the date of this Agreement and the
-----------------
Effective Time, no adverse change shall have occurred in the business,
operations or financial or other condition of the Company, its business or the
Company Business Assets, nor shall there have occurred any casualty loss or
destruction of, or damage to, any of the Company Assets.
5.4 Consents and Approvals. All (a) the Company Required Consents, (b)
----------------------
licenses, (c) other orders or notifications of, or registrations, declarations
or filings with, or expiration of waiting periods imposed by, any applicable
governmental or judicial authority and (d) consents, approvals, authorizations
or notifications of any other third parties, all as required in connection with
consummation of the transactions contemplated by this Agreement, including the
operation of the Company's business by Parent, shall have been made or obtained
or shall have occurred.
5.5 Stockholders' Vote; Dissenting Shares. This Agreement and the Merger
-------------------------------------
shall have received the Stockholders' Vote and the number of Dissenting Shares
shall not exceed 2% of the number of outstanding shares of the Company Stock as
of the Effective Time.
5.6 Compliance Certificate. Each of the Company and the Stockholders
----------------------
shall have delivered to Parent and Mergersub a certificate (without
qualification as to knowledge or materiality or otherwise except as may be set
forth in the representations and warranties themselves) to the effect that each
of the conditions specified in Sections 5.1 through 5.5 is satisfied in all
respects.
5.7 Secretary's Certificate. The Company shall have delivered to Parent
-----------------------
and Mergersub a certificate of the Secretary of the Company, dated as of the
Effective Time, in form and substance reasonably satisfactory to Parent and
Mergersub, certifying (i) the names of its officers authorized to sign this
Agreement, the certificates and the other documents and instruments delivered
pursuant to this Agreement by the Company or any of its officers, together with
true signatures of such officers; (ii) that the copies of the Articles of
Incorporation and Bylaws of the Company attached thereto are true, correct and
complete; (iii) that the resolutions of the Board of Directors of the Company
attached thereto evidencing the approval of this Agreement and the transactions
contemplated herein were duly adopted, have not been amended or rescinded and
are in full force and effect; and (iv) that the resolutions of the Stockholders
attached thereto evidencing approval of the Agreement and the transactions
contemplated herein were duly adopted, have not been rescinded or amended and
are in full force and effect; (v) that notice of the action of the Stockholders,
if taken by written consent of fewer than all of the Stockholders, has been sent
to the remaining Stockholders in accordance with the applicable
21
<PAGE>
provisions of the DGCL; and (vi) that the number of Dissenting Shares does not
exceed two percent (2%) of the number of outstanding shares of the Company as of
the Effective Time.
5.8 Legal Opinion. Parent and Mergersub shall have received an opinion of
-------------
Cooley Godward LLP counsel to the Company, dated as of the Effective Time, in
the form of Exhibit B attached hereto.
---------
5.9 Inventions Agreements. Parent shall have received a Non-Disclosure
---------------------
and Invention Agreement in the form attached to the Employment Agreements, duly
executed by all employees of the Company.
5.10 Stockholder Investment Representation Letter. Parent shall have
--------------------------------------------
received a Stockholder Investment Representation Letter in the form of Exhibit C
---------
attached hereto, duly executed by each of the Stockholders.
5.11 Escrow Agreement. Parent shall have received the Escrow Agreement,
----------------
duly executed by the Stockholder Representative and each of the Stockholders.
5.12 Mergersub Stock Certificate. Parent shall have received a
---------------------------
certificate evidencing one (1) share of the Company Common Stock, dated the
Effective Time and issued in the name of Parent.
5.13 Resignations. The Parent shall have received resignations, duly
------------
executed, by all officers and directors of the Company, of their respective
positions with the Company, effective as of the Effective Time.
5.14 Stock Plans. Parent shall have received written evidence,
-----------
satisfactory to Parent, of the termination of all Stock Plans.
5.15 Employment / Consulting Agreements. Parent shall have received
----------------------------------
employment and/or consulting agreements in forms reasonably satisfactory to the
Parent (the "Employment Agreements"), duly executed by each of the Stockholders
and such other individuals as Parent may request.
5.16 Registration Rights Agreement. Parent shall have received a
-----------------------------
Registration Rights Agreement by and between the Parent and the Stockholders in
the form of Exhibit D attached hereto (the "Registration Rights Agreement"),
---------
duly executed by all of the Stockholders.
5.17 Stock Powers. Parent shall have received executed stock powers from
------------
each of the Stockholders with respect to the Escrowed Shares.
5.18 Surrendered Stock Certificates. Parent shall have received stock
------------------------------
certificates representing all the issued and outstanding Company Stock, duly
endorsed by the Stockholders.
5.19 Listing of Merger Shares. The Merger Shares shall have been approved
------------------------
for listing and quotation on the Nasdaq Stock Market.
22
<PAGE>
5.20 Securities Laws. Parent shall have received all federal or state
---------------
securities permits, approvals or other approvals necessary to issue shares of
Parent Common Stock pursuant to the Merger.
5.21 Relocation. Within sixty (60) days following the Closing, all
----------
activities and resources of the Company related to research and development and
technology shall be relocated to the offices of the Parent located in
Morrisville, North Carolina. The business development and other activities of
the Company shall remain in Washington, D.C. office of the Company.
5.22 Intellectual Property Ownership. The Company shall own, to the
-------------------------------
satisfaction of Parent in its sole discretion, of all intellectual property
developed by or for Company or its employees or consultants which is used in and
for the operation of Company's business, including without limitation,
www.scicentral.com web site (the "SciCentral Site"), the domain name
- ------------------
"scicentral.com" the SciCentral Site content, traffic and usage information, the
trademark "SCICENTRAL," (if applicable) all software necessary to run the
SciCentral Site, and any other proprietary information concerned with the
SciCentral Site or the business of SciCentral, and SciCentral shall acquire, or
shall have acquired, all necessary assignments and agreements in connection with
such ownership.
5.23 Other Documents. Parent shall have received such other agreements,
---------------
documents, and instruments as Parent has reasonably requested to effect and
evidence the consummation of the transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO THE COMPANY'S AND
THE STOCKHOLDERS' OBLIGATIONS
The obligations of the Company and the Stockholders to consummate the
transactions contemplated by this Agreement are subject to the satisfaction of
each of the following conditions on or before the Effective Time:
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Parent and Mergersub contained in this Agreement shall have been
true and correct on the date of this Agreement, and shall be true and correct as
if the Effective Time as though made on and as of the Effective Time, and Parent
and Mergersub shall have duly performed and complied with all covenants and
obligations required by this Agreement to be performed or complied with by it on
or before the Closing.
6.2 Compliance Certificate. Each of Parent and Mergersub shall have
----------------------
delivered to the Company a certificate (without qualification as to knowledge or
materiality or otherwise except as may be set forth in the representations and
warranties themselves) to the effect that each of the conditions specified in
Section 6.1 is satisfied in all respects.
23
<PAGE>
6.3 Absence of Litigation. As of the Effective Time, no action or
---------------------
proceeding shall be pending by or before any court or other governmental body or
agency seeking to restrain, prohibit or invalidate the transactions contemplated
by this Agreement.
6.4 Secretary's Certificates. The Company shall have received a
------------------------
certificate of the Secretary of each of the Parent and Mergersub, dated as of
the Effective Time, in form and substance reasonably satisfactory to the
Company, certifying (i) the names of its officers authorized to sign this
Agreement, the certificates and the other documents and instruments delivered
pursuant to this Agreement by Parent or Mergersub, as the case may be, or any of
its officers, together with true signatures of such officers; (ii) that the
copies of the Certificate of Incorporation and Bylaws attached thereto are true,
correct and complete; and (iii) that the resolutions of the Board of Directors
attached thereto evidencing the approval of this Agreement and the transactions
contemplated herein were duly adopted, have not been amended or rescinded and
are in full force and effect.
6.5 Legal Opinion. The Company shall have received an opinion of
-------------
Hutchison & Mason PLLC, counsel to Parent, dated as of the Effective Time, in
the form of EXHIBIT E attached hereto.
---------
6.6 Escrow Agreement. The Company shall have received the Escrow
----------------
Agreement, duly executed by the Parent and the Escrow Agent.
6.7 Employment Agreements. The Company shall have received the
---------------------
Compensation Agreements, duly executed by Parent.
6.8 Stockholder Agreements. The Company shall have received the
----------------------
Stockholder Agreements, duly executed by Parent.
6.9 Registration Rights Agreement. The Company shall have received the
-----------------------------
Registration Rights Agreement, duly executed by Parent.
6.10 Other Documents. The Company shall have received such other
---------------
agreements, documents, and instruments as the Company has reasonably requested
to effect and evidence the consummation of the transactions contemplated by the
Agreement.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. The Stockholders, jointly and severally, shall, up
---------------
to the number of the Escrowed Shares, indemnify the Surviving Corporation and
the Parent (the "Indemnified Persons") in respect of, and hold the Indemnified
Persons harmless against, any and all debts, obligations and other liabilities,
monetary damages, fines, fees, penalties, interest obligations, deficiencies,
losses and expenses (including without limitation amounts paid in settlement,
interest, court costs, costs of investigators, reasonable fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) incurred or
24
<PAGE>
suffered by the Indemnified Persons ("Damages"), provided, however, no
indemnification shall be payable by the Stockholders with respect to any claim
for indemnification of Damages pursuant to this Section 7.1 until the cumulative
amount of all such Damages exceeds $10,000 in the aggregate, whereupon the
entire aggregate amount of Damages shall become payable; provided, however, such
threshold shall not apply to any willful or intentional breach or any act of
fraud by a Stockholder:
(i) resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company or the Stockholders contained in this Agreement or the
certificate delivered pursuant to Section 5.6; or
(ii) resulting from any failure of any of the Stockholders to have
good, valid and marketable title to the issued and outstanding the Company Stock
held by any such Stockholder, free and clear of all liens, claims, pledges,
options, adverse claims or charges of any nature whatsoever; or
(iii) resulting from any claim by a Stockholder or former security
holder of the Company, or any other person, firm, corporation or entity, seeking
to assert, or based upon: (A) ownership or a right to ownership of any shares
of capital stock of the Company which is claimed to have arisen prior to the
Effective Time; (B) any rights of a Stockholder of the Company (other than the
right to receive the Merger Consideration pursuant to this Agreement or
appraisal rights under the applicable provisions of the DGCL), including,
without limitation, rights with respect to any option, preemptive rights or
rights to notice or to vote, in each case with respect to capital stock of the
Company owned or claimed to have been owned prior to the Effective Time; (C) any
rights under the Certificate of Incorporation or Bylaws of the Company as in
effect at any time prior to the Effective Time; or (D) any claim that his, her
or its shares of the Company were wrongfully repurchased by the Company prior to
the Effective Time.
7.2 Method of Asserting Claims.
--------------------------
(a) All claims for indemnification ("Claims") by an Indemnified
Person pursuant to this Article VII shall be made in accordance with the
provisions of this Agreement and the Escrow Agreement.
(b) If a third party asserts that an Indemnified Person is liable to
such third party for a monetary or other obligation which may constitute or
result in Damages for which such Indemnified Person may be entitled to
indemnification pursuant to this Article VII, and such Indemnified Person
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Person shall be entitled to satisfy such
obligation, without prior notice to or consent from the Stockholder
Representative, (ii) such Indemnified Person may make a Claim for
indemnification pursuant to this Article VII in accordance with the provisions
of the Escrow Agreement (if applicable) and this Article VII, and (iii) such
Indemnified Person shall be reimbursed in accordance with the provisions of the
Escrow Agreement (if applicable) and this Article VII, for any such Damages for
which it is entitled to indemnification pursuant to this Article VII (subject to
the right of the Stockholder Representative to dispute the Indemnified
25
<PAGE>
Person's entitlement to indemnification under the terms of the Escrow Agreement
(if applicable) and this Article VII.
(c) The Indemnified Person shall give prompt written notification to
the Stockholder Representative of the commencement of any action, suit or
proceeding relating to a third party claim for which indemnification pursuant to
this Article VII may be sought; provided, however, that no delay on the part of
the Indemnified Person in notifying the Stockholder Representative shall relieve
the Stockholders of any liability or obligation hereunder except to the extent
of any damage or liability caused by or arising out of such failure. Within
thirty (30) days after delivery of such notification, the Stockholder
Representative may, upon written notice thereof to the Indemnified Person,
assume control of the defense of such action, suit or proceeding provided the
Stockholder Representative acknowledges in writing to the Indemnified Person
that any damages, fines, costs or other liabilities that may be assessed against
the Indemnified Person in connection with such action, suit or proceeding
constitute Damages for which the Indemnified Person shall be entitled to
indemnification pursuant to this Article VII. If the Stockholder Representative
does not so assume control of such defense, the Indemnified Person shall control
such defense. The party not controlling such defense may participate therein at
its own expense; provided that if the Stockholder Representative assumes control
of such defense and the Indemnified Person reasonably concludes that the
indemnifying parties and the Indemnified Person have conflicting interests or
different defenses available with respect to such action, suit or proceeding,
the reasonable fees and expenses of counsel to the Indemnified Person shall be
considered "Damages" for purposes of this Agreement. The party controlling such
defense shall keep the other party advised of the status of such action, suit or
proceeding and the defense thereof. The Indemnified Person shall not agree to
any settlement of such action, suit or proceeding without the prior written
consent of the Stockholder Representative, which shall not be unreasonably
withheld. The Stockholder Representative shall not agree to any settlement of
such action, suit or proceeding without the prior written consent of the
Indemnified Person, which shall not be unreasonably withheld.
7.3 Satisfaction and Treatment of Indemnity Payments. In the event that
------------------------------------------------
the Stockholders are required to provide indemnification hereunder to the
Indemnified Persons, such indemnification obligations shall be satisfied
initially by the delivery of shares of Parent Common Stock held in the Escrow
(with each share for this purpose valued at the Average Stock Price in
accordance with the terms of this Agreement and the Escrow Agreement. Any
payment so made to an Indemnified Person pursuant to this Article VII or the
Escrow Agreement shall be treated as a reduction in the Merger Consideration.
7.4 Limitation. Notwithstanding anything to the contrary herein, with
----------
respect to Claims other than claims based on fraud or willful misrepresentation,
for which the liability of the Stockholders shall not be limited in amount or to
the Escrow, the sole and exclusive remedy for Indemnification Claims by the
Parent or Mergersub under this Article VII is the number of Escrowed Shares held
pursuant to the Escrow Agreement. No Stockholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach by the Company of any of the representations, warranties, covenants
or agreements.
26
<PAGE>
ARTICLE VIII
COVENANTS OF STOCKHOLDERS
8.1 Covenant Against Competition.
-----------------------------
(a) In order to induce the Parent to enter into this Agreement and
consummate the Merger as provided therein, each of the Stockholders agrees that,
except as otherwise set forth on Schedule 8.1, for a period of two (2) years
beginning on the Closing Date and ending at 12:01 a.m. on the day following the
second anniversary thereof, neither such Stockholder nor any business entity
directly or indirectly owned or controlled by such Stockholder shall, without
the prior written consent of the Parent, for their own account or jointly with
another, directly or indirectly, for or on behalf of any individual,
partnership, corporation or other legal entity, as principal, agent, director,
employee, agent, consultant, member of a partnership, firm, corporation or other
entity, or as a holder of or investor in as much as 5% of any security of any
class of any corporation or other business:
(i) engage in, consult with, assist in the promotion or
development of, or own, control, manage or otherwise participate in the
ownership, control or management of any business other than the business of the
Parent or the Company engaged in (i) the provision of distribution, auction
and/or buyers' guide services or information for the scientific and/or medical
products market through any electric commerce medium, including, without
limitation, the Internet, any private computer network or otherwise (for the
purposes of this Section 8.1, the term "scientific and/or medical products
market" shall mean any and all materials and supplies now and hereafter marketed
by Parent primarily for use in scientific laboratory research or provision of
medical services and shall not include products that are market for other
purposes, solely because they may also be used in scientific laboratory research
or provision of medical services), or (ii) the development, maintenance,
integration and customization of software and World Wide Web sites for the
provision of such services (the "Business"); or
(ii) solicit, call upon, or attempt to solicit, or encourage or
cause others to solicit, call upon or attempt to solicit, the patronage of any
Customers (as defined herein), for the purpose of obtaining the patronage of any
such Customer for the purchase of any products or services comparable to the
products or services of the Business from anyone other than Parent or the
Company; or otherwise interfere, or seek to interfere or encourage or cause
others to interfere or seek to interfere, with the relationship between Parent
or the Company, or any affiliate of Parent or the Company, and any Customer or
supplier of the Company existing at Closing, at any time within the two (2)
years preceding the Closing or the two (2) years following the Closing; or
(iii) solicit or induce, or in any manner attempt to solicit or
induce or encourage or cause others to solicit or induce, any officer or
employee to leave his or her employment with Parent or the Company, or any
affiliate of Parent or the Company, whether or not such employment is pursuant
to a written contract or otherwise, or hire or in any other manner interfere, or
attempt to interfere, with the relationship between Parent or the Company, or
any affiliate of Parent or the Company, and any such officer or employee.
27
<PAGE>
(b) For purposes of this Section 8.1, "Customer" shall mean any
individual, partnership, corporation or other entity to whom the Parent or the
Company sold or distributed or attempted to sell or otherwise distribute any
products or services of the Business (as defined herein) during the two (2) year
period immediately preceding the Closing Date, or sells or attempts to sell or
otherwise distributes any products or services of the Business (as defined
herein) during the two (2) year period following the Closing.
(c) Each of the Stockholders agrees that neither such Stockholder nor
any business entity directly or indirectly owned or controlled by such
Stockholder shall, without the prior written consent of the Parent, for such
Stockholder's own account or jointly with another, directly or indirectly, for
or on behalf of any individual, partnership, corporation or other entity, as
principal, agent or otherwise, use or authorize any other person to use the name
"[ABC]" or "SciCentral," or any name similar thereto, in connection with a
business which competes with the Business.
(d) Notwithstanding anything herein to the contrary, it shall not be
a breach of the covenants contained in this Section 8.1 for each of the
Stockholders, or any business entity directly or indirectly owned or controlled
by such Stockholder, to own not more than five percent (5%) of the capital stock
of any corporation whose shares are publicly traded.
8.2 Reasonableness of Restrictions. Each of the Stockholders has
-------------------------------
carefully read and considered the provisions of Section 8.1 and, having done so,
agrees that the restrictions set forth therein are fair and reasonable, do not
unfairly restrict or penalize such Stockholder and are reasonably required for
the protection of the interests of Parent and the Company in consummating the
transactions contemplated in this Agreement. In the event that, notwithstanding
the foregoing, any of the covenants set forth in Section 8.1 hereof shall be
deemed to be too restrictive in any court proceeding, the parties agree that the
court may reduce such restrictions to ones which it deems reasonable under the
circumstances.
8.3 Relocation. The Stockholders agree that within sixty (60) days
----------
following the Closing, all activities and resources of the Company related to
research and development and technology shall be relocated to the offices of the
Parent located in Morrisville, North Carolina. The business development and
other activities of the Company shall remain in Washington, D.C. office of the
Company.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time:
(a) By the mutual written consent of all of the parties to this
Agreement;
28
<PAGE>
(b) By Parent (if it is not then in breach of any term of this
Agreement), if the Company or the Stockholders: (i) fail(s) to perform in any
material respect their agreements contained herein required to be performed on
or prior to the Effective Time, or (ii) materially breaches any of their
representations or warranties contained herein, which failure or breach is not
cured within ten (10) days after Parent shall have notified the Company and the
Stockholders of its intent to terminate this Agreement pursuant to this
subparagraph;
(c) By the Company or the Stockholders (if they are not then in
breach of any term of this Agreement), if Parent: (i) fails to perform in any
material respect its agreements contained herein required to be performed on or
prior to the Effective Time, or (ii) materially breaches any of its
representations or warranties contained herein, which failure or breach is not
cured within ten (10) days after the Company and the Stockholders have notified
Parent of their intent to terminate this Agreement pursuant to this
subparagraph;
(d) By any of the parties, if there is any order, writ, injunction or
decree of any court or governmental or regulatory agency binding on such party
which prohibits or restrains such party from consummating the transactions
contemplated hereby; or
(e) By either the Parent or the Company, if the requisite
Stockholders' Vote is not obtained; or
(f) By any of the parties, if the Closing has not occurred by
February 28, 2000, for any reason other than delay or nonperformance of the
party seeking such termination; or
(g) By the Company or the Stockholders, if the value of the Merger
Shares at Closing, based on the Average Stock Price, is less than $2,000,000; or
(h) By the Parent, if the value of the Merger Shares at Closing,
based on the Average Stock Price, is greater than $4,000,000.
9.2 Effect on Obligations. Termination of this Agreement pursuant to this
---------------------
Article VIII shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 10.1 (with respect to expenses), 10.3 (with
respect to publicity), and 4.7 (with respect to confidentiality); provided,
however, that termination pursuant to subparagraphs (b) or (c) of Section 9.1
hereof shall not relieve the defaulting or breaching party from any liability to
the other parties hereto, subject to the limitation in Section 7.4.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, whether or not the Merger is consummated; provided,
--------
however, that if the Merger is consummated, the reasonable legal fees and
- -------
expenses incurred by the Company which are solely and directly related to the
Merger, up to a maximum of $17,500, shall be paid by Parent; any additional
legal fees and expenses in excess of $17,500, and any investment banking,
accounting and other out-
29
<PAGE>
of-pocket fees and expenses incurred by the Company and all other expenses of
the Company or the Stockholders of any kind shall be paid directly by the
Stockholders, and neither the Parent nor the Surviving Corporation shall have
any liability or obligation therefor.
10.2 Survival of Representations and Covenants. The representations,
-----------------------------------------
warranties and covenants of the Company, the Parent and the Stockholders set
forth in this Agreement (the "Representations") shall survive the Closing and
the consummation of the transactions contemplated by this Agreement and continue
until twenty-four months following the Effective Time (the "Termination Date").
If notice of a Claim is given in accordance with the Escrow Agreement or Article
VII before the Termination Date, then the Representation applicable to such
Claim shall survive until, but only for purposes of, the resolution of such
Claim. Notwithstanding the foregoing, with respect to any Claims for
indemnification based on, arising from, resulting from or related to fraud or
willful misrepresentation, the Representations shall survive the Termination
Date and shall remain in force and effect for the duration of the applicable
statute of limitations. All representations and warranties of Parent or
Mergersub contained in this Agreement shall terminate as of the Effective Time.
All covenants and other agreements of Parent shall survive the Closing until
fulfilled or waived.
10.3 Publicity. No party to this Agreement shall issue any press release
---------
or make any public disclosure relating to the subject matter of this Agreement
or the terms hereof or the existence of this Agreement without the prior written
approval of the Parent. Any press releases or other announcements concerning
the transactions contemplated by this Agreement shall be approved by the Parent
in writing prior to their issuance.
10.4 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two (2)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, one (1) business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to the Company: Copy to:
------------------ -------
SciCentral.com, Inc. Cooley Godward LLP
1125 N. Utah Street 2002 Edmund Halley Dr., Suite 303
Chevy Chase, MD 20815 Reston, VA 20191-3436
Attn: Cloyd Laporte III Attn: Michael Lincoln, Esq.
If to the Parent: Copy to:
----------------- --------
SciQuest.com, Inc. Hutchison & Mason PLLC
5151 McCrimmon Parkway, Suite 208 3110 Edwards Mill Road, Suite 100
Morrisville, North Carolina 27560 Raleigh, North Carolina 27612
Attn: Peyton C. Anderson Attn: Helga L. Leftwich
30
<PAGE>
If to Mergersub: Copy to:
--------------- -------
SciCentral Acquisition Subsidiary, Inc. Hutchison & Mason PLLC
5151 McCrimmon Parkway, Suite 208 3110 Edwards Mill Road, Suite 100
Morrisville, North Carolina 27560 Raleigh, North Carolina 27612
Attn: Peyton C. Anderson Attn: Helga L. Leftwich
Any party to this Agreement may give any notice, request, demand, claim, or
other communication hereunder using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner set forth in this Agreement.
10.5 Tax Matters. Although the parties acknowledge and agree that the
-----------
Merger is intended to qualify as a "tax free" exchange under Section 368 of the
Code, all parties to this Agreement acknowledge and agree that no representation
or warranty has been or is being made by Parent to any party or by Parent's
officers, employees, agents, accountants or attorneys, with respect to the
federal income or other tax consequences of the transactions contemplated by
this Agreement and the Merger or that such transactions are or will be "tax
free".
10.6 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of North Carolina applicable to agreements made and to be performed
entirely within such state.
10.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any of the parties hereto
without the prior written consent of all other parties hereto, and any purported
assignment without such consent shall be void.
10.9 Headings. The Article and Section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement.
10.10 Amendments. Any waiver, amendment, modification or supplement of or
----------
to any term or condition of this Agreement shall be effective only if in writing
and signed by a majority in interest of the Stockholders and by all parties
hereto, and the parties hereto waive the right to amend the provisions of this
Section orally. Any amendment effected subsequent to the Stockholders' Consent
shall be subject to the restrictions contained in the Delaware General
Corporation Law. No waiver of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or
31
<PAGE>
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
10.11 Severability. In the event that any provision in this Agreement
------------
shall be determined to be invalid, illegal or unenforceable in any respect, the
remaining provisions of this Agreement shall not be in any way impaired, and the
illegal, invalid or unenforceable provision shall be fully severed from this
Agreement and there shall be automatically added in lieu thereof a provision as
similar in terms and intent to such severed provision as may be legal, valid and
enforceable.
10.12 Entire Agreement. This Agreement, and the Schedules and Exhibits
----------------
hereto, constitute the entire Agreement between the parties hereto pertaining to
the subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings between the parties with respect to such subject
matter.
10.12 Risk of Loss. The risk of loss, damage or condemnation of any of the
------------
the Company Business Assets from any cause whatsoever shall be borne by the
Company at all times prior to the Effective Time.
10.13 Best Efforts. Each party agrees to use its best efforts to satisfy
------------
the conditions to the Closing set forth in this Agreement and otherwise to
consummate the transactions contemplated by this Agreement.
10.14 Letter of Intent. This Agreement supersedes and replaces the letter
----------------
agreement between the Parent and the Company dated January 4, 2000, which shall
be of no further force and effect.
10.15 Company Enhancement. Parent agrees to consult with Company regarding
-------------------
the allocation of adequate resources to the continuing development and
enhancement of the community aspects of the SciCentral site with the actual
commitment of resources by Parent to be determined at the sole discretion of
Parent.
[Remainder of this page intentionally left blank]
32
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its duly authorized officer as of the date first above written.
PARENT:
SCIQUEST.COM, INC.
By:_____________________________
Peyton C. Anderson
Vice President
MERGERSUB:
SCICENTRAL ACQUISITION SUBSIDIARY,
INC.
By:_____________________________
__________________
Secretary
33
<PAGE>
THE COMPANY:
SCICENTRAL.COM, INC.
By:_________________________________
Cloyd Laporte III
President
STOCKHOLDERS:
____________________________________
Ellen S. Uffen
____________________________________
Robert Uffen
____________________________________
Guy Orgambide
____________________________________
Janeen Malco
____________________________________
Jerry Malco
____________________________________
Mario Cardullo
____________________________________
Karen Cardullo
____________________________________
Cloyd Laporte III
34
<PAGE>
SCHEDULE 8.1
Specific Provisions for Employment, Consulting and Non-competition Agreements
I. Statement of Work (SOW)
Guy Orgambide
Director, Scientific Community
1. Continue to operate and manage the SciCentral website, exclusive of the
Travel and Education sections, until these activities are transitioned to
other responsible parties. This includes reviewing scientific articles,
managing site content, developing the weekly newsletter, and performing
link maintenance checking.
2. Provide support in transitioning any or all of the responsibilities listed
in Item 1 above to other responsible parties. This may include documenting
processes, training staff members, responding to questions from staff
regarding site operations, and verifying that the site maintenance
functions are being performed accurately and in a timely manner.
3. Provide support in updating the K-12 and Travel portions of the SciCentral
site, which will include site updates of those sections based on content
received from other SciCentral or Parent staff.
4. Maintain and develop data capture programs to monitor usage statistics and
other community metrics. Assist in producing reports to management that
match usage statistics and metrics against community objectives.
5. Identify, interview, and recruit industry experts to participate in
community programs.
6. Participate in the development of marketing communications and promotions
related to the development of community programs.
7. Assist Parent IT staff in implementing a database structure to replace the
current static HTML-based architecture.
Dr. Robert Uffen
Director, Science Education and Outreach
1. Develop a business plan for an affiliate marketing program for trade
associations representing the scientific community.
2. Develop a business plan for the educational initiative related to the
design of a research oriented intranet for the UMBI program.
35
<PAGE>
3. Develop a business plan for the design of an education-based intranet site
connecting teachers, universities, and other organizations related to the
Houston Independent School District.
4. Provide on-going support in the maintenance of the SciCentral site, until
such activities are transferred to other responsible parties.
Ellen Uffen
Consultant
1. Provide assistance in the development and implementation of a foundation
established to promote educational initiatives related to scientific
endeavors.
2. Continue to operate and manage the Travel and K-12 Educational sections of
the SciCentral website, until these activities are transitioned to other
responsible parties. This includes reviewing articles, developing and
managing site content, and reviewing and verifying content presentation.
Mario Cardullo
Consultant
1. Provide assistance in the development of business cases and plans for the
UMBI and Houston Independent School District educational initiatives.
Produce a deliverable describing the scope of the business opportunity, the
potential size of the opportunity, the resources and costs required to
achieve success, the revenue and/or other benefit to Parent that would
result from pursuing the opportunity, and the risks associated with the
project.
Cloyd Laporte
Consultant
1. Provide assistance in the development of business cases and plans for the
creation of: 1) an affiliate marketing program for trade associations
related to the scientific community, and, 2) for the development of
collaborative web sites for scientific tools. Produce a deliverable
describing the scope of the business opportunities, the potential size of
the opportunity, the resources and costs required to achieve success, the
revenue and/or other benefit to Parent that would result from pursuing the
opportunity, and the risks associated with the projects.
36
<PAGE>
II. Non-competition carve-outs
Mario Cardullo
- --------------
1. Activities related to the sale of scholastic textbooks and related
teaching notes through an entity currently called Scibooks.com
2. Activities related to the costing of aircraft carrier technologies for
the US Navy
37
<PAGE>
EXHIBIT 10.28
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of this 2nd day of February, 2000, by and among SciQuest.com, Inc., a
Delaware corporation (the "Company"), and the undersigned holders of Common
Stock of the Company, (individually, a "Holder" and collectively, the
"Holders").
WHEREAS, pursuant to the terms of the Merger Agreement, dated February 2,
2000, by and among the Company, SciCentral Acquisition Subsidiary, Inc., a
Delaware corporation, and SciCentral.com, Inc., a Delaware corporation, the
Holders are acquiring an aggregate of 40,000 shares (the "Shares") of the
Company's Common Stock, $0.001 par value per share (the "Common Stock"); and
WHEREAS, the Company has agreed to provide the Holders with certain rights
relating to the registration and sale of the Shares.
