<PAGE>
As filed with the Securities and Exchange Commission on June 8, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
PURCHASEPRO.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 7389 88-0385401
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------
3291 N. Buffalo Drive, Las Vegas, Nevada 89129, (702) 316-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Christopher P. Carton
President and Chief Operating Officer
3291 N. Buffalo Drive, Las Vegas, Nevada 89129
(702) 316-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
with a copy to:
<TABLE>
<S> <C>
Michael J. Halloran, Esq. Peter Cohn, Esq.
James P. Clough, Esq. Scott D. Elliott, Esq.
Patrick J. Devine, Esq. Andrew P. Johnson, Esq.
Jeffrey S. Harrell, Esq. Orrick, Herrington & Sutcliffe LLP
Pillsbury Madison & Sutro LLP 1020 Marsh Road
235 Montgomery Street Menlo Park, CA 94025
San Francisco, CA 94104 (650) 614-7400
(415) 983-1000
</TABLE>
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
Calculation of Registration Fee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed maximum Amount of
Title of each class of securities to be registered offering price(1) registration fee
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $.01 par value......... $57,500,000 $15,985
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the SEC, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+PurchasePro.com may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities, and it is not +
+soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- , 1999
PROSPECTUS
- --------------------------------------------------------------------------------
Shares
[LOGO] PURCHASEPRO.COM
Common Stock
- --------------------------------------------------------------------------------
PurchasePro.com, Inc. is offering shares of its common stock. Prior to
this offering there has been no public market for PurchasePro.com's common
stock.
PurchasePro.com provides Internet business-to-business electronic commerce
services. Our e-commerce solution is comprised of public and private
communities that we call "e-marketplaces" where businesses can buy and sell a
wide range of products and services over the Internet.
It is anticipated that the public offering price will be between $ and
$ per share. The shares of PurchasePro.com will be quoted in the Nasdaq
National Market under the symbol "PPRO."
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price............................... $ $
Underwriting discounts and commissions.............. $ $
Proceeds, before expenses, to PurchasePro.com....... $ $
</TABLE>
See "Risk Factors" on pages 6 to 17 for factors that you should consider
beforeinvesting in the shares of common stock of PurchasePro.com.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
The underwriters may purchase up to additional shares of common stock from
PurchasePro.com at the public offering price, less underwriting discounts and
commissions, to cover over-allotments. Delivery and payment for these shares
will be on , 1999.
Joint Lead Managers
Prudential Securities Jefferies & Company, Inc.
, 1999
<PAGE>
[Description of Inside Front Cover]
Left Side of Page: text reading
"Electronic Marketplaces
Public & Private Communities
E-Marketplace Catalogs"
"Rapidly Deployable
Customizable
Accessible
Affordable"
"Interactive Sourcing
Competitive Bidding
Online Ordering
Management Reporting"
"Reliable
Scalable
Compatible
Secure"
Right Side of Page:
Centered in upper middle: PurchasePro.com logo. Below logo, text reading
"Connecting Buyers and Suppliers"
Centered middle: Text reading "The Business-to-Business E-Marketplace For
Your Company"
Lower middle: Text reading "Just Log On!"
Bottom of Page: Logos of our members.
"Watermarked" Background: Text reading "business-to-business-to-business-"
continuously repeating to cover page.
<PAGE>
[Description of gatefold]
. Top Left: Text reading: "PURCHASEPRO.COM
Connecting Buyers and Suppliers"
"We provide public and private, business-to-business electronic commerce
communities that we call "e-marketplaces." Our e-marketplaces are designed to
streamline the procurement cycle for our members. Our target customers are
primarily the small and medium sized businesses that constitute over 99% of
all U.S. businesses, according to the U.S. Small Business Administration, and
their large business partners."
. Bottom Left Corner: Around images of PurchasePro.com computer screen images,
image of envelope with text reading "Bid"; text reading:
"Interactive Sourcing"
"Source by using Standard Industrial Classification codes, keywords, region,
minority status, organizations, or a custom rating."
"Competitive Bidding"
"Simultaneously request competitive bids from multiple suppliers. Designate
requirements such as quantities, item numbers, size, color or delivery.
Bids and responses can be sealed, automated or submitted jointly by
multiple parties."
"Bid Evaluation Tools"
"Evaluation tools expedite analysis of bids."
. Center Top: Around images of PurchasePro.com computer screen images,
photograph of individual sitting at computer image of file folder with a
heart, image of the letters PO, text reading:
"E-marketplace Catalogs"
Members browse a supplier's e-marketplace catalog and select items for a
purchase order."
"Favorite Products"
"Frequently purchased products can be grouped for convenient ordering."
"Purchase Orders"
"Suppliers are sent individual electronic purchase orders containing
pricing, volume, terms, billing, shipping and any additional notes."
<PAGE>
. Center Middle: Around images of PurchasePro.com computer screen, image of
personal computers with a cable link, image of a delivery truck, text
reading:
"Approval Processing"
"Controls help prevent unauthorized buying and maintain vendor contract
compliance. Requisitions or purchase orders can be routed to a manager for
approval."
"Order Processing"
"Shipping"
Center Bottom: Around images of PurchasePro.com computer screen, image of
file cabinet text reading:
"Receiving"
"Upon receipt of shipment, the receiving department can cross-reference the
original order with the shipment. Buyers and the shipping party can be
notified of any incomplete order, or damaged or rejected products."
"Management Tools"
"Comprehensive management and reporting tools include tracking of requests,
bids, purchase orders, expenditures and individual performance. Reports can
be customized to fit a member's specific information needs."
"Archiving"
"Actions conducted through our e-marketplaces are captured from sourcing
to payment. All transactions, including specific buyer and supplier
activity, are time and date stamped, providing audit trails."
Right:
"Public E-marketplace"
"PurchasePro.com e-marketplace members can participate in an interactive
buying and selling community."
"Private E-marketplaces"
"Private e-marketplaces are invitation-only communities whose members
participate in special pricing arrangements or product offerings."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial and Operating Data.................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 28
Management................................................................. 40
Certain Transactions....................................................... 47
Principal Stockholders..................................................... 51
Description of Capital Stock............................................... 52
Shares Eligible for Future Sale............................................ 57
Underwriting............................................................... 58
Legal Matters.............................................................. 59
Experts.................................................................... 59
Where You Can Find More Information........................................ 60
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
The terms "PurchasePro.com," "we," "our" and "us" refer to PurchasePro.com,
Inc., a Nevada corporation, and its predecessor, unless the context suggests
otherwise. The term "you" refers to a prospective investor. PurchasePro is a
registered trademark and PurchasePro.com is a trademark of PurchasePro.com,
Inc. This prospectus contains trademarks and trade names of other companies.
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer and
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information you
should consider before investing in the common stock of PurchasePro.com.
Investors should read this entire prospectus carefully.
PurchasePro.com
PurchasePro.com is a leading provider of Internet business-to-business
electronic commerce services. Our e-commerce solution is comprised of public
and private communities that we call "e-marketplaces" where businesses can buy
and sell a wide range of products and services over the Internet in an
efficient, competitive and cost-effective manner. Forrester Research estimates
that the business-to-business e-commerce market will grow from $43 billion in
1998 to $1.3 trillion by 2003. Our target customers are primarily the small and
medium sized businesses that constitute over 99% of the businesses in the
United States according to estimates by the U.S. Small Business Administration.
We have designed our e-marketplaces to meet the needs of these customers and
their large business partners.
Our solution is designed for quick deployment and immediate use. With a
standard Internet connection, a Web browser and a PurchasePro.com membership,
our e-marketplace members can participate in interactive buying and selling
communities. Our e-marketplaces are customizable and scalable, utilizing an
open-architecture platform that can be integrated with members' existing
enterprise resource planning and accounting systems.
Our solution takes advantage of the growth, pervasiveness, low costs and
community building nature of the Internet as a basis for e-commerce for the
broad business-to-business market. We believe our e-marketplaces grow in value
as each new member brings new products or services and buying power to our
communities.
Our e-marketplaces are designed to streamline the procurement cycle for our
members--from sourcing to bidding to order to payment. Our e-marketplaces
enable each member to participate as both a buyer and a seller. When acting as
buyers, our members can realize a reduction in processing costs, achieve
improved pricing, enforce corporate purchasing policies and maintain an audit
trail for evaluating purchasing programs. When acting as suppliers, our members
can strengthen relationships with existing customers, reach new buyers and
lower sales, marketing and administrative costs.
Our target customers are primarily small and medium sized businesses. We
also pursue relationships with large organizations, providing us with access to
and assistance in recruiting their numerous small and medium sized business
partners as potential members for our e-marketplaces. These large organizations
include America West Arena, Arizona Diamondbacks, Caesars Palace, Carnival
Cruise Lines, Circus Circus Enterprises, MeriStar Management Company, MGM
Grand, Mission Industries, Nevada Power Company, Park Place Entertainment and
Phoenix Suns. In addition, Best Western International, Building One Services,
Marriott International and Prime Hospitality are using our services to develop
and maintain private e-marketplaces. We also have sales and marketing
relationships with ZoomTown.com, a subsidiary of Cincinnati Bell, Inc., the
Greater Phoenix Chamber of Commerce, Hospitalitycity pte ltd. and the National
Association of Women Business Owners.
Our predecessor was formed in October 1996, and we began offering commercial
access to our network in April 1997. As a result we have only a limited
operating history, and we have incurred significant net losses since inception.
Our headquarters are located at 3291 N. Buffalo Drive, Las Vegas, Nevada 89129
and our telephone number is (702) 316-7000. Our website address is
www.purchasepro.com. The information on our website is not a part of this
prospectus.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Shares offered by PurchasePro.com.......... shares
Total shares to be outstanding after the shares
offering..................................
Use of proceeds............................ To expand our sales and marketing
activities and for working
capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol..... PPRO
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of March 31, 1999, and does not
include the following:
. 936,500 shares of common stock issuable upon the exercise of stock
options outstanding as of March 31, 1999, at a weighted average exercise
price of $2.83, under our 1998 Stock Option and Incentive Plan.
. 2,063,500 shares of common stock available as of March 31, 1999 for
future issuance under our 1998 Stock Option and Incentive Plan, of which
options to purchase an aggregate of 1,397,280 shares were granted in
April and May 1999, at an exercise price of $3.50 per share.
. 1,500,000 shares of common stock available for future issuance under our
1999 Stock Plan.
Risk Factors
You should consider the risk factors before investing in PurchasePro.com and
the impact from various events which could adversely affect its business. See
"Risk Factors" for a discussion of these risks.
4
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
Inception Year Ended Quarter Ended
(October 8, 1996) December 31, March 31,
Through December ------------------------ ------------------------
31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 675,390 $ 1,670,238 $ 236,373 $ 673,907
Cost of revenues........ -- 213,857 445,639 97,917 162,870
Gross profit............ -- 461,533 1,224,599 138,456 511,037
Operating expenses...... 119,314 3,326,362 7,708,014 1,317,403 2,139,601
Operating loss.......... (119,314) (2,864,829) (6,483,415) (1,178,947) (1,628,564)
Other income (expense).. (3,638) (120,497) (316,595) (78,896) (118,655)
Net loss................ (122,952) (2,985,326) (6,800,010) (1,257,843) (1,747,219)
Preferred stock
dividends and accretion
of preferred stock to
redemption value....... -- -- (335,438) -- (150,939)
Net loss applicable to
common stock........... $(122,952) $(2,985,326) $(7,135,448) $(1,257,843) $(1,898,158)
========= =========== =========== =========== ===========
Loss per share
Basic.................. $ (0.02) $ (0.39) $ (0.83) $ (0.13) $ (0.25)
========= =========== =========== =========== ===========
Diluted................ $ (0.02) $ (0.36) $ (0.78) $ (0.12) $ (0.23)
========= =========== =========== =========== ===========
Weighted average shares
outstanding
Basic.................. 7,700,000 7,700,000 8,600,000 10,000,000 7,656,667
========= =========== =========== =========== ===========
Diluted................ 8,259,999 8,259,999 9,159,999 10,559,999 8,159,999
========= =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ---------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................. $ 476,585 $7,480,485 $
Working capital (deficit)................. (530,151) 7,023,749
Total assets.............................. 2,219,286 9,223,186
Notes payable............................. 1,789,984 50,000
Redeemable convertible preferred stock.... 6,990,377 --
Total stockholders' equity (deficit)...... (7,777,402) 7,956,859
</TABLE>
The pro forma balance sheet data gives effect to the issuance of 3,300,000
shares of Series B Preferred Stock in June 1999 at a purchase price of $3.50
per share, of which $2.5 million in subscriptions had been received prior to
March 31, 1999. The pro forma consolidated balance sheet information also gives
effect to the conversion of all outstanding shares of preferred stock into
shares of common stock upon the closing of the offering, the exercise of
warrants into 389,999 shares of common stock and the issuance of 450,000 shares
of common stock to the holders of Series A Preferred Stock in connection with
the issuance of the Series B Preferred Stock.
The pro forma as adjusted balance sheet data gives effect to the conversion
of all preferred stock, including the Series B Preferred Stock, as well as the
sale of the shares of common stock at an assumed public offering price of
$ per share, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by PurchasePro.com and the application of
the estimated net proceeds. See "Use of Proceeds" and "Capitalization."
Unless otherwise noted, the information in this prospectus assumes that all
of the outstanding shares of preferred stock of PurchasePro.com have been
converted into common stock, that warrants for the purchase of shares of common
stock have been exercised and that the underwriters have not exercised their
over-allotment option.
5
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to the
other information in this prospectus, before purchasing shares of common stock
of PurchasePro.com. Each of these risk factors could adversely affect our
business, financial condition and results of operations as well as adversely
affect the value of an investment in our common stock. This offering involves a
high degree of risk.
We have a limited operating history and are subject to the risks of start-up
companies.
We only began offering access to our network in April 1997. Furthermore, we
have entered into the majority of our contracts and significant relationships
only within the last 12 months. Accordingly, we have an extremely limited
operating history, and our prospects are subject to risks and uncertainties
frequently encountered by start-up companies particularly in new and rapidly
evolving markets, such as business-to-business e-commerce. These risks include
whether we can:
. attract and retain a large number of members including buyers and
suppliers from a variety of industries;
. achieve improved and steady revenue growth rates;
. increase the volume of transactions effected through our e-commerce
platform for which we receive transaction fees;
. scale our network and operating infrastructure;
. maintain our current, and develop new, strategic relationships;
. enhance our existing service and develop new services and service
enhancements;
. implement and improve our operational, financial and management
information systems and other technology; and
. attract, retain and motivate qualified personnel.
We have a history of losses and anticipate continued losses.
We incurred net losses of $123,000 for the period from inception (October 8,
1996) through December 31, 1996, $3.0 million for the year ended December 31,
1997, $7.1 million for the year ended December 31, 1998 and $1.9 million for
the quarter ended March 31, 1999. At March 31, 1999, we had an accumulated
deficit of $9.0 million. We have never been profitable and expect to continue
to incur operating losses on both a quarterly and annual basis for at least the
foreseeable future. Our financial statements for the year ended December 31,
1997 had a qualified opinion from our auditors regarding our ability to
continue as a going concern. In addition, we expect to continue to make
significant expenditures for sales and marketing, programming and development
and general and administrative functions. As a result, we will need to generate
significant revenues to achieve profitability. Although our revenues have grown
in recent quarters, we cannot assure you that revenues will grow in the future
or that we will achieve sufficient revenues for profitability. Even if we do
achieve profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
more slowly than we anticipate, or if operating expenses exceed our
expectations and cannot be adjusted accordingly, our business, financial
condition and results of operations will be materially and adversely affected.
Our business model is unproven and we may be unable to implement our
business strategy.
Our business model is to generate revenues from the development of both
public and private e-marketplaces for business-to-business e-commerce.
Business-to-business e-commerce is a relatively new means of conducting
business and is unproven. We can give no assurances that our business model or
strategy will be successful. Any failure to implement our business model or
strategy would materially and adversely
6
<PAGE>
affect our business, financial condition and results of operations. We have
initially focused on the hospitality industry located in Las Vegas, Nevada
where we have significant contacts. Our success, if any, is dependent on our
ability to expand our membership base within the hospitality industry and to
expand into new markets and industries. We cannot assure you that we will be
able to expand our member base or expand into new markets and industries. E-
commerce generally and our e-marketplaces in particular will also need to
achieve broad market acceptance. The revenue and profit potential for our
business model is unproven. We cannot assure you that we will successfully
implement our business strategy. Our growth and expansion, if any, will place
significant demands on our management, operational and financial resources.
Our quarterly results are subject to significant fluctuations, and our stock
price may decline if we do not meet expectations of investors and analysts.
We expect that our quarterly operating results will fluctuate significantly
due to many factors, many of which are outside our control, including:
. demand for and market acceptance of our products and services;
. inconsistent growth, if any, of our member base;
. loss of key customers or strategic partners;
. timing of the recognition of revenue for large contracts;
. timing of sales and marketing and other operating expenses;
. variations in the dollar volume of transactions effected through our e-
marketplaces;
. intense and increased competition;
. introductions of new services or enhancements, or changes in pricing
policies, by us and our competitors;
. management of our growth;
. our ability to control costs;
. reliable continuity of service and network availability;
. potential acquisitions and strategic alliances both by us and our
competitors;
. uncertain growth in and acceptance of e-commerce;
. changes in regulatory laws and policies; and
. general economic factors.
We believe that quarterly revenues, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons
of results of operations are not necessarily meaningful and that, as a result,
such comparisons should not be relied upon as indications of future
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Due to the above as well as other factors, it is
likely that our operating results will be below market analysts' expectations
in some future quarters, which would materially and adversely affect the market
price of our stock.
We have historically received substantially all of our revenue from
companies serving the hospitality industry. A downturn in the hospitality
industry could adversely affect us.
Historically, we have received substantially all of our revenue from members
associated with the hospitality industry, including those located in Nevada,
Florida and other regional hospitality centers. We expect that hospitality
industry related revenues will continue to account for a substantial majority
of our revenues for the foreseeable future. Our dependence on members
associated with the hospitality industry makes
7
<PAGE>
us vulnerable to downturns in this industry. Such a downturn could lead our
members associated with this industry to reduce their level of activity on our
e-marketplace and cause some to cancel their membership, either of which could
materially and adversely affect our business, financial condition and results
of operations. In addition, to be successful, we will need to expand into new
markets and industries beyond the hospitality industry. We cannot assure you
that we will be able to expand into new markets and industries.
Our revenue is derived from providing e-marketplace access to members under
short term, pilot and verbal agreements. The cancellation or non-renewal of
these agreements would adversely affect us.
We have generated substantially all of our revenues through member
subscription and license fees for access to our e-marketplaces. For the quarter
ended March 31, 1999, approximately 79% of our revenues were comprised of
member subscription fees. Generally, our subscription and license fee contracts
are entered into on a month-to-month basis. Although we have executed contracts
of a longer duration, generally these longer contracts may be terminated at any
time on 30 to 60 days' notice. Some of our contracts may be terminated on even
shorter notice, one in as little as 7 days. Some of our agreements with members
are verbal and as such may be terminated at any time. A failure of current
members to continuously renew their contracts, or a high rate of termination of
contracts, would significantly reduce our revenues. Moreover, several of our
significant member agreements, including an agreement with Marriott
International, are pilot programs. We have expended significant financial and
personnel resources and have expanded our operations on the assumption that
these and other agreements will be renewed. If these agreements are terminated
early or not renewed, we may not be able to recover our costs and expenses
associated with our efforts which would materially and adversely affect our
business, financial condition and results of operations.
We have a long sales cycle for large corporate accounts which could cause
significant fluctuation in our quarterly operating results.
Our sales cycle for large corporate accounts typically takes six to nine
months to complete and varies from contract to contract, but has taken up to 18
months for some contracts. A large number of our members are introduced to our
e-marketplaces through such accounts. Delays in these sales could result in
significant fluctuations in our quarterly operating results. The length of the
sales cycle may vary depending on a number of factors over which we may have
little or no control, including the internal decision making process of the
potential customer and the level of competition that we encounter in our
selling activities. Additionally, since the market for business-to-business e-
commerce is relatively new, we often have to educate potential customers about
the use and benefits of our products and services, which can prolong the sales
process. In certain circumstances, we provide access to our e-marketplaces on a
trial basis for customer evaluation, which can again prolong the sales process.
Our sales cycle can be further extended for product sales made through third
parties.
We depend on strategic relationships, and there can be no assurance that
they will contribute to increased use of our e-commerce business-to-business
services, and we may not be able to maintain these relationships.
Although we have established several strategic relationships such as our
relationships with ZoomTown.com, the Greater Phoenix Chamber of Commerce,
Hospitalitycity pte ltd. and the National Association of Women Business Owners,
we cannot assure you that these arrangements will be renewed on commercially
reasonable terms, or at all, or that they will contribute to increased use of
our e-commerce business-to-business service. We have used and will continue to
use marketing and sales partners to add members and generate revenues. These
arrangements may not generate any new members. We also may not be able to renew
these marketing and distribution alliances on favorable terms, if at all. We
may not be able to recover our costs and expenses associated with these efforts
which could materially and adversely affect our business, financial condition
and results of operations.
8
<PAGE>
We face intense competition and we cannot assure you that we will be able
to compete successfully.
The e-commerce market is new, rapidly evolving and intensely competitive,
and we expect competition to intensify in the future. Barriers to entry are
minimal, and competitors may develop and offer similar services in the future.
Although we believe that there may be opportunities for several providers of
products and services similar to ours, a single provider may dominate the
market. We expect that additional companies will offer competing e-commerce
solutions in the future. We cannot assure you that we will be able to compete
successfully against current or future competitors.
We have encountered and expect to encounter competition from other e-
commerce solution providers including:
. companies such as Microsoft Corporation, America Online and its Netscape
subsidiary, and Yahoo! that offer a broad array of Internet-related
services and either offer business-to-business e-commerce services
presently or have announced plans to introduce such services in the
future;
. enterprise software purchasing system providers such as Ariba, Commerce
One and TRADE'ex;
. electronic data interchange providers such as GE Information Services,
Harbinger Corp., IBM and Sterling Commerce;
. enterprise resource planning software developers such as PeopleSoft,
Oracle and SAP;
. e-commerce trade communities; and
. e-commerce Web sites of business retailers.
Virtually all of our current and potential competitors have longer
operating histories, larger customer bases and greater brand recognition in
business and Internet markets and significantly greater financial, marketing,
technical and other resources than PurchasePro.com. Our competitors may be
able to devote significantly greater resources to marketing and promotional
campaigns, may adopt more aggressive pricing policies or may try to attract
users by offering services for free and may devote substantially more
resources to product development than PurchasePro.com.
Further, as a strategic response to changes in the competitive environment
or otherwise, we may, from time to time, make pricing, service or marketing
decisions or acquisitions that could materially and adversely affect our
business, financial condition and results of operations.
Our success depends on our ability to continuously enhance our services.
Our future success will depend on our ability to enhance our e-marketplace
software, and to continue to develop and introduce new services that keep pace
with competitive introductions and technological developments, satisfy diverse
and evolving member requirements and otherwise achieve market acceptance. In
particular, we believe that our future success will depend, in part, upon
market acceptance of PurchasePro 4.0 which has only recently been released. We
may not be successful in developing and marketing on a timely and cost-
effective basis future versions or upgrades of our software, or offer new
services that respond to technological advances or new market requirements.
Any failure by us to anticipate or respond adequately to changes in technology
and member preferences, or any significant delays in other development
efforts, could make our services unmarketable or obsolete, which would
materially and adversely affect our business, financial condition and results
of operations.
We have experienced resistance to implementation of our services from
suppliers and have experienced some supplier attrition.
Our public e-marketplace operates as an open bidding process allowing
buyers to instantaneously compare the prices of suppliers. In some instances,
suppliers have been reluctant to join our e-marketplace and participate in an
open bidding process because of the increased competition and comparisons this
environment
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<PAGE>
creates. We have been dependent upon our large customers' efforts and
cooperation to secure suppliers for our e-marketplace. Furthermore, we have
experienced supplier attrition. For example, a significant number of our
members using an older version of our software allowed their e-marketplace
memberships to lapse at the end of 1998. Increased reluctance of suppliers to
join our network, a decrease in customers' influence on their suppliers, or
significant attrition of suppliers could materially and adversely affect our
business, financial condition and results of operations.
The Internet may not be able to accommodate growth in e-commerce.
The use of the Internet for retrieving, sharing and transferring information
among businesses, buyers, suppliers and partners has only recently begun to
develop. The recent growth in the use of the Internet has caused frequent
periods of performance degradation. Our ability to sustain and improve our
services is limited, in part, by the speed and reliability of the networks
operated by third parties. Consequently, the emergence and growth of the market
for our services is dependent on improvements being made to the Internet
infrastructure to alleviate overloading and congestion.
A lack of development of the e-commerce market would negatively affect us.
If the e-commerce market does not grow or grows more slowly than expected,
our business will suffer. The possible slow adoption of the Internet as a means
of commerce by businesses may harm our prospects. A number of factors could
prevent the acceptance and growth of e-commerce, including the following:
. e-commerce is at an early stage and buyers may be unwilling to shift
their traditional purchasing to online purchasing;
. the necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed;
. businesses may not be able to implement e-commerce applications on these
networks;
. increased government regulation or taxation may adversely affect the
viability of e-commerce;
. insufficient availability of telecommunication services or changes in
telecommunication services may result in slower response times; and
. adverse publicity and consumer concern about the reliability, cost, ease
of access, quality of services, capacity, performance and security of e-
commerce transactions could discourage its acceptance and growth.
Even if the Internet is widely adopted as a means of commerce, the adoption
of our network for procurement, particularly by companies that have relied on
traditional means of procurement, will require broad acceptance of the new
approach. In addition, companies that have already invested substantial
resources in traditional methods of procurement, or in-house e-commerce
solutions, may be reluctant to adopt our e-commerce solution.
We cannot ensure the security of transactions over the Internet.
A fundamental requirement to conduct business-to-business e-commerce is the
secure transmission of information over public networks. We cannot be certain
that advances in computer capabilities, new discoveries in the field of
cryptography, or other developments will not result in the compromise or breach
of the algorithms we use to protect content and transactions on our e-
marketplaces or proprietary information in our databases. Anyone who is able to
circumvent our security measures could misappropriate proprietary, confidential
member information or cause interruptions in our operations. We may be required
to incur significant costs to protect against security breaches or to alleviate
problems caused by breaches. Further, a well-publicized compromise of security
could deter people from using the Internet to conduct transactions that
10
<PAGE>
involve transmitting confidential information. Our failure to prevent security
breaches, or well-publicized security breaches affecting the Internet in
general could materially and adversely affect our business, financial condition
and results of operation.
We have risks associated with maintaining our databases.
We update and maintain extensive databases of the products, services and e-
marketplace transactions for our members. Our computer systems and databases
must be sufficiently scalable to process large amounts of information without
significant degradation in performance. Database capacity constraints may
result in data maintenance and accuracy problems which could cause a disruption
in our service and our ability to provide accurate information to our members.
Such problems may result in a loss of members or could materially and adversely
affect our business, financial condition and results of operations. Some of our
customer contracts provide for service level guarantees for data accuracy. To
the extent that we are unable to maintain data accuracy at required levels, we
could incur significant liabilities and the applicable contracts could be
terminated, any of which could materially and adversely affect our business,
financial condition and results of operations.
We are unable to predict capacity constraints on our network.
Traffic in our e-marketplaces has increased to the point where we must
expand and upgrade some of our transaction processing systems and network
hardware and software. We may not be able to accurately predict the rate of
increase in the usage of our network. This may affect our timing and ability to
expand and upgrade our systems and network hardware and software capabilities
to accommodate increased use of our network. If we do not upgrade our systems
and network hardware and software appropriately, we may experience downgraded
service and our business, financial condition and results of operations could
be materially and adversely affected.
We may have difficulty managing our growth.
Successful implementation of our business plan requires an effective
planning and management process. We continue to increase the scope of our
operations both domestically and internationally, and we have grown our
workforce substantially. We have grown from eight employees in January 1997 to
149 employees as of April 30, 1999. In addition, we plan to continue to expand
our sales and marketing, customer support and product development personnel.
Our business, financial condition and results of operations will be materially
and adversely affected if we are unable to effectively manage our expanding
operations. This growth has placed, and our anticipated future growth in our
operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures, and we
will need to continue to expand, train and manage our workforce. Our future
performance may also depend on the effective integration of acquired
businesses. Such integration, even if successful, may take a significant period
of time and expense, and may place a significant strain on our resources.
If we encounter system failure, our business and reputation could be
damaged.
Our ability to successfully maintain an e-commerce marketplace and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and network
systems. Our computer and communications systems are located in Las Vegas,
Nevada. Although we periodically back up our databases to tapes and store the
backup tapes offsite, we do not maintain a redundant site. Our systems and
operations are vulnerable to damage or interruption from human error, sabotage,
fire, flood, earthquake, power loss, telecommunications failure and similar
events. Although we have taken certain steps to prevent a system failure, we
cannot assure you that our measures will be successful and that we will not
experience system failures in the future. Moreover, we have experienced delays
and interruptions
11
<PAGE>
in our telephone and Internet access which have prevented members from
accessing our e-marketplaces and customer service department. Furthermore, we
do not have a formal disaster recovery plan and do not carry sufficient
business interruption insurance to compensate us for losses that may occur as a
result of any system failure. The occurrence of any system failure or similar
event could materially and adversely affect our business, financial condition
and results of operations. In addition, we may move to third-party hosting of
our servers. We cannot assure you that this transition, if undertaken, would be
effected without interruptions that could materially and adversely affect our
business, financial condition and results of operations. Further, any such
third-party host could be subject to the same risks of system failure as our
current site.
Our services may be adversely affected by unknown software defects.
Our e-marketplace services depend on complex software developed internally
and by third parties. Software often contains defects, particularly when first
introduced or when new versions are released. Although we conduct extensive
testing, we may not discover software defects that affect our new or current
services or enhancements until after they are deployed. Although we have not
experienced any material software defects to date, it is possible that, despite
testing by us, defects may occur in the software. These defects could cause
service interruptions, which could damage our reputation or increase our
service costs, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could materially and adversely affect our
business, financial condition and results of operations. In the past, we have
missed internal software development and enhancement deadlines. We cannot
assure you that we will meet our deadlines in the future or that, if we miss
our deadlines, it will not materially and adversely affect our business,
financial condition and results of operations. Some of our contracts contain
software enhancement and development milestones. If we are unable to meet these
milestones, whether or not the failure is attributable to us or a third party,
we may be in breach of our contractual obligations. Such a breach could damage
our reputation, lead to termination of the contract and materially and
adversely affect our business, financial condition and results of operations.
You will experience immediate dilution with respect to your shares. We may
need additional capital and raising additional capital may dilute existing
stockholders.
You will incur immediate and substantial dilution of $ per share, based
upon an assumed public offering price of $ per share, in the net tangible
book value of your shares as a result of this offering. See "Dilution." We
believe that our existing capital resources, including the anticipated proceeds
of this offering, will enable us to maintain our current and planned operations
for at least the next 18 months. However, we may be required to raise
additional funds due to unforeseen circumstances. If our capital requirements
vary materially from those currently planned, we may require additional
financing sooner than anticipated. Such financing may not be available in
sufficient amounts or on terms acceptable to us, or at all, and may be dilutive
to existing stockholders.
Unsuccessful acquisitions could harm our operating results and our business.
We may acquire businesses, products and technologies that complement or
augment our existing businesses, services and technologies. Integrating any
newly acquired businesses or technologies may be expensive and time consuming.
We do not know if we will be able to complete any future acquisitions or if we
will be able to successfully integrate any acquired businesses. To finance any
acquisitions, we may need to raise additional funds through public or private
financings. Any equity or debt financings, if available at all, may be on terms
that are not favorable to us and, in the case of equity financings, may result
in dilution to our stockholders. We may not be able to operate any acquired
businesses profitably or otherwise implement our business strategy
successfully. The inability to integrate any newly acquired entities or
technologies effectively could materially and adversely affect our business,
financial condition and results of operations.
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<PAGE>
We may not be able to protect our intellectual property and proprietary
rights.
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as important to our success, and rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers and business partners to
protect our proprietary rights. Despite our precautions, unauthorized third
parties may copy certain portions of our services or reverse engineer or obtain
and use information that we regard as proprietary. End-user license provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. The status of United States patent protection in the
software industry is not well defined and will evolve as the U.S. Patent and
Trademark Office grants additional patents. We have one patent pending in the
United States and we may seek additional patents in the future. We do not know
if our patent application or any future patent application will be issued with
the scope of the claims we seek, if at all, or whether any patents we receive
will be challenged or invalidated. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws
of the United States. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate and competitors may independently
develop similar technology.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, we cannot be certain that our services do not infringe patents or
other intellectual property rights that may relate to our services. In
addition, because patent applications in the United States are not publicly
disclosed until the patent is issued, applications may have been filed which
relate to our services. We may be subject to legal proceedings and claims from
time to time in the ordinary course of our business, including claims of
alleged infringement of the trademarks and other intellectual property rights
of third parties. If our services violate third-party proprietary rights, we
cannot assure you that we would be able to obtain licenses to continue offering
such services on commercially reasonable terms, or at all. Any claims against
us relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and in injunctions preventing us from distributing these
services. These claims could materially and adversely affect our business,
financial condition and results of operations.
We may need to license third party technologies and we face risks in doing
so.
We intend to continue to license technology from third parties, including
our Web server and encryption technology. The market is evolving and we may
need to license additional technologies to remain competitive. We may not be
able to license these technologies on commercially reasonable terms or at all.
In addition, we may fail to successfully integrate any licensed technology into
our services. These third-party licenses may expose us to increased risks,
including risks associated with the integration of new technology, the
diversion of resources from the development of our own proprietary technology
and our ability to generate revenues from new technology sufficient to offset
associated acquisition and maintenance costs. Our inability to obtain any of
these licenses could delay product development until equivalent technology
could be identified, licensed and integrated. Any such delays in services could
materially and adversely affect our business, financial condition and results
of operations.
We may not be able to acquire or maintain effective Web addresses.
We currently hold various Internet Web addresses relating to our network. We
may not be able to prevent third parties from acquiring Web addresses that are
similar to our addresses, which could materially and adversely affect our
business, financial condition and results of operations. The acquisition and
maintenance of Web addresses generally is regulated by governmental agencies
and their designees. The regulation of Web addresses in the United States and
in foreign countries is subject to change. As a result, we may not be able to
acquire or maintain relevant Web addresses in all countries where we conduct
business. Furthermore, the relationship between regulations governing such
addresses and laws protecting proprietary rights is unclear.
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We may be subject to legal liability for communication on our network.
We may be subject to legal claims relating to the content in our network, or
the downloading and distribution of such content. Claims could involve matters
such as fraud, defamation, invasion of privacy and copyright infringement.
Providers of Internet products and services have been sued in the past,
sometimes successfully, based on the content of material. Our insurance may not
cover claims of this type, or may not provide sufficient coverage. Even if we
are ultimately successful in our defense of these claims, any such litigation
is costly and could materially and adversely affect our business, financial
condition and results of operations.
We may be unable to keep pace with the rapid technological change in our
market.
Our market is characterized by rapid technological change and frequent new
product and service announcements. Significant technological changes could
render our existing e-marketplace technology obsolete. If we are unable to
successfully respond to these developments or do not respond in a timely and
cost-effective way, our business, financial condition and results of operations
would be materially and adversely affected. To be successful, we must adapt to
our rapidly changing market by continually improving the responsiveness,
services and features of our e-marketplace communities and by developing new
features to meet customer needs. Our success will depend, in part, on our
ability to license leading technologies useful in our business, enhance our
existing services and develop new services and technology that address the
needs of our customers. We will also need to respond to technological advances
and emerging industry standards in a cost-effective and timely basis.
We depend upon our key personnel and they would be difficult to replace.
We believe that our success will depend on the continued employment of our
senior management team and key sales and technical personnel. If one or more
members of our senior management team were unable or unwilling to continue in
their present positions, our business, financial condition and results of
operations could be materially and adversely affected.
We plan to expand our employee base to manage our anticipated growth. Most
importantly, we plan to hire additional members of senior management.
Competition for personnel, particularly for senior management personnel and
employees with technical and sales expertise, is intense. Our business,
financial condition and results of operations will be materially and adversely
affected if we cannot hire and retain suitable personnel.
If we do not adequately address "Year 2000" issues, we may incur significant
costs and our business could suffer.
Failure of our internal computer systems or third-party equipment or
software, or systems maintained by our members and strategic sales and
marketing partners, to operate properly with regard to the year 2000 and
thereafter could require us to incur significant unanticipated expenses to
remedy any problems and could cause system interruptions and loss of data. Any
of these events could harm our reputation and materially and adversely affect
our business, financial condition and results of operations. We have no
specific contingency plan to address the issues that could result from year
2000 complications. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Issues."
We face many risks associated with international expansion.
We intend to have operations in a number of international markets. To date,
we have limited experience in developing localized versions of our e-
marketplace enabling software and in marketing, selling and distributing our
solutions internationally.
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International operations are subject to many risks, including:
. the impact of recessions in economies outside the United States,
especially in Asia;
. changes in regulatory requirements;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences;
. difficulties and costs of staffing and managing foreign operations;
. political and economic instability;
. fluctuations in currency exchange rates; and
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.
Our executive officers, directors and principal stockholders will exercise
significant control.
We anticipate that our executive officers, directors and principal
stockholders will, in the aggregate, beneficially own approximately % of
our outstanding common stock following the completion of this offering ( % if
the underwriters' over-allotment option is exercised in full). These
stockholders will be able to exercise substantial influence over all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of
PurchasePro.com. See "Management" and "Principal Stockholders."
Shares eligible for future sale by our existing stockholders may adversely
affect our stock price.
The market price of our common stock could drop due to the sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, shares of common stock will be outstanding. Of
these shares, the shares sold in this offering will be freely tradeable
without restrictions under the Securities Act of 1933, except for any shares
purchased by our "affiliates," as defined in Rule 144 under the Securities Act.
The number of shares of common stock outstanding would increase to and
the number of freely tradable shares would increase to if the
underwriters exercise their over-allotment option in full. Our officers and
directors and stockholders holding in the aggregate shares of common
stock have entered into lock-up agreements pursuant to which they have agreed
not to offer or sell any shares of common stock for a period of 180 days after
the date of this prospectus without the prior written consent of Prudential
Securities, on behalf of the underwriters. Prudential Securities may, at any
time and without notice, waive the terms of these lock-up agreements as
specified in the underwriting agreement. Upon expiration of this 180-day lock-
up period, the shares owned by these persons prior to completion of this
offering may be sold into the public market without registration under the
Securities Act in compliance with the volume limitations and other applicable
restrictions of Rule 144 under the Securities Act. After the date of this
prospectus, we intend to file a registration statement under the Securities Act
to register all shares of common stock issuable upon the exercise of
outstanding stock options and reserved for issuance under our stock option
plans. This registration statement is expected to become effective immediately
upon filing, and subject to the vesting requirements and exercise of the
related options (as well as the terms of the lock-up agreements), shares
covered by this registration statement will be eligible for sale in the public
markets. See "Shares Eligible for Future Sale."
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Our stock has not been publicly traded before this offering and our stock
price may be volatile.
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. We and the underwriters
will determine the initial public offering price. The price at which our common
stock will trade after this offering is likely to be highly volatile and may
fluctuate substantially due to factors such as:
. actual or anticipated fluctuations in our results of operations;
. changes in or failure by us to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against that company. We may become involved in this
type of litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse
effect upon our business and operating results.
Governmental regulation and legal uncertainties could impair the growth of
the Internet and decrease demand for our services and increase our cost of
doing business.
The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or
modification of laws or regulations relating to the Internet could increase our
costs and administrative burdens which could materially and adversely affect
our business, financial condition and results of operations. It may take years
to determine whether and how existing laws such as those governing intellectual
property, privacy, libel, consumer protection and taxation apply to the
Internet.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. We must comply with new regulations
in the United States and other countries where we conduct business. The growth
and development of the business-to-business e-commerce market may prompt calls
for more stringent laws governing consumer protection and the taxation of e-
commerce. Non-compliance with any newly adopted laws and regulations could
expose us to significant liabilities which could materially and adversely
affect our business, financial condition and results of operations.
Our management will have broad discretion over the use of the net proceeds
and it may not effectively utilize those funds.
We have no current specific plans for the use of the net proceeds from this
offering. We intend generally to use the net proceeds from this offering to
expand our sales and marketing activities and for general corporate purposes,
including working capital and strategic investments. We have not yet determined
the actual expected expenditures and thus cannot estimate the amounts to be
used for each specified purpose. The actual amounts and timing of these
expenditures will vary significantly depending on a number of factors,
including, but not limited to, the amount of cash generated by our operations
and the market response to the introduction of any new service offerings.
Depending on future developments and circumstances, we may use some of the
proceeds for uses other than those described above. Our management will
therefore have significant flexibility in applying the net proceeds of this
offering. If the net proceeds are not used in a manner beneficial to
PurchasePro.com, our business, financial condition and results of operations
could be materially and adversely affected.
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<PAGE>
Our articles of incorporation and bylaws and Nevada law contain provisions
which could delay or prevent a change in control of PurchasePro.com and could
also limit the market price of your stock.
Our articles of incorporation and bylaws will contain provisions that could
delay or prevent a change in control of PurchasePro.com. These provisions could
limit the price that investors might be willing to pay in the future for shares
of our common stock. Some of these provisions:
. divide our board of directors into three classes;
. authorize the issuance of preferred stock which can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock;
. prohibit stockholder action by written consent; and
. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
In addition, certain provisions of Nevada law make it more difficult for a
third party to acquire PurchasePro.com. Some of these provisions:
. establish a supermajority stockholder voting requirement to approve an
acquisition by a third party of a controlling interest in
PurchasePro.com; and
. impose time restrictions and/or require additional approvals for an
acquisition of PurchasePro.com by an interested stockholder.
These provisions could also limit the price that investors might be willing
to pay in the future for shares of our common stock. See "Description of
Capital Stock" for additional discussion of these provisions.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. The words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect" and similar
expressions identify these forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including those described above under the caption "Risk Factors." In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this prospectus may not occur and actual results could differ
materially from those anticipated in the forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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USE OF PROCEEDS
The net proceeds to us from the sale of shares of common stock in
this offering are estimated to be approximately $ million ($
million if the underwriters' over-allotment option is exercised in full), after
deducting underwriting discounts and commissions and estimated offering
expenses of $ .
We have no current specific plans for use of the net proceeds from this
offering, and our management will have broad discretion over the use of the net
proceeds. We generally intend to use the net proceeds of this offering for the
following:
. expansion of our sales and marketing activities; and
. working capital and other general corporate purposes.
We have not yet determined the actual expected expenditures and thus cannot
estimate the amounts to be used for each purpose discussed above. The amounts
and timing of these expenditures will vary significantly depending on a number
of factors, including, but not limited to, the amount of cash generated by our
operations and the market response to our introduction of any new services.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to these
transactions. We intend to invest the net proceeds of this offering in short-
term, interest bearing, investment grade securities or guaranteed obligations
of the U.S. government pending the above uses.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying any dividends in the foreseeable future. We
currently intend to retain any future earnings for the expansion of our
business.
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CAPITALIZATION
The following table sets forth the capitalization of PurchasePro.com as of
March 31, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the issuance of 3,300,000
shares of Series B Preferred Stock in June 1999, the issuance of
450,000 shares of common stock to the holders of Series A Preferred
Stock, the conversion of all outstanding shares of preferred stock into
common stock upon closing of the offering, including a total of
2,100,000 shares of Series A Preferred Stock issued in June 1998 and
the shares of Series B Preferred Stock issued in June 1999, the use of
proceeds from the Series B Preferred Stock to repay notes payable of
$2,050,000 and the write-off of the related debt discount of $310,000,
and the assumed exercise of warrants to purchase 389,999 shares of
common stock outstanding at March 31, 1999; and
. on a pro forma basis as adjusted to reflect our receipt of the
estimated net proceeds from the sale of the shares of
common stock in this offering, after deducting underwriting discounts
and commissions and estimated offering expenses.
You should read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable............................ $ 1,789,984 $ 50,000 $
Redeemable convertible preferred stock
Series A: $0.001 par value; 8%
convertible; $2.50 liquidation
preference; 2,100,000 shares
authorized, issued and outstanding; pro
forma--no shares authorized, issued or
outstanding; pro forma as adjusted--no
shares authorized, issued or
outstanding............................ 4,490,377 -- --
Series B: $0.001 par value; 8%
convertible; $3.50 liquidation
preference(1).......................... 2,500,000 -- --
Stockholders' equity (deficit):
Common stock: $0.01 par value;
40,000,000 shares authorized; 7,770,000
shares issued and outstanding; pro
forma--40,000,000 shares authorized,
14,009,999 shares issued and
outstanding; pro forma as adjusted--
40,000,000 shares authorized,
issued and outstanding(2).. 77,700 140,100
Additional paid-in capital.............. 1,178,504 17,160,381
Accumulated deficit..................... (9,033,606) (9,343,622)
----------- ----------- -------
Total stockholders' equity (deficit).... (7,777,402) 7,956,859
----------- ----------- -------
Total capitalization.................. $ 1,002,959 $ 8,006,859 $
=========== =========== =======
</TABLE>
- --------
(1) As of March 31, 1999, the board of directors had not authorized the
issuance of shares of Series B Preferred Stock. Through March 31, 1999, we
had received subscriptions from potential investors for 714,286 shares of
Series B Preferred Stock subject to final board approval and authorization.
(2) The number of share of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and does
not include the following:
. 936,500 shares of common stock issuable upon the exercise of stock
options outstanding as of March 31, 1999, at a weighted average
exercise price of $2.83, under our 1998 Stock Option and Incentive
Plan.
. 2,063,500 shares of common stock available as of March 31, 1999, for
future issuance under our 1998 Stock Option and Incentive Plan, of
which options to purchase an aggregate of 1,397,280 shares were granted
in April and May 1999, at an exercise price of $3.50 per share.
. 1,500,000 shares of common stock available for future issuance under
our 1999 Stock Plan.
19
<PAGE>
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock
from the initial public offering price. Net tangible book value per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities, divided by the number of shares of common stock outstanding.
. As of March 31, 1999, our pro forma net tangible book value was $8.0
million, or $0.57 per share of common stock after giving effect to the
issuance of 3,300,000 shares of Series B Preferred Stock in June 1999, of
which $2.5 million in subscriptions had been received prior to March 31,
1999. The pro forma net tangible book value also gives effect to the
issuance of 450,000 shares of common stock to holders of Series A
Preferred Stock, the conversion of all outstanding shares of preferred
stock into shares of common stock and the exercise of warrants into
389,999 shares of common stock.
. As of March 31, 1999, our pro forma net tangible book value as adjusted
for the sale of the shares offered in this offering and
application of the estimated net proceeds of $ (after deducting
the underwriting discounts and commissions and estimated offering
expenses), would have been approximately $ per share.
This represents an immediate increase of $ . per share to existing
stockholders and an immediate and substantial dilution of $ per share to
new investors purchasing common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $
----
Pro forma net tangible book value as of March 31, 1999............
---
Increase attributable to new investors............................
---
Pro forma net tangible book value after the offering...............
----
Dilution to new investors.......................................... $
====
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1999 the
differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based on an assumed
initial public offering price of $ and before deducting the underwriting
discounts and commissions and our estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ---------------------- Price
Number Percent Amount Percent Per Share
-------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors........... % %
-------- -------- ---------- --------
Total................. 100% $ 100%
======== ======== ========== ========
</TABLE>
The above discussion and tables assume no exercise of the underwriter's
over-allotment option and no exercise of any stock options outstanding as of
March 31, 1999, but give effect to the exercise of warrants into 389,999 shares
of common stock. As of March 31, 1999, there were options outstanding to
purchase a total of 936,500 shares of common stock at a weighted average
exercise price of $2.83 per share. If these options are exercised in the future
it will be further dilutive to investors who purchase shares at the initial
public offering price. Options available for grant under our stock option plans
may be granted at exercise prices less than the market value of common stock on
the grant date. If we grant options below fair market value it could be
dilutive to investors who purchase shares at the initial public offering price.
20
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
We derived the selected consolidated financial data presented below from our
historical financial statements and related notes included elsewhere in this
prospectus. You should read the selected consolidated financial data together
with our historical financial statements, related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Arthur Andersen LLP, independent public accountants, audited our historical
financial statements for the period from inception (October 8, 1996) through
December 31, 1996, and for each of the two years in the period ended December
31, 1998. Their report appears in another part of this prospectus. Our
historical financial statements for the quarters ended March 31, 1998 and 1999
are unaudited, and in our opinion include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited period. You should not rely on interim results as being
indicative of results we may experience for future periods.
<TABLE>
<CAPTION>
Inception
(October 8, 1996) Year Ended December 31, Quarter Ended March 31,
through ------------------------ ------------------------
Statement of Operations December 31, 1996 1997 1998 1998 1999
Data: ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Subscriptions fees..... $ -- $ 512,761 $ 1,307,611 $ 173,698 $ 529,714
Transaction fees....... -- -- 153,828 -- 79,403
Other.................. -- 162,629 208,799 62,675 64,790
--------- ----------- ----------- ----------- -----------
Total revenues........ -- 675,390 1,670,238 236,373 673,907
--------- ----------- ----------- ----------- -----------
Cost of revenues........ -- 213,857 445,639 97,917 162,870
--------- ----------- ----------- ----------- -----------
Gross profit ........... -- 461,533 1,224,599 138,456 511,037
Operating expenses
Sales and marketing ... 22,592 1,179,327 3,840,776 503,543 909,137
General and
administrative ....... 9,860 1,344,860 2,895,779 581,645 919,026
Programming and
development .......... 86,862 802,175 971,459 232,215 311,438
--------- ----------- ----------- ----------- -----------
Total operating
expenses ............ 119,314 3,326,362 7,708,014 1,317,403 2,139,601
--------- ----------- ----------- ----------- -----------
Operating loss......... (119,314) (2,864,829) (6,483,415) (1,178,947) (1,628,564)
Other income (expense)
Interest expense....... (3,638) (120,497) (332,895) (87,124) (122,990)
Other.................. -- -- 16,300 8,228 4,335
--------- ----------- ----------- ----------- -----------
Total other income
(expense)............ (3,638) (120,497) (316,595) (78,896) (118,655)
--------- ----------- ----------- ----------- -----------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (1,257,843) (1,747,219)
Benefit for income
taxes.................. -- -- -- -- --
--------- ----------- ----------- ----------- -----------
Net loss............... (122,952) (2,985,326) (6,800,010) (1,257,843) (1,747,219)
--------- ----------- ----------- ----------- -----------
Preferred stock
dividends.............. -- -- (245,000) -- (105,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) -- (45,939)
--------- ----------- ----------- ----------- -----------
Net loss applicable to
common stock........... $(122,952) $(2,985,326) $(7,135,448) $(1,257,843) $(1,898,158)
========= =========== =========== =========== ===========
Loss per share
Basic.................. $ (0.02) $ (0.39) $ (0.83) $ (0.13) $ (0.25)
========= =========== =========== =========== ===========
Diluted................ $ (0.02) $ (0.36) $ (0.78) $ (0.12) $ (0.23)
========= =========== =========== =========== ===========
Weighted average shares
outstanding
Basic.................. 7,700,000 7,700,000 8,600,000 10,000,000 7,656,667
========= =========== =========== =========== ===========
Diluted................ 8,259,999 8,259,999 9,159,999 10,559,999 8,159,999
========= =========== =========== =========== ===========
Supplemental operating
data
Total subscribers, end
of period............. -- 629 1,831 834 1,978
========= =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............. $ 7,894 $ 1,689,288 $ 476,585
Working capital (deficit).............. (1,907,159) 907,276 (530,151)
Total assets........................... 608,565 2,744,757 2,219,286
Notes payable.......................... 2,567,000 1,544,939 1,789,984
Redeemable convertible preferred
stock................................. -- 6,339,438 6,990,377
Total stockholders' equity (deficit)... (2,708,896) (5,880,944) (7,777,402)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and the
related notes included elsewhere in this prospectus and which are deemed to be
incorporated into this section. The following discussion contains forward-
looking statements that reflect our plans, estimates and beliefs. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including but not limited to
those set forth under "Risk Factors" and included elsewhere in this prospectus.
Overview
PurchasePro.com is a leading provider of Internet business-to-business
electronic commerce services. We develop public and private online business e-
marketplace communities. Our e-marketplaces provide businesses of all sizes
with a low cost and efficient e-commerce solution for buying and selling a wide
range of products and services over the Internet.
Our predecessor company was incorporated in October 1996. In January 1998,
we incorporated PurchasePro.com and acquired all of the assets and assumed all
the liabilities of our predecessor. In August 1998, we acquired our subsidiary
company, Hospitality Purchasing Systems (HPS). From October 1996 to the
commercial release of our service in April 1997, we were primarily engaged in
raising capital and developing our e-marketplace software and network
infrastructure.
In April 1997, we released PurchasePro 1.0, enabling our members to transact
e-commerce over our network. Our next release in July 1997 provided this
capability over the Internet. In September 1998, we released PurchasePro 3.0,
our e-marketplace enabling software. In February 1999, we released
PurchasePro 4.0, which allows members the additional capability of building
private e-marketplaces.
To date, substantially all of our revenues have come from monthly membership
subscription fees for access to our e-marketplaces. Most of our members are
companies that sell products and services to large hotels and resorts in Nevada
and Florida. Generally, our subscription and license fee contracts are entered
into on a month-to-month basis. Although we have executed contracts of a longer
duration, generally these contracts may be terminated at any time on 30 to 60
days' notice. Some of our contracts may be terminated on even shorter notice,
one in as little as 7 days. Some of our agreements with members are verbal and
as such may be terminated at any time. In order to build our subscriber base we
have also provided Web site hosting services and Internet connectivity services
for which we have charged fees. We also charge our members a fee for processing
their subscription payments by electronic funds transfer or credit card. In
August 1998, our HPS subsidiary began generating transaction fees from group
buying services provided to the hospitality industry. In 1999, with the release
of version 4.0, we began contracting with larger corporate customers to create
customized, private e-marketplaces. Typically, we charge these companies
licensing and maintenance fees for this service.
In the future, we plan to derive revenues from sources other than
subscription fees within our private e-marketplaces including transaction fees
and fees for catalog building services. In addition, we intend to generate
transaction fee revenue from transactions consummated by our members with value
added merchandise and service providers. Also we believe we will generate
advertising fees from banner and classified advertisements. We cannot assure
you that we will be successful in generating any of these additional revenues
and fees. See "Risk Factors--Our business model is unproven and we may be
unable to implement our business strategy."
Since our inception on October 8, 1996, we have incurred significant net
losses. From inception through December 31, 1996, we had a net loss of
$123,000. For the years ended December 31, 1997 and 1998, our net losses
applicable to common stock were $3.0 million and $7.1 million, respectively.
For the quarters ended
22
<PAGE>
March 31, 1998 and 1999, we had net losses of $1.3 million and $1.9 million,
respectively. Through March 31, 1999, our accumulated deficit totaled
$9.0 million.
Results of Operations
Quarters Ended March 31, 1998 and March 31, 1999
Revenues. Our revenues consist primarily of subscription fees charged to our
members. We have also earned revenues from the sale of Web site development and
hosting services. Through HPS, we have earned fees, rebates and commissions for
providing a service that consolidates the buying power of its participating
members. Other revenue sources consist primarily of Internet service provider,
or ISP, connectivity charges which have not been significant to date. Our net
revenues increased from $236,000 for the quarter ended March 31, 1998, to
$674,000 for the quarter ended March 31, 1999. Substantially all of this
increase resulted from growth in our membership.
Cost of Revenues. Our cost of revenues consists primarily of costs for
member support and Web site operations, including fees for independent
contractors, compensation for our member support and site operations personnel
and, to a lesser extent, ISP connectivity charges and bank and credit card
processing charges. Our cost of revenues increased from $98,000 for the quarter
ended March 31, 1998, to $163,000 for the quarter ended March 31, 1999. This
increase was primarily the result of the continued growth of our member service
department. Our gross profit increased from $139,000 for the quarter ended
March 31, 1998, to $511,000 for the quarter ended March 31, 1999.
Sales and Marketing Expenses. Our sales and marketing expenses are comprised
primarily of compensation for our sales and marketing personnel, travel and
related costs, and costs associated with advertising, trade show and other
promotional activities. Our sales and marketing expenses increased from
$504,000 for the quarter ended March 31, 1998, to $909,000 for the quarter
ended March 31, 1999. This increase is primarily attributable to an increase in
the size of our sales force. We plan to continue to increase the size of our
sales force and to expand our advertising and marketing activities. We expect
that our sales and marketing expenditures will increase significantly, both in
absolute dollars and as a percentage of net revenues, as we open sales offices
in new geographic regions, increase our marketing efforts and incur additional
sales commissions.
General and Administrative Expenses. Our general and administrative expenses
consist primarily of compensation for personnel and, to a lesser extent, fees
for outside professional advisors, facilities costs, communications costs and
other expenses. Our general and administrative expenses increased from $582,000
for the quarter ended March 31, 1998, to $919,000 for the quarter ended March
31, 1999. The increase is primarily attributable to the increased size of our
executive and administrative staffs, increased facilities costs and expanded
use of equipment leasing. Our communications costs were significantly higher in
the quarter ended March 31, 1999 as compared to the same period in 1998, as a
result of our expansion into new geographic areas throughout 1998. Other
general and administrative expenses increased primarily as a result of an
increase in our reserve for doubtful accounts. We expect that our general and
administrative expenses will increase in absolute dollars as we continue to
expand our operations but remain relatively constant as a percentage of net
revenues.
Programming and Development Expenses. Programming and development expenses
consist primarily of compensation for our product development staff and
payments to outside contractors. Our product development expenses increased
from $232,000 for the quarter ended March 31, 1998, to $311,000 for the quarter
ended March 31, 1999. The increase is primarily attributable to an increase in
our programming staff. We expect that our programming and development expenses
will increase in absolute dollars as we continue to develop and enhance our
service offerings but remain relatively constant as a percentage of net
revenues.
Interest Expense. Interest expense primarily relates to borrowings from our
principal stockholder in 1997, notes payable outstanding from January 1998
through June 1998 and notes payable outstanding since
23
<PAGE>
September 1998 and December 1998. Our interest expense increased from $87,000
for the quarter ended March 31, 1998, to $123,000 for the quarter ended March
31, 1999. The increase resulted from an increase in the total amount of notes
payable outstanding and a higher effective interest rate due to amortization of
debt discount.
Years Ended December 31, 1997 and December 31, 1998
Revenues. Revenues increased from $675,000 for 1997 to $1.7 million for
1998. Substantially all of this increase resulted from growth in our
membership.
Cost of Revenues. Our cost of revenues increased from $214,000 for 1997 to
$446,000 for 1998. This increase was primarily the result of increasing the
staffing levels of our member service department. Our gross profit increased
from $462,000 for 1997 to $1.2 million for 1998.
Sales and Marketing Expenses. Our sales and marketing expenses increased
from $1.2 million for 1997 to $3.8 million for 1998. This increase was
primarily attributable to expansion of our sales force into several geographic
regions throughout the country, attendance at numerous trade shows, advertising
campaigns, and costs of producing marketing materials and a significant non-
cash charge related to the issuance of common stock to a stockholder at a price
below market value in connection with services provided by a stockholder.
General and Administrative Expenses. Our general and administrative expenses
increased from $1.3 million for 1997 to $2.9 million for 1998. This increase
was primarily attributable to increasing the size of our executive and
administrative staffs and legal fees and, to a lesser extent, equipment leasing
and communication costs and an increase in our reserve for doubtful accounts.
Programming and Development Expenses. Our programming and development
expenses increased from $802,000 for 1997 to $971,000 for 1998. The increase is
primarily attributable to increased salaries, payroll taxes and employee
benefits associated with the development of new versions of our network during
1998.
Interest Expense. Our interest expense increased from $120,000 for 1997 to
$333,000 for 1998. This increase resulted from the issuance of $2.3 million of
notes payable in January 1998 that were repaid in June 1998, $1.5 million of
notes payable in September 1998 and $350,000 of notes payable in December 1998.
Period from Inception (October 8, 1996) through December 31, 1996 and Year
Ended December 31, 1997
Revenues. We did not have any revenues prior to April 1, 1997. Prior to that
time, we were principally engaged in the development of our basic service. In
April 1997, we released PurchasePro 1.0 and began generating revenues. Our
revenues were $675,000 in 1997.
Cost of Revenues. We did not have any cost of revenues prior to April 1,
1997. After we commenced offering our services, we began to incur cost of
revenues due to the establishment of our customer service department and bank
and credit card processing charges. In 1997, our cost of revenues was $214,000,
and our gross profit was $462,000.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$23,000 for 1996 to $1.2 million for 1997. We began limited marketing of our
service in 1996, and in 1997, we expanded our sales and marketing force,
entered new markets and began various marketing activities.
General and Administrative Expenses. Our general and administrative expenses
increased from $10,000 for 1996 to $1.3 million for 1997. In 1997, we
significantly increased our administrative staff, incurred professional fees
and facilities costs, and established a reserve for estimated doubtful
accounts.
24
<PAGE>
Programming and Development Expenses. Our programming and development
expenses increased from $87,000 for 1996 to $802,000 for 1997. In 1997, we
continued to upgrade our network capacity and functionality.
Interest Expense. Interest expense increased from $4,000 for 1996 to
$120,000 for 1997. In 1997, interest expense was primarily related to a note
payable issued to our principal stockholder.
Liquidity and Capital Resources
Since our inception on October 8, 1996, we have had significant negative
cash flows from our operations. For the period from inception through December
31, 1996, we were in the development stage and used $70,000 of cash for
operations. For the years ended December 31, 1997 and 1998, we used $1.9
million and $6.0 million, respectively, in our operating activities. For the
quarter ended March 31, 1999, we used a total of $1.7 million in our operating
activities. Cash used in operating activities in each period resulted primarily
from net loss in those periods. Since our inception, we have used cash totaling
$1.3 million in our investing activities, which have consisted primarily of
expenditures for computer and related equipment, furniture and fixtures,
communication equipment and leasehold improvements as well as deposits on
various equipment leases. For the period from inception through December 31,
1996, we used $72,000 of cash for investing activities. For the years ended
December 31, 1997 and 1998, we used $655,000 and $360,000, respectively, of
cash for investing activities. For the quarter ended March 31, 1999, we used
$220,000 of cash for investing activities.
Since inception, we have financed our operations primarily from the issuance
of common stock, proceeds of notes payable, and the sale of Series A Preferred
and Series B Preferred Stock. During the period from inception through December
31, 1997, Charles E. Johnson, Jr., our principal stockholder and Chief
Executive Officer, contributed $139,000 in capital and loaned us $2.5 million.
In January 1998, we borrowed $2.3 million from various individuals and used
$813,000 of the proceeds to repay a portion of the previous borrowings from
Mr. Johnson. In April 1998, Mr. Johnson advanced an additional $387,000 to us.
In June 1998, we completed our Series A Preferred Stock offering and received
net proceeds of $5.0 million. We used a portion of the proceeds from the Series
A Preferred Stock offering to repay the $2.3 million notes payable from our
January 1998 borrowing and repaid Mr. Johnson $310,000. In connection with the
closing of the Series A Preferred Stock offering, Mr. Johnson contributed his
remaining notes payable totaling $1.8 million to us as equity. We did not issue
any new shares to Mr. Johnson in exchange for this contribution. Between
September and November 1998, we obtained financing in the form of notes payable
totaling $1.5 million, including $500,000 from Mr. Johnson. In December 1998,
Mr. Johnson loaned an additional $250,000 and in March 1999 he loaned another
$200,000 to us. In December 1998, we commenced our Series B Preferred Stock
offering. Through December 31, 1998, we had received $2.0 million in cash
pursuant to subscription agreements for shares of Series B Preferred Stock; and
through March 31, 1999, we had received an additional $500,000 in cash pursuant
to subscription agreements for shares of Series B Preferred Stock. We completed
the Series B Preferred Stock offering in June 1999 and received aggregate
proceeds of $11.6 million. In June 1999, Mr. Johnson was repaid the total
amount of his outstanding loans from the proceeds of the Series B Preferred
Stock offering. See "Certain Transactions."
As of March 31, 1999, our principal source of liquidity was approximately
$500,000 of cash and cash equivalents. As of March 31, 1999, we had no material
commitments for capital expenditures, but we expect such expenditures to be
approximately $1.0 million during the remainder of 1999. Such expenditures will
primarily be for computer equipment to expand and enhance our network. We have
entered into several non-cancelable lease commitments that will require
payments of approximately $2.3 million over the next five years.
We believe that we have sufficient cash and cash equivalents, including the
proceeds from this offering, to fund our operating and investing activities for
at least the next 18 months. However, we may need to raise additional funds in
future periods through public or private financings, or other arrangements. Any
additional
25
<PAGE>
financings, if needed, might not be available on reasonable terms or at all.
Failure to raise capital when needed could harm our business, financial
condition and results of operations. If additional funds are raised through the
issuance of equity securities, additional dilution could result. In addition,
any equity securities issued might have rights, preferences or privileges
senior to our common stock.
Year 2000 Issues
Many currently installed computer systems, software products and other
control devices are unable to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to operate properly in the year 2000 and beyond.
We have designed our current products to be year 2000 compliant. However, we
cannot assure you that our current products do not contain undetected errors or
defects associated with year 2000 date functions. Further, we cannot assure you
that the technology we license from third parties and incorporate into our
products does not contain errors or defects. If any such errors or defects do
exist, we may incur substantial costs to resolve them.
The internal systems used to deliver our services utilize third-party
hardware and software. We have contacted many of our infrastructure product
vendors in order to gauge their year 2000 compliance. Based on these vendors'
representations, we believe that there may be a number of third-party hardware
and software systems that require some upgrade in order to be year 2000
compliant. We are currently in the process of effecting these upgrades and
currently estimate the costs of such efforts to be less than $500,000. While we
expect to be able to complete these upgrades in a timely manner, we cannot
assure you, however, that we will timely complete these upgrades or that we
will not experience unanticipated problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
In addition, our members' and strategic partners' internal operating systems
and other software applications must operate effectively for them to use our
products and services effectively. If these systems or applications are not
year 2000 compliant, our members may not use our products and services and our
strategic partners may not be able to provide service to us. We cannot predict
to what extent our members' and strategic partners' systems and applications
are year 2000 compliant.
In addition, our service and network are dependent on Internet and
telecommunication connectivity. We cannot predict year 2000 compliance of these
service providers.
As the year 2000 approaches, there is a risk that orders for our products
will be reduced or delayed as information technology departments within
companies reallocate their capital expenditures to prepare for the year 2000
and resolve year 2000 problems. If companies do defer purchases of our products
and services because of such reallocation, such a resulting reduction in orders
could significantly impact our business.
We have no specific contingency plan to address the effect of year 2000
noncompliance. If, in the future, it comes to our attention that certain of our
products need modification, or certain of our third-party hardware and software
are not year 2000 compliant, then we will seek to make modifications. In such
case, we expect such modifications to be made on a timely basis, and we do not
believe that the cost of such modifications will have a material effect on our
operating results. We cannot assure you, however, that we will be able to
modify our products, services and systems in a timely and successful manner to
comply with the year 2000 requirements.