NOW, THEREFORE, in consideration of the covenants and promises contained
herein, the parties agree as follows:
ARTICLE 1 - REGISTRATION RIGHTS
-------------------------------
1.1 Definitions. For purposes of this Article 1, the following terms
-----------
shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute enacted hereafter, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
(b) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Act.
(c) "Common Stock" shall mean the Common Stock, $0.001 par value per
share, of the Company.
(d) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the Commission.
(e) "Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Shares and (ii) any other shares of Common
Stock issued in respect of the Shares (on account of stock splits, stock
dividends, reclassifications, recapitalizations or similar events); provided,
--------
however, that shares of Common Stock which are Registrable Shares shall cease to
- -------
be Registrable Shares (i) upon any sale pursuant to a Registration Statement or
Rule 144 under the Act, (ii) upon any sale in any manner to a person or entity
which, by virtue of Section
<PAGE>
1.10 of this Agreement, is not entitled to the rights provided by this
Agreement, or (iii) with respect to each Holder, at such time as such Holder's
Registrable Securities may be sold pursuant to Rule 144 without holding period
or volume limitations.
1.2 Piggyback Registration. Subject to Section 1.8 of this Agreement, if
----------------------
at any time the Company proposes to register any of its securities under the
Act, either for its own account or for the account of others, in connection with
the public offering of such securities solely for cash, on a registration form
that would also allow the registration of the Registrable Securities, the
Company shall, each such time, promptly give each Holder written notice of such
proposed registration. This provision shall not apply to a registration solely
of securities issued or issuable in connection with any stock option plan or
other employee benefit plan or in connection with a merger or acquisition. Upon
receipt by the Company of the written request of any Holder given within twenty
(20) days after mailing of any such notice by the Company, the Company shall use
its best efforts to cause to be included in such registration under the Act all
the Registrable Securities that each such Holder has requested be registered.
1.3 Obligations of the Company. Whenever required under this Agreement to
--------------------------
use its best efforts to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement covering
such Registrable Securities and use its best efforts to cause such registration
statement to be declared effective by the Commission as expeditiously as
possible and to keep such registration effective until the earlier of (i) the
date when all Registrable Securities covered by the registration statement have
been sold or (ii) 180 days from the effective date of the registration
statement.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
1.3(a) and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement, and cause
the prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed with the Commission pursuant to Rule 424 under the
Act.
(c) Furnish to the selling Holders such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), and each
supplement thereto as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the Registrable
Securities under the securities laws of such jurisdictions in which the Company
shall also register securities to be sold by the Company pursuant to the same
registration under the Act.
(e) Promptly notify each selling Holder of such Registrable Securities at
any time when a prospectus relating thereto is required to be delivered under
the Act of the happening of
2
<PAGE>
any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading and, at the request of
any such Holder, the Company will prepare promptly a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading.
(f) Provide a transfer agent for all such Registrable Securities not later
than the effective date of such registration statement.
(g) Enter into underwriting agreements and related agreements in customary
form for any primary offering.
(h) Promptly notify the selling Holders of Registrable Securities and the
underwriters, if any, of the following events and (if requested by any such
person) confirm such notification in writing: (1) the filing of the prospectus
or any prospectus supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the effectiveness of
such documents, (2) any requests by the Commission for amendments or supplements
to the registration statement or the prospectus or for additional information,
(3) the issuance of any stop order suspending the effectiveness of the
registration statement, and (4) the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction.
(i) Whenever any provision of this Agreement requires the Company to
furnish any information to the Holders or the agents or representatives of the
Holders, the Company may require any such person or entity to execute and
deliver a reasonable confidentiality agreement, agreement to refrain from
trading or any other agreement necessary or prudent to protect the Company or
its officers, directors and employees against insider trading liabilities and
may restrict access to confidential trade secret information.
1.4 Furnish Information. In the event of any registration by the Company,
-------------------
the Holders shall furnish to the Company such information regarding them, the
Registrable Securities and other securities of the Company held by them, and the
intended method of disposition of such Registrable Securities as the Company
shall reasonably request and as shall be required in connection with the action
to be taken by the Company. It shall be a condition precedent to the obligation
of the Company to include any Registrable Securities of an Holder in a
registration effected pursuant to this Agreement for such Holder to have
provided the Company with such written information regarding the registration of
such Registrable Securities as the Company shall reasonably request.
1.5 Suspension of Disposition of Registrable Securities. Each selling
---------------------------------------------------
Holder of Registrable Securities agrees by acquisition of such Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section
3
<PAGE>
1.3(e) or 1.3(h)(2), 1.3(h)(3) or 1.3(h)(4) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities until such Holder's receipt of
copies of a supplemented or amended prospectus contemplated by Section 1.3(e)
hereof, or until it is advised in writing by the Company that the use of the
prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus, or
in the case of Section 1.3(h)(2), 1.3(h)(3) or 1.3(h)(4), until the Company
notifies the Holder in writing that sales of Registrable Securities may
continue. If so directed by the Company, such Holder will deliver to the Company
(at the expense of the Company) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
1.6 Expenses of Registration.
------------------------
The Holders shall bear the fees and expenses of their own counsel and shall
bear any additional registration and qualification fees and expenses (including
underwriters' discounts and commissions and transfer taxes), and any additional
costs and disbursements of counsel for the Company that result solely from the
inclusion of Registrable Securities held by the Holders in such registration,
with such additional expenses of the registration being borne by all selling
Holders pro rata on the basis of the total number of Registrable Securities so
registered; provided, however, that if any such cost or expense is attributable
solely to one selling Holder and does not constitute a normal cost or expense of
a registration, such cost or expense shall be allocated solely to that selling
Holder. All other expenses of such registrations shall be borne by the Company.
1.7 Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall have the right to select the investment banker(s)
and/or manager(s) to administer any offering to which this Agreement is
applicable. If a registration is an underwritten registration, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold at the desired price in such offering, the Company will
include in such registration (i) first, securities the Company proposes to sell,
(ii) second, the securities requested to be included therein by holders of
securities with contractual registration rights that are senior to those of the
Holders, pro rata among the holders of such securities on the basis of the
number of shares requested to be included therein, (iii) third, the securities
requested to be included therein by Holders and by the holders of securities
with contractual registration rights that are in parity with the rights of the
Holders, pro rata among such Holders and other holders on the basis of the
number of shares requested to be included therein, and (iv) fourth, other
securities requested to be included in such registration, including securities
to be sold by holders without contractual registration rights.
(b) No Holder may participate in any underwritten registration hereunder
unless such Holder (i) agrees to sell such Holder's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (ii)
4
<PAGE>
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
1.8 Limitation of the Company's Obligations.
---------------------------------------
(a) The Company may, in its sole discretion, postpone or withdraw any
registration in which Registrable Securities have been included pursuant to this
Agreement without obligation to the Holders.
(b) The Company shall not be obligated under this Agreement to register or
include in any registration Registrable Securities that any Holder has requested
to be registered if the Company shall furnish such Holder with a written opinion
of counsel reasonably satisfactory to such Holder, that all Registrable
Securities that such Holder holds may be publicly offered, sold and distributed
without registration under the Act pursuant to Rule 144 promulgated by the
Commission under the Act in any three-month period without restriction as to the
amount of securities that can be sold.
(c) The Company may, in its sole discretion, grant to any owner of
securities of the Company registration rights of any kind or nature.
1.9 Lock-up Agreement. For so long as a Holder has the right to have
-----------------
Registrable Securities included in any registration pursuant to this Agreement,
the Holder agrees in connection with any registration of the Company's
securities, upon the request of the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of,
pledge, grant any option for the purchase of or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, during the seven (7) days prior to and during the 180-day period beginning
on the effective date of such registration, as the Company or the underwriters
may specify. This provision shall apply whether or not any Registrable
Securities of the Holder are included in the offering.
1.10 Transfer of Registration Rights. Provided that the Company is given
-------------------------------
written notice by the Holder at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being assigned and such transferee agrees in
writing to be bound by the terms of this Agreement, the registration rights
under this Agreement may be transferred in whole or in part at any time to any
transferee of Registrable Securities. Upon such transfer, the transferee shall
be deemed to be a Holder for all purposes hereunder.
1.11 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify and hold harmless each Holder whose Registrable Securities are
included in a
5
<PAGE>
registration, each director, officer, partner, employee, or agent for such
Holder, any underwriter (as defined in the Act) for such Holder, and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several,
to which they may become subject under the Act and applicable state securities
laws insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein in light of the circumstances under which they were made or
necessary to make the statements therein not misleading or arise out of any
violation by the Company of any rule or regulation promulgated under the Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration; and will reimburse each such
person or entity for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld) nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in connection with such registration
statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by or on behalf
of any such Holder, underwriter or controlling person.
(b) To the fullest extent permitted by law, each Holder whose Registrable
Securities are included in a registration under this Agreement, severally and
not jointly, will, and hereby does, indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act, and any underwriter for the Company (within the meaning of the Act),
each other selling Holder and each person, if any, who controls such other
selling Holder or underwriter within the meaning of the Act against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer, controlling person, selling Holder or underwriter may
become subject, under the Act and applicable state securities laws, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such registration statement, preliminary or final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such
6
<PAGE>
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, selling Holder or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld).
In no event shall the liability by reason of this contractual indemnity of
any selling Holder hereunder be greater than the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. Any Holder required to indemnify the Company
as provided above shall cease to have the right to participate in any other
registration pursuant to this Agreement.
(c) In order to provide for just and equitable contribution to joint
liability under the Act in circumstances in which the indemnity provisions
provided for in this section are for any reason held to be unavailable to the
indemnified parties although applicable in accordance with its terms; then, in
each such case, the Company and such Holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportions as shall be appropriate to reflect
the relative fault of the Company, on the one hand, and the Holder, on the other
hand, with such relative fault determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holder, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
-------- -------
Holder will be required to contribute any amount in excess of the proceeds to it
of all Registrable Securities sold by it pursuant to such registration
statement, and (B) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
ARTICLE 2 - MISCELLANEOUS
-------------------------
2.1 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given, by
written consent of the Company and the Holders of at least sixty percent (60%)
of the outstanding Registrable Securities; provided, that this Agreement may be
--------
amended with the consent of the holders of less than all Registrable Securities
only in a manner which affects all Registration Securities in the same fashion.
No waivers of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.
7
<PAGE>
2.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
2.3 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
2.4 Notices. All notices required or permitted to be sent shall be sent
-------
to the addresses of the parties set forth on their respective signature pages,
or to such other address as any party shall provide to the other parties in a
notice sent in accordance with this Agreement. Any notice sent by registered or
certified mail, return receipt requested, or by Federal Express or other
reputable nationwide overnight delivery service, shall be deemed to have been
received by the party to whom it was sent upon receipt of confirmation of
delivery if sent by registered or certified mail and one day following the date
it was sent if sent by Federal Express or other reputable nationwide overnight
delivery service. Any notice sent by any other means shall be deemed to have
been received when it is actually received at the address provided above.
2.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
2.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
2.7 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. Nothing
in this Agreement shall preclude the Company from entering into any other
agreement having the same or different terms with any Holder or any third party
with respect to registration rights or related matters.
2.8 Parties Benefited. Nothing in this Agreement, express or implied, is
-----------------
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
8
<PAGE>
[Remainder of page intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement under seal
as of the date provided below:
THE COMPANY:
SCIQUEST.COM, INC.
By: ___________________________________
Peyton C. Anderson
Vice President
THE HOLDERS:
________________________________________
Robert Uffen
________________________________________
Ellen S. Uffen
________________________________________
Guy Orgambide
________________________________________
Jerry Malco
________________________________________
Janeen Malco
________________________________________
Cloyd Laporte, III
________________________________________
Mario Cardullo
________________________________________
10
<PAGE>
Karen Cardullo
11
<PAGE>
EXHIBIT 10.29
RESTRICTED STOCK AGREEMENT
THIS RESTRICED STOCK AGREEMENT (the "Agreement"), made as of the 31st day
of January , 2000 (the "Effective Date"), by and between SciQuest.com, Inc., a
Delaware corporation (the "Company"), and W. Andrew McKenna (the "Stockholder"),
evidences an Award made pursuant to the SciQuest.com, Inc. 1999 Stock Incentive
Plan (the "Plan") and in the manner and subject to the terms herein.
For valuable consideration, receipt of which is acknowledged, the parties
hereto agree as follows:
1. Defined Terms. Capitalized terms used herein and without definition
-------------
shall have the meanings assigned to such terms in the Plan.
2. Administration of Plan; Delegation.
----------------------------------
(a) Administration by Board. The Plan shall be administered by the
-----------------------
Board. The Board shall have authority to grant Awards and to adopt, amend and
repeal such administrative rules, guidelines and practices relating to the Plan
as it shall deem advisable from time to time. The Board may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or any Award in
the manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. No member of
the Board shall be liable for any action or determination relating to the Plan.
All decisions by the Board shall be made in the Board's sole discretion and
shall be final and binding on all persons having or claiming any interest in the
Plan or in any Award. No director or person acting pursuant to the authority
delegated by the Board shall be liable for any action or determination under the
Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one Award
to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (each, a "Committee"). For so long
as the common stock, $.001 par value per share (the "Common Stock"), of the
Company is registered under the Securities Exchange Act of 1934 (the "Exchange
Act"), the Board shall appoint one such Committee of not less than two members,
each member of which shall be a "non-employee director" as defined in Rule 16b-3
promulgated under the Exchange Act. All references in the Plan to the "Board"
shall mean a Committee or the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's
<PAGE>
powers or authority under the Plan have been delegated to such Committee or
executive officer.
3. Purchase of Shares. The Stockholder hereby subscribes for and shall
------------------
purchase, subject to the terms and conditions set forth in this Agreement,
12,000 shares (the "Shares") of the Common Stock, $0.001 par value per share, of
the Company ("Series C Stock"), at a purchase price of $28.3125 per share. The
aggregate purchase price for the Shares shall be paid by the Stockholder by
check payable to the order of the Company or such other method as may be
acceptable to the Company. Upon receipt of payment by the Company for the
Shares, the Company shall issue to the Stockholder one or more certificates in
the name of the Stockholder for that number of Shares purchased by the
Stockholder. The Stockholder agrees that the Shares shall be subject to the
Purchase Option set forth in Section 4 of this Agreement and the restrictions on
transfer set forth in Section 4 of this Agreement.
4. Purchase Option. In the event that the Stockholder ceases to be
---------------
employed by the Company, for any reason or for no reason, with or without cause,
prior to the second anniversary of the Effective Date, the Company shall have
the right and option (the "Purchase Option") to purchase from the Stockholder,
for a sum of $28.3125 per share (the "Purchase Option Price") up to that number
of the Shares which is unvested at the time the Stockholder ceases to be
employed by the Company. Six Thousand (6,000) of the Shares shall vest as of the
first anniversary of the Effective Date. The remaining Six Thousand (6,000)
Shares shall vest on the second anniversary of the Effective Date, with all
Shares being fully vested after twenty-four (24) full months of employment by
the Company (beginning as of the Effective Date). For purposes of this
Agreement, employment by the Company shall include employment by a parent or
subsidiary of the Company.
5. Exercise and Payment of Purchase Option.
---------------------------------------
(a) Exercise of Purchase Option. The Company may exercise the
---------------------------
Purchase Option by delivering or mailing to the Stockholder (or the
Stockholder's estate), in accordance with Section 24, written notice of exercise
within sixty (60) days after the termination of the Stockholder's employment
with the Company. Such notice shall specify the number of Shares to be
purchased. If and to the extent the Purchase Option is not so exercised within
such 60-day period, the Purchase Option shall automatically expire and terminate
effective upon the expiration of such 60-day period. Within ten (10) days after
the Stockholder's receipt of the Company's notice of the exercise of the
Purchase Option pursuant to Section 4 above, the Stockholder (or the
Stockholder's estate) shall tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Stockholder or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such Shares, the Company shall
deliver or mail to the Stockholder (or the Stockholder's estate) a check in the
amount of the aggregate Purchase Option Price therefor.
2
<PAGE>
(b) Payment of Purchase Option Price. The Purchase Option Price may
--------------------------------
be payable, at the option of the Company, in cancellation of all or a portion of
any outstanding indebtedness of the Stockholder to the Company or in cash (by
check) or both.
(c) Fractional Shares. The Company shall not purchase any fraction of
-----------------
a Share upon exercise of the Purchase Option, and any fraction of a Share
resulting from a computation made pursuant to Section 4 of this Agreement shall
be rounded to the nearest whole Share (with any one-half Share being rounded
upward).
6. Non-Transferability of Award. The Stockholder shall not sell, assign,
----------------------------
transfer, pledge, hypothecate or otherwise dispose of, by operation of law or
otherwise, any Shares subject to the Purchase Option, or any interest therein.
7. Effect of Prohibited Transfer. The Company shall not be required (a)
-----------------------------
to transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement,
or (b) to treat as owner of such Shares or to pay dividends to any transferee to
whom any such Shares shall have been so sold or transferred.
8. Withholding; Taxes. The Stockholder acknowledges and agrees that the
------------------
Company has the right to deduct from payments of any kind otherwise due to the
Stockholder any federal, state or local taxes of any kind required by law to be
withheld with respect to the purchase of the Shares by the Stockholder. If the
Stockholder elects, in accordance with Section 83(b) of the Internal Revenue
Code of 1986, as amended, to recognize ordinary income in the year of
acquisition of the Shares, the Company will require at the time of such election
an additional payment for withholding tax purposes based on the difference, if
any, between the purchase price for such Shares and the fair market value of
such Shares as of the day immediately preceding the date of the purchase of such
Shares by the Stockholder.
9. Acquisition Events. Except to the extent otherwise provided herein or
------------------
in any other agreement between the Stockholder and the Company, upon the
occurrence of an Acquisition Event (as hereinafter defined), any portion of this
Award then outstanding that will become vested within twelve (12) months after
the Acquisition Event, shall become vested and immediately free of all
restrictions. As used in this Section 9, an "Acquisition Event" shall mean: (a)
any merger or consolidation which results in the voting securities of the
Company outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; (c) the complete liquidation of
the Company; or (d) the acquisition of "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) of securities of
3
<PAGE>
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
"person," as such term is used in Section 13(d) and 14(d) of the Exchange Act,
other than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any corporation owned directly or
indirectly by the stockholders of the Company.
10. Escrow. To ensure that the Shares subject to the Purchase Option are
------
available for repurchase, the stock certificate issued in respect of the Shares
shall be registered in the name of the Stockholder and held in escrow by the
Company, together with a stock power endorsed in blank, with the Company (or its
designee). At the expiration of the Purchase Option, the Company (or such
designee) shall deliver the certificate(s) to the Stockholder. The Company
shall bear the expenses of the escrow.
11. Rights as Stockholder. The Stockholder shall have, with respect to the
---------------------
Shares, all of the rights of a stockholder of the Company, including the rights
to vote the Shares and the right to receive dividends on such Shares; provided,
however, that after the time at which any Shares are required to be delivered to
the Company for transfer to the Company pursuant to Section 5 above, the Company
shall not pay any dividend to the Stockholder on account of such Shares or
permit the Stockholder to exercise any of the privileges or rights of a
stockholder with respect to such Shares, but shall, in so far as permitted by
law, treat the Company as the owner of such Shares.
12. Restrictive Legend. All certificates representing Shares shall have
------------------
affixed thereto a legend in substantially the following form, in addition to any
other legends that may be required under federal or state securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND AN OPTION TO PURCHASE SET FORTH
IN A CERTAIN STOCK RESTRICTION AGREEMENT BETWEEN THE COMPANY
AND THE REGISTERED OWNER OF THIS CERTIFICATE (OR SUCH
OWNER'S PREDECESSOR IN INTEREST), AND SUCH STOCK RESTRICTION
AGREEMENT IS ON FILE IN, AND MAY BE EXAMINED AT, THE
PRINCIPAL OFFICE OF THE COMPANY."
13. Investment Representations. The Stockholder represents, warrants and
--------------------------
covenants as follows:
(a) The Stockholder is not acquiring the Shares based upon any
representation, oral or written, by any person with respect to the future value
of, or
4
<PAGE>
income from, the Shares, but rather upon independent examination and judgment as
to the prospects of the Company.
(b) The Stockholder has had complete access to and the opportunity to
review all material documents related to the business of the Company and to ask
answers with respect thereto, has examined all such documents as the Stockholder
has desired as may be necessary for the Stockholder to make an informed decision
with respect to the investment in the Company represented by the Shares, is
familiar with the business and affairs of the Company and realizes that any
purchase of the Shares is a speculative investment and that any possible profit
therefrom is uncertain.
(c) The Stockholder has not relied upon the Company or an employee or
agent of the Company with respect to any tax consequences related to the
issuance of the Shares or the disposition of the Shares. The Stockholder assumes
full responsibility for all such tax consequences and the filing of all tax
returns and elections the Stockholder may be required to or find desirable to
file in connection therewith.
(d) The Stockholder has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Shares and to make an informed investment decision with respect to such
purchase.
14. Adjustments to Common Stock. In the event of any stock split, stock
---------------------------
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, the number and class of security subject to this
Award shall be appropriately adjusted by the Company (or substituted Options may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 14 applies and Section 9 also applies to any event, Section 9 shall be
applicable to such event, and this Section 14 shall not be applicable.
15. No Rights as an Employee. No person shall have any claim or right to
------------------------
be granted an Award, and the grant of an Award shall not be construed as giving
the Stockholder the right to continued employment or any other relationship with
the Company. The Company expressly reserves the right at any time to dismiss or
otherwise terminate its relationship with the Stockholder free from any
liability or claim under the Plan, except as expressly provided in the
Agreement.
16. Public Offering. The Stockholder hereby agrees that in the event of an
---------------
underwritten public offering of stock made by the Company under the Securities
Act, the Stockholder shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time as may be established by the
underwriter for such public offering; provided, however, that such
5
<PAGE>
period of time shall not exceed one hundred eighty (180) days from the effective
date of the registration statement to be filed in connection with such public
offering.
17. Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
18. Termination or Amendment of Award. The Board may amend, modify or
---------------------------------
terminate any outstanding Award, provided that the Stockholder's consent to such
action shall be required unless the Board determines that the action, taking
into account any related action, would not materially and adversely affect the
Stockholder.
19. Integrated Agreement. This Agreement (together with the Plan)
--------------------
constitutes the entire understanding and agreement of the Stockholder and the
Company with respect to the subject matter contained herein, and there are no
other agreements, understandings, restrictions, representations, or warranties
between the Stockholder and the Company with respect to the subject matter
contained herein other than those as set forth or provided for herein.
20. Terms and Conditions of Plan. The terms and conditions included in the
----------------------------
Plan are incorporated by reference herein, and to the extent that any conflict
may exist between any term or provision of this Agreement and any term or
provision of the Plan, the term or provision of the Plan shall control.
21. Applicable Law. This Agreement shall be governed by the laws of the
--------------
State of Delaware, without regard to any applicable conflicts of law.
22. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and each other provision of this Agreement shall be
severable and enforceable to the extent permitted by law.
23. Waiver. Any provision contained in this Agreement may be waived,
------
either generally or in any particular instance, by the Board of Directors of the
Company on behalf of the Company.
24. Notice. All notices required or permitted hereunder shall be in
------
writing and deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by certified mail, postage prepaid, addressed to
the Company at its principal office and to the Stockholder at the last known
address for the Stockholder, or at such other address or addresses as either
party shall designate to the other in accordance with this Section 24.
25. Stockholder Acknowledgement. By execution hereof, the Stockholder
---------------------------
acknowledges and represents that the Stockholder is familiar with the terms and
6
<PAGE>
provisions of this Agreement, hereby accepts the Award subject to all of the
terms and provisions thereof and of the Plan, and acknowledges receipt of a copy
of the Plan. The Stockholder hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board of Directors of the Company
made in good faith upon any questions arising under this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SCIQUEST.COM, INC.
By:_____________________________
Peyton C. Anderson
Vice President
STOCKHOLDER:
________________________________
W. Andrew McKenna
8
<PAGE>
EXHIBIT 10.30
AGREEMENT
AND
PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
SCIQUEST.COM, INC.
SCIQUEST ACQUISITION, INC.
AND
EMAX SOLUTION PARTNERS, INC.
Dated as of March 13, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. THE MERGER......................................................................... 2
1.1 The Merger........................................................................ 2
1.2 Effective Time.................................................................... 2
1.3 Effect of the Merger on Constituent Corporations.................................. 2
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.................. 2
1.5 Directors and Officers of Surviving Corporation................................... 3
1.6 Maximum Number of Shares of SciQuest Common Stock to be Issued; Conversion of
Company Capital Stock............................................................. 3
1.7 Dissenting Shares................................................................. 7
1.8 Exchange Procedures............................................................... 8
1.9 No Further Ownership Rights in Company Capital Stock.............................. 9
1.10 Lost, Stolen or Destroyed Certificates............................................ 9
1.11 Exemption from Registration....................................................... 9
1.12 Further Action.................................................................... 10
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................... 10
2.1 Organization and Qualification.................................................... 10
2.2 Authority Relative to this Agreement.............................................. 10
2.3 Capitalization.................................................................... 11
2.4 No Subsidiaries................................................................... 12
2.5 No Conflicts...................................................................... 12
2.6 Books and Records; Organizational Documents....................................... 12
2.7 Company Financial Statements...................................................... 13
2.8 Absence of Changes................................................................ 13
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2.9 No Undisclosed Liabilities........................................................ 17
2.10 Taxes............................................................................. 17
2.11 Legal Proceedings................................................................. 19
2.12 Compliance with Laws and Orders................................................... 19
2.13 Plans; ERISA...................................................................... 20
2.14 Title to Assets................................................................... 21
2.15 Intellectual Property............................................................. 22
2.16 Contracts......................................................................... 33
2.17 Insurance......................................................................... 33
2.18 Affiliate Transactions............................................................ 34
2.19 Employees; Labor Relations........................................................ 34
2.20 Environmental Matters............................................................. 35
2.21 Substantial Customers............................................................. 36
2.22 Accounts Receivable............................................................... 37
2.23 Other Negotiations; Brokers; Third Party Expenses................................. 37
2.24 Banks and Brokerage Accounts...................................................... 37
2.25 Warranty Obligations.............................................................. 37
2.26 Foreign Corrupt Practices Act..................................................... 38
2.27 Tax-Free Reorganization........................................................... 38
2.28 Operating Plan.................................................................... 38
2.29 Approvals......................................................................... 38
2.30 Information Statement............................................................. 39
2.31 Due Diligence..................................................................... 39
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2.32 Investment Advisors............................................................... 39
2.33 Disclosure........................................................................ 39
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SCIQUEST AND MERGER SUB 39
3.1 Organization and Qualification.................................................... 40
3.2 Authority Relative to this Agreement.............................................. 40
3.3 Issuance of SciQuest Common Stock................................................. 40
3.4 Capitalization.................................................................... 41
3.5 SEC Documents; SciQuest Financial Statements...................................... 41
3.6 No Conflicts...................................................................... 42
3.7 Organizational Documents.......................................................... 42
3.8 SciQuest Financial Statements..................................................... 42
3.9 Absence of Changes................................................................ 43
3.10 Information to be Supplied by SciQuest and Merger Sub............................. 43
3.11 Investment Advisors............................................................... 43
3.12 Tax-Free Reorganization........................................................... 43
3.13 Third-Party Consents.............................................................. 43
3.14 Disclosure........................................................................ 43
ARTICLE 4. CONDUCT PRIOR TO THE EFFECTIVE TIME................................................ 43
4.1 Conduct of Business of Company.................................................... 43
4.2 No Solicitation................................................................... 46
ARTICLE 5. ADDITIONAL AGREEMENTS.............................................................. 47
5.1 Information Statement............................................................. 47
5.2 Stockholder Approval.............................................................. 48
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5.3 Access to Information...............................................................................47
5.4 Confidentiality.....................................................................................48
5.5 Expenses............................................................................................48
5.6 Public Disclosure...................................................................................48
5.7 Approvals...........................................................................................49
5.8 Notification of Certain Matters.....................................................................49
5.9 Additional Documents and Further Assurances.........................................................49
5.10 Form S-8............................................................................................49
5.11 NNM Listing of Additional Shares Application........................................................49
5.12 Company's Auditors..................................................................................49
5.13 Takeover Statutes...................................................................................50
5.14 Directors' and Officers' Indemnification............................................................50
5.15 Benefit Arrangements................................................................................50
5.16 Treatment as Reorganization.........................................................................51
5.17 Company Repurchases.................................................................................51
5.18 Merger Sub..........................................................................................51
ARTICLE 6. CONDITIONS TO THE MERGER...............................................................................51
6.1 Conditions to Obligations of Each Party to Effect the Merger........................................51
6.2 Additional Conditions to Obligations of Company.....................................................52
6.3 Additional Conditions to the Obligations of SciQuest and Merger Sub.................................53
ARTICLE 7. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS; ESCROW PROVISIONS..................54
7.1 Survival of Representations, Warranties, Covenants and Agreements...................................54
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7.2 Indemnification and Escrow Provisions...............................................................55
ARTICLE 8. TERMINATION, AMENDMENT AND WAIVER......................................................................55
8.1 Termination.........................................................................................55
8.2 Effect of Termination...............................................................................57
8.3 Amendment...........................................................................................57
8.4 Extension; Waiver...................................................................................57
ARTICLE 9. MISCELLANEOUS PROVISIONS...............................................................................57
9.1 Notices. ...........................................................................................57
9.2 Entire Agreement....................................................................................58
9.3 Further Assurances; Post-Closing Cooperation........................................................59
9.4 Waiver. ...........................................................................................59
9.5 Third Party Beneficiaries...........................................................................59
9.6 No Assignment; Binding Effect.......................................................................59
9.7 Headings............................................................................................59
9.8 Invalid Provisions..................................................................................59
9.9 Governing Law.......................................................................................59
9.10 Waiver of Trial by Jury.............................................................................60
9.11 Construction........................................................................................60
9.12 Counterparts........................................................................................60
9.13 Specific Performance................................................................................60
ARTICLE 10. DEFINITIONS...........................................................................................60
10.1 Definitions.........................................................................................60
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EXHIBITS
Exhibit A - Form of Voting Agreement
Exhibit B - Form of Certificate of Merger
Exhibit C - Form of Stockholder Certificate
Exhibit D-1 - Form of SciQuest Officer's Certificate
Exhibit D-2 - Form of SciQuest Secretary's Certificate
Exhibit E - Matters to be Covered by Legal Opinion of Morris, Manning & Martin, LLP
Exhibit F-1 - Form of Company Officer's Certificate
Exhibit F-2 - Form of Company Secretary's Certificate
Exhibit G - Matters to be Covered by Legal Opinion of Drinker Biddle & Reath LLP
Exhibit H - Form of Employment Agreement
Exhibit I - Depositary Agent Fee Schedule
Exhibit J - Registration Rights Agreement
Exhibit K - Company Tax Representation Letter
Exhibit L - SciQuest Tax Representation Letter
Exhibit M Escrow Agreement
Exhibit N Option Examples
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AGREEMENT AND
PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
---------
made and entered into as of March 13, 2000, by and among SCIQUEST.COM, INC., a
Delaware corporation ("SciQuest"), SCIQUEST ACQUISITION, INC., a Delaware
--------
corporation and wholly-owned subsidiary of SciQuest ("Merger Sub"), and EMAX
----------
SOLUTION PARTNERS, INC., a Delaware corporation ("Company"). Capitalized terms
-------
used and not otherwise defined herein have the meanings set forth in Article 10.