26
<PAGE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. The FASB recently proposed an amendment to SFAS No. 133, which would
delay the effective date for one year. We currently do not engage in, nor do we
expect to engage in, derivative or hedging activities, and therefore, we do not
believe that SFAS No. 133 will have a material impact on our results of
operations or financial position.
27
<PAGE>
BUSINESS
PurchasePro.com, Inc.
PurchasePro.com is a leading provider of Internet business-to-business
electronic commerce services. Our e-commerce solution is comprised of public
and private communities that we call "e-marketplaces" where businesses can buy
and sell a wide range of products and services over the Internet in an
efficient, competitive and cost-effective manner. Our target customers are
primarily the small and medium sized businesses that constitute over 99% of the
businesses in the United States according to estimates by the U.S. Small
Business Administration. We have designed our e-marketplaces to meet the needs
of these customers and their large business partners.
Our solution is designed for quick deployment and immediate use. With a
standard Internet connection, a Web browser and a PurchasePro.com membership,
our e-marketplace members can participate in interactive buying and selling
communities. Our e-marketplaces are customizable and scalable, utilizing an
open-architecture platform that can be integrated with members' existing
enterprise resource planning and accounting systems.
Our solution takes advantage of the growth, pervasiveness, low costs and
community building nature of the Internet as a basis for e-commerce for the
broad business-to-business market. We believe our e-marketplaces grow in value
as each new member brings new products or services and buying power to our
communities.
Our e-marketplaces are designed to streamline the procurement cycle for our
members--from sourcing to bidding to order to payment. Our e-marketplaces
enable each member to participate as both a buyer and a seller. When acting as
buyers, our members can realize a reduction in processing costs, achieve
improved pricing, enforce corporate purchasing policies and maintain an audit
trail for evaluating purchasing programs. When acting as suppliers, our members
can strengthen relationships with existing customers, reach new buyers and
lower sales, marketing and administrative costs.
We began developing our service in 1996 by closely evaluating the purchasing
process of the hospitality industry that is characterized by high volume,
frequent purchases of a broad range of goods and services by a large number of
geographically distributed buyers. We capitalized on the large-property
purchasing expertise of several Las Vegas-based hotels and resorts to develop,
test and validate our service. These hotels have provided important marketing
references for the expansion of our e-marketplaces. Since launching our public
e-marketplace in April 1997, we have continuously upgraded the functionality of
our service. Our most recent enhancement enables the creation of private e-
marketplace communities for access on an invitation-only basis.
Our target customers are primarily small and medium sized businesses. We
also pursue relationships with large organizations, providing us with access to
and assistance in recruiting their numerous small and medium sized business
partners as potential members for our e-marketplaces. These large organizations
include America West Arena, Arizona Diamondbacks, Caesars Palace, Carnival
Cruise Lines, Circus Circus Enterprises, MeriStar Management Company, MGM
Grand, Mission Industries, Nevada Power Company, Park Place Entertainment and
Phoenix Suns. In addition, Best Western International, Building One Services,
Marriott International and Prime Hospitality are using our services to develop
and maintain private e-marketplaces. We also have sales and marketing
relationships with ZoomTown.com, a subsidiary of Cincinnati Bell, Inc., the
Greater Phoenix Chamber of Commerce, Hospitalitycity pte ltd and the National
Association of Women Business Owners.
Industry Overview
Growth of Internet Usage and E-Commerce. The Internet and related
technologies are revolutionizing the way businesses and consumers communicate,
share information and conduct business. As the number of Internet users and the
sophistication of Internet-enabled content and development tools have
increased, the Internet's functionality has expanded from a medium primarily
for publishing information to one that enables
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more complex business-to-business communications and commerce. At the same
time, businesses across many industries are facing increasing competitive
pressures to lower costs, decrease inventories and improve sales and marketing
productivity. To address these challenges, businesses are increasingly
replacing paper-based transactions with Internet e-commerce solutions that
provide cost-effective and efficient channels for connecting and transacting
with global suppliers, distributors and customers. Forrester Research estimates
that the business-to-business e-commerce market will grow from $43 billion in
1998 to $1.3 trillion by 2003, representing a compound annual growth rate of
approximately 98%.
Inefficiencies in Corporate Purchasing and Supply. Historically, the
purchasing of supplies and services has involved significant manual processes
and in many industries has been highly fragmented and decentralized.
Decentralized purchasing makes it difficult for businesses to manage employee
purchases, control spending, and prevent duplicative or unauthorized orders.
Many companies do not have an efficient and easy-to-use means of executing and
managing purchases of supplies and services. According to the Center of
Advanced Purchasing Studies, corporate purchases of goods and services
represent on average 38% of a company's revenues. Cost-effective purchasing is
an important contributor to improving a company's profitability. Despite the
importance of the purchasing function and the prevalence of information
technology systems in many enterprises, purchasing at many companies remains
heavily paper-based, labor-intensive, and decentralized. AMR Research estimates
that the cost per procurement transaction for non-production supplies and
services ranges from $75 to $175. These costs can exceed the cost of the items
being purchased. In addition, these time consuming processes often result in
fulfillment delays to end-users, leading to productivity losses.
Traditional Electronic Purchasing. A number of companies have attempted to
use information technology to reduce the inefficiencies that characterize most
corporate purchasing functions. Although existing electronic purchasing methods
have helped facilitate e-commerce, we believe that these current methods have
limitations that prevent widespread adoption by buyers and sellers:
. Conventional Electronic Data Interchange. Electronic data interchange, or
EDI, systems involve a set of uniform formats for commercial documents
such as invoices and purchase orders that allow computers to exchange
such documents across private networks without human intervention.
Forrester Research estimates that of the 2 million U.S. companies with 10
or more employees, only five percent have deployed conventional EDI
systems. Barriers to implementation include the high cost of installation
and maintenance as well as significant, on-going transaction fees.
Because EDI systems rely on the execution of pre-defined transactions,
they generally are not well suited for dynamic procurement environments
involving many buyers and suppliers or a wide variety of goods and
services.
. Enterprise Purchasing Software Systems. A number of vendors have
developed purchasing software systems designed to improve the
coordination of the purchasing function across large enterprises. Most of
these systems are expensive to license, with up-front licensing fees that
can exceed $1 million. Users also typically pay ongoing maintenance fees.
Additionally, the complexity of these systems typically requires a
lengthy and expensive implementation process.
Furthermore, most EDI and enterprise purchasing software systems do not
offer a full spectrum of online procurement functions, such as sourcing from
multiple suppliers and placing simultaneous bid requests with multiple
suppliers. Due to the expense and complexity of these systems, they are
generally unsuitable for all but the largest organizations.
The PurchasePro.com Opportunity. Companies recognize the necessity to
establish an electronic platform that can be utilized by both large and small
business partners cost effectively, with limited hurdles to rapid
implementation and use. The Internet provides a cost-effective medium for
businesses, regardless of size, to link directly to their communities of
customers, suppliers and other business partners. PurchasePro.com takes
advantage of the low costs and community building nature of the Internet to
deliver our business-to-business e-commerce solution.
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The PurchasePro.com Solution
PurchasePro.com's business-to-business e-commerce solution is comprised of
public and private e-marketplaces where businesses can buy and sell a wide
range of products and services over the Internet in an efficient and cost-
effective manner. With a PurchasePro.com membership, large and small companies
can participate in an interactive e-marketplace community of businesses seeking
to expand sales and lower costs. We believe our service enables companies and
their trading partners to quickly realize the benefits of increased efficiency,
faster turnaround and more timely information. Our user-friendly solution is
scalable in its application, provides many features and is designed to provide
the following benefits:
Lower Operating Costs. By eliminating many costly and time-consuming
functions of traditional, paper-based buying and selling, our e-marketplaces
may allow companies to reduce operating costs and shorten cycle times in the
purchasing and selling processes. Our solution enables members to rapidly
prepare bid requests and simultaneously distribute them electronically to
multiple parties. Responding bids are automatically aggregated and compiled in
line-item comparison reports for easy analysis, enabling purchase orders to be
expedited. Moreover, our service operates as a rapidly deployable outsourced
solution that does not require companies to install expensive enterprise
purchasing software systems and hire costly information technology specialists
to maintain and manage these systems.
Lower Prices. We believe many of our members have realized significant
reductions in the cost of the goods and services they have purchased as members
of our e-marketplaces. Our e-marketplaces support competitive bidding in
response to bid requests from buyers. By automating the sourcing process, our
solution allows companies to send out bid requests for smaller quantities more
efficiently and expand the number of suppliers from which they request bids.
Furthermore, buyers can achieve economies of scale by aggregating purchasing
among subsidiaries and divisions and benefit from group buying discounts that
we plan to negotiate with national suppliers participating in our e-
marketplaces.
Improved Management and Control. Our solution allows companies to
proactively manage procurement through user-defined approval procedures.
Procurement managers, for example, can pre-set the level of access and
purchasing authority for each staff member. Utilizing the workflow features of
our service, managers can quickly view, analyze and manage employee activities,
providing improved control and more informed purchasing decisions. In addition,
our solution automatically generates inquiry and transaction records
facilitating improved documentation and auditing. We also maintain records of
procurement activity by our members that can be used to verify or validate
transactions.
Better Information. Our service provides members with up-to-date pricing,
product and supplier profile information on a 24-hour, 7-day a week basis. Our
solution allows suppliers to maintain real-time control of pricing and other
descriptive information about products and services they offer, helping to
ensure that potential buyers obtain accurate information in a customizable
format.
Greater Access to Business Partners. We believe that our e-marketplaces
enable members to access new customers and suppliers. With our public e-
marketplace, members can communicate with and conduct business among a broad
array of companies in a highly efficient manner. In addition, we believe that
our solution enables many of our members to offer, for the first time, their
goods and services for sale over the Internet.
Our Strategies
Our objective is to be the preferred business-to-business e-commerce
solution through our public and private e-marketplaces. Key strategies to
achieve our objective include:
Expand Our Membership. We intend to expand our membership through the
following:
. Build Upon Our Leadership Position Serving the Hospitality Industry. We
believe we are the leading provider of business-to-business e-commerce
solutions to the hospitality industry and its suppliers. We
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have grown our e-marketplace membership by focusing on major hospitality
buyers with large supplier bases. Through our direct and indirect sales
channels and by using our existing relationships, we plan to develop new
partnerships within the hospitality industry to further increase our
membership base.
. Pursue New Vertical Markets. We are applying our solutions to markets
with similar procurement characteristics to the hospitality industry.
These markets include:
. architecture, engineering and construction . food services
. colleges and universities . healthcare
. facilities management . janitorial supply
distribution
. Enter New Geographic Markets. We are expanding into new geographic
markets by establishing new relationships or leveraging our current
relationships with large buyers or suppliers with operations in those
locations. These business partners provide us access to their business
partners, allowing us to establish a foothold in new major metropolitan
areas. In addition, we recently licensed our e-marketplace software to a
third party that will market our solution to the hospitality and travel
industry in Asia and the South Pacific.
Encourage Users to Rely on Our E-marketplaces. We believe that as members
increase their usage of our e-marketplaces, they become more reliant on the
PurchasePro.com solution as an important part of their procurement processes.
Our service often reduces repetitive clerical tasks associated with the
procurement process for both buyers and sellers. Moreover, the benefits of our
service are increased when it is integrated with existing enterprise
information systems. Active buyers have reported significant cost savings
realized from reductions in forms, communication charges and other labor and
materials as well as improved pricing arising from the competitive bidding on
the e-marketplace.
Develop Multiple Revenue Streams. Substantially all of our current revenues
are derived from member subscription fees paid for access to our public e-
marketplace. However, we are developing a number of additional revenue sources
including:
. public and private e-marketplace transaction fees;
. advertising revenues including banners, classified ads, and other
electronic promotions;
. licensing and recurring maintenance fees from larger corporate accounts
that create and sponsor private e-marketplace communities; and
. network hosting fees and administration charges.
We believe that over time the revenues from these and other sources will become
a larger part of our overall revenue mix.
Provide Value Added Services. We intend to expand the value-added services
that we offer to our members. We plan to make available products and services
such as reduced rates and fees from long distance telephone carriers, cellular
service providers and worker's compensation insurers. In addition, we intend to
offer discounts on office products and other business consumables through our
sales and marketing partners. We intend to make these discounts available to
all members so that even smaller companies can realize cost savings associated
with participating in a large buying group.
Pursue Strategic Sales and Marketing Relationships. We intend to continue to
pursue strategic sales and marketing relationships to expand our membership,
extend our marketing reach, provide value-added merchandise or services and
further develop our e-marketplaces in a rapid and cost-effective manner. Our
current sales and marketing partners include ZoomTown.com, a subsidiary of
Cincinnati Bell, Inc., Hospitalitycity pte ltd and the Greater Phoenix Chamber
of Commerce.
Strengthen the PurchasePro.com Brand. We plan to expand and enhance our
marketing initiatives to increase our brand awareness and identity. These
initiatives will include traditional and Internet based advertising targeted at
selected audiences, interviews and articles in business media and trade
publications and direct sales and telemarketing. We also engage in joint-
marketing and sales efforts with our business partners.
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Our Services
Our e-marketplaces are designed to streamline the procurement cycle for our
members--from sourcing to bidding to order to payment. Our e-marketplaces
enable each member to participate as both a buyer and a seller. When acting as
buyers, our members can realize a reduction in processing costs, achieve
improved pricing, enforce corporate purchasing policies and maintain an audit
trail for evaluating purchasing programs. When acting as suppliers, our members
can strengthen relationships with existing customers, reach new buyers and
lower sales, marketing and administrative costs. Our e-marketplaces are online
business-to-business e-commerce communities. With the recent enhancements to
our e-marketplace software, members can create private e-marketplaces.
Basic Membership Services
Online Buying and Selling. Our e-marketplace solution enables our members to
interact as buyers and suppliers, streamlining their purchase and sale process
over the Internet. Members using the e-marketplace's competitive bidding
function send a request for a bid (including requests for line item price
quotes) to suppliers who respond electronically with pricing and availability
information. The request for bids can be "sealed" electronically so that the
buyer cannot view the responses until a specified date and time. Through our
competitive bidding function, we believe that buyers can achieve cost savings
on the prices of products purchased.
Our e-marketplaces provide members with a marketing tool that enables them
to sell to all the other members of our e-marketplaces. Small suppliers can
compete on a more equal footing with larger suppliers. As a result, we believe
our e-marketplace is an effective tool for suppliers to achieve deeper
marketing and sales penetration in their primary markets and to enter new
geographic markets on a cost-effective basis.
Access to a Broad Electronic Database of Potential Business Partners. Our e-
marketplaces allow members to query and shop from the offerings of our members.
This provides users with the opportunity to purchase from their existing
suppliers as well as develop new supplier relationships.
Real-Time Information. Our e-marketplaces provide for the real-time updating
of database information. After suppliers have responded with bids, buyers can
analyze the responses through line item comparison reports with the opportunity
to select one supplier's bid or to select specific items from selected
suppliers. Since the information provided by the suppliers can be analyzed
quickly, response time on bids can be significantly reduced. After a bid is
accepted, our e-marketplaces allow buyers to create and send electronic
purchase orders, and to finalize the payment and delivery instructions to
complete the purchase. In addition, suppliers can create online catalogs that
provide real-time dissemination of accurate information in a more cost
efficient manner than with printed materials.
Reporting Services. E-marketplace members can review their bids and purchase
orders through keyword, date, supplier or purchase order number searches.
Members can generate comprehensive reports on their activity based on their
search results. Further line-by-line detail can be obtained for each bid or
purchase order by using the analytical tools available on our e-marketplaces.
For example, the Quick Check Report compares the responses of every line item
for each of the suppliers, calculating the price per unit and indicating which
supplier has the lowest price per item for that particular item. The report
also provides the necessary information for purchasing agents to make future
decisions based on price, service or possible long-term contracts. The
information can be exported via ASCII, EDI, ODBC-compliant files, or Excel
worksheets, so that members can transfer the information to their enterprise
resource planning and accounting systems for further reporting and data
archiving.
Procurement Controls. Members can restrict employee access to the various
levels of our e-marketplaces. A client password file is checked at each member
login and whenever members access the database. Members can monitor employee
requests for proposals and purchase orders. Members can also select options
that limit employee access to selected suppliers, specific items, quantities
and service features. Through such protocols, control over corporate purchasing
is significantly enhanced without the installation of expensive enterprise
purchasing software systems.
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Community. We continue to expand our services to help foster interaction
among e-marketplace members. Our members currently have access to e-mail
accounts, and we plan to introduce additional features such as industry trade
news, discussion forums, chat rooms and bulletin boards, all of which foster
active community participation among our members. We expect to continue to add
features, content and services that enhance the benefits of membership in the
PurchasePro.com community.
Purchasing Discounts for Members. We intend to negotiate group discounts
with national suppliers for our e-marketplace members. In return for our
providing electronic access to our large membership base, we expect these
suppliers to provide discounts to our members irrespective of size. As such, we
plan to expand our value proposition to our community, particularly to those
smaller companies that do not normally benefit from the pricing economies of
their larger competitors.
Other Membership Services
Private E-marketplaces. With the recent enhancements to our e-marketplace
software, members can create private e-marketplaces. Private e-marketplaces
allow buyers or suppliers to sponsor a community of selected business partners
on an invitation-only basis. In these communities, the sponsoring company
invites selected trading partners to participate in customized programs such as
special pricing arrangements and product offerings. We are developing private
e-marketplaces for Best Western International, Building One Services, Marriott
International and Prime Hospitality.
E-marketplace Catalogs. We create customized electronic catalogs for our
members that enable buyers to browse through a supplier's product and service
offerings and "drag and drop" their desired selections directly into a purchase
order. We also offer a catalog maintenance service.
Web Site Development, Hosting and Maintenance. We construct Web sites for
our members on a trial basis. After the initial trial period, members are
charged a monthly hosting fee. These sites enable members to provide additional
information on their products and services to other members. We also market to
our members upgrades to these Web sites, which have resulted in additional
fees.
Banner Advertisements. We offer banner advertisements on our e-marketplace
as a direct marketing tool for our members. When a buyer sources products, a
banner advertisement appears promoting a related product offered by a
particular supplier.
Classified Advertising. Our classified advertising section provides real-
time advertising directly from members. All advertisements can be accessed by
keyword searches and can be posted and terminated in real-time.
Group Buying Services
In addition to our public and private e-marketplaces, we offer group buying
services to the hospitality industry through our Hospitality Purchasing Systems
subsidiary. This subsidiary consolidates the buying power of the properties
that it represents to obtain volume discounts that might otherwise only be
available to larger buyers. We receive fees from buyers and rebates from
suppliers. We are marketing our PurchasePro.com solution to participants of
this buying group.
Our Revenue Sources
To date, our primary source of revenues has been subscription fees paid by
our members. In order to build our e-marketplace membership, we have provided
free access to our public e-marketplace and technical support to large
corporate members. In return we have gained access to and assistance in
recruiting their small and medium sized business partners as members of our e-
marketplace.
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We plan to expand our revenue sources over time to include the following:
Transaction Fees. We intend to charge transaction fees on purchases
consummated by our members with our strategic partners and value added
merchandise and service providers. In addition, in certain of our private e-
marketplaces we intend to derive revenues from transaction fees levied on sales
within the community.
Licensing, Maintenance and Network Hosting Fees. We charge a one-time
licensing fee and annual maintenance fees for private e-marketplaces in place
of or in certain cases in addition to transaction fees. We also charge
recurring fees for hosting the network upon which these private e-marketplaces
are deployed.
Other Revenue Sources. Other revenue sources include advertising and Web
site development, hosting and maintenance. As our membership grows, we intend
to charge for banner and classified advertisements that we presently offer as a
free service. We also construct Web sites for our members and charge monthly
hosting and maintenance fees after an initial trial period.
Strategic Relationships
We have established, and will continue to pursue, strategic relationships in
order to grow revenues, to provide indirect sales and marketing of our e-
marketplaces, and to enhance our e-marketplace services. The following are
examples of our strategic relationships:
ZoomTown.com. In May 1999, we entered into an agreement with ZoomTown.com, a
subsidiary of Cincinnati Bell, Inc. We have granted to ZoomTown.com, as our
agent and representative, the exclusive right to market and offer access to our
e-marketplaces in Ohio, a co-exclusive right in Kentucky, and a nonexclusive
right in other domestic markets until April 2001. Under the agreement
ZoomTown.com may co-brand our e-marketplaces. In addition, ZoomTown.com can
extend its exclusive rights to market and offer access to our e-marketplaces
under a ZoomTown.com co-brand to include the states neighboring Ohio and
Kentucky. ZoomTown.com receives sales commissions for members it adds to the
co-branded e-marketplaces.
Greater Phoenix Chamber of Commerce. In January 1999, we entered into a
revenue sharing and joint marketing agreement with the Greater Phoenix Chamber
of Commerce, a 3,600 member regional chamber of commerce that promotes business
and civic causes within Maricopa County, Arizona. Under the agreement the
chamber became our exclusive distributor of our e-marketplace services in this
territory under the Phoenix Marketplace brand. Through this alliance,
PurchasePro holds regular seminars at the chamber's facilities and the chamber
actively solicits businesses in the greater Phoenix area to participate in the
e-marketplace. The agreement terminates in January 2001.
Hospitalitycity pte ltd. In June 1999, we entered into an agreement with
Hospitalitycity pte ltd, a Singapore company that is an e-commerce solution
provider to the hospitality and travel industries in Southeast Asia and the
South Pacific. Under this agreement, we have granted to Hospitalitycity an
exclusive license to our proprietary technology to create e-marketplaces in
Australia, China, Indonesia, Malaysia, New Zealand, the Philippines, Singapore,
Taiwan and Thailand until June 2002. Pursuant to the license, Hospitalitycity
may market our e-commerce solution and provide support services to persons or
entities engaged in the hospitality and travel sectors as an independent party
authorized by PurchasePro.com. In return, we receive a percentage of all gross
revenue received by Hospitalitycity and its affiliates in connection with this
arrangement.
National Association of Women Business Owners. In April 1999, we entered
into a two year alliance agreement with the National Association of Women
Business Owners, a national organization dedicated to the promotion of women's
businesses and commercial activities. Under this agreement, the association
will promote PurchasePro.com to its members, and PurchasePro.com will provide
special pricing and services to association members and access to our e-
marketplace through which other organizations can contact and do business with
women-owned businesses.
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Our E-marketplace Members
The following is a representative list of our major e-marketplace members:
<TABLE>
<CAPTION>
National Accounts Nevada Florida
<S> <C> <C>
American Hotel Register Marnell Corrao Construction The Breakers Hotel
Best Western International MGM Grand Carnival Cruise Lines
Building One Services Mission Industries Loews Hotels
Caesars Palace Nevada Power Company Registry Resort
Circus Circus Enterprises Rio Hotel and Casino Seaway Hotel Corporation
Marriott International State of Nevada
MeriStar Management Company
Mirage Resorts
Park Place Entertainment
Prime Hospitality
Richfield Hospitality
Tropicana Casino and Resort
<CAPTION>
Lexington/Louisville, Kentucky
and Cincinnati, Ohio Arizona
<S> <C>
Amtek Electrical America West Arena
Ball Homes Arizona Diamondbacks
Clay Ingels Company Embassy Suites Scottsdale
Central Baptist Hospital Bank One Ballpark
Fidelity National Credit Services ILX Resorts
Host Communications, Inc. Greater Phoenix Chamber of Commerce
Lodestar Energy Phoenix Suns
Montgomery Inn Scottsdale Princess
St. Joseph Hospital
University of Louisville Hospital
</TABLE>
These relationships provide us with access to and assistance in recruiting a
large number of small to medium sized companies for our e-marketplaces.
Sales and Marketing
Sales Strategy
We sell through direct and indirect channels. Our direct sales group targets
buyers, suppliers and their respective business partners. As of April 30, 1999
we had 66 people in our sales and marketing group, and we plan to significantly
expand this group over the next 12 months. Sales offices in the United States
currently include Las Vegas, Nevada and Phoenix, Arizona. We also have sales
representatives located in Washington, D.C., Orlando, Florida and Atlantic
City, New Jersey.
The sales forces of our sales and marketing partners offer our services to
their business partners. For example, we have entered into an agreement with
ZoomTown.com, a subsidiary of Cincinnati Bell, Inc., to co-brand our e-
marketplace. Under this agreement, ZoomTown.com receives sales commissions on
revenues from members added to the e-marketplace through their efforts. To gain
market presence and exposure to potential new members, we plan to team with
large buyers and suppliers that have strong industry backgrounds and market
presence in their respective markets and geographic regions.
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Marketing Strategy
Our marketing strategy focuses on increasing our brand awareness and
identity. We intend to continue to market ourselves through traditional and on-
line business media and trade publications. Co-branded relationships, such as
our ZoomTown.com partnership, and cooperative direct mail initiatives support
our direct marketing efforts. We participate in events, conferences and trade
shows to promote our business-to-business brand presence.
Member Service and Support
We provide member service support on a 24-hour per day, 7-day per week
basis. Our customer support department is responsible for day-to-day contact
with members and responds to questions from members through e-mail and a 24-
hour toll-free number. This department is responsible for retaining and
increasing use by existing members and is an important aspect of member
satisfaction.
Technology and Operations
PurchasePro.com's proprietary e-marketplace technology serves as the
enabling platform for all of our solutions. This community-oriented, trading
network technology resides centrally on our servers located at our
headquarters. Members access our service using either a standard Web browser or
our proprietary client software. We have designed our technology and operations
with the following key characteristics, many of which are based on our
centralized architecture:
Scalability. Our architecture is scalable, enabling us to accommodate
membership growth. This scalability permits us to quickly add our members'
business partners to our e-marketplaces without those members incurring
infrastructure costs.
Accuracy. We have designed our system to enable each member to maintain
their information on our databases so that other users can access the most
current data. In addition, by using custom interfaces to our client software,
members can automate the process of maintaining their data.
High-speed. Communications between members using our client software and our
servers are increased up to four times faster than standard data transfer rates
utilizing our proprietary data structure and communication technologies.
Because our communications technology utilizes industry-standard compression
techniques and HTTP protocols, it permits high-speed data communication across
firewalls and proxy servers.
Reliability. We currently maintain four T1 Internet connections. The client
connections are load balanced over our application servers. Database servers
are configured to be fault-tolerant and their hard drives can be swapped while
the system is operating. These databases are replicated on additional back-up
servers for quick access. Uninterruptible power supplies support all production
servers.
Compatibility. Our software makes significant use of standard software
programming languages, interfaces and protocols, including Visual Basic, C++,
HTTP and Transact-SQL. The use of ODBC (Open Database Connectivity) compliant
databases and plug-in technologies allows integration with enterprise
accounting and management systems such as Stratton-Warren and Oracle systems.
Data transfer protocols such as EDI, OBI and XML are also supported.
Security. Multiple layers of security, including secure socket layer
technology from Verisign, protect the service network and data. Our network
uses up to 128-bit standard encryption technology, along with rigorously
monitored firewalls and other restrictions and physical or electronic
separations to prevent harm to the service. Servers add, update, and retrieve
data through procedures designed to prevent improper access to data.
Additionally, our staff has restricted access to our e-marketplace data and
network. All servers are equipped with virus detection and removal software,
including an enhanced version on our mail server.
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Recovery. In addition to the redundant database servers, all member data is
backed-up to tape every thirty minutes and removed from the premises on a daily
basis for off-site storage.
Intellectual Property
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as important to our success, and rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers and business partners to
protect our proprietary rights. Despite our precautions, unauthorized third
parties may copy certain portions of our services or reverse engineer or obtain
and use information that we regard as proprietary. End-user license provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. The status of United States patent protection in the
software industry is not well defined and will evolve as the U.S. Patent and
Trademark Office grants additional patents. We have one patent pending in the
United States and we may seek additional patents in the future. We do not know
if our patent application or any future patent application will be issued with
the scope of the claims we seek, if at all, or whether any patents we receive
will be challenged or invalidated. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws
of the United States. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate and competitors may independently
develop similar technology.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, we cannot be certain that our services do not infringe patents or
other intellectual property rights that may relate to our services. In
addition, because patent applications in the United States are not publicly
disclosed until the patent is issued, applications may have been filed which
relate to our services. We may be subject to legal proceedings and claims from
time to time in the ordinary course of our business, including claims of
alleged infringement of the trademarks and other intellectual property rights
of third parties. If our services violate third-party proprietary rights, we
cannot assure you that we would be able to obtain licenses to continue offering
such services on commercially reasonable terms, or at all. Any claims against
us relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and in injunctions preventing us from distributing these
services. These claims could materially and adversely affect our business,
financial condition and results of operations.
Competition
The e-commerce market is new, rapidly evolving and intensely competitive,
and we expect competition to intensify in the future. Barriers to entry are
minimal, and competitors may develop and offer similar services in the future.
Although we believe that there may be opportunities for several providers of
products and services similar to ours, a single provider may dominate the
market. We expect that additional companies will offer competing e-commerce
solutions in the future.
We have encountered and expect to encounter competition from other e-
commerce solutions providers including:
. companies such as Microsoft Corporation, America Online and its Netscape
subsidiary, and Yahoo! that offer a broad array of Internet-related
services and either offer business-to-business e-commerce services
presently or have announced plans to introduce such services in the
future;
. enterprise software purchasing system providers such as Ariba, Commerce
One and TRADE'ex;
. electronic data interchange providers such as GE Information Services,
Harbinger Corp., IBM and Sterling Commerce;
. enterprise resource planning software developers such as PeopleSoft,
Oracle and SAP;
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. e-commerce trade communities; and
. e-commerce Web sites of business retailers.
Virtually all of our current and potential competitors have longer operating
histories, larger customer bases and greater brand recognition in business and
Internet markets and significantly greater financial, marketing, technical and
other resources than PurchasePro.com. In addition, other e-commerce service
providers may be acquired by, receive investments from or enter into other
commercial or strategic relationships with larger, well established and well-
financed companies as use of Internet and other online services increases.
Therefore, certain of our competitors may be able to devote significantly
greater resources to marketing and promotional campaigns, may adopt more
aggressive pricing policies or may try to attract users by offering services
for free and devote substantially more resources to product development than
PurchasePro.com. Increased competition may result in reduced operating margins,
loss of market share and diminished value in our brand, any of which could
materially and adversely affect our business, financial condition and results
of operations. New technologies and the expansion of existing technologies may
increase the competitive pressures on us by enabling our competitors to offer a
similar but lower-cost service. We cannot assure you that we will be able to
compete successfully against current and future competitors. Further, as a
strategic response to changes in the competitive environment or otherwise, we
may, from time to time, make certain pricing, service or marketing decisions or
acquisitions that could materially and adversely affect our business, financial
condition and results of operations. New technologies and the expansion of
existing technologies may increase the competitive pressures on us by enabling
our competitors to offer a similar but lower-cost service.
Although we have established several strategic relationships, there can be
no assurance that these arrangements will be renewed on commercially reasonable
terms or that they will otherwise continue to result in increased users of the
PurchasePro.com service. In addition, companies that control access to ISP
services used to connect to our network could promote our competitors or charge
our clients substantial fees for Internet access.
Government Regulation
We are subject to various laws and regulations relating to our business. Few
laws or regulations are currently directly applicable to access to the
Internet. However, because of the Internet's popularity and increasing use, new
laws and regulations may be adopted. Such laws and regulations may cover issues
such as:
. user privacy;
. pricing;
. tax;
. content;
. copyrights;
. distribution; and
. characteristics and quality of products and services.
In addition, the growth of the Internet and e-commerce, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
electronic commerce or otherwise adversely affect our business, financial
condition and operating results.
Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding online copyright infringement. Although not yet
enacted, Congress is considering laws regarding Internet taxation. The European
Union
38
<PAGE>
recently enacted new privacy regulations. These are all recent enactments, and
there is uncertainty regarding their marketplace impact. In addition, various
jurisdictions already have enacted laws that are not specifically directed to
e-commerce but that could affect our business. The applicability of many of
these laws to the Internet is uncertain and could expose us to substantial
liability.
Any new legislation or regulation regarding the Internet, or the application
of existing laws and regulations to the Internet, could materially adversely
affect us. If we were alleged to violate federal, state or foreign, civil or
criminal law, even if we could successfully defend such claims, it could
materially adversely affect us.
We believe that our use of third party material on our e-marketplace
communities is permitted under current provisions of copyright law. However,
because legal rights of certain aspects of Internet content and commerce are
not clearly settled, our ability to rely upon exemptions or defenses under
copyright law is uncertain.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the
same manner as other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet providers and online service providers in a manner similar to long
distance telephone carriers and to impose access fees on such providers. If
either of these petitions is granted, the costs of communicating on the
Internet could increase substantially. This, in turn, could slow the growth of
use of the Internet. Any such legislation or regulation could materially
adversely affect our business, financial condition and operating results.
Employees
As of April 30, 1999, we had 149 full time employees. Of these, 32 were in
programming and technical support, 66 in sales and marketing, 19 in customer
support and operations and 32 in finance and administration. None of our
employees is represented by a labor union. We have not experienced any work
stoppages, and we consider our relations with our employees to be good.
Facilities
Our corporate headquarters are located at 3291 North Buffalo Drive, Suite 2,
Las Vegas, Nevada where we lease approximately 15,980 square feet of office
space for a monthly fee of $29,297 under a lease that expires July 31, 2003.
This facility houses significantly all of our operations, including the
executive staff, marketplace operations, customer support and programming and
development. We also maintain sales and office sites in Phoenix, Arizona for a
fee of $2,620 per month on a month-to-month basis.
Legal Proceedings
We are not a party to any material legal proceedings.
39
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of PurchasePro.com and their ages as of
June 1, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles E. Johnson,
Jr. ................... 38 Chairman and Chief Executive Officer
Christopher P. Carton... 40 President, Chief Operating Officer, Secretary and Director
Scott H. Miller......... 40 Chief Financial Officer and Treasurer
Michael L. Ford......... 41 Chief Technical Officer
Jeffrey A. Neppl........ 37 Vice President--Sales
Robert G. Layne......... 33 Vice President--Strategic Development
Patrick O. Rogers....... 41 Vice President--Marketing
John G. Chiles(1)(2).... 47 Director
David I. Fuente(2)...... 53 Director
J. Terrence
Lanni(1)(2)............ 54 Director
Michael D. O'Brien(1)... 56 Director
Bradley D. Redmon....... 36 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Charles E. Johnson, Jr. Mr. Johnson has served as Chairman and Chief
Executive Officer of PurchasePro.com since its inception in 1996. In 1996, Mr.
Johnson founded and is the chief executive officer of Cart-it & Cabinetry LLC,
a company that manufactures casino carts and cabinetry. Mr. Johnson also
currently owns several video stores in Cincinnati, Ohio. From 1984 to August
1996, Mr. Johnson was the owner and President of Johnson Safety and Security, a
family owned security business located in Lexington, Kentucky.
Christopher P. Carton. Mr. Carton joined PurchasePro.com as President, Chief
Operating Officer and Secretary in November 1996 and was elected to the board
of directors of PurchasePro.com in April 1999. Prior to joining
PurchasePro.com, Mr. Carton was Chief Operating Officer of Wilmington County
Country Club in Wilmington, Delaware from August 1995 to January 1996. From
1987 to August 1995, Mr. Carton was Chief Operating Officer of the Idle Hour
Country Club in Lexington, Kentucky. In addition, Mr. Carton has held the
position of Chief Operating Officer at both West Lake Country Club and Augusta
Country Club in Augusta, Georgia.
Scott H. Miller. Mr. Miller has served as Chief Financial Officer and
Treasurer of PurchasePro.com since April 1999. From October 1998 through April
1999, Mr. Miller served as our Controller and Vice President of Finance. From
September 1997 through September 1998, Mr. Miller was the Chief Financial
Officer of Max Riggs Construction Company in Las Vegas, Nevada. From 1984 to
September 1997, Mr. Miller held various management positions at Arthur Andersen
LLP in Denver and Las Vegas, most recently as senior manager.
Michael L. Ford. Mr. Ford was appointed Chief Technology Officer of
PurchasePro.com in June 1999 and will begin his full time employment in July
1999. Prior to joining PurchasePro.com, Mr. Ford was the Chief Information
Officer of Best Western International from August 1995 through May 1999 where
he was responsible for coordinating Best Western's technical businesses
initiatives. From 1988 through December 1995, Mr. Ford was a corporate director
of Holding Inn WorldWide.
Jeffery A. Neppl. Mr. Neppl has served as Vice President--Sales since April
1999. Prior to joining PurchasePro.com, Mr. Neppl served as Managing Director
of Field Sales and Marketing for Coca-Cola
40
<PAGE>
USA from August 1998 to April 1999. From July 1996 to August 1998, Mr. Neppl
was Vice President of Sales for the Campbell's Soup Company. From 1983 through
June 1996, Mr. Neppl was employed by Procter & Gamble where he held a number of
positions including National Accounts Managers and Customer Business
Development Manager.
Robert G. Layne. Mr. Layne has served as Vice President--Strategic
Development of PurchasePro.com since April 1999. From December 1996 to April
1999, Mr. Layne was PurchasePro.com's National Sales Director. From 1988 to
December 1996, Mr. Layne was a Regional Sales Manager with Fisher Scientific, a
manufacturer of laboratory supplies, and its predecessor, Curtin Matheson
Scientific.
Patrick O. Rogers. Mr. Rogers joined PurchasePro.com in May 1999 as Vice
President--Marketing. Since September 1998, Mr. Rogers has been the Chief
Executive Officer of R&M Companies, LLC, a marketing consulting firm in Las
Vegas. From July 1998 to May 1999, Mr. Rogers was the Vice President of Eastern
European Marketing for Mirage Resorts, Inc. From 1987 to May 1997, Mr. Rogers
served in various capacities with Players International, including Vice
President and General Manager of Players Island Resort located near Las Vegas.
John G. Chiles. Mr. Chiles has served as a member of the board of directors
of PurchasePro.com since June 1998. Mr. Chiles has served as a Managing
Director in Corporate Finance Department at Jefferies & Company, Inc. since
1993. He is the manager of the firm's Business, Information & Internet Services
Group. For the fifteen years prior to joining Jefferies & Company, Mr. Chiles
held various positions at Dean Witter Reynolds, including Managing Director and
Co-Manager of its Consumer Businesses Group.
David I. Fuente. Mr. Fuente has served as a member of the board of directors
of PurchasePro.com since June 1999. Mr. Fuente has been the Chairman of the
Board and Chief Executive Officer of Office Depot, Inc. since December 1987.
Mr. Fuente is also a director of Vista Eye Care, Inc. and Ryder System, Inc.
J. Terrence Lanni. Mr. Lanni has served as a member of the board of
directors of PurchasePro.com since June 1999. Mr. Lanni has been the Chairman
of MGM Grand, Inc. since July 1995, and Chief Executive Officer of MGM Grand,
Inc. since June 1995. He also served as President of MGM Grand, Inc. from June
1995 to July 1995. Prior thereto, he was President and Chief Operating Officer
of Caesars World, Inc. from April 1981 to February 1995.
Michael D. O'Brien. Mr. O'Brien has served as a member of the board of
directors of PurchasePro.com since June 1999. Mr. O'Brien has served as the
President of ZoomTown.com, a subsidiary of Cincinnati Bell, Inc. since January
1998. From January 1992 through December 1997, Mr. O'Brien served as President
of Europe Chiquita Brands, Inc.
Bradley D. Redmon. Mr. Redmon has served as a member of the board of
directors of PurchasePro.com since August 1998. Mr. Redmon is the Chairman of
E-MarketPro, LLC, an e-commerce service company Mr. Redmon founded in 1999.
Since March 1996, Mr. Redmon has owned and operated three Pretzelmaker
franchises, and since January 1992, Mr. Redmon has owned and operated several
Blockbuster Video franchises. Mr. Redmon is a cousin of Mr. Johnson.
Staggered Board of Directors
Our articles of incorporation and bylaws provide that our board of directors
will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. Mr. Fuente and Mr. Lanni will serve as
Class I directors, whose terms expire at the 2000 annual meeting of
stockholders. Mr. Chiles and Mr. O'Brien will serve as Class II directors,
whose terms expire at the 2001 annual stockholders meeting. Mr. Johnson,
Mr. Carton and Mr. Redmon will serve as Class III directors, whose terms expire
at the 2002 annual meeting of the stockholders.
41
<PAGE>
Board Committees
We have established an Audit Committee and a Compensation Committee. The
Audit Committee reviews the internal accounting procedures of PurchasePro.com
and consults with and reviews the services provided by our independent
auditors. The Compensation Committee reviews and determines the compensation
and benefits of all officers of PurchasePro.com and establishes and reviews
general policies relating to the compensation and benefits of employees of
PurchasePro.com and administers our Stock Option Plans.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for our directors, officers and
other employees and administering various incentive compensation and benefit
plans. We did not have a Compensation Committee during 1998. Our board of
directors was responsible for these matters for that year. The Compensation
Committee consists of Mr. Chiles, Mr. Fuente and Mr. Lanni. Charles E. Johnson,
Jr., Chairman and Chief Executive Officer, participates in all discussions and
decisions regarding salaries and incentive compensation for all employees and
consultants of PurchasePro.com, except that he is excluded from discussions
regarding his own salary and incentive compensation. No member of the
Compensation Committee has at any time been an officer or employee of
PurchasePro.com or its subsidiary. The Compensation Committee members, however,
own capital stock of PurchasePro.com and have interests in certain transactions
of PurchasePro.com as described in the "Certain Transactions--Transactions with
Management and Others" section of this prospectus. No interlocking relationship
exists between any member of our Compensation Committee and any member of any
other company's board of directors or compensation committee. No interlocking
relationship existed between any member of our board of directors and any
member of any other company's board of directors or compensation committee in
1998.
Director Compensation
We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. Each non-
employee member of our board currently receives $10,000 cash compensation per
year for their service as a member of the board of directors. Under our 1999
Stock Plan, non-employee directors also receive options to purchase 10,000
shares of common stock annually and are eligible to receive additional stock
option grants at the discretion of the Compensation Committee. See "--Stock
Option Plans."
Executive Compensation
The following table summarizes all compensation earned by or paid to
PurchasePro.com's Chief Executive Officer and to each of PurchasePro.com's four
most highly compensated executive officers other than the Chief Executive
Officer whose total annual salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers"), for services rendered in all capacities to
PurchasePro.com during the fiscal year ended December 31, 1998.
42
<PAGE>
Summary Compensation Table for Last Fiscal Year
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
-----------------------------
Securities
Underlying
Name and Principal Position Salary Bonus Options (#)
- --------------------------- --------- -------------------
<S> <C> <C> <C>
Charles E. Johnson, Jr.(2)........................ $ 236,461 $ -- --
Chairman and Chief Executive Officer
Christopher P. Carton(3).......................... $ 141,877 -- --
President, Chief Operating Officer and Secretary
Jeffrey A. Neppl(4)............................... $ -- -- --
Vice President--Sales
Robert G. Layne(5) ............................... $ 72,850 -- --
Vice President--Strategic Development
</TABLE>
- --------
(1) Other than the salary and bonus described herein, PurchasePro.com did not
pay any executive officer named in the Summary Compensation Table any
fringe benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during fiscal 1998.
(2) We have agreed to enter into a new employment with Mr. Johnson that
provides for an annual salary of $240,000. In May 1999, Mr. Johnson was
granted 325,000 options to acquire shares of common stock at $3.50 per
share. These options vest over 18 months.
(3) We have agreed to enter into a new employment agreement with Mr. Carton
that provides for an annual salary of $200,000. In May 1999, Mr. Carton was
granted 200,000 options to buy common stock at $3.50 per share. The options
vest over 18 months.
(4) Mr. Neppl joined PurchasePro.com in April 1999 and entered into an
employment agreement that provides for an initial annual salary of
$135,000. Mr. Neppl's annual salary increases to $175,000 in July 1999. In
April 1999, Mr. Neppl was granted 190,870 options to acquire shares of
common stock at $3.50 per share, of which 25,000 vested upon grant.
(5) In April 1999, Mr. Layne was appointed Vice President--Strategic
Development. We have agreed to enter into an employment agreement with Mr.
Layne that provides for an annual salary of $120,000. In January 1998, Mr.
Johnson granted to Mr. Layne options to purchase 125,000 shares of Mr.
Johnson's common stock at an exercise price of $0.50.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information regarding options granted to our
executive officers listed in the Summary Compensation Table during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
Percentage Potential Realizable
of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise or for Option Term(3)
Options in Fiscal Base Price Expiration ---------------------
Name Granted Year(1) ($/Share)(2) Date 5% 10%
- ---- ---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Layne......... 125,000(4) 13.5% $0.50 Jan. 2008 $101,806 $162,109
25,000(5) 2.7 2.50 Aug. 2003 79,768 100,656
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 697,850 shares of common stock
granted during fiscal 1998 and options granted by Mr. Johnson to two
employees to acquire 225,000 of his shares. Under the terms of
PurchasePro.com's 1998 Stock Option and Incentive Plan and 1999 Stock Plan,
the committee designated by the board of directors to administer each stock
option plan retains the discretion, subject to certain limitations within
each plan, to modify, extend or renew outstanding options and to reprice
outstanding options. Options may be repriced by canceling outstanding
options and reissuing new options with an exercise price equal to the fair
market value on the date of reissue, which may be lower than the original
exercise price of such cancelled options. See "Stock Option Plans."
(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant as determined by the board of directors.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent
PurchasePro.com's estimate or projection of the future common stock price.
There can be no assurance that any of the values reflected in the table
will be achieved.
(4) In January 1998, Mr. Johnson granted to Mr. Layne options to purchase
125,000 shares of Mr. Johnson's common stock at an exercise price of $0.50.
These options vested upon grant.
(5) These options become exercisable at a rate of 50% per year commencing on
the first anniversary of the date of grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End(1)
Shares Acquired Value -------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert G. Layne......... -- $ -- 125,000/25,000 $
</TABLE>
- --------
(1) Assumes a per share fair market value equal to $ , the mid-point of the
estimated per share price of the common stock offered hereby.
Stock Option Plans
1998 Stock Option and Incentive Plan
Our 1998 Stock Option and Incentive Option Plan ("1998 Plan") was approved
by PurchasePro.com's board of directors and shareholders in August 1998. The
1998 Plan, as amended, provides for grants of incentive stock options ("ISOs")
and nonqualified stock options ("NSOs") to purchase up to 3,000,000 shares of
common stock. The maximum number of shares of common stock with respect to
which options may be granted to an individual grantee is 750,000. Awards may be
made to any employee of PurchasePro.com.
The 1998 Plan is administered by the Compensation Committee of
PurchasePro.com's board of directors, which has the authority to interpret the
1998 Plan and to prescribe, amend and rescind rules and regulations relating to
the 1998 Plan. The Compensation Committee may also determine the amount of and
to whom
44
<PAGE>
awards are made under the 1998 Plan. The exercise price of options granted
under the 1998 Plan may not be less than 100% of the fair market value of a
share of common stock on the date of grant. The determination by the
Compensation Committee on all matters relating to the 1998 Plan or any award
agreement will be final and binding.
Our board of directors may authorize the Compensation Committee to modify
any outstanding award so long as this modification does not confer upon any
grantee a right or benefit which could not have been conferred at the time of
such grant or impair the award with out the consent of the grantee.
The vesting of options issued to a grantee pursuant to the 1998 Plan will
accelerate upon the grantee's termination within one year following a change in
control.
Our board of directors may from time to time alter, amend or suspend the
1998 Plan or any option granted under the 1998 Plan, except that shareholder
approval is required to increase the number of shares for which options may be
granted under the 1998 Plan or materially modify the class of employees
eligible to receive option grants.
As of May 31, 1999, no shares had been issued upon exercise of options
granted under the 1998 Plan, options to purchase 2,703,780 shares of common
stock were outstanding and options to purchase 296,220 shares of common stock
were available for future grant. We do not plan to issue any additional shares
of common stock under the 1998 Plan after the consummation of this offering.
1999 Stock Plan
Our 1999 Stock Plan was adopted by the board of directors on June 2, 1999
and will be submitted to the stockholders for approval prior to the closing of
this offering. The 1999 Stock Plan provides selected employees, directors,
independent contractors and advisers an opportunity to acquire a proprietary
interest in the success of PurchasePro.com or to increase their interest. The
1999 Stock Plan is administered by the Compensation Committee of the board of
directors. The Chief Executive Officer may grant options up to 25,000 in each
instance under the 1999 Stock Plan to employees. As of June 2, 1999, 1,500,000
shares had been authorized for issuance.
The 1999 Stock Plan provides for the grant of ISOs and NSOs. However,
eligibility for the grant of ISOs is limited to common law employees. Options
need not have identical terms with respect to each optionee. Options shall have
such terms and be exercisable in such manner and at such times as the
Compensation Committee may determine. Each option must expire within 10 years
from the grant date.
In no event will the exercise price for ISOs be less than 100% of the fair
market value of the stock on the date of grant. The exercise price of ISOs
granted an employee who owns 10% or more of the total combined voting power of
all classes of outstanding stock of PurchasePro.com or any subsidiary of
PurchasePro.com must equal at least 110% of the fair market value of the common
stock on the date of grant and the term of such an ISO may not be greater than
five years. The 1999 Stock Plan defines "fair market value" as (1) the closing
price of a share on the principal exchange on which the shares are trading, or
(2) if the shares are not traded on an exchange but are traded on the Nasdaq
National Market or a successor quotation system, the closing price or (3) if
the shares are not traded on an exchange or the Nasdaq National Market or a
successor quotation system, the fair market value of a share, as determined by
the Compensation Committee in good faith.
Upon exercise of an option, payment of the exercise price shall be made in
lawful money of the United States. If an option agreement so provides, payment
may be made by delivery of shares owned by the optionee or his representative
at least 12 months or via an irrevocable direction to a securities broker to
sell shares and to deliver all or part of the sale proceeds to PurchasePro.com.
Each option shall be transferable only by will or the law of descent and
distribution and shall only be exercisable by the optionee during his or her
lifetime.
45
<PAGE>
No person shall be granted options to purchase more than 500,000 shares of
common stock in any calendar year.
The terms of each award or sale of shares are determined by the Compensation
Committee. Such awards or sales may be subject to forfeiture, rights of
repurchase, rights of first refusal or other transfer restrictions, and may not
be transferred. A right to acquire shares shall automatically expire if not
exercised within 30 days after the grant of the right is communicated to the
offeree. The purchase price of any share may be paid in lawful money of the
United States or services previously rendered.
The 1999 Stock Plan shall remain in effect until June 1, 2009 or, if
earlier, it is terminated by the board of directors. Any amendment of the 1999
Stock Plan shall be subject to the approval of the stockholders of
PurchasePro.com only to the extent required by applicable laws, regulations or
rules. Rights and obligations under any option may not be materially altered or
impaired without the optionee's consent.
Employment Agreements and Change in Control Agreements
We have entered or will enter into the following employment agreements with
our Named Executive Officers:
<TABLE>
<CAPTION>
Officer Term Salary Position
------- ---- ------ --------
<S> <C> <C> <C>
Charles E. Johnson, Jr... May 1999-May 2001 $240,000 Chairman and Chief Executive Officer
Christopher P. Carton.... May 1999-May 2001 $200,000 President, Chief Operating Officer and Secretary
Jeffrey A. Neppl......... April 1999-April 2002 $135,000 Vice President--Sales
Robert G. Layne.......... May 1999-May 2001 $120,000 Vice President--Strategic Development
</TABLE>
Mr. Johnson's and Mr. Carton's agreements will also provide for a
discretionary annual bonus up to the amount of their base salary as determined
by the Compensation Committee of the board of directors. We provide each of Mr.
Johnson and Mr. Carton with a company car. We may terminate either for cause at
any time. If we terminate them without cause or because of their disability or
death, or if they terminate their employment because we breach the agreements,
change their title or duties or relocate their employment outside of Las Vegas,
we must pay, in the case of Mr. Johnson, three times his annual base salary
plus the greater of his last paid bonus or one half of his annual base salary,
and, in the case of Mr. Carton, twice his annual base salary plus the greater
of his last paid bonus or one half of his annual base salary. We also will pay
for life insurance for each of them under their agreements. The agreements will
contain nonsolicitation and noncompetition provisions that are intended to
survive the termination of their employment for six months.
Mr. Neppl's agreement provides that his base salary will be increased to
$175,000 in July 1999. We provide Mr. Neppl with a monthly car allowance. Under
his agreement, Mr. Neppl has received stock options pursuant to our 1998 Stock
Option and Incentive Plan to purchase in the aggregate 190,870 shares of common
stock at an exercise price of $3.50 per share, of which 25,000 vested upon his
hire. Options to purchase 75,870 shares vest over the three year term of his
agreement. The remaining shares vest over the term of the agreement subject to
his achieving the performance goals under his agreement and as determined by
our Chief Executive Officer and our Compensation Committee. We may terminate
him for cause at any time. If we terminate him without cause or we terminate
the agreement because we breach the agreement, change his title or duties or
change the person to whom he reports, we must pay Mr. Neppl his accrued salary
and bonus, his vested stock options, the preceding year's total compensation
and one year's base salary. The agreement contains noncompetition provisions
that are intended to survive the termination of Mr. Neppl's employment for one
year.
Mr. Layne's agreement will also provide for a discretionary, annual bonus up
to the amount of his base salary. We may terminate him for cause at any time.
If we terminate him without cause or if Mr. Layne terminates his agreement for
good reason, we must pay Mr. Layne his salary for 18 months. If we terminate
him because of disability or death, we must pay him or his heirs his salary for
18 months. The agreement will contain noncompetition and nonsolicitation
provisions that are intended to survive the termination of Mr. Layne employment
for six months.
46
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Management and Others
Since our inception in October 1996, there has not been any transaction or
series of transactions to which we were or are a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of our voting securities or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than the transactions described
below.
In October 1996, Charles E. Johnson, Jr., one of our founders and Chairman
and Chief Executive Officer, contributed $139,000 in capital to our
predecessor.
Dr. Ranel Erickson, a founder, provided services in designing our network.
Dr. Erickson was paid $77,000 for his services through December 31, 1996. For
the years ended December 31, 1997, and December 31, 1998, he was paid $105,000
and $72,000, respectively. Through May 31, 1999, we paid him $30,000 for his
services this year.
In January 1998, we sold 6,165,000 shares of common stock to Mr. Johnson, at
$0.01 per share and we sold 767,500 shares of common stock to Dr. Erickson at
$0.01 per share.
In January 1998, we purchased all of the assets of our predecessor by
assuming the liabilities of our predecessor in the amount of $2,747,000, of
which $2,518,000 was owed to Mr. Johnson. Mr. Johnson was a director, executive
officer and 5% shareholder of our predecessor, and Dr. Erickson was a 5%
shareholder of our predecessor. When we purchased all of the assets of our
predecessor, Mr. Johnson and Dr. Erickson assigned to us their right, title and
interest to certain intellectual property.
Over the course of 1997, Mr. Johnson loaned an aggregate of $2,518,000 to
our predecessor at an interest rate of prime plus 1% per annum. PurchasePro.com
assumed this liability as part of the asset purchase referenced above. In
January 1998, we repaid Mr. Johnson $813,000. In April 1998, Mr. Johnson
advanced a non-interest bearing loan of $387,000 to us. In June 1998, Mr.
Johnson was repaid $310,000 from the proceeds of the sale of our Series A
Preferred Stock and contributed his remaining notes and advances totaling
$1,782,000 to us as equity. Between September and November 1998, Mr. Johnson
loaned an aggregate of $500,000 at an interest rate of 15% per annum to us. In
December 1998, Mr. Johnson loaned an additional $250,000 and in March 1999 he
loaned another $200,000 to PurchasePro.com, in each case at an interest rate of
10%. In June 1999, Mr. Johnson was repaid the total amount of his outstanding
loans from the proceeds of our Series B Preferred Stock offering.
In January 1998, Bradley D. Redmon loaned $300,000 to us at an interest rate
of 8% per annum and received 300,000 shares of common stock in connection with
this loan. In June 1998, Mr. Redmon purchased 120,000 shares of common stock
held by Mr. Johnson at a sale price of $2.50 per share. In June 1998,
Mr. Redmon was repaid the entire amount of his $300,000 loan plus accrued
interest from the proceeds of our Series A Preferred Stock. Mr. Redmon is a
member of our board of directors and a cousin of our Chief Executive Officer.
In May 1998, Maurice J. Gallagher and Timothy P. Flynn loaned a total of
$200,000 to us at an interest rate of 12% per annum. In June 1998, Mr.
Gallagher and Mr. Flynn were repaid the entire amount plus accrued interest
from the proceeds of our Series A Preferred Stock. Mr. Gallagher and Mr. Flynn
were each members of our board of directors from January 1998 through May 1999.
In June 1998, Mr. Johnson and Dr. Erickson contributed 607,500 and 317,500
shares of common stock, respectively, back to PurchasePro.com in connection
with our Series A Preferred Stock financing. Pursuant to the same agreement,
and in connection with the repayment of the loan he made to us in January 1998,
Mr. Redmon contributed 192,391 shares of common stock back to PurchasePro.com.
47
<PAGE>
In June 1998, John G. Chiles purchased 40,000 shares of common stock from
Mr. Johnson at $2.50 per share. Mr. Chiles is a member of our board of
directors.
In June 1998, we paid $250,000 to Jefferies & Company, Inc., and issued
warrants to Mr. Chiles and Jefferies & Company, Inc. to purchase an aggregate
of 230,000 shares of common stock, for its services as placement agent in
connection with our Series A Preferred Stock financing. See "--Warrants."
In September 1998, Mr. Gallagher and Mr. Flynn each loaned us $167,000 at an
interest rate of 15% per annum. In May 1999, Mr. Gallagher and Mr. Flynn each
converted these loans into 47,619 shares of Series B Preferred Stock. In
December 1998, Mr. Gallagher and Mr. Flynn each subscribed for an additional
$500,000 of Series B Preferred Stock.
In December 1998, Christopher P. Carton, our President and a member of our
board of directors, loaned us $100,000 at an interest rate of 10% per annum. In
June 1999, Mr. Carton was repaid the entire amount of this loan plus accrued
interest from the proceeds of our Series B Preferred Stock.
In February 1999, we entered into an agreement with E-MarketPro, LLC
pursuant to which we granted E-MarketPro the right to market our services to
persons and entities located within Ohio and Kentucky. E-MarketPro is
compensated based on the volume of sales of our products and services generated
by E-MarketPro. In addition, E-MarketPro may receive options to purchase up to
a maximum of 100,000 shares of PurchasePro.com common stock at the then current
market price based on the number of members E-MarketPro adds to the
e-marketplaces. In connection with the ZoomTown.com agreement described below,
E-MarketPro has agreed not to market or offer access to the e-marketplaces in
Ohio. Mr. Redmon is a principal of E-MarketPro.
In May 1999, we entered into an agreement with ZoomTown.com, a subsidiary of
Cincinnati Bell, Inc., granting ZoomTown.com, as our agent and representative,
the exclusive right to market and offer access to our e-marketplaces in Ohio, a
co-exclusive right in Kentucky, and a nonexclusive right in other domestic
markets until April 2001. Under the agreement ZoomTown.com may co-brand our e-
marketplaces. In addition, ZoomTown.com can extend its exclusive rights to
market and offer access to our public e-marketplace under a ZoomTown.com co-
brand to include the states neighboring Ohio and Kentucky. As reflected in the
agreement and in accordance with our commitments to E-MarketPro, we are
obligated to pay sales commission on revenues generated by ZoomTown.com derived
from licenses or sublicenses of our software outside of Ohio as royalties to E-
MarketPro. Mr. Redmon is a principal of E-MarketPro and may gain significant
compensation from the ZoomTown.com and E-MarketPro agreements.
We lease our headquarters in Las Vegas, Nevada from Cheyenne Investments LLC
for a monthly fee of $29,297. The lease expires in July 2003. Cheyenne
Investments is owned and controlled by Mr. Gallagher and Mr. Flynn. Mr. Carton
has guaranteed PurchasePro.com's obligations under the lease.
Equity Financings
Between June 1998 and May 1999, we sold and issued 5,400,000 shares of our
preferred stock for an aggregate consideration of $16,800,000. We sold an
aggregate of 2,100,000 shares of our Series A Preferred Stock in June 1998 at a
sale price of $2.50 per share, and we sold an aggregate of 3,300,000 shares of
our Series B Preferred Stock in June 1999 at a sale price of $3.50 per share.
Each share of Series A Preferred Stock and Series B Preferred Stock converts
into one share of common stock upon completion of this offering. Upon closing
of the Series B Preferred Stock private placement, we issued an aggregate
450,000 shares of common stock to the holders of Series A Preferred Stock in
consideration of these holders' waiver of certain anti-dilution rights
triggered by the issuance of the Series B Preferred Stock.
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<PAGE>
The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock and of common stock by directors, executive officers
and 5% shareholders of PurchasePro and persons and entities associated with
them:
<TABLE>
<CAPTION>
Shares
-------------------------
Series Series
Directors and Executive Officers Common A B
-------------------------------- --------- ------- -------
<S> <C> <C> <C>
Charles E. Johnson, Jr............................. 4,308,333 -- --
Christopher P. Carton.............................. 714,000 -- --
Bradley D. Redmon(1)............................... 230,976 15,712 71,429
John G. Chiles(2).................................. 278,571 40,000 54,285
David I. Fuente.................................... -- -- 100,000
J. Terrence Lanni.................................. -- -- --
Michael D. O'Brien(3).............................. -- -- --
<CAPTION>
5% Shareholders
---------------
<S> <C> <C> <C>
Maurice J. Gallagher(4)............................ 215,635 480,000 190,476
Timothy P. Flynn(5)................................ 178,492 400,000 190,476
</TABLE>
- --------
(1) E-MarketPro, of which Mr. Redmon is a principal, may receive options to
purchase up to a maximum of 100,000 shares of PurchasePro.com common stock
at the then current market price based on certain performance criteria
contained in an agreement between E-MarketPro and PurchasePro.com.
(2) Includes 200,000 shares of common stock held by Jefferies & Company, Inc.,
8,571 shares of common stock, 40,000 shares of Series A Preferred Stock and
28,569 shares of Series B Preferred Stock held by the John G. and Cynthia
M. Chiles Revocable Trust and 25,716 shares of Series B Preferred Stock
held by Mr. Chiles' minor children. Does not include 53,288 shares of
common stock, 202,000 shares of Series A Preferred Stock and 151,430 shares
of Series B Preferred Stock held by persons associated with Jefferies &
Company, Inc. Mr. Chiles is a Managing Director of Jefferies & Company,
Inc. Mr. Chiles disclaims beneficial ownership of these shares.
(3) Does not include 571,429 shares of Series B Preferred Stock held by
Cincinnati Bell, Inc., the parent of ZoomTown.com. Mr. O'Brien is the Chief
Executive Officer of ZoomTown.com. Mr. O'Brien disclaims beneficial
ownership of these shares.
(4) Includes 102,857 shares of common stock held by Gallagher Corporation,
480,000 shares of Series A Preferred Stock held by Gallagher Corporation
and 17,778 shares of common stock issuable upon the exercise of warrants.
(5) Includes 85,714 shares of common stock held by Flynn Corporation, 400,000
shares of Series A Preferred Stock held by Flynn Corporation and 17,778
shares of common stock issuable upon the exercise of warrants.
Options
In January 1998, Mr. Johnson granted Robert G. Layne, our Vice President--
Strategic Development, options to purchase 125,000 shares of common stock held
by Mr. Johnson at a purchase price of $0.50 per share.
In August 1998, we granted Mr. Redmon nonqualified stock options to purchase
50,000 shares of common stock at a purchase price of $2.50 per share. These
options vest over a two-year period.
In November 1998, we granted Mr. Chiles nonqualified stock options to
purchase 25,000 shares of common stock at a purchase price of $2.50 per share.
These options vest over a one-year period. In addition, in May 1999 certain
persons associated with Jefferies & Company, Inc. received options to purchase
an aggregate of 3,500 shares of common stock at a purchase price of $3.50 per
share.
In May 1999, we granted Mr. Johnson incentive stock options to purchase
325,000 shares of common stock at a purchase price of $3.50 per share. These
options vest over an 18 month period.
In May 1999, we granted Mr. Carton incentive stock options to purchase
200,000 shares of common stock at a purchase price of $3.50 per share. These
options vest over an 18 month period.
49
<PAGE>
In June 1999, we granted Michael D. O'Brien, a member of our board of
directors, nonqualified stock options to purchase 10,000 shares of common stock
at a purchase price of $3.50 per share. These options vest over a two-year
period.
In June 1999, we granted J. Terrence Lanni, a member of our board of
directors, nonqualified stock options to purchase 10,000 shares of common stock
at a purchase price of $3.50 per share. These options vest over a two-year
period.
In June 1999, we granted David I. Fuente, a member of our board of
directors, nonqualified stock options to purchase 100,000 shares of common
stock at a purchase price of $3.50 per share. These options vest over a two-
year period.
In June 1999, we granted Jeffrey A. Neppl, our Vice President--Sales,
nonqualified stock options to purchase 190,870 shares of common stock at a
purchase price of $3.50 per share, of which 25,000 shares vested upon grant,
75,870 shares vest over a three year period, and the remaining shares vest over
a five year period subject to his achievement of performance goals.
Warrants
In June 1998, we issued warrants to Mr. Chiles at the direction of Jefferies
& Company, Inc., our underwriter, and directly to Jefferies & Company, Inc. to
purchase 30,000 and 200,000 shares, respectively, of our common stock at a per
share exercise price of $0.01 for services provided by Jefferies & Company,
Inc. in connection with our Series A Preferred Stock financing. Mr. Chiles is a
director of PurchasePro.com and a Managing Director of Jefferies & Company,
Inc. Mr. Chiles and Jefferies & Company, Inc. each exercised their warrants in
May 1999.
In June 1998, we issued warrants to Mr. Gallagher and Mr. Flynn to purchase
75,000 shares of each of our common stock at a per share exercise price of
$0.01 in connection with their investment in our Series A Preferred Stock. Mr.
Flynn and Mr. Gallagher were directors of PurchasePro.com from January 1998
through May 1999. Mr. Gallagher and Mr. Flynn each exercised their warrants in
February 1999.
In September 1998, we issued warrants to Mr. Johnson, Mr. Gallagher and Mr.
Flynn to purchase 53,333, 17,778 and 17,778 shares, respectively, of our common
stock at a per share exercise price of $0.01 in connection with a loan made by
Mr. Johnson, Mr. Gallagher and Mr. Flynn to PurchasePro.com.
We believe that the foregoing transactions were in our best interests. It is
our current policy that all transactions with officers, directors, 5%
stockholders and their affiliates will be entered into only if such
transactions are approved by a majority of our disinterested independent
directors, are on terms no less favorable to PurchasePro.com than could be
obtained from unaffiliated parties and are reasonably expected to benefit us.