----------
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the DGCL, SciQuest and Company intend to enter into a business
combination transaction pursuant to which Merger Sub shall merge with and into
Company (the "Merger").
B. The respective Boards of Directors of each of SciQuest, Merger Sub and
Company believe that the Merger is in the best interests of SciQuest, Merger Sub
and Company and their respective stockholders and, in furtherance thereof, have
approved the Merger, this Agreement and the other transactions contemplated by
this Agreement.
C. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, (i) all of the shares of capital stock of
Company which are issued and outstanding immediately prior to the Effective Time
of the Merger shall be converted into the right to receive shares of Common
Stock of SciQuest ("SciQuest Common Stock") and (ii) all Company Options then
---------------------
outstanding (whether vested or unvested) will become exercisable for SciQuest
Common Stock, on the terms and subject to the conditions set forth herein.
D. As an inducement to SciQuest and Merger Sub to enter into this
Agreement, certain stockholders of Company have concurrently herewith entered
into Voting Agreements with SciQuest in substantially the form attached hereto
as Exhibit A ("Voting Agreements") pursuant to which, among other things, such
--------- -----------------
stockholders have agreed to vote the shares of Company Capital Stock owned by
them in favor of the Merger.
SciQuest, Merger Sub and Company intend that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and in furtherance thereof intend that this Agreement shall be a "Plan of
Reorganization" within the meaning of Sections 354(a) and 361(a) of the Internal
Revenue Code.
E. The Company, Merger Sub and SciQuest desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
F. A portion of the shares of SciQuest Common Stock otherwise issuable or
reserved for issuance by SciQuest in connection with the Merger shall be placed
in escrow by SciQuest, the release of which amount shall be contingent upon
certain events and conditions, all as set
<PAGE>
forth in the Escrow Agreement in substantially the form attached hereto as
Exhibit M (the "Escrow Agreement") herein.
- ---------
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged by
the parties), and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1.
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the
----------
terms and conditions of this Agreement and the applicable provisions of the
Delaware General Corporation Law (the "DGCL") Merger Sub shall be merged with
and into Company, the separate corporate existence of Merger Sub shall cease,
and Company shall continue as the surviving corporation. Company is sometimes
referred to herein as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
--------------
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
----------- -------
place as promptly as practicable, but no later than five business days following
the satisfaction or waiver of the conditions set forth in Article 6, at the
Pennsylvania offices of Company, unless another place or time is agreed to by
SciQuest and Company. The date upon which the Closing actually occurs is herein
referred to as the "Closing Date." On the Closing Date, the parties hereto shall
------------
cause the Merger to be consummated by filing a Certificate of Merger (or like
instrument), in substantially the form attached hereto as Exhibit B (the
---------
"Certificate of Merger"), with the Secretary of State of the State of Delaware,
---------------------
and in accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of the State of Delaware of such filing, or
such later time agreed to by the parties and set forth in the Certificate of
Merger, being referred to herein as the "Effective Time").
--------------
1.3 Effect of the Merger on Constituent Corporations. At the Effective
------------------------------------------------
Time, the effect of the Merger shall be as provided in the applicable provisions
of the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of Merger Sub and Company shall vest in the Surviving Corporation;
all debts, liabilities, obligations, restrictions, disabilities and duties of
Merger Sub and Company shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation; the title to
all real estate and other property owned by either Merger Sub or Company shall
be vested in Company as the Surviving Corporation without reversion or
impairment; the Surviving Corporation shall have all liabilities of Merger Sub
and Company; and a proceeding pending against either Merger Sub or Company may
be continued as if the Merger did not occur or Company as the Surviving
Corporation may be substituted in such proceeding for Merger Sub.
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
------------------------------------------------------------------
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the
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Surviving Corporation from and after the Effective Time until thereafter amended
as provided by law and such Certificate of Incorporation and bylaws of the
Surviving Corporation.
(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended as provided by such bylaws, the Certificate of Incorporation
and applicable law.
1.5 Directors and Officers of Surviving Corporation. The directors of
------------------------------------------------
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, each to hold office in accordance with the bylaws of the
Surviving Corporation.
1.6 Maximum Number of Shares of SciQuest Common Stock to be Issued;
----------------------------------------------------------------
Conversion of Company Capital Stock.
-----------------------------------
The maximum number of shares of SciQuest Common Stock to be issued or
reserved for issuance as a result of the Merger and the other transactions
contemplated by this Agreement (including SciQuest Common Stock to be reserved
for issuance pursuant to the Converted Option Shares upon exercise of any of
Company Options to be assumed by SciQuest as provided herein but excluding any
Additional Option Shares) shall not exceed the Aggregate Share Number. On the
terms and subject to the conditions of this Agreement, as of the Effective Time,
by virtue of the Merger and without any action on the part of SciQuest, Merger
Sub, Company or any holder of Company Capital Stock or Company Options, the
following shall occur:
(a) Conversion of Company Capital Stock. At the Effective Time, each
-----------------------------------
share of Company Capital Stock which is issued and outstanding immediately prior
to the Effective Time (other than any shares of Company Capital Stock to be
canceled pursuant to Section 1.6(b) and any Dissenting Shares (as provided in
--------------
Section 1.7)) will be canceled and extinguished and each share of Company
- -----------
Capital Stock which is issued and outstanding immediately prior to the Effective
Time shall be converted automatically into the right to receive that number of
shares of SciQuest Common Stock as follows:
(i) Company Common Stock. Each share of Company Common Stock
--------------------
issued and outstanding immediately prior to the Effective Date,
including without limitation the Company Common Stock issuable to
Polar Investment Partners ("Polar"), shall be converted into and
thereafter represent that number of shares of SciQuest Common
Stock equal to the Exchange Ratio. The parties acknowledge that
the shares of Company Common Stock shall convert into an aggregate
of 104,584 shares of SciQuest Common Stock (assuming no Dissenting
Shares).
(ii) Series A Preferred Stock. Each share of Company Series A
------------------------
Preferred issued and outstanding immediately prior to the
Effective Date shall be converted into and thereafter represent
that number of shares
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of SciQuest Common Stock equal to the Exchange Ratio divided by
10. The parties acknowledge that the shares of Company Series A
Preferred Stock shall convert into an aggregate of 440,790 shares
of SciQuest Common Stock (assuming no Dissenting Shares).
(iii) Series B Preferred Stock. Each share of Company Series B
------------------------
Preferred Stock issued and outstanding immediately prior to the
Effective Date shall be converted into and thereafter represent
that number of shares of SciQuest Common Stock equal to the
Exchange Ratio divided by 10. The parties acknowledge that the
shares of Company Series B Preferred Stock shall convert into an
aggregate of 40,572 shares of SciQuest Common Stock (assuming no
Dissenting Shares).
(iv) Series D Preferred Stock. Each share of Company Series D
------------------------
Preferred Stock issued and outstanding immediately prior to the
Effective Date shall be converted into and thereafter represent
that number of shares of SciQuest Common Stock equal to the
Exchange Ratio divided by 8.55. The parties acknowledge that the
shares of Company Series D Preferred Stock shall convert into an
aggregate of 284,926 shares of SciQuest Common Stock (assuming no
Dissenting Shares).
(v) Series E Preferred Stock. Each share of Company Series E
------------------------
Preferred Stock issued and outstanding immediately prior to the
Effective Date shall be converted into and thereafter represent
that number of shares of SciQuest Common Stock equal to the sum of
(A) the number of shares of SciQuest Common Stock equal to the
Exchange Ratio and (B) the quotient of (I) $7,000,000 divided by
the Signing Stock Price, divided by (II) the aggregate number of
shares of Series E Preferred Stock outstanding immediately prior
to the Closing. The parties acknowledge that the shares of Company
Series E Preferred Stock shall convert into an aggregate of
627,789 shares of SciQuest Common Stock (assuming no Dissenting
Shares).
(vi) Series F Preferred Stock. Each shares of Company Series F
------------------------
Preferred Stock issued and outstanding shall automatically be
cancelled and extinguished without any conversion thereof and
without any further action on the part of SciQuest or Company.
(b) For purposes of this Agreement:
(i) "Outstanding Share Number" means the aggregate number of
------------------------
shares of Company Common Stock outstanding immediately prior to
the Effective Time (assuming the conversion of all shares of
Company Preferred Stock and the exercise in full, by cash
exercise, of all unvested and vested Company Options and all
Company Warrants and Company Stock Purchase Rights which are not
exercised, converted, exchanged or expired as of the Effective
Time).
-4-
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(ii) "Aggregate Share Number" means the number of shares of
----------------------
SciQuest Common Stock determined by (x) dividing One Hundred
Forty-Nine Million Five Hundred Thousand Dollars ($149,500,000)
by the Signing Share Price (the Parties acknowledge that the
Signing Share Price is $74.75625) and (y) subtracting from the
number determined in clause (x) the number of shares of SciQuest
Common Stock that would be issuable in respect of Dissenting
Shares in the absence of Section 1.7(a) (the "SciQuest Dissenting
--------------
Shares"). The Parties acknowledge that the Aggregate Share Number
is 1,999,832 (assuming no Dissenting Shares).
(iii) "Exchange Ratio" means the quotient obtained by dividing (x)
--------------
the Adjusted Aggregate Share Number by (y) the Outstanding Share
Number. The parties acknowledge that the Exchange Ratio is
0.487061 (assuming no Dissenting Shares).
(iv) "Additional Options" means the shares of SciQuest Common
------------------
Stock issuable upon exercise of additional options granted to the
holders of Company Options pursuant to Section 1.6(d).
--------------
(v) "Adjusted Aggregate Share Number" means the number of shares
-------------------------------
of SciQuest Common Stock equal to (x) One Hundred Forty-Two
Million Five Hundred Thousand Dollars ($142,500,000) divided by
the Closing Price less (y) the SciQuest Dissenting Shares. The
parties acknowledge that the Adjusted Aggregate Share Number is
1,906,195 (assuming no Dissenting Shares).
(c) Cancellation of Company-Owned Stock. Each share of Company Capital
-----------------------------------
Stock owned by Company or any Subsidiary of Company immediately prior to the
Effective Time shall be automatically canceled and extinguished without any
conversion thereof and without any further action on the part of SciQuest or
Company.
(d) Company Options and Company Stock Plan. At the Effective Time all
--------------------------------------
unexpired and unexercised Company Options then outstanding, whether vested or
unvested, shall be assumed by SciQuest in accordance with the provisions
described below.
(i) At the Effective Time, each unexpired and unexercised
Company Option issued pursuant to the EMAX Solution Partners, Inc.
1993 Stock Plan, as amended (the "Company Stock Plan") which is
------------------
then outstanding, whether or not exercisable, whether or not
vested, shall by virtue of the Merger be assumed by SciQuest
together with Company Stock Plan; provided, however, that each
holder of Company Options (an "Optionholder") shall elect prior to
the Effective Time to either (A) retain the Company Options held
by such person (which Company Options will vest at the Effective
Time in accordance with the terms of the Company Stock Plan) or
(B) retain the portion of the Company Options held by such person
that is vested immediately prior to the Effective Time and amend
the portion of the Company Options held by such person that is
unvested
-5-
<PAGE>
immediately prior to the Effective Time (the "Amended Options") to
provide that such Amended Options will vest as set forth in this
Section 1.6(d)(i) (the "Amendment") and receive in consideration
of the Amendment options to acquire such number of shares of
SciQuest Common Stock (the "Additional Options") equal to the
Exchange Ratio multiplied by 50% of the number of shares subject
to all outstanding Company Options (without regard to vesting)
held by such person immediately prior to the Effective Time. The
Amended Options and Additional Options shall vest as follows: 25%
of such Amended Options and Additional Options shall be vested as
of the Effective Time and 25% of the Amended Options and
Additional Options shall vest on the next three succeeding
anniversaries of the Effective Time. The Amended Options shall
further provide that if an Optionholder's employment with SciQuest
is terminated other than for Cause (as defined in the Employment
Agreement), then all Amended Options shall immediately vest. The
Additional Options shall have an exercise price equal to $7.66
divided by the Exchange Ratio. The Additional Options will be
granted pursuant to an employee compensation plan of SciQuest, and
the shares of SciQuest Common Stock issuable upon exercise of such
Additional Options will be registered on a registration statement
on Form S-8. Each Company Option so assumed by SciQuest under this
Agreement shall continue to have, and be subject to, the same
terms and conditions as were applicable to such Company Option
immediately prior to the Effective Time (including any repurchase
rights or vesting provisions), provided that (A) such Company
Option shall be exercisable for that number of whole shares of
SciQuest Common Stock equal to the product of the number of shares
of Company Capital Stock that were issuable upon exercise of such
Company Option immediately prior to the Effective Time multiplied
by the Exchange Ratio (rounded down to the nearest whole number of
shares of SciQuest Common Stock) and (B) the per share exercise
price for the shares of SciQuest Common Stock issuable upon
exercise of such assumed Company Option shall be equal to the
quotient determined by dividing the exercise price per share of
Company Capital Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio
(rounded down to the nearest whole cent). Without limiting the
generality of this Section 1.6(d)(i), Exhibit N attached hereto
---------
sets forth examples of the calculation of the Amended Options and
Additional Options.
(ii) It is the intention of the parties that Company Options
assumed by SciQuest shall qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Internal
Revenue Code to the same extent Company Options qualified as
incentive stock options immediately prior to the Effective Time
and the provisions of this Section 1.6(c) shall be applied
--------------
consistent with this intent.
-6-
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(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
equitably adjusted to reflect fully the effect of any stock split, reverse
split, stock combination, stock dividend (including any dividend or distribution
of securities convertible into SciQuest Common Stock or Company Capital Stock),
reorganization, reclassification, recapitalization or other like change with
respect to SciQuest Common Stock or Company Capital Stock the effective date of
which occurs after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of SciQuest Common
-----------------
Stock will be issued in the Merger, but in lieu thereof, each holder of shares
of Company Capital Stock who would otherwise be entitled to a fraction of a
share of SciQuest Common Stock (after aggregating all fractional shares of
SciQuest Common Stock to be received by such holder) shall be entitled to
receive from SciQuest an amount of cash (rounded to the nearest whole cent)
equal to the product of (a) such fraction, multiplied by (b) the Signing Stock
Price.
(g) Capital Stock of Merger Sub. Each share of Merger Sub Common
---------------------------
Stock which is issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock of the Surviving Corporation.
1.7 Dissenting Shares.
-------------------
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has asserted
dissenters' rights for such shares in accordance with the DGCL and who, as of
the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("Dissenting Shares") shall not be converted into or represent a right to
-----------------
receive SciQuest Common Stock pursuant to Section 1.6, but the holder thereof
-----------
shall only be entitled to such rights as are granted by the DGCL.
(b) Notwithstanding the provisions of Section 1.7(a) above, if
--------------
any holder of shares of Company Capital Stock who demands purchase of such
shares under the DGCL shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the later of
(i) the Effective Time or (ii) the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive SciQuest Common Stock as provided in Section 1.6, without interest
-----------
thereon, upon surrender to Company of the certificate representing such shares
in accordance with Section 1.8 of this Agreement.
-----------
(c) The Company shall give SciQuest (i) prompt notice of its
receipt of any written demand for purchase of any shares of Company Capital
Stock, withdrawals of such demands, and any other instruments relating to the
Merger served pursuant to the DGCL and received by Company and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for purchase of any shares of Company Capital Stock under the DGCL. The
Company shall not, except with the prior written consent of SciQuest or as may
be required under applicable law, voluntarily make any payment with respect to
any demands for purchase of Company Capital Stock or offer to settle or settle
any such demands.
1.8 Exchange Procedures.
---------------------
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(a) SciQuest Common Stock. On the Closing Date, SciQuest shall
---------------------
deposit with the Exchange Agent for exchange in accordance with this Article 1,
---------
the Aggregate Share Number, less the number of shares of SciQuest Common Stock
equal to (i) the aggregate cash payable in lieu of fractional shares pursuant to
Section 1.6(f) divided by (ii) the Signing Share Price; provided, however, that,
- --------------
on behalf of the holders of Company Capital Stock, SciQuest shall deposit into
an escrow account pursuant to the Escrow Agreement a number of shares of
SciQuest Common Stock equal to the Escrow Amount. The portion of the Escrow
Amount contributed on behalf of each holder of Company Capital Stock shall be in
proportion to the aggregate number of shares of SciQuest Common Stock, which
such holder would otherwise be entitled to receive by virtue of ownership of
outstanding shares of Company Capital Stock.
(b) Exchange Procedures. Promptly after the Effective Time, the
-------------------
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock (the "Company
-------
Certificates") and which shares were converted into the right to receive shares
- -------------
of SciQuest Common Stock pursuant to Section 1.6, (i) a letter of transmittal in
-----------
customary form (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of Company
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as SciQuest may reasonably specify) and (ii) instructions for use in
effecting the surrender of Company Certificates in exchange for certificates
representing shares of SciQuest Common Stock and cash in lieu of fractional
shares. Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by SciQuest, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Company Certificate shall be
entitled to receive in exchange therefor a certificate representing the number
of whole shares of SciQuest Common Stock (less the number of shares of SciQuest
Common Stock to be deposited in the Escrow Fund on such holder's behalf pursuant
to the Escrow Agreement), to which such holder is entitled pursuant to Section
-------
1.6 and cash in lieu of fractional shares (if any) to which such holder is
- ---
entitled pursuant to Section 1.6(f), and Company Certificate so surrendered
-----------
shall be canceled. As soon as practicable after the Effective Time, and subject
to and in accordance with the provisions of the Escrow Agreement, SciQuest shall
cause to be distributed to the Depositary Agent a certificate or certificates
(in such denominations as may be requested by the Depositary Agent) representing
that number of shares of SciQuest Common Stock equal to the Escrow Amount, which
certificate shall be registered in the name of the Depositary Agent. Such shares
shall be beneficially owned by the holders on whose behalf such shares were
deposited in the Escrow Fund and shall be available to compensate SciQuest as
provided in the Escrow Agreement. Until surrendered, each outstanding Company
Certificate that, prior to the Effective Time, represented shares of Company
Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, other than payment of dividends, to evidence the ownership
of the number of full shares of SciQuest Common Stock into which such shares of
Company Capital Stock shall have been so converted and cash in lieu of
fractional shares.
(c) Distributions With Respect to Unexchanged Shares of Company
-----------------------------------------------------------
Capital Stock. No dividends or other distributions with respect to SciQuest
- -------------
Common Stock declared or made after the Effective Time and with a record date
after the Effective Time will be paid to the holder of any unsurrendered Company
Certificate with respect to the shares of SciQuest
-8-
<PAGE>
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Company Certificate. Subject to applicable law, following
surrender of any such Company Certificate, there shall be paid to the record
holder of the certificates representing whole shares of SciQuest Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
-------
1.8(c)) with respect to such whole shares of SciQuest Common Stock.
- ------
(d) Transfers of Ownership. If any certificate for shares of
----------------------
SciQuest Common Stock is to be issued pursuant to the Merger in a name other
than that in which the Company Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that Company
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid to
SciQuest or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of SciQuest Common Stock in
any name other than that of the registered holder of the Company Certificate
surrendered, or established to the satisfaction of SciQuest or any agent
designated by it that such tax has been paid or is not payable.
1.9 No Further Ownership Rights in Company Capital Stock. All
----------------------------------------------------
shares of SciQuest Common Stock issued upon the surrender for exchange of shares
of Company Capital Stock in accordance with the terms hereof (including any cash
in lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of
Company of shares of Company Capital Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Company Certificates
are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article 1.
---------
1.10 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Company Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue certificates representing such shares of SciQuest Common Stock
and cash in lieu of fractional shares in exchange for such lost, stolen or
destroyed Company Certificates, upon the making of an affidavit of that fact by
the holder thereof; provided, however, SciQuest or the Exchange Agent may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificates to provide an
indemnity or deliver a bond in such sum as it may reasonably direct as indemnity
against any claim that may be made against SciQuest or the Exchange Agent with
respect to Company Certificates alleged to have been lost, stolen or destroyed.
1.11 Exemption from Registration. The shares of SciQuest Common
---------------------------
Stock to be issued pursuant to Section 1.6 in connection with the Merger will be
issued in a transaction exempt from registration under the Securities Act of
1933, as amended, and the rules and regulations promulgated by the SEC
thereunder (the "Securities Act"), by reason of Rule 506 of Regulation D of the
Securities Act.
1.12 Further Action. If, at any time after the Effective Time,
--------------
any such further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving
-9-
<PAGE>
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Company, or to effect the
assignment to Company of any and all Company Intellectual Property created by a
founder, employee or consultant of Company (including Intellectual Property
created by any of Company's founders prior to the creation of Company), or to
complete and prosecute all domestic and foreign patent filings related to such
Company Intellectual Property, the officers and directors of the Surviving
Corporation are fully authorized to take, and will take, all such lawful and
necessary action.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of SciQuest and
Merger Sub, subject to such exceptions as are specifically disclosed with
respect to specific numbered and lettered sections of this Article 2 in the
---------
disclosure schedule and schedule of exceptions (the "Company Disclosure
------------------
Schedule") delivered by Company to SciQuest herewith (it being understood that a
- --------
disclosure contained in any section of the Company Disclosure Schedule shall
relate to another section without an express crossreference if the disclosure is
readily apparent on its face to a reasonable person to be applicable to such
other section), dated as of the date hereof, and organized with corresponding
numbered and lettered sections and subsections, as follows:
2.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite corporate power and authority to
conduct its business as now conducted and as currently proposed to be conducted
and to own, use, license and lease its Assets and Properties. The Company is
duly qualified, licensed or admitted to do business and is in good standing as a
foreign corporation in each jurisdiction in which the ownership, use, licensing
or leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except for
such failures to be so duly qualified, licensed or admitted and in good standing
that could not reasonably be expected to have a Material Adverse Effect on
Company. Section 2.1 of the Company Disclosure Schedule sets forth each
jurisdiction where Company is so qualified, licensed or admitted to do business
and separately lists each other jurisdiction in which Company owns or leases
real properties or has employees.
2.2 Authority Relative to this Agreement. Subject only to the requisite
approval of the stockholders of Company, Company has all requisite corporate
power and authority to execute and deliver this Agreement and the other
agreements which are attached (or forms of which are attached) as exhibits
hereto (the "Ancillary Agreements") to which Company is a party; to perform its
--------------------
obligations hereunder and thereunder; and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Company of this
Agreement and the Ancillary Agreements to which Company is a party and the
consummation by Company of the transactions contemplated hereby and thereby, and
the performance by Company of its obligations hereunder and thereunder, have
been duly and validly authorized unanimously by all necessary action by the
Board of Directors of Company, and no other action on the part of the Board of
Directors of Company is required to authorize the execution, delivery and
performance
-10-
<PAGE>
of this Agreement and the consummation by Company of the transactions
contemplated hereby and thereby. This Agreement and the Ancillary Agreements to
which Company is a party have been or will be, as applicable, duly and validly
executed and delivered by Company and, assuming the due authorization and valid
execution and delivery hereof by SciQuest, each constitutes a legal, valid and
binding obligation of Company enforceable against Company in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
2.3 Capitalization. The authorized capital stock of Company consists
--------------
only of Four Million Five Hundred Thousand (4,500,000) shares of Common Stock,
par value $.01 per share (the "Company Common Stock"), of which 214,725 shares
--------------------
are issued and outstanding, and Twenty Million (20,000,000) shares of Preferred
Stock, par value $.01 per share (the "Company Preferred Stock"). The designation
-----------------------
and status of the Company Preferred Stock is as follows: (i) Nine Million Two
Hundred Thousand (9,200,000) shares are designated as Series A Convertible
Preferred Stock ("Company Series A Preferred Stock"), of which 9,050,000 shares
--------------------------------
are issued and outstanding, (ii) Eight Hundred ThirtyThree Thousand and Three
Hundred Thirty-Two (833,332) shares are designated as Series B Convertible
Preferred Stock ("Company Series B Preferred Stock"), of which 833,000 shares
--------------------------------
are issued and outstanding, (iii) Five Million (5,000,000) shares are designated
as Series D Convertible Preferred Stock ("Company Series D Preferred Stock"), of
--------------------------------
which 5,000,000 shares are issued and outstanding, (iv) One Million Ninety-Six
Thousand and Six Hundred Eighty-Two (1,096,682) shares are designated as Series
E Convertible Preferred Stock ("Company Series E Preferred Stock"), all of which
--------------------------------
are issued and outstanding, and (v) One Million Ninety-Six Thousand and Six
Hundred Eighty-Two (1,096,682) shares are designated as Series F Redeemable
Preferred Stock ("Company Series F Preferred Stock") of which no shares are
--------------------------------
issued and outstanding. All of the issued and outstanding shares of Company
Common Stock and Company Preferred Stock are validly issued, fully paid and
nonassessable, and have been issued in compliance with all applicable federal,
state and foreign securities Laws. Except as set forth in Section 2.3 of the
------------------
Company Disclosure Schedule, no shares of Company Common Stock or Company
- ---------------------------
Preferred Stock are held in treasury. Section 2.3 of the Company Disclosure
-------------------------------------
Schedule lists the name and state of residence of each holder of Company Common
- --------
Stock and Company Preferred Stock provided to Company by such holder. Except as
set forth Section 2.3 of the Company Disclosure Schedule, there are no
----------------------------------------------
outstanding Company Warrants, Company Stock Purchase Rights or Company Options
and no agreements, arrangements or understandings to which Company is a party
(written or oral) to issue any Options with respect to Company and there are no
preemptive rights or agreements, arrangements or understandings to issue
preemptive rights with respect to the issuance or sale of Company Capital Stock
created by statute, the Certificate of Incorporation or bylaws of Company, or
any agreement or other arrangement to which Company is a party or to which it is
bound and there are no agreements, arrangements or understandings to which
Company is a party (written or oral) pursuant to which Company has the right to
elect to satisfy any Liability by issuing Company Common Stock or Equity
Equivalents. With respect to each Company Warrant, Company Stock Purchase Right
and Company Option, Section 2.3 of the Company Disclosure Schedule sets forth
----------------------------------------------
the holder thereof, the number and type of securities issuable thereunder, and,
if applicable, the exercise price therefor, the exercise period and vesting
schedule thereof (including a description of the circumstances under which such
vesting schedule
-11-
<PAGE>
can or will be accelerated). All Company Warrants, Company Stock Purchase Rights
and Company Options were issued in compliance with all applicable federal, state
and foreign securities Laws. Except as set forth in Section 2.3 of the Company
--------------------------
Disclosure Schedule, the Company is not a party or subject to any agreement or
- -------------------
understanding, and, to Company's knowledge, there is no agreement, arrangement
or understanding between or among any Persons which affects, restricts or
relates to voting, giving of written consents, dividend rights, transferability
of shares or repurchase rights or obligations with respect to Company Capital
Stock, including any voting trust agreement or proxy. Other than as listed in
Section 2.3 of the Company Disclosure Schedule, no debt securities of Company
- ----------------------------------------------
are issued or outstanding.
2.4 No Subsidiaries. Except as disclosed in Section 2.4 of the Company
---------------
Disclosure Schedule, Company has (and prior to the Closing will have) no
Subsidiaries and does not (and prior to the Closing will not) otherwise hold any
equity, membership, partnership, joint venture or other ownership interest in
any Person.
2.5 No Conflicts. The execution and delivery by Company of this Agreement
------------
does not, and the performance by Company of its obligations under this Agreement
and the consummation of the transactions contemplated hereby do not and will
not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Certificate of Incorporation or bylaws of
Company;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.5 of the Company
--------------------------
Disclosure Schedule, if any, conflict with or result in a violation or breach of
- -------------------
any Law or Order applicable to Company or any of its Assets and Properties; or
(c) except as disclosed in Section 2.5 of the Company Disclosure
-------------------------------------
Schedule, (i) conflict with or result in a violation or breach of, (ii)
- --------
constitute a default (or an event that, with or without notice or lapse of time
or both, would constitute a default) under, (iii) require Company to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person (other than the filing of the Certificate of Merger together with the
required officers' certificates and such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
state or federal securities laws) as a result or under the terms of, (iv) result
in or give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments or performance under, (vi) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon Company or
any of its Assets and Properties under or (vii) result in the loss of a material
benefit under, any of the terms, conditions or provisions of any Contract or
License to which Company is a party or by which any of Company's Assets and
Properties is bound.
2.6 Books and Records; Organizational Documents. The minute books and
-------------------------------------------
stock record books and other similar records of Company have been provided or
made available to SciQuest or its counsel prior to the execution of this
Agreement, are complete and correct in all material respects and have been
maintained in accordance with sound business practices. Such minute books
contain a true and complete record of all actions taken at all meetings and by
all
-12-
<PAGE>
written consents in lieu of meetings of the directors, stockholders and
committees of the Board of Directors of Company from the date of Company's
incorporation through the date hereof. The Company has prior to the execution of
this Agreement provided to SciQuest true and complete copies of its Certificate
of Incorporation and bylaws, both as amended through the date hereof. The
Company is not in violation of any provisions of its Certificate of
Incorporation or bylaws as so amended.
2.7 Company Financial Statements. Section 2.7 of the Company Disclosure
---------------------------- -------------------------------------
Schedule sets forth Company Financials. The Company Financials are correct and
- --------
complete and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as indicated in the notes (if any) thereto). The Company Financials
present fairly and accurately the financial condition and operating results of
Company in accordance with GAAP as of the dates and during the periods indicated
therein. Since December 31, 1999, there has been no change in any accounting
policies, principles, methods or practices, including any change with respect to
reserves (whether for bad debts, contingent liabilities or otherwise), of
Company.