For information concerning indemnification of directors and officers, see
"Description of Capital Stock-- Nevada Law and Articles of Incorporation and
Bylaws Provisions Affecting Stockholders--Indemnification of Directors and
Officers."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 1999, on a pro forma basis to
reflect: (1) the automatic conversion upon completion of this offering of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock
into common stock; (2) the issuance of 450,000 shares of common stock to
holders of Series A Preferred Stock in connection with the Series B Preferred
Stock financing; and (3) the issuance of 159,999 shares of common stock upon
the exercise of outstanding warrants; for a total of 14,009,999 shares of
common stock, by:
. each person or group of affiliated persons known by us to own
beneficially more than 5% of our common stock;
. each of our directors;
. each of our Named Executive Officers; and
. all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage of
Total Shares of Common Stock(2)
Common Stock -----------------
Beneficially Before After
Name and Address of Beneficial Owner(1) Owned Offering Offering
- --------------------------------------- --------------- -------- --------
<S> <C> <C> <C>
Charles E. Johnson, Jr. .................... 4,308,333 30.8%
Christopher P. Carton....................... 714,000 5.1%
Timothy P. Flynn(2)......................... 768,968 5.5%
3291 North Buffalo Drive
Las Vegas, NV 89129
Bradley D. Redmon(3)........................ 318,117 2.3%
3652 Winding Wood Lane
Lexington, KY 40515
John G. Chiles(4)........................... 372,856 2.7%
650 California Street, 29th Floor
San Francisco, CA 94104
Jeffrey A. Neppl............................ -- *
Robert G. Layne(5).......................... 125,000 *
Maurice J. Gallagher(6)..................... 886,111 6.3%
3300 North Buffalo Drive
Las Vegas, NV 89129
Lexington Investor Group(7)................. 1,435,972 10.2%
c/o Steven Singleton
800 Corporate Drive
Lexington, KY 40503
All directors and executive officers as a
group (12 persons)......................... 5,613,306 40.1%
</TABLE>
- -------
* Less than 1%.
(1) Unless otherwise indicated, the address for the following stockholders is
c/o PurchasePro.com, Inc., 3921 N. Buffalo Drive, Las Vegas, Nevada 89129,
(702) 316-7000.
(2) Includes 485,714 shares held by Flynn Corporation.
(3) Does not include 1,117,810 shares held by the other members of the
Lexington Investor Group. Mr. Redmon disclaims beneficial ownership of
these shares.
(4) Includes 200,000 shares held by Jefferies & Company, Inc., 8,571 shares of
common stock, 40,000 shares of Series A Preferred Stock and 28,569 shares
of Series B Preferred Stock held by the John G. and Cynthia M. Chiles
Revocable Trust and 25,716 shares held by Mr. Chiles' minor children. Does
not include 53,288 shares of common stock, 202,000 shares of Series A
Preferred Stock and 151,430 shares of Series B Preferred Stock held by
persons associated with Jefferies & Company, Inc. Mr. Chiles is a Managing
Director of Jefferies & Company, Inc. Mr. Chiles disclaims beneficial
ownership of these shares.
(5) Includes options to purchase 125,000 shares from Mr. Johnson at an
exercise price of $0.50.
(6) Includes 582,857 shares held by Gallagher Corporation.
(7) The Lexington Investor Group includes the following persons: Pat Madden,
Harry Cohen, Steve Singleton, Cornelia Lockstadt, John Burrus, Robert
Langely, Wally Langely, Frank Cassell, Ron Gaudiano, Charles Lisle,
Tom Padgett, Sara Levy and Brad Redmon, a member of our board of
directors. Each person in the Lexington Investor Group disclaims
beneficial ownership of the other individual's shares.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is only a summary and is
qualified in its entirety by reference to the actual terms of the capital stock
contained in our amended and restated articles of incorporation and amended and
restated bylaws which will become effective immediately prior to the
consummation of this offering.
At the closing of the offering our authorized capital stock will consist of
40,000,000 shares of common stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $.001 per share.
Common Stock
Holders of the common stock are entitled to receive, as, when and if
declared by the board of directors from time to time, such dividends and other
distributions in cash, stock or property from our assets or funds legally
available for such purposes subject to any dividend preferences that may be
attributable to preferred stock that may be authorized. Holders of common stock
are entitled to one vote for each share held of record on all matters on which
stockholders may vote, except with respect to the election of directors in
which case stockholders are entitled to multiply the number of shares held of
record by the number of directors to be elected and distribute such number of
votes for one or among two or more nominees.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and non-assessable. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in the assets
available for distribution.
Preferred Stock
Our board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 5,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and we have no plans to issue a new
series of preferred stock. Our board of directors may, without stockholder
approval, issue preferred stock with dividend rates, redemption prices,
preferences on liquidation or dissolution, conversion rights, voting rights and
any other preferences, which rights and preferences could adversely affect the
voting power of the holders of common stock. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions or
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock. Additionally, the issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of common stock, may have the effect of decreasing the
market price of the common stock, and may adversely affect the voting and other
rights of the holders of common stock.
Common Stock Warrants
We have warrants outstanding for the purchase of 159,999 shares of common
stock with a weighted average exercise price of $.01 per share.
Warrants issued to Maurice J. Gallagher and Timothy P. Flynn, former
directors of PurchasePro.com, and RMC Capital in September 1998, entitle each
of Mr. Gallagher and Mr. Flynn to purchase 17,778 shares and RMC Capital to
purchase 17,777 shares of common stock for $.01 per share. In addition,
warrants issued to each of Charles E. Johnson, Jr., Chairman and Chief
Executive Office of PurchasePro.com, and Samuel A. Boone, in September 1998
entitle each of Mr. Johnson and Mr. Boone to purchase 53,333 shares of common
stock at $.01 per share.
The exercise price and number of shares of common stock issuable upon the
exercise of each of the warrants may be adjusted upon the occurrence of certain
events, including stock splits, stock dividends, reorganization,
recapitalization, merger, or sale of all or substantially all of our assets.
All warrants and shares of stock issuable upon exercise of all warrants have
certain registration rights as described under "Registration Rights" below. For
purposes of this prospectus, we have assumed all outstanding warrants have been
exercised.
52
<PAGE>
Registration Rights
After the consummation of the offering, the holders of 5,400,000 shares of
common stock issuable upon conversion of the Series A and B Preferred Stock,
and certain holders of 825,000 shares of common stock have the right to cause
us to register such shares under the Securities Act as follows:
. Demand Registration Rights. Six months after this offering the holders of
a majority of the common stock issued upon conversion of the Series A
Preferred Stock and the holders of a majority of the shares of common
stock issued upon conversion of the Series B Preferred Stock may request
PurchasePro.com to register their shares with respect to all or part of
their registerable securities having aggregate proceeds of at least
$10,000,000. The $10,000,000 proceeds threshold was negotiated as part of
the Series A Preferred Stock financing.
. Piggyback Registration Rights. The holders of registerable securities can
request to have their shares registered anytime PurchasePro.com is filing
a registration statement to register any of our securities for our own
account or for the account of others.
. S-2 and S-3 Registration Rights. The holders of a majority of the common
stock issued upon conversion of the Series A Preferred Stock and the
holders of a majority of the common stock issued upon conversion of the
Series B Preferred Stock may request PurchasePro.com to register their
shares if PurchasePro.com is eligible to use either Form S-2 or Form S-3
and if the aggregate price is at least $500,000.
Holders of 400,000 shares of common stock and holders of warrants to purchase
159,999 shares of common stock have substantially the same registration rights
as described above, however, the aggregate price of the registerable securities
in demand registrations need only be $500,000.
Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-2 or S-3 registration
rights under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act immediately upon the
effectiveness of such registration. See "Risk Factors--Shares eligible for
future sale by our existing stockholders may adversely affect our stock price,"
"Shares Eligible for Future Sale" and "Certain Transactions."
PurchasePro.com will pay all registration expenses, other than underwriting
discounts and commissions, in connection with any registration. The
registration rights terminate 5 years following the closing of this offering,
or, with respect to each holder of registerable securities, when the holder can
sell all of its shares in any 90 day period under Rule 144 of the Securities
Act.
Nevada Law and Articles of Incorporation and Bylaws Provisions Affecting
Stockholders
Our articles of incorporation, bylaws and the laws of the State of Nevada
governing corporations may have the effect, either alone or in combination with
each other, of making more difficult or discouraging a tender offer, change in
control or takeover attempt that is opposed by our board of directors.
Staggered Board. Our articles of incorporation and bylaws provide that our
board of directors will be divided into three classes of directors, with the
classes to be as nearly equal in number as possible. The bylaws provide that
Class I shall be comprised of directors who shall serve until the annual
meeting of stockholders in 2000 and until their successors shall have been
elected and qualified. Class II shall be comprised of directors who shall serve
until the annual meeting of stockholders in 2001 and until their successors
shall have been elected and qualified. Class III shall be comprised of
directors who shall serve until the annual meeting of stockholders in 2002 and
until their successors shall have been elected and qualified.
Nomination of Directors by Stockholders. Our bylaws provide for advance
notice requirements for stockholders to submit nominations for the election of
directors. Such requirements include providing certain information about the
proposed nominee and the giving of notice, to the Secretary of PurchasePro.com,
of a nomination 120 days prior to the distribution of the proxy statement
released to stockholders in connection with the previous year's annual meeting.
53
<PAGE>
The advance notice requirements for nominations of directors and the
classification of directors will have the effect of making it more difficult
for stockholders to change the composition of the board of directors. These
provisions could also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
obtain control of us.
Amendment of Articles of Incorporation and Bylaws. Our articles of
incorporation may be repealed or amended only by the holders of at least two-
thirds of the shares entitled to vote at an election of directors. Our bylaws
may be repealed or amended only by a majority vote of the board of directors or
a two-thirds stockholders vote.
No Stockholder Action by Written Consent. Our articles of incorporation
require that all stockholder action be taken at a stockholders' meeting. Our
bylaws provide for annual meetings and special meetings of stockholders.
Special meetings of stockholders may be called by (1) the board of directors,
(2) the chairman of the board or (3) the chief executive officer and president.
These provisions, together with the two-thirds stockholder vote requirement
to amend our articles of incorporation or bylaws may have the effect of
deterring a hostile takeover or delaying a change in control or management of
PurchasePro.com.
Blank Check Preferred Stock. Under our articles of incorporation, the board
of directors has the power to authorize the issuance of up to 5,000,000 shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without further vote
or action by the stockholders. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, may have the effect of delaying, deferring or preventing a
change in control of PurchasePro.com, may discourage bids for our common stock
at a premium over the market price and may adversely affect the market price of
our common stock and the voting and other rights of the holders of our common
stock.
These provisions of our articles of incorporation and bylaws are intended
to:
. enhance the likelihood of continuity and stability in the composition of
the board of directors and in the policies formulated by the board of
directors;
. reduce the vulnerability of PurchasePro.com to an unsolicited acquisition
proposal;
. discourage certain types of transactions that may involve an actual or
threatened change of control of PurchasePro.com; and
. discourage certain tactics that may be used in proxy fights.
These provisions, however, could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may
inhibit fluctuations in the market price of our shares that could result from
actual or rumored takeover attempts. These provisions also may have the effect
of preventing changes in our management.
Control Share Acquisitions. Sections 78.378 through 78.3793 of the Nevada
Revised Statutes (the "NRS") provide that an acquiring person who acquires a
controlling interest in an issuing corporation may only exercise voting rights
on any control shares if such voting rights are conferred by a majority vote of
the issuing corporation's disinterested stockholders at a special meeting of
such stockholders held upon the request and at the expense of the acquiring
person. In addition, our articles of incorporation require that any transaction
or series of related transactions that result in the transfer of fifty percent
(50%) or more of the outstanding voting power of PurchasePro.com be approved by
two-thirds of our outstanding shares entitled to vote. In the event that the
acquiring person is accorded full voting rights and acquires control shares
with at least a majority of all the voting power, any of our stockholders, who
did not vote in favor of authorizing voting rights for the control shares, are
entitled to payment for the fair value of his or her shares. For purposes of
the above
54
<PAGE>
provisions, acquiring person means (subject to certain exceptions) any person
who, individually or in association with others, acquires or offers to acquire,
directly or indirectly, a controlling interest in an issuing corporation.
Controlling interest means the ownership of outstanding voting shares of an
issuing corporation sufficient, but for the provisions of NRS 78.378 through
78.3793, to enable the acquiring person, individually or in association with
others, directly or indirectly, to exercise at least one-fifth of the voting
power of the issuing corporation in the election of directors. Control shares
means those outstanding voting shares of an issuing corporation which an
acquiring person and those persons acting in association with an acquiring
person acquires or offers to acquire in an acquisition and those shares that
are acquired within 90 days immediately preceding the date when the acquiring
person became an acquiring person. Issuing corporation means a corporation that
is organized in Nevada, has 200 or more stockholders (at least 100 of whom are
stockholders of record and residents of Nevada) and does business in Nevada
directly or though an affiliated corporation. If the articles of incorporation
or bylaws of the corporation provide that the above provisions do not apply,
then the above provisions are not applicable. Our articles of incorporation and
bylaws, however, currently do not exclude us from the restrictions imposed by
such provisions.
Certain Business Combinations. Sections 78.411 through 78.444 of the NRS
restrict the ability of a resident domestic corporation to engage in any
combination with an interested stockholder for three years from when the
interested stockholder acquires shares that cause such stockholder to become an
interested stockholder, unless the combination or the purchase of shares by the
interested stockholder is approved by the board of directors before such
stockholder became an interested stockholder. If the combination was not
previously approved, the interested stockholder may only effect a combination
after the three-year period if such stockholder receives approval from a
majority of the disinterested shares or the offer meets certain fair price
criteria. For purposes of the above provisions, resident domestic corporation
means a Nevada corporation that has 200 or more shareholders. Interested
stockholder means any person, other than the resident domestic corporation or
its subsidiaries, who is (1) the beneficial owner, directly or indirectly, of
10% or more of the voting power of the outstanding voting shares of the
resident domestic corporation or (2) an affiliate or associate of the resident
domestic corporation and, at any time within three years immediately before the
date in question, was the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the then outstanding shares of the resident
domestic corporation. The above provisions do not apply to any combination of a
resident domestic corporation whose current articles of incorporation expressly
state that the corporation is not to be governed by these provisions. Our
articles of incorporation currently do not exclude us from the restrictions
imposed by such provisions.
Indemnification of Directors and Officers. Our articles of incorporation and
bylaws provide that directors, officers and certain other persons may be
indemnified to the fullest extent authorized by Nevada law. We believe that
these provisions will assist us in attracting or retaining qualified
individuals to serve as directors or officers.
Subsection 1 of Section 78.7502 of the NRS empowers a corporation to
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 (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation. We can indemnify
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation
Subsection 2 of Section 78.7502 of the NRS empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in accordance with the standard set forth above. No
indemnification may be made in respect of any claim as to
55
<PAGE>
which such person shall have been adjudged by a court to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction determines that such person is fairly and
reasonably entitled to indemnity for such expenses.
Subsection 3 of Section 78.7502 of the NRS further provides that, to the
extent a director or officer of a corporation has been successful on the merits
or otherwise in the defense of any action, suit or proceeding, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in his defense.
Indemnification provided for under Nevada law shall not be deemed exclusive
of any other rights to which the indemnified party may be entitled and that the
scope of indemnification shall continue as to directors, officers, employees or
agents who have ceased to hold such positions. Finally, Nevada law empowers the
corporation to purchase and maintain insurance or make other financial
arrangements on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by him in
any such capacity whether or not the corporation would have the authority to
indemnify him against such liabilities and expenses. Our bylaws authorize us to
purchase and maintain insurance or make other financial arrangements on behalf
of our directors, officers, employees and agents.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, shares of common stock will be outstanding,
shares if the underwriters exercise their over-allotment option in full. Of
these shares, the shares sold in this offering shares of the
underwriters over-allotment option is exercised in full will be freely tradable
without restriction under the Securities Act except for any shares purchased by
"affiliates" of PurchasePro.com as defined in Rule 144 under the Securities
Act. The remaining shares are "restricted securities" within the meaning
of Rule 144 under the Securities Act. The restricted securities generally may
not be sold unless they are registered under the Securities Act or are sold
pursuant to an exemption from registration, such as the exemption provided by
Rule 144 under the Securities Act.
Our officers, directors and stockholders holding in the aggregate
shares of common stock have entered into lock-up agreements under which they
have agreed not to offer or sell any shares of common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Prudential Securities, on behalf of the underwriters. See "Underwriting."
Prudential Securities may, at any time and without notice, waive any of the
terms of these lock-up agreements specified in the underwriting agreement.
Following the lock-up period, these shares will not be eligible for sale in the
public market without registration under the Securities Act unless such sales
meet the applicable conditions and restrictions of Rule 144 as described below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, any person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for a
period of at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:
. 1% of the then-outstanding shares of common stock, and
. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to provisions, relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person (or persons whose shares are aggregated) who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale,
and who has beneficially owned the shares for at least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above. The above summary of Rule 144
is not intended to be a complete description.
In addition, our employees, directors, officers, advisors or consultants who
were issued shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits affiliates to sell their Rule 701 shares without having
to comply with Rule 144's holding period restrictions, in each case commencing
90 days after the date of this prospectus.
As soon as practicable following the closing of this offering, we intend to
file a registration statement under the Securities Act to register shares
of common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock option plans. See "Management--Stock
Option Plans." After the effective date of such registration statement, these
shares will be available for sale in the open market subject to the lock-up
agreements described above and, for our affiliates, to the conditions and
restrictions of Rule 144.
57
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated and Jefferies & Company,
Inc. are acting as representatives. We are obligated to sell, and the
underwriters are obligated to purchase, all of the shares of the common stock
offered on the cover page of this prospectus, if any are purchased. Subject to
conditions set forth in the underwriting agreement, each underwriter has
severally agreed to purchase from us the number of shares of common stock set
forth below opposite its name:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Prudential Securities Incorporated....................................
Jefferies & Company, Inc..............................................
------
Total...............................................................
======
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to additional shares from us. If any of the additional shares are
purchased, the underwriters will severally purchase the additional shares in
the same proportion as set forth above.
The representatives of the underwriters have advised us that the shares will
be offered to the public at the public offering price set forth on the cover
page of this prospectus. The underwriters may allow to selected dealers a
concession not in excess of $ per share and those dealers may reallow a
concession not in excess of $ per share to other dealers. After the shares
are released for sale to the public, the representatives may change the
offering price and the concessions. The representatives have informed us that
the underwriters do not intend to sell shares to any investor who has granted
them discretionary authority.
We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee Without Exercise of Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by
PurchasePro.com........ $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in expenses
for this offering. We have agreed to indemnify the underwriters against some
liabilities, including liabilities under the Securities Act or contribute to
payments that the underwriters may be required to make in respect of these
liabilities.
We, our officers, directors and stockholders have entered into lock-up
agreements pursuant to which we and they have agreed not to offer or sell any
shares of common stock or securities convertible into or exchangeable or
exercisable for shares of common stock for a period of 180 days from the date
of this prospectus without the prior consent of Prudential Securities.
Prudential Securities may, at any time and without notice, waive the terms of
these lock-up agreements specified in the underwriting agreement.
Prior to this offering, there has been no public market for our common
stock. The public offering price, negotiated between the representatives and
us, is based upon factors such as our financial and operating history and
conditions, our prospects, the prospects of our industry and prevailing market
conditions.
58
<PAGE>
The representatives of the underwriters may engage in the following
activities in accordance with applicable securities rules:
. Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment option.
. Stabilizing and short covering: stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
. Penalty bids permit the representatives to reclaim commissions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
. the Public Offers of Securities Regulations 1995,
. the Financial Services Act 1986, and
. the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our customers, employees, officers, directors and
other business affiliates or related third parties. Certain of our
stockholders, including Brad Redmon, a director of PurchasePro.com, are
entitled to purchase half of these shares. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase the reserved shares.
Jefferies & Company, Inc. has, from time to time, performed various
investment banking and financial advisory services on a fee services basis for
PurchasePro.com. A Managing Director of Jefferies & Company, Inc. is a member
of our board of directors. Jefferies & Company, Inc. and associated persons own
331,859 shares of Common Stock, 242,000 shares of Series A Preferred Stock,
205,715 shares of Series B Preferred Stock and options to purchase 28,500
shares of Common Stock.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby are being passed upon for PurchasePro.com by Pillsbury Madison &
Sutro LLP, 235 Montgomery Street, San Francisco, California 94120-7880. Members
of Pillsbury Madison & Sutro LLP own 37,143 shares of the Series B Preferred
Stock of PurchasePro.com which automatically convert into the same number of
shares of common stock upon completion of this offering. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Orrick, Herrington & Sutcliffe LLP, 1020 Marsh Road, Menlo Park, California
94025.
EXPERTS
The consolidated financial statements of PurchasePro.com as of December 31,
1997 and 1998 and for the period from inception (October 8, 1996) through
December 31, 1996 and for each of the two years in the period ended December
31, 1998, included in this prospectus and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
59
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
PurchasePro.com and the common stock, reference is made to the registration
statement and the exhibits and schedules thereto. You may read and copy any
document we file at the SEC's public reference room in Washington, DC. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public from the SEC's website
at http://www.sec.gov.
Upon completion of this offering, PurchasePro.com will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms, PurchasePro.com's website and the website of the SEC
referred to above. Information on our website does not constitute a part of
this prospectus.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)........................................... F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of PurchasePro.com, Inc.:
We have audited the accompanying consolidated balance sheets of
PurchasePro.com, Inc. (a Nevada corporation) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit) and
cash flows for the period from inception (October 8, 1996) through December 31,
1996, and for each of the two years in the period ended December 31, 1998.
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 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 financial statements referred to above present fairly,
in all material respects, the financial position of PurchasePro.com, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from inception (October 8, 1996)
through December 31, 1996, and for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
June 2, 1999
F-2
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------- March 31,
1997 1998 1999
--------- ---------- -----------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................. $ 7,894 $1,689,288 $ 476,585
Trade accounts receivable, net of
allowance for doubtful accounts of
$72,796, $200,000 and $235,000
(unaudited), respectively................ 18,443 215,234 423,763
Other receivables......................... 17,602 99,078 298,945
Prepaid expenses and other................ 113 20,000 61,883
--------- ---------- ----------
Total current assets.................... 44,052 2,023,600 1,261,176
Property and equipment
Computer equipment........................ 517,057 714,465 832,004
Communication equipment................... 47,775 65,160 65,160
Furniture and fixtures.................... 130,536 155,328 156,981
Leasehold improvements.................... 26,666 44,090 48,599
--------- ---------- ----------
722,034 979,043 1,102,744
Less--accumulated depreciation and
amortization............................. (162,424) (415,039) (497,472)
--------- ---------- ----------
559,610 564,004 605,272
Other assets................................ 4,903 157,153 352,838
--------- ---------- ----------
Total assets............................ $ 608,565 $2,744,757 $2,219,286
========= ========== ==========
</TABLE>
The accompanying notes to consolidated financial statementsare an integral part
of these consolidated balance sheets.
F-3
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C>
Current liabilities
Accounts payable...................... $ 300,347 $ 98,799 $ 145,211
Accrued salaries and benefits......... 43,289 207,635 329,002
Accrued payroll taxes................. 285,501 63,167 58,782
Accrued interest...................... 23,645 59,256 137,173
Other accrued liabilities............. 51,138 147,655 384,459
Deferred revenues..................... 46,541 164,812 161,700
Notes payable, current portion........ 1,200,750 375,000 575,000
----------- ----------- -----------
Total current liabilities........... 1,951,211 1,116,324 1,791,327
Notes payable, net of current portion... 1,366,250 1,169,939 1,214,984
Commitments and contingencies (Note 4)
Redeemable convertible preferred stock
Preferred stock, Series A: $0.001 par
value; 8% convertible; $2.50
liquidation preference; 0, 2,100,000
and 2,100,000 (unaudited) shares
authorized, issued and outstanding,
respectively......................... -- 4,339,438 4,490,377
Preferred stock, Series B: $0.001 par
value; 8% convertible; $3.50
liquidation preference; 3,300,000
shares authorized.................... -- 2,000,000 2,500,000
Stockholders' equity (deficit)
Common stock: $0.01 par value;
40,000,000 shares authorized;
7,700,000, 7,600,000 and 7,770,000
(unaudited) shares issued and
outstanding, respectively............ 77,000 76,000 77,700
Additional paid-in capital............ 322,382 1,178,504 1,178,504
Accumulated deficit................... (3,108,278) (7,135,448) (9,033,606)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (2,708,896) (5,880,944) (7,777,402)
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)................... $ 608,565 $ 2,744,757 $ 2,219,286
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statementsare an integral part
of these consolidated balance sheets.
F-4
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
Inception
(October 8, 1996) Year Ended Quarter Ended
Through December 31, March 31,
December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Subscription fees...... $ -- $ 512,761 $ 1,307,611 $ 173,698 $ 529,714
Transaction fees....... -- -- 153,828 -- 79,403
Other.................. -- 162,629 208,799 62,675 64,790
--------- ----------- ----------- ----------- -----------
Total revenues........ -- 675,390 1,670,238 236,373 673,907
--------- ----------- ----------- ----------- -----------
Cost of revenues........ -- 213,857 445,639 97,917 162,870
--------- ----------- ----------- ----------- -----------
Gross profit............ -- 461,533 1,224,599 138,456 511,037
Operating expenses
Sales and marketing.... 22,592 1,179,327 3,840,776 503,543 909,137
General and
administrative........ 9,860 1,344,860 2,895,779 581,645 919,026
Programming and
development........... 86,862 802,175 971,459 232,215 311,438
--------- ----------- ----------- ----------- -----------
Total operating
expenses............. 119,314 3,326,362 7,708,014 1,317,403 2,139,601
--------- ----------- ----------- ----------- -----------
Operating loss.......... (119,314) (2,864,829) (6,483,415) (1,178,947) (1,628,564)
Other income (expense)
Interest expense....... (3,638) (120,497) (332,895) (87,124) (122,990)
Other.................. -- -- 16,300 8,228 4,335
--------- ----------- ----------- ----------- -----------
Total other income
(expense)............ (3,638) (120,497) (316,595) (78,896) (118,655)
--------- ----------- ----------- ----------- -----------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (1,257,843) (1,747,219)
Benefit for income
taxes.................. -- -- -- -- --
--------- ----------- ----------- ----------- -----------
Net loss................ (122,952) (2,985,326) (6,800,010) (1,257,843) (1,747,219)
Preferred stock
dividends.............. -- -- (245,000) -- (105,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) -- (45,939)
--------- ----------- ----------- ----------- -----------
Net loss applicable to
common stock........... $(122,952) $(2,985,326) $(7,135,448) $(1,257,843) $(1,898,158)
========= =========== =========== =========== ===========
Loss per share
Basic.................. $ (0.02) $ (0.39) $ (0.83) $ (0.13) $ (0.25)
========= =========== =========== =========== ===========
Diluted................ $ (0.02) $ (0.36) $ (0.78) $ (0.12) $ (0.23)
========= =========== =========== =========== ===========
Weighted average shares
outstanding
Basic.................. 7,700,000 7,700,000 8,600,000 10,000,000 7,656,667
========= =========== =========== =========== ===========
Diluted................ 8,259,999 8,259,999 9,159,999 10,559,999 8,159,999
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statementsare an integral part
of these consolidated statements.
F-5
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
ANDSTOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
Redeemable Convertible Preferred Stock ----------------------------------------------------------
--------------------------------------
Series A Series B Common Stock Additional
-------------------- ----------------- ------------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
--------- ---------- ------ ---------- ---------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 8,
1996................. -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock................ -- -- -- -- 7,700,000 77,000 (67,000) -- 10,000
Net loss for the
period............... -- -- -- -- -- -- -- (122,952) (122,952)
--------- ---------- ---- ---------- ---------- ------- ----------- ----------- -----------
Balance, December 31,
1996................. -- -- -- -- 7,700,000 77,000 (67,000) (122,952) (112,952)
Contribution from
stockholder.......... -- -- -- -- -- -- 139,382 -- 139,382
Services donated by
stockholder.......... -- -- -- -- -- -- 250,000 -- 250,000
Net loss............. -- -- -- -- -- -- -- (2,985,326) (2,985,326)
--------- ---------- ---- ---------- ---------- ------- ----------- ----------- -----------
Balance, December 31,
1997................. -- -- -- -- 7,700,000 77,000 322,382 (3,108,278) (2,708,896)
Effect of
recapitalization..... -- -- -- -- -- -- (3,108,278) 3,108,278 --
Issuance of common
stock................ -- -- -- -- 2,300,000 23,000 44,000 -- 67,000
Redemption and
retirement of common
stock................ -- -- -- -- (2,400,000) (24,000) 24,000 -- --
Contribution by
principal
stockholder.......... -- -- -- -- -- -- 1,782,000 -- 1,782,000
Charge for services.. -- -- -- -- -- -- 720,000 -- 720,000
Issuance of Series A
preferred stock, net
of issuance costs and
value of warrants
issued............... 2,100,000 4,004,000 -- -- -- -- 996,000 -- 996,000
Issuance of warrants
to holders of notes
payable.............. -- -- -- -- -- -- 398,400 -- 398,400
Issuance of Series B
preferred stock
pursuant to
subscription
agreements........... -- -- -- 2,000,000 -- -- -- -- --
Preferred stock
dividends............ -- 245,000 -- -- -- -- -- (245,000) (245,000)
Accretion of
preferred stock to
redemption value..... -- 90,438 -- -- -- -- -- (90,438) (90,438)
Net loss............. -- -- -- -- -- -- -- (6,800,010) (6,800,010)
--------- ---------- ---- ---------- ---------- ------- ----------- ----------- -----------
Balance, December 31,
1998................. 2,100,000 4,339,438 -- 2,000,000 7,600,000 76,000 1,178,504 (7,135,448) (5,880,944)
(Unaudited):
Exercise of warrants
by Series A preferred
stockholders......... -- -- -- -- 170,000 1,700 -- -- 1,700
Issuance of Series B
preferred stock
pursuant to
subscription
agreements........... -- -- -- 500,000 -- -- -- -- --
Preferred stock
dividends............ -- 105,000 -- -- -- -- -- (105,000) (105,000)
Accretion of
preferred stock to
redemption value..... -- 45,939 -- -- -- -- -- (45,939) (45,939)
Net loss............. -- -- -- -- -- -- -- (1,747,219) (1,747,219)
--------- ---------- ---- ---------- ---------- ------- ----------- ----------- -----------
Balance, March 31,
1999 (Unaudited)..... 2,100,000 $4,490,377 -- $2,500,000 7,770,000 $77,700 $ 1,178,504 $(9,033,606) $(7,777,402)
========= ========== ==== ========== ========== ======= =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
Inception
(October 8, 1996) Year Ended Quarter Ended
Through December 31, March 31,
December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss.............. $(122,952) $(2,985,326) $(6,800,010) $(1,257,843) $(1,747,219)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 2,983 159,441 252,892 57,881 82,819
Imputed interest...... -- -- 67,000 33,500 --
Provision for doubtful
accounts............. -- 72,796 127,204 8,205 22,013
Non-cash services..... -- 250,000 720,000 -- --
Amortization of debt
discount............. -- -- 43,339 -- 45,045
(Increase) decrease
in:
Trade accounts
receivable.......... -- (91,239) (323,995) (12,834) (230,542)
Other receivables.... -- (17,602) (81,476) (30,924) (199,867)
Prepaid expenses and
other............... -- (113) (19,887) -- (41,883)
Increase (decrease)
in:
Accounts payable..... 3,500 140,681 (201,548) (26,508) 46,412
Accrued liabilities.. 46,589 513,150 74,140 (217,462) 331,703
Deferred revenues.... -- 46,541 118,271 59,368 (3,112)
--------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (69,880) (1,911,671) (6,024,070) (1,386,617) (1,694,631)
--------- ----------- ----------- ----------- -----------
Cash flows from
investing activities
Purchase of property
and equipment........ (72,417) (649,617) (257,009) (28,056) (123,701)
Other assets.......... -- (4,903) (102,527) (6,792) (96,071)
--------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (72,417) (654,520) (359,536) (34,848) (219,772)
--------- ----------- ----------- ----------- -----------
Cash flows from
financing activities
Proceeds from notes
payable and
advances............. 133,132 2,433,868 4,427,000 2,300,000 200,000
Repayment of notes
payable.............. -- -- (3,362,000) (862,000) --
Issuance of common
stock, net........... 10,000 -- -- -- 1,700
Issuance of preferred
stock and warrants,
net.................. -- -- 7,000,000 -- 500,000
Contribution from
stockholder.......... -- 139,382 -- -- --
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 143,132 2,573,250 8,065,000 1,438,000 701,700
--------- ----------- ----------- ----------- -----------
Increase (decrease) in
cash and cash
equivalents........... 835 7,059 1,681,394 16,535 (1,212,703)
Cash and cash
equivalents:
Beginning of period... -- 835 7,894 7,894 1,689,288
--------- ----------- ----------- ----------- -----------
End of period......... $ 835 $ 7,894 $ 1,689,288 $ 24,429 $ 476,585
========= =========== =========== =========== ===========
Non-cash investing and
financing activities:
Other assets acquired
with note payable.... $ -- $ -- $ 50,000 $ -- $ --
========= =========== =========== =========== ===========
Contribution of notes
payable to equity.... $ -- $ -- $ 1,782,000 $ -- $ --
========= =========== =========== =========== ===========
Cash paid for:
Interest.............. $ 3,638 $ 96,852 $ 166,424 $ -- $ --
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statementsare an integral part
of these consolidated statements.
F-7
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and for the quarters endedMarch 31, 1998 and
1999 is unaudited)
(1) The Company
Organization
Purchase Pro, Inc., a Nevada corporation, was incorporated on October 8,
1996. On January 12, 1998, PP International was incorporated in Nevada and on
January 15, 1998, PP International, Inc. changed its name to Purchase Pro
International, Inc., and on June 1, 1999, changed its name to PurchasePro.com,
Inc. (the "Company"). The Company initially authorized the issuance of
20,000,000 shares, $0.01 par value stock, of which 7,700,000 shares of $0.01
par value common stock were issued to three stockholders of Purchase Pro, Inc.
On January 15, 1998, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Purchase Pro, Inc. The purchase
has been accounted for as a reorganization of companies under common control in
a manner similar to a pooling of interests. Accordingly, the financial position
and results of operations of the Company and Purchase Pro, Inc. have been
included in the accompanying consolidated financial statements. In August 1998,
the Company formed its wholly owned subsidiary, Hospitality Purchasing Systems,
Inc., ("HPS"), a Nevada corporation.
Nature of Business
The Company is a provider of Internet business-to-business electronic
commerce services. The Company's e-commerce solution is comprised of public and
private communities called "e-marketplaces" where businesses can buy and sell a
wide range of products and services over the Internet in an efficient,
competitive and cost-effective manner. Subscribers to the Company's e-
marketplaces need only an Internet connection, a Web browser and a
PurchasePro.com membership in order to participate in interactive buying and
selling communities. The e-marketplaces are customizable and scalable,
utilizing an open-architecture platform that can be integrated with members'
existing enterprise resource planning and accounting systems. The Company's
solution leverages the growth, pervasiveness, low costs and community building
nature of the Internet as a basis for e-commerce for the broad business-to-
business market. The Company began developing its service in 1996 by closely
evaluating the purchasing processes of the hospitality industry. The purchasing
process of this industry is characterized by high volume, frequent purchases of
a broad range of goods and services by a large number of geographically
distributed buyers. The Company capitalized on the large-property purchasing
expertise of several Las Vegas-based hotels and resorts to develop, test and
validate its service.
The Company began testing the first working model of its primary software
product in early 1997 and began selling membership subscriptions in April 1997.
Until that time, the Company was considered a development-stage enterprise.
HPS' principal operation is negotiating contracts on behalf of independent
hotels and hotel management companies for which it receives fees and rebates.
In August 1998, HPS acquired the rights to certain contracts previously managed
by General Network Management Services, Inc. for $100,000 in the form of
$50,000 cash and a $50,000 note payable.
From October 1996 to the commercial release of the service in April 1997,
the Company primarily engaged in raising capital and recruiting employees to
develop the e-marketplace software and network infrastructure. In April 1997,
the Company released version 1.0 of its software, enabling members to transact
e-commerce over its network and in late 1997, members were provided network
connectivity over the Internet. In September 1998, the Company released version
3.0 that provides members access to e-marketplace enabling software and in
February 1999, the Company released version 4.0, which allows members the
additional capability of building private e-marketplaces.
To date, substantially all of the Company's revenues have come from monthly
membership subscription fees for access to e-marketplaces. Most members are
companies that sell products and services to large hotels
F-8
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and resorts in Nevada and Florida. Subscription contracts can be cancelled by
either party on as little as 30 days notice. The Company also provides Web site
hosting services and ISP connectivity services for a fee and charges members a
fee for processing their payments by electronic funds transfer or by credit
card. In August 1998, HPS began generating transaction fees from group buying
services provided to the hospitality industry. The Company considers its
operations to be part of one operating segment.
The Company is subject to risks common to rapidly growing, technology-based
companies, including rapid technological change, growth and commercial
acceptance of the Internet, dependence on principal products, new product
development, new product introductions and other activities of competitors, and
a limited operating history.
The Company has experienced operating losses and negative cash flows from
its operations since inception. For the foreseeable future, the Company expects
to experience continuing operating losses and negative cash flows as management
executes its current business plan. At December 31, 1998, the Company had cash
and cash equivalents totaling approximately $1,690,000. In June 1999, the
Company completed its Series B Preferred Stock Offering and received cash
proceeds of approximately $11,550,000, of which $3,140,000 had been received
prior to the close. Management believes that it has sufficient funds to sustain
its current business plan through June 30, 2000. Management believes that
additional financing would be required to support its current business plan
past that time and further believes that such additional financing would come
through public or private equity financing. The Company's Board of Directors
has authorized the filing of a registration statement with the Securities and
Exchange Commission (the "SEC") that would permit the Company to sell shares of
the Company's common stock in connection with a proposed initial public
offering. If the IPO is not completed in a timely manner, the Company would
seek such additional financing through a private financing or through
collaborative or other arrangements with corporate sources.
(2) Significant Accounting Policies
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements of the Company for
the quarters ended March 31, 1998 and 1999, included herein, have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
SEC. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the results of the Company's
operations and its cash flows for the quarters ended March 31, 1998 and 1999.
The accompanying unaudited interim consolidated financial statements are not
necessarily indicative of full year results.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.
Management's 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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company's accounts receivable are derived from
revenue earned from customers located in the U.S. and are denominated in U.S.
dollars. Portions of the Company's accounts receivable balances are settled
either through customer credit cards or electronic fund transfers. As a result,
the majority of accounts receivable are collected upon processing of those
transactions. The Company maintains an allowance for doubtful accounts based
upon the expected collectibility of accounts receivable. During the years ended
December 31, 1998 and 1997, no customers accounted for more than 10% of net
revenues or net accounts receivable.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and notes payable are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments.
Cash and Cash Equivalents
Cash equivalents consist of investments in bank certificates of deposit and
other interest bearing instruments with initial maturities of three months or
less. Such investments are carried at cost which approximates fair value.
Property and Equipment
Property and equipment is stated at cost. Costs incurred for additions,
improvements and betterments are capitalized as incurred. Costs for maintenance
and repairs are charged to expense as incurred. Gains or losses on dispositions
of property and equipment are included in the determination of income.
Depreciation and amortization are computed using the straight-line method over
the following estimated service lives of the related assets:
<TABLE>
<S> <C>
Computer equipment............................................... 3 years
Communication equipment.......................................... 3 years
Furniture and fixtures........................................... 5 years
Leasehold improvements........................................... 3 years
</TABLE>
Revenue Recognition
Revenues are recorded, net of discounts, over the period services are
provided to subscribers and deferred revenues are recognized for amounts
received before services are provided. The Company does not charge initial
sign-up fees to new subscribers.
Programming and Development Costs
All costs in the software development process, which are classified as
research and development, are expensed as incurred until technological
feasibility has been established. Technological feasibility must be established
for all components of a service when computer software is used as an integral
part of a product or process. Once technological feasibility has been
established, such costs are capitalized until the software has completed beta
testing and is generally available. There were no significant costs incurred
between the time technological feasibility was established and the general
release of the Company's principal product.
F-10
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
Income Taxes
The Company accounts for income taxes according to SFAS No. 109, "Accounting
for Income Taxes." Prior to 1998, PurchasePro, Inc., with the consent of its
stockholders, elected to be taxed under Section 1372 of the Internal Revenue
Code (the "Code") as an S corporation, which provides that, in lieu of
corporate income taxes, the stockholders account for their pro rata share of
the Company's items of income, deductions, losses, and credits. In connection
with the reorganization of the Company in January 1998 (see Note 1), the
Company, with the consent of its stockholders, elected to be taxed under the
provisions of Subchapter C of the Code. As a result, the Company reclassified
its cumulative net losses totaling $3,108,278 through the date of the
reorganization to additional paid-in capital in the accompanying consolidated
balance sheets.
Earnings (Loss) per Share
The Company follows the provisions of SFAS No. 128, "Earnings Per Share." In
accordance with SFAS No. 128, basic earnings per share ("EPS') is computed by
dividing net loss applicable to common stock by the weighted average common
shares outstanding during the period. Pursuant to SEC Staff Accounting Bulletin
No. 98, shares of common stock or convertible preferred stock are considered
outstanding for all periods presented in the computation of basic and diluted
EPS if issued for nominal consideration. Options, warrants or other common
stock equivalents are considered outstanding for all periods presented in the
computation of diluted EPS if issued for nominal consideration. For the period
from inception (October 8, 1996) through December 31, 1996, for the years ended
December 31, 1997 and 1998, and for the quarters ended March 31, 1998 and 1999,
the weighted average common shares outstanding used to compute diluted EPS
includes the effect of warrants issued by the Company to acquire shares of
common stock for $0.01 per share.
For those periods in which potentially dilutive securities such as stock
options and convertible preferred stock have a dilutive effect, the weighted
average shares outstanding used for computation of diluted EPS includes the
effect of these potentially dilutive securities.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The FASB recently proposed an amendment to SFAS
No. 133, which would delay the effective date for one year. The Company
currently does not engage in, nor does it expect to engage in, derivative or
hedging activities, and therefore, the Company anticipates there will be no
impact to its consolidated financial statements.
(3) Notes Payable
Principal Stockholder
The Company's principal stockholder and Chief Executive Officer (the
"Principal Stockholder") provided funds to finance development of the Company's
product. As of December 31, 1997, the total obligation to the
F-11
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principal Stockholder was $2,518,000. In January 1998, the Company paid
$813,000 to the Principal Stockholder with proceeds from the Lenders' Notes
Payable (see below). The remaining obligation of $1,705,000 was formalized with
a note payable. In April 1998, the Principal Stockholder advanced an additional
$387,000 to the Company. In June 1998, the Company repaid $310,000 from the
proceeds of the Series A Preferred Stock offering (see Note 5), and the
Principal Stockholder contributed his remaining notes payable and advances
totaling $1,782,000 to the Company in consideration for previously issued
shares of common stock. The Company has included the $1,782,000 as additional
paid-in capital in the accompanying consolidated balance sheets.
Lenders' Notes Payable
In January 1998, the Company issued promissory notes totaling $2,300,000
(the "Lenders' Notes Payable") to several individuals (the "Lenders"). Terms of
the Lenders' Notes Payable provided for interest at 8% payable quarterly and 48
monthly principal payments beginning January 1999. In addition, the Lenders
were issued 2,300,000 shares of the Company's common stock; however, if the
Company repaid the Lenders' Notes Payable within 120 days, 1,150,000 of these
shares were to be contributed back to the Company. The Company did not repay
the Lenders' Notes Payable within 120 days; however, the Lenders' Notes Payable
were repaid in June 1998 with proceeds from the Series A Preferred Stock
offering. The Lenders ultimately contributed 1,475,000 shares of common stock
back to the Company (see Note 5).
The Company allocated the $2,300,000 of proceeds between the Lenders' Notes
Payable and the shares issued based on their estimated fair values.
Accordingly, an additional $67,000 of interest expense was recorded with a
corresponding credit to additional paid-in capital.
September 1998 Notes Payable
In September 1998, the Company issued promissory notes to three individuals,
including the Principal Stockholder and a member of the Company's Board of
Directors, totaling $1,500,000 (the "September 1998 Notes"). Terms of the
September 1998 Notes require quarterly payments of interest at 15% and mature
September 2000. In connection with the issuance of these notes, the Company
issued 159,999 warrants to the note holders. Each warrant provides the holder
the right to purchase one share of Company common stock for $0.01 per share
through September 2003. Using the Black-Scholes pricing model, the Company
determined the value of these warrants to be $2.49 per share, or $398,400. The
Company recognized the $398,400 as an original issue discount and is amortizing
the discount to interest expense over the period from grant to maturity.
In June 1999, $700,000 of the notes payable were converted into 200,000
shares of Series B Preferred Stock, and the Company used $800,000 of the Series
B proceeds to repay the remaining amounts outstanding (see Note 5).
Other Notes Payable
In January 1998, the Company repaid its obligation to a stockholder in
connection with the sale of that stockholder's common shares to the Principal
Stockholder. In addition to the outstanding principal of $49,000, the Company
agreed to make payments of $60,000 to charities selected by the stockholder
that was charged to interest expense.
In December 1998, the Principal Stockholder and the President of the Company
advanced a total of $350,000 to the Company. In March 1999, the Principal
Stockholder advanced an additional $200,000 to the Company. In connection with
Series B Preferred Stock offering (see Note 5) the Company used $450,000 of the
proceeds to repay the Principal Stockholder for his advances; and the President
converted $40,000 of his advance into Series B shares and the Company used
Series B proceeds to repay the remaining $60,000.
F-12
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
HPS Note Payable
In connection with HPS' acquisition of certain assets from Network
Management Services, Inc. (see Note 1), HPS issued a note payable for $50,000
that requires two payments of $25,000 each on July 31, 1999 and July 31, 2000.
(4) Commitments and Contingencies
Operating Leases
The Company is party to several non-cancelable lease agreements for certain
equipment as well as its principal administrative offices. Rent expense under
non-cancelable operating leases totaled $0, $148,298, and $279,872 for the
period from inception (October 8, 1996) through December 31, 1996, and for the
years ended December 31, 1997 and 1998, respectively. Minimum future lease
obligations under non-cancelable operating leases in effect at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1999................................. $ 576,657
2000................................. 569,544
2001................................. 505,754
2002................................. 407,370
2003................................. 205,077
----------
Total.............................. $2,264,402
==========
</TABLE>
(5) Stockholders' Equity
Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock. The Company
designated 2,100,000 of these shares as 8% Series A Convertible Preferred
Stock, par value $0.001 ("Series A"). In June 1998, the Company sold the
2,100,000 Series A shares at $2.50 per share. Net proceeds from the offering
totaled $5,000,000, net of offering costs of $250,000, which were paid to a
company that employs a member of the Company's Board of Directors.
Each Series A share has a liquidation price of $2.50 and is convertible into
one share of the Company's common stock. The Series A is redeemable at the
option of the holders commencing on June 1, 2003, at an aggegrate liquidation
value of $5,250,000. The Company is accreting the Series A to an aggregate
liquidation value of $5,250,000 for accounting purposes. Upon completion of a
public offering of the Company's common stock, each outstanding share of Series
A converts into one share of common stock and all rights of Series A
stockholders shall cease.
Dividends on Series A accrue at the rate of 8% per annum and are payable
when, and if, declared by the Board of Directors. At December 31, 1998 and
March 31, 1999, cumulative unpaid dividends were $245,000 and $350,000,
respectively.
In connection with the issuance of the Series A, the Company granted a total
of 400,000 warrants to two members of the Company's Board of Directors and a
company which employs one such director. Each warrant provides for the holder
to purchase one share of Company common stock for $0.01 per share through June
1, 2003. Using the Black-Scholes pricing model, the Company determined that the
value of the warrants was $996,000.
F-13
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In May 1999, the Company authorized 3,300,000 shares as 8% Series B
Convertible Preferred Stock, par value $0.001 ("Series B"). Each Series B share
has a liquidation price of $3.50 and is convertible into one share of common
stock. The Series B is redeemable at the option of the holders commencing on
June 1, 2003, at an aggregate liquidation value of $11,550,000. In June 1999,
the Company completed its Series B offering of 3,300,000 shares and received
aggregate proceeds of $11,550,000.
Of the 3,300,000 Series B shares issued, 200,000 shares were issued to
holders of the September 1998 Notes, including a member of the Company's Board
of Directors (see Note 3). The Company used cash proceeds from the Series B
offering to repay $800,000 of the September 1998 Notes, including $500,000 to
the Principal Stockholder, and to repay $450,000 and $100,000 of advances made
by the Company's Principal Stockholder and President, respectively (see Note
3).
The Company issued 150,000 shares of Series B to acquire the assets of a
software development company and for non-compete agreements with the owners of
the company (see Note 9). The Company issued 42,500 shares of Series B to an
individual in exchange for his rescission of a future right to acquire up to
35% of HPS.
Prior to the completion of the Series B offering, the Company had received
cash totaling $3,140,000 pursuant to Series B subscription agreements. Of this
amount, $2,000,000 was received in December 1998, $500,000 was received in
March 1999, and the remaining $640,000 was received in April 1999.
Common Stock
The Company has authorized the issuance of 40,000,000 shares of common
stock. For the period from inception (October 8, 1996) through December 31,
1997, the Principal Stockholder contributed cash of $139,382 and services
valued at $250,000 for his shares of common stock. The Principal Stockholder
served as the Company's Chief Executive Officer during 1997 and did not receive
a salary. The Company recognized compensation expense in the amount of $250,000
and a contribution to capital relating to the Principal Stockholder's services.
In connection with the repayment of the Lenders' Notes Payable in June 1998
(see Note 3), the Company and the Lenders entered into an agreement whereby
1,475,000 shares were contributed back to the Company. Accordingly, the number
of shares held by the Lenders was reduced to 825,000. In connection with the
same agreement and in connection with the Series A Preferred Stock offering,
two of the founders of the Company contributed an aggregate of 925,000 shares
of common stock to the Company.
In June 1998, the Principal Stockholder sold 300,000 of his shares to an
unrelated third party for $0.10 per share. The Company recognized a charge of
$720,000 that reflects the difference between the fair value of its stock on
that date of $2.50 per share and the sales price. The third party provided
significant assistance to the Company in obtaining subscriber contracts and,
accordingly, the Company recorded the full amount of the charge to sales and
marketing expense at the time the transaction occurred. During 1998, the
Principal Stockholder sold an additional 1,470,000 shares of common stock that
he owned to various individuals at prices that reflected their estimated fair
value at the time of each sale.
In connection with the closing of the Series B Preferred Stock private
placement in June 1999, the holders of Series A Preferred Stock were granted an
aggregate 450,000 shares of common stock pursuant to certain anti-dilution
rights of the holders of Series A Preferred Stock.
Non-Employee Stock Options
Through December 31, 1998, the Company had issued a total of 162,500 options
to non-employees, including 75,000 options to two members of the Board of
Directors. Options were issued with exercise prices
F-14
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ranging from $2.50 to $5.00 and were determined to have a de minimis value
using the Black-Scholes pricing model.
(6) Stock Option Plans
1998 Stock Option Plan--In 1998, the Company adopted an incentive stock
option plan, the 1998 Plan, that provides for the granting of stock options
pursuant to the applicable provisions of the Internal Revenue Code and
regulations. The aggregate options available under the 1998 Plan are 3,000,000.
As of December 31, 1998 and March 31, 1999, the Company had granted options
totaling 697,850 and 936,500, respectively, to employees under the 1998 Plan.
In April and May 1999, the Company granted an additional 1,397,280 options at
an exercise price of $3.50 per share. The exercise price in each instance is at
least 100% of the estimated fair value of the Company's common stock on the
date of grant. Generally, the options have five year terms and are exercisable
as follows: Class A options, 50% at the end of each of the first two years
after grant; Class B options, 33% at the end of each of the first three years
after grant; and Class C options, 25% at the end of each of the first four
years after the date of grant.
1999 Stock Option Plan--The 1999 Stock Plan was adopted by the Company's
Board of Directors in June 1999, subject to approval by the Company's
stockholders. The 1999 Stock Plan provides for the issuance of 1,500,000 shares
of common stock, incentive stock options ("ISOs"), or non-statutory stock
options to employees, directors, independent contractors and advisers. The
number of shares eligible for issuance increases each year by 3.25% of the
number of shares of common stock outstanding at the prior calendar year-end.
The exercise price for ISOs is at least 100% of the fair market value of the
stock on the date of grant, and 110% for stockholders with 10% or more
ownership of the Company. Vesting provisions are determined at the time of
grant. The Company's Chairman and Chief Executive Officer is authorized to
grant up to 25,000 options in each instance to employees, with the exercise
price to be approved by the compensation committee of the Company's Board of
Directors.
A summary of the status of the Company's plans as of December 31, 1998 and
March 31, 1999 is presented below:
<TABLE>
<CAPTION>
December 31,
1998 March 31, 1999
---------------- ------------------
(Unaudited)
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
------- -------- -------- --------
<S> <C> <C> <C> <C>
Options Outstanding, Beginning of
period............................... -- $ -- 697,850 $2.50
Granted............................... 697,850 2.50 343,650 $3.50
Exercised............................. -- -- -- --
Cancelled............................. -- -- (105,000) $2.50
------- ----- --------
Options Outstanding, End of period.... 697,850 $2.50 936,500 $2.83
======= ===== ========
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Range Weighted Average
of Number Remaining Weighted Average Number Weighted Average
Prices Outstanding Contract Life Exercise Price Exercisable Exercise Price
------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50 697,850 1.8 $2.50 -- $ --
</TABLE>
F-15
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies the provisions of APB No. 25 and its related
interpretations in accounting for its stock option plan. Accordingly,
compensation expense recognized was different than what would have been
otherwise recognized under the fair value based method defined in SFAS No. 123.
Had the Company accounted for these plans under SFAS No. 123, the Company's net
loss applicable to common stock and loss per share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended
December
31, 1998
-----------
<S> <C>
Net Loss Applicable to Common Stock
As Reported.................................................. $(7,135,448)
===========
Pro Forma.................................................... $(7,204,634)
===========
Basic Loss per Share
As Reported.................................................. $ (0.83)
===========
Pro Forma.................................................... $ (0.84)
===========
Diluted Loss per Share
As Reported.................................................. $ (0.78)
===========
Pro Forma.................................................... $ (0.79)
===========
</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 for the years ended December 31, 1998: risk-free
interest rate of 7%; no expected dividend yield; expected life of 1.5 years for
Class A options, 2.0 years for Class B options, and 2.5 years for Class C
options; and, an expected volatility of 0%.
(7) Income Taxes
SFAS No. 109 requires the recognition of deferred tax assets, net of
applicable reserves, related to net operating loss carryforwards and certain
temporary differences. The standard requires recognition of a future tax
benefit to the extent that realization of such benefit is more likely than not.
Otherwise, a valuation allowance is applied. At December 31, 1998, the Company
believes that the "more likely than not" criteria have not been met, and
accordingly, a valuation allowance has been recognized. The Company did not
record any provision (benefit) for income taxes for the year ended December 31,
1998, because it experienced a net loss and generated a net operating loss of
approximately $6,500,000, which expires in 2018. The Company's utilization of
its net operating loss carryforward will be limited pursuant to Internal
Revenue Code Section 382 due to cumulative changes in ownership in excess of
50% within a three-year period. Prior to 1998, Purchase Pro, Inc. was not
subject to Federal or state income taxes.
A reconciliation of income tax benefit provided at the Federal statutory
rate (35%) to income tax benefit is as follows:
<TABLE>
<CAPTION>
Year Ended
December
31, 1998
-----------
<S> <C>
Income tax benefit computed at Federal statutory rate.......... $(2,380,000)
Permanent and other items...................................... 10,600
Change in valuation allowance.................................. 2,369,400
-----------
$ --
===========
</TABLE>
F-16
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The major tax effected components of the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Deferred Tax Assets
Net operating loss carryforward.............................. $ 2,278,000
Trade accounts receivable.................................... 70,000
Deferred revenue............................................. 57,700
Accruals and reserves........................................ 36,300
-----------
2,442,000
Less--valuation allowance.................................... (2,369,400)
-----------
Total deferred tax assets.................................. 72,600
Deferred Tax Liabilities
Depreciation and amortization................................ (72,600)
-----------
Total deferred tax liability, net.......................... $ --
===========
</TABLE>
(8) Related Party Transactions
Contract Services
One of the founding stockholders of the Company provided significant
services designing the Company's service. The Company pays the stockholder for
his continued services. Payments totaling $77,200, $105,380 and $72,000 are
included in programming and development expense for the period from inception
(October 8, 1996) through December 31, 1996, and for the years ended December
31, 1997 and 1998, respectively. There were no amounts owed to the stockholder
as of December 31, 1998. In January 1998, concurrent with the acquisition of
assets from Purchase Pro, Inc. (see Note 1), the stockholder and the Principal
Stockholder transferred their rights in the technology to the Company.
Due from Other Companies
The Company has paid certain costs on behalf of a company owned by the
Principal Stockholder. The Company then bills the other company for amounts
owed. At December 31, 1998, there was $15,400 due to the Company, which is
included in other receivables in the accompanying consolidated balance sheets.
At December 31, 1997, there were no amounts due from the other company.
Office Space Rent
The Company has entered into an agreement to lease its corporate office
space from a company owned by members of the Company's Board of Directors (see
Note 4). During the year ended December 31, 1998, the Company did not pay any
amounts under terms of the lease agreement. In management's opinion, the terms
of the lease are comparable to terms that the Company would receive from a
third party.
(9) Subsequent Events
In May 1999, the Company acquired substantially all of the assets of a
software development company for $215,000 consisting of $75,000 cash and 40,000
shares of Series B preferred stock valued at $3.50 per share. The company has
developed programs for the architectural, engineering and construction industry
that provide an extension of Company's e-commerce services into that industry.
The Company entered into five-year non-compete agreements with these
individuals in exchange for 110,000 shares of Series B preferred stock (see
Note 5).
F-17
<PAGE>
[Description of Back Inside and Outside Cover Artwork]
Back inside cover
- -----------------
Text reading:
"Providing a solution to our 2,300 hotel properties in a standard, easy-to-use
format was most important for us. PurchasePro.com is simple enough for any
employee to place orders, yet robust enough for a professional buyer to analyze
data."
Dan Hampton
Purchasing Manager
Best Western Supply Division
Best Western International, Inc."
[additional testimonials to be added]
(member logos)
Back outside cover
- ------------------
Center: PurchasePro.com logo
<PAGE>
- -------------------------------------------------------------------------------
Until , 1999 all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- -------------------------------------------------------------------------------
[PurchasePro.com logo]
Joint Lead Managers
Prudential Securities
Jefferies & Company, Inc.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee.
<TABLE>
<CAPTION>
Payable by
Registrant
----------
<S> <C>
SEC registration fee.............................................. $15,985
National Association of Securities Dealers, Inc. filing fee....... 6,250
Blue Sky fees and expenses........................................ *
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Printing and engraving expenses................................... *
Registrar and Transfer Agent's fees............................... *
Miscellaneous fees and expenses................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
*To be filed by amendment.
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 78.7502 and 78.751 of the Nevada General Corporation Law provides
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). Article VII of
our articles of incorporation (Exhibit 3(i).2 hereto) provides for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by Sections 78.7502 and 78.751 of
the Nevada General Corporation Law. We have also entered into agreements with
our directors and officers that will require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors or officers to the fullest extent permitted by
law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
ourselves, our underwriters and our directors and officers of the underwriters,
for certain liabilities, including liabilities arising under the Securities
Act, and affords certain rights of contribution with respect thereto.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
On January 12, 1998, Registrant sold and issued an aggregate of 7,700,000
shares of common stock to 3 founders for an aggregate purchase price of
$399,382. Of these shares, 925,000 were subsequently contributed to capital and
2,168,000 were sold by affiliates of PurchasePro.com as follows:
. January 1998: 800,000 shares of common stock from Charles E. Johnson,
Jr., a founder and the Chairman and Chief Executive Officer of
Registrant, to Christopher P. Carton, the President and Chief Operating
Officer of Registrant, at a purchase price of $0.01 per share, for cash
consideration in the aggregate amount of $8,000.
. June 1998: 75,000 shares of common stock from Mr. Johnson to Thomas Leahy
at a purchase price of $0.10 per share, for cash consideration in the
aggregate amount of $7,500.
II-1
<PAGE>
. June 1998: 75,000 shares of common stock from Mr. Johnson to John Patrick
Leahy at a purchase price of $0.10 per share, for cash consideration in
the aggregate amount of $7,500.
. June 1998: 75,000 shares of common stock from Mr. Johnson to American
Hotel Register at a purchase price of $0.10 per share, for cash
consideration in the aggregate amount of $7,500.
. June 1998: 75,000 shares of common stock from Mr. Johnson to Robert
Schmidt at a purchase price of $0.10 per share, for cash consideration in
the aggregate amount of $7,500.
. June 1998: 6,000 shares of common stock from Mr. Carton to Peter Keseric
at a purchase price of $2.50 per share, for cash consideration in the
aggregate amount of $15,000.
. June 1998: 40,000 shares of common stock from Mr. Johnson to John Chiles
at a purchase price of $2.50 per share, for cash consideration in the
aggregate amount of $100,000.
. June 1998: 100,000 shares of common stock from Mr. Johnson to James N.
Gray Co. at a purchase price of $2.50 per share, for cash consideration
in the aggregate amount of $250,000.
. June 1998: 40,000 shares of common stock from Mr. Carton and 40,000
shares of common stock from Dr. Erickson to SC Holdings LLC at a purchase
price of $2.50 per share, for cash consideration in the aggregate amount
of $200,000.
. June 1998: 120,000 shares of common stock from Mr. Johnson to Bradley D.
Redmon at a purchase price of $2.50 per share, for cash consideration in
the aggregate amount of $300,000.
. August 1998: 80,000 shares of common stock from Mr. Johnson and 20,000
shares of common stock from Mr. Carton to Black Mountain Investment Group
at a purchase price of $2.50 per share, for cash consideration in the
aggregate amount of $250,000.
. September 1998: 20,000 shares of common stock from Mr. Carton to Richard
Yukes at a purchase price of $2.50 per share, for cash consideration in
the aggregate amount of $50,000.
. September 1998: 10,000 shares of common stock from Mr. Johnson to Bruce
D. Smith at a purchase price of $2.50 per share, for cash consideration
in the aggregate amount of $25,000.
. October 1998: 20,000 shares of common stock from Mr. Johnson to Scheiner
Family Trust at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $50,000.
. October 1998: 15,000 shares of common stock from Mr. Johnson to Millenium
Partners LLC at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $37,500.
. November 1998: 20,000 shares of common stock from Mr. Johnson to Gerald
F. Healy at a purchase price of $2.50 per share, for cash consideration
in the aggregate amount of $50,000.
. November 1998: 20,000 shares of common stock from Mr. Johnson to Traxx
Irrevocable Trust at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $50,000.
. December 1998: 10,000 shares of common stock from Mr. Johnson to Sigma
XIII Irrevocable Trust at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $25,000.
. December 1998: 10,000 shares of common stock from Mr. Johnson to Woodford
Webb at a purchase price of $2.50 per share, for cash consideration in
the aggregate amount of $25,000.
. January 1999: 300,000 shares of common stock from Mr. Johnson to Earnest
Hanna at a purchase price of $2.50 per share, for cash consideration in
the aggregate amount of $750,000.
. January 1999: 8,000 shares of common stock from Mr. Erickson to Gerard
Turiano at a purchase price of $2.50 per share, for cash consideration in
the aggregate amount of $20,000.
. March 1999: 4,000 shares of common stock from Mr. Erickson to McDonalds
Investment, Inc., for the benefit of Nicholas A. Perrino, at a purchase
price of $2.50 per share, for cash consideration in the aggregate amount
of $10,000.
II-2
<PAGE>
. May 1999: 20,000 shares of common stock from Mr. Erickson to Maurice
Gallagher at a purchase price of $2.50 per share, for cash consideration
in the aggregate amount of $50,000.
. June 1999: 225,000 shares of common stock from Mr. Johnson to Stephen
Dawahare at a purchase price of $3.50 per share, for consideration in the
aggregate amount of $787,500 consisting of a release and an assignment of
rights.
In January 1998, Registrant sold and issued an aggregate of 2,300,000 shares
of common stock to a group of investors (the "Lexington Investor Group") in
connection with such investors' loan of $2,300,000 to Registrant pursuant to a
Loan and Stock Purchase Agreement at a price per share of $0.03. The Lexington
Investor Group subsequently contributed 1,475,000 of these shares of common
stock back to Registrant in connection with the repayment of the investors'
loan and the Series A Preferred Stock financing.
In June 1998, Registrant sold and issued an aggregate of 2,100,000 shares of
Series A Preferred Stock, at a purchase price of $2.50 per share, for cash in
the aggregate amount of $5,250,000 to a group of investors pursuant to a
Securities Purchase Agreement.
In June 1998, Registrant issued warrants to Jefferies & Company, Inc. to
purchase 200,000 shares of common stock at a purchase price of $0.01 per share,
in connection with assisting Registrant with its Series A Preferred Stock
financing and other financial advisory services. These warrants were exercised
in May 1999 and Jefferies & Company, Inc. was issued 200,000 shares of common
stock.
In June 1998, Registrant issued warrants to John G. Chiles, at the direction
of Jefferies & Company, Inc., to purchase 30,000 shares of common stock at a
purchase price of $0.01 per share, in connection with assisting Registrant with
its Series A Preferred Stock financing and other financial advisory services.
These warrants were exercised in May 1999 and Mr. Chiles was issued 30,000
shares of common stock.
In June 1998, Registrant issued warrants to purchase 170,000 shares of
common stock to certain individuals at a purchase price of $0.01 per share, in
connection with their investment in Registrant's Series A Preferred Stock.
These warrants were exercised in February 1999 and these individuals were
issued an aggregate of 170,000 shares of common stock.
In September 1998, Registrant issued warrants to purchase an aggregate of
159,999 shares of common stock to certain individuals at a purchase price of
$0.01 per share, in connection with a loan made to Registrant by such
individuals.
In June 1999, Registrant sold and issued an aggregate of 3,300,000 shares of
Series B Preferred Stock, at a purchase price of $3.50 per share, for cash in
the aggregate amount of $11,550,000 to a group of investors pursuant to a
Securities Purchase Agreement.
In June 1999, Registrant issued an aggregate of 450,000 shares of common
stock to the holders of Series A Preferred Stock in consideration of these
holders' waiver of certain anti-dilution rights triggered by the issuance of
the Series B Preferred Stock.
As of May 31, 1999, we have granted options to purchase 2,333,780 shares of
common stock to employees, consultants and other service providers of
PurchasePro.com under our 1998 Stock Option and Incentive Plan.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each of these transactions represented their intention to acquire
the securities for investment only and not with view to or for sale in
connection with any distribution
II-3
<PAGE>
thereof and appropriate legends were affixed to the share certificates and
instruments issued in such transactions. All recipients had adequate access,
through their relationship with the Registrant, to information about the
Registrant.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of the
Form S-1 which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
Item 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "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 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 Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, 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.
(3) The Registrant will provide to the underwriters at the closing(s)
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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 8th day of June, 1999.
PURCHASEPRO.COM, INC.
By /s/ Charles E. Johnson, Jr.
-----------------------------------
Charles E. Johnson, Jr.
Chief Executive Officer and
Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Johnson, Jr. and Christopher P.
Carton, and each of them, his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with 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, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents or their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<C> <S> <C>
/s/ Charles E. Johnson, Jr. Chief Executive Officer and Chairman June 8, 1999
______________________________
Charles E. Johnson, Jr.