2.8 Absence of Changes. Since December 31, 1999, there has not been any
------------------
change in the Business or Condition of Company or any occurrence or event which,
individually or in the aggregate could reasonably be expected to have Material
Adverse Effect on Company. Since January 1, 2000, Company has operated its
business in accordance with the 2000 Operating Plan (a copy of which has been
provided to and approved by SciQuest). In addition, without limiting the
generality of the foregoing, except as expressly contemplated by this Agreement
or the 2000 Operating Plan or as set forth in Section 2.8 of the Company
--------------------------
Disclosure Schedule, since December 31, 1999:
- -------------------
(a) Company has not entered into any Contract or transaction or
incurred any Liabilities outside of the ordinary course of business consistent
with past practice;
(b) Company has not entered into any Contract in connection with any
transaction involving a Business Combination;
(c) Company has not altered or entered into any Contract or other
commitment to alter, its interest in any corporation, association, joint
venture, partnership or business entity in which Company directly or indirectly
holds any interest on the date hereof;
(d) Company has not entered into any strategic alliance, joint
development or joint marketing Contract;
(e) there has not been any amendment or other modification (or
agreement to do so), or violation known to Company of the terms of, any of the
Contracts set forth or described in Company Disclosure Schedule;
(f) Company has not entered into any transaction with any officer,
director, stockholder, Affiliate or Associate of Company, other than pursuant to
any Contract disclosed to SciQuest pursuant to (and so identified in) Section
-------
2.8, 2.16(a) or 2.18 of the Company Disclosure Schedule;
- -------------------------------------------------------
-13-
<PAGE>
(g) Company has not entered into or amended in any material respect
any Contract pursuant to which any other Person is granted manufacturing,
marketing, distribution, licensing or similar rights of any type or scope with
respect to any products of Company or Company Intellectual Property other than
as contemplated by Company's Contracts or Licenses disclosed in the Company
Disclosure Schedule;
(h) no Action or Proceeding has been commenced or, to the knowledge of
Company, threatened by or against Company;
(i) Company has not declared, set aside or paid any dividends on or
made any other distributions (whether in cash, stock or property) in respect of
any Company Capital Stock or Equity Equivalents, or effected or approved any
split, combination or reclassification of any Company Capital Stock or Equity
Equivalents, or issued or authorized the issuance of any other securities in
respect of, in lieu of or in substitution for shares of Company Capital Stock or
Equity Equivalents, or repurchased, redeemed or otherwise acquired, directly or
indirectly, any shares of Company Capital Stock or Equity Equivalents, except
for the issuance of Common Stock upon exercise of outstanding stock options by
Company employees or repurchases of Company Capital Stock pursuant to agreements
with Company employees, officers, directors and consultants relating to
repurchases at cost upon termination of service with Company;
(j) (A) except for the issuance of shares of Company Capital Stock
upon exercise or conversion of outstanding Company Warrants, Company Options or
Company Preferred Stock listed in Section 2.3 of the Company Disclosure
-------------------------------------
Schedule, and except as permitted after the date hereof by Section 4.1, Company
- -------- -----------
has not issued, granted, delivered, sold or authorized or proposed to issue,
grant, deliver or sell, or purchased or proposed to purchase, any shares of
Company Capital Stock or Equity Equivalents; (B) Company has granted no Options
with an exercise price of less than the fair market value of Company Common
Stock on the date the Option was granted (as determined in good faith by
Company's Board of Directors following consultation with, and consistent with
the advice provided by, Company's independent public accountants); (C) there has
been no modification or amendment of the rights of any holder of any outstanding
shares of Company Capital Stock or Equity Equivalents (including to reduce or
alter the consideration to be paid to Company upon the exercise of any
outstanding Company Warrants, Company Options or other Equity Equivalents); and
(D) there has been no agreement, arrangement, plan or understanding with respect
to any such modification or amendment;
(k) there has not been any amendment to Company's Certificate of
Incorporation or bylaws;
(l) there has not been any transfer (by way of a License or otherwise)
to any Person of rights to any Company Intellectual Property other than grants
of nonexclusive licenses in the ordinary course of business;
(m) Company has not made or agreed to make any disposition or sale of,
waiver of rights to, license or lease of, or incurrence of any Lien on any
Assets and Properties of Company other than grants of nonexclusive licenses and
leases of equipment in the ordinary course of business;
-14-
<PAGE>
(n) Company has not made or agreed to make any purchase of any Assets
and Properties of any Person other than (i) acquisitions of inventory, or
licenses of products, in the ordinary course of business of Company consistent
with past practice and (ii) other acquisitions in an amount not exceeding
twenty-five thousand dollars ($25,000) in the case of any individual item or one
hundred thousand dollars ($100,000) in the aggregate;
(o) Company has not made or agreed to make any capital expenditures or
commitments for additions to property, plant or equipment of Company
constituting capital assets in an amount exceeding twenty-five thousand dollars
($25,000) individually or one hundred thousand dollars ($100,000) in the
aggregate;
(p) Company has not made or agreed to make any writeoff, writedown or
revaluation or any determination to write off, writedown or revalue, any of the
Assets and Properties of Company, or any change in any reserves or liabilities
associated therewith;
(q) Company has not made or agreed to make payment, discharge or
satisfaction, of any claim, Liability or obligation (whether absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of Liabilities
reflected or reserved against in Company Financial Statements and other than
Liabilities incurred in the ordinary course of business since the Financial
Statement Date;
(r) Company has not failed to pay or otherwise satisfy any Liability
of Company which is presently due and payable except Liabilities which are being
contested in good faith by appropriate means or proceedings;
(s) Company has not incurred any Indebtedness or guaranteed any
Indebtedness or issued or sold any debt securities of Company or guaranteed any
debt securities of others;
(t) Company has not granted any severance or termination pay to any
director, officer employee or consultant, except payments made pursuant to
written Contracts outstanding on the date hereof, copies of which have been
delivered to SciQuest and listed in Section 2.8 of the Company Disclosure
-------------------------------------
Schedule;
- --------
(u) Company has not granted or approved any increase in salary, rate
of commissions, rate of consulting fees or any other compensation of any current
or former officer, director, employee, independent contractor or consultant of
Company (other than annual increases in the ordinary course of business
consistent with past practices but in no event to exceed 10%);
(v) Company has not paid or approved the payment of any consideration
of any nature whatsoever (other than salary, commissions or consulting fees and
customary benefits paid to any current or former officer, director, stockholder,
employee or consultant of Company) to any current or former officer, director,
stockholder, employee, independent contractor or consultant of Company;
(w) Company has not established or modified any (i) targets, goals,
pools or similar provisions under any Plan, employment Contract or other
employee compensation
-15-
<PAGE>
arrangement or independent contractor Contract or other compensation arrangement
or (ii) salary ranges, increased guidelines or similar provisions in respect of
any Plan, employment Contract or other employee compensation arrangement or
independent contractor Contract or other compensation arrangement;
(x) Company has not adopted, entered into, amended, modified or
terminated (partially or completely) any Plan;
(y) Company has not paid any discretionary or stay bonus;
(z) Company has not taken or approved any action, including the
acceleration of vesting of any Company Options, Company Warrants or other rights
to acquire shares of Company Capital Stock, which could reasonably be expected
to adversely affect the status of the Merger as a taxfree reorganization;
(aa) Company has not (i) made or changed any material election in
respect of Taxes, adopted or changed any accounting method in respect of Taxes,
(ii) entered into any tax allocation agreement, tax sharing agreement, tax
indemnity agreement, closing agreement, or settlement or compromise of any claim
or assessment in respect of Taxes, or (iii) consented to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes with any Taxing Authority or otherwise;
(bb) other than in the ordinary course of business, Company has not
made any representation or proposal to, or engaged in substantive discussions
with, any of the holders (or their representatives) of any Indebtedness, or to
or with any party which has issued a letter of credit which benefits Company;
(cc) Company has not failed to renew any insurance policy; no
insurance policy of Company has been cancelled or materially amended; and
Company has given all notices and presented all claims (if any) under all such
policies in a timely fashion;
(dd) there has been no material amendment or nonrenewal of any of
Company's Approvals, and Company has used commercially reasonable efforts to
maintain such Approvals and has observed all Laws and Orders applicable to the
conduct of Company's business or Company's Assets and Properties;
(ee) Company has taken all commercially reasonable action required to
procure, maintain, renew, extend or enforce any Company Intellectual Property,
including submission of required documents or fees during the prosecution of
patent, trademark or other applications for Registered Intellectual Property
rights;
(ff) there has been no physical damage, destruction or other casualty
loss (whether or not covered by insurance) affecting any of the material real or
personal property or equipment of Company;
(gg) Company has not repurchased, cancelled or modified any term of
any Company Capital Stock, Equity Equivalents, Company Options, Company Warrants
or other financial instrument that derives value from its convertibility into
Company Capital Stock or
-16-
<PAGE>
Equity Equivalents, other than transactions entered into in the ordinary course
of business and pursuant to either (i) contractual provisions or (ii) Company
Stock Plan, in each case as in effect at the time of execution and delivery of
this Agreement; and
(hh) Company has not entered into or approved any contract,
arrangement or understanding or acquiesced in respect of any arrangement or
understanding, to do, engage in or cause or having the effect of any of the
foregoing.
2.9 No Undisclosed Liabilities. Except as reflected or reserved against in
--------------------------
Company Financials (including the notes thereto), (a) Company has no Liability
for tort or breach of contract, and (b) there is no other Liability relating to
or affecting Company or any of its Assets and Properties other than (i)
Liabilities incurred in the ordinary course of business consistent with past
practice since the Financial Statement Date and (ii) Liabilities that would not
be required to be reflected or reserved against in the financial statements of
Company prepared in accordance with GAAP.
2.10 Taxes.
-----
(a) All Tax Returns required to have been filed by or with respect to
Company or any affiliated, consolidated, combined, unitary or similar group of
which Company is or was a member (a "Relevant Group") have been duly and timely
--------------
filed (including any extensions), and each such Tax Return correctly and
completely reflects Tax liability and all other information required to be
reported thereon. All Taxes due and payable by Company or any member of a
Relevant Group, whether or not shown on any Tax Return, or claimed to be due by
any Tax Authority, have been paid or accrued on the balance sheet included in
Company Financials. All such Tax Returns are true, complete and correct in all
material respects.
(b) The Company did not have any liability for Taxes as of December
31, 1999 other than as reflected on the balance sheet included in Company
Financials. The unpaid Income Taxes of Company (i) did not, as of December 31,
1999, exceed the reserve for liability for Income Tax (other than the reserve
for deferred taxes established to reflect timing differences between book and
tax income) set forth on the face of the balance sheet included in Company
Financials and (ii) will not exceed reserve as adjusted for operations and
transactions through the Closing Date.
(c) The Company is not a party to any agreement extending the time
within which to file any Tax Return. No claim has ever been made by a Taxing
Authority of any jurisdiction in which Company or any member of any Relevant
Group does not file Tax Returns that Company or such member is or may be subject
to taxation by that jurisdiction.
(d) The Company and each member of any Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor or independent contractor.
(e) The Company does not have knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against or in respect of
it or any Relevant Group for any past period. There is no dispute or claim
concerning any Tax liability of Company either (i) threatened, claimed or raised
by any Taxing Authority or (ii) of which
-17-
<PAGE>
Company is otherwise aware. There are no Liens for Taxes upon the Assets and
Properties of Company other than Liens for Taxes not yet due. Section 2.10(e) of
------------------
the Company Disclosure Schedule indicates those Tax Returns, if any, of Company
- -------------------------------
and each member of any Relevant Group that have been audited or examined by
Taxing Authorities, and indicates those Tax Returns of Company and each member
of any Relevant Group that currently are the subject of audit or examination.
The Company has delivered to SciQuest complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or agreed to
by, Company and each member of any Relevant Group since the fiscal year ended
December 31, 1999.
(f) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, Company or with respect
to any Tax assessment or deficiency affecting Company or any Relevant Group.
(g) The Company has not received any written ruling related to Taxes
or entered into any agreement with a Taxing Authority relating to Taxes.
(h) The Company has no liability for the Taxes of any Person other
than Company (i) under Section 1.15026 of the Treasury regulations (or any
similar provision of state, local or foreign Law), (ii) as a transferee or
successor, (iii) by Contract or (iv) otherwise.
(i) The Company (i) has neither agreed to make nor is required to make
any adjustment under Section 481 of the Internal Revenue Code by reason of a
change in accounting method and (ii) is not a "consenting corporation" within
the meaning of Section 341(f)(1) of the Internal Revenue Code.
(j) The Company is not a party to or bound by any obligations under
any tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
(k) The Company was not included and is not includible in the Tax
Return of any Relevant Group with any corporation other than such a return of
which Company is the common parent.
(l) The Company has not made any payments, is not obligated to make
any payments, nor is a party to any Contract that under certain circumstances
could require it to make any payments that are not deductible as a result of the
provisions set forth in Section 280G of the Internal Revenue Code or the
treasury regulations thereunder or would result in an excise tax to the
recipient of any such payment under Section 4999 of the Internal Revenue Code.
(m) All material elections with respect to income Taxes affecting
Company are set forth in Section 2.10(m) of the Company Disclosure Schedule.
--------------------------------------------------
(n) The Company is not nor has it ever been a United States real property
holding corporation within the meaning of Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
-18-
<PAGE>
(o) The Company is not involved in, subject to, or a party to any
joint venture, partnership, contract, or other arrangement that is treated as a
partnership for federal, state, local or foreign Income Tax purposes.
(p) Except as a result of the Merger, there is currently no limitation
on the utilization of the net operating losses, built in losses, capital losses,
Tax credits or other similar items of Company under (i) Section 382 of the
Internal Revenue Code, (ii) Section 383 of the Internal Revenue Code, (iii)
Section 384 of the Internal Revenue Code, and (iv) Section 1502 of the Internal
Revenue Code and Treasury regulations promulgated thereunder.
2.11 Legal Proceedings.
-----------------
(a) Except as set forth in Section 2.11 of the Company Disclosure
Schedule:
(i) there are no Actions or Proceedings pending or, to the
knowledge of Company, threatened against, relating to or
affecting Company or its Assets and Properties;
(ii) there are no facts or circumstances known to Company that
could reasonably be expected to give rise to any Action or
Proceeding against, relating to or affecting Company; and
(iii) Company has not received notice, and does not otherwise
have knowledge of any Orders outstanding against Company.
(b) Prior to the execution of this Agreement, Company has provided to
SciQuest all responses of counsel for Company to auditor's requests for
information for the preceding three years (together with any updates provided by
such counsel) regarding Actions or Proceedings pending or threatened against,
relating to or affecting Company. Section 2.11(b) of the Company Disclosure
-----------------------------------------
Schedule sets forth all Actions or Proceedings relating to or affecting, or, to
- --------
the knowledge of Company, threatened against, Company or any of its Assets and
Properties during the twoyear period prior to the date hereof.
2.12 Compliance with Laws and Orders. Neither Company nor, to its
-------------------------------
knowledge, any of its directors, officers, agents or employees has violated in
any material respect, or is currently in default or violation in any material
respect under, any Law or Order applicable to Company or any of its Assets and
Properties, and neither Company nor any of its Affiliates, is aware of any claim
of violation, or of any actual violation, of any such Laws and Orders by
Company.
2.13 Plans; ERISA. Section 2.13 of the Company Disclosure Schedule
-------------------------------------------------------------
identifies each Plan sponsored or maintained by the Company or any of its ERISA
Affiliates or to which the Company or any of its ERISA Affiliates contributes.
(a) Except as set forth in Section 2.13 of the Company Disclosure
--------------------------------------
Schedule with respect to each Plan required to be listed in Section 2.13 of the
-------------------
Company Disclosure Schedule: (i) each Plan has been administered in material
- ---------------------------
compliance with its terms and is in material compliance with the applicable
provisions of ERISA (including, without limitation, the
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<PAGE>
prohibited transaction provisions thereof), the Internal Revenue Code and other
applicable laws; (ii) there are no inquiries or proceedings pending or
threatened by the IRS, the U.S. Department of Labor, the PBGC, or any
participant or beneficiary with respect to the Plans; (iii) each Pension Plan
which is intended to be a qualified plan within the meaning of Section 401(a) of
the Internal Revenue Code has received a favorable determination from the IRS as
to its qualified status or is within the remedial amendment period (as defined
in Section 401(b) of the Internal Revenue Code taking into account any
pronouncements of the IRS relating to such period) for making any required
changes; (iv) each Plan may, without liability, be amended, terminated or
otherwise discontinued, except as specifically provided by federal law, (v) no
Plan provides medical benefits to any Person who is not a current employee of
Company (other than dependents of current employees) and neither the Company nor
any of its ERISA Affiliates is contractually or otherwise obligated to provide
any Person who is not a current employee of Company (other than dependents of
current employees) with medical benefits, other than continuation coverage as
required under section 4980B of the Internal Revenue Code and Part 6 of Subtitle
B of Title I of ERISA ("COBRA"); (vi) the Company has made or provided for all
contributions required under the terms of such Plans and any applicable laws for
all periods through the Closing Date; (vii) there have been no "prohibited
transactions" (as described in Section 4975 of the Internal Revenue Code or in
Part 4 of Subtitle B of Title I of ERISA) involving any Plan; (viii) there has
been no material violation of the "continuation coverage requirements" of COBRA
with respect to any Welfare Plan to which such continuation coverage
requirements apply; and (ix) there has been no violation of the obligations
imposed by section 9801 of the Internal Revenue Code and Part 7 of Subtitle B of
Title I of ERISA ("HIPAA") with respect to any Welfare Plan which is a group
health plan (as defined in section 5000(b)(1) of the Internal Revenue Code or
Part 6 of Subtitle B of Title I of ERISA) to which such obligations apply.
(b) Neither the Company nor any of its ERISA Affiliates maintains or has
ever maintained a Pension Plan which is subject to the minimum funding
requirements of Part 3 of Subtitle B of Title I of ERISA or subject to Section
412 of the Internal Revenue Code.
(c) Neither the Company nor any of its ERISA Affiliates, has ever
maintained or been obligated to contribute to any multiemployer plan, as defined
in Section 3(37) of ERISA.
(d) Neither the Company nor any of its ERISA Affiliates is bound by any
collective bargaining agreement or legally binding arrangement to maintain or
contribute to any Plan.
(e) Complete and correct copies of the following documents have been made
available or delivered by the Company to SciQuest: (i) all current plan
documents and insurance contracts (if any), and amendments thereto, with respect
to each of the Plans, (ii) for each of the most recently ended three plan years,
all IRS Form 5500 series forms (and any financial statements and other schedules
attached thereto) filed with respect to any Plan, (iii) the most recent IRS
determination letter for each Pension Plan (if any), and (iv) all current
summary plan descriptions and subsequent summaries of material modifications
with respect to each of the Plans subject to ERISA.
(f) The consummation of the transactions contemplated by this Agreement
will not, alone or together with any other event, (i) entitle any person to
severance pay,
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<PAGE>
unemployment compensation or any other payment, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due to any such
employee. No payment made to any officer, director, employee, or agent of the
Company ("Recipients") pursuant to any employment contract, severance agreement,
or other arrangement as a consequence of the transaction described herein will
be non-deductible to the Company because of the applicability of the "golden
parachute" provisions of Sections 280G and 4999 of the Internal Revenue Code,
nor will the Company be required to "gross up" or otherwise compensate any
Recipient because of the imposition of any excise tax (including any interest or
penalties related thereto) on the Recipient as a result of the applicability of
Sections 280G and 4999 of the Internal Revenue Code.
(g) The participant and beneficiary records with respect to each Plan are
---
in the custody of the Company (or an agent of the Company who must, upon demand,
provide such records to the Company), and such records accurately state the
benefits to which all participants and beneficiaries under such Plan are
entitled.
2.14 Title to Assets. The Company has good title to all of its
---------------
properties, interests in properties and assets, real and personal, tangible and
intangible, reflected in Company financials or acquired after the Financial
Statement Date (except properties, interests in properties and assets sold or
otherwise disposed of since the Financial Statement Date in the ordinary course
of business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (collectively, the "Permitted
---------
Liens") (i) the lien of current taxes not yet due and payable, (ii) such
- -----
imperfections of title, liens and easement as do not and will not detract from
or interfere with the use of the properties subject thereto or affected thereby,
or otherwise impair business operations involving such properties and (iii)
liens securing debt which is reflected on Company Financials. All properties
used in the operations of Company are reflected in Company Financials to the
extent required by GAAP to be so reflected.
(a) Real Property.
(i) Section 2.14(a) of the Company Disclosure Schedule contains
--------------------------------------------------
a true and correct list of each parcel of real property leased,
utilized and/or operated by Company (as lessor or lessee or
otherwise) (the "Leased Real Property"). The Company owns no real
--------------------
property other than Company-owned leasehold improvements, if any,
on the Leased Real Property.
(ii) Subject to the terms of its respective leases, Company has
a valid and subsisting leasehold estate in and the right to quiet
enjoyment of the Leased Real Properties for the full term of the
leases (including renewal periods) relating thereto. Each lease
referred to in paragraph (i) above is a legal, valid and binding
agreement of Company and to the knowledge of Company of each
other Person that is a party thereto, enforceable in accordance
with its terms, and except as set forth in Section 2.14(a)(ii) of
----------------------
the Company Disclosure Schedule, there is no, and Company has not
-------------------------------
received notice of any, default (or any condition or event which,
after
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<PAGE>
notice or lapse of time or both, would constitute a default) by
Company thereunder.
(iii) Except as disclosed in Section 2.14(a)(iii) of the Company
-----------------------------------
Disclosure Schedule, to Company's knowledge, all improvements on
-------------------
the Leased Real Property (A) comply with and are operated in
accordance with applicable laws (including, without limitation,
Environmental Laws) and all applicable Liens, Approvals,
Contracts, covenants and restrictions and (B) are in all material
respects in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, and such
improvements are in all material respects adequate and suitable
for the purposes for which they are presently being used and
there are no condemnation or appropriation proceedings pending
or, to the knowledge of Company, threatened against any of such
real property or the improvements thereon.
(iv) True and correct copies of the documents under which the
Leased Real Property is leased, subleased (to or by Company or
otherwise), utilized, and/or operated (the "Lease Documents")
---------------
have been provided to SciQuest. The Lease Documents are
unmodified and in full force and effect, and there are no other
Contracts between Company and any third parties, or by and among
any third parties, claiming an interest in the interest of
Company in the Leased Real Property or otherwise relating to the
use and occupancy of the Leased Real Property.
(b) Tangible Personal Property. The Company is in possession of, or
--------------------------
controls, and has good title to, or has valid leasehold interests in or valid
rights under Contract to use, all tangible personal property used in the conduct
of its business, including all tangible personal property reflected on Company
Financials and tangible personal property acquired since the date of such
financial statements, other than property disposed of since such date in the
ordinary course of business consistent with past practice in a total amount that
is not material. Except as disclosed in Section 2.14(b) of the Company
------------------------------
Disclosure Schedule, all such tangible personal property is free and clear of
- -------------------
all Liens, other than Permitted Liens, and is adequate and suitable in all
material respects for the conduct by Company of its business as presently
conducted, and is in good working order and condition in all material respects,
ordinary wear and tear excepted, and its use complies in all material respects
with all applicable Laws.
2.15 Intellectual Property.
---------------------
Certain Defined Terms. For the purposes of this Agreement,
---------------------
(1) Certain Defined Terms . For the purposes of this Agreement,
---------------------
(a) "Software" means any computer program, operating system,
--------
applications system, microcode, firmware or software of any nature, whether
operational, under development or inactive, including all object code, source
code, or other fully executable and useable form, technical manuals, compilation
procedures, execution procedures, flow charts, programmers
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<PAGE>
notes, user manuals and other documentation thereof, whether in machine-readable
form, programming language or any other language or symbols and whether stored,
encoded, recorded or written on disk, tape, film, memory device, paper or other
media of any nature.
(b) "Owned Software" means all Software owned by Company, whether
--------------
purchased from a third party, developed by or on behalf of Company, currently
under development or otherwise.
(c) "Customer Software" means all Software, other than the Owned
-----------------
Software, that is either (1) offered or provided by Company, directly or through
Distributors, to customers of Company or (2) used by Company to provide
information or services to customers of Company.
(d) "Company Software" means the Owned Software and the Customer
----------------
Software.
(e) "Other Software" means all Software, other than Company Software,
--------------
that is licensed by Company from third parties or otherwise used by Company for
any purpose whatsoever.
(f) "Distributor" means Company and any other person or entity that
-----------
has been authorized by a party to sell, license or offer to sell or license any
Software, other than an employee of such party. Distributors may include,
without limitation, value added reseller ("VAR"), original equipment
manufacturers ("OEM"), dealers, sales agents, and distributors.
(g) "Distributor Agreement" means a reseller agreement, sales agency
---------------------
agreement, VAR agreement, OEM agreement, distribution agreement, or other
written or oral agreement or permission between Company and a Distributor by
which Company has granted to a third party, or a third party has granted to
Company, rights regarding authorization to sell, license or offer to sell or
license any Software.
(h) "Customer License Agreement" means a license agreement or other
--------------------------
written or oral agreement or permission, other than a Distributor Agreement, by
which Company has granted to any third party any rights regarding Company
Software or any Intangibles thereof including, without limitation, all
agreements for maintenance and/or support of any Software.
(i) "Supplier License Agreement" means a license agreement or other
--------------------------
written or oral agreement or permission by which a third party has granted to
Company any rights regarding any Software or any Intangibles thereof, including,
but not limited to the rights set forth under Section 2.15(f) "Distributor"
-----------
above.
(j) "Registration" means any governmental filing, whether federal,
------------
state, local, foreign or otherwise, related to Owned Software or any Intangible,
including, without limitation, all registrations of patents, copyrights,
trademarks, service marks, trade names, and mask works, and all re-issues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof.
(k) "Intangible" means property that (a) is lacking in physical
----------
existence, such as goodwill, or (b) is a right as stated with more specificity
below:
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<PAGE>
(i) Patents, patent applications, patent disclosures, all
re-issues, divisions, continuations, renewals, extensions and
continuation-in-parts thereof and improvements thereto;
(ii) Trademarks, service marks, trade dress, logos, trade
names, and corporate names and registrations and applications for
registration thereof and all goodwill associated therewith;
(iii) Copyrights and Registrations and applications for
registration thereof;
(iv) Mask works, Registrations thereof and applications for
registration thereof;
(v) All right, title and interest in all computer software,
data and documentation (including, without limitation,
modifications, enhancements, revisions or versions of or to any
of the foregoing and prior releases of any of the foregoing
applicable to any operating environment);
(vi) Trade secrets and confidential business information
(including ideas, formulas, compositions, inventions, whether
patentable or unpatentable and whether or not reduced to
practice, know-how, manufacturing and production processes and
techniques, research and development information, drawings, flow
charts, processes, ideas, specifications, designs, plans,
proposals, technical data, copyrightable works, financial,
marketing, and business data, pricing and cost information,
business and marketing plans, and customer and supplier lists and
information);
(vii) Other proprietary rights, excluding moral rights;
(viii) All rights necessary to prevent claims of invasion of
privacy, right of publicity, defamation, or any other causes of
action arising out of the use, adaptation, modification,
reproduction, distribution, sale, or display of the Software;
(ix) All income, royalties, damages and payments due at Closing
or thereafter with respect to the Owned Software, Customer
Software and Other Software or other Intangibles and all other
rights thereunder, including, without limitation, damages and
payments for past, present or future infringements or
misappropriations thereof, the right to sue and recover for past,
present or future infringements or misappropriations thereof;
(l) All rights to use all of the foregoing forever or for the applicable
term of each right; and
(m) All other rights in, to, and under the foregoing in all countries.
-24-
<PAGE>
(2) Lists of Intellectual Property Rights and Contracts.
---------------------------------------------------
(a) Section 2.15(2)(a) of the Company Disclosure Schedule (i)
-----------------------------------------------------
contains a complete list of each Registration, whether federal, state, local,
foreign or otherwise, related to patents, copyrights, trademarks, service marks,
trade names, mask works, other Intangibles and Software (collectively
"Registrations") of the Company; (ii) identifies each pending Registration of
the Company with respect to Intangibles and Company Software; (iii) identifies
all of the Company's applications for or Registrations regarding Intangibles and
Company Software which have been withdrawn, abandoned, or have lapsed or been
denied; and (iv) specifies any advice to the Company with respect to such
Registration or protectability of Intangibles and Company Software.
(b) Section 2.15(2)(b) of the Company Disclosure Schedule
-----------------------------------------------------
identifies (i) each Customer License Agreement or other written or oral
agreement or permission in which the Company has granted to any third party any
right with respect to any of the Intangibles or Company Software together with
term thereof; (ii) each item of Intangibles and Software used or possessed by
Company that any third party owns and Supplier License Agreements or other
permission in connection therewith, together with the term thereof, all
royalties or other amounts due thereon and each source code escrow agreement
entered into running to the benefit of Company; (iii) each agreement entered
into by Company that provides for the sale, license or access to any source code
of the Company Software, including, without limitation, any source code escrow
agreement ("Source Code Agreement"); (iv) each Distributor Agreement, together
with the term thereof all royalties and other amounts due thereon and each
source code escrow agreement entered into by the provider or licensor thereof
running to the benefit of Company; and (v) any other agreement relating to
Software, including without limitation software development agreements,
consulting agreements and support and/or maintenance agreements ("Other
Agreement").
(c) Section 2.15(2)(c) of the Company Disclosure Schedule is an
-----------------------------------------------------
accurate and complete list and description (including a name, product
description, the language in which it is written and the type of hardware
platform(s) on which it runs) of all of the following:
(i) All Owned Software;
(ii) All Customer Software; and
(iii) All Other Software.
(d) To the extent not set forth in Section 2.15(2)(a) of the
Company Disclosure Schedule, Section 2.15(2)(d) of the Company Disclosure
--------------------------------------------
Schedule separately sets forth an accurate and complete list and description of
- --------
each registered copyright, trademark, trademark application or Registration,
service mark, service mark application or Registration, patent application or
Registration, name and logo, copyright application or Registration, and all
relevant unregistered copyrights of pertinent value included in any Intangible
owned, marketed or licensed by Company or from third parties, used or under
development by the Company. Section 2.15(2)(d) of the Company Disclosure
--------------------------------------------
Schedule indicates the Company's ownership of such items or the source of the
- --------
Company's right to use such items.
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<PAGE>
(e) Section 2.15(2)(e) of the Company Disclosure Schedule
-----------------------------------------------------
identifies all individuals who have materially contributed to the development of
the Owned Software.
(f) Except as specifically required herein, the parties agree and
acknowledge that regarding Software, or any term wherein the definition includes
the term Software, where disclosures are made as in this Section 2.15(2),
Company is not specifically disclosing technical manuals, compilation
procedures, execution procedures, flow charts, programmers notes, user manuals
and other documentation thereof, whether in machine-readable form, programming
language or any other language or symbols and whether stored, encoded, recorded
or written on disk, tape, film, memory device, paper or other media of any
nature. Except for this Section 2.15(2), the terms of this Section 2.15(2)(f)
do not modify or alter the Company's warranties or representations set forth
elsewhere in this Agreement.
(3) Warranties and Representations. Except as set forth in the
Company Disclosure Schedule 2.15, Company hereby warrants and represents the
following:
(a) The Company has supplied SciQuest correct and complete copies
of all License Agreements, Supplier License Agreements, Source Code Agreements,
Distributor Agreements and Other Agreements, and except as specified in Section
2.15(3)(a) of the Company Disclosure Schedule, with respect to all License
Agreements, Supplier License Agreements, Source Code Agreements, Distributor
Agreements and Other Agreements no consent by or payment to other parties to
those agreements is required in relation to the merger as contemplated in this
Agreement.
(b) The Company has complied with and fulfilled its obligations
under all License Agreements, Supplier License Agreements, Source Code
Agreements, Distributor Agreements and Other Agreements, and to the best of the
Company's knowledge, all other parties to such agreements have complied with all
provisions thereof; and no default or event of default exists under any of the
License Agreements, Supplier License Agreements, Source Code Agreements,
Distributor Agreements and Other Agreements by any party.
(c) Except for Software subject to a Supplier License Agreement
produced by Company hereunder, Company owns all right, title and interest in and
to: (i) all Software that it currently distributes or has distributed within the
last two years and all Intangibles therein; (ii) all Software currently under
development by Company and all Intangibles therein.
(d) Without limiting the foregoing, no Software currently
distributed by Company contains any: (i) "Core Technology" of Information
Technology Partners, Inc. (as defined in the Information Technology Partners,
Inc. Agreement dated January 13, 1997) or any derivative works thereof, or (ii)
Software or any associated Intangibles of Cognetics Corporation or ICON
Solutions, Inc.