/s/ Christopher P. Carton Chief Operating Officer, President, June 8, 1999
______________________________ Secretary and Director
Christopher P. Carton
/s/ Scott H. Miller Chief Financial Officer and Treasurer June 8, 1999
______________________________
Scott H. Miller
/s/ John G. Chiles Director June 8, 1999
______________________________
John G. Chiles
/s/ David I. Fuente Director June 8, 1999
______________________________
David I. Fuente
/s/ J. Terrence Lanni Director June 8, 1999
______________________________
J. Terrence Lanni
/s/ Michael D. O'Brien Director June 8, 1999
______________________________
Michael D. O'Brien
/s/ Bradley D. Redmon Director June 8, 1999
______________________________
Bradley D. Redmon
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3(i).1 Amended and Restated Articles of Incorporation.
3(i).2* Form of Amended and Restated Articles of Incorporation to be filed
prior to completion of this offering.
3(ii).1 Bylaws of the Registrant, as amended.
3(ii).2* Form of Amended and Restated Bylaws to be filed prior to completion
of this offering.
4.1* Form of Common Stock Certificate.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1* Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1998 Stock Option and Incentive Plan and forms of agreements
thereunder.
10.3* 1999 Stock Plan and forms of agreements thereunder.
10.4 Securities Purchase Agreement dated as of June 1, 1998 between
Registrant and the purchasers of its Series A Preferred Stock.
10.5 Securities Purchase Agreement dated as of April 30, 1999 between
Registrant and the purchasers of its Series B Preferred Stock.
10.6 First Amended and Restated Stockholders Agreement dated as of April
30, 1999 between the Registrant and the holders of Series A
Preferred Stock and Series B Preferred Stock.
10.7+ Agreement dated as of January 4, 1999 between Registrant and the
Greater Phoenix Chamber of Commerce.
10.8+ Software Agency and Services Agreement dated as of May 3, 1999 among
Registrant, ZoomTown.com, Inc. and Bradley D. Redmon.
10.9+ Agreement dated as of May 1, 1999, between Registrant and
Hospitalitycity pte ltd.
10.10+ Agreement dated as of January 1999 between Registrant and E-
Marketpro, LLC.
10.11* Employment Agreement between Registrant and Charles E. Johnson, Jr.
10.12* Employment Agreement between Registrant and Christopher P. Carton.
10.13* Employment Agreement between Registrant and Jeffrey A. Neppl.
10.14* Employment Agreement between Registrant and Robert G. Layne.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
II-6
<PAGE>
EXHIBIT 3(i).1
File No. 569-1998
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PURCHASE PRO INTERNATIONAL, INC.
We the undersigned President and Secretary of Purchase Pro International,
Inc. do hereby certify that:
1. The Articles of Incorporation of said corporation are amended and
restated to read in full as follows:
FIRST: The name of the corporation (hereinafter called the "Corporation")
is PurchasePro.com, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Nevada is One East First Street, Reno, Nevada 89501, and the name of
the registered agent of the Corporation in the State of Nevada at such address
is Corporation Trust Company of Nevada.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Nevada.
FOURTH:
A. This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock that the
Corporation is authorized to issue is fifty million (50,000,000). The total
number of shares of Preferred Stock this Corporation shall have authority to
issue is ten million (10,000,000). The total number of shares of Common Stock
this Corporation shall have authority to issue is forty million (40,000,000).
The Preferred Stock shall have a par value of $.001 per share and the Common
Stock shall have a par value of $.01 per share.
Except as set forth in paragraph C of this Article, the Board of Directors
is expressly authorized to provide for the issue, in one or more series, of all
or any shares of the Preferred Stock and, in the resolution or resolutions
providing for such issue, to establish for such series:
(1) the number of its shares, which may thereafter (unless forbidden
in the resolution or resolutions providing for such issue) be increased or
decreased (but not below the number of shares of the series then
outstanding) pursuant to a subsequent resolution of the Board of Directors;
-1-
<PAGE>
(2) the voting powers, full or limited, of the shares of such series,
or that such shares shall have no voting powers; and
(3) the designations, preferences and relative, participating,
optional or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof.
In furtherance of the foregoing authority and not in limitation of it, the
Board of Directors is expressly authorized, in the resolution or resolutions
providing for the issue of a series of Preferred Stock:
(1) to subject the shares of such series, without the consent of the
holders of such shares, to being converted into or exchanged for shares of
another class or classes of stock of the Corporation, or to being redeemed
for cash, property or rights, including securities, all on such conditions
and on such terms as may be stated in such resolution or resolutions; and
(2) to make any of the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of the shares of the
series dependent upon facts ascertainable outside these Amended and
Restated Articles of Incorporation.
B. The Preferred Stock shall initially be divided into two series. The
first series shall consist of 2,100,000 shares and is designated "Series A
Preferred Stock." The second series shall consist of 3,300,000 shares and is
designated "Series B Preferred Stock." The Series A Preferred Stock shall have
a liquidation preference of Two Dollars and Fifty Cents ($2.50) per share, as
adjusted herein (the "Series A Liquidation Preference"). The Series B Preferred
Stock shall have a liquidation preference of Three Dollars and Fifty Cents
($3.50) per share, as adjusted herein (the "Series B Liquidation Preference").
C. The powers, preferences, rights, restrictions, and other matters
relating to the Series A and Series B Preferred Stock are as follows:
1. Ranking. The Series A and Series B Preferred Stock shall rank (a) on
-------
parity with each other with respect to dividend distributions and distributions
upon a Liquidation (as defined in Section C.4), (b) senior to all classes of
common stock of the Corporation and to each other class of capital stock or
series of preferred stock, established subsequent to the first issuance of
Series B Preferred Stock by the Board of Directors, the terms of which do not
expressly provide that it ranks senior to or on a parity with the Series A and
Series B Preferred Stock as to dividend distributions and distributions upon a
Liquidation (collectively, with the Common Stock of the Corporation, the "Junior
Securities"); (c) on a parity with any additional shares of Series A or Series B
Preferred Stock issued by the Corporation in the future and any other class of
capital stock or series of preferred stock issued by the Corporation after the
initial sale of Series B Preferred Stock by the Board of Directors, the terms of
which expressly provide that such class or series will rank on a parity with the
Series A and Series B Preferred Stock as to dividend distributions and
distributions upon a Liquidation (collectively referred to as "Parity
Securities"); and (d) junior to each class of capital stock or series of
preferred stock issued by the Corporation after the initial sale of Series B
Preferred Stock by the Board of Directors the terms of which
-2-
<PAGE>
expressly provide that such class or series will rank senior to the Series A and
Series B Preferred Stock as to dividend distributions and distributions upon a
Liquidation (collectively, the "Senior Securities").
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of Series A or Series B
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividends, upon all outstanding
shares of Senior Securities.
2. Dividends.
---------
(a) The holders of shares of Series A or Series B Preferred Stock shall be
entitled to receive, when, as and if dividends are declared by the Board of
Directors out of funds of the Corporation legally available therefor, cumulative
preferential dividends from the date of issuance of such shares of Series A or
Series B Preferred Stock accruing on a daily basis at the rate per annum of
eight percent (8%) of the Series A or Series B Liquidation Preference, as
applicable, per share plus all accumulated and unpaid dividends thereon.
(b) Dividends on the Series A and Series B Preferred Stock shall
accumulate whether or not the Corporation has earnings or profits, whether or
not there are funds legally available for the payment of such dividends and
whether or not dividends are declared. Dividends will accumulate to the extent
they are not paid.
(c) Unless full cumulative dividends on all outstanding shares of Series A
and Series B Preferred Stock for all past dividend periods shall have been
declared and paid, or declared and a sufficient sum for the payment thereof set
apart, then: (i) no dividend (other than a dividend payable solely in shares of
any Junior Securities) shall be declared or paid upon, or any sum set apart for
the payment of dividends upon, any shares of Junior Securities; (ii) no other
distribution shall be declared or made upon, or any sum set apart for the
payment of any distribution upon, any shares of Junior Securities, other than a
distribution consisting solely of Junior Securities; (iii) no shares of Junior
Securities shall be purchased, redeemed or otherwise acquired or retired for
value (excluding an exchange for shares of other Junior Securities) by the
Corporation or any of its Subsidiaries; and (iv) no monies shall be paid into or
set apart or made available for a sinking or other like fund for the purchase,
redemption or other acquisition or retirement for value of any shares of Junior
Securities by the Corporation or any of its Subsidiaries.
(d) In addition, when and if the Board of Directors shall declare a
dividend payable with respect to the then outstanding shares of Common Stock of
the Corporation, the holder of each share of Series A and/or Series B Preferred
Stock shall be entitled to the amount of dividends per share as would be payable
on the largest number of whole shares of Common Stock into which each share of
Series A or Series B Preferred Stock could then be converted pursuant to Section
C.3 hereof (such number to be determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend).
Declared and unpaid dividends on the Series A and Series B Preferred Stock will
be payable upon a
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Liquidation first to the holders of Series A and/or Series B Preferred Stock
before any distribution to the holders of Common Stock.
(e) In the event the Corporation shall make or issue, or shall fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock
or (ii) assets, then and in each such event the holders of Series A and/or
Series B Preferred Stock shall receive, at the same time such distribution is
made with respect to Common Stock, the number of securities or such other assets
of the Corporation which they would have received had their Series A and/or
Series B Preferred Stock been converted into Common Stock immediately prior to
the record date for determining holders of Common Stock entitled to receive such
distributions.
3. Conversion.
----------
(a) A holder of shares of Series A or Series B Preferred Stock may convert
such shares into Common Stock at any time at the option of such holder. For the
purposes of conversion, each share of Series A Preferred Stock shall be valued
at the Series A Liquidation Preference, which shall be divided by the Series A
Conversion Price in effect on the date of such conversion to determine the
number of shares of Common Stock issuable for each share of Series A Preferred
Stock upon conversion. For the purposes of conversion, each share of Series B
Preferred Stock shall be valued at the Series B Liquidation Preference, which
shall be divided by the Series B Conversion Price in effect on the date of such
conversion to determine the number of shares of Common Stock issuable for each
share of Series B Preferred Stock upon conversion. Immediately following such
conversion, the rights of the holders of converted Series A or Series B
Preferred Stock shall cease and the Persons entitled to receive the Common Stock
upon the conversion of such Series A or Series B Preferred Stock shall be
treated for all purposes as having become the owners of such Common Stock.
(b) Upon the consummation of a Qualified Public Offering, all outstanding
shares of Series A and Series B Preferred Stock shall be automatically converted
into Common Stock at the Series A or Series B Conversion Price, as applicable,
in effect immediately prior to the consummation of such Qualified Public
Offering. Promptly following the occurrence of such conversion, the Corporation
shall give written notice thereof to each record holder of converted Series A or
Series B Preferred Stock, including instructions to be followed to obtain a
certificate for the shares of Common Stock into which such holder's Series A or
Series B Preferred Stock was converted.
(c) To convert Series A or Series B Preferred Stock (other than an
automatic conversion pursuant to Section C.3(b)), a holder must (i) surrender
the certificate or certificates evidencing the shares of Series A and Series B
Preferred Stock to be converted, duly endorsed in a form satisfactory to the
Corporation, at the office of the Corporation or transfer agent for the Series A
and Series B Preferred Stock, (ii) notify the Corporation at such office that he
elects to convert the Series A and Series B Preferred Stock and the number of
shares to be converted, and (iii) state in writing the name or names in which he
wishes the certificate or certificates for shares of Common Stock to be issued.
The date on which the holder satisfies all such requirements or the date on
which the Series A and Series B Preferred Stock is subject to
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<PAGE>
automatic conversion pursuant to Section C.3(b), as the case may be, shall be
the "Series A Conversion Date" or "Series B Conversion Date," as applicable. As
soon as practical, the Corporation shall deliver a certificate for the number of
full shares of Common Stock issuable upon the conversion, except that the
Corporation shall not be required to deliver such certificate in the case of an
automatic conversion until the holders of the converted Series A and Series B
Preferred Stock shall have complied with the provisions of clauses (i) and (iii)
of the first sentence of C.3(c). The Person in whose name the Common Stock
certificate is registered shall be treated as the stockholder of record on and
after the Series A Conversion Date or Series B Conversion Date, as applicable.
No payment or adjustment will be made for accrued and unpaid dividends on
converted shares of Series A and Series B Preferred Stock or for dividends on
any Common Stock issued upon such conversion.
(d) The Corporation shall pay cash (based upon the higher of the last
reported sale price of the Common Stock or the good faith determination by the
Board of Directors of the fair market value of the Common Stock) in lieu of
issuing any fractional shares of Common Stock upon conversion of Series A or
Series B Preferred Stock.
(e) If a holder converts shares of Series A or Series B Preferred Stock,
the Corporation shall pay any documentary, stamp or similar issue or transfer
tax due on the issue of shares of Common Stock upon the conversion. However, the
holder shall pay any such tax that is due because the shares are issued in a
name other than the holder's name.
(f) The Corporation has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury a
sufficient number of shares of Common Stock to permit the conversion of the
Series A and Series B Preferred Stock in full. All shares of Common Stock that
may be issued upon conversion of the Series A and Series B Preferred Stock shall
be fully paid and nonassessable. The Corporation shall endeavor to comply with
all securities laws regulating the offer and delivery of shares of Common Stock
upon conversion of the Series A and Series B Preferred Stock and shall endeavor
to list such shares on each national securities exchange or automated quotation
system on which the Common Stock is listed.
(g) If and whenever the Corporation shall issue or sell, or is, in
accordance with Sections C.3(g)(i) through C.3(g)(x), deemed to have issued or
sold, any shares of Common Stock (other than shares of Common Stock issuable
upon exercise of warrants or options outstanding as of the date of filing of
these Amended and Restated Articles of Incorporation) for a consideration per
share less than the Series A Conversion Price or Series B Conversion Price, as
applicable, in effect immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, such Series A Conversion Price or Series B
Conversion Price, as applicable, shall be reduced to the price determined by
dividing (i) an amount equal to the sum of (x) the number of shares of Common
Stock outstanding immediately prior to such issue or sale on a fully diluted and
converted basis multiplied by the then existing Series A Conversion Price or
Series B Conversion Price, as applicable, and (y) the consideration, if any,
received by the Corporation upon such issue or sale, by (ii) the total number of
shares of Common Stock outstanding immediately after such issue or sale on a
fully diluted and converted basis. For purposes of this Section C.3(g), the
following Sections C.3(g)(i) to C.3(g)(x) shall also be applicable:
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(i) Unless otherwise waived by holders of a majority of the outstanding
shares of the Series A Preferred Stock, if the Corporation shall fail to have a
closed a Qualified Public Offering on or before October 31, 1999, then the
Series A Conversion Price shall be adjusted by multiplying the Series A
Conversion Price then in effect by eighty-eight and eighty-nine one-hundredths
percent (88.89%).
(ii) Unless otherwise waived by holders of a majority of the outstanding
shares of Series A Preferred Stock, if the Corporation shall fail to have closed
a Qualified Public Offering on or before June 1, 2000, then the Series A
Conversion Price shall be adjusted by multiplying the Series A Conversion Price
then in effect by ninety percent (90%).
(iii) In case at any time the Corporation shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any warrants or
other rights to subscribe for or to purchase, or any options for the purchase
of, Common Stock or any stock or security convertible into or exchangeable for
Common Stock (such warrants, rights or options herein called "Options" and such
convertible or exchangeable stock or securities being called "Convertible
Securities") whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(A) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Series A or Series B Conversion Price, as
applicable, in effect immediately prior to the time of the granting of such
Options, then the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as otherwise provided in
subsection C.3(g)(vii), no adjustment of the Series A or Series B Conversion
Price, as applicable, shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(iv) In case the Corporation shall in any manner issue (whether directly
or by assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (A) the total
amount received or
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<PAGE>
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Series A or Series B Conversion Price, as applicable, in
effect immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided that (1)
except as otherwise provided in subsection C.3(g)(v), no adjustment of the
Series A or Series B Conversion Price, as applicable, shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities and (2) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or are to be
made pursuant to other provisions of this subsection C.3(g), no further
adjustment of the Series A or Series B Conversion Price, as applicable, shall be
made by reason of such issue or sale.
(v) Upon the happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in subsection C.3(g)(iii),
the additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in subsection C.3(g)(iii) or 3(g)(iv), or
the rate at which Convertible Securities referred to in subsection C.3(g)(iii)
or 3(g)(iv) are convertible into or exchangeable for Common Stock shall change
at any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Series A or Series B
Conversion Price, as applicable, in effect at the time of such event shall
forthwith be readjusted to the Series A or Series B Conversion Price, as
applicable, which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold, provided that no adjustment shall be
made to the Series A or Series B Conversion Price, as applicable, pursuant to
this Section C.3(g) that would increase the Series A or Series B Conversion
Price, as applicable, above the Series A or Series B Conversion Price, as
applicable, in effect immediately prior to the issuance of such Option or
Convertible Security; and on the expiration or termination of any such Option or
the termination of any such right to convert or exchange such Convertible
Securities, the Series A or Series B Conversion Price, as applicable, then in
effect hereunder shall forthwith be increased to the Series A or Series B
Conversion Price, as applicable, which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(vi) In case the Corporation shall declare a dividend or make any other
distribution upon any stock of the Corporation payable in Common Stock (except
for dividends or distributions upon the Common Stock payable solely in shares of
Common Stock), Options or Convertible Securities, any Common Stock, Options or
Convertible
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<PAGE>
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(vii) In the event the Corporation shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation, then
and in each such event lawful and adequate provision shall be made so that the
holders of Series A or Series B Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
thereupon, the number of securities of the Corporation which they would have
received had their Series A or Series B Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the Series A or Series B
Conversion Date, as applicable, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called for
during such period under this Section C.3 with respect to the rights of the
holders of the Series A or Series B Preferred Stock, as applicable.
(viii) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any shares of Common Stock, Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in connection
therewith. In case any Options shall be issued in connection with the issue and
sale of other securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued for such
consideration of $0.01.
(ix) In case the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting, of such right of subscription or purchase, as the case may
be.
(x) The number of shares of Common Stock outstanding at any given time
shall not include any shares owned or held by or for the account of the
Corporation (or any Subsidiary), and the disposition of any shares of Common
Stock so owned shall be considered an issue or sale of Common Stock for the
purpose of this subsection 3(g).
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<PAGE>
(h) In case the Corporation shall at any time subdivide (by a stock split,
dividend or otherwise) its outstanding shares of Common Stock into a greater
number of shares, the Series A and Series B Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Series A and Series B Conversion Price, as
applicable, in effect immediately prior to such combination shall be
proportionately increased.
(i) Except for an event which the holders of the Series A or Series B
Preferred Stock elect to treat as a Liquidation in accordance with the
provisions of Section C.4, if any capital reorganization or reclassification of
the capital stock of the Corporation, or a merger or consolidation of the
Corporation with or into another Corporation or the sale of all or substantially
all of the Corporation's properties and assets to any other person shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, merger or
consolidation or sale, lawful and adequate provisions shall be made whereby each
holder of a share or shares of Series A or Series B Preferred Stock shall
thereupon have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of Series A or Series B Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization, reclassification, merger or consolidation or sale not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Series A or
Series B Conversion Price, as applicable) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such conversion rights.
(j) No adjustment in the Series A or Series B Conversion Price need be
made until all cumulative adjustments amount to one percent (1%) or more of the
Series A or Series B Conversion Price as last adjusted. Any adjustments that are
not made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section C.3 shall be made to the nearest
1/10,000th of a cent or to the nearest 1/10,000th of a share, as the case may
be. No adjustment in the Series A or Series B Conversion Price shall reduce the
Series A or Series B Conversion Price below the then par value of the Common
Stock.
(k) As used in this Section C.3, the term "Common Stock" shall mean and
include the Corporation's authorized Common Stock, $0.01 par value per share, as
constituted on the date of filing of these Amended and Restated Articles of
Incorporation, and shall also include any capital stock of any class of the
Corporation thereafter authorized which shall not be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding upon of the Corporation,
provided that the shares of Common Stock receivable upon conversion of shares of
Series A or Series B Preferred Stock shall include only shares designated as
Common Stock of the Corporation on the date of filing of this instrument,
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or in case of any reorganization or reclassification of the outstanding shares
thereof, the stock, securities or assets provided for in Section C.3(i).
(l) Whenever the Series A or Series B Conversion Price is adjusted, the
Corporation shall promptly mail to holders of Series A or Series B Preferred
Stock, as applicable, first class, postage prepaid, a notice of the adjustment.
The Corporation shall file with the transfer agent for the Series A and Series B
Preferred Stock, if any (and make available to holders of Series A or Series B
Preferred Stock upon request), a certificate from the Corporation's independent
public accountants briefly stating the facts requiring the adjustment and the
manner of computing it.
(m) In case at any time (i) the Corporation shall declare any dividend
upon its Common Stock payable in cash or stock or make any other distribution to
the holders of its Common Stock, (ii) the Corporation shall offer for
subscription pro rata to the holders of its Common Stock any additional shares
of stock of any class or other rights, (iii) there shall be any capital
reorganization or reclassification of the capital stock of Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of all or
substantially all its assets to, another entity or entities or (iv) there shall
be a voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, then, in any one or more of said cases, the Corporation shall give,
by first class mail, postage prepaid, or by facsimile, addressed to each holder
of any shares of Series A or Series B Preferred Stock at the address of such
holder as shown on the books of the Corporation, (A) at least twenty (20) days
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause (A) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto and such
notice in accordance with the foregoing clause (B) shall also specify the date
or projected date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
(n) The Corporation will at no time close its transfer books against the
transfer of any Series A or Series B Preferred Stock or of any shares of Common
Stock issued or issuable upon the conversion of any shares of Series A or Series
B Preferred Stock in any manner which interferes with the timely conversion of
such Series A or Series B Preferred Stock, except as may otherwise be required
to comply with applicable securities laws.
4. Liquidation Rights. Upon any voluntary or involuntary liquidation,
------------------
dissolution or winding up of the Corporation resulting in a distribution of
assets to the holders of any class or series of the Corporation's capital stock
(each such event, a "Liquidation"), each holder of shares of Series A or Series
B Preferred Stock will be entitled to payment out of the assets of the
Corporation available for distribution of an amount equal to the following
before any distribution is made on any Junior Securities, including, without
limitation, Common Stock of the Corporation:
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(a) If the amount to be received by the holders of the Corporation's
Series A and Series B Preferred Stock in a Liquidation is less than or equal to
two (2) times the sum of the Series A and Series B Liquidation Preference, then
each holder of shares of the Series A or Series B Preferred Stock will receive
(i) the Series A or Series B Liquidation Preference per share of Series A or
Series B Preferred Stock, as applicable, held by such holder, plus accrued and
unpaid dividends, to the date fixed for such Liquidation plus (ii) the amount of
the remaining assets of the Corporation, after payment of the Series A or Series
B Liquidation Preference, as applicable, to all outstanding shares of Series A
or Series B Preferred Stock as required by clause (i), that the holder of one
share of Series A or Series B Preferred Stock would receive (the "Liquidation
Participation"), on an as-converted basis into Common Stock as if such Series A
or Series B Preferred Stock had been converted to Common Stock immediately prior
to such Liquidation; or
(b) If the amount to be received by the holders of the Corporation's
capital stock in a Liquidation that would have been received by the holders of
Series A and Series B Preferred Stock under Section C.4(a) above, exceeds two
(2) times the sum of the Series A and Series B Liquidation Preference, then the
holders of shares of the Series A or Series B Preferred Stock, as applicable,
shall receive upon Liquidation an amount equal to the greater of (i) two (2)
times the aggregate Series A or Series B Liquidation Preference, as applicable,
based on the number of shares of Series A and/or Series B Preferred Stock then
held by such holder or (ii) the amount that the Series A or Series B Preferred
Stock would receive, on an as-converted basis into Common Stock as if such
shares of Series A or Series B Preferred Stock had been converted to Common
Stock immediately prior to such Liquidation determined without regard to any
Series A or Series B Liquidation Preference.
(c) If, upon any Liquidation, the amounts payable with respect to the
Preferred Stock and all other Parity Securities are not paid in full, the
holders of the Series A and Series B Preferred Stock and the Parity Securities
will share equally and ratably in any distribution of assets of the Corporation
in proportion to the full liquidation preference and accumulated and unpaid
dividends, to which each is entitled. For the purposes of this Section C.4,
holders of a majority of the Series A Preferred Stock or holders of a majority
of the Series B Preferred Stock may designate that a consolidation or merger of
the Corporation (other than a merger (i) in which the Corporation is the
surviving entity, (ii) which involves only a change in the Corporation's state
of incorporation, or (iii) with a wholly owned Subsidiary of the Corporation) or
the sale of all or substantially all of the Corporation's assets shall be deemed
to be a Liquidation with respect to the Series A or Series B Preferred Stock
(each such event, an "Organic Change"), if (i) the amount of consideration
(including the fair market value of any non-cash consideration) received would
be less than the aggregate Series A and Series B Liquidation Preference, or (ii)
such consideration consists solely or in part of securities that are not readily
marketable on a national exchange or on the Nasdaq National Market. In the event
that the holders of Series A or Series B Preferred Stock shall deem any
transaction to be a "Liquidation" in accordance with this Section C.4, the
holders of any such series of Series A or Series B Preferred Stock shall be
entitled to payment of the amount set forth in Sections C.4(a) or C.4(b) above,
as applicable. To the extent any consideration consists of non-cash items, the
consideration shall be the fair market value of such consideration determined
between a willing buyer and a willing seller (the "Consideration Value"), using
the Evaluation Procedure.
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5. Voting Rights.
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(a) The holders of the Series A and Series B Preferred Stock shall have
the right to vote, together with the holders of all the outstanding shares of
Common Stock and not by classes, except as otherwise set forth herein or
required by Nevada law, on all matters on which holders of Common Stock are
entitled to vote. Each holder of Series A or Series B Preferred Stock shall have
the right to cast one vote for each whole share of Common Stock which would be
issued to such holder upon conversion of such holder's shares of Series A or
Series B Preferred Stock, assuming that such conversion were to occur on the
date immediately prior to the record date for the determination of stockholders
entitled to vote.
(b) Directors.
---------
(i) Election of Directors. With respect to the election of members
---------------------
of the Board of Directors of the Corporation, so long as at least fifty
percent (50%) of the authorized shares of Series A Preferred Stock shall
remain outstanding, (A) the holders of Series A Preferred Stock, voting as
a separate class, shall have the right to elect two (2) members of the
Board of Directors (the "Series A Directors"); and (B) all remaining
member(s) of the Board of Directors shall be elected by the holders of a
majority of the Common Stock, Series A Preferred Stock and Series B
Preferred Stock, voting together as a single class on an as-converted basis
(the "Joint Director(s)").
(ii) Removal of Directors. A Series A Director may be removed
--------------------
from the Board of Directors, either with or without cause, only by the
affirmative vote of the holders of two-thirds (2/3) of the outstanding
Series A Preferred Stock, voting as a single class.
(iii) Vacancy. If a vacancy on the Board of Directors is to be
-------
filled by the Board of Directors, only a director or directors elected by
the same class of stockholders as those who would be entitled to vote to
fill such vacancy, if any, shall vote to fill such vacancy. If there are no
such directors, such vacancy shall be filled by the affirmative vote of the
holders of a majority of the shares of that class.
(c) The Corporation shall not, without the affirmative vote or consent of
the holders of at least a majority of the outstanding shares of Series A and
Series B Preferred Stock then outstanding voting or consenting as the case may
be, as separate classes:
(i) authorize, create (by way of reclassification or otherwise) or
issue any Senior Securities or Parity Securities or any obligation or
security convertible or exchangeable into or evidencing the right to
purchase, shares of any class or series of Senior Securities or Parity
Securities;
(ii) authorize the issuance of any additional shares of Series A or
Series B Preferred Stock;
(iii) waive compliance with any provision of these Articles of
Incorporation; provided, however, that a waiver of the provisions in
Sections C.3(g)(i) and C.3(g)(ii)
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shall only require the consent of a majority of the outstanding shares of
the Series A Preferred Stock;
(iv) declare or pay any dividend or distribution on any capital
stock (except for the Preferred Stock, Senior Securities or Parity
Securities, as approved pursuant to (i) above); or
(v) authorize any Liquidation or Organic Change, unless such event
would generate a distribution to each holder of one share of Preferred
Stock of an amount greater than or equal to three (3) times the Series A or
Series B Liquidation Preference, as applicable, of such share. The voting
rights contained in this subsection 5(c)(v) shall terminate upon a Public
Offering if the underwriters of such Public Offering, in their sole
judgment, advise the Corporation that, in their opinion, the above
provision will adversely affect the price or distribution of any equity
security to be offered.
(d) So long as any shares of Series A and Series B Preferred Stock remain
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of at least a majority
of the holders of the shares of Series A and Series B Preferred Stock
outstanding, as applicable, voting as separate classes increase or decrease the
authorized number of shares of such series of Preferred Stock.
(e) The provisions of Section C.5(c) shall terminate after more than fifty
percent (50%) of each of the Series A and Series B Preferred Stock has been
converted to Common Stock pursuant to the terms hereunder. The provisions of
Section C.5(d) shall terminate with respect to the Series A and Series B
Preferred Stock after more than fifty percent (50%) of such series has been
converted to Common Stock pursuant to the terms hereunder.
6. Redemption.
----------
(a) Commencing at any time on or after June 1, 2003, at the option and
written election of the holders of a majority of the outstanding shares of the
Series A Preferred Stock, the Corporation shall, subject to applicable law,
redeem all of the outstanding shares of Series A Preferred Stock, at the price
and upon the terms stated in this Section C.6.
(b) Commencing at any time on or after June 1, 2003, at the option and
written election of the holders of a majority of the outstanding shares of the
Series B Preferred Stock, the Corporation shall, subject to applicable law,
redeem all of the outstanding shares of Series B Preferred Stock, at the price
and upon the terms stated in this Section C.6.
(c) The Corporation shall redeem the Series A or Series B Preferred Stock,
as applicable, on the Redemption Date (as such term is defined below) at a
redemption price per share equal to the greater of (i) the Series A or Series B
Liquidation Preference, as applicable, plus an amount equal to any unpaid
dividends thereon and (ii) the Market Value (as defined below) of the Series A
or Series B Preferred Stock, as applicable, on an as converted basis. The total
sum payable per share of Series A or Series B Preferred Stock, as applicable, on
the Redemption Date is hereinafter referred to as the "Redemption Payment." The
Market Value shall be the fair market value of the Series A or Series B
Preferred Stock, as applicable (on an as
-13-
<PAGE>
converted basis) determined between a willing buyer and a willing seller, using
the Evaluation Procedure.
(d) On and after any Redemption Date, all rights of any holder of Series A
or Series B Preferred Stock, except the rights to receive the Redemption Price
per share of Series A or Series B Preferred Stock as hereinafter provided, shall
cease and terminate, and such shares of Series A or Series B Preferred Stock
shall no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Corporation; provided,
however, that, notwithstanding anything to the contrary set forth herein, (i) if
the Corporation defaults in the payment of the Redemption Payment, the rights of
the holders of Series A or Series B Preferred Stock with respect to such shares
of Series A or Series B Preferred Stock shall continue until the Corporation
cures such default, and (ii) without limiting any other rights of such holders,
upon the occurrence of (A) a subsequent Liquidation or (B) an Organic Change,
with respect to the shares of Series A or Series B Preferred Stock in respect of
which no Redemption Payment has been received by a holder of Series A or Series
B Preferred Stock where the Corporation had been required to make the payment,
such holder shall be accorded the rights and benefits set forth in Section C.4
hereof in respect of such shares, as if no prior redemption request had been
made.
(e) Within five (5) Business Days of receipt of a redemption request, the
Corporation shall notify in writing, all other holders of Series A or Series B
Preferred Stock, of the request for the redemption of Series A or Series B
Preferred Stock (the "Corporation Notice"). On the 115th day following the date
upon which the Corporation shall have sent the Corporation Notice, the
Corporation shall pay each holder of Series A or Series B Preferred Stock, as
applicable, the applicable Redemption Price, provided that the Corporation or
its transfer agent has received the certificates representing the shares of
Series A or Series B Preferred Stock, as applicable, to be redeemed. Such
payment date shall be referred to herein as a "Redemption Date." The Corporation
shall redeem the shares of Series A or Series B Preferred Stock being redeemed
by each holder on the Redemption Date and the Corporation shall promptly advise
each such holder of such Redemption Date. Upon redemption of only a portion of
the number of shares covered by a Series A or Series B Preferred Stock
certificate, the Corporation shall issue and deliver to or upon the written
order of the holder of such Series A or Series B Preferred Stock certificate, at
the expense of the Corporation, a new certificate covering the number of shares
of Series A or Series B Preferred Stock representing the unredeemed portion of
such Series A or Series B Preferred Stock certificate, which new certificate
shall entitle the holder thereof to all the rights, powers, and privileges of a
holder of such shares of Series A or Series B Preferred Stock.
7. Amendment. These Amended and Restated Articles of Incorporation
---------
shall not be amended, either directly or indirectly, or through merger or
consolidation with another entity, in any manner that would alter or change the
powers, preferences or special rights of the Series A or Series B Preferred
Stock, as applicable, so as to affect them adversely without the affirmative
vote of the holders of a majority or more of the outstanding shares of Series A
or Series B Preferred Stock, voting separately as a class; provided, however,
that an amendment of the provisions of Sections C.3(g)(i) and C.3(g)(ii) shall
only require the consent of a majority of the outstanding shares of Series A
Preferred Stock.
-14-
<PAGE>
8. Headings of Subdivisions. The headings of the various subdivisions
------------------------
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
9. Severability of Provisions. If any voting powers, preferences and
--------------------------
relative, participating, optional and other special rights of the Series A or
Series B Preferred Stock and qualifications, limitations and restrictions
thereof set forth herein is invalid, unlawful or incapable of being enforced by
reason of any rule of law or public policy, all other voting powers, preferences
and relative, participating, optional and other special rights of Series A or
Series B Preferred Stock and qualifications, limitations and restrictions
thereof set forth herein which can be given effect without the invalid, unlawful
or unenforceable voting powers, preferences and relative, participating,
optional and other special rights of Series A or Series B Preferred Stock and
qualifications, limitations and restrictions, thereof shall, nevertheless,
remain in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Preferred Stock and
qualifications limitations and restrictions unless so expressed herein.
10. Reissuance of Series A or Series B Preferred Stock. Shares of
--------------------------------------------------
Series A or Series B Preferred Stock that have been issued and reacquired in any
manner, including shares purchased or redeemed or exchanged or converted, shall
(upon compliance with any applicable provisions of the laws of Nevada) have the
status of authorized but unissued shares of preferred stock of the Corporation
undesignated as to series and may be designated or redesignated and issued or
reissued, as the case may be, as part of any series or preferred stock of the
Corporation, provided that any issuance of such shares as Series A or Series B
Preferred Stock must be in compliance with the terms hereof.
11. Mutilated or Missing Series A or Series B Preferred Stock
---------------------------------------------------------
Certificates. If any of the Series A or Series B Preferred Stock certificates
- ------------
shall be mutilated, lost, stolen or destroyed, the Corporation shall issue, in
exchange and in substitution for and upon cancellation of the mutilated Series A
or Series B Preferred Stock certificate, or in lieu of and in substitution for
the Series A or Series B Preferred Stock certificate lost, stolen or destroyed,
a new Preferred Stock certificate of like tenor and representing an equivalent
amount of shares of Series A or Series B Preferred Stock, but only upon receipt
of evidence of such loss, theft or destruction of such Series A or Series B
Preferred Stock certificate and indemnity, if requested, satisfactory to the
Corporation and the transfer agent (if other than the Corporation).
12. Certain Definitions. As used in these Amended and Restated Articles
-------------------
of Incorporation, the following terms shall have the following meanings (with
terms defined in the singular having comparable meanings when used in the plural
and vice versa), unless the context otherwise requires:
"Affiliates" shall have the meaning ascribed to such term in the Securities
Purchase Agreement among the Corporation and the initial purchasers of the
Series A Preferred Stock dated as of June 1, 1998.
-15-
<PAGE>
"Business Day" means any day except a Saturday, a Sunday, or any day on
which banking institutions in New York, New York are required or authorized by
law or other governmental action to be closed.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Corporation.
"Series A Conversion Price" and "Series B Conversion Price" shall initially
equal the Series A or Series B Liquidation Preference, as applicable, and
thereafter shall be subject to adjustment from time to time pursuant to the
terms of Section C.3 hereof.
"Evaluation Procedure" shall have the following meaning. If after good
faith negotiations the Corporation and the holders of a majority of the
outstanding shares of the Preferred Stock are unable to agree on (a) the
Consideration Value of non-cash consideration or (b) the Market Value of the
Preferred Stock (on an as-converted basis) within ten (10) days, the
Consideration Value or the Market Value shall be determined by an independent
appraiser reasonably acceptable to the Corporation and the holders of a majority
of the Series A and Series B Preferred Stock. If the Corporation and the
holders of a majority of the Series A and Series B Preferred Stock are unable to
agree on an appraiser within ten (10) days, each of the Corporation and the
holders of a majority of the Series A and Series B Preferred Stock shall
promptly select an independent appraiser and the two appraisers so selected
shall promptly select a third appraiser to determine the Consideration Value or
the Market Value. The expenses of the appraisers will be borne by the
Corporation and the determination of such appraiser will be binding and final
upon all parties.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Market Average Price" means the volume-weighted average sales price per
share of Common Stock as reported by Bloomberg Information Systems, Inc. during
either (a) a period of twenty (20) days consisting of the day on which the
Corporation consummates a Public Offering and the nineteen (19) consecutive
Business Days subsequent to such day or (b) any period of sixty (60) consecutive
Business Days after the expiration of such initial twenty (20) day period, but
only if the average daily trading volume over such sixty (60) Business Day
period exceeds three percent (3%) of the outstanding shares of Common Stock of
the Corporation that are registered, issued and eligible for trading. If at any
time shares of the Common Stock are not listed on any securities exchange or
quoted in the Nasdaq System or the over-the-counter market, the "Market Average
Price" shall be the fair value thereof determined by an investment bank mutually
agreed between the Corporation and the holders of a majority of the Series A and
Series B Preferred Stock. If such parties are unable to reach agreement within
a reasonable period of time, each such party will choose and bear the expense of
an investment bank to value the shares of Common Stock and the average of the
two valuations shall be the value.
"Public Offering" means an underwritten public offering, of shares of
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as then in effect or any comparable statement under any
similar federal statute then in force or effect.
-16-
<PAGE>
"Qualified Public Offering" shall mean one or more Public Offerings in
which (a) the cumulative gross proceeds to the Corporation are equal to or
greater than $25 million, (b) either the price per share paid in the Public
Offering or the Market Average Price is greater than (i) one and one-half (1.5)
times the then applicable Series A Conversion Price, if the Public Offering is
consummated on or before October 31, 1999, (ii) two (2) times the then
applicable Conversion Price, if the Public Offering is consummated after October
31, 1999 but on or before June 1, 2000 date hereof or (iii) two and one-half
(2.5) times the then applicable Series A Conversion Price, if the Public
Offering is consummated after June 1, 2000, and (c) either the price per share
paid in the Public Offering or the Market Average Price multiplied by the number
of shares of Common Stock outstanding is greater than $100 million.
"Subsidiary" of any Person means (a) any corporation, association or
business entity of which more than fifty percent (50%) of the total voting power
of shares of capital stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of such Person or a combination thereof
and (b) any partnership (i) the sole general partner or the manager general
partner of which is such Person or a Subsidiary of such Person or (ii) the only
general partners of which are such Person or one or more Subsidiaries of such
Person or any combination thereof.
D. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
------------------
of the Corporation, the assets of the corporation shall be distributed as
provided in Article FOURTH, Section C.4 hereof, with any remaining assets
distributed to holders of the Common Stock.
3. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the power, subject to the provisions
of Section C.5 of Article FOURTH both before and after receipt of any payment
for any of the Corporation's capital stock, to adopt, amend, repeal or otherwise
alter the Bylaws of the Corporation without any action on the part of the
stockholders; provided, however, that the grant of such power to the Board of
Directors shall not divest the stockholders of nor limit their power, subject to
the provisions of Section C.5 of Article FOURTH, to adopt, amend, repeal or
otherwise alter the Bylaws.
SIXTH: Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
-17-
<PAGE>
SEVENTH: Subject to the provisions of Section C.5 and C.7 of Article
FOURTH, the Corporation reserves the right to adopt, repeal, rescind or amend in
any respect any provisions contained in these Amended and Restated Articles of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation; provided, however, that the grant of such power to the Board of
Directors shall not divest the stockholders of nor limit their power.
EIGHTH: To the fullest extent permitted by Chapter 78 of the Nevada
Revised Statutes as the same exists or may hereafter be amended, an officer or
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages due to breach of fiduciary duty as such
officer or director.
NINTH: The Corporation is authorized to provide indemnification for
agents for breach of duty to the Corporation and its stockholders through bylaw
provisions or through agreements with agents, or both, in excess of the
indemnification otherwise permitted by law, subject to any limits on such excess
indemnification set forth therein.
2. The foregoing Amended and Restated Articles of Incorporation have been
duly approved by the Board of Directors.
3. The foregoing Amended and Restated Articles of Incorporation have been
duly approved by the required vote of stockholders in accordance with Sections
78.390 and 78.403 of the Nevada General Corporation Law. The total number of
outstanding shares of Common Stock of the Corporation is 8,000,000 of which
7,618,588 have voted in favor of the Amended and Restated Articles of
Incorporation. The total number of outstanding shares of Series A Preferred
Stock of the Corporation is 2,100,000 all of which have voted in favor of the
Amended and Restated Articles of Incorporation. The number of shares voting in
favor of the Amended
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<PAGE>
and Restated Articles of Incorporation equaled or exceeded the vote required.
The percentage vote required under the law and the Articles of Incorporation in
effect at the time of this filing was more than 50% of the outstanding Common
Stock and 100% of the outstanding Preferred Stock, each voting separately as a
class.
/s/ CHRISTOPHER P. CARTON
_______________________________________________
Christopher P. Carton, President
/s/ CHRISTOPHER P. CARTON
_______________________________________________
Christopher P. Carton, Secretary
STATE OF NEVADA
COUNTY OF CLARK
This instrument was acknowledged before me on June 1, 1999, by Christopher
P. Carton as President of Purchase Pro International, Inc.
/s/ MARY ALYCE SMITH
_______________________________________________
Notary Public
-19-
<PAGE>
EXHIBIT 3(ii).1
B Y L A W S
OF
PURCHASEPRO.COM, INC.
(Effective as of April 19, 1999)
<PAGE>
B Y L A W S
OF
PURCHASEPRO.COM, INC.
(Effective as of April 19, 1999)
ARTICLE I
---------
Principal Office
----------------
Section 1. Principal Office. The Board of Directors shall fix the location
----------------
of the principal executive office of the Corporation at any place within or
outside the State of Nevada. If the principal executive office is located
outside Nevada and the Corporation has one or more business offices in Nevada,
then the Board of Directors shall fix and designate a principal business office
in Nevada. The registered office of the Corporation required by the Nevada
Revised Statutes ("Nevada General Corporation Law") to be maintained in Nevada
may be, but need not be, identical with the principal office, and the address of
the registered office may be changed from time to time by the Board of
Directors.
Section 2. Other Offices. The Board of Directors may at any time establish
-------------
branch or subordinate offices at any place or places.
ARTICLE II
----------
Stockholders
------------
Section 1. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at any place within or without the State of Nevada which may be designated
by the Board of Directors. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the Corporation.
Section 2. Annual Meetings. An annual meeting of stockholders shall be held
---------------
each year on a date and at a time designated by the Board of Directors. At that
meeting, directors shall be elected. Any other proper business may be transacted
at the annual meeting of stockholders.
Section 3. Special Meetings. Special meetings of the stockholders may be
----------------
called by the Board of Directors, the chairman of the board, the chief executive
officer and president, or by the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting. Notice of any special
meeting shall specify the purpose or purposes of the meeting. Upon receipt of a
written request addressed to the chairman, chief executive officer and
president, vice president or secretary, mailed or delivered personally to such
officer by any person (other than the board) entitled to call a special meeting
of stockholders, such officer
-1-
<PAGE>
shall cause notice to be given to the stockholders entitled to vote, that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less than thirty-five (35) nor more than sixty (60) days after the
receipt of such request.
Section 4. Procedure of Annual Meeting; Notice of Meetings. To be properly
-----------------------------------------------
brought before the annual meeting, business must be either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder of record. In addition to any other
applicable requirements, for business to be properly brought before the annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, addressed to the attention of the Secretary of the
Corporation, within 120 calendar days before the date of the Corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of the Corporation which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder in
such business. Notwithstanding anything in these bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 4; provided, however, that nothing in this
Section 4 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting.
Written notice of each meeting of the stockholders, annual or special,
shall be given to each stockholder entitled to vote thereat not less than ten
(10) days nor more than sixty (60) days before the date of the meeting. Such
notices shall be given personally or by first-class mail or other means of
written communication permitted by the Nevada General Corporation Law, charges
prepaid, addressed to each stockholder at the address appearing on the books of
the Corporation, or given by the stockholder to the Corporation for the purpose
of notice. If no address of a stockholder appears on the books of the
Corporation or is given by the stockholder to the Corporation, notice is duly
given to him or her if sent by mail or other means of written communication
addressed to the place where the principal executive office of the Corporation
is located or if published at least once in a newspaper of general circulation
in the county in which said principal executive office is located. Any such
notice shall be deemed to have been given at the time when delivered personally
or deposited in the United States mail or sent by other means of written
communication.
Such notices shall state (i) the place, date and hour of the meeting, (ii)
those matters which the board, at the time of the mailing of the notice, intends
to present for action by the stockholders, (iii) if directors are to be elected,
the names of nominees intended at the time of the notice to be presented by
management for election, and (iv) such other matters, if any, as may be
expressly required by the Nevada General Corporation Law. In addition, in the
case of
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<PAGE>
a special meeting, the general nature of the business to be transacted shall be
set forth in the notice, and no other business may be transacted.
A stockholder may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such stockholder. Such waiver shall
be delivered to the Corporation for filing with the corporate records, but this
delivery and filing shall not be conditions to the effectiveness of the waiver.
Further, by attending a meeting either in person or by proxy, a stockholder
waives objection to lack of notice or defective notice of the meeting unless the
stockholder objects at the beginning of the meeting to the holding of the
meeting or the transaction of business at the meeting because of lack of notice
or defective notice. By attending the meeting, the stockholder also waives any
objection to consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the stockholder
objects to considering the matter when it is presented.
Section 5. Quorum. The presence in person or by proxy of the holders of a
------
majority of the shares entitled to vote at any meeting shall constitute a quorum
for the transaction of business. Except as provided in this section, the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present shall be the act of the stockholders,
unless the vote of a greater number or voting by classes is required by law or
the articles of incorporation. The stockholders present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of stockholders may be adjourned from time to time by
the vote of a majority of the shares represented either in person or by proxy,
but no other business may be transacted except as provided in the preceding
sentence.
Section 6. Action Without Meeting by Written Consent. All actions required
-----------------------------------------
to be taken at any annual or special meeting may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office, its principal place of business, or an
officer or agent of the corporation having custody of the book in which
proceedings of meetings or stockholders are recorded.
ARTICLE III
-----------
Board of Directors
------------------
Section 1. Powers. Subject to the provisions of the Nevada General
------
Corporation Law and any limitations in the articles of incorporation and these
bylaws as to action to be authorized or approved by the stockholders, the
business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
-3-
<PAGE>
Section 2. Number, Classes and Qualifications. The authorized number of
----------------------------------
directors shall not be less than five (5) nor more than nine (9). The exact
authorized number of directors shall be fixed from time to time, within the
limits specified in this Section 2 or in the articles of incorporation, by the
Board of Directors, or by a bylaw or amendment thereof duly adopted by the vote
of 66-2/3% of the shares represented and voting at a duly held meeting of the
stockholders at which a quorum is present (which shares voting affirmatively
also constitute at least 66-2/3% of the required quorum).
A director shall be a natural person who is 18 years of age or older. A
director need not be a resident of Nevada or a stockholder of the Corporation.
Section 3. Nomination. Only persons who are nominated in accordance with
----------
the following procedures shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors at the annual
meeting, by or at the direction of the Board of Directors, may be made by the
nominating committee of the Board of Directors or any person appointed by the
Board of Directors; nominations may also be made by any stockholder of record of
the Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 3. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation
addressed to the attention of the Secretary of the Corporation not less than 120
calendar days before the date of the Corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting. Such
stockholder's notice to the Secretary shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection as a director,
(i) the name, age, business address and residence address of the person, (ii)
the principal occupation or employment of the person, (iii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
the person, (iv) a statement as to the person's citizenship, and (v) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to section 14 of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the
name and record address of the stockholder and (ii) the class, series and number
of shares of capital stock of the Corporation which are beneficially owned by
the stockholder. The Corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
Section 4. Removal. Directors shall be removed in the manner provided by
-------
the Nevada General Corporation Law. Any director may be removed by the
stockholders of the Corporation only for cause at a meeting called for that
purpose. The notice of the meeting shall state that the purpose or one of the
purposes of the meeting is removal of the director. A director may be removed
only if the number of votes cast in favor of removal exceeds the number of votes
cast against removal.
-4-
<PAGE>
Section 5. Vacancies. Vacancies in the Board of Directors, including a
---------
vacancy created by the removal of a director, may be filled by a majority of the
directors then in office, whether or not less than a quorum, or by a sole
remaining director.
ARTICLE IV
----------
Meetings of Directors
---------------------
Section 1. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at any place within or without the State of Nevada that has been
designated from time to time by the Board of Directors. In the absence of such
designation, regular meetings shall be held at the principal executive office of
the Corporation; provided, however, that immediately following each annual
meeting of the stockholders there shall be a regular meeting of the Board of
Directors of the Corporation at the place of said annual meeting or at such
other place as shall have been designated by the Board of Directors for the
purpose of organization, election of officers and the transaction of other
business. Other regular meetings of the Board of Directors shall be held without
call on such date and time as may be fixed by the Board of Directors; provided,
however, that should any such day fall on a legal holiday, then said meeting
shall be held at the same time on the next business day thereafter ensuing which
is not a legal holiday. Notice of regular meetings of the directors is hereby
dispensed with and no notice whatever of any such meeting need be given,
provided that notice of any change in the time or place of regular meetings
shall be given to all of the directors in the same manner as notice for special
meetings of the Board of Directors.
Section 2. Special Meetings. Special meetings of the Board of Directors may
----------------
be held at any place within or without the State of Nevada which has been
designated in the notice of the meeting, or, if not designated in the notice or
if there is no notice, at the principal executive office of the Corporation.
Special meetings of the Board of Directors for any purpose or purposes may be
called at any time by the chairman of the board or chief executive officer and
president or any two directors. Notice of the time and place of special meetings
shall be delivered personally or by telephone to each director, or sent by
first-class mail or telegram or facsimile transmission, charges prepaid,
addressed to him or her at his or her address as it appears upon the records of
the Corporation or, if it is not so shown on the records and is not readily
ascertainable, at the place at which the meetings of the directors are regularly
held. Such notice shall be sent at least four (4) days prior to the meeting if
sent by mail and at least forty-eight (48) hours prior to the meeting if
delivered personally or by telephone or telegraph. The notice need not specify
the place of the meeting if the meeting is to be held at the principal executive
office of the Corporation, and need not specify the purpose of the meeting.
Section 3. Quorum. Presence of a majority of the authorized number of
------
directors at a meeting of the Board of Directors constitutes a quorum for the
transaction of business, except as hereinafter provided. Members of the board
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another.
-5-
<PAGE>
Section 4. Waiver. Notice of a meeting need not be given to any director
------
who signs a waiver of notice or consent to holding the meeting or an approval of
the minutes thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 5. Action by Written Consent. Any action required or permitted to
-------------------------
be taken by the Board of Directors may be taken without a meeting if all members
of the board shall individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 6. Committees of the Board. The provisions of this Article IV
-----------------------
shall also apply, with necessary changes in points of detail, to committees of
the Board of Directors, if any, and to actions by such committees (except for
the first sentence of Section 2 of Article IV, which shall not apply, and except
that special meetings of a committee may also be called at any time by any two
members of the committee), unless otherwise provided by these bylaws or by the
resolution of the Board of Directors designating such committees. For such
purpose, references to "the board" or "the Board of Directors" shall be deemed
to refer to each such committee and references to "directors" or "members of the
board" shall be deemed to refer to members of the committee. Committees of the
Board of Directors may be designated, and shall be subject to the limitations on
their authority, as provided in section 78.125 of the Nevada General Corporation
Law. The appointment of members or alternate members of a committee requires the
vote of a majority of the authorized number of directors.
ARTICLE V
---------
Officers
--------
Section 1. Officers. The officers of the Corporation shall be a chairman
--------
of the board or a chief executive officer and president or both, chief financial
officer and secretary. The Corporation may also have, at the discretion of the
Board of Directors, one or more vice presidents, one or more assistant
secretaries and such other officers as may be designated from time to time by
the Board of Directors. Any number of offices may be held by the same person.
The officers shall be elected by the Board of Directors and shall hold office at
the pleasure of such board.
Section 2. Chairman of the Board. The chairman of the board, if there be
---------------------
such officer, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him or her by the Board of Directors or prescribed by
the bylaws. If there is not a president, the chairman of the board shall, in
addition, be the general manager and chief executive officer of the Corporation
and shall have the powers and duties prescribed in Section 3 of this Article V.
-6-
<PAGE>
Section 3. Chief Executive Officer. Subject to such supervisory powers, if
-----------------------
any, as may be given by the Board of Directors to the chairman of the board, if
there be such an officer, the chief executive officer and president of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. The chief executive officer shall have the general powers and
duties of management usually vested in the chief executive officer of a
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or bylaws.
Section 4. President. The Board of Directors must designate a president.
---------
The president shall have the responsibilities and duties as set forth by the
Board of Directors or the chief executive officer.
Section 5. Chief Operating Officer. The Board of Directors may designate a
-----------------------
chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. Vice Presidents. In the absence or disability of the president,
---------------
the vice presidents in order of their rank as fixed by the Board of Directors
or, if not ranked, the vice president designated by the Board of Directors,
shall perform all of the duties of the chief executive officer and president and
when so acting shall have all the powers of and be subject to all the
restrictions upon the chief executive officer and president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors or the
bylaws.
Section 7. Secretary. The secretary shall keep or cause to be kept at the
---------
principal executive office of the Corporation or such other place as the Board
of Directors may order, a book of minutes of all proceedings of the
stockholders, the Board of Directors and committees of the board, with the time
and place of holding, whether regular or special, and if special how authorized,
the notice thereof given, the names of those present at directors' and committee
meetings, and the number of shares present or represented at stockholders'
meetings. The secretary shall keep or cause to be kept at the principal
executive office or at the office of the Corporation's transfer agent a record
of stockholders or a duplicate record of stockholders showing the names of the
stockholders and their addresses, the number of shares and classes of shares
held by each, the number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered for
cancellation. The secretary or an assistant secretary or, if they are absent or
unable or refuse to act, any other officer of the Corporation, shall give or
cause to be given notice of all the meetings of the stockholders, the Board of
Directors and committees of the board required by the bylaws or by law to be
given, and he or she shall keep the seal of the Corporation, if any, in safe
custody and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by the bylaws.
-7-
<PAGE>
Section 8. Assistant Secretaries. It shall be the duty of the assistant
---------------------
secretaries to assist the secretary in the performance of his or her duties and
generally to perform such other duties as may be delegated to them by the Board
of Directors.
Section 9. Chief Financial Officer and Treasurer. The chief financial
-------------------------------------
officer and treasurer shall keep and maintain, or cause to be kept and
maintained, in accordance with generally accepted accounting principles adequate
and correct books and records of account of the Corporation. He or she shall
receive and deposit all moneys and other valuables belonging to the Corporation
in the name and to the credit of the Corporation and shall disburse the same
only in such manner as the Board of Directors or the appropriate officers of the
Corporation may from time to time determine, shall render to the chief executive
officer and president and the Board of Directors, whenever they request it, an
account of all of his or her transactions as chief financial officer and of the
financial condition of the Corporation, and shall perform such further duties as
the Board of Directors may require.
Section 10. Assistant Treasurers. It shall be the duty of the assistant
--------------------
treasurers to assist the chief financial officer in the performance of his or
her duties and generally to perform such other duties as may be delegated to
them by the Board of Directors.
Section 11. Loans or Guarantees of Obligations of Directors and Officers.
------------------------------------------------------------
The Corporation may make any loan of money or property to, or guarantee the
obligation of, any director or officer of the Corporation or of its parent if
such loan or guaranty is approved by the board alone by a vote sufficient
without counting the vote of any interested director or directors if the board
determines that such loan or guaranty may reasonably be expected to benefit the
Corporation.
ARTICLE VI
----------
Amendments
----------
Section 1. By Stockholders. New bylaws may be adopted or these bylaws may
---------------
be amended or repealed by the affirmative vote or written consent of 66-2/3% of
the outstanding shares entitled to vote, except as otherwise provided by law or
by the articles of incorporation or these bylaws.
Section 2. By Directors. Subject to the right of stockholders as provided
------------
in Section 1 of this Article to adopt, amend or repeal bylaws, and except as
otherwise provided by law or by the articles of incorporation, bylaws, other
than a bylaw or amendment thereof changing the authorized maximum or minimum
number of directors, may be adopted, amended or repealed by the Board of
Directors.
-8-
<PAGE>
ARTICLE VII
-----------
Annual and Other Reports
------------------------
The Board of Directors of the Corporation shall cause an annual report to
be sent to the stockholders not later than one hundred twenty (120) days after
the close of the fiscal year of the Corporation. Such report shall contain a
balance sheet as of the end of that completed fiscal year and an income
statement and statement of changes in cash flows for that fiscal year,
accompanied by any report thereon of independent accountants or, if there is no
such report, the certificate of an authorized officer of the Corporation that
the statements were prepared without audit from the books and records of the
Corporation. Such report shall be sent at least fifteen (15) days prior to the
annual meeting of stockholders to be held during the next fiscal year. The
annual report shall also contain any information required by the Nevada General
Corporation Law.
ARTICLE VIII
------------
Indemnification
---------------
Section 1. Right of Indemnification. The Corporation shall have power to
------------------------
indemnify each of its agents to the fullest extent permissible by the Nevada
General Corporation Law. Without limiting the generality of the foregoing
sentence, the Corporation:
(a) is authorized to provide indemnification of agents in excess of that
otherwise permitted by sections 78.7502 and 78.751 of the Nevada General
Corporation Law for those agents of the Corporation for breach of duty to the
Corporation and its stockholders; provided, however, that the Corporation is not
authorized to provide indemnification of any agent for any acts or omissions or
transactions from which a director may not be relieved of liability as set forth
in section 78.037(1) of the Nevada General Corporation Law; and
(b) shall have power to purchase and maintain insurance on behalf of any
agent of the Corporation against any liability asserted against or incurred by
the agent in such capacity or arising out of the agent's status as such, whether
or not the Corporation would have the power to indemnify the agent against such
liability under the provisions of section 78.037(1) of the Nevada General
Corporation Law, and shall have power to advance the expenses reasonably
expected to be incurred by such agent in defending any such proceeding upon
receipt of the undertaking.
Section 2. Definition of Agent. The term "agent" used in this Article
-------------------
shall have the same meaning as such term in the Nevada General Corporation Law.
-9-
<PAGE>
ARTICLE IX
----------
Certificates and Transfer of Shares
-----------------------------------
Section 1. Certificates for Shares. Certificates for shares shall be of
-----------------------
such form and device as the Board of Directors may designate and shall state the
name of the record holder of the shares represented thereby; its number; date of
issuance; the number of shares for which it is issued; a statement of the
rights, privileges, preferences and restrictions, if any; a statement as to the
redemption or conversion, if any; a statement of liens or restrictions upon
transfer or voting, if any; if the shares be assessable or, if assessments are
collectible by personal action, a plain statement of such facts. Every
certificate for shares must be signed by the chief executive officer and
president or a vice president and the secretary or an assistant secretary or
must be authenticated by facsimiles of the signatures of the chief executive
officer and president and secretary or by a facsimile of the signature of its
chief executive officer and president and the written signature of its secretary
or an assistant secretary.
Section 2. Transfer on the Books. Upon surrender to the secretary or
---------------------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. Lost or Destroyed Certificates. Any person claiming a
------------------------------
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of that fact and shall if the directors so require give the
Corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the board, in at least double the value of the stock represented
by said certificate, whereupon a new certificate may be issued in the same tenor
and for the same number of shares as the one alleged to be lost or destroyed.
Section 4. Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint one or more transfer agents or transfer clerks, and one or more
registrars, which shall be an incorporated bank or trust company (either
domestic or foreign), who shall be appointed at such times and places as the
requirements of the Corporation may necessitate and the Board of Directors may
designate.
Section 5. Closing Stock Transfer Books - Record Date. In order that the
------------------------------------------
Corporation may determine the stockholders entitled to notice of any meeting or
to vote or entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect of any
other lawful action, the board may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days prior to the date of
such meeting nor more than sixty (60) days prior to any other action.
Section 6. Legend Condition. In the event any shares of this Corporation
----------------
are issued pursuant to a permit or exemption therefrom requiring the imposition
of a legend condition the person or persons issuing or transferring said shares
shall make sure said legend appears on the certificate and on the stub relating
thereto in the stock record book and shall not be required to
-10-
<PAGE>
transfer any shares free of such legend unless an amendment to such permit or a
new permit be first issued so authorizing such a deletion.
ARTICLE X
---------
Corporate Records and Reports -- Inspection
-------------------------------------------
Section 1. Records. The Corporation shall maintain, in accordance with
-------
generally accepted accounting principles, adequate and correct accounts, books
and records of its business and properties. All of such books, records and
accounts shall be kept at its principal executive office in the State of Nevada,
as fixed by the Board of Directors from time to time.
Section 2. Inspection of Books and Records. All books and records provided
-------------------------------
for in Sections 78.105 and 78.257 of the Nevada General Corporation Law shall be
open to inspection of the directors and stockholders from time to time and in
the manner provided in Sections 78.105 and 78.257.
Section 3. Certification and Inspection of Bylaws. The original or a copy
--------------------------------------
of these bylaws, as amended or otherwise altered to date, certified by the
secretary, shall be kept at the Corporation's principal executive office and
shall be open to inspection by the stockholders of the Corporation, at all
reasonable times during office hours, as provided in Section 78.105 of the
Nevada General Corporation Law.
Section 4. Checks, Drafts, Etc. All checks, drafts or other orders for
-------------------
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. Contracts, Etc. -- How Executed. The Board of Directors, except
-------------------------------
as in the bylaws otherwise provided, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation. Such authority may be general or
confined to specific instances.
I, THE UNDERSIGNED, being the secretary of PurchasePro.com, Inc., DO HEREBY
CERTIFY the foregoing to be the bylaws of said Corporation, as adopted by the
Board of Directors on April 19, 1999.
/s/ Christopher P. Carton
--------------------------------------------------
Christopher P. Carton
-11-
<PAGE>
EXHIBIT 10.2
PURCHASE PRO INTERNATIONAL, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
1. Purpose of Plan.
The purpose of this Purchase Pro International, Inc. 1998 Stock Option and
Incentive Plan (the "Plan") is to advance the interests of the Company through
providing Employees of the Company and of any Affiliate of the Company with the
opportunity to acquire Shares. By encouraging such stock ownership, the Company
seeks to attract, retain and motivate the best available personnel for positions
of substantial responsibility and to provide additional incentive to Employees
of the Company or any Affiliate to promote the success of the business.
2. Definitions.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are defined in
Section 424(e) and (f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in
accordance with Paragraph 5(c) hereof.
(c) "Award" shall mean Options, unless the context clearly
indicates a different meaning.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean (i) the unauthorized use or disclosure of
the confidential information or trade secrets of the Company, which
use or disclosure causes material harm to the Company, (ii) conviction
of, or a plea of "guilty" or "no contest" to, a felony under the laws
of the United States or any state thereof, (iii) gross negligence or
(iv) continued failure to perform assigned duties after receiving
written notification from the Board of Directors. The foregoing,
however, shall not be deemed an exclusive list of all acts or
omissions that the Company (or an Affiliate) may consider as grounds
for the discharge of a Participant.
(f) "Change in Control" shall mean any one of the following
events: (i) an event or series of events which have the effect of any
person becoming the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly or
indirectly of securities representing more than fifty percent (50%) of
the voting power of the Company's then outstanding stock; (ii) the
acquisition of the ability to control the election of a majority of
the Company's directors; (iii) the acquisition of a controlling
influence over the
<PAGE>
management or policies of the Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934); (iv) the disposition of the business
of the Company pursuant to a complete or partial liquidation, sale of
assets or otherwise; or (v) during any period of two consecutive
years, individuals who at the beginning of such period constitute the
Board (the "Continuing Directors") cease for any reason to constitute
at least a majority thereof, provided, that any individual whose
election or nomination for election as a member of the Board was
approved by a vote of at least a majority of the Continuing Directors
then in office shall be considered a Continuing Director. For purposes
of this subparagraph only, the term "person" refers to an individual
or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein. Subject to
the foregoing, the decision of the Committee as to whether a Change in
Control has occurred shall be conclusive and binding.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(h) "Committee" shall mean (i) the Stock Option Committee
appointed by the Board in accordance with Paragraph 5(a) hereof or
(ii) in the alternative, in all cases other than in the first two
sentences of Paragraph 5(a) and in Paragraph 14 hereof, the Board.
(i) "Common Stock" shall mean the common stock, $.001 par value
per share, of the Company.
(j) "Company" shall mean Purchase Pro International, Inc.
(k) "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee of the Company
or an Affiliate. Continuous Service shall not be considered
interrupted in the case of a leave of absence of a temporary nature
approved by the Company for a specific period of time, or in the case
of transfers between payroll locations of the Company or between the
Company, an Affiliate or a successor.
(l) "Director" shall mean any member of the Board.
(m) "Disability" means a permanent and total disability as
defined in section 22(e)(3) of the Code. The determination of the
Committee on any question involving Disability shall be conclusive and
binding.
(n) "Effective Date" shall mean the date specified in Paragraph
13 hereof.
<PAGE>
(o) "Employee" shall mean any person employed by the Company or
an Affiliate.
(p) "Exercise Price" shall mean the price per Optioned Share at
which an Option may be exercised.
(q) "Involuntary Termination" shall mean the termination of the
Participant's Continuous Service by reason of the involuntary
discharge of the Participant by the Company (or the Affiliate
employing him or her) for reasons other than Cause, or the voluntary
resignation of the Participant following (i) a change in his or her
position with the Company (or Affiliate) that materially reduces his
or her level of authority or responsibility, (ii) a reduction in his
or her compensation (including base salary, fringe benefits and
participation in bonus or incentive programs based on corporate
performance) by more than 10%, or (iii) a relocation of more than 100
miles from his or her present employment location.
(r) "ISO" means an option to purchase Common Stock which meets
the requirements set forth in the Plan, and which is intended to be
and is identified as an "incentive stock option" within the meaning of
Section 422 of the Code.
(s) "Market Value" shall mean the fair market value of the
Common Stock, as determined under Paragraph 7(b) hereof.
(t) "Non-ISO" means an option to purchase Common Stock which
meets the requirements set forth in the Plan but which is not intended
to be and is not identified as an ISO.
(u) "Option" means an ISO and/or a Non-ISO.
(v) "Optioned Shares" shall mean Shares subject to an Award
granted pursuant to this Plan.
(w) "Participant" shall mean any person who receives an Award
pursuant to the Plan.