(e) Company has obtained all right, title and interest in and to
all Software and all associated Intangibles previously transferred or
collateralized by Company to or in favor or any third party including, without
limitation, Polar Investment Partners.
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<PAGE>
(f) Except as set forth on Section 2.15(3)(f) of the Company
Disclosure, all licensees of the Owned Software have "accepted" the Software
under the terms of the applicable Customer License Agreement.
(g) Company is not aware of any unresolved, material complaints or
other evidence of unresolved, material dissatisfaction (whether written or oral)
from its customers or licensees.
(h) All work and other obligations currently in progress or owing
to any third party is on schedule to conclude within the applicable time
restraints/deadlines and in compliance with all applicable specifications and
other requirements.
(i) Company owns all Intangibles in all derivative works of the
Owned Software, excluding trade secrets and other confidential information
therein (as defined in section (k) (vi) of the "Intangibles" definition, above)
that are contributed by third parties (collectively the "Third Party Derivative
Materials").
(j) Company has a perpetual, royalty-free, paid-up, worldwide
license to use, modify, distribute and commercially exploit the Third Party
Derivative Materials.
(k) As of the date of this Agreement there are no: (i) current
royalties or similar fees due and owing by Company to any third party, and (ii)
ongoing obligations of Company to pay any third party any royalties or similar
fees.
(l) Except as set forth on Section 2.15(3)(l) of the Company
Disclosure, Company has obtained written indemnification provisions for its
benefit in all its Supplier Agreements for intellectual property infringement
and product claims, and such provisions are not subject to limitations of
liability.
(m) Except as set forth on Section 2.15(3)(m) of the Company
Disclosure, in all Customer License Agreements, Company has obtained: (i)
written disclaimers of indirect, punitive, consequential and incidental damages,
and (ii) written limitations of liability that limit Company's liability to the
fees paid thereunder.
(n) Except as set forth on Section 2.15(3)(n) of the Company
Disclosure, no Software other than the Owned Software is required to, in all
manners, commercially exploit Company's current Software product offerings and
related service offerings. The foregoing does not include any required customer
environment Software (e.g., Microsoft Excel), other than the Owned Software.
(o) Except as explained on Section 2.15(3)(o) of the Company
Disclosure Schedule, the Company owns and has good and marketable title to the
Owned Software and Intangibles attributable to the Owned Software, and has the
full right to use all of the Customer Software and Intangibles attributable
thereto (subject to the terms of the applicable Supplier License Agreements), as
used or required to operate the Company's business as currently conducted and as
contemplated in the future in accordance with the Company's written business
plans, free and clear of any liens, claims, charges or encumbrances which would
have Material Adverse Effect on the Company in connection with the operation of
the Company's business as
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<PAGE>
currently conducted and as contemplated in the future in accordance with the
Company's written business plan.
(p) Except as explained on Section 2.15(3)(p) of the Company
---------------------------------
Disclosure Schedule, Company has received written license agreements granting
- -------------------
the full right to use all of the Other Software, and Intangibles attributable
thereto, as used or required to operate the Company's business as currently
conducted and as contemplated in the future in accordance with the Company's
written business plan, free and clear of any liens, claims, charges or
encumbrances which would have a Material Adverse Effect on the Company in
connection with the operation of the Company's business as currently conducted
and as contemplated in the future in accordance with the Company's written
business plan. Neither Company nor stockholders have any knowledge that such
written license agreements are from a source other than a person who is
authorized to grant the rights granted to Company therein.
(q) No rights of any third party not previously obtained are
necessary to market, license, sell, modify, update, and/or create derivative
works for any Company Software as to which the Company takes any such action in
its business as currently conducted.
(r) With respect to all Owned Software:
(i) The Company maintains machine-readable master-
reproducible copies, reasonably complete technical
documentation and/or user manuals for the most current
releases or versions thereof and for all earlier
releases or versions thereof currently being supported
by the Company;
(ii) In each case, the machine-readable copy substantially
conforms to the corresponding source code listing;
(iii) Such Software is written in the language set forth on
Section 2.15(3)(f) of the Company Disclosure Schedule,
for use on the hardware set forth on Section 2.15(3)(f)
of the Company Disclosure Schedule with standard
operating systems;
(iv) Such Software can be maintained and modified by
reasonable competent programmers familiar with such
language, hardware and operating systems; and
(v) In each case the Software operates in accordance with
the user manual thereof without operating defects of any
material nature.
(s) None of the Owned Software or Intangibles or their respective
past or current uses by or through the Company, and to the best of Company's
knowledge, none of the Customer Software or Intangibles or their respective past
or current uses by or through the Company, has violated or infringed upon, or is
violating or infringing upon, any patent, copyright, trade secret or other
Intangible of any person. The Company has performed all obligations imposed upon
it with regard to the Customer Software and Other Software which are required to
be performed by it on or prior to the date hereof, and neither the Company nor,
to the
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<PAGE>
knowledge of the Company, any other party, is in breach of or default thereunder
in any respect, nor to the Company's knowledge, is there any event which with
notice or lapse of time or both would constitute a default thereunder.
(t) Except as set forth in Section 2.15(3)(t) of the Company
Disclosure Schedule, and except where developer is a current or past employee of
Company, or an individual consultant or subcontractor pursuant to a "work for
hire" agreement (i.e. not a corporation, limited liability company or other
similar legal entity), Company has been indemnified for all Losses, including
any claim for Losses, by all developers of any of the Software or Intangibles.
(u) Except as set forth in Section 2.15(3)(u) of the Company
Disclosure Schedule, the Company has adequately maintained and taken all
necessary actions to maintain all trade secrets and obtain copyrights with
respect to the Company Software and all Intangibles therein. Additionally, and
without limiting the foregoing, Company has adequately maintained and taken all
necessary actions to maintain all confidential information as confidential.
(v) To the knowledge of the Company, no person is violating or
infringing upon, or has violated or infringed upon at any time, any of the
Company's proprietary rights to any of the Company Software or Intangibles
therein.
(w) None of the Owned Software or Intangibles therein, and to the
best of Company's knowledge, none of the Customer Software or Intangibles
therein are owned by or registered in the name of any of the Company's
shareholders, any current or former owner or shareholder, partner, director,
executive, officer, employee, salesperson, agent, customer, contractor of the
Company or its representative nor does any such person have any interest therein
or right thereto, including, but not limited to, the right to royalty payments.
Except as listed on Section 2.15(3)(w) of the Company Disclosure Schedule, the
Company has granted no third party any exclusive rights related to any Owned
Software.
(x) No litigation is pending and no claim has been made against the
Company or, to the knowledge of the Company, is threatened, which contests the
right of the Company to sell or license to any person or entity or use any of
the Owned Software, Customer Software or Other Software. No former employer of
any employee or consultant of the Company has made a claim against the Company
or, to the knowledge of the Company, against any other person, that the Company
or such employee or consultant is misappropriating or violating the Intangibles
of such former employer.
(y) The Company is not a party to or bound by and, upon the
consummation of the transactions contemplated by this Agreement, SciQuest will
not be a party to or bound by (as a result of any acts or agreements of the
Company), any license or other agreement requiring the payment by the Company or
its assigns of any royalty or license payment, excluding such agreements
relating to the Customer Software to the extent such royalty or license payment
is expressly set forth on Section 2.15(3)(m) of the Company Disclosure Schedule.
(z) Except as set forth in Section 2.15(3)(l) of the Company
Disclosure Schedule, the Owned Software, Customer Software, and Other Software
and the information
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<PAGE>
used by the Company, and the Intangibles thereunder, are fully transferable to
SciQuest in the manner contemplated in this Agreement (in, object code, and if
applicable, source code forms, including all related documentation, to the
extent that such documentation has been created).
(aa) Without limiting any of the foregoing, to the best knowledge of
the Company, none of the Company's current or former officers, executives,
directors, partners, shareholders, employees, salespersons, customers, or
independent contractors have disclosed to (without proper obligation of
confidentiality) or otherwise used or utilized on behalf of any person other
than the Company, any trade secrets or proprietary information, including,
without limitation, the source codes for Owned Software.
(bb) All License Agreements, Supplier License Agreements, Source
Code Agreements, Distributor Agreements, Other Agreements and any other written
agreement between the Company and any third party in which trade secrets or
confidential information of the Company, the Company's customers, agents, or
suppliers, are disclosed binds the recipient thereof to take reasonable steps to
protect the proprietary rights of the Company and its customers, agents, and
suppliers in such trade secrets and confidential information.
(cc) Except as set forth on Section 2.15(3)(p) of the Company
Disclosure Schedule, none of the Company's shareholders have an ownership right
or other interest in any Company Software or Intangibles therein, and no claims
have been made or, to the knowledge of the Company, is threatened, that the
Company Software substantially fails to perform as set forth in Section 2.15(4),
entitled "Performance", hereof.
(dd) All the Company's contracts with customers (collectively
"Customer Contracts"), whether completed or outstanding, were or are evidenced
by written agreements containing provisions reasonably equivalent to those
contained in Section 2.15(2)(b) of the Company Disclosure Schedule hereto, with
only such changes as would not affect the rights of SciQuest as assignee or the
surviving corporation thereof, as the case may be, and would not impose on
SciQuest, as assignee or successor in interest thereof, as the case may be, any
additional obligations.
(ee) No Customer Contract provides for the transfer to the customer
therein of any Intangibles relating to Company Software as to which the Company
thereafter shall have no further rights. No current Customer Contract provides
that the customer therein shall be entitled to sublicense or otherwise transfer
to a third party any of the Intangibles relating to Company Software unless such
third party agrees to be bound by the confidentiality provisions thereof and
agrees to pay the Company royalties and other amounts comparable to those under
such Customer Contract.
(ff) Except as set forth on Section 2.15(3)(f) of the Company
Disclosure Schedule, each past or present customer of the Company to whom the
Company disclosed any of the Intangibles relating to Company Software has
executed a confidentiality provision which required such past or present
customer to take reasonable steps to protect the rights of the Company in the
Intangibles relating to Company Software.
-30-
<PAGE>
(gg) No documents or agreements to which Company is a party and that
Company has not produced and provided as of March 13, 2000 to SciQuest or its
counsel alter, amend, modify or otherwise affect any obligation, commitment,
right, title or interest relating to any Software or any services, obligations
or assets related thereto (including, without limitation, ownership of the
Company Software, or consulting, development, maintenance or support obligations
relating to the Company Software).
(hh) Company has the right to use all third party trademarks in the
manner currently used by Company including, without limitation, the ARIBA mark
as used on Company's web site.
(4) Performance. Company further warrants and represents that the
-----------
Owned Software:
(a) Performs in accordance with all published specifications for such
Owned Software;
(b) Complies with all other published documentation, descriptions and
literature with respect to such Owned Software; and
(c) Complies with all representations, warranties and other
requirements specified in all of the Company's License Agreements.
(d) No claim has been made or, to the knowledge of Company and the
shareholders, is threatened, that such Owned Software substantially fails to
perform as set forth in the immediately preceding sentence.
(e) Company has substantially complied with all Customer License
Agreements, Distributor Agreements and Supplier License Agreements, and to the
knowledge of Company and the Shareholders all other parties to such agreements
have substantially complied with all provisions thereof and no default or event
of default exists under any of the Customer License Agreements, Distributor
Agreements and Supplier License Agreements.
(5) Millennium Compliance. Company further warrants and represents
---------------------
that the Owned Software and to the knowledge of Company and the Shareholders,
the Company Software are "Millennium Compliant". The foregoing warranty is
limited to the specific system and environment for which the Owned Software was
designed and assumes that customers' and any third party systems and software to
which Owned Software and Customer Software interfaces or communicates are also
Millennium Compliant. For the purposes of this Agreement" Millennium Compliant"
means:
(i) The functions, calculations, and other computing processes
of such Owned Software and Customer Software
(collectively, "Processes") perform in an accurate manner
regardless of the date in time on which the Processes are
actually performed and regardless of the date input to the
Owned Software and Customer
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<PAGE>
Software, whether before, on, or after January 1, 2000,
and whether or not the dates are affected by leap years;
(ii) Owned Software and Company Software accepts, stores,
sorts, extracts, sequences, and otherwise manipulates date
inputs and date values, and returns and displays date
values, in an accurate manner regardless of the dates
used, whether before, on, or after January 1, 2000;
(iii) Such Owned Software and Company Software will function
without interruptions caused by the date in time on which
the Processes are actually performed or by the date input
thereto, whether before, on, or after January 1, 2000;
(iv) Such Owned Software and Company Software accepts and
responds to two (2) digit year and four (4) digit year
date input in a manner that resolves any ambiguities as to
the century in a defined, predetermined, and accurate
manner;
(v) Such Software and Company Software displays, prints, and
provides electronic output of date information in ways
that are unambiguous as to the determination of the
century; however, while all internal fields use (4) digit
year date input, there exist some (2) digit year visual
representations; and
(vi) Such Owned Software and Company Software has been tested
by Company to determine whether such Software is
Millennium Compliant. Company shall deliver the test plans
and results of such tests upon written request from
SciQuest. Company shall notify SciQuest immediately of the
results of any tests or any claim or other information
that indicates that such Software is not Millennium
Compliant.
2.16 Contracts. (a) Section 2.16(a)(1) of the Company Disclosure Schedule
--------- -----------------------------------------------------
contains a true and complete list of each of Company's Contracts (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been provided to SciQuest prior to the
execution of this Agreement). Section 2.16(a)(2) of the Company Disclosure
--------------------------------------------
Schedule contains a true and complete list of each Contract of Company not
- --------
terminable by Company upon 30 days (or less) notice by Company without penalty
or obligation to make payments based on such termination.
(b) Each Contract required to be disclosed in Section 2.16(a) of the
----------------------
Company Disclosure Schedule is in full force and effect and constitutes a legal,
- ---------------------------
valid and binding agreement of Company, enforceable against Company in
accordance with its terms, and, to the knowledge of Company, each other party
thereto; and, to the knowledge of Company, no other party to such Contract is,
or has received notice that it is, in violation or breach of or default
-32-
<PAGE>
under any such Contract (or with notice or lapse of time or both, would be in
violation or breach of or default under any such Contract).
(c) The Company is not a party to or bound by any Contract that (i)
automatically terminates or allows termination by the other party thereto upon
consummation of the transactions contemplated by this Agreement or (ii) contains
any covenant or other provision which limits Company's ability to compete with
any Person in any line of business or in any area or territory.
2.17 Insurance. The Company has policies of insurance and bonds of the
---------
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Company, including, but not limited to
electronic errors and omissions policies that cover Company's products and
services. There is no claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Company is otherwise in compliance with the terms of
such policies and bonds. The Company has no knowledge of any threatened
termination of, or premium increase with respect to, any of such policies.
Section 2.17 of the Company Disclosure Schedule contains a true and complete
- -----------------------------------------------
list (including the names and addresses of the insurers, the expiration dates
thereof, the annual premiums and payment terms thereof, the period of time
covered thereby and a brief description of the interests insured thereby) of all
liability, property, workers' compensation, directors' and officers' liability,
electronic errors and omissions and other insurance policies currently in effect
that insure the business, operations or employees of Company or affect or relate
to the ownership, use or operation of any of the Assets and Properties of
Company and that (a) have been issued to Company or (b) to the knowledge of
Company, have been issued to any Person (other than Company) for the benefit of
Company. The insurance coverage provided by the policies described in clause (a)
above will not terminate or lapse by reason of any of the transactions
contemplated by this Agreement. Each policy listed in Section 2.17 of Company
-----------------------
Disclosure Schedule is valid and binding and in full force and effect, all
- -------------------
premiums due thereunder have been paid when due and neither Company or the
Person to whom such policy has been issued has received any notice of
cancellation or termination in respect of any such policy or is in default
thereunder, and Company has no knowledge of any reason or state of facts that
could reasonably be expected to lead to the cancellation of such policies. The
insurance policies listed in Section 2.17 of the Company Disclosure Schedule,
-----------------------------------------------
are in amounts and have coverages as required by any Contract to which Company
is a party or by which any of its Assets and Properties is bound. Section 2.17
------------
of the Company Disclosure Schedule contains a list of all claims made under any
- ----------------------------------
insurance policies covering Company during the last two years. The Company has
not received notice that any insurer under any policy referred to in this
Section 2.17 is denying liability with respect to a claim thereunder or
- ------------
defending under a reservation of rights clause.
2.18 Affiliate Transactions. (a) Except as disclosed in Section 2.8(f) or
-----------------
2.18(a) of the Company Disclosure Schedule, (i) there are no Contracts or
- ------------------------------------------
Liabilities between Company, on the one hand, and (A) any current or former
officer, director, stockholder, or Affiliate of Company or (B) any Person who,
to Company's knowledge, is an Associate of any such officer, director,
stockholder or Affiliate, on the other hand, (ii) Company does not provide or
cause to be provided any assets, services or facilities to any such current or
former officer, director,
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<PAGE>
stockholder, or, to its knowledge, to any Affiliate or Associate, (iii) neither
Company nor, any such current or former officer, director, stockholder, or to
its knowledge, any Affiliate or Associate provides or causes to be provided any
assets, services or facilities to Company and (iv) Company does not beneficially
own, directly or indirectly, any Investment Assets of any such current or former
officer, director, stockholder, Affiliate or Associate.
(b) Each of the Contracts and Liabilities listed in Section 2.18(a)
---------------
of the Company Disclosure Schedule was entered into or incurred, as the case may
- ----------------------------------
be, on terms no less favorable to Company (in the reasonable judgment of
Company) than if such Contract or Liability was entered into or incurred on an
arm's length basis on competitive terms. Any Contract to which Company is a
party and in which any director of Company has a financial interest in such
Contract was approved by a majority of the disinterested members of the Board of
Directors of Company and/or stockholders of Company, as the case may be, in
accordance with Section 144 of the DGCL.
2.19 Employees; Labor Relations. (a) The Company is not a party to any
--------------------------
collective bargaining agreement and there is no unfair labor practice or labor
arbitration proceedings pending with respect to Company, or, to the knowledge of
Company, threatened, and there are no facts or circumstances known to Company
that could reasonably be expected to give rise to such complaint or claim. To
the knowledge of Company, there are no organizational efforts presently underway
or threatened involving any employees of Company or any of the employees
performing work for Company but provided by an outside employment agency, if
any. There has been no work stoppage, strike or other concerted action by
employees of Company during the last two years.
(b) All employees of Company are employed at will as are those
employees (if any) represented by a union. Section 2.19(b) of the Company
------------------------------
Disclosure Schedule sets forth, individually, the name of each director,
- -------------------
officer, employee and consultant, together with such person's position and
essential function (as defined in 29 CFR Section 1630.2(n)), annual base salary
or wage and any incentive, severance or bonus arrangements with respect to such
person. Except as set forth in Section 2.19 of the Company Disclosure Schedule,
-----------------------------------------------
the completion of the transactions contemplated by this Agreement will not
result in any payment or increased payment becoming due from Company to any
current or former officer, director, or employee of, or consultant to, Company,
and to the knowledge of Company no employee of Company has made any threat, or
otherwise revealed an intent, to terminate such employee's relationship with
Company, for any reason, including because of the consummation of the
transactions contemplated by this Agreement. The Company is not a party to any
agreement for the provision of labor from any outside agency. To the knowledge
of Company, there have been no claims by employees of such outside agencies, if
any, with regard to employees assigned to work for Company and no claims by any
governmental agency with regard to such employees.
(c) At no time during the last three years have there been any
federal or state claims based on sex, sexual or other harassment, age,
disability, race or other discrimination or common law claims, including claims
of wrongful termination, by any employees of Company or by any of the employees
performing work for Company but provided by an outside employment agency, and
there are no facts or circumstances known to Company that could reasonably be
expected to give rise to such complaint or claim. The Company has complied in
-34-
<PAGE>
all material respects with all laws related to the employment of employees and
has not received any notice of any claim that it has not complied in any
material respect with any Laws relating to the employment of employees,
including any provisions thereof relating to wages, hours, immigration,
collective bargaining, the payment of Social Security and similar taxes, equal
employment opportunity, employment discrimination, the WARN Act, employee
safety, or that it is liable for any arrearages of wages or any taxes or
penalties for failure to comply with any of the foregoing.
(d) The Company has no written policies and/or employee handbooks or
manuals except as described in Section 2.19(d) of Company Disclosure Schedule.
----------------------------------------------
(e) To the knowledge of Company, no officer, employee or consultant
of Company is obligated under any Contract or other agreement or subject to any
Order or Law that would interfere with Company's business as currently
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of Company's business as presently conducted nor any activity of
such officers, employees or consultants in connection with the carrying on of
Company's business as presently conducted, will conflict with or result in a
breach of the terms, conditions or provisions of, constitute a default under, or
trigger a condition precedent to any rights under any Contract or other
agreement under which, to the Company's knowledge, any of such officer's,
employees or consultants is now bound.
2.20 Environmental Matters. (a) The Company does not require any
---------------------
Environmental Permits for the operation of its business. The Company will
obtain, prior to the Closing, all Environmental Permits that must be obtained as
of or immediately after the Closing in order for the Surviving Corporation
and/or Company to conduct the business of Company as it was conducted prior to
the Closing.
(b) The Company is in compliance with all Environmental Laws.
(c) Neither Company nor any predecessor of Company nor any entity
previously owned by Company has received any notice of alleged, actual or
potential responsibility for, or any inquiry regarding, (i) any Release or
threatened or suspected Release of any Hazardous Material, or (ii) any violation
of Environmental Law.
(d) Neither Company nor any predecessor of Company nor any entity
previously owned by Company has any obligation or liability with respect to any
Hazardous Material, including any Release or threatened or suspected Release of
any Hazardous Material, and there has been no event, fact or circumstance since
the date of incorporation of Company or, prior to such time, which could
reasonably be expected to form the basis of any such obligation or liability.
(e) To the knowledge of Company, no Releases of Hazardous Material(s)
have occurred at, from, in, to, on, or under any Site while Company has occupied
the Site and no Hazardous Material is present in, on, about or migrating to or
from any Site.
(f) Neither Company nor any entity previously owned by Company, has
transported or arranged for the treatment, storage, handling, disposal or
transportation of any Hazardous Material at or to any location.
-35-
<PAGE>
(g) No Site is a current or, to the knowledge of Company, proposed
Environmental Clean-up Site.
(h) To the knowledge of Company, there are no Liens under or pursuant
to any Environmental Law on any Site.
(i) To the knowledge of Company, there is no (i) underground storage
tank, active or abandoned, (ii) polychlorinated biphenyl containing equipment,
(iii) asbestos-containing material, (iv) radon, (v) lead-based paint or (vi)
urea formaldehyde at any Site. Any underground storage tank meets all 1998
upgrade requirements.
(j) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or for Company or, to the
knowledge of Company, by or for any Other Person with respect to any Site while
Company has occupied the Site, which have not been delivered to SciQuest prior
to execution of this Agreement.
(k) Except as set forth in Section 2.20 of the Company Disclosure
Schedules, Company is not a party, whether as a direct signatory, assignor or
assignee, guarantor, successor, or third party beneficiary, to otherwise, and is
not otherwise bound by, any lease or other contract under which Company is
obligated or may be obligated by any representation, warranty, covenant,
restriction, indemnification or other undertaking respecting Hazardous Materials
or under which any other person is or has been released respecting Hazardous
Materials.
(l) The Company, each entity previously owned by Company and each
predecessor of Company have provided all notifications and warnings, made all
reports, and kept and maintained all records required pursuant to Environmental
Laws.
2.21 Substantial Customers. Section 2.21 of the Company Disclosure
--------------------- --------------------------------------
Schedule lists all customers of Company. Except as expressly contemplated by the
- --------
terms of such customers' agreement with the Company, no customer has ceased or
materially reduced its purchases from or sales or provision of services to
Company since December 31, 1999, or, to the knowledge of Company, has threatened
to cease or materially reduce such purchases or sales after the date hereof. To
the knowledge of Company, no customer is threatened with bankruptcy or
insolvency.
2.22 Accounts Receivable. The accounts receivable of Company reflected on
-------------------
Company Financials, and all accounts and notes receivable arising subsequent to
December 31, 1999, (a) arose from bona fide sales transactions in the ordinary
course of business and consistent with past practice, and are payable on
ordinary trade terms net of applicable reserve as set forth in Company
Financials, (b) are legal, valid and binding obligations of the respective
debtors enforceable in accordance with their respective terms, (c) are not
subject to any valid set-off or counterclaim net of applicable reserve as set
forth in Company Financials, and (d) do not represent obligations for goods sold
on consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement (except that software licensed by Company is
subject to acceptance by Company).
2.23 Other Negotiations; Brokers; Third Party Expenses. Except as
-------------------------------------------------
disclosed in Section 2.23 of the Company Disclosure Schedule, neither Company
-----------------------------------------------
nor any of its Affiliates
-36-
<PAGE>
(nor any investment banker, financial advisor, attorney, accountant or other
Person retained by or acting for or on behalf of Company or any such Affiliate)
(a) has entered into any Contract that conflicts with any of the transactions
contemplated by this Agreement or (b) has entered into any Contract or had any
discussions with any Person regarding any transaction involving Company which
could reasonably be expected to result in SciQuest, Company or any general
partner, limited partner, manager, officer, director, employee, agent or
Affiliate of any of them being subject to any claim for liability to said Person
as a result of entering into this Agreement or consummating the transactions
contemplated hereby.
2.24 Banks and Brokerage Accounts. Section 2.24 of the Company Disclosure
---------------------------- --------------------------------------
Schedule sets forth (a) a true and complete list of the names and locations of
- --------
all banks, trust companies, securities brokers and other financial institutions
at which Company has an account or safe deposit box or maintains a banking,
custodial, trading or other similar relationship, (b) a true and complete list
and description of each such account, box and relationship, indicating in each
case the account number and the names of the respective officers, employees,
agents or other similar representatives of Company having signatory power with
respect thereto and (c) a list of each Investment Asset, the name of the record
and beneficial owner thereof, the location of the certificates, if any,
therefor, the maturity date, if any, and any stock or bond powers or other
authority for transfer granted with respect thereto.
2.25 Warranty Obligations. Section 2.25 of the Company Disclosure Schedule
-------------------- -----------------------------------------------
sets forth (a) a list of all forms of written warranties, guarantees and written
warranty policies of Company in respect of any of Company's products and
services, which are currently in effect (the "Warranty Obligations"), and the
--------------------
duration of each such Warranty Obligation, (b) each of the Warranty Obligations
which is subject to any dispute or, to the knowledge of Company, threatened
dispute and (c) the experience of Company with respect to warranties, guarantees
and warranty policies of or relating to Company's products and services. True
and correct copies of the Warranty Obligations have been provided to SciQuest
prior to the execution of this Agreement. There have not been any material
deviations from the Warranty Obligations, and salespersons, employees and agents
of Company are not authorized to undertake obligations to any customer or other
Person in excess of such Warranty Obligations. The balance sheet included in
Company Financials reflects adequate reserves for Warranty Obligations. Unless
specifically provided otherwise in Section 2.15 hereof or Section 2.15 of the
------------ -------------------
Company Disclosure Schedule, all products manufactured, designed, licensed,
- ---------------------------
leased, rented or sold by Company, except for those products manufactured or
developed by a third party and sold by Company without change in form and with
respect to which Company has no Warranty Obligations, (x) are and were free from
defects in construction and design and (y) satisfy any and all Contract or other
specifications related thereto to the extent stated in writing in such Contracts
or specifications, in each case.
2.26 Foreign Corrupt Practices Act. Neither Company, nor to the knowledge
-----------------------------
of Company, any agent, employee or other Person acting on behalf of Company has,
directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds, violated any provision of the Foreign Corrupt Practices Act of
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<PAGE>
1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback
or other similar unlawful payment.
2.27 Tax-Free Reorganization. Neither Company nor any of its directors,
-----------------------
officers or stockholders have taken any action which could reasonably be
expected to jeopardize the status of the Merger as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
2.28 Operating Plan. Company has made available to SciQuest the Company's
--------------
2000 Operating Plan, which operating plan (including the financial projections
contained therein) was prepared in good faith and was based on reasonable
assumptions.
2.29 Approvals.
---------
(a) Section 2.29(a) of the Company Disclosure Schedule contains a
--------------------------------------------------
list of all Approvals of Governmental or Regulatory Authorities relating to the
business conducted by Company which are required to be given to or obtained by
Company from any and all Governmental or Regulatory Authorities in connection
with the consummation of the transactions contemplated by this Agreement.
(b) Section 2.29(b) of the Company Disclosure Schedule contains a
--------------------------------------------------
list of all Approvals which are required to be given to or obtained by Company
from any and all third parties other than Governmental or Regulatory Authorities
in connection with the consummation of the transactions contemplated by this
Agreement.
(c) The Company has obtained all material Approvals from Governmental
or Regulatory Authorities necessary to conduct the business conducted by Company
in the manner as it is currently being conducted and there has been no written
notice received by Company of any violation or non-compliance with any such
Approvals. All Approvals from Governmental or Regulatory Authorities necessary
to conduct the business conducted by Company as it is currently being conducted
are set forth in Section 2.29(c) of the Company Disclosure Schedule.
--------------------------------------------------
(d) The affirmative vote or consent of the holders of (i) a majority
of the shares of Company Common Stock outstanding as of the applicable record
date voting separately as a class, and (ii) a majority of the shares of each of
Company Series A Preferred Stock, Company Series B Preferred Stock, Company
Series D Preferred Stock and Company Series E Preferred Stock outstanding as of
the applicable record date (as adjusted for subsequent stock splits, stock
dividends, recapitalizations and the like), voting separately as classes and
together with the holders of Company Common Stock on an as converted basis, are
the only votes of the holders of any of Company Capital Stock necessary to
approve this Agreement and the Merger and the transactions contemplated hereby.
(e) The shares owned by stockholders of Company who have concurrently
herewith entered into Voting Agreements constitute (u) seventy-five percent
(75%) of the Company Capital Stock, (v) a majority of Company Common Stock, (w)
a majority of Company Series A Preferred Stock, (x) a majority of Company Series
B Preferred Stock, (y) a majority of Company Series D Preferred Stock, and (z) a
majority of Company Series E Preferred Stock.
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<PAGE>
2.30 Information Statement. The information supplied by Company for
---------------------
inclusion in the information statement to be sent to the stockholders of Company
in connection with Company stockholders' consideration of the Merger (the
"Company Stockholders Action") (such information statement as amended or
---------------------------
supplemented is referred to herein as the "Information Statement") shall not, on
---------------------
the date the Information Statement is first mailed to Company's stockholders, at
the time of Company Stockholders Action and at the Effective Time, contain any
statement which is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for Company Stockholders Action which has become false or misleading.
2.31 Due Diligence. The Company has delivered or made available true and
-------------
complete copies of each material document (to the extent such documents exist),
or true and complete summaries thereof, requested by SciQuest in writing prior
to the date of this Agreement.
2.32 Investment Advisors. Except as described in Section 2.34 of the
------------------- -------------------
Company Disclosure Schedules, no broker, investment banker, financial advisor or
- ----------------------------
other Person is entitled to any broker's, finder's, financial advisor's or
similar fee or commission in connection with this Agreement and the transactions
contemplated hereby based on arrangements made by or on behalf of Company,
provided that in no event shall any fees described in the Company Disclosure
Schedule exceed $2,000,000.
2.33 Disclosure. No representation or warranty contained in this
----------
Agreement, and no statement contained in Company Disclosure Schedule or in any
certificate furnished to SciQuest at Closing contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SCIQUEST AND MERGER SUB
SciQuest and Merger Sub hereby represent and warrant to Company, subject to
such exceptions as specifically disclosed with respect to specific sections of
this Article 3 in the SciQuest Disclosure Schedule delivered herewith, (it being
---------
understood that a disclosure contained in any section of the SciQuest Disclosure
Schedule shall relate to another section without an express cross-reference if
the disclosure is readily apparent on its face to a reasonable person to be
applicable to such other section) dated as of the date hereof and organized with
corresponding numbered and lettered sections, as follows:
3.1 Organization and Qualification. Each of SciQuest, Merger Sub and each
------------------------------
other Significant Subsidiary of SciQuest is a corporation duly organized,
validly existing and in good standing under the Laws of the State of their
respective incorporation and has all requisite corporate power and authority to
conduct its business as now conducted and as currently proposed to be conducted
and to own, use and lease its Assets and Properties. Each of SciQuest and Merger
Sub is duly qualified, licensed or admitted to do business and is in good
standing in each jurisdiction in which the ownership, use, licensing or leasing
of its Assets and Properties, or
-39-
<PAGE>
the conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for such failures to be so duly qualified, licensed
or admitted and in good standing that could not reasonably be expected to have a
Material Adverse Effect on SciQuest.
3.2 Authority Relative to this Agreement. Each of SciQuest and Merger Sub
------------------------------------
has all requisite corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements, to which it is a party to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by SciQuest and
Merger Sub of this Agreement and the Ancillary Agreements to which each is a
party and the consummation by SciQuest and Merger Sub of the transactions
contemplated hereby and thereby, and the performance by SciQuest and Merger Sub
of their respective obligations hereunder and thereunder, have been duly and
validly authorized by all necessary action by the Board of Directors of SciQuest
and Merger Sub, respectively, and no other action on the part of the Board of
Directors of SciQuest or Merger Sub is required to authorize the execution,
delivery and performance of this Agreement and the Ancillary Agreements to which
each is a party and the consummation by SciQuest and Merger Sub of the
transactions contemplated hereby and thereby. This Agreement and the Ancillary
Agreements to which SciQuest and Merger Sub are a party have been or will be, as
applicable, duly and validly executed and delivered by SciQuest and Merger Sub
and, assuming the due authorization and the valid execution and delivery hereof
by Company and/or the other parties thereto, constitutes or will constitute, as
applicable, a legal, valid and binding obligation of SciQuest and Merger Sub
enforceable against SciQuest and Merger Sub in accordance with its respective
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
Laws relating to the enforcement of creditors' rights generally and by general
principles of equity.
3.3 Issuance of SciQuest Common Stock. The shares of SciQuest Common Stock
---------------------------------
to be issued pursuant to the Merger, when issued, will be duly authorized,
validly issued, fully paid, non-assessable free and clear of all Liens and
issued in compliance with applicable federal and state securities laws subject
to the truth and accuracy of the representations made by Company in Section 2.3.
------------
SciQuest shall reserve for issuance such number of shares of SciQuest Common
Stock as required for the issuance of SciQuest Common Stock upon exercise of
options granted pursuant to Section 1.6(d).
3.4 Capitalization. (a) The authorized capital stock of SciQuest consists
--------------
of 100,000,000 shares of Common Stock, $0.001 par value per share and 10,000,000
shares of Preferred Stock, $0.001 par value per share, of which 28,464,125
shares of Common Stock were outstanding as of February 29, 2000, and no shares
of Preferred Stock were outstanding as of the date of this Agreement. All of the
issued and outstanding shares of SciQuest Common Stock are validly issued, fully
paid and nonassessable, and have been issued in compliance with all applicable
federal, state and foreign securities Laws. Except as set forth in Section 3.4
-----------
of the SciQuest Disclosure Schedule, no shares of SciQuest Common Stock are held
- -----------------------------------
in treasury.
(b) The authorized capital stock of Merger Sub consists of 100 shares
of Common Stock, $0.001 par value per share, all of which are outstanding and
are owned by SciQuest. All of the issued and outstanding shares of Merger Sub
Common Stock are validly issued, fully paid
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<PAGE>
and nonassessable, free and clear of all Liens, and have been issued in
compliance with all applicable federal, state and foreign securities Laws.
3.5 SEC Documents; SciQuest Financial Statements.
--------------------------------------------
(a) SciQuest has furnished to Company true and complete copies of all
SEC Documents filed by it with the SEC since its initial public offering, all in
the form so filed. Since November 19, 1999, SciQuest has filed all SEC documents
required to be filed by SciQuest with the SEC. As of their respective filing
dates, such SEC Documents filed by SciQuest and all SEC Documents filed after
the date hereof (i) were prepared in all material respects with the applicable
requirements of the Securities Act and Exchange Act, as the case may be, and
(ii) did 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
made therein, in light of the circumstances in which they were made, not
misleading, except to the extent such SEC Documents have been corrected, updated
or superseded by a document subsequently filed with the SEC.
(b) The consolidated financial statements of SciQuest, including the
notes thereto, included in the SEC Documents (the "SciQuest Financial
------------------
Statements") comply as to form in all material respects with the published rules
- ----------
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q
under the Exchange Act) and present fairly the consolidated financial position
of SciQuest and its Subsidiaries at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited financial statements, to normal year-end adjustments).
There has been no change in SciQuest's accounting policies except as described
in the notes to the SciQuest Financial Statements. Except as reflected or
reserved against in the SciQuest Financial Statements, SciQuest and its
Subsidiaries have no material Liabilities, except for Liabilities and
obligations (i) incurred in the ordinary course of business since the date of
the most recent SciQuest Financial Statements or (ii) that would not be required
to be reflected or reserved against in the balance sheet of SciQuest prepared in
accordance with GAAP.
3.6 No Conflicts. The execution and delivery by each of SciQuest and
------------
Merger Sub of this Agreement does not, and the performance by each of SciQuest
and Merger Sub of its obligations under this Agreement and the consummation of
the transactions contemplated hereby do not and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Certificate of Incorporation or bylaws of
SciQuest or Merger Sub;
(b) conflict with or result in a violation or breach of any Law or
Order applicable to SciQuest or Merger Sub or their Assets or Properties;
(c) except as would not have a Material Adverse Effect on SciQuest,
(i) conflict with or result in a violation or breach of, (ii) constitute a
default (or an event that, with or without notice or lapse of time or both,
would constitute a default) under, (iii) require SciQuest or Merger Sub to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result of the terms of, (other than the filing of the
Certificate of Merger;
-41-
<PAGE>
such consents approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state or federal securities laws;
and such filings as may be required under the HSR Act), (iv) result in or give
to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments or performance under, (vi) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon SciQuest or
Merger Sub or any of their Assets or Properties, or (vii) result in the loss of
a material benefit under, any of the terms, conditions or provisions of any
Contract or License to which SciQuest or Merger Sub is a party or by which any
of their Assets and Properties are bound.
3.7 Organizational Documents. SciQuest has prior to the execution of this
------------------------
Agreement provided to Company true and complete copies of SciQuest's and Merger
Sub's Certificate of Incorporation and bylaws (or other organizational
documents), all as amended through the date hereof. Neither SciQuest nor Merger
Sub is in violation of any provisions of their respective Certificate of
Incorporation or bylaws (or other organizational documents) as so amended.
3.8 SciQuest Financial Statements. Section 3.8 of the Company Disclosure
----------------------------- -------------------------------------
Schedule sets forth SciQuest financial statements as of, and for the period
- --------
ending, December 31, 1999 (the "SciQuest 1999 Financials"). The SciQuest 1999
Financials provided to Company are correct and complete and have been prepared
in accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as indicated in the notes (if
any) thereto, as provided to Company prior to the date hereof). The SciQuest
1999 Financials present fairly and accurately in all material respects the
financial condition and operating results of SciQuest and its Subsidiaries as of
the dates and during the periods indicated therein. Since December 31, 1999,
there has been no change in any accounting policies, principles, methods or
practices, including any change with respect to reserves (whether for bad debts,
contingent liabilities or otherwise), of SciQuest or any Subsidiary.
3.9 Absence of Changes. Except as set forth on the SciQuest Disclosure
------------------
Schedule and except for any changes that individually or in the aggregate could
not be reasonably expected to have a Material Adverse Effect on SciQuest,
SciQuest's Registration Statement on Form S-1 (SEC File No. 333-87433), as
declared effective by the SEC on November 19, 1999, remains true and correct.
3.10 Information to be Supplied by SciQuest and Merger Sub. The information
-----------------------------------------------------
supplied by each of SciQuest and Merger Sub for inclusion in the Information
Statement shall not, on the date the Information Statement is first mailed to
Company's stockholders, at the time of Company Stockholders Meeting and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which it is made, not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for Company Stockholders Action which has
become false or misleading.
-42-
<PAGE>
3.11 Investment Advisors. Except Donaldson, Lufkin & Jennrette Securities
-------------------
Corporation, no broker, investment banker, financial advisor or other Person is
entitled to any broker's, finder's, financial advisor's or similar fee or
commission in connection with this Agreement and the transactions contemplated
hereby based on arrangements made by or on behalf of SciQuest, which fees shall
be the sole responsibility of SciQuest.
3.12 Tax-Free Reorganization. SciQuest, Merger Sub and their directors,
-----------------------
officers or stockholders have not taken any action which could reasonably be
expected to jeopardize the status of the Merger as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
3.13 Third-Party Consents. Neither SciQuest nor Merger Sub is required to
--------------------
obtain from any third party any consent, waiver or approval for the consummation
of the Merger (other than consents which will be obtained at or prior to the
Closing and consents, the absence of which could not reasonably be expected to
have a Material Adverse Effect on SciQuest or to prevent the consummation of the
transactions contemplated by this Agreement).
3.14 Disclosure. No representation or warranty contained in this Agreement
----------
and no statement contained in the SciQuest Disclosure Schedule or in any
certificate furnished to the Company at Closing contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE 4.
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Company.
------------------------------
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement, the Effective Time or the
Outside Closing Date, Company agrees (unless SciQuest shall give its prior
consent in writing), to carry on its business in the ordinary course and in
accordance with Company's 2000 Operating Plan, to pay its Liabilities and Taxes
consistent with Company's past practices (and in any event when due), to pay or
perform other obligations when due consistent with Company's past practices
(other than Liabilities, Taxes and other obligations, if any, contested in good
faith through appropriate proceedings), and, to the extent consistent with such
business, to use reasonable efforts and institute all policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, independent
contractors and other Persons having business dealings with it, all with the
express purpose and intent of preserving unimpaired its goodwill and ongoing
businesses at the Effective Time. Except as expressly contemplated by this
Agreement, Company shall not, without the prior written consent of SciQuest,
take or agree in writing or otherwise to take, any action that would result in
the occurrence of any of the changes described in Section 2.8 of this Agreement,
-----------
or any other action that would make any of its representations or warranties
contained in this Agreement untrue or incorrect in any material respect or
prevent Company from performing or cause Company not to perform its agreements
and covenants in this Agreement. Without limiting the generality of the
foregoing, during the
-43-
<PAGE>
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, except as set forth in the
Company Disclosure Schedule or as required or expressly permitted by this
Agreement or in the ordinary course of business, Company shall not do, cause or
permit any of the following, without the prior written consent of SciQuest:
(a) Charter Documents: cause or permit any amendments to its
-----------------
Certificate of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock: declare or pay any
-----------------------------------
dividend on or make any other distribution (whether in cash, stock or property)
in respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in connection
with any termination of service to it;
(c) Stock Option Plans: accelerate, amend or change the period of
------------------
exercisability or vesting of options or other rights granted under its stock
plans or authorize cash payments in exchange for any options or other rights
granted under any of such plans; or grant any Option;
(d) Contracts: enter into any (i) Contract or commitment, or violate,
---------
amend or otherwise modify or waive any of the terms of any of its Contracts,
other than in the ordinary course of business consistent with past practice
which involve total obligations of less than fifty thousand dollars ($50,000)
and which are not otherwise material to the business of Company or (ii) any
Customer License Agreement, Supplier License Agreement, Source Code Agreement,
Distributor Agreement or Other Agreement;
(e) Issuance of Securities: issue, deliver or sell or authorize or
----------------------
propose the issuance, delivery or sale of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than the issuance
of shares of its Common Stock pursuant to the conversion of outstanding shares
of Company Preferred Stock and the exercise of Company Options, Company Warrants
or other Company Stock Purchase Rights outstanding as of February 7, 2000;
(f) Intellectual Property: transfer to any person or entity any
---------------------
rights to any Intellectual Property other than non-exclusive licenses in
connection with the sale of Company products in the ordinary course of business
consistent with past practice;
(g) Exclusive Rights: enter into or amend any agreement pursuant to
----------------
which any other party is granted exclusive marketing or other exclusive rights
of any type or scope with respect to any of Company's products or technology;
(h) Dispositions: sell, lease, license or otherwise dispose of or
------------
encumber any of Company's properties or assets, except for nonexclusive licenses
in connection with resale of
-44-
<PAGE>
Company's products in the ordinary course of business consistent with past
practice or sales of immaterial assets;
(i) Indebtedness: incur any indebtedness for borrowed money or
------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) Leases: enter into any operating lease other than in the ordinary
------
course of business;
(k) Payment of Obligations: pay, discharge or satisfy any claim,
----------------------
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in Company Financials and reasonable expenses incurred in connection
with the transactions contemplated by this Agreement;
(l) Capital Expenditures: make any capital expenditures, capital
--------------------
additions or capital improvements except in accordance with Company's 2000
Operating Plan;
(m) Insurance: reduce the amount of any insurance coverage provided
---------
by existing insurance policies;
(n) Termination or Waiver: terminate or waive any right of
---------------------
substantial value;
(o) Employee Benefit Plans; New Hires; Pay Increases: adopt or
------------------------------------------------
amend any employee benefit or stock purchase or option plan, or hire any new
director level or officer level, consultant or employee, pay any special bonus
or special remuneration to any employee, consultant or director or increase the
salaries, wage rates or compensation of any employee or consultant;
(p) Severance Arrangements: grant any severance or termination pay
----------------------
(i) to any director, officer or consultant or (ii) to any other employee or
consultant except payments made pursuant to standard written agreements
outstanding on the date hereof;
(q) Lawsuits: commence a lawsuit other than (i) for the routine
--------
collection of bills, or (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with SciQuest prior
to the filing of such a suit (other than for a breach of this Agreement);
(r) Acquisitions: acquire or agree to acquire by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof;
(s) Taxes: make or change any election in respect of Taxes, adopt
-----
or change any accounting method in respect of Taxes, file any Tax Return or any
amendment to a Tax Return other than Company's corporate Tax Return for the year
ended December 31, 1999, and payroll tax returns, enter into any closing
agreement, settle any claim or assessment in respect of
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<PAGE>
Taxes, or consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of Taxes;
(t) Revaluation: revalue any of its assets, including writing down
-----------
the value of inventory or writing off notes or accounts receivable; or
(u) Other: take or agree in writing or otherwise to take, any of the
-----
actions described in Sections 4.1(a) through (t) above, or any action which
----------------------------
would make any of its representations or warranties contained in this Agreement
untrue or incorrect in any material respect or prevent it from performing or
cause it not to perform its covenants and agreements in this Agreement or cause
any condition to SciQuest's closing obligations in Section 6.1 or Section 6.3
----------- -----------
not to be satisfied.
4.2 No Solicitation. Until the earlier of the Effective Time, the date of
---------------
termination of this Agreement pursuant to the provisions of Section 8.1 hereof
-----------
and the Outside Closing Date, Company will not take (and since February 8, 2000,
inclusive, Company has not taken), nor will Company permit (and since the time
of execution of the Merger Agreement inclusive has not permitted) any of its
directors, officers, agents, employees, Affiliates, Associates, attorneys,
accountants, financial advisers or other representatives (collectively,
"Representatives") to (directly or indirectly): (i) solicit, encourage,
---------------
initiate, entertain, review or participate in any negotiations or discussions
with respect to any possible Business Combination involving Company or any of
its subsidiaries (whether such subsidiaries are in existence on the date hereof
or are hereafter established) or any offer or proposal, oral, written, or
otherwise, formal or informal to acquire all or any major part of Company,
whether by purchase of assets, exclusive license, joint venture formation,
purchase of stock, business combination or otherwise, (ii) disclose any
information not customarily disclosed to any Person concerning Company which
Company believes, or could reasonably be expected to believe, would be used for
the purposes of evaluating any such possible Business Combination or formulating
any such offer or proposal, (iii) assist, cooperate with, facilitate or
encourage any such offer or proposal, or any effort or attempt by any such
Person with regard to any such possible Business Combination (a "Competing
---------
Transaction"), (iv) enter into any contract, arrangement or understanding with
- -----------
any Person, looking toward a Business Combination, (v) make or authorize any
statement, endorsement, recommendation or solicitation in support of any such
offer or proposal or any such possible Business Combination, (vi) agree to,
enter into, approve, recommend or endorse a contract regarding, any transaction
involving the acquisition of all or any major part of Company, or (vii)
authorize or permit any of Company's Representatives to take any action within
the scope of any of the foregoing clauses. Without limiting the foregoing
provisions, if any substantive proposal or offer regarding a Competing
Transaction is made or is outstanding on the date hereof, the Company shall
notify SciQuest (such notice to include the identity of the Person proposing
such Competing Transaction and the terms thereof), and shall keep SciQuest fully
apprised, on a current basis, of the status and details of any such Competing
Transaction and of any modifications to the terms thereof. The Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties other than SciQuest conducted heretofore with
respect to any Competing Transaction. Each of Company and SciQuest acknowledge
that this Section 4.2 was a significant inducement for SciQuest to enter into
-----------
this Agreement and the absence of such provision would have resulted in either
(i) a material
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<PAGE>
reduction in the merger consideration to be paid to the stockholders of Company
or (ii) a failure to induce SciQuest to enter into this Agreement.
ARTICLE 5.
ADDITIONAL AGREEMENTS
5.1 Information Statement. (a) As soon as practicable after the execution
---------------------
of this Agreement, Company shall prepare, with the cooperation of SciQuest, the
Information Statement for the stockholders of Company to approve this Agreement,
the Certificate of Merger and the transactions contemplated hereby. The
Information Statement shall constitute a disclosure document for the offer and
issuance of the shares of SciQuest Common Stock to be received by the holders of
Company Capital Stock in the Merger. SciQuest and Company shall each use
reasonable commercial efforts to cause the Information Statement to comply with
applicable federal and state securities laws requirements. Each of SciQuest and
Company shall provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Information Statement, or in any amendments or supplements thereto, and
to cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Information Statement. The Company will
promptly advise SciQuest, and SciQuest will promptly advise Company, in writing
if at any time prior to the Effective Time either Company or SciQuest, as
applicable, shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Information Statement in order to make
the statements contained or incorporated by reference therein not misleading or
to comply with applicable law. The Information Statement shall contain the
recommendation of the Board of Directors of Company that Company stockholders
approve the Merger and this Agreement and the conclusion of the Board of
Directors that the terms and conditions of the Merger are advisable and fair and
reasonable to and in the best interest of the stockholders of Company. Anything
to the contrary contained herein notwithstanding, neither party shall include in
the Information Statement any information with respect to the other party, the
form and content of which information shall not have been approved by such other
party prior to such inclusion.
(b) SciQuest and Company shall use commercially reasonable efforts to
effect the issuance of the shares of SciQuest Common Stock to be issued pursuant
to Section 1.6 in a private placement pursuant to Section 4(2) of the Securities
----------- ------------
Act. The parties hereto acknowledge and agree that: (i) as a condition to the
issuance of shares to any particular stockholder of the Company, SciQuest shall
be entitled to obtain from such stockholder a Stockholder Certificate in the
form attached hereto as Exhibit C (or such other form as shall be reasonably
---------
satisfactory to SciQuest) ("Stockholder Certificate") and that SciQuest will be
-----------------------
relying upon the representations made by such stockholder of Company in the
applicable Stockholder Certificate in connection with the issuance of SciQuest
Common Stock to such stockholder, (ii) the shares of SciQuest Common Stock so
issued pursuant to Section 1.6 will not be registered under the Securities Act
-----------
and will constitute "restricted securities" within the meaning of the Securities
Act; and (iii) the certificates representing the shares of SciQuest Common Stock
shall bear appropriate legends to identify such privately placed shares as being
restricted under the Securities Act, to comply with applicable state securities
laws and, if applicable, to notice the restrictions on transfer of such shares.
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<PAGE>
5.2 Stockholder Approval. As soon as practicable following the execution
--------------------
and delivery of this Agreement, Company shall give written notice of this
Agreement and Company Stockholders Action to all Company stockholders and shall
use commercially reasonable efforts to take all other action necessary in
accordance with Delaware Law and its Certificate of Incorporation and Bylaws to
convene Company Stockholders Action or to secure the written consent of its
stockholders before March 20, 2000. The Company shall consult with SciQuest
regarding the date of Company Stockholders Action and use all commercially
reasonable efforts and shall not postpone or adjourn (other than for the absence
of a quorum) Company Stockholders Action without the consent of SciQuest. The
Company shall use all commercially reasonable efforts required to take all
action necessary or advisable to secure the vote or consent of stockholders
required to effect the Merger. The materials submitted to the stockholders of
Company in respect of the Merger shall have been subject to prior review and
comment by SciQuest.
5.3 Access to Information. Between the date of this Agreement and the
---------------------
earlier of the Effective Time or the termination of this Agreement, upon
reasonable notice Company shall (i) give SciQuest and its respective officers,
employees, accountants, counsel, financing sources and other agents and
representatives reasonable access to all buildings, offices, and other
facilities and to all Books and Records of Company, whether located on the
premises of Company or at another location; (ii) permit SciQuest to make such
inspections as they may reasonably require; (iii) cause its officers to furnish
SciQuest such financial, operating, technical and product data and other
information with respect to the business and Assets and Properties of Company as
SciQuest from time to time may request, including financial statements and
schedules; (iv) allow SciQuest the opportunity to interview such employees and
other personnel and Affiliates of Company with Company's prior written consent,
which consent shall not be unreasonably withheld or delayed; and (v) assist and
cooperate with SciQuest in the development of integration plans for
implementation by SciQuest and the Surviving Corporation following the Effective
Time; provided, however, that no investigation pursuant to this Section 5.3
-----------
shall affect or be deemed to modify any representation or warranty made by
Company herein. Materials furnished to SciQuest pursuant to this Section 5.3 may
-----------
be used by SciQuest for strategic and integration planning purposes relating to
accomplishing the transactions contemplated hereby.
5.4 Confidentiality. The parties acknowledge that SciQuest and Company
---------------
have previously executed a non-disclosure agreement prior to the date hereof
(the "Confidentiality Agreement"), which Confidentiality Agreement shall
-------------------------
continue in full force and effect in accordance with its terms. Each of the
parties hereto hereby agrees to keep the terms of this Agreement (except to the
extent contemplated hereby) and such information or knowledge obtained in any
investigation pursuant to Section 5.3, or pursuant to the negotiation and
-----------
execution of this Agreement or the effectuation of the transactions contemplated
hereby, confidential; provided, however, that the foregoing shall not apply to
information or knowledge which (a) a party can demonstrate was already lawfully
in its possession prior to the disclosure thereof by the other party, (b) is
generally known to the public and did not become so known through any violation
of Law, or a confidentiality agreement or other contractual legal or fiduciary
obligation of confidentiality of the disclosing party or any other party with
respect to such information, (c) became known to the public through no fault of
such party, (d) is later
-48-
<PAGE>
lawfully acquired by such party without confidentiality restrictions from other
sources not bound by applicable confidentiality restrictions, (e) is developed
independently without the use of the other party's confidential information, (f)
is required to be disclosed by order of court or Governmental or Regulatory
Authority with subpoena powers (provided that such party shall have provided the
other party with prior notice of such order and an opportunity to object or seek
a protective order and take any other available action) or (g) which is
disclosed in the course of any Action or Proceeding between any of the parties
hereto. Without limiting the foregoing, all information furnished to SciQuest
and its officers, employees, accountants and counsel by Company, and all
information furnished to Company by SciQuest and its officers, employees,
accountants and counsel, shall be covered by the Confidentiality Agreement, and
SciQuest and Company shall be fully liable and responsible under the
Confidentiality Agreement for any breach of the terms and conditions thereof by
their respective subsidiaries, officers, employees, accountants and counsel.
5.5 Expenses. Except as otherwise provided in this Agreement, whether or
--------
not the Merger is consummated, all fees and expenses incurred in connection with
the Merger including all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties ("Third Party Expenses") incurred
--------------------
by a party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall be
the obligation of the respective party incurring such fees and expenses provided
that, if the Merger is consummated, SciQuest shall pay the Company's Third Party
Expenses in an amount up to $200,000 for legal fees ($250,000 if the Closing
occurs on or after March 31, 2000) and $25,000 accounting fees incurred by the
Company in connection with the transactions contemplated hereby and Company
agrees that SciQuest will have full recourse to the Escrow Fund for payment of
Third Party Expenses in excess of the foregoing amounts, whether such Third
Party Expenses have been paid, accrued or incurred by Company.
5.6 Public Disclosure. Except as otherwise provided in this Agreement, or
-----------------
unless otherwise required by Law (including federal and state securities laws)
or, as to SciQuest, by the rules and regulations of the NASD, prior to the
Effective Time, no public disclosure (whether or not in response to any inquiry)
of the existence of any subject matter of, or the terms and conditions of, this
Agreement shall be made by any party hereto unless approved by SciQuest and
Company prior to release; provided, however, that such approval shall not be
unreasonably withheld or delayed.
5.7 Approvals. SciQuest and Company shall use all commercially reasonable
---------
efforts required to obtain all Approvals from Governmental or Regulatory
Authorities or under any of the Contracts or other agreements as may be required
in connection with the Merger (all of which Approvals are set forth in Company
Disclosure Schedule) so as to preserve all rights of and benefits to Company
thereunder and SciQuest and Company shall provide each other with such
assistance and information as is reasonably required to obtain such Approvals.
5.8 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to SciQuest, and SciQuest shall give prompt notice to Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of Company or SciQuest,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any failure
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<PAGE>
of Company or SciQuest, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.8 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.9 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things (including all action
reasonably necessary to seek and obtain any and all consents and approvals of
any Government or Regulatory Authority or Person required in connection with the
Merger; provided, however, that SciQuest shall not be obligated to consent to
any divestitures or operational limitations or activities in connection
therewith and no party shall be obligated to make a payment of money in excess
of $15,000 as a condition to obtaining any such condition or approval) as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.10 Form S-8. SciQuest shall file a registration statement on Form S-8
--------
for the shares of SciQuest Common Stock issuable with respect to assumed Company
Options within fifteen (15) days after the Effective Time to the extent the
shares of SciQuest Common Stock issuable upon exercise of such Company Options
qualify for registration on Form S-8. SciQuest shall use its commercially
reasonable efforts to maintain the effectiveness of such registration statement
and the current status of the prospectus relating thereto for as long as such
Company Options remain outstanding.
5.11 NNM Listing of Additional Shares Application. SciQuest shall use its
--------------------------------------------
commercially reasonable efforts to cause to be authorized for listing on the NNM
the shares of SciQuest Common Stock to be issued and the shares of SciQuest
Common Stock required to be reserved for issuance, in connection with the
Merger, upon official notice of issuance.
5.12 Company's Auditors. The Company will use commercially reasonable
------------------
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) as required by SciQuest to comply with
applicable SEC regulations, (ii) the review of any Company audit or review work
papers including the examination of selected audited financial statements and
data, and (iii) the delivery of such representations from Company's independent
accountants as may be reasonably requested by SciQuest or its accountants.
5.13 Takeover Statutes. If any Takeover Statute is or may become
-----------------
applicable to the transactions contemplated hereby, the Board of Directors of
Company will grant such approvals and take such actions as are necessary so that
the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate the
effects of any Takeover Statute on any of the transactions contemplated hereby.
5.14 Directors' and Officers' Indemnification. (a) SciQuest, Company and
----------------------------------------
the Surviving Corporation agree that all rights to indemnification or
exculpation now existing in favor of the employees, agents, directors or
officers of Company (the "Company Indemnified Parties") as provided in its
---------------------------
Certificate of Incorporation or Bylaws or indemnification agreements as in
effect on December 31, 1999 shall continue in full force and effect for a period
of not less
-50-
<PAGE>
than seven (7) years from the Closing Date; provided, however, that, in the
event any claim or claims are asserted or made within such seven (7) year
period, all rights to indemnification in respect of any such claim or claims
shall continue to disposition of any and all such claims. Any determination
required to be made with respect to whether a Company Indemnified Party's
conduct complies with the standards set forth in the Certificate of
Incorporation or Bylaws or indemnification agreements of the Surviving
Corporation or otherwise shall be made by independent counsel selected by the
Surviving Corporation reasonably satisfactory to Company Indemnified Party
(whose fees and expenses shall be paid by the Surviving Corporation).
(b) The Company hereby represents and warrants to SciQuest that no
claim for indemnification pursuant to any indemnification agreement or provision
of Company's Certificate of Incorporation or Bylaws has been made by any
director or officer of Company and, to the knowledge of Company, no basis exists
for any such claim for indemnification by any director or officer of Company.
5.15 Benefit Arrangements. Until the earlier to occur of December 31, 2000
--------------------
or the termination of agreements relating to such benefits SciQuest shall
provide (or will cause Company to provide) benefits to the employees of the
Company as of the Effective Time that are at least as favorable, taken as a
whole, as the benefits currently provided to such employees. From and after the
Effective Time, SciQuest shall grant employees of the Company as of the
Effective Time credit for all service (to the same extent as service with
SciQuest is taken into account with respect to similarly situated employees of
SciQuest) with Company prior to the Effective Time for (i) eligibility and
vesting purposes under all Plans and (ii) for purposes of vacation accrual after
the Effective Time as if such service with Company was service with SciQuest.
SciQuest and Company agree that where applicable with respect to any medical or
dental benefit plan of SciQuest, SciQuest shall provide that any covered
expenses incurred on or before the Effective Time by an employee of the Company
or an employee's covered dependents shall be taken into account for purposes of
satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions after the Effective Time to the same extent as such expenses are
taken into account for the benefit of similarly situated employees of SciQuest.
5.16 Treatment as Reorganization. Neither SciQuest nor Company shall take
---------------------------
any action prior to or following the Closing that would cause the merger to fail
to qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code.
5.17 Company Repurchases. The Company will exercise any rights that mature
-------------------
between the date hereof and the Effective Time to repurchase any outstanding
shares of Company Capital Stock at the lowest price possible, so long as such
price is less than the Signing Share Price divided by the Exchange Ratio.
5.18 Merger Sub. Prior to the Effective Time, Merger Sub shall not conduct
----------
any business or make any investments other than as specifically contemplated by
this Agreement and will not have any assets (other than the minimum amount of
cash required to be paid to Merger Sub for the valid issuance of its stock to
SciQuest) or Liabilities.
ARTICLE 6.