(x) "Plan" shall mean this Purchase Pro International, Inc.
Stock Option and Incentive Plan.
(y) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(z) "Share" shall mean one share of Common Stock.
<PAGE>
(aa) "Year of Service" shall mean a full twelve-month period,
measured from the date of an Award and each annual anniversary of that
date, during which a Participant has performed Continuous Service as
an Employee of the Company or an Affiliate.
3. Term of the Plan and Awards.
(a) Term of the Plan. The Plan shall continue in effect for a
----------------
term of ten years from the Effective Date, unless sooner terminated
pursuant to Paragraph 15 hereof. No Award shall be granted under the
Plan after ten years from the Effective Date.
(b) Term of Awards. The term of each Award granted under the
--------------
Plan shall be established by the Committee, but shall not be less than
one year nor exceed ten years; provided however, that in the case of
an Employee who owns Shares representing 10% of the outstanding Common
Stock at the time an ISO is granted, such ISO shall not be exercisable
after the date five years from the date such ISO is granted. This
Paragraph 3(b) shall not be construed to cause the acceleration of the
vesting of Awards.
4. Shares Subject to the Plan.
Except as otherwise required by the provisions of Paragraph 10 hereof, the
aggregate number of Shares deliverable pursuant to Awards shall be 1,000,000
Shares. Such Shares may either be authorized but unissued Shares or Shares held
in treasury. If any Awards should expire, become unexercisable, or be forfeited
for any reason without having been exercised, the Shares no longer subject to
such Awards shall, unless the Plan shall have been terminated, be available for
the grant of additional Awards under the Plan. No Employee may receive Options
to purchase more than 25% of the aggregate number of Shares deliverable pursuant
to Awards.
5. Administration of the Plan.
(a) Administration. The Plan shall be administered by a
--------------
Committee. The Committee shall be composed of not fewer than two
Directors appointed by the Board and the members of the Board also may
act collectively as the Committee. Subject to the express provisions
of the Plan, the Committee may interpret the Plan, prescribe, amend
and rescind rules and regulations relating to it, determine the terms
and provisions of Awards to Employees under the Plan (which need not
be identical), and make such other determinations as it deems
necessary and
<PAGE>
advisable for the administration of the Plan. The Committee may
delegate decisions with respect to Awards to Employees who are not
elected officers or directors of the Company or its Affiliates to such
elected officer or officers of the Company as the Committee
determines. The decisions of the Committee under the Plan shall be
conclusive and binding. No member of the Board or the Committee shall
be liable for any action taken or determination made hereunder in good
faith. Service on the Committee shall constitute service as a director
of the Company so that the members of the Committee shall be entitled
to indemnification and reimbursement as directors of the Company
pursuant to its by-laws.
(b) Powers. Within the limits of the express provisions of the
------
Plan, the Committee shall determine: (i) the Employees to whom Awards
hereunder shall be granted, (ii) the time or times at which such
Awards shall be granted, (iii) the form and amount of the Awards, and
(iv) the limitations, restrictions and conditions applicable to any
such Award. In making such determinations, the Committee may take into
account the nature of the services rendered by such Employees, or
classes of Employees, their present and potential contributions to the
Company's success and such other factors as the Committee in its
discretion shall deem relevant.
(c) Agreement. Each Award shall be evidenced by a written
---------
agreement containing such provisions as may be approved by the
Committee. Each such Agreement shall constitute a binding contract
between the Company and the Participant, and every Participant, upon
acceptance of such Agreement, shall be bound by the terms and
restrictions of the Plan and of such Agreement. The terms of each such
Agreement shall be in accordance with the Plan, but each Agreement may
include such additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional provisions
and restrictions are not inconsistent with the terms of the Plan. In
particular, the Committee shall set forth in each Agreement (i) the
Exercise Price of an Option, (ii) the number of Shares subject to, and
the expiration date of, the Award, (iii) the manner, time and rate
(cumulative or otherwise) of exercise or vesting of such Award, and
(iv) the restrictions, if any, to be placed upon such Award, or upon
Shares which may be issued upon exercise of such Award. The Chairman
of the Committee and such other Directors and officers as shall be
designated by the Committee are hereby authorized to execute
Agreements on behalf of the Company and to cause them to be delivered
to the recipients of Awards. An Employee who receives an Award under
the Plan shall not, with respect to the Award, be deemed to have been
a Participant, or to have any rights with respect to the Award, unless
and until the Employee has executed an Agreement respecting such Award
and shall have delivered such an executed copy thereof to the Company,
and has otherwise complied with the applicable terms and conditions of
the Award.
<PAGE>
(d) Nonuniform Determinations. The Committee's determinations
-------------------------
under the Plan, including without limitation, determinations as to the
persons to receive Awards, the terms and provisions of such Awards and
the Agreements evidencing the same, need not be uniform and may be
made by it selectively among persons who receive or are eligible to
receive Awards under the Plan, whether or not such persons are
similarly situated.
6. Grant of Options.
(a) General Rule. Only Employees shall be eligible to receive
------------
grants of Options pursuant to the Plan. Any Award of an Option to an
Employee,grants of whether as an automatic grant as described in
Paragraph 6(b) below or as a discretionary grant, shall be pursuant to
an Agreement as described in Paragraph 5(c) above, and shall be
subject to the general rule set forth in Paragraph 8(c) hereof with
respect to the effect of an Optionee's termination of Continuous
Service on the Optionee's right to exercise his Options.
(b) Automatic Grants to Employees. On the Effective Date, each
-----------------------------
of the Employees identified in Exhibit A attached hereto shall be
granted an Option (in the form of an ISO, to the extent permissible)
to purchase the number of Shares set forth in Exhibit A, at an
Exercise Price per Share equal to the Market Value of a Share on the
Effective Date; provided that such grant shall not be made to an
Employee whose Continuous Service terminates on or before the
Effective Date, and provided further that the Exercise Price for any
Employee who is a 10% shareholder of the Company (see Paragraph 7(a)
below) shall be 110% of the Market Value.
(c) Special Rules for ISOs. The aggregate Market Value, as of
----------------------
the date the Option is granted, of the Shares with respect to which
ISOs are exercisable for the first time by an Employee during any
calender year (under all incentive stock option plans, as defined in
Section 422 of the Code, of the Company or any present or future
Affiliate of the Company) shall not exceed $100,000. Notwithstanding
the foregoing, the Committee may grant Options in excess of the
foregoing limitations, in which case such Options granted in excess of
such limitation shall be Options which are Non-ISOs.
7. Exercise Price for Options.
(a) Limits on Committee Discretion. The Exercise Price as to any
------------------------------
particular Option shall not be less than 100% of the Market Value of
the Optioned Share on the date of grant. In the case of an Employee
who owns Shares
<PAGE>
representing more than 10% of the Company's outstanding Shares of
Common Stock at the time an ISO is granted, the Exercise Price shall
not be less than 110% of the Market Value of the Optioned Shares at
the time the ISO is granted.
(b) Standards for Determining Market Value. If the Common
--------------------------------------
Stock is listed on a national securities exchange (including the
Nasdaq National Market System) on the date in question, then the
Market Value per Share shall be the average of the highest and lowest
selling prices on such exchange on such date, or if no trade was
reported on such date, then the Exercise Price shall be the mean
between the bid and asked prices on such date. If the Common Stock is
traded otherwise than on a national securities exchange on the date in
question, then the Market Value per Share shall be the mean between
the bid and asked prices on such date, or, if there are no bid and
asked prices on such date, then on the next prior business day on
which there were bid and asked prices. If no such bid and asked prices
are available, then the Market Value per Share shall be its fair
market value as determined in good faith by the Committee, in its sole
and absolute discretion. Notwithstanding any provision of the Plan to
the contrary, no determination made with respect to the Market Value
of Common Stock subject to an ISO shall be inconsistent with section
422 of the Code or regulations thereunder.
8. Exercise of Options.
(a) General. Each Option shall become exercisable as provided
-------
in the Agreement between the Company and the Participant, the terms of
which shall be consistent with the provisions of this Plan. Provided,
that with respect to the Options granted pursuant to Paragraph 6(b) of
this Plan, (i) each Option granted to a Participant classified as a
Class A Employee shall become exercisable with respect to 50% of the
Optioned Shares upon the Participant's completion of each of two Years
of Service, (ii) each Option granted to a Participant classified as a
Class B Employee shall become exercisable with respect to 33 % of the
Optioned Shares upon the Participant's completion of each of three
Years of Service, and (iii) each Option granted to a Participant
classified as a Class C Employee shall become exercisable with respect
to 25% of the Optioned Shares upon the Participant's completion of
each of four Years of Service; provided, that an Option shall become
fully (100%) exercisable immediately upon a Change in Control and
Involuntary Termination, as provided in Paragraph 9 hereof. An Option
may not be exercised for a fractional Share.
(b) Procedure for Exercise. A Participant may exercise an
----------------------
Option,in the subject to provisions relative to its termination and
limitations on its exercise, only by (i) written notice of intent to
exercise the Option with respect to a specified number
<PAGE>
of Shares and the date of exercise thereof, and (ii) payment to the
Company (on or prior to the date of exercise) in cash or, if the
Committee in its discretion agrees to accept, in Common Stock or a
combination of cash and Common Stock, of the amount of the Exercise
Price for the number of Shares with respect to which the Option is
then being exercised plus, in the case of Non-ISOs, any required
withholding tax as provided in Paragraph 18 hereof. Each such notice
(and payment where required) shall be delivered, or mailed by prepaid
registered or certified mail, addressed to the Chief Financial Officer
of the Company at the Company's executive offices. Common Stock
utilized in full or partial payment of the Exercise Price for Options
shall be valued at its Market Value at the date of exercise. As soon
as reasonably possible following such exercise, a certificate
representing shares of Company Stock purchased, registered in the name
of the Participant, shall be delivered to the Participant.
(c) Period of Exercisability.
------------------------
(i) Each Option shall, unless sooner expired
pursuant to paragraphs (ii) and (iii) immediately below, expire
on the first to occur of the tenth anniversary of the date of
grant thereof and the expiration date set forth in the applicable
Agreement.
(ii) An Option shall expire on the first to occur
of the applicable date set forth in paragraph (i) next above and
the date that the employment of the Participant with the Company
terminates for any reason other than death or Disability.
Notwithstanding the preceding provisions of this paragraph, the
Committee, in its sole discretion, may, by written notice given
to an ex-Employee, permit the ex-Employee to exercise Options
during a period following his or her termination of employment,
which period shall not exceed three months. In no event, however,
may the Committee permit an ex-Employee to exercise an Option
after the expiration date contained in the Agreement evidencing
such Option.
(iii) If the employment of an Employee with the
Company terminates by reason of Disability as determined by the
Committee or by reason of death, his or her Options, if any,
shall expire on the first to occur of the date set forth in
paragraph (i) above and the six-month anniversary of such
termination of employment.
(d) Effect of the Committee's Decisions. The Committee's
-----------------------------------
determination whether a Participant's Continuous Service has ceased,
and the effective date thereof, shall be final and conclusive on all
persons affected thereby.
<PAGE>
9. Change in Control and Involuntary Termination.
Notwithstanding the provisions of any Award which provides for its exercise
or vesting in installments, but only for a period of 90 days beginning on the
date of an Involuntary Termination following a Change in Control, all Options
shall be immediately exercisable and fully vested, provided (a) the Change in
Control occurs before the Participant's Continuous Service terminates and (b)
the Participant is subject to an Involuntary Termination within 12 months
following such Change in Control. At the time of such qualifying Involuntary
Termination, the Participant shall, at the sole discretion of the Committee, be
entitled to receive cash in an amount equal to the excess of the Market Value of
the Common Stock subject to such Option over the Exercise Price of such Shares,
in exchange for the cancellation of such Options by the Participant.
10. Adjustment of Shares.
(a) General. In the event of a subdivision of the outstanding
-------
Stock, adeclaration of a dividend payable in Shares, a declaration of
an extraordinary dividend payable in a form other than Shares in an
amount that has a material effect on the Market Value of the Stock, a
combination or consolidation of the outstanding Stock into a lesser
number of Shares, a recapitalization, a spin-off, a reclassification
or a similar occurrence, the Board shall make appropriate adjustments
in one or more of (i) the number of Shares available for future grants
under Paragraph 4 hereof, (ii) the number of Shares covered by each
outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) Mergers and Consolidations. In the event that the Company
--------------------------
is a party to a merger or consolidation, outstanding Options shall be
subject to the agreement of merger or consolidation. Such agreement,
without the Participants' consent, may provide for:
(i) The continuation of such outstanding Options
by the Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such
outstanding Options by the surviving corporation or its parent;
(iii) The substitution by the surviving
corporation or its parent of options with substantially the same
terms for such outstanding Options; or
<PAGE>
(iv) The cancellation of each outstanding Option
after payment to the Participant of an amount in cash or cash
equivalents equal to (A) the Market Value of the Shares subject
to such Option at the time of the merger or consolidation minus
(B) the Exercise Price of the Shares subject to such Option.
A sale of all or substantially all of the assets of the Company for
consideration (apart from the assumption of obligations) consisting
primarily of securities shall be deemed a merger or consolidation for the
foregoing purposes.
(c) Special Rule for ISOs. Any adjustment made pursuant to
---------------------
subparagraphs (a) or (b) hereof shall be made in such a manner as not
to constitute a modification, within the meaning of section 424(h) of
the Code, of outstanding ISOs.
(d) Conditions and Restrictions on New, Additional, or
--------------------------------------------------
Different Shares or Securities. If, by reason of any adjustment made
------------------------------
pursuant to this Paragraph, a Participant becomes entitled to new,
additional, or different shares of stock or securities, such new,
additional, or different shares of stock or securities shall thereupon
be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment
was made.
(e) Other Issuances. Except as expressly provided in this
---------------
Paragraph, the issuance by the Company or an Affiliate of shares of
stock of any class, or of securities convertible into Shares or stock
of another class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, shall not affect, and no adjustment shall be made
with respect to, the number, class, or Exercise Price of Shares then
subject to Awards or reserved for issuance under the Plan.
(f) Reservation of Rights. The grant of an Option pursuant to
---------------------
the Plan shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business
or assets.
11. Non-Transferability of Awards.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution, and no Award shall be subject to execution, attachment or similar
process. Any attempted sale, pledge, assignment, hypothecation, transfer or
other disposition of an Award, or levy of attachment or similar process
<PAGE>
upon the Award not specifically permitted herein shall be null and void and
without effect. An Award may be exercised only by a Participant during his or
her lifetime or, pursuant to Paragraph 8(c)(iii) hereof, by his or her estate or
by the person who by bequest or inheritance acquires the right to exercise such
Award upon the Participant's death.
12. Time of Granting Awards.
The date of grant of an Award shall, for all purposes, be the later of the
date on which the Committee makes the determination of granting such Award, and
the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
13. Effective Date.
The Plan shall become effective on the date of its approval by a favorable
vote of stockholders owning at least a majority of the Shares present or
represented, and entitled to vote, at a meeting duly held in accordance with
applicable laws; provided, that the adoption of the Plan is subject to such
shareholder approval within twelve months before or after the date of adoption
of the Plan by the Board. The Plan shall be null and void if the foregoing
condition is not fulfilled, and in such event each Option granted hereunder
shall, notwithstanding any of the preceding Plan provisions, be null and void
and of no effect.
14. Modification of Awards.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the grant
of a new Award at such time, or impair the Award without the consent of the
holder of the Award.
15. Amendment and Termination of the Plan.
The Board, without further action on the part of the shareholders of the
Company, may from time to time alter, amend or suspend the Plan or any Option
granted thereunder or may at any time terminate the Plan, except that it may
not, without the approval of the shareholders of the Company (except to the
extent provided in Paragraph 10 hereof):
(a) Materially increase the total number of shares of Common
Stock available for grant under the Plan;
(b) Materially modify the class of eligible Employees under the
Plan; or
<PAGE>
(c) Effect a change relating to ISOs granted hereunder which is
inconsistent with section 422 of the Code or regulations thereunder.
No action taken by the Board under this Paragraph, either with or without
the approval of the shareholders of the Company, may materially and
adversely affect any outstanding Option without the consent of the holder
thereof.
16. Conditions Upon Issuance of Shares.
(a) Compliance with Securities Laws. Shares of Common Stock
-------------------------------
shall not be issued with respect to any Award unless the issuance and
delivery of such Shares shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder, any
applicable state securities law, and the requirements of any stock
exchange upon which the Shares may then be listed. Certificates of
Shares of Common Stock issued hereunder may be legended as the Board
shall deem appropriate. The Plan is intended to comply with Rule 16b-3
if and to the extent applicable, and any provision of the Plan which
the Committee determines in its sole and absolute discretion to be
inconsistent with said Rule shall, to the extent of such
inconsistency, be inoperative and null and void, and shall not affect
the validity of the remaining provisions of the Plan.
(b) Special Circumstances. The inability of the Company to
---------------------
obtain approval from any regulatory body or authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of
any Shares hereunder shall relieve the Company of any liability in
respect of the non-issuance or sale of such Shares. As a condition to
the exercise of an Option, the Company may require the person
exercising the Option to make such representations and warranties as
may be necessary to assure the availability of an exemption from the
registration requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
--------------------
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights, and to require the
Participant to consent to the terms of any form of stockholders' agreement with
respect to the Shares, including but not limited to the stockholders' agreement
entered into June 1, 1998 by and among the Company and shareholders of the
Company identified therein.
17. Reservation of Shares.
<PAGE>
The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
18. Withholding Tax.
The Company's obligation to deliver Shares upon exercise of Options shall
be subject to the Participant's satisfaction of any and all applicable federal,
state and local income and employment tax withholding obligations. The
Committee, in its sole discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have the Company
withhold Shares, or to deliver to the Company Shares that he already owns,
having a value equal to the amount required to be withheld. The value of Shares
to be withheld, or delivered to the Company, shall be based on the Market Value
of the Shares on the date the amount of tax to be withheld is to be determined.
As an alternative, the Company may retain, or sell without notice, a number of
such Shares sufficient to cover the amount required to be withheld. In the event
that the Participant disposes of any Common Stock acquired by the exercise of an
ISO within the two-year period following grant, or within the one-year period
following exercise, of the ISO, the Company shall have the right to require the
Participant to remit to the Company an amount sufficient to satisfy all federal,
state and local withholding tax requirements as a condition to the registration
of the transfer of such Common Stock on its books. Whenever under the Plan
payments are to be made by the Company in cash or by check, such payments shall
be net of any amounts sufficient to satisfy all federal, state and local
withholding tax requirements.
19. No Employment or Other Rights.
In no event shall an Employee's eligibility to participate or participation
in the Plan create or be deemed to create any legal or equitable right of the
Employee to continue service with the Company or any Affiliate, or affect any
right which the Company or an Affiliate may have to terminate the employment of
such Employee. Except to the extent provided in Paragraph 6(b) hereof, no
Employee shall have a right to be granted an Award or, having received an Award,
the right to again be granted an Award. However, an Employee who has been
granted an Award may, if otherwise eligible, be granted an additional Award or
Awards.
20. Governing Law.
The Plan shall be governed by and construed in accordance with the laws of
the State of Nevada, except to the extent that federal law shall be deemed to
apply.
<PAGE>
Purchase Pro International, Inc. Stock Option and Incentive Plan
GRANT OF INCENTIVE STOCK OPTION
Date of Grant: __________________, 1998
THIS GRANT, dated as of the date of grant first stated above (the "Date of
Grant"), is delivered by Purchase Pro International, Inc., a Nevada corporation
("PPI"), to ________________________________________________ (the "Grantee"),
who is an employee of PPI.
WHEREAS, the Board of Directors of PPI (the "Board") on August 6, 1998
adopted, with subsequent stockholder approval, the Purchase Pro
International, Inc. Stock Option and Incentive Plan (the "Plan");
WHEREAS, the Plan provides for the granting of incentive stock options to
employees of PPI or any affiliate of PPI to purchase shares of the Common
Stock of PPI, par value $.001 per share (the "Stock"), in accordance with
the terms and provisions thereof; and
WHEREAS, the Grantee is eligible for a grant of incentive stock options
under the Plan.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, PPI,
with the approval and at the direction of the Board hereby grants to
the Grantee, as of the Date of Grant, an option to purchase up to
__________ shares of Stock at a price of $___________ per share, the
fair market value. Such option is hereinafter referred to as the
"Option" and the shares of stock purchasable upon exercise of the
Option are hereinafter sometimes referred to as the "Option Shares."
The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under
section 422 of the Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein and to
the provisions concerning the occurrence of a Change in Control and an
Involuntary Termination (both as defined in the Plan), the Option
shall become exercisable in three (3) installments, the Grantee having
the right hereunder to purchase from
<PAGE>
PPI the following number of Option Shares upon exercise of the Option,
on and after the following dates, in cumulative fashion:
(a) on and after the first anniversary of the Date of Grant, up to
one-third (ignoring fractional shares) of the total number of
Option Shares;
(b) on and after the second anniversary of the Date of
Grant, up to an additional one-third (ignoring fractional shares)
of the total number of Option Shares; and
(c) on and after the third anniversary of the Date of
Grant, the remaining Option Shares.
Notwithstanding the above installment provisions, but only for a
period of 90 days beginning on the date of an Involuntary Termination
following a Change in Control, the Option shall become immediately and
fully exercisable by the Grantee provided (i) the Change in Control
occurs before the Participant's Continuous Service terminates and (ii)
the Grantee is subject to an Involuntary Termination within 12 months
following such Change in Control. At the time of such qualifying
Involuntary Termination, the Grantee shall, at the sole discretion of
the Board, be entitled to receive cash in an amount equal to the
excess of the fair market value of the Stock subject to the Option
over the exercise price of such Stock, in exchange for the
cancellation of the Option by the Grantee.
3. Termination of Option.
(a) The option and all rights hereunder with respect
thereto, to the extent such rights shall not have been exercised
or previously terminated pursuant to paragraph (b) immediately
below, shall terminate and become null and void after the
expiration of five years from the Date of Grant (the "Option
Term").
(b) Upon the occurrence of the Grantee's ceasing for
any reason to be employed by PPI (such occurrence being a
"termination of the Grantee's employment"), the Option, to the
extent not previously exercised, shall terminate and become null
and void immediately upon such termination of the Grantee's
employment, except in a case where the termination of the
Grantee's employment is by reason of disability (within the
meaning of Section 22(e)(3) of the Code) or death. Upon a
termination of the Grantee's employment by reason of such
disability or death, the Option may be exercised during the six-
month period following the date of such disability or death, but
only to the extent that the Option was outstanding and
exercisable on any such date of disability or death. In addition,
the Board in its sole discretion, by written notice given to the
<PAGE>
Grantee, may permit the Grantee to exercise the Option for a
period of up to three months following the date of termination of
the Grantee's employment. In no event, however, shall any such
period extend beyond the Option Term.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative(s), but only to
the extent that the Option would otherwise have been exercisable
by the Grantee.
(d) A transfer of the Grantee's employment between PPI
and any affiliate of PPI, or between any affiliates of PPI, shall
not be deemed to be a termination of the Grantee's employment.
(e) Notwithstanding any other provisions set forth
herein or in the Plan, if the Grantee shall (i) commit any act of
malfeasance or wrongdoing affecting PPI or any affiliate of PPI,
(ii) breach any covenant not to compete, or employment contract,
with PPI or any affiliate of PPI, or (iii) engage in conduct that
would warrant the Grantee's discharge for Cause (as defined in
the Plan), any unexercised portion of the Option shall
immediately terminate and be void.
4. Exercise of Options.
(a) The Grantee may exercise the Option with respect
to all or any part of the number of Option Shares then
exercisable hereunder by giving the Chief Financial Officer of
PPI written notice of intent to exercise. The notice of exercise
shall specify the number of Option Shares as to which the Option
is to be exercised and the date of exercise thereof, which date
shall be at least five days after the giving of such notice
unless an earlier time shall have been mutually agreed upon.
(b) Full payment (in U.S. dollars) by the Grantee of
the option price for the Option Shares purchased shall be made on
or before the exercise date specified in the notice of exercise
in cash, or, with the prior written consent of the Board, in
whole or in part through the surrender of previously acquired
shares of Stock at their fair market value on the exercise date.
On the exercise date specified in the Grantee's notice
or as soon thereafter as is practicable, PPI shall cause to be
delivered to the Grantee, a certificate or certificates for the
Option Shares then being purchased (out of theretofore unissued
Stock or reacquired Stock, as PPI may elect) upon full payment
for such Option Shares. The obligation of PPI to deliver Stock
shall, however, be subject to the condition that if at
<PAGE>
any time the Board shall determine in its discretion that the
listing, registration or qualification of the Option or the
Option Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or
in connection with, the Option or the issuance or purchase of
Stock thereunder, the Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any
condition not acceptable to the Board. The Grantee also may be
required to consent to the terms of any form of stockholders'
agreement with respect to the Stock, including but not limited to
the stockholders' agreement entered into June 1, 1998 by and
among PPI and shareholders of PPI identified therein.
(c) If the Grantee fails to pay for any of the Option
Shares specified in such notice or fails to accept delivery
thereof, the Grantee's right to purchase such Option Shares may
be terminated by PPI. The date specified in the Grantee's notice
as the date of exercise shall be deemed the date of exercise of
the Option, provided that payment in full for the Option Shares
to be purchased upon such exercise shall have been received by
such date.
5. Adjustment of and Changes in Stock of PPI.
In the event of a reorganization, recapitalization, change of
shares, stock split, spin-off, stock dividend, reclassification,
subdivision or combination of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or shares of
capital stock of PPI, the Board shall make such adjustment as it deems
appropriate in the number and kind of shares of Stock subject to the
Option or in the option price; provided, however, that no such
adjustment shall give the Grantee any additional benefits under the
Option.
6. Fair Market Value.
If the Stock is listed on a national securities exchange
(including the Nasdaq National Market System) on the date in question,
then the fair market value per share shall be the average of the
highest and lowest selling prices on such exchange on such date, or if
no trade was reported on such date, then it shall be the mean between
the bid and asked prices on such date. If the Stock is traded
otherwise than on a national securities exchange on the date in
question, then the fair market value per share shall be the mean
between the bid and asked prices on such date, or, if there are no bid
and asked prices on such date, then on the next prior business day on
which there were bid and asked prices. If no such bid and asked prices
are available, then the fair market value per share shall be its fair
<PAGE>
market value as determined in good faith by the Board, in its sole and
absolute discretion.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or
shall have any of the rights and privileges of, a stockholder of PPI
with respect to any shares of Stock purchasable or issuable upon the
exercise of the Option, in whole or in part, prior to the date of
exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal
representative of the Grantee, and the Option shall not be
transferrable except, in case of the death of the Grantee, by will or
the laws of descent and distribution, nor shall the Option be subject
to attachment, execution or other similar process. In the event of (a)
any attempt by the Grantee to alienate, assign, pledge, hypothecate or
otherwise dispose of the Option, except as provided for herein, or (b)
the levy of any attachment, execution or similar process upon the
rights or interest hereby conferred, PPI may terminate the Option by
notice to the Grantee and it shall thereupon become null and void.
9. Employment Not Affected.
The granting of the Option or its exercise shall not be construed
as granting to the Grantee any right with respect to continuance of
employment with PPI. Except as may otherwise be limited by a written
agreement between PPI and the Grantee, the right of PPI to terminate
at will the Grantee's employment with it at any time (whether by
dismissal, discharge, retirement or otherwise) is specifically
reserved by PPI and acknowledged by the Grantee.
10. Amendment of Option.
The Option may be amended by the Board at any time (i) if the
Board determines, in its sole discretion, that amendment is necessary
or advisable in the light of any addition to or change in the Internal
Revenue Code of 1986 or in the regulations issued thereunder, or any
federal or state securities law or other law or regulation, which
change occurs after the Date of Grant and by its terms applies to the
Option; or (ii) other than in the circumstances described in clause
(i), with the consent of the Grantee.
11. Notice.
<PAGE>
Any notice to PPI provided for in this instrument shall be
addressed to it in care of its Chief Financial Officer at is executive
offices at 6285 Industrial Boulevard, Suite A, Las Vegas, NV 89118,
and any notice to the Grantee shall be addressed to the Grantee at the
current address shown on the payroll records of PPI. Any notice shall
be deemed to be duly given if and when properly addressed and posted
by registered or certified mail, postage prepaid.
12. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the
terms of which are incorporated herein by reference, and the Option
shall in all respects be interpreted in accordance with the Plan. The
Board shall interpret and construe the Plan and this instrument, and
its interpretations and determinations shall be conclusive and binding
on the parties hereto and any other person claiming an interest
hereunder, with respect to any issue arising hereunder or thereunder.
13. Governing Law.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in
accordance with the law of the State of Nevada, except to the extent
preempted by federal law, which shall to the extent govern.
14. Confidentiality.
The Grantee agrees that, from the time of execution of this
instrument, the Grantee will keep the specific terms and conditions of
this Grant completely confidential and not disclose any such
information to anyone except his or her spouse or tax advisors. To the
extent Grantee shall disclose such matters to his or her spouse or tax
advisors, the Grantee shall advise such persons that they shall
consider themselves bound by the same terms. The parties agree that
the Grantee shall be permitted to release the fact of the grant of the
Option as set forth above as may be required on a financial statement,
tax return or other such business or legal document or as otherwise
may be required by law or a court of appropriate jurisdiction.
IN WITNESS WHEREOF, PPI has caused its duly authorized officer to execute
this Grant of Incentive Stock Option, and the Grantee has placed his or her
signature hereon, effective as of the Date of Grant.
PURCHASE PRO INTERNATIONAL, INC.
<PAGE>
By: ____________________________________
Title: _________________________________
ACCEPTED AND AGREED TO:
By: ____________________________________
Grantee
<PAGE>
GRANT OF STOCK OPTION (NON-EMPLOYEE)
-----------------------------------
Date of Grant: __________________, 1998
THIS GRANT, dated as of the date of grant first stated above (the "Date of
Grant"), is delivered by PURCHASE PRO INTERNATIONAL, INC., a Nevada corporation
("PPI"), to ________________________________________________ (the "Grantee").
WHEREAS, PPI desires to grant to Grantee an option to purchase certain
shares of common stock of PPI upon the terms and conditions stated herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Grant of Option. Subject to the terms and conditions hereinafter
---------------
set forth, PPI hereby grants to the Grantee, as of the Date of Grant, an
option to purchase up to __________ shares of PPI common stock (the
"Stock") at a price of Two and 50/100 Dollars ($2.50) per share. Such
option is hereinafter referred to as the "Option" and the shares of stock
purchasable upon exercise of the Option are hereinafter sometimes referred
to as the "Option Shares."
1. Exercise and Termination. Subject to such further limitations as
------------------------
are provided herein, the Option shall become exercisable on _______________
and shall terminate and expire on _____________________, the Grantee having
the right hereunder to purchase from PPI all of the Option Shares upon
exercise of the Option only in accordance with the preceding schedule.
1. Termination by PPI.
------------------
a. In the event PPI's board of directors determines in good
faith at any time before the Option is exercised that the Grantee has
taken action that is detrimental to the interests of PPI, the Option,
to the extent not previously exercised, shall terminate and become
null and void immediately upon such determination.
a. In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative(s), but only to the
extent that the Option would otherwise have been exercisable by the
Grantee.
a. Notwithstanding any other provisions set forth herein, if
the Grantee shall (i) commit any act of malfeasance or wrongdoing
affecting PPI or any affiliate of PPI, or (ii) breach any covenant not
to compete, or employment contract, with PPI or any affiliate of PPI,
any unexercised portion of the Option shall immediately terminate and
be void.
<PAGE>
b.
2. Conditions Upon Issuance of Shares.
----------------------------------
a. Compliance with Securities Laws. Option Shares shall
-------------------------------
not be issued with respect to this Option unless the issuance and
delivery of such Option Shares shall comply with all relevant
provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the Shares may then
be listed. Certificates of Option Shares issued hereunder may be
legended as the Board shall deem appropriate.
a. Special Circumstances. The inability of PPI to obtain
---------------------
approval from any regulatory body or authority deemed by PPI's
counsel to be necessary to the lawful issuance and sale of any
Shares hereunder shall relieve PPI of any liability in respect of
the non-issuance or sale of such Shares. As a condition to the
exercise of an Option, PPI may require the person exercising the
Option to make such representations and warranties as may be
necessary to assure the availability of an exemption from the
registration requirements of federal or state securities law.
a. PPI Discretion. PPI shall have the discretionary
--------------
authority to impose in Agreements such restrictions on Shares as
it may deem appropriate or desirable, including but not limited
to the authority to impose a right of first refusal or to
establish repurchase rights, and to require the Grantee to
consent to the terms of any form of stockholders' agreement with
respect to the Shares, including but not limited to the
stockholders' agreement entered into June 1, 1998 by and among
PPI and shareholders of PPI identified therein.
1. Exercise of Options.
-------------------
a. The Grantee may exercise the Option with respect to all
or any part of the number of Option Shares then exercisable
hereunder by giving the Chief Financial Officer of PPI written
notice of intent to exercise. The notice of exercise shall
specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof, which date shall
be at least five days after the giving of such notice unless an
earlier time shall have been mutually agreed upon.
a. Full payment (in U.S. dollars) by the Grantee of the
option price for the Option Shares purchased shall be made on or
before the exercise date specified in the notice of exercise in
cash.
<PAGE>
a. On the exercise date specified in the Grantee's notice
or as soon thereafter as is practicable, PPI shall cause to be
delivered to the Grantee, a certificate or certificates for the
Option Shares then being purchased (out of theretofore unissued
Stock or reacquired Stock, as PPI may elect) upon full payment
for such Option Shares. The obligation of PPI to deliver Stock
shall, however, be subject to the condition that if at any time
PPI shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares
upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection
with, the Option or the issuance or purchase of Stock thereunder,
the Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall
have been effected or obtained free of any condition not
acceptable to PPI. The Grantee also may be required to consent to
the terms of any form of stockholders' agreement with respect to
the Stock, including but not limited to the stockholders'
agreement entered into June 1, 1998 by and among PPI and
shareholders of PPI identified therein.
a. If the Grantee fails to pay for any of the Option
Shares specified in such notice or fails to accept delivery
thereof, the Grantee's right to purchase such Option Shares may
be terminated by PPI. The date specified in the Grantee's notice
as the date of exercise shall be deemed the date of exercise of
the Option, provided that payment in full for the Option Shares
to be purchased upon such exercise shall have been received by
such date.
1. Adjustment of and Changes in Stock of PPI. In the event of a
------------------------------------------
reorganization, recapitalization, change of shares, stock split, spin-
off, stock dividend, reclassification, subdivision or combination of
shares, merger, consolidation, rights offering, or any other change in
the corporate structure or shares of capital stock of PPI, PPI shall
make such adjustment as it deems appropriate in the number and kind of
shares of Stock subject to the Option or in the option price;
provided, however, that no such adjustment shall give the Grantee any
additional benefits under the Option. In the event that PPI is a party
to a merger or consolidation, outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement, without the
Grantee's consent, may provide for:
a. The continuation of such outstanding Options by PPI (if
PPI is the surviving corporation);
a. The assumption of the outstanding Options by the
surviving corporation or its parent;
<PAGE>
a. The substitution by the surviving corporation or its
parent of options with substantially the same terms for such
outstanding Options; or
a. The cancellation of each outstanding Option after
payment to the Grantee of an amount in cash or cash equivalents
equal to (i) the Market Value of the Shares subject to such
Option at the time of the merger or consolidation minus (ii) the
exercise price of the shares subject to such Option.
A sale of all or substantially all of the assets of PPI for
consideration (apart from the assumption of obligations) consisting
primarily of securities shall be deemed a merger or consolidation for
the foregoing purposes. The issuance by PPI or an affiliate of shares
of stock of any class, or of securities convertible into shares or
stock of another class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, shall not affect, and no adjustment shall be made
with respect to, the number, class, or exercise price of shares then
subject to this Option. The grant of the Options pursuant to this
grant shall not affect in any way the right or power of PPI to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
1. No Rights of Stockholders. Neither the Grantee nor any
-------------------------
personal representative shall be, or shall have any of the rights and
privileges of, a stockholder of PPI with respect to any shares of
Stock purchasable or issuable upon the exercise of the Option, in
whole or in part, prior to the date of exercise of the Option.
1. Non-Transferability of Option. During the Grantee's
-----------------------------
lifetime, the Option hereunder shall be exercisable only by the
Grantee or any guardian or legal representative of the Grantee, and
the Option shall not be transferrable except, in case of the death of
the Grantee, by will or the laws of descent and distribution, nor
shall the Option be subject to attachment, execution or other similar
process. In the event of (a) any attempt by the Grantee to alienate,
assign, pledge, hypothecate or otherwise dispose of the Option, except
as provided for herein, or (b) the levy of any attachment, execution
or similar process upon the rights or interest hereby conferred, PPI
may terminate the Option by notice to the Grantee and it shall
thereupon become null and void.
1. Notice. Any notice to PPI provided for in this instrument
------
shall be addressed to it in care of its Chief Financial Officer at its
executive offices at 3291 N. Buffalo Drive, Las Vegas, NV 89129, and
any notice to the Grantee shall be addressed to the Grantee at the
current address shown on the records of
<PAGE>
PPI. Any notice shall be deemed to be duly given if and when properly
addressed and posted by registered or certified mail, postage prepaid.
1. Governing Law. The validity, construction, interpretation and
-------------
effect of this instrument shall exclusively be governed by and determined
in accordance with the law of the State of Nevada, except to the extent
preempted by federal law, which shall to the extent govern.
Confidentiality. The Grantee agrees that, from the time of execution
---------------
of this instrument, the Grantee will keep the specific terms and conditions of
this Grant completely confidential and not disclose any such information to
anyone except his or her spouse or tax advisors. To the extent Grantee shall
disclose such matters to his or her spouse or tax advisors, the Grantee shall
advise such persons that they shall consider themselves bound by the same terms.
The parties agree that the Grantee shall be permitted to release the fact of the
grant of the Option as set forth above as may be required on a financial
statement, tax return or other such business or legal document or as otherwise
may be required by law or a court of appropriate jurisdiction.
IN WITNESS WHEREOF, PPI has caused its duly authorized officer to execute
this Grant of Stock Option, and the Grantee has placed his or her signature
hereon, effective as of the Date of Grant.
PURCHASE PRO INTERNATIONAL, INC.
By: ________________________________________
Title: _____________________________________
ACCEPTED AND AGREED TO:
By: ________________________________________
<PAGE>
Purchase Pro International, Inc.
Stock Option and Incentive Plan
CLASS A
Employees
<PAGE>
Purchase Pro International, Inc. Stock Option and Incentive Plan
GRANT OF INCENTIVE STOCK OPTION
Date of Grant: __________________, 1998
THIS GRANT, dated as of the date of grant first stated above (the "Date of
Grant"), is delivered by Purchase Pro International, Inc., a Nevada corporation
("PPI"), to ________________________________________________ (the "Grantee"),
who is an employee of PPI.
WHEREAS, the Board of Directors of PPI (the "Board") on August 6, 1998
adopted, with subsequent stockholder approval, the Purchase Pro
International, Inc. Stock Option and Incentive Plan (the "Plan");
WHEREAS, the Plan provides for the granting of incentive stock options by a
committee to be appointed by the Board (the "Committee") to employees of
PPI or any affiliate of PPI to purchase shares of the Common Stock of PPI,
par value $.001 per share (the "Stock"), in accordance with the terms and
provisions thereof; and
WHEREAS, the Grantee is eligible for a grant of incentive stock options
under the Plan.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
<PAGE>
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, PPI,
with the approval and at the direction of the Committee, hereby grants
to the Grantee, as of the Date of Grant, an option to purchase up to
__________ shares of Stock at a price of $___________ per share, the
fair market value. Such option is hereinafter referred to as the
"Option" and the shares of stock purchasable upon exercise of the
Option are hereinafter sometimes referred to as the "Option Shares."
The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under
section 422 of the Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein and to
the provisions concerning the occurrence of a Change in Control and an
Involuntary Termination (both as defined in the Plan), the Option
shall become exercisable in two (2) installments, the Grantee having
the right hereunder to purchase from PPI the following number of
Option Shares upon exercise of the Option, on and after the following
dates, in cumulative fashion:
(a) on and after the first anniversary of the Date of Grant,
up to one-half (ignoring fractional shares) of the total number
of Option Shares; and
(b) on and after the second anniversary of the Date of
Grant, the remaining Option Shares.
Notwithstanding the above installment provisions, but only for a
period of 90 days beginning on the date of an Involuntary Termination
following a Change in Control, the Option shall become immediately and
fully exercisable by the Grantee provided (i) the Change in Control
occurs before the Participant's Continuous Service terminates and (ii)
the Grantee is subject to an Involuntary Termination within 12 months
following such Change in Control. At the time of such qualifying
Involuntary Termination, the Grantee shall, at the sole discretion of
the Committee, be entitled to receive cash in an amount equal to the
excess of the fair market value of the Stock subject to the Option
over the exercise price of such Stock, in exchange for the
cancellation of the Option by the Grantee.
3. Termination of Option.
(a) The option and all rights hereunder with respect
thereto, to the extent such rights shall not have been exercised
or previously
<PAGE>
terminated pursuant to paragraph (b) immediately below, shall
terminate and become null and void after the expiration of five
years from the Date of Grant (the "Option Term").
(b) Upon the occurrence of the Grantee's ceasing for any
reason to be employed by PPI (such occurrence being a
"termination of the Grantee's employment"), the Option, to the
extent not previously exercised, shall terminate and become null
and void immediately upon such termination of the Grantee's
employment, except in a case where the termination of the
Grantee's employment is by reason of disability (within the
meaning of Section 22(e)(3) of the Code) or death. Upon a
termination of the Grantee's employment by reason of such
disability or death, the Option may be exercised during the six-
month period following the date of such disability or death, but
only to the extent that the Option was outstanding and
exercisable on any such date of disability or death. In addition,
the Committee in its sole discretion, by written notice given to
the Grantee, may permit the Grantee to exercise the Option for a
period of up to three months following the date of termination of
the Grantee's employment. In no event, however, shall any such
period extend beyond the Option Term.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative(s), but only to
the extent that the Option would otherwise have been exercisable
by the Grantee.
(d) A transfer of the Grantee's employment between PPI and
any affiliate of PPI, or between any affiliates of PPI, shall not
be deemed to be a termination of the Grantee's employment.
(e) Notwithstanding any other provisions set forth herein or
in the Plan, if the Grantee shall (i) commit any act of
malfeasance or wrongdoing affecting PPI or any affiliate of PPI,
(ii) breach any covenant not to compete, or employment contract,
with PPI or any affiliate of PPI, or (iii) engage in conduct that
would warrant the Grantee's discharge for Cause (as defined in
the Plan), any unexercised portion of the Option shall
immediately terminate and be void.
4. Exercise of Options.
(a) The Grantee may exercise the Option with respect to all
or any part of the number of Option Shares then exercisable
hereunder by giving the Chief Financial Officer of PPI written
notice of intent to exercise. The notice of exercise shall
specify the number of Option Shares
<PAGE>
as to which the Option is to be exercised and the date of
exercise thereof, which date shall be at least five days after
the giving of such notice unless an earlier time shall have been
mutually agreed upon.
(b) Full payment (in U.S. dollars) by the Grantee of the
option price for the Option Shares purchased shall be made on or
before the exercise date specified in the notice of exercise in
cash, or, with the prior written consent of the Committee, in
whole or in part through the surrender of previously acquired
shares of Stock at their fair market value on the exercise date.
On the exercise date specified in the Grantee's notice or as
soon thereafter as is practicable, PPI shall cause to be
delivered to the Grantee, a certificate or certificates for the
Option Shares then being purchased (out of theretofore unissued
Stock or reacquired Stock, as PPI may elect) upon full payment
for such Option Shares. The obligation of PPI to deliver Stock
shall, however, be subject to the condition that if at any time
the Committee shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares
upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection
with, the Option or the issuance or purchase of Stock thereunder,
the Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall
have been effected or obtained free of any condition not
acceptable to the Committee. The Grantee also may be required to
consent to the terms of any form of stockholders' agreement with
respect to the Stock, including but not limited to the
stockholders' agreement entered into June 1, 1998 by and among
PPI and shareholders of PPI identified therein.
(c) If the Grantee fails to pay for any of the Option Shares
specified in such notice or fails to accept delivery thereof, the
Grantee's right to purchase such Option Shares may be terminated
by PPI. The date specified in the Grantee's notice as the date of
exercise shall be deemed the date of exercise of the Option,
provided that payment in full for the Option Shares to be
purchased upon such exercise shall have been received by such
date.
5. Adjustment of and Changes in Stock of PPI.
In the event of a reorganization, recapitalization, change of
shares, stock split, spin-off, stock dividend, reclassification,
subdivision or combination of shares, merger, consolidation, rights
offering, or any other change in the corporate
<PAGE>
structure or shares of capital stock of PPI, the Committee shall make
such adjustment as it deems appropriate in the number and kind of
shares of Stock subject to the Option or in the option price;
provided, however, that no such adjustment shall give the Grantee any
additional benefits under the Option.
6. Fair Market Value.
If the Stock is listed on a national securities exchange
(including the Nasdaq National Market System) on the date in question,
then the fair market value per share shall be the average of the
highest and lowest selling prices on such exchange on such date, or if
no trade was reported on such date, then it shall be the mean between
the bid and asked prices on such date. If the Stock is traded
otherwise than on a national securities exchange on the date in
question, then the fair market value per share shall be the mean
between the bid and asked prices on such date, or, if there are no bid
and asked prices on such date, then on the next prior business day on
which there were bid and asked prices. If no such bid and asked prices
are available, then the fair market value per share shall be its fair
market value as determined in good faith by the Committee, in its sole
and absolute discretion.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or
shall have any of the rights and privileges of, a stockholder of PPI
with respect to any shares of Stock purchasable or issuable upon the
exercise of the Option, in whole or in part, prior to the date of
exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal
representative of the Grantee, and the Option shall not be
transferrable except, in case of the death of the Grantee, by will or
the laws of descent and distribution, nor shall the Option be subject
to attachment, execution or other similar process. In the event of (a)
any attempt by the Grantee to alienate, assign, pledge, hypothecate or
otherwise dispose of the Option, except as provided for herein, or (b)
the levy of any attachment, execution or similar process upon the
rights or interest hereby conferred, PPI may terminate the Option by
notice to the Grantee and it shall thereupon become null and void.
9. Employment Not Affected.
<PAGE>
The granting of the Option or its exercise shall not be construed
as granting to the Grantee any right with respect to continuance of
employment with PPI. Except as may otherwise be limited by a written
agreement between PPI and the Grantee, the right of PPI to terminate
at will the Grantee's employment with it at any time (whether by
dismissal, discharge, retirement or otherwise) is specifically
reserved by PPI and acknowledged by the Grantee.
10. Amendment of Option.
The Option may be amended by the Board or the Committee at any
time (i) if the Board or the Committee determines, in its sole
discretion, that amendment is necessary or advisable in the light of
any addition to or change in the Internal Revenue Code of 1986 or in
the regulations issued thereunder, or any federal or state securities
law or other law or regulation, which change occurs after the Date of
Grant and by its terms applies to the Option; or (ii) other than in
the circumstances described in clause (i), with the consent of the
Grantee.
11. Notice.
Any notice to PPI provided for in this instrument shall be
addressed to it in care of its Chief Financial Officer at its
executive offices at 6285 Industrial Boulevard, Suite A, Las Vegas, NV
89118, and any notice to the Grantee shall be addressed to the Grantee
at the current address shown on the payroll records of PPI. Any notice
shall be deemed to be duly given if and when properly addressed and
posted by registered or certified mail, postage prepaid.
12. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the
terms of which are incorporated herein by reference, and the Option
shall in all respects be interpreted in accordance with the Plan. The
Committee shall interpret and construe the Plan and this instrument,
and its interpretations and determinations shall be conclusive and
binding on the parties hereto and any other person claiming an
interest hereunder, with respect to any issue arising hereunder or
thereunder.
13. Governing Law.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in
accordance with the law of the State of Nevada, except to the extent
preempted by federal law, which shall to the extent govern.
<PAGE>
14. Confidentiality.
The Grantee agrees that, from the time of execution of this
instrument, the Grantee will keep the specific terms and conditions of
this Grant completely confidential and not disclose any such
information to anyone except his or her spouse or tax advisors. To the
extent Grantee shall disclose such matters to his or her spouse or tax
advisors, the Grantee shall advise such persons that they shall
consider themselves bound by the same terms. The parties agree that
the Grantee shall be permitted to release the fact of the grant of the
Option as set forth above as may be required on a financial statement,
tax return or other such business or legal document or as otherwise
may be required by law or a court of appropriate jurisdiction.
IN WITNESS WHEREOF, PPI has caused its duly authorized officer to execute
this Grant of Incentive Stock Option, and the Grantee has placed his or her
signature hereon, effective as of the Date of Grant.
PURCHASE PRO INTERNATIONAL, INC.
By: ________________________________________
Title: _______________________________________
ACCEPTED AND AGREED TO:
By: ________________________________________
Grantee
<PAGE>
Purchase Pro International, Inc.
Stock Option and Incentive Plan
CLASS B
Employees
<PAGE>
Purchase Pro International, Inc. Stock Option and Incentive Plan
GRANT OF INCENTIVE STOCK OPTION
Date of Grant: __________________, 1998
THIS GRANT, dated as of the date of grant first stated above (the "Date of
Grant"), is delivered by Purchase Pro International, Inc., a Nevada corporation
("PPI"), to ________________________________________________ (the "Grantee"),
who is an employee of PPI.
WHEREAS, the Board of Directors of PPI (the "Board") on August 6, 1998
adopted, with subsequent stockholder approval, the Purchase Pro
International, Inc. Stock Option and Incentive Plan (the "Plan");
WHEREAS, the Plan provides for the granting of incentive stock options by a
committee to be appointed by the Board (the "Committee") to employees of
PPI or any affiliate of PPI to purchase shares of the Common Stock of PPI,
par value $.001 per share (the "Stock"), in accordance with the terms and
provisions thereof; and
WHEREAS, the Grantee is eligible for a grant of incentive stock options
under the Plan.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
<PAGE>
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, PPI,
with the approval and at the direction of the Committee, hereby grants
to the Grantee, as of the Date of Grant, an option to purchase up to
__________ shares of Stock at a price of $___________ per share, the
fair market value. Such option is hereinafter referred to as the
"Option" and the shares of stock purchasable upon exercise of the
Option are hereinafter sometimes referred to as the "Option Shares."
The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under
section 422 of the Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein and to
the provisions concerning the occurrence of a Change in Control and an
Involuntary Termination (both as defined in the Plan), the Option
shall become exercisable in three (3) installments, the Grantee having
the right hereunder to purchase from PPI the following number of
Option Shares upon exercise of the Option, on and after the following
dates, in cumulative fashion:
(a) on and after the first anniversary of the Date of
Grant, up to one-third (ignoring fractional shares) of the total
number of Option Shares;
(b) on and after the second anniversary of the Date of
Grant, up to an additional one-third (ignoring fractional shares)
of the total number of Option Shares; and
(c) on and after the third anniversary of the Date of
Grant, the remaining Option Shares.
Notwithstanding the above installment provisions, but only for a
period of 90 days beginning on the date of an Involuntary Termination
following a Change in Control, the Option shall become immediately and
fully exercisable by the Grantee provided (i) the Change in Control
occurs before the Participant's Continuous Service terminates and (ii)
the Grantee is subject to an Involuntary Termination within 12 months
following such Change in Control. At the time of such qualifying
Involuntary Termination, the Grantee shall, at the sole discretion of
the Committee, be entitled to receive cash in an amount equal to the
excess of the fair market value of the Stock subject to the Option
over the exercise price of such Stock, in exchange for the
cancellation of the Option by the Grantee.
<PAGE>
3. Termination of Option.
(a) The option and all rights hereunder with respect
thereto, to the extent such rights shall not have been exercised
or previously terminated pursuant to paragraph (b) immediately
below, shall terminate and become null and void after the
expiration of five years from the Date of Grant (the "Option
Term").
(b) Upon the occurrence of the Grantee's ceasing for
any reason to be employed by PPI (such occurrence being a
"termination of the Grantee's employment"), the Option, to the
extent not previously exercised, shall terminate and become null
and void immediately upon such termination of the Grantee's
employment, except in a case where the termination of the
Grantee's employment is by reason of disability (within the
meaning of Section 22(e)(3) of the Code) or death. Upon a
termination of the Grantee's employment by reason of such
disability or death, the Option may be exercised during the six-
month period following the date of such disability or death, but
only to the extent that the Option was outstanding and
exercisable on any such date of disability or death. In addition,
the Committee in its sole discretion, by written notice given to
the Grantee, may permit the Grantee to exercise the Option for a
period of up to three months following the date of termination of
the Grantee's employment. In no event, however, shall any such
period extend beyond the Option Term.
(c) In the event of the death of the Grantee, the
Option may be exercised by the Grantee's legal representative(s),
but only to the extent that the Option would otherwise have been
exercisable by the Grantee.
(d) A transfer of the Grantee's employment between PPI
and any affiliate of PPI, or between any affiliates of PPI, shall
not be deemed to be a termination of the Grantee's employment.
(e) Notwithstanding any other provisions set forth
herein or in the Plan, if the Grantee shall (i) commit any act of
malfeasance or wrongdoing affecting PPI or any affiliate of PPI,
(ii) breach any covenant not to compete, or employment contract,
with PPI or any affiliate of PPI, or (iii) engage in conduct that
would warrant the Grantee's discharge for Cause (as defined in
the Plan), any unexercised portion of the Option shall
immediately terminate and be void.
4. Exercise of Options.
<PAGE>
(a) The Grantee may exercise the Option with respect
to all or any part of the number of Option Shares then
exercisable hereunder by giving the Chief Financial Officer of
PPI written notice of intent to exercise. The notice of exercise
shall specify the number of Option Shares as to which the Option
is to be exercised and the date of exercise thereof, which date
shall be at least five days after the giving of such notice
unless an earlier time shall have been mutually agreed upon.
(b) Full payment (in U.S. dollars) by the Grantee of
the option price for the Option Shares purchased shall be made on
or before the exercise date specified in the notice of exercise
in cash, or, with the prior written consent of the Committee, in
whole or in part through the surrender of previously acquired
shares of Stock at their fair market value on the exercise date.
On the exercise date specified in the Grantee's notice
or as soon thereafter as is practicable, PPI shall cause to be
delivered to the Grantee, a certificate or certificates for the
Option Shares then being purchased (out of theretofore unissued
Stock or reacquired Stock, as PPI may elect) upon full payment
for such Option Shares. The obligation of PPI to deliver Stock
shall, however, be subject to the condition that if at any time
the Committee shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares
upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection
with, the Option or the issuance or purchase of Stock thereunder,
the Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall
have been effected or obtained free of any condition not
acceptable to the Committee. The Grantee also may be required to
consent to the terms of any form of stockholders' agreement with
respect to the Stock, including but not limited to the
stockholders' agreement entered into June 1, 1998 by and among
PPI and shareholders of PPI identified therein.
(c) If the Grantee fails to pay for any of the Option
Shares specified in such notice or fails to accept delivery
thereof, the Grantee's right to purchase such Option Shares may
be terminated by PPI. The date specified in the Grantee's notice
as the date of exercise shall be deemed the date of exercise of
the Option, provided that payment in full for the Option Shares
to be purchased upon such exercise shall have been received by
such date.
5. Adjustment of and Changes in Stock of PPI.
<PAGE>
In the event of a reorganization, recapitalization, change of
shares, stock split, spin-off, stock dividend, reclassification,
subdivision or combination of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or shares of
capital stock of PPI, the Committee shall make such adjustment as it
deems appropriate in the number and kind of shares of Stock subject to
the Option or in the option price; provided, however, that no such
adjustment shall give the Grantee any additional benefits under the
Option.
6. Fair Market Value.
If the Stock is listed on a national securities exchange
(including the Nasdaq National Market System) on the date in question,
then the fair market value per share shall be the average of the
highest and lowest selling prices on such exchange on such date, or if
no trade was reported on such date, then it shall be the mean between
the bid and asked prices on such date. If the Stock is traded
otherwise than on a national securities exchange on the date in
question, then the fair market value per share shall be the mean
between the bid and asked prices on such date, or, if there are no bid
and asked prices on such date, then on the next prior business day on
which there were bid and asked prices. If no such bid and asked prices
are available, then the fair market value per share shall be its fair
market value as determined in good faith by the Committee, in its sole
and absolute discretion.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or
shall have any of the rights and privileges of, a stockholder of PPI
with respect to any shares of Stock purchasable or issuable upon the
exercise of the Option, in whole or in part, prior to the date of
exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal
representative of the Grantee, and the Option shall not be
transferrable except, in case of the death of the Grantee, by will or
the laws of descent and distribution, nor shall the Option be subject
to attachment, execution or other similar process. In the event of (a)
any attempt by the Grantee to alienate, assign, pledge, hypothecate or
otherwise dispose of the Option, except as provided for herein, or (b)
the levy of any attachment, execution or similar process upon the
rights or interest hereby conferred, PPI may terminate the Option by
notice to the Grantee and it shall thereupon become null and void.
9. Employment Not Affected.
<PAGE>
The granting of the Option or its exercise shall not be construed
as granting to the Grantee any right with respect to continuance of
employment with PPI. Except as may otherwise be limited by a written
agreement between PPI and the Grantee, the right of PPI to terminate
at will the Grantee's employment with it at any time (whether by
dismissal, discharge, retirement or otherwise) is specifically
reserved by PPI and acknowledged by the Grantee.
10. Amendment of Option.
The Option may be amended by the Board or the Committee at any
time (i) if the Board or the Committee determines, in its sole
discretion, that amendment is necessary or advisable in the light of
any addition to or change in the Internal Revenue Code of 1986 or in
the regulations issued thereunder, or any federal or state securities
law or other law or regulation, which change occurs after the Date of
Grant and by its terms applies to the Option; or (ii) other than in
the circumstances described in clause (i), with the consent of the
Grantee.
11. Notice.
Any notice to PPI provided for in this instrument shall be
addressed to it in care of its Chief Financial Officer at its
executive offices at 6285 Industrial Boulevard, Suite A, Las Vegas, NV
89118, and any notice to the Grantee shall be addressed to the Grantee
at the current address shown on the payroll records of PPI. Any notice
shall be deemed to be duly given if and when properly addressed and
posted by registered or certified mail, postage prepaid.
12. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the
terms of which are incorporated herein by reference, and the Option
shall in all respects be interpreted in accordance with the Plan. The
Committee shall interpret and construe the Plan and this instrument,
and its interpretations and determinations shall be conclusive and
binding on the parties hereto and any other person claiming an
interest hereunder, with respect to any issue arising hereunder or
thereunder.
13. Governing Law.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in
accordance with the law of the State of Nevada, except to the extent
preempted by federal law, which shall to the extent govern.
<PAGE>
14. Confidentiality.
The Grantee agrees that, from the time of execution of this
instrument, the Grantee will keep the specific terms and conditions of
this Grant completely confidential and not disclose any such
information to anyone except his or her spouse or tax advisors. To the
extent Grantee shall disclose such matters to his or her spouse or tax
advisors, the Grantee shall advise such persons that they shall
consider themselves bound by the same terms. The parties agree that
the Grantee shall be permitted to release the fact of the grant of the
Option as set forth above as may be required on a financial statement,
tax return or other such business or legal document or as otherwise
may be required by law or a court of appropriate jurisdiction.
IN WITNESS WHEREOF, PPI has caused its duly authorized officer to execute
this Grant of Incentive Stock Option, and the Grantee has placed his or her
signature hereon, effective as of the Date of Grant.
PURCHASE PRO INTERNATIONAL, INC.
By: ________________________________________
Title: _____________________________________
ACCEPTED AND AGREED TO:
By: ________________________________________
Grantee
<PAGE>
Purchase Pro International, Inc.
Stock Option and Incentive Plan
CLASS C
Employees
<PAGE>
Purchase Pro International, Inc. Stock Option and Incentive Plan
GRANT OF INCENTIVE STOCK OPTION
Date of Grant: __________________, 1998
THIS GRANT, dated as of the date of grant first stated above (the "Date of
Grant"), is delivered by Purchase Pro International, Inc., a Nevada corporation
("PPI"), to ________________________________________________ (the "Grantee"),
who is an employee of PPI.
WHEREAS, the Board of Directors of PPI (the "Board") on August 6, 1998
adopted, with subsequent stockholder approval, the Purchase Pro
International, Inc. Stock Option and Incentive Plan (the "Plan");
WHEREAS, the Plan provides for the granting of incentive stock options by a
committee to be appointed by the Board (the "Committee") to employees of
PPI or any affiliate of PPI to purchase shares of the Common Stock of PPI,
par value $.001 per share (the "Stock"), in accordance with the terms and
provisions thereof; and
WHEREAS, the Grantee is eligible for a grant of incentive stock options
under the Plan.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
<PAGE>
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, PPI,
with the approval and at the direction of the Committee, hereby grants
to the Grantee, as of the Date of Grant, an option to purchase up to
__________ shares of Stock at a price of $___________ per share, the
fair market value. Such option is hereinafter referred to as the
"Option" and the shares of stock purchasable upon exercise of the
Option are hereinafter sometimes referred to as the "Option Shares."
The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under
section 422 of the Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein and to
the provisions concerning the occurrence of a Change in Control and an
Involuntary Termination (both as defined in the Plan), the Option
shall become exercisable in four (4) installments, the Grantee having
the right hereunder to purchase from PPI the following number of
Option Shares upon exercise of the Option, on and after the following
dates, in cumulative fashion:
(a) on and after the first anniversary of the Date of Grant,
up to one-fourth (ignoring fractional shares) of the total number
of Option Shares;
(b) on and after the second anniversary of the Date of
Grant, up to an additional one-fourth (ignoring fractional
shares) of the total number of Option Shares;
(c) on or after the third anniversary of the Date of Grant,
up to an additional one-fourth (ignoring fractional shares) of
the total number of Option Shares; and
(d) on and after the fourth anniversary of the Date of
Grant, the remaining Option Shares.
Notwithstanding the above installment provisions, but only for a
period of 90 days beginning on the date of an Involuntary Termination
following a Change in Control, the Option shall become immediately and
fully exercisable by the Grantee provided (i) the Change in Control
occurs before the Participant's Continuous Service terminates and (ii)
the Grantee is subject to an Involuntary Termination within 12 months
following such Change in Control. At the time of such qualifying
Involuntary Termination, the Grantee shall, at the sole discretion
<PAGE>
of the Committee, be entitled to receive cash in an amount equal to
the excess of the fair market value of the Stock subject to the Option
over the exercise price of such Stock, in exchange for the
cancellation of the Option by the Grantee.
3. Termination of Option.
(a) The option and all rights hereunder with respect
thereto, to the extent such rights shall not have been exercised
or previously terminated pursuant to paragraph (b) immediately
below, shall terminate and become null and void after the
expiration of five years from the Date of Grant (the "Option
Term").
(b) Upon the occurrence of the Grantee's ceasing for any
reason to be employed by PPI (such occurrence being a
"termination of the Grantee's employment"), the Option, to the
extent not previously exercised, shall terminate and become null
and void immediately upon such termination of the Grantee's
employment, except in a case where the termination of the
Grantee's employment is by reason of disability (within the
meaning of Section 22(e)(3) of the Code) or death. Upon a
termination of the Grantee's employment by reason of such
disability or death, the Option may be exercised during the six-
month period following the date of such disability or death, but
only to the extent that the Option was outstanding and
exercisable on any such date of disability or death. In addition,
the Committee in its sole discretion, by written notice given to
the Grantee, may permit the Grantee to exercise the Option for a
period of up to three months following the date of termination of
the Grantee's employment. In no event, however, shall any such
period extend beyond the Option Term.
(c) In the event of the death of the Grantee, the Option may
be exercised by the Grantee's legal representative(s), but only
to the extent that the Option would otherwise have been
exercisable by the Grantee.
(d) A transfer of the Grantee's employment between PPI and
any affiliate of PPI, or between any affiliates of PPI, shall not
be deemed to be a termination of the Grantee's employment.
(e) Notwithstanding any other provisions set forth herein or
in the Plan, if the Grantee shall (i) commit any act of
malfeasance or wrongdoing affecting PPI or any affiliate of PPI,
(ii) breach any covenant not to compete, or employment contract,
with PPI or any affiliate of PPI, or (iii) engage in conduct that
would warrant the Grantee's discharge for
3
<PAGE>
Cause (as defined in the Plan), any unexercised portion of the
Option shall immediately terminate and be void.
4. Exercise of Options.
(a) The Grantee may exercise the Option with respect to all
or any part of the number of Option Shares then exercisable
hereunder by giving the Chief Financial Officer of PPI written
notice of intent to exercise. The notice of exercise shall
specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof, which date shall
be at least five days after the giving of such notice unless an
earlier time shall have been mutually agreed upon.
(b) Full payment (in U.S. dollars) by the Grantee of the
option price for the Option Shares purchased shall be made on or
before the exercise date specified in the notice of exercise in
cash, or, with the prior written consent of the Committee, in
whole or in part through the surrender of previously acquired
shares of Stock at their fair market value on the exercise date.
On the exercise date specified in the Grantee's notice or as
soon thereafter as is practicable, PPI shall cause to be
delivered to the Grantee, a certificate or certificates for the
Option Shares then being purchased (out of theretofore unissued
Stock or reacquired Stock, as PPI may elect) upon full payment
for such Option Shares. The obligation of PPI to deliver Stock
shall, however, be subject to the condition that if at any time
the Committee shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares
upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection
with, the Option or the issuance or purchase of Stock thereunder,
the Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall
have been effected or obtained free of any condition not
acceptable to the Committee. The Grantee also may be required to
consent to the terms of any form of stockholders' agreement with
respect to the Stock, including but not limited to the
stockholders' agreement entered into June 1, 1998 by and among
PPI and shareholders of PPI identified therein.
(c) If the Grantee fails to pay for any of the Option Shares
specified in such notice or fails to accept delivery thereof, the
Grantee's right to purchase such Option Shares may be terminated
by PPI. The date specified in the Grantee's notice as the date of
exercise shall be deemed
<PAGE>
the date of exercise of the Option, provided that payment in full
for the Option Shares to be purchased upon such exercise shall
have been received by such date.
5. Adjustment of and Changes in Stock of PPI.
In the event of a reorganization, recapitalization, change of
shares, stock split, spin-off, stock dividend, reclassification,
subdivision or combination of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or shares of
capital stock of PPI, the Committee shall make such adjustment as it
deems appropriate in the number and kind of shares of Stock subject to
the Option or in the option price; provided, however, that no such
adjustment shall give the Grantee any additional benefits under the
Option.