CONDITIONS TO THE MERGER
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<PAGE>
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Governmental and Regulatory Approvals. Approvals from any
-------------------------------------
Governmental or Regulatory Authority (if any) necessary for consummation of the
transactions contemplated by this Agreement shall have been timely obtained, and
any waiting period applicable to the consummation of the Merger under the HSR
Act (other than with respect to the receipt of SciQuest Common Stock by a
stockholder of Company) shall have expired or been terminated.
(b) No Injunctions or Regulatory Restraints; Illegality. No
---------------------------------------------------
temporary restraining order, preliminary or permanent injunction or other Order
issued by any court of competent jurisdiction or Governmental or Regulatory
Authority or other legal or regulatory restraint or prohibition preventing the
consummation of the Merger shall be in effect; nor shall there be any action
taken, or any Law or Order enacted, entered, enforced or deemed applicable to
the Merger or the other transactions contemplated by the terms of this Agreement
that would prohibit the consummation of the Merger or which would permit
consummation of the Merger only if certain divestitures were made or if SciQuest
were to agree to limitations on its business activities or operations.
(c) Tax Opinions. SciQuest and Company shall each have received
------------
written opinions from their counsel, in form and substance reasonably
satisfactory to each of them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The parties to this Agreement agree to make such reasonable
representations as requested by such counsel for the purpose of rendering such
opinions.
(d) Stockholder Approval. The Merger shall have been approved by the
--------------------
requisite votes of Company's stockholders in accordance with the DGCL.
(e) NNM Listing. The shares of SciQuest Common Stock issuable to
-----------
stockholders of Company in the Merger and the shares of SciQuest Common Stock
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the NNM upon official notice of issuance.
(f) Legal Proceedings. No Governmental or Regulatory Authority
-----------------
shall have notified either party to this Agreement that such Governmental or
Regulatory Authority intends to commence proceedings to restrain or prohibit the
transactions contemplated hereby or force rescission, unless such Governmental
or Regulatory Authority shall have withdrawn such notice and abandoned any such
proceedings prior to the time which otherwise would have been the Closing Date.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
Company to consummate the Merger and the other transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Company:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by SciQuest and Merger Sub in this Agreement shall be true and
correct in all material
-52-
<PAGE>
respects (if not qualified by materiality) and in all respects (if qualified by
materiality) when made and on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date, and any
representation or warranty made as of a specified date earlier than the Closing
Date shall be true and correct in all material respects (if not qualified by
materiality) and in all respects (if qualified by materiality) on and as of such
earlier date.
(b) Performance. SciQuest and Merger Sub shall have performed and
-----------
complied with in all material respects each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by SciQuest or
Merger Sub at or before the Closing.
(c) Officers' Certificates. SciQuest shall have delivered to
----------------------
Company a certificate, dated the Closing Date and executed by its President or
Chief Executive Officer, substantially in the form set forth in Exhibit D-1
-----------
hereto, and a certificate, dated the Closing Date and executed by the Secretary
of SciQuest, substantially in the form set forth in Exhibit D-2 hereto.
-----------
(d) Legal Opinion. The Company shall have received a legal opinion
-------------
from Morris, Manning & Martin LLP, counsel to SciQuest, as to the matters set
forth on Exhibit E hereto.
---------
(e) Tax Representation Letter. SciQuest shall have executed and
--------------------------
delivered to the Company a Tax Representation Letter in substantially the form
attached as Exhibit K.
---------
(f) Registration Rights Agreement. SciQuest shall have executed and
-----------------------------
delivered to Company the Registration Rights Agreement substantially in the form
of Exhibit J hereto (and such Registration Rights Agreement shall be in full
---------
force and effect).
(g) No Material Adverse Change. There shall have been no events,
--------------------------
changes or effects, individually or in the aggregate, with respect to SciQuest
having, or that could reasonably be expected to have, a Material Adverse Effect
on SciQuest and its Subsidiaries taken as a whole.
6.3 Additional Conditions to the Obligations of SciQuest and Merger Sub.
-------------------------------------------------------------------
The obligations of SciQuest and Merger Sub to consummate the Merger and the
other transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, exclusively by SciQuest:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by Company in this Agreement shall be true and correct in all
material respects (if not qualified by materiality) and in all respects (if
qualified by materiality) when made and (other than representations and
warranties which by their express terms are made solely as of a specified
earlier date) on and as of the Closing Date as though such representation or
warranty was made on and as of the Closing Date; and any representation or
warranty made as of a specified date earlier than the Closing Date shall be true
and correct in all material respects (if not qualified by materiality) and in
all respects (if qualified by materiality) on and as of such earlier date.
-53-
<PAGE>
(b) Performance. The Company shall have performed and complied
-----------
with in all material respects each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by Company on or before
the Closing Date.
(c) Officers' Certificates. The Company shall have delivered to
----------------------
SciQuest a certificate, dated the Closing Date and executed by the President and
Chief Executive Officer of Company, substantially in the form set forth in
Exhibit F- 1 hereto, and a certificate, dated the Closing Date and executed by
- ------------
the Secretary of Company, substantially in the form set forth in Exhibit F-2
-----------
hereto.
(d) Third Party Consents. SciQuest shall have been furnished with
--------------------
evidence satisfactory to it that Company has obtained the consents, approvals
and waivers listed in Section 2.5 of the Company Disclosure Schedule.
----------------------------------------------
(e) Legal Opinion. SciQuest shall have received a legal opinion from
-------------
Drinker Biddle & Reath LLP, legal counsel to Company, as to the matters set
forth on Exhibit G hereto.
---------
(f) Employment Agreements. Jeb Connor, James Keller, Mark Robillard,
---------------------
John Thomas and Robert O'Hara shall have executed and delivered to SciQuest an
Employment Agreement in the form attached hereto as Exhibit H ("Employment
--------- ----------
Agreement"), and all of such Employment Agreements shall be in full force and
- ---------
effect.
(g) Tax Representation Letter. The Company shall have executed and
--------------------------
delivered to SciQuest a Tax Representation Letter in substantially the form
attached as Exhibit K.
---------
(h) Stockholder Approval. Holders of at least seventy-five percent
--------------------
(75%) of the outstanding shares of Company Capital Stock shall have approved the
Merger, this Agreement and the transactions contemplated hereby.
(i) No Material Adverse Change. There shall have been no events,
--------------------------
changes or effects, individually or in the aggregate, with respect to Company
having, or that could reasonably be expected to have, a Material Adverse Effect
on Company and its subsidiaries taken as a whole.
(j) Employees. Jeb Connor, James Keller, Mark Robillard, John
---------
Thomas and Robert O'Hara shall continue to be employed by Company at the
Closing, and shall not have given any notice or other indication that they are
not willing to be employed by SciQuest or a Subsidiary of SciQuest (as SciQuest
shall designate), following the Merger. In addition, at least (i) 90% of the
non-clerical or administrative employees (other than the employees named in the
preceding sentence) or (ii) 70% of the non-clerical and administrative employees
(other than the employees named in the preceding sentence) if Closing occurs
more than thirty (30) days following the date hereof, of Company employed as of
the date hereof shall continue to be employed by Company on the Closing Date and
shall not have given any notice or other indication that they are not willing to
be employed by SciQuest or a Subsidiary of SciQuest (as SciQuest shall
designate) following the Merger.
-54-
<PAGE>
(k) Private Placement. Each of the stockholders of Company set
-----------------
forth in Section 6.3(k) of the Company Disclosure Schedule shall have delivered
-------------------------------------------------
an executed copy of the Stockholder Certificate, and SciQuest shall be
reasonably satisfied that the shares of SciQuest Common Stock to be issued in
connection with the Merger pursuant to Section 1.6(a) are issuable without
--------------
registration pursuant to Section 4(2) of the Securities Act and SEC rules and
regulations promulgated thereunder.
(l) Polar Agreement. The Company shall have entered into agreements
---------------
with Polar, in form and substance reasonably acceptable to SciQuest, terminating
all rights of Polar with respect to the Company or its assets and properties.
(m) Escrow Agreement. Company, SunTrust Bank, Atlanta, and
---------------
Technology Leaders Management, Inc. shall have executed and delivered to
SciQuest the Escrow Agreement.
ARTICLE 7.
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; ESCROW PROVISIONS
7.1 Survival of Representations, Warranties, Covenants and Agreements.
-----------------------------------------------------------------
Notwithstanding any right of SciQuest or Company (whether or not exercised) to
investigate the affairs of SciQuest or Company (whether pursuant to Section 5.3
-----------
or otherwise) or a waiver by SciQuest or Company of any condition to Closing set
forth in Article 6, each party shall have the right to rely fully upon the
---------
representations, warranties, covenants and agreements of the other party
contained in this Agreement or in any instrument delivered pursuant to this
Agreement. All representations and warranties of Company, all other covenants
and agreements of Company which by their terms are to be performed on or prior
to the Closing Date, all representations and warranties of SciQuest and Merger
Sub, and all covenants and agreement of SciQuest and Merger Sub which by their
terms are to be performed on or prior to the Closing Date, contained in this
Agreement or in any certificate delivered pursuant to Section 6.2(c) or
--------------
Section 6.3(c) of this Agreement shall survive the Merger and continue until the
- --------------
second anniversary of the Closing Date (the "Expiration Date").
7.2 Indemnification and Escrow Provisions.
-------------------------------------
(a) Indemnification. Subject to the limitations set forth in the
---------------
Escrow Agreement, the stockholders of the Company shall jointly and severally
indemnify and hold SciQuest, and its officers, directors, employees,
stockholders, agents and affiliates for any and all Losses (whether or not
involving a Third Party Claim), incurred or sustained by SciQuest or any such
person as a result of (i) any inaccuracy or breach of any representation,
warranty, covenant or agreement of Company contained herein, in any instrument
delivered pursuant to this Agreement. SciQuest shall indemnify and hold
Company, and its officers, directors, employees, stockholders, agents and
affiliates for any and all Losses (whether or not involving a Third Party
Claim), incurred or sustained by Company or any such person as a result of any
inaccuracy or breach of any representation, warranty, covenant or agreement of
SciQuest contained herein, in any instrument delivered pursuant to this
Agreement, or the operation of Company after the Closing; provided
-55-
<PAGE>
however, that any such claim for indemnification from SciQuest after the Closing
may be pursued only by the Stockholder Agent on behalf of the Company's
stockholders.
(b) Establishment of the Escrow Fund. As soon as practicable after
--------------------------------
the Effective Time, the Escrow Amount, without any act of any stockholder, will
be deposited with the Depositary Agent (plus a proportionate share of any
additional shares of SciQuest Common Stock as may be issued upon any stock
splits, stock dividends or recapitalizations effected by SciQuest following the
Effective Time), such deposit to constitute the "Escrow Fund" to be governed by
-----------
the terms set forth herein. The portion of the Escrow Amount contributed on
behalf of each stockholder of Company shall be in proportion to the aggregate
number of shares of SciQuest Common Stock, which such holder would otherwise be
entitled under Section 1.6, and such shares will be held of record by each such
-----------
stockholder of the Company.
(c) Recourse to the Escrow Fund; Exclusive Remedy; Limitations and
--------------------------------------------------------------
Requirements of Indemnity by Company. The Escrow Fund shall be the exclusive
- ------------------------------------
remedy available to compensate SciQuest, and its officers, directors, employees,
agents and Affiliates for any and all Losses (whether or not involving a Third
Party Claim) (i) with respect to which it is entitled to indemnification is
available under Section 7.2(a) hereof or (ii) as the result of the exercise by
any of the Company's stockholders of applicable appraisal, dissenters or similar
rights; provided, however, that the Escrow Fund shall not be available to
compensate SciQuest for any Losses except to the extent that the aggregate
Losses exceed $500,000 and then only to the extent of such excess.
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
----------- -----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual agreement of Company and SciQuest;
(b) by SciQuest or Company if: (i) the Effective Time has not occurred
before 5:00 p.m. (Eastern Time) on May 1, 2000 (the "Outside Closing Date")
--------------------
(provided, however, that the right to terminate this Agreement under this
Section 8.1(b)(i) shall not be available to any party whose willful failure to
- -----------------
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date); (ii) there shall
be a final nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental or Regulatory Authority that would make consummation
of the Merger illegal;
(c) by SciQuest if there shall be any action taken, or any Law or
Order enacted, promulgated or issued or deemed applicable to the Merger, by any
Governmental or Regulatory Authority, which would: (i) prohibit SciQuest's
ownership or operation of all or any portion of the business of Company or (ii)
compel SciQuest to dispose of or hold separate all or a portion of the Assets
and Properties of Company as a result of the Merger;
-56-
<PAGE>
(d) by SciQuest if it is not in material breach of its
representations, warranties, covenants, and agreements under this Agreement and
there has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of Company and (i) Company is
not using its reasonable efforts to cure such breach, or has not cured such
breach within thirty (30) days, after notice of such breach to Company
(provided, however, that, no cure period shall be required for a breach which by
its nature cannot be cured) and (ii) as a result of such breach any of the
conditions set forth in Section 6.1 or Section 6.3, as the case may be, would
----------- ------------
not then be satisfied;
(e) by Company if Company is not in material breach of any of its
representations, warranties, covenants and agreements under this Agreement and
there has been a breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of SciQuest and (i) SciQuest is not
using its reasonable efforts to cure such breach, or has not cured such breach
within thirty (30) days, after notice of such breach to SciQuest (provided,
however, that no cure period shall be required for a breach any of which by its
nature cannot be cured), and (ii) as a result of such breach the conditions set
forth in Section 6.1 or Section 6.2, as the case may be, would not then be
------------ -----------
satisfied; or
(f) by SciQuest, if the Merger shall not have been approved by the
requisite votes of Company's stockholders in accordance with the DGCL;
(g) by SciQuest, if any of the individuals listed in Section 6.3(j)
--------------
cease to be employed by Company;
(h) by SciQuest, if, at any time, less than (i) ninety percent (90%)
of the non-clerical and administrative employees (other than employees named in
Section 6.3(n)) of Company employed as of the date hereof or (ii) seventy
- ---------------
percent (70%) of the non-clerical and administrative employees (other than
employees named in Section 6.3(n)) of Company employed as of the date hereof if
---------------
Closing occurs more than thirty (30) days following the date hereof, shall cease
to be employed by Company or shall have given any notice or other indication
that they are not willing to be employed by SciQuest or a Subsidiary of SciQuest
(as SciQuest shall designate) following the Merger (it being understood and
agreed that Company employees who cease to be employed by Company as a result of
death or bona fide permanent disability will be excluded from the numerator and
the denominator in calculating such percentages).
8.2 Effect of Termination. In the event of a valid termination of this
---------------------
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
-----------
and there shall be no liability or obligation on the part of SciQuest or
Company, or their respective officers, directors or stockholders or Affiliates
or Associates; provided, however, that each party shall remain liable for any
breaches of this Agreement prior to its termination; and provided further that,
the provisions of Sections 5.4, 5.5, 8.2, 9.6, 9.9, 9.10 and 9.11 of this
-----------------------------------------------
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after the
---------
stockholders of Company approve the Merger and this Agreement, this Agreement
may be amended by the parties hereto at any time by execution of an instrument
in writing signed on behalf of each of the parties hereto.
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<PAGE>
8.4 Extension; Waiver. At any time prior to the Effective Time, SciQuest
-----------------
and Company may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements, covenants or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE 9.
MISCELLANEOUS PROVISIONS
9.1 Notices. All notices, requests and other communications hereunder must
-------
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission against
facsimile confirmation or mailed by prepaid first class certified mail, return
receipt requested, or mailed by overnight courier prepaid, to the parties at the
following addresses or facsimile numbers:
If to SciQuest:
SciQuest.com, Inc.
5151 McCrimmon Parkway
Suite 208
Morrisville, NC 27560
Facsimile No.: (919) 659-2195
Attn: Chief Executive Officer
Attn: President
Attn: General Counsel
with a copy (which shall not constitute notice) to:
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Facsimile No.: (404) 365-9532
Attn: Grant W. Collingsworth, Esq.
If to Company to:
EMAX Solution Partners, Inc.
18 Campus Boulevard
Newton Square, PA 19073
Facsimile No.: (610) 325-3782
Attn: Chief Executive Officer
with a copy (which shall not constitute notice) to:
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<PAGE>
Drinker Biddle & Reath LLP
1000 Westlakes Drive, Suite 300
Berwyn, PA 19312
Facsimile No.: (610) 993-8585
Attn: Walter J. Mostek, Jr., Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 9.1, be deemed given upon
-----------
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided for in this Section 9.1, be deemed given upon facsimile confirmation,
-----------
(iii) if delivered by mail in the manner described above to the address as
provided for in this Section 9.1, be deemed given on the earlier of the third
-----------
Business Day following mailing or upon receipt and (iv) if delivered by
overnight courier to the address as provided in this Section 9.1, be deemed
-----------
given on the earlier of the first Business Day following the date sent by such
overnight courier or upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section 9.1). Any party
-----------
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change
to the other party hereto.
9.2 Entire Agreement. This Agreement and the Exhibits and Schedules
----------------
hereto, including Company Disclosure Schedule and the SciQuest Disclosure
Schedule, constitute the entire Agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect and shall survive any termination of this Agreement or the
Closing in accordance with its terms.
9.3 Further Assurances; Post-Closing Cooperation. At any time or from time
--------------------------------------------
to time after the Closing, the parties shall execute and deliver to the other
party such other documents and instruments, provide such materials and
information and take such other actions as the other party may reasonably
request to consummate the transactions contemplated by this Agreement and
otherwise to cause the other party to fulfill its obligations under this
Agreement and the transactions contemplated hereby. Each party agrees to use
commercially reasonable efforts to cause the conditions to its obligations to
consummate the Merger to be satisfied.
9.4 Waiver. Any term or condition of this Agreement may be waived at any
------
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative. The Escrow Fund shall be the exclusive remedy available to SciQuest
following the Effective Time.
9.5 Third Party Beneficiaries. The terms and provisions of this Agreement
-------------------------
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights, and this
-59-
<PAGE>
Agreement does not confer any such rights, upon any other Person other than any
Person entitled to indemnity under Article 7 or indemnification pursuant to
---------
Section 5.17.
- ------------
9.6 No Assignment; Binding Effect. Neither this Agreement nor any right,
-----------------------------
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party and
any attempt to do so will be void. Subject to the preceding sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
9.7 Headings. The headings and table of contents used in this Agreement
--------
have been inserted for convenience of reference only and do not define or limit
the provisions hereof.
9.8 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
9.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
9.10 Waiver of Trial by Jury. in any action or proceeding arising
-----------------------
herefrom, the parties hereto consent to trial without a jury in any action,
proceeding or counterclaim brought by any party hereto against the other or
their successors in respect of any matter arising out of or in connection with
this Agreement, regardless of the form of action or proceeding.
9.11 Construction. The parties hereto agree that this Agreement is the
------------
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentem.
9.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.13 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Except where this Agreement specifically
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provides for arbitration, it is agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
ARTICLE 10.
DEFINITIONS
10.1 Definitions. (a) As used in this Agreement, the following defined
-----------
terms shall have the meanings indicated below:
"2000 Operating Plan" means the documents entitled "2000 Monthly P&L
Plan" and "Projected Balance Sheet-2000" issued by the Company on February 2,
2000.
"Actions or Proceedings" means any action, suit, complaint, petition,
investigation, proceeding, arbitration, litigation or Governmental or Regulatory
Authority investigation, audit or other proceeding, whether civil or criminal,
in law or in equity, or before any arbitrator or Governmental Regulatory
Authority.
"Additional Options" has the meaning ascribed to it in Section 1.6.
-----------
"Affiliate" means, as applied to any Person, (a) each other Person
directly or indirectly controlling, controlled by or under common control with,
that Person, and (b) as to a corporation, each director and officer thereof, and
as to a partnership, each general partner thereof, and as to a limited liability
company, each managing member or similarly authorized person thereof. For the
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by", and "under common control with") as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through ownership of voting securities or by contract or
otherwise.
"Aggregate Common Number" has the meaning ascribed to it in Section
-------
1.6.
- ---
"Aggregate Share Number" has the meaning ascribed to it in Section
-------
1.6.
- ---
"Agreement" means this Agreement and Plan of Merger and
Reorganization, including (unless the context otherwise requires) the Exhibits,
the Company Disclosure Schedule and the SciQuest Disclosure Schedule, and the
certificates and instruments delivered in connection herewith, or incorporated
by reference herein, as the same may be amended or supplemented from time to
time in accordance with the terms hereof.
"Ancillary Agreements" has the meaning ascribed to it in Section 2.2.
-----------
"Approval" means any approval, authorization, consent, permit,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from or made with, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental or
Regulatory Authority or any other Person.
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<PAGE>
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned, licensed or leased by such Person, including cash,
cash equivalents, Investment Assets, accounts and notes receivable, chattel
paper, documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.
"Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or indirectly, of fifteen percent (15%) or more
of any class of equity securities, any trust or estate in which such Person has
a substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of Company, including
financial statements, internal reports, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, Contracts, Licenses, customer lists, computer files and programs
(including data processing files and records), retrieval programs, operating
data and plans and environmental studies and plans.
"Business Combination" means, with respect to any Person, (i) any
merger, consolidation or other business combination to which such Person is a
party, (ii) any sale, dividend, split or other disposition of any capital stock
or other equity interests of such Person, (iii) any tender offer (including a
self tender), exchange offer, recapitalization, restructuring, liquidation,
dissolution or similar or extraordinary transaction, (iv) any sale, dividend or
other disposition of all or a major portion of the Assets and Properties of such
Person including by way of exclusive license or joint venture formation or (v)
the entering into of any agreement or understanding, the granting of any rights
or options, or the acquiescence of such Person, with respect to any of the
foregoing.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of Delaware are authorized or obligated to
close.
"Business or Condition" means, with respect to any Person, the
business, condition (financial or otherwise), results of operations, prospects
or Assets and Properties of such Person and each of its Subsidiaries, taking
such Person together with such Subsidiaries as a whole.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of EMAX Solution Partners, as filed on August 17,
1999.
"Closing" means the closing of the transactions contemplated by
Section 1.2.
- -----------
"Closing Date" has the meaning ascribed to it in Section 1.2.
-----------
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<PAGE>
"COBRA" has the meaning set forth in Section 2.13(f).
--------------
"Company" has the meaning ascribed to it in the forepart of this
Agreement.
"Company Affiliates" has the meaning ascribed to it in Section 5.10.
------------
"Company Capital Stock" means Company Common Stock and Company
Preferred Stock.
"Company Certificates" has the meaning ascribed to it in Section
-------
1.8(b).
- ------
"Company Common Stock" has the meaning ascribed to it in Section 2.3.
-----------
"Company Disclosure Schedule" means the schedules delivered to
SciQuest by or on behalf of Company, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein in connection with the representations and warranties made by Company in
Article 2 of this Agreement or otherwise.
- ---------
"Company Financials" means the audited consolidated balance sheets of
Company as of each of the fiscal years ended December 31, 1997 through December
31, 1999, respectively, and the related audited consolidated statements of
operations, stockholders' equity and cash flows for each of the fiscal years
then ended, in each case, including the notes thereto.
"Company 401(k) Plan" means Company's 401(k) Plan.
"Company Option" means any Option to purchase Company Capital Stock
granted pursuant to the Company Stock Plan.
"Company Preferred Stock" has the meaning ascribed to it in Section
-------
2.3.
- ---
"Company Restricted Stock" means shares of Company Capital Stock which
are subject to a repurchase option by Company.
"Company Series A Preferred Stock" has the meaning ascribed to it in
Section 2.3.
- -----------
"Company Series B Preferred Stock" has the meaning ascribed to it in
Section 2.3.
- -----------
"Company Series D Preferred Stock" has the meaning ascribed to it in
Section 2.3.
- -----------
"Company Series E Preferred Stock" has the meaning ascribed to it in
Section 2.3.
- -----------
"Company Series F Preferred Stock" has the meaning ascribed to it in
Section 2.3.
- -----------
"Customer Software" has the meaning ascribed to it in Section 2.15.
------------
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<PAGE>
"Company Software" has the meaning ascribed to it in Section 2.15.
------------
"Company Stock Purchase Right" means the right to repurchase shares of
Company Common Stock issued pursuant to the Company Stock Plan.
"Company Stockholder Action" has the meaning ascribed to it in Section
-------
2.30.
- ----
"Company Stock Plan" has the meaning ascribed to it in Section
-------
1.6(c)(i).
- ---------
"Company Warrant" means each Stock Purchase Warrant listed or required
to be listed in Section 2.3 of the Company Disclosure Schedule and each other
----------------------------------------------
warrant to purchase Company Capital Stock (if any) listed or required to be
listed in Section 2.3 of the Company Disclosure Schedule.
----------------------------------------------
"Competing Transaction" as defined in Section 4.2.
-----------
"Confidentiality Agreement" has the meaning ascribed to it in Section
-------
5.4.
- ---
"Contract" means any of the following contracts, agreements,
commitments, arrangements or understandings to which a specified Person or any
of its Subsidiaries is subject, whether oral or in writing.
(1) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(2) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such
contract more than fifty thousand dollars ($50,000) over the life
of the contract;
(3) any contract that expires or may be renewed at the option of
any person other than Company so as to expire more than one year
after the date of this Agreement and that involves payments of
more than fifty thousand dollars ($50,000) over the life of the
contract;
(4) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any
currency exchange, commodities or other hedging arrangement or
any leasing transaction of the type required to be capitalized in
accordance with generally accepted accounting principles;
(5) any contract for capital expenditures in excess of fifty
thousand dollars ($50,000) in the aggregate;
(6) any contract limiting the freedom of Company to engage in
any line of business or to compete with any other Person or any
confidentiality, secrecy or nondisclosure contract;
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(7) any contract pursuant to which Company is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures
or other personal property;
(8) any contract with any person with whom Company does not deal
at arm's length; or
(9) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with
respect to, the obligations, liabilities (whether accrued,
absolute, contingent or otherwise) or indebtedness of any other
Person.
"Customer Contracts" has the meaning ascribed to it in Section 2.15.
------------
"Customer Software" has the meaning ascribed to it in Section 2.15.
------------
"Certificate of Merger" has the meaning set forth in Section 1.2.
-----------
"Depositary Agent" has the meaning ascribed to it in the Escrow
Agreement.
"DGCL" means the Delaware General Corporate Law and all amendments and
additions thereto.
"Disclosure Schedule" means the Company Disclosure Schedule and the
SciQuest Disclosure Schedule.
"Dissenting Shares" has the meaning ascribed to it in Section 1.7(a).
--------------
"Distributor" has the meaning ascribed to it in Section 2.15.
------------
"Distributor Agreement" has the meaning ascribed to it in Section
-------
2.15.
- ----
"Effective Time" has the meaning ascribed to it in Section 1.2.
-----------
"Employment Agreement" has the meaning ascribed to it in Exhibit H.
---------
"Environment" means air, surface water, ground water, or land,
including land surface or subsurface, and any receptors such as persons,
wildlife, fish, biota or other natural resources.
"Environmental Cleanup Site" means any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on any
similar state list of sites relating to investigation or cleanup, or which is
the subject of any pending or threatened action, suit, proceeding, or
investigation related to or arising from any location at which there has been a
Release or threatened or suspected Release of a Hazardous Material.
"Environmental Law" means any federal, state, local or foreign
environmental, health and safety or other Law relating to Hazardous Materials,
including the Comprehensive,
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<PAGE>
Environmental Response Compensation and Liability Act, the Clean Air Act, the
Federal Water Pollution Control Act, the Solid Waste Disposal Act and the
Federal Insecticide, Fungicide and Rodenticide Act.
"Environmental Permit" means any permit, license, approval, consent or
authorization required under or in connection with any Environmental Law and
includes without limitation any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority.
"Equity Equivalents" means securities (including Options to purchase
any shares of Company Capital Stock) which, by their terms, are or may be
exercisable, convertible or exchangeable for or into common stock, preferred
stock or other equity securities of Company at the election of the holder
thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall refer to any trade or business whether or not
incorporated, under common control with the Company or SciQuest, as applicable,
within the meaning of Section 414(b), (c), (m), or (o) of the Internal Revenue
Code or Sections 4001(a) or (b) of ERISA.
"Escrow Amount" means the number of shares of SciQuest Common Stock
obtained by multiplying (x) the aggregate number of shares of SciQuest Common
Stock issuable by the SciQuest at the Effective Time to holders of Company
Capital Stock in accordance with the Section 1.6(a) by (y) 20%. The shares
--------------
deposited with the Depositary Agent shall, to the extent possible, be shares
that are not subject to any repurchase rights.
"Escrow Fund" has the meaning ascribed to it in the Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder.
"Exchange Agent" means SunTrust Bank, Atlanta.
"Exchange Ratio" has the meaning assigned in Section 1.6.
-----------
"Expiration Date" has the meaning assigned in Section 7.1.
-----------
"Financial Statement Date" means December 31, 1999.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"Good Faith Consultation" with a Person's independent accountants, as
used in Section 2.9(z), Section 2.30 and Section 3.9 of this Agreement, means
-------------- ------------ -----------
consultation with such accountants following disclosure in good faith to such
accountants of all facts requested by such accountants or which the specified
Person otherwise had reason to believe would be relevant to
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<PAGE>
such accountants' assessment.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, department, official
or other instrumentality of the United States, any foreign country or any
domestic or foreign state, county, city or other political subdivision, and
shall include any stock exchange, quotation service and the National Association
of Securities Dealers.
"Hazardous Material" means (a) any chemical, material, substance or
waste including, containing or constituting petroleum or petroleum products,
solvents (including chlorinated solvents), nuclear or radioactive materials,
asbestos in any form that is or could become friable, radon, lead-based paint,
urea formaldehyde foam insulation or polychlorinated biphenyls, (b) any
chemicals, materials, substances or wastes which are now defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants" or words of similar import under any
Environmental Law; or (c) any other chemical, material, substance or waste which
is regulated by any Governmental or Regulatory Authority or which could
constitute a nuisance.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Income Tax" means (i) any income, alternative or add-on minimum tax,
gross income, gross receipts, franchise, profits, including estimated taxes
relating to any of the foregoing, or other similar tax or other like assessment
or charge of similar kind whatsoever, excluding any Other Tax, together with any
interest and any penalty, addition to tax or additional amount imposed by any
Taxing Authority responsible for the imposition of any such Tax (domestic or
foreign); or (ii) any liability of a Person for the payment of any taxes,
interest, penalty, addition to tax or like additional amount resulting from the
application of Treas. Reg. (S)1.15026 or comparable provisions of any Taxing
Authority in respect of a Tax Return of a Relevant Group or any Contract.
"Indebtedness" of any Person means all obligations of such Person (a)
for borrowed money, (b) evidenced by bonds, debentures or similar instruments,
(c) for the deferred purchase price of goods or services (other than trade
payables or accruals incurred in the ordinary course of business), (d) under
capital leases and (e) in the nature of guarantees of the obligations described
in clauses (a) through (d) above of any other Person.
"Information Statement" has the meaning ascribed to it in Section
-------
2.30.
- ----
"Intangible" has the meaning ascribed to it in Section 2.15.
------------
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited
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<PAGE>
partnerships, mortgage loans and other investment or portfolio assets owned of
record or beneficially by Company.
"IRS" means the United States Internal Revenue Service or any
successor entity.
"Law" or "Laws" means any law, statute, order, decree, consent decree,
judgment, rule, regulation, ordinance or other pronouncement having the effect
of law whether in the United States, any foreign country, or any domestic or
foreign state, county, city or other political subdivision or of any
Governmental or Regulatory Authority.
"Leased Real Property(ies)" has the meaning ascribed to it in Section
-------
2.15(a).
- -------
"Liabilities" means all Indebtedness, obligations and other
liabilities of a Person, whether absolute, accrued, contingent (or based upon
any contingency), known or unknown, fixed or otherwise, or whether due or to
become due.
"License Agreement" has the meaning ascribed to it in Section 2.15.
------------
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, easement, license, covenant, condition, restriction, adverse claim,
levy, charge, option, equity, adverse claim or restriction or other encumbrance
of any kind, or any conditional sale Contract, title retention Contract or other
Contract to give any of the foregoing, except for any restrictions on transfer
generally arising under any applicable federal or state securities law.
"Loss(es)" means any and all damages, fines, fees, Taxes, penalties,
deficiencies, losses, expenses, reasonable expenses of investigation, court
costs, reasonable fees and expenses of attorneys, accountants and other experts
or other expenses of litigation or other proceedings or of any claim, default or
assessment (regardless of whether incurred in connection with a Third Party
Claim (as defined in the Escrow Agreement)). Losses shall also include
reasonably measurable diminution in value and lost profits that are reasonably
attributable to an inaccuracy or breach of any representation, warranty,
covenant or agreement of Company contained herein or in any instrument delivered
pursuant to this Agreement.
"Material Adverse Effect" or "Material adverse change" means an
effect, event or change that is materially adverse to the Business or Condition
of the specified Person and its Subsidiaries, taking such Person and its
Subsidiaries together as a whole; provided, however, in determining whether
there has been a "material adverse effect" on or "material adverse change" in
the Business or Condition of the Company or SciQuest, none of the following, by
themselves, either alone or in combination, shall constitute a "Material Adverse
Effect" or "material adverse change" with respect to the Company or SciQuest, as
the case may be: (a) changes in the market price or trading volume of SciQuest
Common Stock, or failure by SciQuest to meet the revenue or earnings predictions
of equity analysts as reflected in the First Call consensus estimate, or any
other revenue or earnings predictions or expectations, for any quarterly period
ending (or for which earnings are released) on or after the date of this
Agreement and prior to the Closing Date, (b) changes, events or effects that the
affected party demonstrates are caused primarily and directly by (i) the
announcement or other disclosures of the transactions contemplated by this
Agreement or (ii) changes in economic conditions affecting the United States
economy as a whole or affecting SciQuest's or the Company's industry as a whole.
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<PAGE>
"Merger" has the meaning ascribed to it in the recitals to this
Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"NNM" means the distinct tier of The NASDAQ Stock Market referred to
as the NASDAQ National Market.
"Option" with respect to any Person means any security, right,
subscription, option, "phantom" stock right or other Contract that gives the
right to (i) purchase or otherwise receive or be issued any shares of capital
stock or other equity interests of such Person or any security of any kind
convertible into or exchangeable or exercisable for any shares of capital stock
or other equity interests of such Person or (ii) receive any benefits or rights
similar to any rights enjoyed by or accruing to the holder of shares of capital
stock or other equity interests of such Person, including any rights to
participate in the equity, income or election of directors or officers of such
Person.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Other Agreement" has the meaning ascribed to it in Section 2.15.
------------
"Other Agreement" has the meaning ascribed to it in Section 2.15.
------------
"Other Software" has the meaning ascribed to it in Section 2.15.
------------
"Other Tax" means any sales, use, ad valorem, business license,
withholding, payroll, employment, excise, stamp, transfer, recording,
occupation, premium, property, value added, custom duty, severance, windfall
profit or license tax, governmental fee or other similar assessment or charge,
together with any interest and any penalty, addition to tax or additional amount
imposed by any Taxing Authority responsible for the imposition of any such tax
(domestic or foreign), other than Income Tax.
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Plan" means (i) each of the "employee benefit plans" (as such term is
defined in Section 3(3) of ERISA), of which Company or any ERISA Affiliate is or
ever was a sponsor or participating employer or as to which Company or any of
its ERISA Affiliates makes contributions or is required to make contributions,
and (ii) any similar employment, severance or other arrangement or policy of any
of Company or any of its ERISA Affiliates (whether written or oral) providing
for health, life, vision or dental insurance coverage (including selfinsured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits or retirement benefits, fringe
benefits, or for profit sharing, deferred compensation, bonuses, stock options,
stock appreciation or other forms of incentive
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<PAGE>
compensation or post-retirement insurance, compensation or benefits.
"Preferred Share Number" has the meaning ascribed to in Section 1.6.
-----------
"PTO" means the United States Patent and Trademark Office.
"Registration Rights Agreement" has the meaning ascribed to it in
Section 6.2(e).
- --------------
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the Environment.
"Relevant Group" has the meaning ascribed to it in Section 2.10(a).
---------------
"Representatives" has the meaning ascribed to it in Section 4.2.
-----------
"Registrations" has the meaning ascribed to it in Section 2.15.
------------
"SciQuest" has the meaning ascribed to it in the forepart of this
Agreement.
"SciQuest Affiliate" has the meaning ascribed to it in Section 5.11.
------------
"SciQuest Affiliate Agreement" has the meaning ascribed to it in
Section 5.17.
- ------------
"SciQuest Common Stock" has the meaning ascribed to it in Recital C to
---------
this Agreement.
"SciQuest Disclosure Schedule" means the schedules delivered to
Company by or on behalf of SciQuest, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein in connection with the representations and warranties made by SciQuest
in Article 3 of this Agreement or otherwise.
---------
"SciQuest Financial Statements" has the meaning ascribed to it in
Section 3.4.
- -----------
"SEC" means the Securities and Exchange Commission or any successor
entity.
"SEC Documents" means, with respect to any Person, each report,
schedule, form, statement or other document filed with the SEC by such Person
pursuant to Section 13(a) of the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Signing Stock Price" means the average of the last sale prices of
SciQuest Common Stock on the NNM for the ten trading days ending on the trading
day immediately prior to the date of this Agreement.
"Stockholder Certificate" has the meaning ascribed to it in Section
-------
5.1(c).
- ------
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<PAGE>
"Site" means any of the real properties currently or previously owned,
leased, occupied, used or operated by Company, any predecessors of Company, or
any entities previously owned by Company, including all soil, subsoil, surface
waters and groundwater.
"Software" has the meaning ascribed to it in Section 2.15.
------------
"Source Code Agreement" has the meaning ascribed to it in Section
-------
2.15.
- ----
"Subsidiary" means any Person in which Company or SciQuest, as the
context requires, directly or indirectly through Subsidiaries or otherwise,
beneficially owns at least 50% of either the equity interest in, or the voting
control of, such Person, whether or not existing on the date hereof.
"Voting Agreement" has the meaning ascribed to it in Recital D.
---------
"Surviving Corporation" has the meaning ascribed to it in Section 1.1.
-----------
"Takeover Statute" means a "fair price," "Moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation enacted under
state or federal laws in the United States.
"Tax Returns" means any return, report, information return, schedule,
certificate, statement or other document (including any related or supporting
information) filed or required to be filed with, or, where none is required to
be filed with a Taxing Authority, the statement or other document issued by, a
Taxing Authority in connection with any Income Tax or Other Tax.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Expenses" has the meaning ascribed to it in Section 5.5.
-----------
"Third Party License Agreement" has the meaning ascribed to it in
Section 2.15.
- ------------
"Warranty Obligations" has the meaning ascribed to it in Section 2.25.
------------
(b) Unless the context of this Agreement otherwise requires, (i)
words of any gender include each other gender, (ii) words using the singular or
plural number also include the plural or singular number, respectively, (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Agreement as a whole and not to any particular Article, Section or
other subdivision, (iv) the terms "Article" or "Section" or other subdivision
refer to the specified Article, Section or other subdivision of the body of this
Agreement, (v) the phrases "ordinary course of business" and "ordinary course of
business consistent with past practice" refer to the business and practice of
Company, (vi) the words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation," and (vii) when a reference is
made in this Agreement to Exhibits, such reference shall be to an Exhibit to
this Agreement unless otherwise indicated. All accounting terms used herein and
not expressly defined herein shall have the meanings given to them under GAAP.
The term "party" or
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"parties" when used herein refer to SciQuest or Merger Sub, on the one hand, and
Company, on the other.
(c) When used herein, the phrase "to the knowledge of" any Person,
"to the best knowledge of" any Person, "known to" any Person or any similar
phrase, means (i) with respect to any Person who is an individual, the actual
knowledge of such Person, and (ii) with respect to any other Person, the actual
knowledge of the directors and officers of such Person and other individuals
that have a similar position or have similar powers and duties as the officers
and directors of such Person, and (iii) in the case of each of (i) and (ii), the
knowledge of facts that such individuals should have after due inquiry.
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IN WITNESS WHEREOF, SciQuest, Merger Sub and Company have caused this
Agreement to be signed by their duly authorized representatives, all as of the
date first written above.
SCIQUEST.COM, INC. SCIQUEST ACQUISITION, INC.
By:____________________________________ By:________________________
Vice President Vice President
EMAX SOLUTION PARTNERS, INC.
By:____________________________________
President and Chief Executive Officer
-73-
<PAGE>
EXHIBIT 10.31
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of March 13, 2000 among SciQuest.com, Inc., a Delaware
corporation (the "Company"), and EMAX Solution Providers, Inc., a Delaware
corporation ("EMAX"), in favor of the former stockholders of EMAX who executed
the Stockholder Certificate pursuant to the Merger Agreement (collectively the
"Stockholders.")
WHEREAS, concurrently with the execution of this Agreement, the Company and
EMAX are parties to an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") which provides for the merger of SciQuest Acquisition, Inc.,
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a Delaware corporation and wholly-owned subsidiary of the Company, with and into
EMAX (the "Merger"), on the terms and subject to the conditions set forth
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therein. By virtue of the Merger, the outstanding shares of capital stock of
EMAX will be converted into the right to receive shares of Common Stock of the
Company on the basis described in the Merger Agreement. Unless otherwise
indicated, capitalized terms not defined herein have the meanings set forth in
the Merger Agreement.
WHEREAS, the Company has not filed a registration statement to register
any of its shares of common stock in connection with the transactions
contemplated under the Merger Agreement other than the Additional Option Shares.
WHEREAS, pursuant to Section [___] of the Merger Agreement, it is a
condition to the consummation of the Merger that the Company provides certain
registration rights with respect to the Common Stock upon the terms and subject
to the conditions set forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, in addition to the
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terms defined above, the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
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federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $0.001 par value, of the
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Company, constituted as of the date of this Agreement.
"Holders" shall mean the Stockholders and any other person holding
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Registrable Securities to whom these registration rights have been transferred
pursuant to Section 10 hereof.
"Public Offering" shall mean the effectiveness of the filing of a
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registration statement under the Securities Act that covers the offer and sale
by the Company to the public of Common Stock.
<PAGE>
"Other Stockholders" shall mean persons other than Holders who, by virtue
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of agreements with the Company, are entitled to include their securities in a
registration effected pursuant to this Agreement.
The terms "register," "registered" and "registration" refer to the
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effectiveness of a registration statement prepared and filed in compliance with
the Securities Act.
"Registrable Securities" as of any particular time shall mean the Common
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Stock issued to the Stockholders pursuant to the Merger Agreement, including
those held in the Escrow Account; provided, however, that Registrable Securities
shall only be treated as Registrable Securities if and so long as, they have not
been (i) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction or (ii) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof, so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale.
"Registration Expenses" shall mean all expenses incurred by the Company in
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complying with Sections 2, 3 and 4 hereof, including, without limitation, all
registration and filing fees; printing expenses; fees and disbursements of
counsel for the Company; reasonable fees and expenses of a single counsel for
the selling Holders; state "blue sky" fees and expenses; and accountants'
expenses, including without limitation any special audits incident to or
required by any such registration; but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company, and
excluding also any additional disbursements of counsel for the selling Holders,
which shall be paid by such selling Holders.
"Securities Act" shall mean the federal Securities Act of 1933, as amended,
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or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at any particular time.
"Securities Exchange Act" shall mean the federal Securities Exchange Act of
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1934, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at any
particular time.
"Selling Expenses" shall mean all underwriting discounts, selling
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commissions and transfer taxes applicable to the sale of Registrable Securities
and any other securities of the Company being sold in the same registration as
the Registrable Securities by Other Stockholders.
2. Requested Registration
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2.1. Demand Registration Rights. Subject to the conditions of
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Section 2.2 below, Holders of the Registrable Securities may make one demand on
the Company to register all or a part of the Registrable Securities (a "Demand
Registration") on Form S-1 or such other form that may be available to the
Company to effect such Demand Registration following 135 days from the Closing
Date.
<PAGE>
2.2. Request for Registration. In the event the Company shall
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receive a written request from Holders of at least fifty percent (50%) of the
Registrable Stock (the "Initiating Holders") that the Company effect a Demand
Registration with respect to all or a part of the Registrable Securities, the
Company shall:
(a) promptly give written notice of the proposed registration to
all other Holders; and
(b) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws, and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of such
portion of such Registrable Securities as is specified in such request, together
with such portion of the Registrable Securities of any Holder or Holders joining
in such request as is specified in a written request given within twenty (20)
days after receipt of such written notice from the Company; provided that the
Company shall not be obligated to take any action to effect any such
registration pursuant to this Section 2:
(A) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) during the period following a Public Offering that is
contemplated by Section 11 hereof, provided that the "market stand-off" effected
by any such extension is applicable against the persons described in Section
11(ii);
(C) if such registration would exceed the number of
registrations specified for the Holders in Section 2. 1.
In the event the Company is not obligated to effect any requested
registration by virtue of the foregoing clauses (A) through (C) and does not
effect such requested registration, such request shall not be deemed to be a
demand for registration for purposes of Section 2.1. Subject to the foregoing
clauses (A) through (C), the Company shall file a registration statement
covering the Registrable Securities so requested to be registered as soon as
practicable after receipt of the request of the Initiating Holders; provided,
however, that if the Company shall furnish to the Initiating Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good-faith judgment of the Board of Directors of the Company
it would be seriously detrimental to the Company and its Stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for sixty (60) days after receipt of the request of the Initiating
Holders, provided that the Company shall not exercise its right to
<PAGE>
defer filing of such registration statement for more than an aggregate of one
hundred twenty (120) days in any 12-month period.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 2.3 below, include securities
offered by the Company for its own account and/or other securities of the
Company that are held by Other Stockholders.
2.3. Underwriters. If the Initiating Holders intend to distribute the
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Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 2.1 and the Company shall include such information in the written notice
referred to in Section 2.2(a) hereof. The right of any Holder to registration
pursuant to this Section 2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by the Initiating Holders
and such Holder) to the extent provided herein.
If the Company shall request inclusion in any registration pursuant to
Section 2 of securities being sold for its own account, or if Other Stockholders
shall request inclusion in any registration pursuant hereto, then, subject to
the last sentence of this Section 2.3 with respect to the Company's request, the
Initiating Holders shall, on behalf of all Holders, offer to include such
securities in the underwriting and may condition such offer on their acceptance
of the further applicable provisions of this Agreement. The Company shall
(together with all Holders and Other Stockholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form and containing customary terms reasonably acceptable to the
Initiating Holders, with the representative of the underwriter or underwriters
selected for such underwriting by the Company and reasonably acceptable to the
Initiating Holders; provided, however, that if the Company has not selected an
underwriter reasonably acceptable to the Initiating Holders within thirty (30)
days after the Company's receipt of the request for registration from the
Initiating Holders, then the Initiating Holders may select an underwriter
reasonably acceptable to the Company in connection with such registration.
Notwithstanding any other provision of this Section 2, if the underwriter
representative advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, the securities
of the Company held by Other Stockholders shall first be excluded from such
registration to the extent so required by such limitation, and, to the extent
additional shares need to be excluded in order to conform to such limitation,
the securities requested by the Company to be included, if any, shall next be
excluded, and, finally, to the extent additional shares need to be excluded,
Registrable Securities requested to be included shall be excluded from such
registration to the extent so required, reduced on a pro rata basis in
proportion to the number of shares of Registrable Securities owned by them. The
Company shall advise all holders of securities requesting registration as to the
number of shares of securities that may be included in the registration and
underwriting as allocated in the foregoing manner. If any Other Stockholder or
Holder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person
<PAGE>
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The securities so withdrawn shall also
be withdrawn from registration. The Company may include its securities for its
own account in such underwritten registration if the underwriter so agrees and
if the number of Registrable Securities and other securities of the Holders that
would otherwise have been included in such registration and underwriting will
not be limited thereby. If all of the shares requested to be included by the
Holders in such underwritten offering have not been included, than Holder shall
not be deemed to have exercised its demand registration rights.
2.4. Deferral of Registration. If the Company shall furnish to the
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Initiating Holders a certificate signed by its President or Chief Executive
Officer stating that, in the good faith judgment of the Company's Board, it
would require the disclosure of material information that would have a Material
Adverse Effect on the Company and its shareholders for such registration to be
effected at such time, the Company shall have the right to defer the filing of
the registration statement for a period of not more than sixty (60) days after
the receipt of the request of the Holders under this Section 2, except that the
Company shall not utilize this right for more than an aggregate of one hundred
twenty (120) days in any 12-month period.
3. Company Registration.
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3.1. Piggyback Registration. If the Company shall propose to register
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any of its securities in connection with the public offering of such securities
solely for cash on a form that would permit the registration of the Registrable
Securities any time following three (3) months from the Closing Date, the
Company shall promptly give to each Holder written notice of such registration
(a "Piggyback Registration"), which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws; and include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by any Holder or
Holders within fifteen (15) days after receipt of such written notice from the
Company, subject to the underwriter limitations, if any, described in Section
3.3 hereof. The Company shall have the right to withdraw or cease to prepare or
file any registration statement for any offering referred to in this Section 3.1
without any obligation or liability to any Holder.
3.2. Number of Piggyback Registrations. Subject to the underwriter
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limitations, if any, described in Section 3.3 below, each Holder shall be
entitled to have its Registrable Securities included in an unlimited number of
Piggyback Registrations pursuant to this Section 3.
3.3. Underwriting. If the registration of which the Company gives
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notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1 hereof. In such event the right of any Holder to
registration pursuant to Section 3.1 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
<PAGE>
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and Other Stockholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company. Notwithstanding any other provision of this Section 3 (but subject to
the special exception described in Section 3.2 above), if the underwriter
reasonably determines that marketing factors require a limitation on the number
of shares to be underwritten, the number of shares that may be included in the
registration shall first be allocated to the Company, then allocated pro rata
among the holders of Registrable Securities and Other Stockholders requesting
registration in proportion (as nearly as possible) to the respective amounts of
Registrable Securities and other securities that such Holders and Other
Stockholders had requested to be included in such registration. The Company
shall advise all holders of securities requesting registration as to the number
of shares or securities that may be included in the registration and
underwriting as allocated in the foregoing manner. No such reduction shall be
made with respect to securities offered by the Company for its own account. If
any Holder or Other Shareholder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall also be withdrawn from such
registration.
4. Form S-3 Registration. If, at a time when Form S-3 is available for
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the registration of Registrable Securities and the Company is eligible to use
Form S-3 for such registration, the Company shall receive from the Holders of
Registrable Securities a written request that the Company effect a registration
on Form S-3, as a shelf registration or otherwise, of any such Holder's
Registrable Securities, the Company will promptly give written notice of the
proposed registration to all other Holders and, as soon as practicable, effect
such registration and all such related qualifications and compliances as may be
reasonably requested and as would permit or facilitate the sale and distribution
of all Registered Securities as are specified in such request and any written
requests of other Holders given within 20 days after receipt of such notice. The
Company shall have no obligation to register more than fifty percent (50%) of
Registrable Securities on Form S-3 held by each Holder. The Company shall have
no obligation to effect a registration requested by a holder of Registrable
Securities under this Section 4 unless the aggregate offering price of the
securities requested to be sold pursuant to such registration is, in the good
faith judgment of the Company, expected to be equal to or greater than $
2,000,000.
5. Expenses of Registration. All Registration Expenses incurred in
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connection with any registration, qualification or compliance pursuant to
Sections 2 and 3 of this Agreement and the first two (2) registrations pursuant
to Section 4 of this Agreement shall be borne by the Company; and all Selling
Expenses shall be borne by the Holders and the Other Stockholders of the
securities so registered pro rata on the basis of the number of their shares so
registered; provided, however, that if, as a result of the withdrawal of a
request for registration by the Initiating Holders pursuant to Section 2 hereof,
the registration statement does not become effective, in which case the Holders
<PAGE>
and Other Stockholders requesting registration shall have the option of bearing
such Registration Expenses pro rata on the basis of the number of their shares
so included in the registration request (except for the fees of any counsel for
the Holders, which shall be borne only by the persons whom such counsel
represented, pro rata on the basis of the number of their shares so included in
the registration request); in which case such registration shall not be counted
as a registration pursuant to Section 2.1 hereof, and provided, further, that if
any jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in that
jurisdiction be borne by the selling Stockholders, then such expenses shall be
payable by the selling Stockholders pro rata to the extent required by such
jurisdiction.
6. Registration Procedures. In the case of each registration effected by
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the Company pursuant to Section 2 of this Agreement, the Company shall keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense the Company shall use commercially
reasonable efforts to:
6.1. keep such registration effective for a period of one hundred
eighty (180) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; and
6.2. furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
6.3 prepare and file with the Commission as soon as reasonably
practicable a registration statement on any form on which registration is
requested for which the Company then qualifies; provided, however, that before
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filing a registration statement or prospectus or any amendments or supplements
thereto, the Company shall (A) provide Holders' counsel and any other Inspector
with an opportunity to participate in the preparation of such registration
statement and each prospectus included therein (and each amendment or supplement
thereto) to be filed with the Commission, which documents shall be subject to
the review of Holders' counsel, and (B) notify Holders' counsel and each seller
of Registrable Securities pursuant to such registration statement of any stop
order issued or threatened by the Commission and take all reasonable action
required to prevent the entry of such stop order or to remove it if entered;
6.4 prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective, if
such shares are registered pursuant to Section 2, until the later to occur of
(i) the 120th day following the date on which such registration statement was
declared effective and (ii) the first anniversary of the date hereof, to the
extent permitted under Rule 415 under the Act, or such other period which will
terminate when all Registrable Securities covered by such registration statement
have been sold (but not before the expiration of the ninety (90) day period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if
applicable), and comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement during
<PAGE>
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
6.5 as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of such
registration statement as it is proposed to be filed, and thereafter such number
of copies of such registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus), and such other
documents as each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
6.6 use its commercially reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities may request, and to
continue such qualification in effect in each such jurisdiction for as long as
is permissible pursuant to the laws of such jurisdiction, or for as long as any
such seller requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which may be
reasonably necessary or advisable to enable any such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; provided, however, that the Company shall not be required to (A) qualify
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generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section, (B) subject itself to taxation in any
such jurisdiction or (C) consent to general service of process in any such
jurisdiction;
6.7 use it commercially reasonable efforts to obtain all other
approvals, covenants, exemptions or authorizations from such governmental
agencies or authorities as may be necessary to enable the sellers of such
Registrable Securities to consummate the disposition of such Registrable
Securities;
6.8 notify each seller of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each such seller a reasonable number of copies of a supplement to or amendment
of such prospectus as may be necessary so that, after delivery to the purchasers
of such Registrable Securities, such prospectus shall not contain an 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 not misleading in
light of the circumstances under which they were made;
6.9 enter into and perform customary agreements (including an
underwriting agreement in customary form with the underwriter, if any, selected
as
<PAGE>
provided in this Agreement) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
6.10 otherwise use its commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission;
6.11 cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed, subject to the satisfaction of the applicable listing requirements of
each such exchange;
6.12 cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD"); and
6.13 use its commercially reasonable efforts to take all other steps
necessary to effect the registration of the Registrable Securities contemplated
hereby.
7. Indemnification.
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7.1. With respect to each Holder whose securities have been
registered or qualified pursuant to this Agreement, the Company shall indemnify
such Holder, each of such Holder's officers, directors and partners, and each
person controlling (as defined in the Securities Act) such Holder and each of
such controlling person's officers, directors and partners, and shall also
indemnify each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which such statements
were made, or any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and shall reimburse each such Holder and each
person controlling such Holder, and each of such controlling person's officers,
directors and partners, each of its officers, directors and partners, each such
underwriter, and each person who controls such underwriter, for any legal and
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based upon written
information furnished to the Company in an instrument duly executed by the
Holder or underwriter seeking to be indemnified, where such information was
provided specifically for use in such prospectus, offering circular or related
document.
<PAGE>
7.2. Each Holder and Other Stockholder shall, if securities held by
him or it are included among the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each person who controls (as defined in the
Securities Act) the Company, and each other such Holder and Other Stockholder
and each of such controlling person's officers, directors and partners, and each
person controlling such Holder or Other Stockholder and each of such controlling
person's officers, directors and partners, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which such statements were made,
and shall reimburse the Company and such Holders, Other Stockholders, directors,
officers, partners, persons, underwriters and control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
or Other Stockholder specifically for use therein; provided, however, that the
obligations of such Holder or Other Stockholder hereunder shall be limited to an
amount equal to the net proceeds to such Holder or Other Stockholder of
securities sold as contemplated herein.
7.3. Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be withheld unreasonably), and the Indemnified Party may participate in such
defense at such Indemnified Party's expense. The failure of any Indemnified
Party to give notice as provided herein shall relieve the Indemnifying Party of
its obligations under this Section 7 only if such failure is prejudicial to the
ability of the Indemnifying Party to defend such action, and such failure shall
in no event relieve the Indemnifying Party of any liability that he or it may
have to any Indemnified Party otherwise than under this Section 7. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation.
8. Information by Holders and Other Stockholders. Each Holder or Other
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Stockholder of securities included in any registration shall furnish in writing
to the Company duly executed by such Holder or Other Stockholder, such
information
<PAGE>
regarding such Holder or Other Stockholder and the distribution proposed by such
Holder or Other Stockholder as the Company may request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement, and the Company shall not be required to include
any Holder's or Other Stockholder's securities in any such registration unless
such information shall have been provided.
9. Rule 144 Reporting. With a view to making available the benefits of
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certain rules and regulations of the Commission that may permit the sale of the
Common Stock to the public without registration, the Company shall:
9.1. make and keep public information available as those terms are
understood and defined in Rule 144 promulgated by the Commission under the
Securities Act ("Rule 144"), at all times following the Public Offering;
9.2. file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act; and
9.3. so long as any Holder owns any securities constituting or
representing Registrable Securities, furnish to such Holder forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144, and of the Securities Act and the Securities
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such Holder to sell any such securities without
registration.
10. Transfer of Registration Rights. The rights to cause the Company to
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register securities of the Company under Sections 2, 3 and 4 hereof may be
assigned by any original Holder (a) to an assignee of Registrable Securities
consisting of or derived from conversion of not less than fifty percent (50%) of
the Common Stock originally issued to such transferring Holder, or (b) upon
distribution by the Holder or an assignee described in (a) that is an entity, of
any of the securities described in (a) to the direct or indirect beneficial
owners of the securities of such entity (including direct or indirect general or
limited partners thereof), together with the securities being transferred,
provided that in each case the Company is given written notice, at the time or
within a reasonable time after said transfer, stating the name and address of
said transferee and identifying the securities with respect to which such
registration rights are being assigned. No such assignment shall be effective
unless the transferee shall be required, as a condition to such transfer, to
agree in writing that he or it will receive and hold such securities subject to
the provisions of this Agreement and unless the Company is given written notice
at the time of the assignment or within a reasonable time after such assignment,
stating the name and address of said transferee and identifying the securities
that are being assigned. The above notwithstanding, in the event that a holder
of Registrable Securities transfers its Registrable Securities to an affiliate,
or in the case of
<PAGE>
individuals, to any immediate family member or a trust for the benefit of such
individual or immediate family member, the registration rights granted by this
Agreement shall be transferred with such Registrable Securities.
11. "Market Stand-Off" Agreement. If requested by the Company upon the
----------------------------
recommendation of the Board of Directors of the Company and an underwriter of
Common Stock (or other securities) of the Company, any Holder who includes
Registrable Securities in a Piggyback Registration, shall not sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by them during the ninety (90) day period following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
(A) such agreement shall apply only with respect to an underwritten
Piggyback Registration; and
(B) other Stockholders selling securities pursuant to such
registration statement and all officers and directors of the Company enter into
similar agreements.
Such agreement shall be in writing in form satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with respect
to the shares (or securities) subject to the foregoing restriction until the end
of said ninety (90) day period.
12. Changes in Common Stock. If, and as often as, there is any change in
-----------------------
the Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
13. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants as follows:
(A) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Charter or Bylaws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(B) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (except as enforceability may be
limited or
<PAGE>
affected by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws and equitable principles now or hereafter in
effect and affecting the rights and remedies of creditors generally).
14. Termination. Except as set forth below, the Registrable Securities
-----------
shall cease to be Registrable Securities upon the earlier to occur of (i) their
sale pursuant to a registration statement or Rule 144 under the Securities Act,
or (ii) when they are eligible for sale under Rule 144 without holding period or
volume limitations.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties hereto with respect to the matters provided for herein, and it
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein.
18. Miscellaneous.
-------------
(A) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto, whether so expressed or
not.
(B) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by certified or
registered mail, return receipt requested or overnight courier, or sent by
telecopier or telex, addressed as follows:
(i) if to the Company or any other party hereto, at the address
of such party set forth in the Merger Agreement, as appropriate;
(ii) if to any subsequent holder of Registrable Securities, to
it at such address as may have been furnished to the Company in writing by such
holder;
(iii) or, in any case, at such other address or addresses as
shall have been furnished in writing to the Company (in the case of a holder of
Registrable Securities) or to the holders of Registrable Securities (in the case
of the Company) in accordance with the provisions of this paragraph.
(C) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
(D) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and Stockholder
Agent.
<PAGE>
(E) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(F) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed on the date and year first above written.
SCIQUEST.COM, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
EMAX SOLUTION PARTNERS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
BioSupplyNet, Inc.
Internet Auctioneers International, Inc.
SciCentral, Inc.
Intralogix, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated 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 14, 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 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OUR AUDITED
DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 98,126,414
<SECURITIES> 24,285,293
<RECEIVABLES> 1,771,634
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 125,808,696
<PP&E> 3,357,082
<DEPRECIATION> 487,659
<TOTAL-ASSETS> 156,901,684
<CURRENT-LIABILITIES> 5,825,514
<BONDS> 0
0
0
<COMMON> 26,354
<OTHER-SE> 149,792,805
<TOTAL-LIABILITY-AND-EQUITY> 156,901,684
<SALES> 3,882,441
<TOTAL-REVENUES> 3,882,441
<CGS> 3,426,692
<TOTAL-COSTS> 3,426,692
<OTHER-EXPENSES> 35,721,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,991
<INCOME-PRETAX> (33,396,857)
<INCOME-TAX> 218,780
<INCOME-CONTINUING> (33,178,077)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,178,077)
<EPS-BASIC> (18.10)
<EPS-DILUTED> (18.10)
</TABLE>