6. Fair Market Value.
If the Stock is listed on a national securities exchange
(including the Nasdaq National Market System) on the date in question,
then the fair market value per share shall be the average of the
highest and lowest selling prices on such exchange on such date, or if
no trade was reported on such date, then it shall be the mean between
the bid and asked prices on such date. If the Stock is traded
otherwise than on a national securities exchange on the date in
question, then the fair market value per share shall be the mean
between the bid and asked prices on such date, or, if there are no bid
and asked prices on such date, then on the next prior business day on
which there were bid and asked prices. If no such bid and asked prices
are available, then the fair market value per share shall be its fair
market value as determined in good faith by the Committee, in its sole
and absolute discretion.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or
shall have any of the rights and privileges of, a stockholder of PPI
with respect to any shares of Stock purchasable or issuable upon the
exercise of the Option, in whole or in part, prior to the date of
exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the Option hereunder shall be
exercisable only by the Grantee or any guardian or legal
representative of the Grantee, and the Option shall not be
transferrable except, in case of the death of the Grantee, by will or
the laws of descent and distribution, nor shall the Option be subject
to attachment, execution or other similar process. In the event of (a)
any attempt by
<PAGE>
the Grantee to alienate, assign, pledge, hypothecate or otherwise
dispose of the Option, except as provided for herein, or (b) the levy
of any attachment, execution or similar process upon the rights or
interest hereby conferred, PPI may terminate the Option by notice to
the Grantee and it shall thereupon become null and void.
9. Employment Not Affected.
The granting of the Option or its exercise shall not be construed
as granting to the Grantee any right with respect to continuance of
employment with PPI. Except as may otherwise be limited by a written
agreement between PPI and the Grantee, the right of PPI to terminate
at will the Grantee's employment with it at any time (whether by
dismissal, discharge, retirement or otherwise) is specifically
reserved by PPI and acknowledged by the Grantee.
10. Amendment of Option.
The Option may be amended by the Board or the Committee at any
time (i) if the Board or the Committee determines, in its sole
discretion, that amendment is necessary or advisable in the light of
any addition to or change in the Internal Revenue Code of 1986 or in
the regulations issued thereunder, or any federal or state securities
law or other law or regulation, which change occurs after the Date of
Grant and by its terms applies to the Option; or (ii) other than in
the circumstances described in clause (i), with the consent of the
Grantee.
11. Notice.
Any notice to PPI provided for in this instrument shall be
addressed to it in care of its Chief Financial Officer at its
executive offices at 6285 Industrial Boulevard, Suite A, Las Vegas, NV
89118, and any notice to the Grantee shall be addressed to the Grantee
at the current address shown on the payroll records of PPI. Any notice
shall be deemed to be duly given if and when properly addressed and
posted by registered or certified mail, postage prepaid.
12. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the
terms of which are incorporated herein by reference, and the Option
shall in all respects be interpreted in accordance with the Plan. The
Committee shall interpret and construe the Plan and this instrument,
and its interpretations and determinations shall be conclusive and
binding on the parties hereto and any other person
<PAGE>
claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
13. Governing Law.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in
accordance with the law of the State of Nevada, except to the extent
preempted by federal law, which shall to the extent govern.
14. Confidentiality.
The Grantee agrees that, from the time of execution of this
instrument, the Grantee will keep the specific terms and conditions of
this Grant completely confidential and not disclose any such
information to anyone except his or her spouse or tax advisors. To the
extent Grantee shall disclose such matters to his or her spouse or tax
advisors, the Grantee shall advise such persons that they shall
consider themselves bound by the same terms. The parties agree that
the Grantee shall be permitted to release the fact of the grant of the
Option as set forth above as may be required on a financial statement,
tax return or other such business or legal document or as otherwise
may be required by law or a court of appropriate jurisdiction.
IN WITNESS WHEREOF, PPI has caused its duly authorized officer to execute
this Grant of Incentive Stock Option, and the Grantee has placed his or her
signature hereon, effective as of the Date of Grant.
PURCHASE PRO INTERNATIONAL, INC.
By: ________________________________________
Title: _____________________________________
ACCEPTED AND AGREED TO:
By: ________________________________________
Grantee
<PAGE>
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
AMONG
PURCHASE PRO INTERNATIONAL, INC.
AND
THE PURCHASERS LISTED ON
SCHEDULE I HERETO
DATED AS OF JUNE 1, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. SALE AND PURCHASE OF SHARES................................. 1
1.1 Sale and Purchase of Shares................................. 1
2. PURCHASE PRICE.............................................. 1
2.1 Amount of Purchase Price.................................... 1
2.2 Payment of the Purchase Price............................... 1
3. CLOSING; TERMINATION OF AGREEMENT........................... 1
3.1 Closing Date................................................ 1
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 2
4.1 Organization and Good Standing.............................. 2
4.2 Authorization of Agreement; Enforceability.................. 2
4.3 Subsidiaries................................................ 3
4.4 Consents of Third Parties................................... 3
4.5 Authorization of Preferred Shares........................... 3
4.6 Financial Statements........................................ 4
4.7 No Undisclosed Liabilities.................................. 4
4.8 Absence of Certain Developments............................. 4
4.9 Taxes....................................................... 6
4.10 Real Property............................................... 7
4.11 Tangible Personal Property.................................. 8
4.12 Intangible Property......................................... 8
4.13 Material Contracts.......................................... 10
4.14 Employee Benefits........................................... 11
4.15 Employees................................................... 12
4.16 Litigation.................................................. 12
4.17 Compliance with Laws; Permits............................... 13
4.18 Environmental Matters....................................... 13
4.19 Investment Company Act...................................... 14
4.20 Transactions with Affiliates................................ 14
4.21 Disclosure; Survival........................................ 14
4.22 Financial Advisors.......................................... 15
4.23 Insurance................................................... 15
4.24 Improper Actions............................................ 15
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............ 15
5.1 Organization and Good Standing.............................. 15
5.2 Authorization of Agreement.................................. 16
5.3 Purchaser Representation.................................... 16
5.4 Investment Intention........................................ 16
5.5 Financial Advisors.......................................... 16
5.6 Reliance.................................................... 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
6. FURTHER AGREEMENTS OF THE PARTIES........................... 17
6.1 Covenants................................................... 17
6.2 Use of Proceeds............................................. 17
6.3 Access to Information....................................... 17
6.4 Confidentiality............................................. 17
6.5 Other Actions............................................... 18
6.6 Indemnity................................................... 18
6.7 U.S. Real Property Holding Corporation...................... 18
6.8 Financial Statements, Reports, Etc.......................... 18
6.9 Issuance of Stock........................................... 20
6.10 Life Insurance.............................................. 20
7. DOCUMENTS TO BE DELIVERED AT THE CLOSING.................... 20
7.1 Documents to be Delivered by the Company.................... 20
7.2 Delivery of Purchase Price.................................. 20
8. MISCELLANEOUS............................................... 21
8.1 Certain Definitions......................................... 21
8.2 Tax Treatment of Preferred Stock............................ 25
8.3 Expenses.................................................... 25
8.4 Specific Performance........................................ 25
8.5 Further Assurances.......................................... 25
8.6 Submission to Jurisdiction; Consent to Service of Process... 25
8.7 Entire Agreement; Amendments and Waivers.................... 26
8.8 Governing Law............................................... 26
8.9 Table of Contents; Headings; Interpretive Matters........... 26
8.10 Notices..................................................... 26
8.11 Severability................................................ 27
8.12 Binding Effect; Assignment.................................. 27
8.13 Counterparts................................................ 27
</TABLE>
-ii-
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of June 1, 1998 (this "Agreement"),
among Purchase Pro International, Inc., a Nevada corporation (the "Company"),
the Purchasers listed on Schedule I (the "Purchasers") and Charles E. Johnson,
Jr.
W I T N E S S E T H :
WHEREAS, the Company desires to issue to each Purchaser, and each Purchaser
desires to purchase from the Company, the Shares (as such term is defined below)
in such amounts as set forth next to such Purchaser on Schedule 1; and
WHEREAS, Charles E. Johnson, Jr. is the principal stockholder of the
Company; and
WHEREAS, certain terms used in this Agreement are defined in Section 8.1
hereof;
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter contained, the parties hereto hereby agree as follows:
1. Sale and purchase of Shares.
----------------------------
1.1 Sale and Purchase of Shares. Subject to the terms and conditions of
---------------------------
this Agreement, on the Closing Date (as defined in Section 3.1 hereof) the
Company shall sell, assign, transfer, convey and deliver to each Purchaser, and
each Purchaser shall purchase from the Company the number of shares of Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred
Stock") listed next to such Purchaser on Schedule I (the "Shares"), for the
Purchase Price (as defined in Section 2.1 below) and upon the terms and
conditions hereinafter set forth.
2. Purchase Price.
---------------
2.1 Amount of Purchase Price. The purchase price for the Shares shall be
as indicated on Schedule I (the "Purchase Price"). The Purchase Price shall be
payable as provided in Section 2.2 hereof.
2.2 Payment of the Purchase Price. At the Closing, the Purchasers shall
------------------------------
pay the Purchase Price by wire transfer of clearinghouse funds or by such other
method as may be reasonably acceptable to the Company and the Purchasers to such
account of the Company as shall have been designated in advance to the
Purchasers by the Company.
3. Closing; Termination of Agreement.
----------------------------------
3.1 Closing Date. The closing of the sale and purchase of the Shares
------------
provided for in Section 1.1 (the "Closing") shall take place at 2:00 p.m. at the
offices of the Company in Las Vegas, Nevada (or at such other place as the
parties hereto may mutually agree) on the date hereof, or on such other date as
the parties hereto may mutually agree. The date on which the Closing is held is
referred to in this Agreement as the "Closing Date." At the Closing, the parties
shall execute and deliver the documents referred to in Section 7 hereof.
-1-
<PAGE>
4. Representations and Warranties of the Company. The Company and Charles
----------------------------------------------
E. Johnson, Jr. jointly and severally represent and warrant to each Purchaser
that:
4.1 Organization and Good Standing.
------------------------------
(a) The Company is duly organized, validly existing and in good standing
under the laws of the State of Nevada and has full corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
as now conducted and as it is proposed to be conducted. The Company is duly
qualified or authorized to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which the conduct of its
business or the ownership of its properties or assets requires such
qualification or authorization, except for those jurisdictions where the failure
to be so qualified would not, individually or in the aggregate, have or result
in a material adverse effect on the business, properties, results of operations,
prospects or conditions (financial or otherwise) of the Company.
(b) The authorized capital stock of the Company is as set forth on
Schedule 4.1(b). Except as disclosed on Schedule 4.1(b), there is no existing
option, warrant, call, right, commitment or other agreement of any character to
which the Company is a party requiring, and there are no securities of the
Company outstanding which upon conversion or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
equity securities of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares of
capital stock or other equity securities of the Company. Except as disclosed on
Schedule 4. l(b), the Company is not a party to, nor aware of, any voting trust
or other voting agreement with respect to any of the securities of the Company
or to any agreement relating to the issuance, sale, redemption, transfer or
other disposition of the capital stock of the Company.
(c) Immediately after the Closing, the Shares (assuming immediate
conversion into Common Stock) would represent approximately 19.8% of the
outstanding Common Stock of the Company on a fully-diluted basis (assuming
exercise of all outstanding options, warrants or other rights to acquire Common
Stock).
4.2 Authorization of Agreement; Enforceability. The Company has all
------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and each other agreement, document, instrument or certificate contemplated by
this Agreement or to be executed by the Company in connection with the
consummation of the transactions contemplated by this Agreement (the
"Transaction Documents"), and to perform fully its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of this
Agreement and the Transaction Documents have been duly authorized by all
necessary corporate action on the part of the Company and its shareholders. This
Agreement and each of the Transaction Documents have been duly and validly
executed and delivered by the Company and (assuming the due authorization,
execution and delivery thereof by each Purchaser) this Agreement and each of the
Transaction Documents constitutes the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting
-2-
<PAGE>
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.3 Subsidiaries.
------------
The Company has no Subsidiaries.
4.4 Consents of Third Parties. None of the execution and delivery by the
-------------------------
Company of this Agreement and the Transaction Documents, the consummation of the
transactions contemplated hereby or thereby, or compliance by the Company with
any of the provisions hereof or thereof will (a) conflict with, or result in the
breach of, any provision of the articles of incorporation or by-laws of the
Company; (b) conflict with, violate, result in the breach or termination of, or
constitute a default or give rise to any right of termination or acceleration or
right to increase the obligations or otherwise modify the terms thereof under
any Contract, Permit or Order to which the Company is a party or by which the
Company or any of its properties or assets is bound; (c) constitute a violation
of any Law applicable to the Company, or (d) result in the creation of any Lien
upon the properties or assets of the Company, other than, in the case of clauses
(b), (c) and (d), any such conflict, violation, breach, termination,
acceleration or other event which, individually or in the aggregate, could not
reasonably be expected to cause a Material Adverse Change. Other than those
which have been obtained or made, no consent, waiver, approval, Order, Permit or
authorization of, or declaration or filing with, or notification to, any Person
or Governmental Body is required on the part of the Company in connection with
the execution and delivery of this Agreement or the Transaction Documents, or
the compliance by the Company with any of the provisions hereof or thereof.
4.5 Authorization of Preferred Shares. The issuance, sale, and delivery
---------------------------------
of the Shares have been duly authorized by all requisite action of the Company,
and, when issued, sold, and delivered in accordance with this Agreement, the
Shares and the Common Stock deliverable upon conversion of the Shares will be
validly issued and outstanding, fully paid, and non-assessable, with no personal
liability attaching to the ownership thereof, and, except as may be set forth in
the Stockholders Agreement, not subject to preemptive or any other similar
rights of the shareholders of the Company or others.
4.6 Financial Statements. The Company has provided prior to the Closing
--------------------
Date (a) copies of the unaudited balance sheets of the Company as of March 31,
1998 and the related unaudited statements of income and cash flows for the
quarter then ended (the "Unaudited Financial Statements") and (b) the [audited]
balance sheets of the Company as of December 31, 1997 and the related
consolidated statements of income and cash flows for such year ended (such
statements, including the related notes and schedules thereto, and the Unaudited
Financial Statements, are referred to herein as the "Financial Statements").
Each of the Financial Statements was prepared in good faith by the Company, is
complete and correct in all material respects, has been prepared in accordance
with GAAP and in conformity with the practices consistently applied by the
Company and presents fairly the financial position, results of operations and
cash flows of the Company as of the dates and for the periods indicated, except,
with respect to the Unaudited Financial Statements, for the absence of footnotes
and year end adjustments.
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<PAGE>
4.7 No Undisclosed Liabilities.
--------------------------
(a) Except as set forth on Schedule 4.7, the Company has no liabilities
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due or asserted or unasserted), except (i) obligations under Contracts
described in Schedule 4.13 or under Contracts that are not required to be
disclosed thereon as a result of dollar thresholds therein; (ii) liabilities
provided for in the Unaudited Financial Statements; (iii) liabilities (other
than accounts payable) incurred since the Unaudited Financial Statements, in the
ordinary course of business, the sum of which is, in the aggregate, no greater
than $50,000; and (iv) accounts payable in excess of those shown on the
Unaudited Financial Statements, incurred in the ordinary course of business, the
sum of which is, in the aggregate, not greater than $50,000. Unless specifically
disclosed as a breach on Schedule 4.7, disclosure of a Contract on Schedule 4.13
shall not be indicative of a breach of any provision of such Contract.
(b) The Company does not have any indebtedness to Charles E. Johnson,
Jr.
4.8 Absence of Certain Developments.
-------------------------------
(a) Except as set forth in Schedule 4.8(a), the general nature of the
business of the Company (the "Business") is described in the Information
Memorandum dated April 1998 (the "Information Memorandum") which previously has
been delivered to the Purchasers.
(b) Except as set forth in Schedule 4.8(b) and since the date of the
Unaudited Financial Statements:
(i) there has not been any Material Adverse Change nor has any event
occurred which could reasonably be expected to result in any Material Adverse
Change; or
(ii) there has not been any damage, destruction or loss, whether or not
covered by insurance, with respect to the property and assets of the Company
having a replacement cost of more than $10,000 for any single loss or $50,000
for all such losses;
(iii) there has not been any declaration, setting a record date, setting
aside or authorizing the payment of, any dividend or other distribution in
respect of any shares of capital stock of the Company or any repurchase,
redemption or other acquisition by the Company, of any of the outstanding shares
of capital stock or other securities of, or other ownership interest in, the
Company;
(iv) except for proposed grants of options to purchase 485,000 shares
under the Company's stock option plan, there has not been any transfer, issue,
sale or other disposition by the Company of any shares of capital stock or other
securities of the Company or any grant of options, warrants, calls or other
rights to purchase or otherwise acquire shares of such capital stock or such
other securities;
-4-
<PAGE>
(v) except with respect to the hiring of new Employees in the ordinary
course of business whose annual compensation in the aggregate is not greater
than $250,000 (exclusive of benefits), the Company has not awarded or paid any
bonuses to Employees of the Company nor has the Company entered into any
employment, deferred compensation, severance or similar agreements (nor amended
any such agreement) or agreed to increase the compensation payable or to become
payable by it to any of the Company's directors, officers, Employees, agents or
Representatives or agreed to increase the coverage or benefits available under
any severance pay, termination pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with such directors, officers, Employees,
agents or Representatives, other than in the ordinary course of business
consistent with past practice which increases in the aggregate do not exceed
$50,000 in annual cost to the Company, and other than as may have been required
by law or insurers;
(vi) the Company has not made any loans, advances or capital
contributions to, or investments in, any Person or paid any fees or expenses to
any Affiliate of the Company, other than for reimbursement of expenses in the
ordinary course of business consistent with past practices;
(vii) the Company has not mortgaged, pledged or subjected to any Lien any
of its assets, or acquired any assets or sold, assigned, transferred, conveyed,
leased or otherwise disposed of any assets, except for assets acquired or sold,
assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary
course of business consistent with past practice;
(viii) the Company has not discharged or satisfied any Lien, or paid any
obligation or liability (fixed or contingent), except in the ordinary course of
business consistent with past practice and which, in the aggregate, would not be
material to the Company;
(ix) the Company has not canceled or compromised any debt or claim or
amended, canceled, terminated, relinquished, waived or released any Contract or
right except in the ordinary course of business consistent with past practice
and which, in the aggregate, would not be material to the Company;
(x) the Company has not transferred or granted any rights under any
contracts, leases, licenses, agreements or Intangible Property (as defined in
Section 4.12 hereof) used by the Company in its business which reasonably could
be expected to result in a Material Adverse Change; and
(xi) the Company has not made any binding commitment to make any capital
expenditures or capital additions or betterments in excess of $50,000 in the
aggregate.
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<PAGE>
4.9 Taxes.
-----
(a) The amount, if any, shown on the Unaudited Financial Statements, as
provision for Taxes is sufficient for payment of all accrued and unpaid federal,
state, county, local and foreign Taxes for the period then ended and all prior
periods.
(b) The Company has filed all Tax Returns (federal, state, county, local
and foreign) required to be filed by it and all such returns are true and
correct in all material respects. All Taxes shown to be due and payable on such
returns, any assessments imposed, and to the Company's knowledge all other Taxes
due and payable by the Company on or before the Closing have been paid or will
be paid prior to the time they become delinquent, other than those being
contested in good faith and listed on Schedule 4.9(b).
(c) Federal Income Tax Returns of the Company have not been audited by the
Internal Revenue Service, and no controversy with respect to Taxes of any type
is pending or, to the best of the Company's knowledge, threatened.
(d) Neither the Company nor any of its stockholders has ever filed (i) an
election pursuant to Section 1362 of the Code that the Company be taxed as an S
Corporation or (ii) consent pursuant to Section 341(f) of the Code relating to
collapsible corporations.
(e) Except as set forth on Schedule 4.9(e) , the Company's net operating
losses, if any, for federal income tax purposes, as set forth in the Financial
Statements, are not subject to any limitations imposed by Section 382 of the
Code, and consummation of the transactions contemplated by this Agreement or by
any other agreement, understanding or commitment, contingent or otherwise, to
which the Company is a party or by which it is otherwise bound will not have the
effect of limiting the Company's ability to use such net operating losses in
full to offset such taxable income.
(f) The Company has not waived any statute of limitation in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(g) The Company is not a party to any Income Tax allocation or sharing
agreement.
(h) The Company is not and has never been a member of an Affiliated Group
filing a consolidated Federal Income Tax Return.
(i) The Company is not a "United States real property holding corporation"
within the meaning of Section 847(c)(2) of the Internal Revenue Code of 1986, as
amended. 4.10 Real Property.
4.10 Real Property.
-------------
(a) The Company does not own any real property other than as set forth on
Schedule 4.10(a).
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<PAGE>
(b) Except as set forth on Schedule 4.10(b), the Company has good, legal,
and marketable title to all of its assets, including all properties and assets
free and clear of all Liens, except those assets disposed of since the date of
the Unaudited Financial Statements in the ordinary course of business and except
for Liens incurred in the ordinary course of business which would not impair the
Company's use of such property in any material way.
(c) Schedule 4.10(c) sets forth a complete list of all real property and
interests in real property leased by the Company (each a "Real Property Lease,"
and collectively, the "Real Property Leases") as lessee or lessor. The Company
has good and marketable title to the leasehold estates in all Real Property
Leases in each case free and clear of all Liens, except for Liens incurred in
the ordinary course of business which would not impair the Company's use of such
property in any material way. The Company has no reason to believe that such
title would not be insurable subject to customary exceptions.
(d) Each of the Real Property Leases is valid and enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity), and there is no material default under any Real Property Lease by the
Company or, to the best knowledge of the Company, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of notice or
both would constitute a material default thereunder. The Company has made
available to each Purchaser true, correct and complete copies of the Real
Property Leases, together with all amendments, modifications, supplements or
side letters affecting the obligations of any party thereunder.
(e) No previous or current party to any Real Property Lease has given
notice of or made a claim with respect to any breach or default thereunder. With
respect to those Real Property Leases that were assigned or subleased to the
Company by a third party, all necessary consents to such assignments or
subleases have been obtained.
4.11 Tangible Personal Property.
--------------------------
(a) Schedule 4.11(a) sets forth all leases of personal property ("Personal
Property Leases") involving annual payments in excess of $50,000 relating to
personal property used in the business of the Company or to which the Company is
a party or by which the Company or any of its respective properties or assets is
bound. The Company has made available to each Purchaser true, correct and
complete copies of the Personal Property Leases, together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder.
(b) (i) Each of the Personal Property Leases is in full force and effect
and is valid, binding and enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity),
-7-
<PAGE>
and there is no material default under any Personal Property Lease by the
Company or, to the best knowledge of the Company, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of notice or
both would constitute a material default thereunder; and
(ii) No previous or current party to any such Personal Property Lease has
given notice of or made a claim with respect to any breach or default
thereunder.
(c) With respect to those Personal Property Leases that were assigned or
subleased to the Company by a third party, all necessary consents to such
assignments or subleases have been obtained.
(d) The Company has good, legal and marketable title to all of the
material items of tangible personal property used by it (except as sold or
disposed of subsequent to the date hereof in the ordinary course of business
consistent with past practice), free and clear of any and all Liens, except for
Liens incurred in the ordinary course of business which would not impair the
Company's use of such property in any material way. All such items of tangible
personal property which, individually or in the aggregate, are material to the
operation of the business of the Company are suitable for the purposes used for
the operation of the business of the Company.
4.12 Intangible Property.
-------------------
(a) "Proprietary Rights" shall mean any and all of the following which
have been or are used and/or owned by, and/or issued or licensed to the Company,
along with all income, royalties, damages and payments due or payable at the
Closing or thereafter, including, without limitation, damages and payments for
past, present or future infringements or misappropriations thereof, the right to
sue and recover for past infringements or misappropriations thereof and any and
all corresponding rights that, now or hereafter, may be secured throughout the
world: patents, patent applications, patent disclosures and inventions (whether
or not patentable and whether or not reduced to practice) and any reissue,
continuation, continuation-in-part, division, revision, extension or
reexamination thereof, utility model registrations and applications; design
registrations and applications; trademarks, service marks, trade dress, logos,
trade names and corporate names together with all goodwill associated therewith,
copyrights registered or unregistered and copyrightable works; mask works; and
all registrations, applications, and renewals for any of the foregoing; trade
secrets and confidential information (including without limitation, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research and developmental information, drawings, specifications,
designs, plans, proposals, technical data, financial, business and marketing
plans, and customer and supplier lists and related information); computer
software and software systems (including, without limitation, data, databases,
object code, source code, macrocyte and firmware and related documentation);
other proprietary and intellectual property rights; licenses or other agreements
including but not limited to those assigning, waiving or relating to rights of
publicity, moral rights or neighboring rights to or from third parties; and all
copies and tangible embodiments of the foregoing
-8-
<PAGE>
(in whatever form or medium), in each case including, without limitation, the
items set forth on the Schedule 4.12(b) attached hereto.
(b) Schedule 4.12(b) sets forth a complete and correct list of (i) all
patents, trademark and servicemark registrations, copyright registrations and
other registered Proprietary Rights as well as all pending applications
therefor; (ii) all corporate names, trade names and unregistered trademarks used
by the Company (to the extent not reflected on other schedules attached hereto)
as their own marks; (iii) all material unregistered copyrightable works
authorized by the Company, mask works, and material computer software owned or
licensed by the Company (other than commercial software products generally
available to consumers); and (iv) all material licenses or similar agreements to
which the Company is or just prior to closing was a party either as licensee or
licensor for the Proprietary Rights, in each case identifying the subject
Proprietary Rights.
(c) Except as set forth on Schedule 4.12(c), (i) the Company owns and
possesses all right, title and interest, free and clear of all Liens, in and to,
and, to the best knowledge of the Company, has a valid and enforceable right to,
each of the Proprietary Rights as described on Schedule 4.12(b), and no claim by
any third party contesting the validity, enforceability, use or ownership of any
of the Proprietary Rights has been made, is currently outstanding or, to the
best knowledge of the Company, is threatened, except for those which could not
reasonably be expected, individually or in the aggregate, to cause a Material
Adverse Change; (ii) the Proprietary Rights comprise all material intellectual
property rights which are currently being used by the Company or which are
necessary for the operation of the business as currently conducted by the
Company, and as currently proposed to be conducted; (iii) no loss or expiration
of any Proprietary Right or related group of Proprietary Rights is, to the
Company's knowledge, threatened, or is pending or reasonably foreseeable, except
for those which could not reasonably be expected, individually or in the
aggregate, to cause a Material Adverse Change; (iv) the Company has not received
any notices of, nor is the Company aware of any facts which indicate a
likelihood of any infringement or misappropriation by, or conflict with, any
third party with respect to any of the Proprietary Rights including, without
limitation, any demand or request by the Company that such third party license
any of the Proprietary Rights from the Company or to the Company; (v) to the
best of the Company's knowledge, the Company has not infringed, misappropriated
or otherwise conflicted with any rights, including intellectual property rights,
of any third parties, and the Company is not aware of any infringement,
misappropriation or conflict by the Company of any third-party patent,
trademark, copyright or other intellectual property right, or of any such
infringement, misappropriation or conflict which shall occur as a result of the
continued operation of the business by the Company, as currently conducted or as
currently proposed to be conducted, and there is no demand or request from a
third party that the Company take a license under any intellectual property
right; and (vi) none of the Proprietary Rights owned by or licensed to the
Company are, to the best knowledge of the Company, being infringed,
misappropriated or conflicted by any third party.
(d) All of the Proprietary Rights are owned by, or properly assigned or
licensed to, the Company or use thereof is otherwise authorized, except to the
extent that
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<PAGE>
the failure to be so owned, assigned, licensed or otherwise authorized could not
reasonably be expected to, individually or in the aggregate, cause a Material
Adverse Change. The Company has not disclosed, and is not aware of any
disclosure by any other Person of, any of its trade secrets or confidential
information to any third party other than pursuant to a written confidentiality
agreement or disclosure to the Company's shareholders.
4.13 Material Contracts.
------------------
(a) Except as set forth on Schedule 4.13(a), neither the Company nor any
of its respective properties or assets is a party to or bound by any (i)
Contract not made in the ordinary course of business, or involving a commitment
or payment in excess of $50,000 or otherwise material to the business of the
Company; (ii) employment, consulting, non-competition, severance, "golden
parachute" or indemnification Contract involving, individually or in the
aggregate, annual payments of more than $100,000 (including, without limitation,
in each case any Contract to which the Company is a party involving Employees of
the Company); (iii) Contract among shareholders or granting a right of first
refusal or for a partnership or a joint venture or for the acquisition, sale or
lease of any assets (except in the ordinary course of business) or capital stock
of the Company or any other Person or involving a sharing of profits; (iv)
mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar Contract with respect to any real or tangible
personal property of the Company; (v) loan agreement, credit agreement,
promissory note, guarantee, subordination agreement, letter of credit or any
other similar type of Contract; (vi) Contract with any Governmental Body; (vii)
Contract with respect to the discharge, storage or removal of Hazardous
Materials; or (viii) binding commitment or agreement to enter into any of the
foregoing. The Company has delivered or otherwise made available to each
Purchaser true, correct and complete copies of the Contracts listed on Schedule
4.13(a) (except as noted thereon), together with all amendments, modifications,
supplements or side letters affecting the obligations of any party thereunder.
(b) (i) Each of the Contracts listed on Schedule 4.13(a) is valid and
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there is no material default under any
Contract listed on Schedule 4.13(a) by the Company or, to the best knowledge of
the Company, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a material
default thereunder.
(ii) No previous or current party to any Contract has given notice to the
Company of or made a claim with respect to any breach or default thereunder and
the Company is not aware of any notice of or claim to any such breach or
default.
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<PAGE>
(c) With respect to the Contracts listed on Schedule 4.13(a) that were
assigned to the Company by a third party, all necessary consents to such
assignment have been obtained.
4.14 Employee Benefits.
-----------------
(a) The Company has not made contributions to any pension, defined
benefit, or defined contribution plans for its Employees which are subject to
ERISA.
(b) Set forth on Schedule 4.14(b) is a true and complete list of each
Company Benefit Plan and each Employee Agreement providing for annual
compensation in excess of $75,000. Except as set forth on Schedule 4.14(b), the
Company does not have any plan or commitment, whether legally binding or not,
to establish any new Company Benefit Plan, to enter into any Employee Agreement
or to modify or to terminate any Company Benefit Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Benefit
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to the Purchasers, or as required by this
Agreement), nor has any intention to do any of the foregoing been communicated
to Employees.
(c) Except as set forth on Schedule 4.14(c), (i) the Company does not
maintain or contribute to any Company Benefit Plan which provides, or has any
liability to provide, life insurance, medical, severance or other employee
welfare benefits to any Employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the Code; and (ii) the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical, severance
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by Section 4980B of the Code.
(d) The Company (i) is in compliance with all applicable federal, state
and local laws, rules and regulations (domestic and foreign) respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, in each case, with respect to Employees, except where the
failure to be in such compliance could not reasonably be expected, individually
or in the aggregate, to cause a Material Adverse Change; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to Employees; (iii) is not liable for any arrearages of wages
or any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees.
(e) No work stoppage or labor strike against the Company by Employees is
pending or, to the best knowledge of the Company, threatened. The Company (i) is
not involved in or, to the best knowledge of the Company, threatened with any
significant labor dispute, grievance, or litigation relating to labor matters
involving any Employees, including, without limitation, violation of any
federal, state or local labor, safety or
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<PAGE>
employment laws (domestic of foreign), charges of significant unfair labor
practices or discrimination complaints; (ii) has not engaged in any unfair labor
practices within the meaning of the National Labor Relations Act or the Railway
Labor Act which would cause a Material Adverse Change; or (iii) is not presently
bound by, nor has been in the past a party to or bound by, any collective
bargaining agreement or union contract with respect to Employees and no such
agreement or contract is currently being negotiated by the Company or any of its
affiliates. No Employees are currently represented by any labor union for
purposes of collective bargaining and, to the best knowledge of the Company, no
activities the purpose of which is to achieve such representation of all or some
of such Employees are ongoing or threatened.
(f) Except as set forth on Schedule 4.14(f), no benefits shall accrue,
become payable vest or accelerate as a result of the Transaction under any
Company Benefit Plan or Employee Agreement, including, but not limited to, the
vesting of benefits under any "employee benefit plan" within the meaning of
Section 3(3) of ERISA, the acceleration of stock or stock related awards, or the
payment of any amount under any Employee Agreement or Company Benefit Plan.
4.15 Employees. Except as set forth on Schedule 4.15, to the best knowledge
---------
of the Company, no key executive Employee and no group of Employees or
independent contractors of the Company has any plans to terminate his, her or
its employment or relationship as an Employee or independent contractor with the
Company.
4.16 Litigation. There are no Legal Proceedings pending or, to the best
----------
knowledge of the Company, threatened that question the validity of this
Agreement or the Transaction Documents or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby. Schedule 4.16 sets forth a true, correct and complete list of
all Legal Proceedings pending or, to the best knowledge of the Company,
threatened against or affecting the Company or any of its properties or assets
(including Company Benefit Plans) of the Company, at law or in equity, and, to
the best knowledge of the Company, there is no reasonable basis for any other
such Legal Proceeding. There is no outstanding or, to the best knowledge of the
Company, threatened Order of any Governmental Body against, affecting or naming
the Company or affecting any of its properties or assets.
4.17 Compliance with Laws; Permits.
-----------------------------
(a) The Company is and at all times has been in compliance with all Laws
and Orders promulgated by any Governmental Body applicable to the Company or to
the conduct of the business or operations of the Company or the use of its
properties (including any leased properties) and assets, except where the
failure to be in such compliance could not reasonably be expected, individually
or in the aggregate, to cause a Material Adverse Change. The Company has not
received, and does not know of the issuance of, any notices of violation or
alleged violation of any such Law or Order by any Governmental Body.
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<PAGE>
(b) The Company has obtained all Permits necessary for the conduct of its
business as currently conducted, except where the failure to obtain a Permit
could not reasonably be expected, individually or in the aggregate, to cause a
Material Adverse Change. Schedule 4.17(b) lists all material Permits of the
Company obtained (or for which applications have been made for) from all
Governmental Bodies, indicating, in each case, the expiration date thereof,
which are required by the nature of the operations of the Company to permit the
operation thereof in the manner in which they are currently conducted. Such
Permits have been issued pursuant to valid applications by the Company to the
appropriate Governmental Bodies made in compliance with all applicable Laws, and
the Company has substantially complied with all conditions of such Permits
applicable to it. No material default or violation, or event that with the lapse
of time or giving of notice or both would become a material default or
violation, has occurred in the due observance of any such Permit. All such
Permits are in full force and effect without further consent or approval of any
Person. The Company has not received any notice from any source to the effect
that there is lacking any such Permit required in connection with the current
operations of the Company. The Company has made all required filings with
Governmental Bodies, except where the failure to make such filings could not
reasonably be expected, individually or in the aggregate, to cause a Material
Adverse Change.
4.18 Environmental Matters. (a) Except as set forth on Schedule 4.18, the
---------------------
operations of the Company have been and, as of the Closing Date, will be in
compliance with all Environmental Laws, except where the failure to be in such
compliance could not reasonably be expected, individually or in the aggregate,
to cause a Material Adverse Change; (b) the Company has obtained, currently
maintains and, as of the Closing Date, will have all Environmental Permits
necessary for its operations, other than such Environmental Permits the lack of
which could not reasonably be expected, individually or in the aggregate, to
cause a Material Adverse Change; all such Environmental Permits are and, as of
the Closing Date, will be, in good standing; there are no Legal Proceedings
pending or, to the best knowledge of the Company, threatened to revoke any such
Environmental Permit; the Company is, and as of the Closing Date will be, in
compliance with such Environmental Permits; and the Company has not received any
notice from any source, and has not otherwise obtained knowledge, to the effect
that there is lacking any Environmental Permit required in connection with the
current use or operation of any Real Property Lease; (c) the Company and all of
its past and current Facilities and operations are not subject to any
outstanding written Order or Contract, including Environmental Laws, with any
Governmental Body or Person, or to the best knowledge of the Company, subject to
any federal, state, local or foreign investigation respecting (1) Environmental
Laws, (2) any Remedial Action or (3) any Environmental Claim arising from the
Release or threatened Release of a Hazardous Material; (d) the Company is not
subject to any Legal Proceeding alleging the violation of any Environmental Law
or Environmental Permit; (e) the Company has not received (nor, to the best
knowledge of the Company, has there been issued) any written communication,
whether from a Governmental Body, citizens' group, Employee or any other Person,
that alleges that the Company is not in compliance with any Environmental Law or
Environmental Permit; (f) the Company has not caused or permitted any Hazardous
Materials to remain or be disposed of, either on or under real property legally
or beneficially owned or operated by the Company or on any real property not
permitted to accept, store or dispose of such Hazardous Materials; (g) the
Company does not have any liabilities with respect to Hazardous Materials, and
no facts
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<PAGE>
or circumstances exist which, in the aggregate, could give rise to liabilities
with respect to Hazardous Materials; (h) none of the operations of the Company
involves the generation, transportation, treatment, storage or disposal of
hazardous waste or subject waste, as defined under 40 C.F.R. Parts260-270 (in
effect as of the date of this Agreement); and (i) there is not now on or in any
property of the Company (1) any underground storage tanks or surface tanks,
dikes or impoundments; (2) any asbestos-containing materials or (3) any
polychlorinated biphenyls, that, in any such case described in this clause (i),
could reasonably be expected, individually or in the aggregate, to cause a
Material Adverse Change.
4.19 Investment Company Act. The Company is not, nor is it directly or
----------------------
indirectly controlled by or acting on behalf of any Person that is, an
investment company within the meaning of the Investment Company Act of 1940, as
amended.
4.20 Transactions with Affiliates. Except as set forth on Schedule 4.20,
----------------------------
the Company has not made any payment to, or received any payment from, or made
or received any investment in, or entered into any transaction with, any
Affiliate, including without limitation, the purchase, sale or exchange of
property or the rendering of any service.
4.21 Disclosure; Survival. This Agreement, the Financial Statements,
--------------------
schedules provided in connection with this Agreement and the Offering
Memorandum, taken as a whole, do not contain any untrue statement of material
fact, fairly represent the business, properties, assets, and condition,
financial or otherwise, of the Company in all material respects, and do not fail
to state a material fact necessary in order to make the statements contained
therein and herein, when taken as a whole, not misleading. There is no fact
which has not been disclosed to the Purchasers of which the Company is aware and
which materially adversely affects or could reasonably be anticipated to
materially adversely affect the business, financial condition, operating
results, earnings, assets, customer, supplier, Employee or sales representative
relations or business prospects of the Company. All representations, warranties,
covenants and agreements set forth in this Agreement or in any writing or
certificate delivered in connection with this Agreement shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and shall not be affected by any examination
made for or on behalf of any Purchaser, the knowledge of any Purchaser, or the
acceptance by any Purchaser of any certificate or opinion.
4.22 Financial Advisors. Except as disclosed on Schedule 4.22, no agent,
------------------
broker, investment banker, finder, financial advisor or other person acting on
behalf of the Company or under its authority is or will be entitled to any
broker's or finder's fee or any other commission or similar fee, directly or
indirectly, in connection with the transactions contemplated by this Agreement
or any Transaction Document and no Person is entitled to any fee or commission
or like payment in respect thereof based in any way on agreements, arrangements
or understandings made by or on behalf of the Company.
4.23 Insurance. Schedule 4.23 lists all insurance policies carried by the
---------
Company covering its properties and business. Such insurance insures against
such losses and risks as are adequate in accordance with customary industry
practice to protect the Company and its business. The Company is not in material
default with respect to its obligations under any insurance policy maintained by
it.
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<PAGE>
4.24 Improper Actions. The Company, or to the best knowledge of the
----------------
Company, any of its officers, directors, partners, employees, agents or
affiliates or any other person acting on behalf of the Company has not, directly
or indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, official or
employee of any Governmental Body, Governmental Body or any political party or
candidate for office (domestic or foreign) or other person who was, is or may be
in a position to help or hinder the business of the Company (or assist the
Company in connection with any actual or proposed transaction) which (i) might
subject the Company, or any other individual or entity to any damage or penalty
in any Legal Proceeding, (ii) if not given in the past, might have caused a
Material Adverse Change or (iii) if not continued in the future, might cause a
Material Adverse Change.
5. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants to the Company, severally, for itself only, that:
5.1 Organization and Good Standing. Each Purchaser which is an entity is
------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation or incorporation, as applicable.
5.2 Authorization of Agreement.
--------------------------
(a) Each Purchaser which is an entity has full corporate or partnership
power and authority to execute and deliver this Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement or
to be executed by each such Purchaser in connection with the consummation of the
transactions contemplated hereby and thereby (the "Purchaser Documents"), and to
perform fully its obligations hereunder and thereunder. The execution, delivery
and performance by such Purchaser of this Agreement and each Purchaser Document
has been duly authorized by all necessary corporate or partnership action on
behalf of such Purchaser.
(b) This Agreement and each Purchaser Document has been duly executed and
delivered by each Purchaser and (assuming the due authorization, execution and
delivery by the other parties hereto and thereto) this Agreement and each
Purchaser Document constitute the legal, valid and binding obligations of each
Purchaser, enforceable against such Purchaser in accordance with their
respective terms.
5.3 Purchaser Representation. Each Purchaser has such knowledge and
------------------------
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Shares. Each Purchaser has been
given the opportunity to examine all documents provided by, conduct due
diligence and ask questions of, and to receive answers from, the Company and its
respective representatives concerning the terms and conditions of an investment
in the Shares.
5.4 Investment Intention. Each Purchaser is acquiring the Shares for its
--------------------
own account, for investment purposes only and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act)
thereof in violation of the Securities Act, and that it
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<PAGE>
is an "accredited investor" within the meaning of Rule 501 of Regulation D of
the Securities and Exchange Commission. Each Purchaser understands that the
Shares have not been registered under the Securities Act and cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available. The principal place of business or domicile of
each Purchaser is located in the jurisdiction where notices are to be sent to
such Purchaser as set forth on Schedule 1.
5.5 Financial Advisors. No agent, broker, investment banker, finder,
------------------
financial advisor or other person acting on behalf of each Purchaser or under
its authority is or will be entitled to any broker's or finder's fee or any
other commission or similar fee, directly or indirectly, in connection with the
transactions contemplated by this Agreement or any Transaction Document and no
Person is entitled to any fee or commission or like payment in respect thereof
based in any way on agreements, arrangements or understandings made by or on
behalf of each Purchaser.
5.6 Reliance. In making its decision to acquire the Shares, no Purchaser
--------
has relied on any information provided by the Company or its representatives
other than the Information Memorandum and the representations and warranties
contained herein and in the other documents executed in connection herewith.
6. Further Agreements of the Parties.
----------------------------------
6.1 Covenants. For so long as the Shares are convertible, the Company
---------
shall reserve that number of shares of Common Stock issuable upon conversion of
the Shares, which shares shall not be subject to any preemptive or other similar
rights (collectively, the "Reserved Shares").
6.2 Use of Proceeds. The Company shall use all of the proceeds from the
---------------
sale of the Shares under this Agreement as set forth on Schedule 6.3. The
Company's debt to the "Lexington Investor Group" shall be repaid simultaneously
with the Closing such that the equity ownership of the Lexington Investor Group
(exclusive of any Preferred Stock acquired) shall not exceed 7.8% of the
outstanding Common Stock of the Company (on a fully diluted basis).
6.3 Access to Information. Until the consummation of a Public Offering,
---------------------
the Purchasers shall be entitled, at their expense, upon reasonable notice, to
make such reasonable investigation of the properties, businesses and operations
of the Company and such examination of the books, records and financial
condition of the Company as they reasonably request and to make extracts and
copies of such books and records. Any such investigation and examination shall
be conducted during regular business hours and under reasonable circumstances
without material interference with the Company's normal business operations, and
the Company and its respective employees shall cooperate fully therein. No
investigation by the Purchasers prior to or after the date of this Agreement
shall diminish or obviate any of the representations, warranties, covenants or
agreements of the Company contained in this Agreement or the Transaction
Documents. In order that the Purchasers may have full opportunity to make such
physical, business, accounting and legal review, examination of the affairs of
the Company as may be reasonably requested, the Company shall cause its
Representative to cooperate fully with the Representatives of the Purchasers in
connection with such review and examination; provided
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that the Company shall not be required to incur any material expense related
thereto. Each Purchaser shall use its reasonable best efforts to maintain the
confidentiality of information obtained as a result of the exercise of its
rights granted under this Section 6.3.
6.4 Confidentiality. Except as may be required by applicable law, neither
---------------
the Company nor the Purchasers or any of their respective Affiliates shall at
any time divulge, disclose, disseminate, announce or release any information to
any person concerning this Agreement, the Transaction Documents or the
transactions contemplated hereby or thereby without first obtaining the prior
written consent of the other party hereto; provided, however, each Purchaser
shall be entitled to disclose information with respect to its investment in the
Company on any reports such Purchaser furnishes to its investors or as otherwise
required by Law and the Company may disclose the terms of this Agreement in
connection with an issuance of debt or equity securities.
6.5 Other Actions. The Company and the Purchasers agree to execute and
-------------
deliver such other documents and take such other actions, as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Transaction Documents.
6.6 Indemnity.
---------
(a) The Company and Charles E. Johnson, Jr., jointly and severally, agree
to indemnify, defend and hold harmless each Purchaser (and its partners (and
each officer and director thereof), directors, officers, members, shareholders,
Employees, affiliates, agents and permitted assigns) from and against any and
all losses, liabilities, damages, deficiencies, costs or expenses (including
interest, penalties, and reasonable attorneys' fees, disbursements and related
charges) (collectively, "Losses") based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representations, warranties,
covenants or agreements of the Company contained in this Agreement or the
Transaction Documents.
(b) Each Purchaser agrees, severally, for itself only, to indemnify,
defend and hold harmless the Company (and its directors, officers, shareholders,
Employees, affiliates, agents and permitted assigns) from and against any and
all Losses based upon, arising out of or otherwise in respect of any inaccuracy
in or breach of any representations, warranties, covenants or agreements of such
Purchaser contained in this Agreement or the Transaction Documents.
6.7 U.S. Real Property Holding Corporation. The Company covenants that it
--------------------------------------
will operate in a manner such that it will not become a "United States real
property holding corporation" as such term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended ("USRPHC"), and the regulations
thereunder. The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg.
1.897-2(h), or any supplementary or successor provision thereto. Within 30 days
of a request from a Purchaser, the Company will inform the requesting party, in
the manner set forth in Reg. 1.897-2(h) or any supplementary or successor
provision thereto, whether that party's
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<PAGE>
interest in the Company constitutes a United States real property interest
(within the meaning of Internal Revenue Code Section 897(c)(1) and the
regulations thereunder) and whether the Company has provided to the Internal
Revenue Service all required notices as to its USRPHC status.
6.8 Financial Statements, Reports, Etc. The Company shall furnish to each
----------------------------------
Purchaser which, together with its Affiliates, purchases and continues to own at
least 100,000 Shares:
(a) as soon as available, and in any event within 90 days after the end of
each fiscal year of the Company, (i) an audited financial statement of the
Company as of the end of such fiscal year; (ii) the related statements of
income, stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with GAAP and certified by a firm of independent public
accountants of recognized national standing selected by the board of directors
of the Company and acceptable to a majority of the Purchasers (the "Annual
Financial Statements"); and (iii) any related management letters from such
accounting firm. The Annual Financial Statements shall be accompanied by a
management report describing the state of the Company's business at year end.
(b) as soon as available, and in any event within 30 days after the end of
each month in each fiscal year a balance sheet of the Company, and the related
statement of income (with statements of stockholders' equity and cash flows to
be provided quarterly), unaudited but prepared in accordance with GAAP (except
that such unaudited financial statements need not contain all of the required
footnotes and are subject to normal, recurring non-material year-end
adjustments) and certified by the chief financial officer of the Company (the
"Monthly Balance Sheet"). The Monthly Balance Sheet should be prepared as of the
end of such month with statements of income, stockholders' equity and cash flows
for such month and for the period from the beginning of the fiscal year to the
end of such month, in each case with comparative statements for the prior fiscal
year and the most recent 12-month budget delivered by the Company pursuant to
Section 6.8(c) hereof;
(c) as soon as available and in any event no later than 30 days prior to
the start of each fiscal year an annual business plan and capital and operating
expense budget, cash flow projections and income and loss projections for the
Company, in respect of such fiscal year, as approved by the board of directors
of the Company and all itemized in reasonable detail and prepared on a quarterly
basis, and, promptly after preparation, any revisions to any of the foregoing;
(d) any document relating to the affairs of the Company delivered to any
shareholders of the Company; or
(e) prompt notice, and in any event within five days after notice has been
received by the Company, of any material litigation or any adverse claims,
dispute or any other developments which could reasonably be expected to be
material to the operations, assets, or properties of the Company; provided,
however, that the rights provided in this Section 6.8 to a Purchaser shall
terminate with respect to such Purchaser upon the earlier
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of (a) a Public Offering or (b) when such Purchaser (or its Affiliates) owns
less than fifty percent of the Shares, (including the Common Stock issuable upon
conversion thereof) purchased by such Purchaser at the Closing; and provided
further that the rights provided in this Section 6.8 shall only be transferable
to a transferee that acquires and continues to own at least 50% of the Shares
acquired by the Purchaser hereunder.
6.9 Issuance of Stock. In the event the Company shall issue additional
-----------------
shares of Common Stock (or any securities exercisable or convertible into Common
Stock) on or before June 1, 1999 other than pursuant to a Qualified Public
Offering, then Charles E. Johnson, Jr. shall contribute to the Company the
number of shares being sold by the Company such that any dilution in ownership
shall be borne solely by Charles E. Johnson, Jr.
6.10 Life Insurance. The Company agrees to maintain at all times life
--------------
insurance on Charles E. Johnson, Jr. of at least $2,500,000 and life insurance
on Christopher Carton of at least $1,000,000, with the Company named as
beneficiary of such policies.
7. Documents to be Delivered at the Closing.
-----------------------------------------
7.1 Documents to be Delivered by the Company. At the Closing, the Company
----------------------------------------
shall deliver, or cause to be delivered, to each Purchaser the following:
(a) Certificates representing the Shares issued hereunder;
(b) an opinion of Stoll, Keenon & Park, LLP, counsel to the Company, in
form and substance satisfactory to the Purchasers;
(c) the Stockholders Agreement;
(d) (i) certificate of good standing with respect to the Company issued by
the Secretary of State of Nevada; (ii) copy, certified by the secretary or
assistant secretary of the Company, as being a true and complete copy as of the
Closing Date, of the by-laws of the Company; and (iii) copy, certified by the
Secretary of State of Nevada, of the certificate of incorporation of the
Company;
(e) (i) copy of resolutions of the board of directors of the Company,
authorizing the execution, delivery and performance of this Agreement and the
Transaction Documents, the issuance of the Series A Preferred Stock and the
reservation of the Reserved Shares; and (ii) a certificate of the secretary or
assistant secretary of the Company, dated the Closing Date certifying that such
resolutions were duly adopted and are in full force and effect and attesting to
the true signatures and to the incumbency of the officers of the Company,
executing this Agreement and the Transaction Documents;
(f) a certificate, certified by the President or any Vice-President of the
Company, stating that the respective representations and warranties of the
Company contained in this Agreement are true and correct in all material
respects on and as of the Closing Date;
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<PAGE>
(g) Evidence that Charles E. Johnson, Jr. shall have forgiven any and all
indebtedness from the Company to him such that any such amount will be
capitalized as equity of the Company and as to the terms of the outstanding loan
from Bank One to Charles E. Johnson, Jr. and evidence that Charles E. Johnson,
Jr. has foregone any right to special compensation (whether or not previously
earned and accrued) pursuant to the terms of Item 1f of that certain Loan and
Stock Purchase Agreement dated as of January 15, 1998;
(h) Evidence that the following persons shall have been elected as members
of the board of directors of the Company: Johnson, Brad Redmon, John Chiles,
Maurice J. Gallagher, Jr. and Timothy P. Flynn;
(i) Evidence that the Company has repaid in full the loan made to the
Company pursuant to that certain Loan and Stock Purchase Agreement dated as of
January 15, 1998; and
(j) such other documents as the Purchasers shall reasonably request.
7.2 Delivery of Purchase Price. At the Closing, each Purchaser shall
--------------------------
deliver its Purchase Price by wire transfer to an account of which the Company
shall notify the Purchasers prior to the Closing Date.
8. Miscellaneous.
--------------
8.1 Certain Definitions.
-------------------
"Affiliate" of any Person means any Person that directly or indirectly
controls, or is under common control with, or is controlled by, such Person. As
used in this definition, "control" (including with its correlative meanings,
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Benefit Plan" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including, without limitation, each "Employee benefit plan," within the meaning
of Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Section 3(37) or 4001(a)(3) of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Company Benefit Plan" means each Benefit Plan (other than an Employee
Agreement) which is now or previously has been sponsored, maintained,
contributed to, or required to be
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contributed to, or with respect to which any withdrawal liability (within the
meaning of Section 4201 of ERISA) has been incurred, by the Company for the
benefit of any Employee, and pursuant to which the Company has or may have any
liability, contingent or otherwise.
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy, commitment or other arrangement or agreement, whether written
or oral.
"Employee" means each current, former, or retired employee, office
consultant, independent contractor, agent or director of the Company.
"Employee Agreement" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between the Company and any Employee pursuant to which the Company has or may
have any liability, contingent or otherwise.
"Environmental Claim" means any accusation, allegation, notice of
violation, action, claim, Lien, demand, abatement or other Order or direction
(conditional or otherwise) by any Governmental Body or any Person for personal
injury (including sickness, disease or death), tangible or intangible property
damage, damage to the environment, nuisance, pollution, contamination or other
adverse effects on the environment, or for fines, penalties or restrictions
resulting from or based upon (i) the existence, or the continuation of the
existence, of a Release (including, without limitation, sudden or non-sudden
accidental or non-accidental Releases) of, or exposure to, any Hazardous
Material or other substance, chemical, material, pollutant, contaminant, odor,
audible noise, or other Release in, into or onto the environment (including,
without limitation, the air, soil, surface water or groundwater) at, in, by,
from or related to the Facilities or any activities conducted thereon; (ii) the
environmental aspects of the transportation, storage, treatment or disposal of
Hazardous Materials in connection with the operation of the Facilities; or (iii)
the violation, or alleged violation, of any Environmental Laws, Orders or
Permits of or from any Governmental Body relating to environmental matters
connected with the Facilities.
"Environmental Law" means any Law concerning Releases into any part of the
natural environment, or activities that might result in damage to the natural
environment, or any Law that is concerned in whole or in part with the natural
environment and with protecting or improving the quality of the natural
environment and protecting public and Employee health and safety and includes,
but is not limited to, the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") (42 U.S.C. (S) 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Clean Water Act
(33 U.S.C. (S) 1251 et seq.), the Clean Air Act (33 U.S.C. (S) 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et seq.) and the
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.) ("OSHA"), as such
laws have been amended or supplemented, and the regulations promulgated pursuant
thereto, and any and all analogous state or local statutes, and the regulations
promulgated pursuant thereto, and any and all treaties, conventions and
environmental public and employee health and safety statutes and
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regulations or analogous requirements of non-United States jurisdictions in
which the Company conducts any business.
"Environmental Matters" means any matter arising out of or relating to the
production, storage, transportation, disposal or Release of any Hazardous
Material or otherwise arising out of or relating to safety, health or the
environment which could give rise to liability or require the expenditure of
money to address, and shall include, without limitation, the costs of
investigating and remedying any of the foregoing matters, any fines and
penalties arising in connection therewith, and any claim in respect thereof for
damages or injunctive relief for alleged personal injury, property damage or
damage to natural resources under common law or other Environmental Law.
"Environmental Permit" means any Permit, variance, registration, or
permission required under any applicable Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any regulations promulgated or proposed thereunder.
"Facility" means real property owned, leased or operated by the Company.
"GAAP" means generally accepted accounting principles, as in effect in the
United States.
"Governmental Body" means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Hazardous Materials" means any substance, material or waste which is
regulated by any local, state or federal Governmental Body in the jurisdiction
in which the Company conducts business, or the United States, including, without
limitation, any material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "subject waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law, including but not
limited to, petroleum products, asbestos, radon and polychlorinated biphenyls.
"Law" means any federal, state, local or foreign law (including common
law), statute, code, ordinance, rule, regulation or other requirement or
guideline.
"Legal Proceeding" means any judicial, administrative or arbitral actions,
suits, proceedings (public or private), claims or governmental proceedings.
"Lien" means any lien, pledge, hypothecation, levy, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Material Adverse Change" means any material adverse change in the
business, properties, results of operations, prospects or condition (financial
or otherwise) of the Company.
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<PAGE>
"material default" means a default which could reasonably be expected to
result in a Material Adverse Change.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Permits" means any approvals, authorizations, consents, licenses, permits
or certificates by any Governmental Body.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Public Offering" means a firm commitment underwritten public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as then in effect or any comparable statement under any
similar federal statute then in force or effect.
"Qualified Public Offering" shall have the meaning set forth in the
Stockholders Agreement.
"Release" means any release, spill, effluent, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, or migration into
the indoor or outdoor environment, or into or out of any property owned,
operated or leased by the Company, including the movement of any Hazardous
Material or other substance through or in the air, soil, surface water,
groundwater, or property.
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat, or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care; or
(iv) bring any Facility into compliance with all Environmental Laws and
Environmental Permits.
"Representatives" of a Person means its officers, Employees, agents, legal
advisors and accountants.
"Stockholders Agreement" means the Stockholders' Agreement dated as of the
date hereof, by and among the Company and the shareholders listed on the
signature pages thereto.
"Taxes" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
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"Tax Return" means any return declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
8.2 Tax Treatment of Preferred Stock. The Company agrees that the Series A
--------------------------------
Preferred Stock is stock which participates in corporate growth to a significant
extent within the meaning of Treasury Regulation (S) 1.305-5(a), and hence will
not be treated as preferred stock for purposes of Internal Revenue Code (S) 305
and the regulations thereunder. Accordingly, the Company has determined that
there will not be constructive distributions under Treasury Regulation (S)
1.305-5(b) with respect to the Series A Preferred Stock.
8.3 Expenses. The Company shall pay all fees and expenses incurred by
--------
the Purchasers associated with this transaction, including legal expenses and
out-of pocket expenses. The Company shall pay all stamp and other taxes which
may be payable in respect of the execution and delivery of this Agreement, the
Transaction Documents, or the issuance, delivery or acquisition of the Shares
and all blue sky expenses.
8.4 Specific Performance. The Company acknowledges and agrees that the
--------------------
breach of this Agreement would cause irreparable damage to the Purchasers and
that the Purchasers will not have an adequate remedy at law. Therefore, the
obligations of the Company under this Agreement, including, without limitation,
the Company's obligation to sell the Shares to the Purchasers, shall be
enforceable by a decree of specific performance issued by any court of competent
jurisdiction, and appropriate injunctive relief may be applied for and granted
in connection therewith. Such remedies shall, however, be cumulative and not
exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
8.5 Further Assurances. The Company and the Purchasers each agree to
------------------
execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby.
8.6 Submission to Jurisdiction; Consent to Service of Process.
---------------------------------------------------------
(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the County of Clark,
State of Nevada over any dispute arising out of or relating to this Agreement or
any of the transactions contemplated hereby and each party hereby irrevocably
agrees that all claims in respect of such dispute or any suit, action or
proceeding related thereto may be heard and determined in such courts. The
parties hereby irrevocably waive, to the fullest extent permitted by applicable
law, any objection which they may now or hereafter have to the laying of venue
of any such dispute brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.
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(b) Each of the parties hereto hereby consents to process being served by
any party to this Agreement in any suit, action or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 8.10.
8.7 Entire Agreement; Amendments and Waivers. This Agreement (including
----------------------------------------
the schedules and exhibits hereto) represents the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and can be amended, supplemented or changed, and any provision hereof can be
waived, only by written instrument making specific reference to this Agreement
signed by the parties hereto. No action taken pursuant to this Agreement,
including without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representation, warranty, covenant or agreement contained
herein. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach. No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.
8.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Nevada without giving effect to the
principles of conflict of laws thereunder which would specify the application of
the law of another jurisdiction.
8.9 Table of Contents; Headings; Interpretive Matters. The table of
-------------------------------------------------
contents and section headings of this Agreement are for reference purposes only
and are to be given no effect in the construction or interpretation of this
Agreement. No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
8.10 Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be deemed given when delivered personally,
telecopied or mailed by certified mail, return receipt requested, to the parties
at the following addresses (or to such other address as a party may have
specified by notice given to the other party pursuant to this provision):
If to the Company or Charles E. Johnson, Jr., to:
Purchase Pro International, Inc
6285 South Industrial Road
Las Vegas, Nevada 89128
Attn:
Fax: (702)270-2030
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<PAGE>
With a copy (which shall by itself not constitute notice) to:
Dan M. Rose, Esq.
Stoll, Keenon & Park, LLP
201 E. Main Street
Suite 1000
Lexington, KY 40507
If to the Purchasers, to the address listed in Schedule 1.
All notices are effective upon receipt or upon refusal if properly
delivered.
8.11 Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of this Agreement shall remain in effect.
8.12 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the parties and their respective successors and
permitted assigns (as permitted in accordance with the terms of this Agreement).
Nothing in this Agreement shall create or be deemed to create any third-party
beneficiary rights in any person or entity not a party to this Agreement except
as provided below. No assignment of this Agreement or of any rights or
obligations hereunder may be made by the Company or the Purchasers (by operation
of law or otherwise) without the prior written consent of the other parties
hereto and any attempted assignment without the required consents shall be void;
provided, however, that the Purchasers may assign this Agreement and any or all
rights and obligations hereunder, in whole or in part, to any Affiliate of the
Purchasers, but any such assignment shall not relieve the Purchasers of their
respective obligations hereunder. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of any Purchaser as a purchaser or holder of Shares (or any securities
pursuant to which such Shares may be converted or exercised into) are also for
the benefit of and enforceable by, any subsequent holder of such securities.
Upon any permitted assignment, the references in this Agreement to the
Purchasers shall also apply to any such assignee unless the context otherwise
requires.
8.13 Counterparts. This Agreement may be executed simultaneously 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.
SECURITIES PURCHASE AGREEMENT SIGNATURE PAGES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
PURCHASE PRO INTERNATIONAL,
INC.
By:/s/ Charles E. Johnson, Jr.
-----------------------------------------
Name: Charles E. Johnson, Jr.
---------------------------------------
Title: Chairman and Chief Executive Officer
--------------------------------------
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<PAGE>
EXHIBIT 10.5
SECURITIES PURCHASE AGREEMENT
AMONG
PURCHASE PRO INTERNATIONAL, INC.
AND
THE PURCHASERS LISTED ON
SCHEDULE I HERETO
Dated as of April 30, 1999
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of April 30, 1999 (this
"Agreement"), among Purchase Pro International, Inc., a Nevada corporation (the
"Company"), and the Purchasers listed on Schedule I (the "Purchasers").
W I T N E S S E T H:
-------------------
WHEREAS, the Company desires to issue to each Purchaser, and each Purchaser
desires to purchase from the Company, the Shares (as such term is defined below)
in such amounts as set forth next to such Purchaser on Schedule I, and
WHEREAS, certain terms used in this Agreement are defined in Section 8.l
hereof;
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter contained, the parties hereto hereby agree as follows:
1. Sale and Purchase of Shares.
---------------------------
1.1 Sale and Purchase of Shares. Subject to the terms and conditions of
---------------------------
this Agreement, on the Closing Date (as defined in Section 3.1 hereof) the
Company shall sell, assign, transfer, convey and deliver to each Purchaser, and
each Purchaser shall purchase from the Company the number of shares of Series B
Convertible Preferred Stock, par value $.001 per share (the "Series B Preferred
Stock") listed next to such Purchaser on Schedule I (the "Shares"), for the
Purchase Price (as defined in Section 2.1 below) and upon the terms and
conditions hereinafter set forth.
2. Purchase Price.
--------------
2.1 Amount of Purchase Price. The purchase price for the Shares shall be
------------------------
$3.50 per share as indicated on Schedule I (the "Purchase Price"). The Purchase
Price shall be payable as provided in Section 2.2 hereof.
2.2 Payment of the Purchase Price. At the Closing, the Purchasers shall
-----------------------------
pay the Purchase Price by wire transfer of clearinghouse funds or by such other
method as may be reasonably acceptable to the Company and the Purchasers to such
account of the Company as shall have been designated in advance to the
Purchasers by the Company.
3. Closing: Termination of Agreement.
---------------------------------
3.1 Closing Date. The closing of the sale and purchase of the Shares
------------
provided for in Section 1.1 (the "Closing") shall take place at 10:00 a.m. at
the offices of the Company in Las Vegas, Nevada (or such other place as the
parties hereto may mutually agree) on the date hereof (or on such other date as
the parties hereto may mutually agree). The date on which the Closing is held is
referred to in this Agreement as the "Closing Date." At the Closing, the parties
shall execute and deliver the documents referred to in Section 7 hereof.
4. Representations and Warranties of the Company. The Company represents and
---------------------------------------------
warrants to each Purchaser that:
1
<PAGE>
4.1 Organization and Good Standing. (a) The Company is duly organized,
------------------------------
validly existing and in good standing under the laws of the State of Nevada and
has full corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as now conducted and as it is proposed
to be conducted. The Company is duly qualified or authorized to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which the conduct of its business or the ownership of its properties or
assets requires such qualification or authorization, except for those
jurisdictions where the failure to be so qualified would not, individually or in
the aggregate, have or result in a material adverse effect on the business,
properties, results of operations, prospects or conditions (financial or
otherwise) of the Company.
(b) The authorized capital stock of the Company is as set forth on Schedule
4.l(b). Except as disclosed on Schedule 4.1 (b), there is no existing option,
warrant, call, right, commitment or other agreement of any character to which
the Company is a party requiring, and there are no securities of the Company
outstanding which upon conversion or exchange would require, the issuance, sale
or transfer of any additional shares of capital stock or other equity securities
of the Company or other securities convertible into, exchangeable for or
evidencing the right to subscribe for or purchase shares of capital stock or
other equity securities of the Company. Except as disclosed on Schedule 4.1(b),
the Company is not a party to, nor aware of, any voting trust or other voting
agreement with respect to any of the securities of the Company or to any
agreement relating to the issuance, sale, redemption, transfer or other
disposition of the capital stock of the Company.
4.2 Authorization of Agreement: Enforceability. The Company has all
------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and each other agreement, document, instrument or certificate contemplated by
this Agreement or to be executed by the Company in connection with the
consummation of the transactions contemplated by this Agreement (the
"Transaction Documents"), and to perform fully its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of this
Agreement and the Transaction Documents have been duly authorized by all
necessary corporate action on the part of the Company and its shareholders. This
Agreement and each of the Transaction Documents constitutes the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.3 Subsidiaries. The Company has no Subsidiaries other than Hospitality
------------
Purchasing Systems, Inc. ("HPS"), which is wholly-owned by the Company. HPS is
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has full corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now conducted
and as it is proposed to be conducted. The Company owns 100% of the outstanding
stock of HPS and no person has any right to acquire any stock in HPS.
4.4 Consents of Third Parties. None of the execution and delivery by the
-------------------------
Company of this Agreement and the Transaction Documents, the consummation of the
transactions contemplated hereby or thereby, or compliance by the Company with
any of the provisions hereof or thereof will (a) conflict with, or result in the
breach of, any provision of the articles of incorporation or by-laws of the
Company; (b) conflict with, violate, result in the breach of termination of, or
constitute a default or give rise to any right of termination or acceleration or
right to increase the obligations or
2
<PAGE>
otherwise modify the terms thereof under any Contract, Permit or Order to which
the Company is a party or by which the Company or any of its properties or
assets is bound; (c) constitute a violation of any Law applicable to the
Company; or (d) result in the creation of any Lien upon the properties or assets
of the Company, other than, in the case of clauses (b), (c) and (d), any such
conflict, violation, breach, termination, acceleration or other event which,
individually or in the aggregate, could not reasonably be expected to cause a
Material Adverse Change. Other than those which have been obtained or made, no
material consent, waiver, approval, Order, Permit or authorization of, or
declaration of filing with, or notification to, any Person or Governmental Body
is required on the part of the Company in connection with the execution and
delivery of this Agreement or the Transaction Documents, or the compliance by
the Company with any of the provisions hereof or thereof.
4.5 Authorization of Preferred Shares. The issuance, sale, and delivery of
---------------------------------
the Shares have been duly authorized by all requisite action of the Company,
and, when issued, sold, and delivered in accordance with this Agreement, the
Shares and the Common Stock deliverable upon conversion of the Shares will be
validly issued and outstanding, fully paid, and nonassessable, with no personal
liability attaching to the ownership thereof, and, except as may be set forth in
the Amended and Restated Stockholders Agreement dated as of this date, not
subject to preemptive or any other similar rights of the shareholders of the
Company or others.
4.6 Financial Statements. Attached hereto collectively as Schedule 4.6 are
--------------------
(a) copies of the unaudited balance sheets of the Company as of March 31, 1999
and the related unaudited statements of income and cash flows for the three
months then ended (the "Unaudited Financial Statements") and (b) the unaudited
balance sheet of the Company as of December 31, 1998, and the related
consolidated statements of income and cash flows for such year ended (such
statements and the Unaudited Financial Statements, are referred to herein as the
"Financial Statements"). Each of the Financial Statements was prepared in good
faith by the Company, is complete and correct in all materials respects, has
been prepared in accordance with GAAP and in conformity with the practices
consistently applied by the Company and presents fairly the financial position,
results of operations and cash flows of the Company as of the dates and for the
periods indicated, except for the absence of footnotes and year end adjustments
for 1998 year end.
4.7 No Undisclosed Liabilities.
---------------------------
(a) Except as set forth on Schedule 4.7(a), the Company has no liabilities
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due or asserted or unasserted), except (a) obligations under Contracts
described in Schedule 4.13 or under Contracts that are not required to be
disclosed thereon as a result of dollar thresholds therein; (b) liabilities
provided for in the Unaudited Financial Statements; (c) liabilities (other than
accounts payable) incurred since the Unaudited Financial Statements, in the
ordinary course of business, the sum of which is, in the aggregate, no greater
than $50,000; and (d) accounts payable in excess of those shown on the Unaudited
Financial Statements, incurred in the ordinary course of business, the sum of
which is, in the aggregate, not greater than $50,000. Unless specifically
disclosed as a breach on Schedule 4.7, disclosure of a Contract on Schedule 4.13
shall not be indicative of a breach of any provision of such Contract.
(b) Except as set forth on schedule 4.7(b), the Company does not have any
indebtedness to Charles E. Johnson, Jr.
3
<PAGE>
4.8 Absence of Certain Developments.
-------------------------------
(a) Since the date of the Unaudited Financial Statements:
(i) there has not been any Material Adverse Change nor has any
event occurred which could reasonably be expected to result in any Material
Adverse Change; or
(ii) there has not been any damage, destruction or loss, whether or
not covered by insurance, with respect to the property and assets of the Company
having a replacement cost of more than $10,000 for any single loss or $50,000
for all such losses;
(iii) there has not been any declaration, setting a record date,
setting aside or authorizing the payment of, any dividend or other distribution
in respect of any shares of capital stock of the Company or any repurchase,
redemption or other acquisition by the Company, of any of the outstanding shares
of capital stock or other securities of, or other ownership interest in, the
Company;
(iv) there has not been any transfer, issue, sale or other
disposition by the Company of any shares of capital stock or other securities of
the Company or any grant of options, warrants, calls or other rights to purchase
or otherwise acquire shares of such capital stock or such other securities;
(v) except with respect to the hiring of new Employees in the
ordinary course of business whose annual compensation in the aggregate is not
greater than $250,000 (exclusive of benefits), the Company has not awarded or
paid any bonuses to Employees of the Company nor has the Company entered into
any employment, deferred compensation, severance or similar agreements (nor
amended any such agreement) or agreed to increase the compensation payable or to
become payable by it to any of the Company's directors, officers, Employees,
agents or Representatives or agreed to increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
awards, salary continuation for disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such directors,
officers, Employees, agents or Representatives, other than in the ordinary
course of business consistent with past practice which increases in the
aggregate do not exceed $50,000 in annual cost to the Company, and other than as
may have been required by law or insurers;
(vi) the Company has not made any loans, advances or capital
contributions to, or investments in, any Person or paid any fees or expenses to
any Affiliate of the Company, other than for reimbursement of expenses in the
ordinary course of business consistent with past practices;
(vii) the Company has not mortgaged, pledged or subjected to any
material Lien any of its assets, or acquired any assets or sold, assigned,
transferred, conveyed, leased or otherwise disposed of any assets, except for
assets acquired or sold, assigned, transferred, conveyed, leased or otherwise
disposed of in the ordinary course of business consistent with past practice;
(viii) the Company has not discharged or satisfied any material Lien,
or paid any obligation or liability (fixed or contingent), except in the
ordinary course of business consistent with
4
<PAGE>
past practice and which, in the aggregate, would not be material to the Company;
(ix) the Company has not canceled or compromised any debt or claim or
amended, canceled, terminated, relinquished, waived or released any Contract or
right except in the ordinary course of business consistent with past practice
and which, in the aggregate, would not be material to the Company;
(x) the Company has not transferred or granted any rights under any
contracts, leases, licenses, agreements or Intangible Property (as defined in
Section 4.12 hereof) used by the Company in its business which reasonably could
be expected to result in a Material Adverse Change; and
(xi) the Company has not made any binding commitment to make any
capital expenditures or capital additions or betterments in excess of $50,000 in
the aggregate.
4.9 Taxes.
------
(a) The amount, if any, shown on the Unaudited Financial Statements, as
provision for Taxes is sufficient for payment of all accrued and unpaid federal,
state, county, local and foreign Taxes for the period then ended and all prior
periods.
(b) The Company has filed all Tax Returns (federal, state, county, local
and foreign) required to be filed by it and all such returns are true and
correct in all material respects. All Taxes shown to be due and payable on such
returns, any assessments imposed, and to the Company's knowledge all other Taxes
due and payable by the Company on or before the Closing have been paid or will
be paid prior to the time they become delinquent.
(c) Federal Income Tax Returns of the Company have not been audited by the
Internal Revenue Service, and no controversy with respect to Taxes of any type
is pending or, to the best of the Company' s knowledge, threatened.
(d) Neither the Company nor any of its stockholders has ever filed (i) an
election pursuant to Section 1362 of the Code that the Company be taxed as an S
Corporation or (ii) consent pursuant to Section 341(f) of the Code relating to
collapsible corporations.
(e) The Company's net operating losses, if any, for federal income tax
purposes, as set forth in the Financial Statements, are not subject to any
limitations imposed by Section 382 of the Code, and consummation of the
transactions contemplated by this Agreement or by any other agreement,
understanding or commitment, contingent or otherwise, to which the Company is a
party or by which it is otherwise bound will not have the effect of limiting the
Company's ability to use such net operating losses in full to offset such
taxable income.
(f) The Company has not waived any statute of limitation in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(g) The Company is not a party to any Income Tax allocation or sharing
agreement.
(h) The Company is not and has never been a member of an Affiliated Group
filing a consolidated Federal Income Tax Return.
5
<PAGE>
(i) The Company is not a "United States real property holding corporation"
within the meaning of Section 847(c)(2) of the Internal Revenue Code of 1986, as
amended.
4.10 Real Property.
-------------
(a) The Company does not own any real property.
(b) The Company has good, legal, and marketable title to all of its assets,
including all properties and assets free and clear of all Liens, except those
assets disposed of since the date of the Unaudited Financial Statements in the
ordinary course of business and except for Liens incurred in the ordinary course
of business which would not impair the Company's use of such property in any
material way.
(c) Schedule 4.10(c) sets forth a complete list of all real property and
interests in real property leased by the Company (each a "Real Property Lease,"
and collectively, the "Real Property Leases") as lessee or lessor. The Company
has good and marketable title to the leasehold estates in all Real Property
Leases in each case free and clear of all Liens, except for Liens incurred in
the ordinary course of business which would not impair the Company's use of such
property in any material way. The Company has no reason to believe that such
title would not be insurable subject to customary exceptions.
(d) Each of the Real Property Leases is valid and enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity), and there
is no material default under any Real Property Lease by the Company or, to the
best knowledge of the Company, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a material default thereunder.
(e) No previous or current party to any Real Property Lease has given
notice of or made a claim with respect to any breach or default thereunder. With
respect to those Real Property Leases that were assigned or subleased to the
Company by a third party, all necessary consents to such assignments or
subleases have been obtained.
4.11 Tangible Personal Property.
--------------------------
(a) Schedule 4.11(a) sets forth all leases of personal property ("Personal
Property Leases") involving annual payments in excess of $50,000 relating to
personal property used in the business of the Company or to which the Company is
a party or by which the Company or any of its respective properties or assets is
bound. The Company has made available to each Purchaser true, correct and
complete copies of the Personal Property Leases, together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder.
(b) (i) Each of the Personal Property Leases is in full force and effect
and is valid, binding and enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and there is no
material default under any Personal
6
<PAGE>
Property Lease by the Company or, to the best knowledge of the Company, by any
other party thereto, and no event has occurred that with the lapse of time or
the giving of notice or both would constitute a material default thereunder; and
(ii) No previous or current party to any such Personal Property Lease
has given notice of or made a claim with respect to any breach or default
thereunder.
(c) With respect to those Personal Property Leases that were assigned or
subleased to the Company by a third party, all necessary consents to such
assignments or subleases have been obtained.
(d) The Company has good, legal and marketable title to all of the material
items of tangible personal property used by it (except as sold or disposed of
subsequent to the date hereof in the ordinary course of business consistent with
past practice), free and clear of any and all Liens, except for Liens incurred
in the ordinary course of business which would not impair the Company's use of
such property in any material way. All such items of tangible personal property
which, individually or in the aggregate, are material to the operation of the
business of the Company are suitable for the purposes used for the operation of
the business of the Company.
4.12 Intangible Property.
-------------------
(a) "Proprietary Rights" shall mean any and all of the following which have
been or are used and/or owned by, and/or issued or licensed to the Company,
along with all income, royalties, damages and payments due or payable at the
Closing or thereafter, including, without limitation, damages and payments for
past, present or future infringements or misappropriations thereof, the right to
sue and recover for past infringements or misappropriations thereof and any and
all corresponding rights that, now or hereafter, may be secured throughout the
world: patents, patent applications, patent disclosures and inventions (whether
or not patentable and whether or not reduced to practice) and any reissue,
continuation, continuation-in-part, division, revision, extension or
reexamination thereof, utility model registrations and applications; design
registrations and applications; trademarks, service marks, trade dress, logos,
trade names and corporate names together with all goodwill associated herewith,
copyrights registered or unregistered and copyrightable works; mask works; and
all registrations, applications, and renewals for any of the foregoing; trade
secrets and confidential information (including without limitation, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research and developmental information, drawings, specifications,
designs, plans, proposals, technical data, financial business and marketing
plans, and customer and supplier lists and related information; computer
software and software systems (including, without limitations, data, databases,
object code, source code, macrocyte and firmware and related documentation);
other proprietary and intellectual property rights; licenses or other agreements
including but not limited to those assigning, waiving or relating to rights of
publicity, moral rights or neighboring rights to or from third parties; and all
copies and tangible embodiments of the foregoing (in whatever form or medium),
in each case including, without limitation, the items set forth on the Schedule
4.12(b) attached hereto.
(b) Schedule 4.12(b) sets forth a complete and correct list of (i) all
patents, trademark and service mark registrations, copyright registrations and
other registered Proprietary Rights as well as all pending applications
therefor; (ii) all corporate names, trade names and unregistered trademarks used
by the Company (to the extent not reflected on other schedules attached hereto)
as their own
7
<PAGE>
marks; (iii) all material unregistered copyrightable works authorized by the
Company, mask works, and material computer software owned or licensed by the
Company (other than commercial software products generally available to
consumers); and (iv) all material licenses or similar agreements to which the
Company is or just prior to closing was a party either in licensee or licensor
for the Proprietary Rights, in each case identifying the subject Proprietary
Rights.
(c) The Company owns and possesses all right, title and interest, free and
clear of all Liens, in and to, and, to the best knowledge of the Company, has a
valid and enforceable right to, each of the Proprietary Rights as described on
Schedule 4.12(b), and no claim by any third party contesting the validity,
enforceability, use or ownership of any of the Proprietary Rights has been made,
is currently outstanding or, to the best knowledge of the Company, is
threatened, except for those which could not reasonably be expected,
individually or in the aggregate, to cause a Material Adverse Change; and the
Proprietary Rights comprise all material intellectual property rights which are
currently being used by the Company or which are necessary for the operation of
the business as currently conducted by the Company, and as currently proposed to
be conducted; (iii) no loss or expiration of any Proprietary Right or related
group of Proprietary Rights is, to the Company's knowledge, threatened, or is
pending or reasonably foreseeable, except for those which could not reasonably
be expected, individually or in the aggregate, to cause a Material Adverse
Change; (iv) the Company has not received any notices of, nor is the Company
aware of any facts which indicate a likelihood of any infringement or
misappropriation by, or conflict with, any third party with respect to any of
the Proprietary Rights including, without limitation, any demand or request by
the Company that such third party license any of the Proprietary Rights from the
Company or to the Company; (v) to the best of the Company's knowledge, the
Company has not infringed, misappropriated or otherwise conflicted with any
rights, including intellectual property rights, of any third parties, and the
Company is not aware of any infringement, misappropriation or conflict by the
Company of any third-party patent, trademark, copyright or other intellectual
property right, or of any such infringement, misappropriation or conflict which
shall occur as a result of the continued operation of the business by the
Company, as currently conducted or as currently proposed to be conducted, and
there is no demand or request from a third party that the Company take a license
under any intellectual property right; and (vi) none of the Proprietary Rights
owned by or licensed to the Company are, to the best knowledge of the Company,
being infringed, misappropriated or conflicted by any third party.
(d) All of the Proprietary Rights are owned by, or properly assigned or
licensed to, the Company or use thereof is otherwise authorized, except to the
extent that the failure to be so owned, assigned, licensed or otherwise
authorized could not reasonably be expected to, individually or in the
aggregate, cause a Material Adverse Change. The Company has not disclosed, and
is not aware of any disclosure by any other Person of, any of its trade secrets
or confidential information to any third party other than pursuant to a written
confidentiality agreement or disclosure to the Company's shareholders.
(e) To the best knowledge of the Company, all computer software products,
except for commercially available software, that are owned by Company,
exclusively licensed to Company, or are otherwise required for the conduct of
the Company's business (collectively "Software"), are consistently able to
handle date information involving dates before and after January 1, 2000, in a
manner not materially adverse to the business of the Company.
4.13 Material Contracts.
------------------
8
<PAGE>
(a) Except as set forth on Schedule 4.13(a), neither the Company nor any of
its respective properties or assets is a party to or bound by any (i) Contract
not made in the ordinary course of business, or involving a commitment or
payment in excess of $100,000 or otherwise material to the business of the
Company; (ii) employment, consulting, noncompetition, severance, "golden
parachute" or indemnification Contract involving, individually or in the
aggregate, annual payments of more than $100,000 (including, without limitation,
in each case any Contract to which the Company is a party involving Employees of
the Company); (iii) Contract among shareholders or granting a right of first
refusal or for a partnership or a joint venture or for the acquisition, sale or
lease of any assets (except in the ordinary course of business) or capital stock
of the Company or any other Person or involving a sharing of profits; (iv)
mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar Contract with respect to any real or tangible
personal property of the Company; (v) loan agreement, credit agreement,
promissory note, guarantee, subordination agreement, letter of credit or any
other similar type of Contract; (vi) material Contract with any Governmental
Body; (vii) Contract with respect to the discharge, storage or removal of
Hazardous Materials; or (viii) binding commitment or agreement to enter into any
of the foregoing. The Company has delivered or otherwise made available to each
Purchaser true, correct and complete copies of the Contracts listed on Schedule
4.13(a) (except as noted thereon), together with all amendments, modifications,
supplements or side letters affecting the obligations of any party thereunder.
(b) (i) Each of the Contracts listed on Schedule 4.13(a) is valid and
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there is no material default under any
Contract listed on Schedule 4.13(a) by the Company or, to the best knowledge of
the Company, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a material
default thereunder.
(ii) No previous or current party to any Contract has given notice to
the Company of or made a claim with respect to any breach or default thereunder
and the Company is not aware of any notice of or claim to any such breach or
default.
(c) With respect to the contracts listed on Schedule 4.13(a) that were
assigned to the Company by a third party, all necessary consents to such
assignment have been obtained.
4.14 Employee Benefits.
-----------------
(a) The Company has not made contributions to any pension, defined benefit,
or defined contribution plans for its Employees which are subject to ERISA.
(b) Set forth on Schedule 4.14(b) is a true and complete list of each
Company Benefit Plan and each Employee Agreement providing for annual
compensation in excess of $75,000. Except as set forth on Schedule 4.14(b), the
Company does not have any plan or commitment, whether legally binding or not, to
establish any new Company Benefit Plan, to enter into any Employee Agreement or
to modify or to terminate any Company Benefit Plan or Employee Agreement (except
to the extent required by law or to conform any such Company Benefit Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to the Purchasers, or as
9
<PAGE>
required by this Agreement), nor has any intention to do any of the foregoing
been communicated to Employees.
(c) The Company does not maintain or contribute to any Company Benefit Plan
which provides, or has any liability to provide, life insurance, medical,
severance or other employee welfare benefits to any Employee upon his retirement
or termination of employment, except as may be required by Section 4980B of the
Code; and (ii) the Company has never represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical, severance or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
Section 4980B of the Code.
(d) The Company (i) is in compliance with all applicable federal, state and
local laws, rules and regulations (domestic and foreign) respecting employment,
employment practices, labor, terms and conditions of employment and wages and
hours, in each case, with respect to Employees, except where the failure to be
in such compliance could not reasonably be expected, individually or in the
aggregate, to cause a Material Adverse Change; (ii) has withheld all amounts
required by law or by agreement to be withheld from the wages, salaries and
other payments to Employees; (iii) is not liable for any arrearages of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees.
(e) No work stoppage or labor strike against the Company by Employees is
pending or, to the best knowledge of the Company, threatened. The Company (i) is
not involved in or, to the best knowledge of the Company, threatened with any
significant labor dispute, grievance, or litigation relating to labor matters
involving any Employees, including, without limitation, violation of any
federal, state or local labor, safety or employment laws (domestic or foreign),
charges of significant unfair labor practices or discrimination complaints; (ii)
has not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act or the Railway Labor Act which would cause a Material
Adverse Change; and (iii) is not presently bound by, nor has been in the past a
party to or bound by, any collective bargaining agreement or union contract with
respect to Employees and no such agreement or contract is currently being
negotiated by the Company or any of its affiliates. No Employees are currently
represented by any labor union for purposes of collective bargaining and, to the
best knowledge of the Company, no activities the purpose of which is to achieve
such representation of all or some of such Employees are ongoing or threatened.
(f) No benefits shall accrue, become payable, vest or accelerate as a
result of the Transaction under any Company Benefit Plan or Employee Agreement,
including, but not limited to, the vesting of benefits under any "employee
benefit plan" within the meaning of Section 3(3) of ERISA, the acceleration of
stock or stock related awards, or the payment of any amount under any Employee
Agreement or Company Benefit Plan.
4.15 Employees.
----------
To the best knowledge of the Company, no key executive Employee and no
group of Employees or independent contractors of the Company has any plans to
terminate his, her or its employment or relationship as an Employee or
independent contractor with the Company.
10
<PAGE>
4.16 Litigation.
----------
There are no Legal Proceedings pending or, to the best knowledge of the
Company, threatened that question the validity of this Agreement or the
Transaction Documents or any action taken or to be taken by the Company in
connection with the consummation of the transactions contemplated hereby or
thereby. There are no Legal Proceedings pending or, to the best knowledge of the
Company, threatened against or affecting the Company or any of its properties or
assets (including Company Benefit Plans) of the Company, at law or in equity,
and, to the best knowledge of the Company, there is no reasonable basis for any
other such Legal Proceeding. There is no outstanding or, to the best knowledge
of the Company, threatened Order of any Governmental Body against, affecting or
naming the Company or affecting any of its properties or assets.
4.17 Compliance with Laws: Permits.
-----------------------------
(a) The Company is and at all times has been in compliance with all Laws
and Orders promulgated by any Governmental Body applicable to the Company or to
the conduct of the business or operations of the Company or the use of its
properties (including any leased properties) and assets, except where the
failure to be in such compliance could not reasonably be expected, individually
or in the aggregate, to cause a Material Adverse Change. The Company has not
received, and does not know of the issuance of, any notices of violation or
alleged violation of any such Law or Order by any Governmental Body.
(b) The Company has obtained all Permits necessary for the conduct of its
business as currently conducted, except where the failure to obtain a Permit
could not reasonably be expected, individually or in the aggregate, to cause a
Material Adverse Change. All such Permits are in full force and effect without
further consent or approval of any Person. The Company has not received any
notice from any source to the effect that there is lacking any such Permit
required in connection with the current operations of the Company. The Company
has made all required filings with Governmental Bodies, except where the failure
to make such filings could not reasonably be expected, individually or in the
aggregate, to cause a Material Adverse Change.
4.18 Environmental Matters. (a) The operations of the Company have been
---------------------
and, as of the Closing Date, will be in compliance with all Environmental Laws,
except where the failure to be in such compliance could not reasonably be
expected, individually or in the aggregate, to cause a Material Adverse Change;
(b) the Company has obtained, currently maintains and, as of the Closing Date,
will have all Environmental Permits necessary for its operations, other than
such Environmental Permits the lack of which could not reasonably be expected,
individually or in the aggregate, to cause a Material Adverse Change, all such
Environmental Permits are and, as of the Closing Date, will be, in good
standing; there are no Legal Proceedings pending or, to the best knowledge of
the Company, threatened to revoke any such Environmental Permit; the Company is,
and as of the Closing Date will be, in compliance with such Environmental
Permits; and the Company has not received any notice from any source, and has
not otherwise obtained knowledge, to the effect that there is lacking any
Environmental Permit required in connection with the current use or operation of
any Real Property Lease; (c) the Company and all of its past and current
Facilities and operations are not subject to any outstanding written Order or
Contract, including Environmental Laws, with any Governmental Body or Person, or
to the best knowledge of the
11
<PAGE>
Company, subject to any federal, state, local or foreign investigation
respecting (1) Environmental Laws, (2) any Remedial Action or (3) any
Environmental Claim arising from the Release or threatened Release of a
Hazardous Material; (d) the Company is not subject to any Legal Proceeding
alleging the violation of any Environmental Law or Environmental Permit; (e) the
Company has not received (nor, to the best knowledge of the Company, has there
been issued) any written communication, whether from a Governmental Body,
citizens' group, Employee or any other Person, that alleges that the Company is
not in compliance with any Environmental Law or Environmental Permit; (f) the
Company has not caused or permitted any Hazardous Materials to remain or be
disposed of, either on or under real property legally or beneficially owned or
operated by the Company or on any real property not permitted to accept, store
or dispose of such Hazardous Materials; (g) the Company does not have any
liabilities with respect to Hazardous Materials, and no facts or circumstances
exist which, in the aggregate, could give rise to liabilities with respect to
Hazardous Materials; (h) none of the operations of the Company involves the
generation, transportation, treatment, storage or disposal of hazardous waste or
subject waste, as defined under 40 C.F.R. Parts 260-270 (in effect as of the
date of this Agreement); and (i) to the best knowledge of the Company, there is
not now on or in any property of the Company (1) any underground storage tanks
or surface tanks, dikes or impoundments; (2) any asbestos-containing materials
or (3) any polychlorinated biphenyls, that, in any such case described in this
clause (i), could reasonably be expected, individually or in the aggregate, to
cause a Material Adverse Change.
4.19 Investment Company Act. The Company is not, nor is it directly or
----------------------
indirectly controlled by or acting on behalf of any Person that is, an
investment company within the meaning of the Investment Company Act of 1940, as
amended.
4.20 Transactions with Affiliates. Except as set forth on Schedule 4.20,
----------------------------
the Company has not made any payment to, or received any payment from, or made
or received any investment in, or entered into any transaction with, any
Affiliate, including without limitation, the purchase, sale or exchange of
property or the rendering of any service.
4.21 Disclosure: Survival. This Agreement, the Financial Statements, and
--------------------
the schedules provided in connection with this Agreement, taken as a whole and
in light of the circumstances made, do not contain any untrue statement of
material fact, fairly represent the business, properties, assets, and condition,
financial or otherwise, of the Company in all material respects, and do not fail
to state a material fact necessary in order to make the statements contained
therein and herein, when taken as a whole, not misleading. There is no fact
which has not been disclosed to the Purchasers of which the Company is aware and
which materially adversely affects or could reasonably be anticipated to
materially adversely affect the business, financial condition, operating
results, earnings, assets, customer, supplier, Employee or sales representative
relations or business prospects of the Company. All representations, warranties,
covenants and agreements set forth in this Agreement or in any writing or
certificate delivered in connection with this Agreement shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and shall not be affected by any examination
made for or on behalf of any Purchaser, the knowledge of any Purchaser, or the
acceptance by any Purchaser of any certificate or opinion.
4.22 Financial Advisors. No agent, broker, investment banker, finder,
------------------
financial advisor or other person acting on behalf of the Company or under its
authority is or will be entitled to any broker's or finder's fee or any other
commission or similar fee, directly or indirectly, in connection with the
transactions contemplated by this Agreement or any Transaction Document and no
Person
12
<PAGE>
is entitled to any fee or commission or like payment in respect thereof based in
any way on agreements, arrangements or understandings made by or on behalf of
the Company.
4.23 Insurance. Schedule 4.23 lists all insurance policies carried by the
----------
Company covering its properties and business. Such insurance insures against
such losses and risks as are adequate in accordance with customary industry
practice to protect the Company and its business. The Company is not in material
default with respect to its obligations under any insurance policy maintained by
it.
5. Representations and Warranties of the Purchasers. Each Purchaser hereby
------------------------------------------------
represents and warrants to the Company, severally, for itself only, that:
5.1 Organization and Good Standing. Each Purchaser which is an entity is
-------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation or incorporation, as applicable.
5.2 Authorization of Agreement. (a) Each Purchaser which is an entity has
--------------------------
full corporate or partnership power and authority to execute and deliver this
Agreement and each other agreement, document, instrument or certificate
contemplated by this Agreement or to be executed by each such Purchaser in
connection with the consummation of the transactions contemplated hereby and
thereby (the "Purchaser Documents"), and to perform fully its obligations
hereunder and thereunder. The execution, delivery and performance by such
Purchaser of this Agreement and each Purchaser Document has been authorized by
all necessary corporate or partnership action on behalf of such Purchaser.
(b) This Agreement and each Purchaser Document has been duly executed and
delivered by each Purchaser and (assuming the due authorization, execution and
delivery by the other parties hereto and thereto) this Agreement and each
Purchaser Document constitute the legal, valid and binding obligations of each
Purchaser, enforceable against such Purchaser in accordance with their
respective terms.
5.3 Purchase Entirely for Own Account. This Agreement is made with each
---------------------------------
Purchaser in reliance upon such Purchaser's representation to the Company,
which by such Purchaser's execution of this Agreement such Purchaser hereby
confirms, that the Shares to be purchased by such Purchaser and the Common Stock
issuable upon conversion thereof (collectively, the "Securities") will be
acquired for investment for such Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, each Purchaser further represents that such Purchaser does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities.
5.4 Reliance Upon Purchaser's Representations. Each Purchaser understands
-----------------------------------------
that the Shares are not, and any Common Stock acquired on conversion thereof at
the time of issuance may not be, registered under the Securities Act on the
ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that the Company's reliance on such
exemption is predicated on the
13
<PAGE>
Purchaser's representations set forth herein. Each Purchaser realizes that the
basis for the exemption may not present if, notwithstanding such
representations, the Purchaser has in mind merely acquiring Shares for a fixed
or determinable period in the future, or for market rise, or for sale if the
market does not rise. No Purchaser has any such intention.
5.5 Receipt of Information Each Purchaser believes such Purchaser has
----------------------
received all the information such Purchaser considers necessary or appropriate
for deciding whether to purchase the Shares. Each Purchaser further represents
that such Purchaser has had an opportunity to questions and receive answers from
the Company regarding the terms and conditions of offering of the Shares and the
business, properties, prospects, and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to such Investor
or to which such Purchaser had access. The foregoing, however, does not limit or
modify the representations or warranties of the Company in Section 4 of this
Agreement or the right of the Purchasers to rely thereon.
5.5 Investment Experience. Each Purchaser represents that such Purchaser
---------------------
is experienced in evaluating and investing in private placement transactions of
securities of companies in a similar stage of development and acknowledges that
such Purchaser is able to fend for himself, herself or itself, can bear the
economic risk of such Purchaser's investment, and has such knowledge and
experience financial and business matters that such Purchaser is capable of
evaluating the merits and risks of the investment in the Shares. If other than
an individual, each Purchaser represents such Purchaser has not been organized
for the purpose of acquiring the Shares.
5.6 Accredited Investor.
-------------------
(a) The term "Accredited Investor" as used herein refers to:
(i) A person or entity who is a director or executive officer of the
Company;
(ii) Any bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in Section
2(13) of the Securities Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
(iii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
14
<PAGE>
(iv) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of the purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a person who has such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of the prospective investment; or
(viii) Any entity in which all of the equity owners are accredited
investors.
As used in this Paragraph 5.6(a), the term "net worth" means the excess of
total assets over total liabilities. For the purpose of determining a person's
net worth, the principal residence owned by an individual should be valued at
fair market value, including the cost of improvements, net of current
encumbrances. As used in this Paragraph 5.6(a), "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, each Purchaser should consider whether such Purchaser should add
any or all of the following items to such Purchaser's adjusted gross income for
income tax purposes in order to reflect more accurately such Purchaser's actual
economic income: any amounts attributable to tax-exempt income received, losses
claimed as a limited partner in any limited partnership, deductions claimed for
depletion, contributions to an IRA or Keogh retirement plan, and alimony
payments.
(b) Each Purchaser as to such Purchaser severally and not jointly further
represents to the Company that except as otherwise disclosed to the Company, in
writing, prior to such Purchaser's execution hereof, such Purchaser is either:
(i) an Accredited Investor; or
(ii) not an Accredited Investor and neither such Purchaser nor any
beneficiary of any trust or any investment client for whose account such
Purchaser is purchasing is a citizen or resident of the United States or Canada,
or any state, territory or possession thereof, including but not limited to any
estate of any such person, or any corporation, partnership, trust or other
entity created or existing under the laws thereof, or any entity controlled or
owned by any of the foregoing (a "U.S. Person").
5.7 Restricted Securities. Each Purchaser understands that the Shares
----------------------
(and any Common Stock issued on conversion thereof) may not be sold,
transferred, or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Shares (or the Common Stock issued on
conversion thereof) or an available exemption from registration under the
Securities Act, the Shares (and any
15
<PAGE>
Common Stock issued on conversion thereof) must be held indefinitely. In
particular, each Purchaser is aware that the Shares (and any Common Stock issued
on conversion thereof) may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that Rule are met. Among the
conditions for use of Rule 144 may be the availability of current information to
the public about the Company. Such information is not now available and the
Company has no present plans to make such information available.
5.8 Legends. To the extent applicable, each certificate or other
---------
document evidencing any of the Shares or any Common Stock issued upon conversion
thereof shall be endorsed with the legends substantially in the form set forth
below:
(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) In the case of an Investor that is not a U.S. Person and is not an
Accredited Investor
"THE SHARES REPRESENTED HEREBY HAVE BEEN ACQUIRED PURSUANT TO
REGULATION S OF THE SECURITIES ACT OF 1993, AS AMENDED (THE 'ACT'),
AND HAVE NOT BEEN REGISTERED UNDER THE ACT, AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF ABSENT AN EFFECTIVE REGISTRATION UNDER SUCH
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Any legend imposed or required by the Company's Bylaws or
applicable state securities laws.
5.9 Public Sales. Each Purchaser agrees not to make, without the prior
------------
written consent of the Company any public offering or sale of the Shares, or any
Common Stock issued upon the conversion thereof, although permitted to do so
pursuant to Rule 144(k) promulgated under the Securities Act, until the earlier
of (i) the date on which the Company effects its initial registered public
offering pursuant to the Securities Act or (ii) the date on which it becomes a
registered company pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended, or (iii) five years after the Closing of the sale of the
Series B Preferred Stock to such Purchaser by the Company.
5.10 Further Representation by Foreign Purchasers. If any Purchaser is
---------------------------------------------
not a U.S. Person, such Purchaser hereby represents that such Purchaser is
satisfied as to the full observance of the laws of such Purchaser's jurisdiction
in connection with any invitation to subscribe for the Shares or any use of this
Agreement, including (i) the legal requirements with such Purchaser's
jurisdiction for the
16
<PAGE>
purchase of the Shares, (ii) any foreign exchange restrictions applicable to
such purchase, (iii) any governmental or other consents that may need to be
obtained, and (iv) the income tax and other tax consequences, if any, which may
be relevant to the purchase, holding, redemption, sale, or transfer of the
Shares. Such Purchaser's subscription and payment for, and such Purchaser's
continued beneficial ownership of, the Shares will not violate any applicable
securities or other laws of such Purchaser's jurisdiction.
5.11 Financial Advisors. No agent, broker, investment banker, finder,
------------------
financial advisor or other person acting on behalf of each Purchaser or under
its authority is or will be entitled to any broker's or finder's fee or any
other commission or similar fee, directly or indirectly, in connection with the
transactions contemplated by this Agreement or any Transaction Document and no
Person is entitled to any fee or commission or like payment in respect thereof
based in any way on agreements, arrangements or understandings made by or on
behalf of each Purchaser.
5.12 Reliance. In making its decision to acquire the Shares, no Purchaser
--------
has relied on any information provided by the Company or its representatives
other than the representations and warranties contained herein and in the other
documents executed in connection herewith.
5.13 Lack of Liquidity of Investment. The Shares have not been registered
-------------------------------
or qualified under the Securities Act or any state securities laws and, unless
resale and until so registered or qualified, will be subject to significant
restrictions on resale. The Shares will constitute a new issue of securities
with no established trading market. The Company does not intend to list the
Shares on any national securities exchange or to seek the admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
system. Accordingly, the Company does not anticipate that a public market for
the Shares will ever develop. In addition, prior to this sale of the Shares,
there has been no public market for the common stock of the Company. As a
result, holders of the Shares are likely to experience difficulty in reselling.
6. Further Agreements of the Parties.
---------------------------------
6.1 Covenants. For so long as the Shares are convertible, the Company shall
---------
reserve that number of shares of Common Stock issuable upon conversion of the
Shares, which shares shall not be subject to any preemptive or other similar
rights (collectively, the "Reserved Shares").
6.2 Use of Proceeds. The Company shall use all of the proceeds from the
---------------
sale of the Shares under this Agreement as set forth on Schedule 6.2.
6.3 Access to Information. Until the consummation of a Public Offering, the
---------------------
Purchasers shall be entitled, at their expense, upon reasonable notice, to make
such reasonable investigation of the properties, businesses and operations of
the Company and such examination of the books, records and financial condition
of the Company as they reasonably request and to make extracts and copies of
such books and records. Any such investigation and examination shall be
conducted during regular business hours and under reasonable circumstances
without material interference with the Company's normal business operations, and
the Company and its respective employees shall cooperate fully therein. No
investigation by the Purchasers prior to or after the date of this Agreement
shall diminish or obviate any of the representations, warranties, covenants or
agreements of the Company contained in this Agreement or the Transaction
Documents. In order that the Purchasers may have full opportunity to make such
physical, business, accounting and legal review,
17
<PAGE>
examination of the affairs of the Company as may be reasonably requested, the
Company shall cause its Representative to cooperate fully with the
Representatives of the Purchasers in connection with such review and
examination; provided that the Company shall not be required to incur any
material expense related thereto. Each Purchaser shall use its reasonable best
efforts to maintain the confidentiality of information obtained as a result of
the exercise of its rights granted under this Section 6.3.
6.4 Confidentiality. Except as may be required by applicable law, neither
---------------
the Company nor the Purchasers or any of their respective Affiliates shall at
any time, divulge, disclose, disseminate, announce or release any information to
any person concerning this Agreement, the Transaction Documents or the
transactions contemplated hereby or thereby without first obtaining the prior
written consent of the other party hereto; provided, however, each Purchaser
shall be entitled to disclose information with respect to its investment in the
Company or any reports such Purchaser furnishes to its investors or as otherwise
required by Law and the Company may disclose the terms of this Agreement in
connection with issuance of debt or equity securities.
6.5 Other Actions. The Company and the Purchasers agree to execute and
-------------
deliver such other documents and take such other actions as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Transaction Documents.
6.6 Indemnity. (a) The Company agrees to indemnify, defend and hold
---------
harmless each Purchaser (and its partners (and each officer and director
thereof), directors, officers, members, shareholders, Employees, affiliates,
agents and permitted assigns) from and against any and all losses, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties, and
reasonable attorneys' fees, disbursements and related charges) (collectively
"Losses") based upon, arising out of or otherwise in respect of any inaccuracy
in or breach of any representations, warranties, covenants or agreements of the
Company contained in this Agreement or the Transaction Documents.
(b) Each Purchaser agrees, severally, for itself only, to indemnify, defend
and hold harmless the Company (and its directors, officers, shareholders,
Employees, affiliates, agents and permitted assigns) from and against any and
all Losses based upon, arising out of or otherwise in respect of any inaccuracy
in or breach of any representations, warranties, covenants or agreements of such
Purchaser contained in this Agreement or the Transaction Documents.
6.7 U.S. Real Property Holding Corporation. The Company covenants that it
--------------------------------------
will operate in a manner such that it will not become a "United States real
property holding corporation" as such term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended ("USRPHC"), and the regulations
thereunder. The Company agrees to make determinations as to its status as a
USRPHC, and it will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg.
1.897-2(h), or any supplementary or successor provision thereto. Within 30 days
of a request from a Purchaser, the Company will inform the requesting party, in
the manner set forth in Reg. 1.897-2(h) or any supplementary or successor
provision thereto whether that party's interest in the Company constitutes a
United States real property interest (within the meaning of Internal Revenue
Code Section 987(c)(1) and the regulations thereunder) and whether the Company
has provided to the Internal Revenue Service all required notices as to its
USRPHC status.
18
<PAGE>
6.8 Financial Statements. Reports. Etc.. The Company shall furnish to each
-----------------------------------
Purchaser which, together with is Affiliates, purchases and continues to own at
least 100,000 Shares:
(a) as soon as available, and in any event within 90 days after the end of
each fiscal year of the Company, (i) an audited financial statement of the
Company as of the end of such fiscal year; (ii) the related statements of
income, stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with GAAP and certified by a firm of independent public
accountants of recognized national standing selected by the board of directors
of the Company and acceptable to a majority in interest of the Purchasers (the
"Annual Financial Statements"); and (iii) any related management letters from
such accounting firm. The Annual Financial Statements shall be accompanied by a
management report describing the state of the Company's business at year end;
(b) as soon as available, and in any event within 45 days after the end of
each month in each fiscal year a balance sheet of the Company, and the related
statement of income (with statements of stockholders' equity and cash flows to
be provided quarterly), unaudited but prepared in accordance with GAAP (except
that such unaudited financial statements need not contain all of the required
footnotes and are subject to normal, recurring non-material year-end
adjustments) and certified by the chief financial officer of the Company (the
"Monthly Balance Sheet"). The Monthly Balance Sheet should be prepared as of the
end of such month with statements of income, stockholders' equity and cash flows
for such month and for the period from the beginning of the fiscal year to the
end of such month, in each case with comparative statements for the prior fiscal
year and the most recent 12-month budget delivered by the Company pursuant to
Section 6.8(c) hereof;
(c) any document relating to the affairs of the Company delivered to any
shareholders of the Company; and
(d) prompt notice, and in any event within ten (10) business days after
notice has been received by the Company, of any material litigation or any
adverse claims, dispute or any other developments which could reasonably be
expected to be material to the operations, assets, or properties of the Company;
provided, however, that the rights provided in this Section 6.8 to a Purchaser
shall terminate with respect to such Purchaser upon the earlier of (a) a Public
Offering or (b) when such Purchaser (or its Affiliates) owns less than fifty
percent of the Shares, (including the Common Stock issuable upon conversion
thereof) purchased by such Purchaser at the Closing; and provided further that
the rights provided in this Section 6.8 shall only be transferable to a
transferee that acquires and continues to own at least 50% of the Shares
acquired by the Purchaser hereunder.
6.9 Life Insurance. The Company agrees to maintain at all times life
--------------
insurance on Charles E. Johnson, Jr. of at least $2,500,000 and life insurance
on Christopher Carton of at least $1,000,000, with the Company named as
beneficiary of such policies.
7. Documents to be Delivered at the Closing and Conditions to Closing.
------------------------------------------------------------------
7.1 Documents to be Delivered by the Company. At the Closing, the Company
----------------------------------------
shall deliver, or cause to be delivered, to each Purchaser the following:
(a) Certificates representing the Shares issued hereunder;
(b) an opinion of Stoll, Keenon & Park, LLP, counsel to the Company, in
form and substance
19
<PAGE>
satisfactory to Purchasers;
(c) the Amended and Restated Stockholders Agreement;
(d) (i) certificate of good standing with respect to the Company issued by
the Secretary of State of Nevada; (ii) copy, certified by the secretary or
assistant secretary of the Company, as being a true and complete copy of as of
the Closing Date, of the by-laws of the Company; and (iii) copy, certified by
the Secretary of State of Nevada, of the certificate of incorporation of the
Company.
(e) (i) copy of resolutions of the board of directors of the Company,
authorizing the execution, delivery and performance of this Agreement and the
Transaction Documents, the issuance of the Shares and the reservation of the
Reserved Shares; and (ii) a certificate of the secretary or assistant secretary
of the Company, dated the Closing Date certifying that such resolutions were
duly adopted and are in full force and effect and attesting to the true
signatures and to the incumbency of the officers of the Company, executing this
Agreement and the Transaction Documents;
(f) a certificate, certified by the President or any Vice-President of the
Company, stating that the respective representations and warranties of the
Company contained in this Agreement are true and correct in all material
respects on and as of the Closing Date;
(g) and such other documents as the Purchasers shall reasonably request.
7.2 Delivery of Purchase Price and Other Documents by Purchasers. Each
------------------------------------------------------------
Purchaser shall deliver as a condition to Closing, (i) its Purchase Price by
wire transfer to an account of which the Company shall notify the Purchasers
prior to the Closing Date, (ii) this Agreement properly executed by each such
Purchaser, and (iii) the Amended and Restated Stockholders Agreement properly
executed by each such Purchaser.
7.3 Mutual Conditions to Closing. Both the Company's and the Purchaser's
----------------------------
obligations under this Agreement is subject to the Company's acquisition prior
to Closing of all consents and waivers from the holders of the Company's Series
A Preferred Stock which are deemed necessary or desirable by the Company.
8. Miscellaneous.
-------------
8.1 Certain Definitions.
-------------------
"Affiliate" of any Person means any Person that directly or indirectly
controls, or is under common control with, or is controlled by such Person. As
used in this definition, "control" (including with its correlative meanings,
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Benefit Plan" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including,
20
<PAGE>
without limitation, each "Employee benefit plan," within the meaning of Section
3(3) of ERISA and each "multi-employer plan" within the meaning of Section 3(37)
or 4001(a)(3) of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Company Benefit Plan" means each Benefit Plan (other than an Employee
Agreement) which is now or previously has been sponsored, maintained,
contributed to, or required to be contributed to, or with respect to which any
withdrawal liability (within the meaning of Section 4201 of ERISA) has been
incurred, by the Company for the benefit of any Employee, and pursuant to which
the Company has or may have any liability, contingent or otherwise.
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy, commitment or other arrangement or agreement, whether written
or oral.
"Employee" means each current, former, or retired employee, office
consultant, independent contractor, agent or director of the Company.
"Employee Agreement" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between the Company and any Employee pursuant to which the Company has or may
have any liability, contingent or otherwise.
"Environmental Claim" means any accusation, allegation, notice of
violation, action, claim, Lien, demand, abatement or other Order or direction
(conditional or otherwise) by any Governmental Body or any Person for personal
injury (including sickness, disease or death), tangible or intangible property
damage, damage to the environment, nuisance, pollution, contamination or other
adverse effects on the environment, or for fines, penalties or restrictions
resulting from or based upon (i) the existence or the continuation of the
existence, of a Release (including, without limitation, sudden or non-sudden
accidental or non-accidental Releases) of, or exposure to, any Hazardous
Material or other substance, chemical, material, pollutant, contaminant, odor,
audible noise, or other Release in, into or onto the environment (including,
without limitation, the air, soil, surface water or groundwater) at, in, by,
from or related to the Facilities or any activities conducted thereon; (ii) the
environmental aspects of the transportation, storage, treatment or disposal of
Hazardous Materials in connection with the operation of the Facilities; or (iii)
the violation, or alleged violation, of any Environmental Laws, Orders or
Permits of or from any Governmental Body relating to environmental matters
connected with the Facilities.
"Environmental Law" means any law concerning Releases into any part of the
natural environment, or activities that might result in damage to the natural
environment, or any Law that is concerned in whole or in part with the natural
environment and with protecting or improving the quality of the natural
environment and protecting public and Employee health and safety and includes,
but is not limited to, the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") (42 U.S.C. (S) 9601 et seq.), the Hazardous
Materials Transportation Act (40 U.S.C. (S) 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Clean Water Act
(33 U.S.C. (S) 1251 et seq.), the Clean Air Act (33 U.S.C. (S) 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal
Insecticide, Fungicide, and
21
<PAGE>
Rodenticide Act (7 U.S.C. (S) 136 et seq.) and the Occupational Safety and
Health Act (29 U.S.C. (S) 651 et seq.) ("OSHA"), as such laws have been amended
or supplemented, and the regulations promulgated pursuant thereto, and any and
all analogous state or local statutes, and the regulations promulgated pursuant
thereto, and any and all treaties, conventions and environmental public and
employee health and safety statutes and regulations or analogous requirements of
non-United States jurisdictions in which the Company conducts any business.
"Environmental Matters" means any matter arising out of or relating to the
production, storage, transportation, disposal or Release of any Hazardous
Material or otherwise arising out of or relating to safety, health or the
environment which could give rise to liability or require the expenditure of
money to address, and shall include, without limitation, the costs of
investigating and remedying any of the foregoing matters, any fines and
penalties arising in connection therewith, and any claim in respect thereof for
damages or injunctive relief for alleged personal injury, property damage or
damage to natural resources under common law or other Environmental Law.
"Environmental Permit" means any Permit, variance, registration, or
permission required under any applicable Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any regulations promulgated or proposed thereunder.
"Facility" means real property owned, leased or operated by the Company.
"GAAP" means generally accepted accounting principles, as in effect in the
United States.
"Governmental Body" means any government or governmental or regulatory
body thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Hazardous Materials" means any substance, material or waste which is
regulated by any local, state or federal Governmental Body in the jurisdiction
in which the Company conducts business, or the United States, including, without
limitation, any material or substance which is defined as a "hazardous waste",
"hazardous material", "hazardous substance", "extremely hazardous waste" or
"restricted hazardous waste", "subject waste", "contaminant", "toxic waste", or
"toxic substance" under any provision of the Environmental Law, including but
not limited to, petroleum products, asbestos, radon and polychlorinated
biphenyls.
"Law" means any federal, state, local or foreign law (including common
law), statute, code, ordinance, rule, regulation or other requirement or
guideline.
"Legal Proceeding" means any judicial, administrative or arbitral actions,
suits, proceedings (public or private), claims or governmental proceedings.
"Lien" means any lien, pledge, hypothecation, levy, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
22
<PAGE>
"Material Adverse Change" means any material adverse change in the
business properties, results of operations, prospects or conditions (financial
or otherwise) of the Company.
"Material Default" means a default which could reasonably be expected to
result in an Material Adverse Change.
"Order" means any material order, injunction, judgment, decree, ruling,
writ, assessment or arbitration award.
"Permits" means any approval, authorizations, consents, licenses, permits
or certificates by any Government Body.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Public Offering" means a firm commitment underwritten public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as then in effect or any comparable statement under any
similar federal statute then in force and effect.
"Qualified Public Offering" shall have the meaning set forth in the
Stockholders Agreement.
"Release" means any release, spill, effluent, emission, leaking, pumping,
injection, deposit, disposal discharge, dispersal, leaching, or migration into
the indoor or outdoor environment, or into or out of any property owned,
operated or leased by the Company, including the movement of any Hazardous
Material or other substance through or in the air, soil, surface water,
groundwater, or property.
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat, or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care; or
(iv) bring any Facility into compliance with all Environmental Laws and
Environmental Permits.
"Representatives" of a Person means its officers, Employees, agents, legal
advisors and accountants.
"Stockholders Agreement" means the First Amended and Restated
Stockholders' Agreement dated as of April 30, 1999, by and among the Company and
the shareholders listed on the signature pages thereto.
"Taxes" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs, duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax
23
<PAGE>
of any kind whatsoever, including interest, penalty, or addition thereto,
whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
8.2 Tax Treatment of Preferred Stock. The Company agrees that the Series B
--------------------------------
Preferred Stock is stock which participates in corporate growth to a significant
extent within the meaning of Treasury Regulation (S) 1.305-5(a), and hence will
not be treated as preferred stock for purposes of Internal Revenue Code (S)305
and the regulation thereunder. Accordingly, the Company has determined that
there will not be constructive distributions under Treasury Regulation (S)
1.305-5(b) with respect to the Series B Preferred Stock.
8.3 Expenses. The Company shall pay all fees and expenses of one attorney
---------
who may represent one or more of the Purchasers in connection with this
Transaction. The Company shall pay all stamp and other taxes which may be
payable in respect of the execution and delivery of this Agreement, the
Transaction Documents, or the issuance, delivery or acquisition of the Shares
and all blue sky expenses.
8.4 Further Assurances. The Company and the Purchasers each agree to
------------------
execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby.
8.5 Submission to Jurisdiction: Consent to Service of Process.
----------------------------------------------------------
(a) The parties hereto irrevocably submit to the non-exclusive jurisdiction
of any federal or state court located within the County of Clark, State of
Nevada over any dispute arising out of or relating to this Agreement or any of
the transactions contemplated hereby and each party hereby irrevocably agrees
that all claims in respect of such dispute or any suit, action or proceeding
related thereto may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being served by
any party to this Agreement in any suit, action or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 8.10.
8.6 Entire Agreement: Amendments and Waivers. This Agreement (including the
----------------------------------------
schedules and exhibits hereto) represents the entire understanding and agreement
between the parties hereto with respect to the subject matter hereof and can be
amended, supplemented or changed, and any provision hereof can be waived, only
by written instrument making specific reference to this Agreement signed by (i)
the Company, and (ii) Purchasers holding a majority of the Shares purchased
hereunder. No action taken pursuant to this Agreement, including without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant or agreement contained
24
<PAGE>
herein. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other subsequent breach. No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.
8.7 Conflicts of Laws. This Agreement shall be governed by, and construed
-----------------
in accordance with the laws of the State of Nevada without giving effect to the
principles of conflict of laws thereunder which would specify the application of
the law of another jurisdiction.
8.8 Table of Contents: Headings, Interpretive Matters. The table of
-------------------------------------------------
contents and section headings of this Agreement are for reference purposes only
and are to be given no effect in the construction or interpretation of this
Agreement. No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
8.9 Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be deemed given when delivered personally,
telecopied or mailed by certified mail, return receipt requested, to the parties
at the following addresses (or to such other address as a party may have
specified by notice given to the other party pursuant to this provision):
If to the Company to:
Purchase Pro International, Inc.
3291 N. Buffalo Drive
Last Vegas, Nevada 89129
Attn: Charles E. Johnson, Jr.
Fax: (702) 316-7001
With a copy (which shall by itself not constitute notice) to:
Dan M. Rose, Esq.
Stoll, Keenon & Park, LLP
201 E. Main Street, Suite 1000
Lexington, KY 40507
If to the Purchasers, to the address listed in Schedule I,
With a copy (which shall by itself not constitute notice) to:
Robert B. Goldberg, Esq.
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
One Securities Center
Suite 400
3490 Piedmont Road
25
<PAGE>
Atlanta, GA 30305
All notices are effective upon receipt or upon refusal if properly
delivered.
8.10 Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of this Agreement shall remain in effect.
8.11 Binding Effect: Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the parties and their respective successors and
permitted assigns (as permitted in accordance with the terms of this Agreement).
Nothing in this Agreement shall create or be deemed to create any third-party
beneficiary rights in any person or entity not a party to this Agreement except
as provided below. No assignment of this Agreement or any rights or obligations
hereunder may be made by the Company or the Purchasers (by operation of law or
otherwise) without the prior written consent of the other parties hereto and any
attempted assignment without the required consents shall be void; provided,
however, that any attempted assignment without the required consents shall be
void; provided, however, that the Purchasers may assign this Agreement and any
or all rights and obligations hereunder, in whole or in part, to any Affiliate
of the Purchasers, but any such assignment shall not relieve the Purchasers of
their respective obligations hereunder. In addition, and whether or not any
express assignment has been made, the provisions of this Agreement which are for
the benefit of any Purchaser as a purchaser or holder of Shares (or any
securities pursuant to which such Shares may be converted or exercised into) are
also for the benefit of and enforceable by, any subsequent holder of such
securities. Upon any permitted assignment, the references in this Agreement to
the Purchasers shall also apply to any such assignee unless the context
otherwise requires.
8.12 Counterparts. This Agreement may be executed simultaneously 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.
26
<PAGE>
SECURITIES PURCHASE AGREEMENT SIGNATURE PAGES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
PURCHASE PRO INTERNATIONAL, INC.
By: /s/ Charles E. Johnson, Jr.
-------------------------------------------
Name: Charles E. Johnson, Jr.
-----------------------------------------
Title: Chairman and Chief Executive Officer
---------------------------------------
<PAGE>
SECURITIES PURCHASE AGREEMENT SIGNATURE PAGES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
PURCHASERS:
___________________________
<PAGE>
SCHEDULE I - SHARES PURCHASED BY EACH PURCHASER
<PAGE>
SCHEDULES TO SERIES B PREFERRED STOCK
--------------------------------------
SECURITIES PURCHASE AGREEMENT
-----------------------------
<PAGE>
SCHEDULE 4.6
<PAGE>
SCHEDULE 4.7
<PAGE>
EXHIBIT 10.6
FIRST AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
-------------------------------------------------
THIS FIRST AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (the "Agreement"),
------------
entered into effective as of the 30th day of April, 1999 is made by and among
(i) Purchase Pro International, Inc., a Nevada corporation (the "Company"), (ii)
----------
each person listed on Exhibit A hereto (collectively, the "Original Holders"),
--------- ---------
(iii) Charles E. Johnson, Jr., Christopher P. Carton and Ranel Erickson
(collectively, the "Key Original Holders"), (iv) each person listed on Exhibit B
hereto (collectively, the "Series A Holders") and (v) each person listed on
-------------------
Exhibit C hereto (collectively, the "Series B Holders").
----------------
WHEREAS, each of the Original Holders is the record and beneficial owner of
shares of Common Stock;
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of June 1,
1998, (the "Series A Purchase Agreement"), among the Company and the Series A
------------------------------
Holders, the Company issued to the Series A Holders 2,100,000 shares of the
Company's 8% Series A Convertible Preferred Stock, par value $.001 per share
(the "Series A Preferred Stock");
----------------------------
WHEREAS, pursuant to the Securities Purchase Agreement, dated as of the
date hereof (the "Purchase Agreement"), among the Company and the Series B
---------------------
Holders, the Company shall issue on the date hereof to the Series B Holders up
to Three Million Two Hundred Thousand (3,200,000) shares of the Company's 8%
Series B Convertible Preferred Stock, par value $.001 per share (the "Series B
---------
Preferred Stock");
- ------------------
WHEREAS, the Company, Original Holders, Key Original Holders and the Series
A Holders are parties to that certain Stockholders Agreement dated as of June 1,
1998, which such parties desire to amend and restate, with the Series B Holders
and a majority of the Series A Holders joining as parties to this amendment and
restatement of the June 1, 1998 Stockholders Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the receipt and sufficiency of which are
acknowledged, the parties hereto, each intending to be legally bound hereby,
agree that the June 1, 1998 Stockholders Agreement is hereby amended and
restated as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1 Definitions.
-----------
As used herein, the following terms shall have the respective meanings set
forth below:
"Affiliate" shall have the meaning ascribed thereto in the Purchase
-----------
Agreement.
<PAGE>
"Board of Directors" means the Board of Directors of the Company, as
--------------------
constituted from time to time in accordance with this Agreement and the
Company's Bylaws.
"Capital Stock" means any class of capital stock of the Company including,
---------------
without limitation, the Common Stock, the Series A Preferred Stock and the
Series B Preferred Stock.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
--------------
"Conversion Price" means the then applicable Conversion Price for the
------------------
Series A Preferred Stock or Series B Preferred Stock, as the case may be.
"Director" means a member of the Board of Directors.
----------
"Family Group" means a Person's parents, spouse, descendants (whether or
--------------
not adopted) and stepchildren and any trust solely for the benefit of such
Person and/or the Person's parents, spouse, stepchildren and/or descendants.
"Holder Group" means (i) the Original Holders (as a collective group) or
--------------
(ii) the Series A Holders (as a collective group), or (ii) the Series B Holders
(as a collective group).
"Key Original Holders" means the Original Holders identified as Key
--------------------
Original Holders in the recitals of this Agreement.
"Majority Series A Holders" at any time means the holders of a majority of
---------------------------
the Registrable Securities held by all Series A Holders.
"Majority Series B Holders" at any time means the holders of a majority of
---------------------------
the Registrable Securities held by all Series B Holders.
"Market Average Price" means the volume-weighted average sales price per
----------------------
share of Common Stock as reported by Bloomberg Information Systems, Inc. during
either (i) a period of 20 days consisting of the day on which the Company
consummates a Public Offering and the 19 consecutive Business Days subsequent to
such day or (ii) any period of 60 consecutive Business Days after the expiration
of such initial 20 day period but only if that the average daily trading volume
over such 60 Business Day period exceeds 3% of the outstanding shares of Common
Stock of the Company that are registered, issued and eligible for trading. If
at any time shares of the Common Stock are not listed on any securities exchange
or quoted in the Nasdaq System or the over-the-counter market, the "Market
-------
Average Price" shall be the fair value thereof determined by an investment bank
- --------------
mutually agreed between the Company and a majority of the holders of the Series
A Preferred Stock and Series B Preferred Stock voting as one group. If such
parties are unable to reach agreement within a reasonable period of time, each
such party will choose and bear the expense of an investment bank to value the
shares of Common Stock and the average of the two valuations shall be the value.
-2-
<PAGE>
"New Securities" shall mean any Capital Stock whether now authorized or
---------------
not, and rights, options or warrants to purchase Capital Stock, and securities
of any type whatsoever that are, or may become convertible into or exchangeable
for Capital Stock; provided that the term "New Securities" does not include (i)
-------- ----------------
Series A Preferred Stock previously issued or Series B Preferred Stock issued on
the date hereof, (ii) Series A Preferred Stock or Series B Preferred Stock
issued as a stock dividend to holders of Series A Preferred Stock or Series B
Preferred Stock, (iii) securities issued in connection with an acquisition,
merger or strategic financing approved by the vote of the Board of Directors,
(iv) shares of Common Stock issuable upon exercise of stock awards or options
granted to consultants, employees, officers, managers or directors of the
Company pursuant to the stock options or stock purchase plans or agreements or
terms approved by the Board of Directors, but not exceeding 2.5 million shares
of Common Stock (net of any repurchases of such shares or cancellations or
expirations of options), subject to adjustments for all subdivisions and
combinations, and all of which options shall be issued at an exercise price not
less than the fair market value of the stock subject to the option at the date
the option is granted, (v) shares of Common Stock issued pursuant to registered
public offerings, (vi) debt securities that are not, and will not become,
convertible into or exchangeable for capital stock, (vii) shares of Common Stock
issued upon the exercise of options or warrants issued prior to the date hereof,
(viii) shares of Common Stock issued as a dividend on outstanding shares of
Common Stock or preferred stock, (ix) any borrowings, direct or indirect, from
financial institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features including
warrants, options or other rights to purchase capital stock and are not
convertible into capital stock of the Company, and (x) securities issued in
connection with any stock split, stock dividend or recapitalization of the
Company.
"Person" means any individual, corporation, partnership, firm, joint
--------
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
"Public Offering" shall have the meaning ascribed to such term in the
-----------------
Purchase Agreement.
"Qualified Public Offering" shall mean one or more Public Offerings in
---------------------------
which (i) the cumulative gross proceeds to the Company are equal to or greater
than $25 million, (ii) either the price per share paid in the Public Offering or
the Market Average Price is greater than (a) 1.5 times the then applicable
Series A Conversion Price, if the Public Offering is consummated on or before
October 31, 1999, (b) 2.0 times the then applicable Series A Conversion Price,
if the Public Offering is consummated after October 31, 1999 and on or before
June 1, 2000, or (c) 2.5 times the then applicable Series A Conversion Price, if
the Public Offering is consummated after June 1, 2000, and (iii) either the
price per share paid in the Public Offering or the Market Average Price
multiplied by the number of shares of Common Stock then outstanding is greater
than $100 million.
"Registrable Securities" means (i) any shares of Common Stock issued or
------------------------
issuable upon conversion of the Series A Preferred Stock or Series B Preferred
Stock and (ii) any shares of Common Stock issued or issuable directly or
indirectly with respect to the securities referred to in clause (i) by way of
stock dividend or stock split or in connection with a combination of shares,
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recapitalization, merger, consolidation or other reorganization. As to any
particular shares constituting Registrable Securities, such shares will cease to
be Registrable Securities when they have been (x) effectively registered under
the Securities Act and disposed of in accordance with a registration statement
covering them, or (y) sold to the public pursuant to Rule 144 (or by similar
provision under the Securities Act).
"Securities Act" means the Securities Act of 1933, as amended, or any
----------------
similar federal law then in force.
"Securities and Exchange Commission" means the Securities and Exchange
------------------------------------
Commission and includes any governmental body or agency succeeding to the
functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended, or any similar federal law then in force.
"Stockholder Shares" means (i) all Common Stock and/or Series A Preferred
--------------------
Stock and/or Series B Preferred Stock issued or issuable to the Original Holders
or the Series A Holders or Series B Holders and (ii) Common Stock and/or Series
A Preferred Stock and/or Series B Preferred Stock issued or issuable directly or
indirectly with respect to the securities referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, conversion, consolidation or other reorganization.
"Third Party" means any Person that is not an Affiliate or a member of the
-------------
Family Group, as appropriate, of the Company, the Original Holders, the Series A
Holders or Series B Holders.
"Transfer" means to sell, transfer, assign, pledge or otherwise dispose of
----------
any interest in any Stockholder Shares.
"Underlying Shares" means (i) any Common Stock issued or issuable to the
-------------------
Series A Holders or Series B Holders or the Original Holders, whether directly
or by conversion of securities exercisable into Common Stock, and (ii) Common
Stock issued or issuable directly or indirectly with respect to the securities
referred to in clause (i) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, conversion,
consolidation or other reorganization. As to any particular shares constituting
Underlying Shares, such shares will cease to be Underlying Shares when they have
been (x) effectively registered under the Securities Act and disposed of in
accordance with a registration statement covering them, or (y) sold to the
public pursuant to Rule 144 (or by similar provision under the Securities Act).
For purposes of this Agreement, a Person will be deemed to be a holder of
Underlying Shares whenever such Person has the right to acquire directly or
indirectly such Underlying Shares (upon conversion or exercise in connection
with a transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
ARTICLE II.
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CORPORATE GOVERNANCE; VOTING AGREEMENTS; SERIES A HOLDERS WAIVER
SECTION 2.1 Board of Directors.
(a) The Company shall promptly take all necessary and desirable actions
within its control (including, without limitation, calling special board and
stockholder meetings), so that:
(i) any Series A Holder or group of affiliated investors that
purchased at least 400,000 shares of Series A Preferred Stock shall be
granted observation rights at all Board meetings provided, however, that
-------- -------
the observation rights granted hereunder shall only continue to be
applicable to a Series A Holder or group of affiliated Series A Holders or
a transferee of Series A Holders to the extent that such Series A Holders
or group of affiliated Series A Holders or transferee holds at least
400,000 shares of Series A Preferred Stock; and provided further, that
observation rights will only be granted to a transferee engaged in the
Company's industry with the consent of the Company (not to be unreasonably
withheld);
(ii) The Board's compensation committee and audit committee shall
each have three members. The Series A Holders voting as a group shall have
the right to elect one of the three members. All decisions of the
compensation committee with respect to the cash and non-cash compensation
of the chairman of the board and president of the Company and any other
officer or employee whose annual compensation exceeds $75,000 shall require
the concurrence of the member of such committee elected by the Series A
Holders;
(iii) any related party transaction shall require the approval of
those members of the Board selected by the Series A Holders. For these
purposes, a related party transaction shall mean the sale, lease, transfer
or other disposal of any property or assets by the Company to, or purchase
by the Company of any property or assets from, or the Company's entering
into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any officer, Director or more than 5%
stockholder of the Company or any member of the immediate family of, or
trust for the benefit of, such person.
(iv) the removal from the Board, the compensation committee or the
audit committee (with or without cause) of any representative designated
hereunder by the Series A Holders shall be at the written request of the
Series A Holders, but only upon such written request and under no other
circumstances;
(v) in the event that any representative designated hereunder for any
reason ceases to serve as a member of a committee of the Board during his
term of office, the resulting vacancy on such committee shall be filled by
a representative designated by the Series A Holders;
-5-
<PAGE>
(vi) the Company shall pay the reasonable out of pocket expenses
incurred by each director in connection with any expenses incurred for
Company business, including attendance at meetings; provided, however, that
--------
out of pocket expenses incurred by a director other than in connection with
attendance at meetings of the Board or committees thereof shall be subject
to the approval of the Company.
(b) The rights of the Series A Holders under this Section 2.1 may be
exercised by the written consent of the holders of a majority of the Series A
Preferred Stock voting as one group.
(c) The rights of the Series A Holders granted under this Section 2.1
shall terminate at such time as less than 50% of the total of the Series A
Preferred Stock remains outstanding.
(d) Upon the Series A Holders' waiver of the provisions of section
6.9 of the Series A Securities Purchase Agreement dated June 1, 1998, with
respect to the Company's issuance of 159,999 warrants on September 21, 1998, the
issuance of the Series B Preferred Stock, and the issuance of 2.5 million
options, the Company shall cause 450,000 shares of its common stock to be
distributed on a pro-rata basis to the Series A Holders.
ARTICLE III.
PREEMPTIVE RIGHTS; TRANSFER RESTRICTIONS AND OFFER PROCEDURES
SECTION 3.1 Preemptive Rights.
-----------------
(a) If the Company at any time after the date hereof authorizes the
issuance or sale of any New Securities (other than as a dividend on the
outstanding Common Stock), the Company shall first offer to sell to each Series
A Holder and Series B Holder a portion of such New Securities or other
securities equal to the percentage of outstanding shares of Common Stock held by
such Series A Holder or Series B Holder at the time of such issuance (determined
on a fully diluted basis).
(b) In order to exercise its purchase rights hereunder, each Series A
Holder and Series B Holder must within 20 days after receipt of written notice
from the Company describing in reasonable detail the New Securities being
offered, the purchase price thereof, the payment terms and such Series A Holder
or Series B Holder's percentage allotment, deliver a written notice to the
Company describing its election hereunder. In the event any Series A Holder or
Series B Holder does not elect to purchase all of the shares offered to such
persons, the other electing Series A Holders and Series B Holders may purchase
such unallocated New Securities by providing notice to the Company within such
20-day period. Any New Securities not elected to be purchased by the end of
such 20-day period shall be reoffered for an additional 5-day period by the
Company on a pro
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<PAGE>
rata basis to the Series A Holders and Series B Holders who elected to purchase
all shares of such New Securities originally offered to such persons.
(c) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such New Securities or securities which the
Series A Holders and Series B Holders have not elected to purchase during the
120 days following such expiration on terms and conditions no more favorable to
the purchasers thereof than those offered to the Series A Holders and Series B
Holders. Any New Securities offered or sold by the Company to any Person after
such 120-day period must be reoffered to the Series A Holders and Series B
Holders pursuant to the terms of this Section 3.1.
(d) The provisions set forth in Section 3.1 shall terminate upon the
consummation of a Qualified Public Offering.
SECTION 3.2 Transfer Restrictions.
---------------------
(a) No Key Original Holder shall transfer any interest in any
Stockholder Shares except pursuant to and in accordance with the provisions of
this Section 3.2.
(b) If, at any time, a Key Original Holder wishes to sell any of its
Stockholder Shares to a Third Party, such sale shall be made pursuant to the
following procedures:
(i) At least 20 days prior to making any Transfer of Stockholder
Shares, any transferring Key Original Holder of Stockholder Shares (the
"Transferring Holder") shall deliver a written notice (the "Offer Notice")
---------------------- ---------------
to the Company and the Series A Holders and Series B Holders. The Offer
Notice shall disclose in reasonable detail the proposed number of
Stockholder Shares to be transferred (the "Stockholder Transfer Shares")
-----------------------------
and the proposed terms and conditions of the Transfer (including the
proposed price at which the shares are to be transferred).
(ii) Each Series A Holder and Series B Holder shall be entitled to
purchase all (but not less than all) of his Pro Rata Share (as defined
below) of the Stockholder Transfer Shares specified in the Offer Notice at
the price and on the terms specified therein by delivering written notice
of such election (an "Election Notice") to the Transferring Holder as soon
-------------------
as practical but in any event within 10 days after delivery of the Offer
Notice. Any Stockholder Transfer Shares not elected to be purchased by the
end of such 10-day period shall be reoffered for an additional 10-day
period by the Transferring Holder on a pro rata basis to the Series A
Holders and Series B Holders who have elected to purchase their Pro Rata
Share. Each Series A or Series B Holder's "Pro Rata Share" shall be based
----------------
upon such Series A Holder or Series B Holder's proportionate ownership of
the Underlying Shares to the Underlying Shares owned by all Series A
Holders and Series B Holders. The Series A Holders and Series B Holders
shall only have the right to purchase Stockholder Transfer Shares if they
agree to purchase all of the Stockholder Transfer Shares being offered.
-7-
<PAGE>
(iii) The Transfer of any Stockholder Transfer Shares to be
purchased by the Series A Holders and Series B Holders shall be consummated
as soon as practical after the delivery of the final Election Notice, but
in any event within 15 days after the delivery of the final Election
Notice. In the event that the Series A Holders and Series B Holders do not
elect to purchase all of the Stockholder Transfer Shares or fail to
consummate the purchase within the time frames specified herein, the
Transferring Holder may, within 90 days after the expiration of the last
10-day period pursuant to clause (ii) above and subject to the provisions
of Section 3.4 below, transfer such remaining Stockholder Transfer Shares
to one or more third parties at a price no less than the price per share
specified in the Offer Notice and on other terms no more favorable to the
transferees thereof than offered to the Series A Holders and Series B
Holders in the Offer Notice. Any Stockholder Transfer Shares not
transferred within such 90-day period shall be reoffered to the Series A
Holders and Series B Holders under this Section 3.2(b) prior to any
subsequent Transfer pursuant to the terms of this Section. The purchase
price specified in any Offer Notice shall be payable solely in cash at the
closing of the transaction.
(iv) At any closing under this Section 3.2(b), each Transferring
Holder will deliver to the relevant purchaser good and valid title to the
Underlying Shares being sold by each such Transferring Holder, free and
clear of any lien.
(v) In the event the consideration for the Stockholder Shares as
disclosed in the Offer Notice is other than cash, a promissory note or a
combination thereof, the price for the Stockholder Shares shall be the
value of that consideration as agreed to by the Key Original Holder and the
Series A Holders and Series B Holders, or, if no agreement can be reached
as to the valuation of such consideration, the fair market value of such
consideration as determined by two appraisers (one appointed by the Key
Original Holder and one appointed by the Series A Holders and Series B
Holders). In the event the two appraisers are unable to agree on a fair
market value within 20 days after they are appointed and further
negotiations, in the opinion of either of the appraisers, would not result
in an agreement, the fair market value of the consideration shall be the
average of the appraised values of the two appraisers; provided, however,
that if the appraised values of the two appraisers differ by more than ten
percent (10%) of the higher of the two appraised values, the two respective
appointed appraisers shall select a third appraiser who shall
independently, within 20 days after his appointment, make a determination
of the value of the consideration and the average of the appraised values
of the three appraisers shall be the purchase price and shall be binding on
the parties hereto. The Key Original Holder whose Stockholder Shares are
subject to the Offer Notice and the Series A Holders and Series B Holders
shall each bear the cost of their respective appraisers and shall share the
cost equally of the third appraiser, if any. Notwithstanding anything
herein to the contrary, if an appraisal is used to determine the value of
the consideration pursuant to this Section 3.2(b), the time periods
provided for in this Section 3.2(b) shall be tolled from the time of the
initial appointment of the two appraisers until a final appraised value is
determined pursuant to this Section 3.2(b)(v).
-8-
<PAGE>
(c) Permitted Transferees. The restrictions set forth in Section
----------------------
3.2(b) shall not apply to (i) any transfer of Stockholder Shares by any Original
Holder or Series A Holder or Series B Holder among its Affiliates or (ii) a
transfer of Stockholder Shares by any Original Holder or Series A Holder or
Series B Holder pursuant to the laws of descent and distribution or among the
Family Group of such Original Holder or Series A Holder or Series B Holder;
provided that the provisions of this Agreement will continue to be applicable to
- --------
the Stockholder Shares after any transfer pursuant to clauses (i) and (ii) above
and the transferees of such Stockholder Shares shall agree in writing to be
bound by the provisions of this Agreement.
(d) Termination of Restrictions. The restrictions set forth in
---------------------------
Section 3.2(b) shall terminate upon the consummation of a Qualified Public
Offering; provided, however, that, after the consummation of a Public Offering,
--------
the restrictions set forth in Section 3.2(b) shall not apply with respect to
sales in the public market by a Key Original Holder in accordance with the terms
of Rule 144 under the Securities Act.
SECTION 3.3 Legends.
--------
Each certificate evidencing outstanding Stockholder Shares held by the
Original Holders and the Series A Holders and Series B Holders shall bear a
legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD OR OFFERED FOR SALE UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT IN EFFECT UNDER SAID ACT, OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE FIRST AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT DATED AS OF APRIL 30, 1999, COPIES OF WHICH
WILL BE FURNISHED BY PURCHASE PRO INTERNATIONAL, INC. AND ANY
SUCCESSOR THERETO UPON REQUEST AND WITHOUT CHARGE.
SECTION 3.4 Tag Along Rights.
----------------
(a) If any Key Original Holder proposes to sell, in one transaction or
in a series of related transactions (a "Tag Along Sale") any Stockholder Shares
-----------------
to any Third Party, the Series A Holders and Series B Holders shall have the
right to participate in such Tag Along Sale on the following terms:
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<PAGE>
(i) Such Key Original Holder shall give the Series A Holders and
Series B Holders not less than 20 days' written notice (a "Sale Notice") of
--------------
its intention, describing the price offered, all other material terms and
conditions of the Tag Along Sale and, if the consideration payable pursuant
to the Tag Along Sale consists in whole or in part of consideration other
than cash, such information relating to such other consideration as the
Series A Holders and Series B Holders may reasonably request and which is
available to such selling Key Original Holder.
(ii) In connection with any Tag Along Sale, each Series A Holder and
Series B Holder shall have the right, in its sole discretion, to sell, for
the same price per share being paid to, and otherwise on the same terms and
conditions as, the selling Key Original Holder, its pro rata portion of
Stockholder Shares determined by multiplying the number of Underlying
Shares being sold in the Tag Along Sale by a fraction, the numerator of
which is the number of Underlying Shares held by such Series A Holder or
Series B Holder and the denominator of which is the number of Underlying
Shares held by all Series A Holders and Series B Holders desiring to sell
and by the Key Original Holder delivering the Sale Notice.
(iii) Series A Holders and Series B Holders must exercise their tag
along right by giving written notice to the selling Key Original Holder
within 20 days of the delivery of a Sale Notice, specifying the number of
Stockholder Shares that each Series A Holder and Series B Holder desires to
include in the Tag Along Sale. At the closing for the Tag Along Sale,
against payment of purchase price for the Stockholder Shares to be sold by
such Series A Holders and Series B Holders, such Series A Holders and
Series B Holders will deliver to the Third Party the certificate or
certificates representing such number of Stockholder Shares, duly endorsed,
together with all other documents which are necessary in order to effect
such Tag Along Sale. Each selling Key Original Holder shall use its best
efforts to obtain the agreement of the prospective transferee(s) to the
participation of the participating Series A Holders and Series B Holders in
any contemplated Tag Along Sale, and no Key Original Holder shall transfer
any of its Stockholder Shares to any prospective transferee if such
prospective transferee declines to allow the participation of the Series A
Holders and Series B Holders.
(b) The rights and obligations set forth in this Section 3.4 shall
terminate upon the consummation of a Qualified Public Offering; provided,
--------
however, that, upon consummation of a Public Offering, the rights and
obligations set forth in this Section 3.4 shall not apply with respect to sales
in the public market by a Key Original Holder in accordance with the terms of
Rule 144 under the Securities Act.
ARTICLE IV.
REGISTRATION RIGHTS
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<PAGE>
SECTION 4.1 Demand Registrations.
--------------------
(a) Requests for Registration. The Majority Series A Holders, and/or
-------------------------
the Majority Series B Holders may request, at any time after 180 days after the
Company's Initial Public Offering, registration under the Securities Act of all
or part of their Registrable Securities on Form S-1, or any similar long-form
registration ("Long-form Registration") , or, if available on Form S-2 or S-3 or
--------------------------
any similar short-form of registration ("Short-Form Registration"); provided
----------------------------
that the aggregate offer price of all such Registrable Securities being
registered is at least $10 million. Each request for a Demand Registration
shall specify the number of Registrable Securities requested to be registered,
and the proposed underwriter. Within ten days after receipt of any such
request, the Company will give written notice of such requested registration to
all other holders (if any) of Registrable Securities and, subject to paragraph
(e) below, will include in such registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within 15 days after the receipt of the Company's notice. All registrations
requested pursuant to this paragraph (a) are referred to herein as "Demand
-------
Registrations."
- ---------------
(b) Long-Form Registrations. The Majority Series A Holders and/or the
-----------------------
Majority Series B Holders will each be entitled to request two (2) Demand
Registrations in which the Company will pay all Registration Expenses. A
registration will not count as one of such two (2) Demand Registrations until it
has become effective or the demanding Series A and Series B Holders withdraw
their request (unless such withdrawal is due to a material adverse change in the
business, operations, prospects or condition (financial or otherwise) of the
Company since the date of such demand). The Company will pay all Registration
Expenses in connection with any initiated registration whether or not it has
become effective unless the respective Series A and Series B Holders withdraw
their request (unless such withdrawal is pursuant to the provisions of paragraph
(e) below or due to a material adverse change in the business, operations,
prospects or condition (financial or otherwise) of the Company since the date of
such demand).
(c) Short-Form Registrations. In addition to the Long-Form
------------------------
Registrations provided pursuant to paragraph (b), the Majority Series A and/or
the Majority Series B Holders will be entitled to request unlimited Short-Form
Registration, provided that the aggregate offering value of the Registrable
--------
Securities requested to be registered in any Short-Form Registration must equal
at least $500,000 and that the Majority Series A and Majority Series B Holders
may only request two Short-Form Registrations in any 12-month period. After the
Company has become subject to the reporting requirements of the Securities
Exchange Act, the Company will use its best efforts to make Short-Form
Registrations available for the sale of Registrable Securities. The Company
will pay all Registration Expenses with respect to Short-Form Registrations.
(d) Priority on Demand Registrations. If a Demand Registration is an
--------------------------------
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold therein without adversely affecting the marketability of the
offering (the
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<PAGE>
"Offering Quantity"), the Company will include in such registration securities
- ---------------------
in the following priority:
(i) first, before including any securities which are not Registrable
Securities held by the Majority Series A and Majority Series B Holders,
the Company will include all of the Registrable Securities requested to be
included by such holders thereof, and if the number of Registrable
Securities requested to be included exceeds the Offering Quantity, then the
Company shall include only each such requesting Series A Holder's or Series
B Holder's pro rata share of the Offering Quantity, based on the amount of
Registrable Securities held by such Series A and Series B Holders; and
(ii) second, to the extent (and only to the extent) that the Offering
Quantity exceeds the aggregate amount of Registrable Securities which are
requested to be included in such registration, the Company shall include in
such registration any other securities requested to be included in the
offering.
Any Persons other than holders of Registrable Securities who participate in
Demand Registrations must pay their share of the Registration Expenses as
provided in Section 4.5 hereof.
(e) Restrictions on Demand Registrations. The Company will not be
------------------------------------
obligated to effect any Demand Registration within 90 days after the effective
date of a previous Demand Registration. The Company may postpone upon one
occasion in any 365 day period for up to 120 days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company determines in its good faith judgment that such Demand Registration
would reasonably be expected to have a material adverse effect on any proposal
or plan by the Company or any of its subsidiaries to engage in any acquisition
of assets or shares of unrelated companies (other than in the ordinary course of
business) or any merger, consolidation, tender offer or similar transaction. In
the case of such event, the holders of a majority of Registrable Securities
requesting such Demand Registration will be entitled to withdraw such request
and, if such request is withdrawn, such Demand Registration will not count as
one of the permitted Demand Registrations hereunder and the Company will pay all
Registration Expenses in connection with such registration.
(f) Selection of Underwriters. A majority of the Series A Holders
-------------------------
initiating any Demand Registration will have the right to select the investment
banker(s) and manager(s) to administer the offering, subject to the Company's
approval which will not be unreasonably withheld.
(g) Other Registration Rights. Except as provided in this Agreement,
-------------------------
the Company will not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities which contains terms or
conditions more favorable than the terms or conditions contained in this
Agreement, without the prior written consent of (i) Series A Holders holding a
majority of the outstanding Stockholder Shares held by all Series A Holders, and
(ii) Series B Holders holding a majority of the outstanding Stockholder Shares
held by all Series B Holders.
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<PAGE>
(h) Termination of Registration Rights.
----------------------------------
(i) Except as set forth is subparagraph (ii) below, the right of any
holder of any Stockholder Shares to request registration or inclusion in any
registration pursuant to this Article IV shall terminate on the closing of the
first Company-initiated registered public offering of Common Stock of the
Company, if all shares of Registrable Securities held or entitled to be held
upon conversion by such holder may immediately be sold under Rule 144 during any
90-day period, or on such date after the closing of the first Company-initiated
registered public offering of Common Stock of the Company as all shares of
Registrable Securities held or entitled to be held upon conversion by such
holder may immediately be sold under Rule 144 during any 90-day period. Any
Stockholder Shares to which this section applies shall be excluded from all
voting requirements and computations set forth in this Agreement.
(ii) The provisions of subparagraph (i) above shall not apply to any
holder who owns more than five percent (5%) of the Company's outstanding stock
until the earlier of (a) such time as such holder owns less than one percent
(1%) of the outstanding stock of the Company, or (b) the expiration of five
years after the closing of the first registered public offering of Common Stock
of the Company.
SECTION 4.2 Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any
------------------
of its securities under the Securities Act (other than pursuant to a Demand
Registration or a registration on Form S-4 or S-8 or any successor or similar
forms or other than pursuant to an initial public offering of the Company's
shares) and the registration form to be used may be used for the registration of
Registrable Securities (a "Piggyback Registration"), whether or not for sale for
-------------------------
its own account, the Company will give prompt written notice to all holders of
Registrable Securities of its intention to effect such a registration and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 20 days
after the receipt of the Company's notice; provided, however, that the rights of
--------
a holder of Registrable Securities under this Section 4.2 shall expire upon the
earlier to occur of (i) such time as the Registrable Securities of such holder
are transferable without restriction as to volume under Rule 144 under the
Securities Act and (ii) five years after a Qualified Public Offering.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Registrations. If a Piggyback Registration is an
-------------------------
underwritten primary registration on behalf of the Company or an underwritten
offering undertaken by the Company pursuant to a demand registration exercised
by a Person other than the Series A and Series B Holders (a "Demanding Party"),
and the managing underwriters advise the Company in writing (with a copy to each
party hereto requesting registration of Registrable Securities) that in their
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opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of such offering (the "Company Offering Quantity"),
----------------------------
the Company will include in such registration securities in the following
priority:
(i) first, the securities the Company proposes to sell and the
securities requested to be included by the Demanding Party in accordance
with any agreement between the Company and the Demanding Party; and
(ii) second, the Company will include all Registrable Securities
requested to be included by any holders thereof and all other holders of
registrable securities, and if the number of such holders' securities
requested to be included exceeds the Company Offering Quantity, then the
Company shall include only each such requesting holder's pro rata share of
the Company Offering Quantity (remaining after sales covered by (i) and
(ii) above), based on the amount of securities held by such holder.
(d) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
Section 4.1 or pursuant to this Section 4.2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4 or S-8 or any successor form), whether on
its own behalf or at the request of any holder or holders of such securities,
until a period of at least 90 days has elapsed from the effective date of such
previous registration.
SECTION 4.3 Holdback Agreements.
-------------------
(a) To the extent not inconsistent with applicable law, each Series
A and Series B Holder agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities, options or rights convertible into or exchangeable or
exercisable for such securities that such Series A or Series B Holder owns prior
to the effective date of any underwritten registration, during the seven days
prior to, and the 120-day period with respect to the Series A Preferred Shares
held by the Series A Holders, and 180-day period with respect to the Series B
Preferred Shares held by the Series B Holders, beginning on, the effective date
of any underwritten registration, unless the underwriters managing the
registered public offering otherwise agree; provided that such restrictions
--------
shall not be more restrictive in duration or scope than restrictions imposed on
(i) any Person which has been granted registration rights by the Company, (ii)
any officer or director of the Company or (iii) any more than 5% holder of
securities of the Company.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 120-day period with respect to the Series A Preferred
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<PAGE>
Shares held by Series A Holders and the 180-day period with respect to the
Series B Preferred Shares held by the Series B Holders beginning on the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-4 or S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to cause each holder of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering or pursuant to a stock option plan adopted by the Company unless such
holder is a party to this Agreement) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
SECTION 4.4 Registration Procedures. Whenever the Series A and Series B
-----------------------
Holders have requested that any Registrable Securities be registered pursuant to
this Agreement, the Company will use its best efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and within 60 days (or 45 days for a short-form
registration) after the end of the period within which registration requests may
be given to the Company file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and
thereafter use its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Securities initiating
such registration statement copies of all such documents proposed to be filed,
which documents will be subject to review of such counsel);
(b) prepare and file with the Securities and Exchange 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 for a period of either (i) not less than 180
days (subject to extension pursuant to Section 4.7(b)) or, if such registration
statement relates to an underwritten offering, such longer period as in the
opinion of counsel for the underwriters a prospectus is required by law to be
delivered in connection with sales of Registrable Securities by an underwriter
or dealer or (ii) such shorter period as will terminate when all of the
securities covered by such registration statement have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement (but in any event not before
the expiration of any longer period required under the Securities Act), and to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until such time as all
of such securities have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such registration
statement;
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<PAGE>
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event (a "Changing 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 in the light of the circumstances under which
they were made, and, at the request of any such seller, the Company will as soon
as possible prepare and furnish to such seller (a "Correction Event") a
------------------
reasonable number of copies of 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 in the
light of the circumstances under which they were made;
(f) use its best efforts to cause all such Registrable Securities
to be listed on each securities exchange on which similar securities issued by
the Company are then listed and, if not so listed, to be listed on the NASD
automated quotation system;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, any accountant or other agent retained by any such
seller or underwriter and one firm of attorneys representing the holders of
Registrable Securities, all financial and other records, pertinent corporate
documents and
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properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(l) use its best efforts to obtain one or more comfort letters,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), signed by the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by comfort letters as the holders of a majority of the
Registrable Securities being sold reasonably request; and
(m) use its best efforts to provide a legal opinion of the
Company's outside counsel, dated the effective date of such registration
statement (or, if such registration includes an underwritten public offering,
dated the date of the closing under the underwriting agreement), with respect to
the registration statement, each amendment and supplement thereto, the
prospectus included therein (including the preliminary prospectus) and such
other documents relating thereto in customary form and covering such matters of
the type customarily covered by legal opinions of such nature.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company with such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
SECTION 4.5 Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions, which will be
paid by the sellers
-17-
<PAGE>
of Registrable Securities) and other Persons retained by the Company (all such
expenses being herein called "Registration Expenses"), will be borne as provided
------------------------
in this Agreement, and the Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed or on
the NASD automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the Series A and Series B Holder
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
initiating such registration.
SECTION 4.6 Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless, to the
extent permitted by law, each Series A and Series B Holder, its officers and
directors and each Person who controls such Series A and Series B Holder (within
the meaning of the Securities Act) against any losses, claims, damages,
liabilities, joint or several, to which such Series A and Series B Holder or any
such director or officer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto, or,
(ii) any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company will reimburse such Series A Holder or Series B Holder and each such
director, officer and controlling person for any legal or any other expenses
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, however, that the Company
--------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission, made in such registration statement, any such
prospectus or preliminary prospectus or any amendment or supplement thereto, or
in any application, in reliance upon, and in conformity with, written
information prepared and furnished to the Company by such Series A or Series B
Holder expressly for use therein or by such Series A or Series B Holder's
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto after the Company has furnished such Series A
or Series B Holder with a sufficient number of copies of the same. In connection
with an underwritten offering, the Company will indemnify such underwriters,
their officers and directors and each Person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided above
with respect to the indemnification of the Series A and Series B Holders.
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<PAGE>
(b) In connection with any registration statement in which a Series
A or Series B Holder is participating, each such Series A and Series B Holder
will furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, each such Series A
and Series B Holder, severally, for itself only, will indemnify and hold
harmless the Company, its directors and officers and each other Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities, joint or several, to which the Company or
any such director or officer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) or expenses arise out of or are based upon (i) the purchase or
sale of Registrable Securities during any period beginning upon a Changing Event
(as defined in Section 4.4(e)) and ending on a Correction Event (as defined in
Section 4.4(e)), provided such Holder received proper written notice of such
--------
Changing Event pursuant to Section 4.4(e), (ii) any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or in
any application, or (iii) any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statement therein not
misleading, but, with respect to clauses (ii) and (iii) above, only to the
extent that such untrue statement or omission is made in such registration
statement, any such prospectus or preliminary prospectus or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with written information prepared and furnished to the Company by such Series A
and Series B Holder expressly for use therein, and such Series A and Series B
Holder will reimburse the Company and each such director, officer and
controlling Person for any legal or any other expenses incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that the obligation to indemnify will
-----------------
be individual to each Series A and Series B Holder and will be limited to the
net amount of proceeds received by such Series A or Series B Holder from the
sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not materially prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. Such indemnifying
party shall not, however, enter into any settlement with a party without
obtaining an unconditional release of each indemnified party by such party with
respect to any and all claims against each indemnified party. If such defense
is assumed, the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
will not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a
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<PAGE>
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
SECTION 4.7 Participation in Underwritten Registrations.
-------------------------------------------
(a) No Person may participate in any registration hereunder which
is underwritten unless such Person (i) agrees to sell such Person's securities
on the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements (including, without
limitation, pursuant to the terms of any over-allotment or "green shoe" option
requested by the managing underwriter(s), provided that no Series A or Series B
--------
Holder will be required to sell more than the number of Registrable Securities
that such holder has requested the Company to include in any registration) and
(ii) completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
(b) Each Person that is participating in any registration hereunder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 4.4(e) above, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such Section 4.4(e). In
the event the Company shall give any such notice, the applicable time period
mentioned in Section 4.4(b) during which a Registration Statement is to remain
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this paragraph to
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 4.4(e).
SECTION 4.8 Current Public Information. At all times after the Company
--------------------------
has filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company will file all reports required to be filed by it under
the Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and will use its
best efforts to take such further action as any Series A or Series B Holder may
reasonably request, all to the extent required to enable such Series A or Series
B Holder to sell Registrable Securities pursuant to Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act (as such
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<PAGE>
rule may be amended from time to time) or any similar rule or regulation
hereafter adopted by the Securities and Exchange Commission.
SECTION 4.9 Adjustment Affecting Registrable Securities. Except as
-------------------------------------------
otherwise provided herein, the Company will not take any action, or permit any
change to occur, with respect to its securities which would materially and
adversely affect the ability of the Series A and Series B Holder to include such
Registrable Securities in a registration undertaken pursuant to this Agreement
or which would adversely affect the marketability of such Registrable Securities
in any such registration.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1 Transfers in Violation of Agreement. Any transfer or
-----------------------------------
attempted transfer of any Stockholder Shares in violation of any provision of
this Agreement shall be void, and the Company shall not record such transfer on
its books or treat any purported transferee of such Stockholder Shares as the
owner of such shares for any purpose.
SECTION 5.2 Amendment and Waiver. Except as otherwise provided herein,
--------------------
no modification, amendment or waiver of any provision of this Agreement shall be
effective against any party hereto unless such modification, amendment or waiver
is approved in writing by (i) Key Original Holders holding a majority of the
outstanding Stockholder Shares held by all Key Original Holders, (ii) Original
Holders holding a majority of the outstanding Stockholder Shares held by all
Original Holders, (iii) Series A Holders holding a majority of the outstanding
Stockholder Shares held by all Series A Holders, and (iv) Series B Holders
holding a majority of the outstanding Stockholder Shares held by all Series B
Holders.
SECTION 5.3 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of such provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
SECTION 5.4 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this document and the Purchase Agreement for the Series A Preferred
Stock and the Purchase Agreement for the Series B Preferred Stock embody the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
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<PAGE>
SECTION 5.5 Successors and Assigns. The provisions of this Agreement
----------------------
(including the registration rights contained in Article (IV)) shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and to the extent applicable, heirs, executors,
administrators and legal representatives and any subsequent holders of
Stockholder Shares and the respective successors and assigns of each of them, so
long as they hold Stockholder Shares.
SECTION 5.6 Counterparts. This Agreement may be executed in separate
------------
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
SECTION 5.7 Remedies. The parties hereto agree and acknowledge that
--------
money damages may not be an adequate remedy for any breach of the provisions of
this Agreement and that the parties hereto shall have the right to injunctive
relief, in addition to all of its rights and remedies at law or in equity, to
enforce the provisions of this Agreement. Nothing contained in this Agreement
shall be construed to confer upon any Person who is not a signatory hereto any
rights or benefits, as a third party beneficiary or otherwise.
SECTION 5.8 Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when personally delivered
or received by certified mail, return receipt requested, confirmed telecopy or
sent by guaranteed overnight courier service. Such notices, demands and other
communications will be sent to the parties as indicated below, or to any party
at such address or to the attention of such other person as the recipient party
has specified by prior written notice to the sending party.
SECTION 5.9 Governing Law. All issues concerning this Agreement shall
-------------
be governed by and construed in accordance with the laws of the State of Nevada,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Nevada or any other jurisdiction) that would cause the
application of the law of any jurisdiction other than the State of Nevada.
SECTION 5.10 Descriptive Headings. The descriptive headings of this
--------------------
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
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<PAGE>
FIRST AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGES
IN WITNESS WHEREOF, the parties, by their respective officers duly
authorized, have caused this Agreement to be duly executed and delivered as of
the date hereof.
PURCHASE PRO INTERNATIONAL, INC.
By: /s/ Charles E. Johnson Jr.
-------------------------------------------
Name: Charles E. Johnson Jr.
Title: Chairman and Chief Executive Officer
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<PAGE>
FIRST AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGES
ORIGINAL HOLDERS:
----------------
___________________________________
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<PAGE>
FIRST AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGES
SERIES A HOLDERS:
----------------
___________________________________
-25-
<PAGE>
FIRST AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGES
SERIES B PREFERRED HOLDERS:
___________________________________
-26-
<PAGE>
EXHIBIT A
ORIGINAL HOLDERS
-27-
<PAGE>
EXHIBIT B
SERIES A HOLDERS
-28-
<PAGE>
EXHIBIT C
SERIES B HOLDERS
-29-
<PAGE>
EXHIBIT 10.7
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
- -----------------------------------------------------------------------------
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
- ----------------------------------------------------------------
Agreement between the Greater Phoenix Chamber of Commerce
And Purchase Pro International Inc.
3291 N. Buffalo Dr.
Las Vegas, NV 89129
January 4, 1999
1. The Greater Phoenix Chamber of Commerce (the "Chamber") will be the
exclusive distributor (marketing and sales) affiliate for the Purchase Pro
program in Maricopa County in conjunction with the Purchase Pro direct staff.
2. The Chamber will provide the following vehicles to promote the Purchase Pro
program in Maricopa County:
2.1 Seven thousand promotional flyers to be provided by Purchase Pro
to be distributed free on a monthly basis in the Greater Phoenix
Today magazine. (every month)
2.2 Ten thousand promotional flyers to be distributed quarterly in
the Networker. (every quarter)
2.3 On going success stories in Greater Phoenix Today. (monthly)
2.4 Participation in fax-on-demand and audio commercial on the
ChamberLine program.
2.5 Press stories for the Business Journal, Arizona Republic and all
other Maricopa County publications.
2.6 Direct mail promotion or terms to be established by mutual
agreement.
3. Purchase Pro will package membership in the Chamber into all future
subscriptions sold in Maricopa County with exception of the following:
3.1 The prospect is already a member of the Chamber.
3.2 The prospect is an invited member of a private Purchase Pro
network. A private Purchase Pro network is defined as a custom
built corporate trading network where select companies are only
visible to other select companies.
4. Purchase Pro Inc. will compensate the Chamber at an annual rate of **
--
per year per company joining the Purchase Pro program at ** per month. The
--
** is payable to the Chamber or its designee in quarterly installments
--
after a company has signed a contract for the Purchase Pro program and
after Purchase Pro his received their payment for each quarter. The
compensation will continue every quarter as long as the company is a paying
member of the Purchase Pro program.
5. Purchase Pro will offer persons who were Chamber members prior to January
4, 1999 a special buy-in of ** per month.
--
6. The Chamber will be the only Chamber or business organization to offer this
program with the exception of current programs with United Hispanic Chamber
of Commerce Organization, American Hotel and Motel Association and the
National Association of Purchasing Managers.
7. Purchase Pro will provide the Chamber a monthly briefing detailing all
corporate marketing and new strategic alliances they are working on in
Arizona.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- -------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- -----------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES EXCHANGE COMMISSION.
- -------------------------------
Confidential Page 1
<PAGE>
8. The Chamber will notify all of its members of the availability of the
program and recommend it to its members. This effort will include, but not
be limited to, endorsement letters from the Chamber President and CEO.
9. The Chamber and Purchase Pro will cross train necessary staff to understand
each party's role and their particular responsibilities of each staff
member.
10. Purchase Pro and the Chamber will maintain adequate sales staff in Maricopa
County to call on members and prospects.
11. Purchase Pro will provide the materials to promote Purchase Pro in Maricopa
County with the primary goal of attracting current Chamber members and
prospects to attend seminars to introduce the program.
12. The Chamber will allow use of its Board Room at regular scheduled times for
Purchase Pro to facilitate seminars relating to the Purchase Pro program.
13. Purchase Pro will use its best efforts to integrate the Bid Source program
into Purchase Pro as quickly as is practicable. (June 30, 1999)
14. Purchase Pro will provide the Chamber with front-page Banner Ad space on
---------------
its website network in the Maricopa County market at no charge.
----------------------
15. With each new Purchase Pro paid yearly subscription the member will receive
a three-page template website built by Purchase Pro **. This will include
--
design and set-up. The ** monthly website maintenance charge will be
--
waived for the first 12 months.
16. The Purchase Pro program will be marketed so as to give the Chamber a value
added benefit exclusive for its members.
17. Purchase Pro will pay for custom Greater Phoenix Chamber flyers and a CD
Rom and other marketing materials and the Chamber will be responsible for
the distribution of these materials.
18. Purchase Pro will fax and e-mail to all non-members of the Chamber, a
marketing piece about Purchase Pro and its affiliation with the Chamber.
Description to be determined.
19. The Chamber will provide to Purchase Pro a new Chamber member update
monthly as well as a copy of the Chamber's monthly new business report from
US WEST.
20. Purchase Pro will provide the Chamber a monthly report detailing all
participants and dollars awarded through bid matching and any other
relevant activity relevant to the Economic Development Retention and
Expansion program the Chamber is involved in.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- -------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- -----------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES EXCHANGE COMMISSION.
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21. The Chamber will provide Purchase Pro a list of all the top 25 businesses
in each business category in Arizona. (Sales, Profits, Employees etc.)
22. A Purchase Pro representative will attend every Chamber member orientation
and all Chamber networking events to promote E-Commerce between members.
23. In marketing and prospecting, the Chamber will concentrate on providers of
goods and services and Purchase Pro will concentrate on the large private
sector purchaser. It is understood they may be one-in-the-same on some
occasions.
24. The Chamber will arrange for someone from Purchase Pro to be interviewed on
the Chamber radio show on KFNN Financial News Radio.
25. The term of this contract will be for 24 months with a 90-day termination
notice for non-performance by either side. The parties agree to seek
mediation to resolve any dispute.
26. The Chamber retention and expansion committee will involve the Purchase Pro
product in the marketing effort to promote the growth of the economic
development and retention program in Maricopa County.
27. The Chamber will ensure that a Chamber representative will attend all
Purchase Pro Seminars held in Maricopa County.
28. The Chamber will be guaranteed by Purchase Pro that the agreed upon selling
price of the program to the Chamber's members will be the lowest price
offered in this marketplace and will be subject to change with changes in
the marketplace from the contract date forward.
29. The Chamber will provide, or has provided, Purchase Pro CD Rom and free
usage (Lead Source 118,000 businesses) as well as complete membership on
disk as needed.
/S/ VALERIE MANNING /S/ CHRIS CARTON
- -------------------------------------- ------------------------------------
Valerie Manning Chris Carton
President & CEO President
Greater Phoenix Chamber of Commerce Purchase Pro International Inc.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- -------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- -----------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES EXCHANGE COMMISSION.
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<PAGE>
EXHIBIT 10.8
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
- -------------------------------------------------------------------------
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
- ---------------------------------------------------------------------
SOFTWARE AGENCY AND SERVICES AGREEMENT
This Software Agency and Services Agreement ("Agreement") is entered into
this 3rd day of May, 1999 ("Effective Date"), between Purchase Pro
International, Inc., a Nevada Corporation whose address is 3291 North Buffalo
Drive, Las Vegas, Nevada 89129 (hereinafter "Purchase Pro"); ZoomTown.com, Inc.,
an Ohio corporation with headquarters at 201 East Fourth Street, Cincinnati,
Ohio 45202 (hereinafter "ZoomTown.com"); and E-MarketPro, LLC, a Kentucky
limited liability company whose address is 2623 Regency Road, Lexington,
Kentucky 40503 (hereinafter "E-MarketPro").
1. Definitions
-----------
Unless otherwise specified herein, the following terms shall be defined as
follows:
(a) Access shall mean the sale, license for use, or other means by which
------
Purchase Pro enables customers to use Software products.
(b) Advertising Revenue shall mean all revenue from advertising, banners,
-------------------
directories, and the like on the co-branded ZoomTown.com/Purchase Pro form of
the Software (i.e., the page(s) or areas of the co-branded Software that
Customers see when they Access the same).
(c) Agreed Deductions shall mean the amount to be deducted from the
-----------------
Bundled Revenues from a given Bundled Transaction in order to derive the portion
thereof that equitably is attributable to the Access included therein, as
mutually agreed by Purchase Pro and ZoomTown.com.
(d) Bundled Revenues shall mean the aggregate of all revenues attributable
----------------
to Bundled Transactions.
(e) Bundled Transaction shall mean a sale, license, lease or other
-------------------
transaction with a Customer in which Access is bundled together with other goods
and/or services (e.g., an ASDL line) in a single or combined economic package.
The simultaneous, but separate, sale of Access and other good(s) and services to
a Customer, per se, will not give rise to Bundled Transaction if such sale of
Access is for full price (without discount).
(f) Contiguous States shall mean the States of Indiana, Michigan,
-----------------
Missouri, Pennsylvania, Tennessee, Virginia and West Virginia.
(g) Customer Guaranteed Minimum shall mean the sum of ** per Customer per
---------------------------
month; provided, however, the term Customer Guaranteed Minimum shall apply only
to Customers located within the Initial Market Area.
(h) Customer ID shall mean a unique combination of a user-ID number or
-----------
code (or other identifier) and a password that enables a user of the Software to
have Access.
(i) Customers shall mean companies (which term is understood to include
---------
all types of business entities as well as sole proprietorships and individuals
doing business under their own or any
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- --------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
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BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
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other name) located within the Market Area that are granted Access to the
Software (determined based on whether such entity has a Customer ID and has
local telephone "dial tone" within the Market Area). Notwithstanding the
foregoing, Customers shall not include those existing customers of E-MarketPro
within the state of Kentucky as are set forth in Exhibit D, hereto, which may be
amended in the future by mutual agreement of ZoomTown.com and E-MarketPro. For
those parties identified on Exhibit D, rights and obligations shall instead be
governed by the provisions of the E-MarketPro Agreement.
(j) Dedicated Support Facility shall mean a suitably staffed and equipped
--------------------------
facility (which can serve one or more areas) maintained by Zoomtown.com that is
dedicated to providing First Tier Support in a specific geographic area. The
Dedicated Support Facility initially will serve the Initial Market Area.
(k) Defect shall mean any replicable Software programming error that
------
causes a material non-compliance by the then most recent release of the Software
with Purchase Pro's published or external specifications and/or operating
manuals (or similar documentation) for that Software release.
(l) Disruption shall mean the occurrence of any material disruption in the
----------
services to Customers in the ZoomTown.com networks that is solely caused by a
Severity Level 1 or Severity Level 2 (as those terms are defined in Exhibit A)
Defect in the then most recent release of the Software. For purposes of this
Agreement, the term Disruption shall not include (i) any scheduled maintenance
periods or any impairment, interruption or failure to perform or respond in the
services to Customers in the ZoomTown.com networks that is not caused by use of
the Software, in the form provided by Purchase Pro, in accordance with its
specifications and documentation or (ii) any thirty (30) day period during which
the Software is operational, on average, at least 99% of the time.
(m) E-MarketPro Agreement shall mean the agreement between E-MarketPro and
---------------------
Purchase Pro dated the 1st day of February 1999, as amended.
(n) Gross Revenue shall mean **
------------- --
(o) Initial Market Area shall mean the States of Ohio and Kentucky.
-------------------
(p) Launch Date shall mean the date the parties mutually agree that the
-----------
Software in its co-branded ZoomTown.com/Purchase Pro form is operational and
Customers may commence to Access the Software.
(q) Launch Period shall mean the period commencing on the Effective Date
-------------
and ending on May 17, 1999 (or such other date the parties mutually agree upon
in writing).
(r) Market Area shall mean the Initial Market Area, together with the
-----------
ZoomTown.com network in the Initial Market Area, plus any expansion(s) of the
Market Area pursuant to subparagraph
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- -------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- -----------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
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2.2(b) or the next sentence. Market Area shall also include any mutually agreed
(agreement to be in writing and not to be unreasonably withheld) future
expansions of the ZoomTown.com network or networks to any additional geographic
area(s) in which ZoomTown.com will actively market Access to the Software and
will provide First Tier Support for Customers via a Dedicated Support Facility.
(s) Net Revenue shall mean **
----------- --
(t) Purchase Pro House Account Customers shall mean those customers
------------------------------------
of Purchase Pro that enter into a regional, national or international contract
with Purchase Pro for Access to the Software, together with their respective
suppliers and customers that have Access or use the Software under or pursuant
to such a contract, including without limitation those Purchase Pro House
Account Customers set forth in Exhibit B hereto.
(u) Software shall mean the Purchase Pro proprietary software for the
--------
supply, purchase, bid for, offer for sale, lease, trade, barter or exchange
goods or services through use of the internet, including all updates and
upgrades thereto, offered by Purchase Pro for use by customers, including
Customers of ZoomTown.com.
(v) Support
-------
(i) First Tier Support shall mean all initial direct Customer
------------------
contact and follow-up contact as appropriate regarding Customer calls
or inquiries for technical support, maintenance and error correction
for the Software and includes, without limitation, (i) information
gathering; (ii) handing off of support calls and pass through of
problem reports, in the format prescribed by Purchase Pro, to the
appropriate Second Tier Support personnel; and (iii) the distribution
of Software work-arounds, patches and fixes to Customers directly or
by download from the ZoomTown Website (unless Purchase Pro elects to
distribute the same as part of a general availability release of the
Software or the same is available by download from other internet
website(s)). Unless Purchase Pro agrees otherwise, all First Tier
Support will be provided on a 7 X 24 basis in accordance with
Purchase Pro's then standard Software support policies and
procedures.
(ii) Second Tier Support shall mean problem isolation and
-------------------
identification and follow-up with the Customer and/or First Tier
Support personnel, as appropriate.
(iii) Third Tier Support shall mean providing prompt corrective
------------------
maintenance for the Software in accordance with Exhibit A and
Purchase Pro's standard guidelines as in effect from time to time.
Corrective maintenance will include action to verify a problem's
existence and determine conditions under which the problem may recur.
After such verification, one of the following will be provided
(unless said guidelines provide otherwise, in which said guidelines
will be followed): an appropriate prompt fix for the problem or a
temporary solution or workaround for the problem to be followed by a
permanent solution in a subsequent Software release, whichever is
more reasonable and suitable under the circumstances.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- --------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- ------------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
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(w) Transaction Fees shall mean fees charged Customers for
----------------
Access to the Software based on or measured by the number, dollar volume or
other attribute of transactions between Customers or between Customers and third
parties for the internet sale, lease, trade, barter or exchange of goods or
services via Access to the Software.
(x) ZoomTown Website shall mean the internet website that
----------------
ZoomTown.com maintains to provide information about itself and the goods and
services (including the co-branded ZoomTown.com/Purchase Pro form of the
Software) that it markets and sells.
2. Appointment/Market Area
-----------------------
2.1 E-MarketPro Agreement Amendment
-------------------------------
During the term of this Agreement, (i) the E-MarketPro Agreement is hereby
amended to the extent it is inconsistent with this Agreement as it applies to
the Initial Market Area and the Contiguous States and (ii) E-MarketPro hereby
waives all rights under the E-MarketPro Agreement to market and offer Access
with respect to those specific geographic areas (which instead shall be governed
by this Agreement).
2.2 ZoomTown.com
------------
Purchase Pro, E-MarketPro and ZoomTown.com agree that this Agreement grants
ZoomTown.com the right, as Purchase Pro's agent and representative and on the
terms set forth herein, to market and offer (which terms may include the right
to issue Customer IDs in accordance with Purchase Pro's standard policies and
practices to Customers), on behalf of Purchase Pro, Access to Purchase Pro's
Software worldwide. ZoomTown.com also is granted a non-exclusive license to use
the Software and other proprietary materials of Purchase Pro as and for the
purposes set forth herein. The rights granted ZoomTown.com hereunder and
ZoomTown.com's appointment hereunder as Purchase Pro's agent to market and offer
Access to the Software are subject to the following:
(a) ZoomTown.com's right to market and offer Access in geographic areas
comprising the Initial Market Area shall be, subject to Purchase Pro's rights
with respect to Purchase Pro House Account Customers, (i) exclusive in the State
of Ohio and (ii) co-exclusive, with E-MarketPro's similar appointment under
Paragraph 2.3 below, in the State of Kentucky. Subject to subparagraphs 2.2(b)
and 2.2(c) below, ZoomTown.com's right to market and offer Access in geographic
areas outside the Initial Market Area shall be non-exclusive, notwithstanding
any future expansions of the Market Area due to an expansion of the ZoomTown.com
network to geographic locations pursuant to subparagraph 1(r) above.
(b) Purchase Pro reserves the right to grant third parties exclusive
rights to market and offer Access to the Software in specific geographic area(s)
within the Contiguous States, subject to the provisions of this subparagraph
2.2(b). If PurchasePro desires to grant exclusive rights to market and offer
Access to the Software in specific geographic area(s) within the Contiguous
States, then Purchase Pro shall offer that exclusivity in writing to
ZoomTown.com under the terms of this Agreement as an expansion of the Market
Area. If ZoomTown.com accepts Purchase Pro's offer in
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writing within thirty (30) days, then the Market Area shall be expanded to
include said geographic area(s) on an exclusive basis (even as to E-MarketPro,
except for Access to the co-branded Software by persons or entities located in
that geographic area that result from E-MarketPro customers requesting Access
for their suppliers or customers who are in that geographic area). If
ZoomTown.com does not so accept Purchase Pro's offer, then E-MarketPro shall
have a right of first refusal to acquire exclusive rights (even as to
ZoomTown.com, except for Access by persons or entities located in that
geographic area that result from Customers requesting Access for their suppliers
or customers who are in that geographic area) in those geographic area(s) on a
"match-offer" basis (which right shall be exercisable, if at all, during the ten
(10) day period that follows the lapse of ZoomTown.com's thirty (30) day
acceptance period described in the preceding sentence). If ZoomTown.com does not
so accept exclusivity and expansion of the Market Area and E-MarketPro does not
so exercise its right of first refusal in a given geographic area, then if
Purchase Pro enters into such exclusive agreement with a third party, neither
ZoomTown.com nor E-MarketPro shall have any further right to market and offer
Access to the Software in that geographic area thereafter, except for Access by
persons or entities located in that geographic area that result from Customers
requesting Access for their suppliers or customers who are in that geographic
area.
(c) Purchase Pro reserves the right to grant third parties exclusive
rights to market and offer Access to the Software in specific geographic area(s)
outside of the Initial Market Area and the Contiguous States.
(d) ZoomTown.com may elect to provide (and license, to the extent of any
proprietary rights of ZoomTown.com therein) to Purchase Pro, and Purchase Pro
may in turn provide and, if applicable, sublicense to the third party, a turnkey
type package that will allow the third party to replicate ZoomTown.com's First
Tier Support structure and ZoomTown Website page(s) relating to the Software and
to develop, host, maintain, train and market and offer Access to the Software in
the third party's geographic area in a manner that is comparable to
ZoomTown.com's efforts in the Market Area. If a third party is so provided a
turnkey package pursuant to this subparagraph 2.2(d), then Purchase Pro shall
pay, quarterly, royalties equal to (i) ** of the Gross Revenue from such third
--
party's customers located (determined in the same manner as Customers are
determined; see subparagraph 1(r) above) in such third party's geographic area
to ZoomTown.com and (ii) ** of such Gross Revenue to E-MarketPro. Any amounts
--
owed to ZoomTown.com pursuant to this provision shall be in addition to any
amounts that may otherwise be owed to ZoomTown pursuant to Paragraph 5, below.
(e) ZoomTown.com's exclusive rights to market and offer Access to the
Software as provided in this Agreement notwithstanding, ZoomTown.com's rights to
market and offer Access to the Software to Purchase Pro House Account Customers
always shall be non-exclusive. Purchase Pro House Account Customers that are
located in the Market Area (see subparagraph 1(r) above) shall be granted Access
to (i) a fully-featured version of the co-branded Software, if charged the full
price determined according to Paragraph 5.1 below, or (ii) a restricted version
of the Software that is not co-branded and does not include the ability to
access the "public network" national market place that is a feature of the co-
branded Software, if charged less than the full price determined according to
Paragraph 5.1 below. ZoomTown.com may market and offer an upgrade up to the
fully-featured version of the Software to Purchase Pro House Account Customers
located in the Market Area that receive the restricted version.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- --------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- ------------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
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(f) ZoomTown.com is hereby authorized to enter into binding
agreements (licenses) granting Access to Customers that are obtained through the
efforts of ZoomTown.com hereunder, provided that each such Customer meets the
credit approval criteria employed by ZoomTown.com and Cincinnati Bell Inc. in
the ordinary course of business and that all such agreements shall be in a
standard form agreement provided by Purchase Pro from time-to-time, with only
such changes (other than Customer-specific information such as name, address and
the like) as Purchase Pro approves in writing. Purchase Pro shall consult with
ZoomTown.com regarding the form and content of such standard form agreement, and
ZoomTown.com shall have the right to approve any provision thereof that it
reasonably determines would create any obligation or liability on the part of
ZoomTown.com.
(g) ZoomTown.com shall only execute or otherwise enter into
agreements with Customers pursuant to subparagraph 2.2(f) as Purchase Pro's
agent and on Purchase Pro's behalf, and Purchase Pro and Customer shall be the
contracting parties under all such agreements.
2.3 E-MarketPro
-----------
Purchase Pro, E-MarketPro and ZoomTown.com agree that this Agreement grants
E-MarketPro the right, as Purchase Pro's agent and representative and on the
terms set forth herein, to market and offer (which terms may include the right
to issue Customer IDs in accordance with Purchase Pro's standard policies and
practices to Customers), on behalf of Purchase Pro, Access to Purchase Pro's
Software. The rights granted E-MarketPro hereunder and E-MarketPro's appointment
hereunder as Purchase Pro's agent to market and offer Access to the Software is
(i) co-exclusive, subject to Purchase Pro's rights with respect to Purchase Pro
House Account Customers, with the rights of ZoomTown.com under Paragraph 2.2 in
the State of Kentucky and (ii) except as otherwise provided in subparagraphs
2.2(b) and 2.2(c), non-exclusive in the Contiguous States. During the term of
this Agreement, E-MarketPro shall not have any rights to market or offer Access
in the State of Ohio, or in those areas of Kentucky which are part of the
Cincinnati Bell Telephone local service area or the ZoomTown.com networks except
for Access to the co-branded Software (as set forth in Paragraph 4.1(ix) below)
for E-MarketPro customers or E-MarketPro customers requesting Access for their
suppliers or customers who are in that geographic area. For sales of Access by
E-MarketPro in the State of Ohio or in those areas of Kentucky specified above,
payment to E-MarketPro shall be pursuant to paragraph 5.2(ii), below. E-
MarketPro's right to market and offer Access in geographic areas outside the
Initial Market Area and the Contiguous States shall remain as stated in the E-
MarketPro Agreement.
3. Responsibilities of ZoomTown.com
--------------------------------
3.1 Sales and Support Responsibilities
----------------------------------
In addition to its other rights, understandings and obligations created by
this Agreement, ZoomTown.com shall, during the term of this Agreement:
(i) Co-brand Purchase Pro's Software in the Market Area by altering,
with technical assistance from Purchase Pro, the look and graphics of
its advertising and promotional
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materials and the pages of the ZoomTown Website so as to reflect
ZoomTown.com's offering of Access to the Software coupled with the
statement "powered by Purchase Pro" and to include on the ZoomTown Website
information on how a Customer may order Access to the Software.
(ii) Use its best commercially reasonable efforts to achieve the
Launch Date on or before the end of the Launch Period.
(iii) Use its best commercially reasonable efforts to promote,
market and offer Access to Purchase Pro's Software to Customers
and to maximize sales of Access throughout the Market Area.
(iv) Act solely as an independent organization, without authority
to commit Purchase Pro except as specifically provided in
subparagraphs 2.2(f) and 2.2(g) above, and to employ its own
facilities at its own expense to perform its obligations
hereunder.
(v) Complete and/or carry out before the Launch Date training of
its personnel, where applicable based on the training offered by
Purchase Pro on a "train-the-trainer" basis (see subparagraph
4.1(vi) below), as reasonably required to maintain an informed
and suitably qualified and knowledgeable sales, technical
support, and application engineering organization and to maximize
sales of Access in the Market Area, to provide First Tier Support
and carry out ZoomTown.com's other obligations and duties
hereunder and to assist Purchase Pro's personnel with the
application and service of the Software.
(vi) Provide Purchase Pro with electronic copies of any marketing
materials and web-specific content regarding the Software
developed by or for ZoomTown.com. Purchase Pro will be
responsible for production, at its expense, of literature and
materials and/or web pages based on content provided by
ZoomTown.com. Any such production by Purchase Pro may include
quantities ordered by ZoomTown.com.
(vii) Provide First Tier Support to Customers in good standing in
the Market Area that are using Purchase Pro Software.
(viii) Provide such additional services as may be agreed upon with
Purchase Pro.
4. Responsibilities of Purchase Pro
--------------------------------
4.1 Support and Sales Responsibilities
----------------------------------
In addition to its other rights, understandings and obligations created by
this Agreement, Purchase Pro shall, during the term of this Agreement:
(i) Use its best commercially reasonable efforts to assist
ZoomTown.com in achieving the Launch Date on or before the end of the
Launch Period.
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(ii) Promptly upon their general availability, provide all
fully-featured releases of the Software to ZoomTown.com, free of
charge. The parties may also enter into a mutually agreeable,
separate written beta-test agreement pursuant to which
ZoomTown.com will receive and undertake to test "beta" and other
pre-general availability releases of the Software.
(iii) Develop, install and maintain all client software
necessary to co-brand with ZoomTown.com the Purchase Pro Software
as provided in subparagraph 3.1(i) above, at no charge to
ZoomTown.com.
(iv) Provide, at ZoomTown.com's cost for reasonable travel
and living expenses, an on-site subject matter expert to install,
test and maintain any Purchase Pro Software at any ZoomTown.com
location at mutually scheduled time(s) during the Launch Period.
(v) Provide Access to standard services and generally
available Software upgrades to Customers on the same basis and at
the same cost as to all other similarly situated customers of
Purchase Pro. This provision shall not prevent Purchase Pro from
developing and offering customized and/or dedicated solutions to
particular customers.
(vi) Conduct mutually scheduled training sessions for the
ZoomTown.com's sales and support personnel, both before the
Launch Date and thereafter. Such training will be at no charge,
except that if conducted at ZoomTown.com's location, ZoomTown.com
will bear the reasonable travel and living expenses of the
Purchase Pro personnel involved. After the first anniversary of
the Launch Date, any such training will be provided on a "train-
the-trainer" basis only.
(vii) Provide ZoomTown.com with electronic copies of any
marketing materials and web-specific content regarding the
Software developed by or for Purchase Pro. ZoomTown.com will be
responsible for production, at its expense, of literature and
materials and/or web pages based on content provided by Purchase
Pro. Any such production by ZoomTown.com may include quantities
ordered by Purchase Pro.
(viii) Provide Second Tier Support and Third Tier Support,
within the time limitations specified in Exhibit A, to
ZoomTown.com and to all Customers in good standing that are using
Purchase Pro Software.
(ix) Offer and allow Access only to the ZoomTown.com co-
branded Software (see subparagraph 4.1(ii)) to any Customers in
the Cincinnati Bell Telephone service area and to any Customer on
the ZoomTown.com networks, with the exception of Purchase Pro
House Account Customers as set forth herein.
(x) Provide such additional services as may be agreed upon
with ZoomTown.com.
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4.2 Scope and Limitation of Purchase Pro's Authority
------------------------------------------------
Neither E-MarketPro nor Purchase Pro shall have any power or authority to
act for, bind or commit ZoomTown.com. Purchase Pro may not use the name of the
ZoomTown.com in any sales promotion literature, news release, or advertising
outside of that which is permitted under or contemplated by the terms of this
Agreement, without the express written consent of the ZoomTown.com in each
instance.
4.3 Quality Standards
-----------------
Purchase Pro shall provide a general availability release of the Software
in accordance with Purchase Pro's normal quality assurance that is free of any
Defects that are known to Purchase Pro and not corrected or subject to a
reasonable software patch or problem work-around, no later than the Launch Date.
Purchase Pro will not knowingly release any general availability version of the
Software that Purchase Pro believes is likely to have a substantial incidence of
Disruptions without notifying ZoomTown.com.
4.4 No Warranties
-------------
Subject to paragraph 4.6, (i) ZoomTown.com acknowledges that the Software
is provided "AS-IS" and (ii) Purchase Pro does not warrant its Software to be
free from any Defects or that its operation will be free from Disruption. In
lieu any warranty in respect of the Software, Purchase Pro will provide
ZoomTown.com with error correction services for the Software in accordance with
Exhibit A, free of charge.
4.5 Correction of Software Defects
------------------------------
In the event the Software is found to contain a Defect, Purchase Pro shall
take steps to remedy the Defect in accordance with the applicable provisions of
Exhibit A.
4.6 Year 2000 Compliance
--------------------
Purchase Pro represents and warrants as follows: that the Software is
designed to be used prior to, during, and after the year 2000 A. D. and that it
will operate during such time periods without error relating to its internal
processing of date data that is presented to the Software in an industry-
standard, year 2000 compliant format (referred to herein as being in a "Y2K
Compliant Date Format") which represent or reference different centuries or more
than one century; that no value for current date in Y2K Compliant Date Format
will cause interruptions in normal operation; that all manipulations of
calendar-related data (dates, duration, days of week, etc.) in Y2K Compliant
Date Format will produce correct results for all valid date values; that date
elements in interfaces and data storage within the Software permits specifying
century or uses another industry-standard technique to eliminate date ambiguity
by using a Y2K Compliant Date Format; and that for any date element represented
without century, the correct century is unambiguous for all manipulations
involving that element which occur during the warranty period set forth in the
next sentence. The Year 2000 Compliance Warranty set forth herein shall expire
on the date on which the Software has operated without a material breach of this
Year 2000 Compliance Warranty for a consecutive 12-month period after January 1,
2000. Any
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failure of the Software to comply with this Year 2000 Compliance Warranty shall
be promptly repaired by Purchase Pro in accordance with the applicable
provisions of Exhibit A.
4.7 Disruption of the ZoomTown.com Network
--------------------------------------
Notwithstanding anything in this Agreement to the contrary, in the event
that there is any Disruption in the ZoomTown.com network which is caused by or
under the control of Purchase Pro, Purchase Pro shall take all commercially
reasonable actions necessary to terminate the Disruption as soon as practicable.
In the event the Disruption of in the ZoomTown.com network is not caused by or
under the control of Purchase Pro, Purchase Pro shall cooperate in
ZoomTown.com's efforts to terminate such Disruption as reasonably requested by
ZoomTown.com, at ZoomTown.com's expense.
4.8 Security
--------
Purchase Pro will include and maintain in the Software and/or otherwise use
such encryption and firewall technologies and/or other security systems or
procedures as it believes are reasonable and appropriate for the purpose that
data transmission to and from the Software will be secure. Purchase Pro does
not represent or warrant that the Software cannot be "hacked," that all such
data transmissions will be secure in all circumstances, or that the encryption
and firewall technologies and/or other security systems or procedures that it
maintains in the Software or uses cannot be broken or evaded. In addition, this
paragraph 4.8 shall not require Purchase Pro to use or maintain in the Software
any encryption and firewall technologies and/or other security systems or
procedures in violation of any applicable law or regulation.
4.9 Development of Enhanced Software
--------------------------------
The parties hereto anticipate that, from time-to-time, ZoomTown.com may
request the further development of the Software to include new features or
functions. In such event, ZoomTown.com shall make such requests in writing,
specifying with particularity the desired characteristics and specifications of
said improvements, features, or functions, and Purchase Pro shall promptly
prepare a written preliminary proposal for development of same, said proposal to
include a schedule for development and an estimated cost of completion. In the
event the preliminary proposal is acceptable to ZoomTown.com, the parties shall
negotiate in good faith the terms of a final proposal, including a final set of
design specifications, performance characteristics, development schedule, and
price, which upon written approval and acceptance by both parties shall
constitute a binding addendum to this Agreement.
5. Customer Sales
5.1 Price
-----
Purchase Pro, in consultation with ZoomTown.com, shall determine the market
sale price for all Access and all additional software and services to be
provided to Customers in the Market Area, including, without limitation,
upgrades to fully-featured versions pursuant to subparagraph 2.2(e). An initial
schedule of such fees for Access to the Software and services shall be
memorialized in writing before the Launch Date.
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5.2 Invoicing and Terms of Payment
------------------------------
(i) For the initial 24 months after the Launch Date,
Purchase Pro shall invoice on a regular basis all Customers at
the price determined under paragraph 5.1 plus any amount owed for
additional goods or services provided to the Customer. Beginning
with the twenty-fifth (25th) such month, ZoomTown.com may elect
in its sole discretion to invoice on a regular basis all
Customers on behalf of Purchase Pro, whereupon ZoomTown.com shall
invoice the Customers (with appropriate mention of Purchase Pro's
name on the invoice); in such event, the parties shall cooperate
to transition the billing and collection responsibility to
ZoomTown.com. Regardless of the party performing the billing and
collection function, all Gross Revenues subject to this Agreement
are revenues of Purchase Pro. Purchase Pro shall pay sales
commissions to ZoomTown.com and E-MarketPro on such revenues in
accordance with subparagraphs 5.2(ii) through 5.2(iv).
(ii) Purchase Pro shall pay (1) a sales commission to
ZoomTown.com equal to ** of the Net Revenues from Customers in
--
the Initial Market Area during the period ending on the first
anniversary of the Launch Date and (2) a sales commission to E-
MarketPro equal to ** of such Net Revenues. Purchase Pro shall
--
pay (1) a sales commission to ZoomTown.com equal to ** of the
--
Net Revenues from Customers in the Initial Market Area after the
first anniversary of the Launch Date and (2) a sales commission
to E-MarketPro equal to ** of such Net Revenues. Purchase Pro
--
shall pay (1) a sales commission to ZoomTown.com equal to (a) **
--
of the Net Revenues from Customers in the Contiguous States
minus (b) the amount payable to E-MarketPro pursuant to clause
(2) of this sentence, and (2) a sales commission to E-MarketPro
equal to the lesser of ** of such Net Revenues or ** per such
-- --
Customer per month. Purchase Pro shall pay (1) a sales
commission to ZoomTown.com equal to ** of the Net Revenues, and
--
(2) a sales commission to E-MarketPro equal to ** of such Net
--
Revenues from Customers in any expansion of the Market Area
outside of the Initial Market and the Contiguous States.
(iii) For Access by persons or entities located outside the
Market Area that have a Customer ID issued as a result of a sale
by ZoomTown.com pursuant to paragraph 2.2 or that result from
Customers requesting Access for their suppliers or customers who
are in an area outside the Market Area and/or from the marketing
and sales efforts by ZoomTown.com outside the Market Area (i.e.,
in both cases, persons or entities that ZoomTown.com has "signed
up" to have Access, but for whom ZoomTown.com is not obligated
to provide First Tier Support), Purchase Pro shall pay (1) a
sales commission to ZoomTown.com equal to ** of all Gross
--
Revenue arising from such Access, and (2) a sales commission to
E-MarketPro equal to ** of all Gross Revenue arising from such
--
Access, unless such Access is within the Contiguous States in
which case Purchase Pro shall pay (1) a sales commission to
ZoomTown.com equal to **
--
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- --------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- ------------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
- -----------------------------------
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<PAGE>
of all Gross Revenue arising from such Access and (2) a sales commission
to E-MarketPro equal to ** of all Gross Revenue arising from such Access.
The obligations contained in this subparagraph 5.2(iii) shall extend to
first line customers and suppliers only, and not to subsequent downline
customers or suppliers, unless such downline customers or suppliers
themselves are in the Market Area, in which case the applicable sales
commission set forth in subparagraph 5.2(ii), above, shall apply as to
them.
(iv) Purchase Pro shall pay a sales commission on the
portion of the Gross Revenues remitted for any given month that
is represented by the Customer Guaranteed Minimum, as follows:
(1) ZoomTown.com shall be entitled to a sales commission equal to
the Customer Guaranteed Minimum attributable to the first **
--
Customers and (2) E-MarketPro shall be entitled to a sales
commission equal to the Customer Guaranteed Minimum attributable
to all remaining Customers times the sales commission percentage
under the first two sentences of subparagraph 5.2(ii) that
applies to the corresponding Net Revenues from such Customers.
For avoidance of doubt, this counting of the "**" applies
--
separately and afresh for each monthly remittance under
subparagraph 5.2(v) and does not refer to the first ** Customers
--
since the inception of this Agreement.
(v) The appropriate party (i.e., the party performing
billing and collection functions with respect to the Gross
Revenues in question) shall remit, on an end-of-calendar-month
basis one month in arrears (e.g., remit at the end of February
for Net Revenues in January), to the other parties hereunder the
respective amounts to which they are entitled under the
provisions of subparagraph 2.2(d) (if applicable) and this
Paragraph 5.2. The party obligated to remit sums to the other
under this paragraph 5.2(v) shall provide to the other parties,
with each monthly remittance, a written report of all amounts
invoiced, amounts collected, and any deductions from amounts
otherwise due to such other party.
(vi) Except as otherwise agreed in any "match-offer"
agreement entered into pursuant to subparagraph 2.2(b), and as to
Gross Revenues and Net Revenues on which E-MarketPro receives a
sales commission under this Agreement, the payment by Purchase
Pro to E-MarketPro of sales commissions on revenues from Access
by customers that result from sales by E-MarketPro shall be
governed by the E-MarketPro Agreement.
5.3 Initial Payment
---------------
Upon execution of this Agreement, ZoomTown.com will pay to Purchase Pro
the amount of **, which payment shall be non-refundable. Purchase Pro shall pay
--
a sales commission to E-MarketPro equal to ** of such amount.
--
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- --------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- ------------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
- -----------------------------------
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5.4 Taxes
-----
The party responsible under law will collect and remit as required by
applicable law any sales, use, value-added or excise taxes, in amounts legally
levied or imposed under the authority of a federal, state or local taxing
jurisdiction, on the Gross Revenues or royalties under subparagraph 2.2(d) (or
any part thereof) subject to this Agreement for Access to the Software, and the
provision of related services.
5.5 Exchange of Necessary Information
---------------------------------
The applicable party, in a timely fashion and periodically as the parties
mutually agree, shall provide the other party with the necessary billing, Gross
or Net Revenue and other information (including any applicable pre-paid amounts
and other offset credits and applicable tax calculations under paragraph 5.4) in
such party's possession or control in order that the party responsible hereunder
may invoice Customers for the correct amounts under paragraph 5.2 and collect
and remit taxes as required by paragraph 5.4.
5.6 Quarterly Settle-Up
-------------------
Not less frequently than quarterly, the parties will settle-up and
reimburse each other as required so that (i) any remittances under paragraph 5.2
that represent bad debt are reimbursed back to the party that made the
remittance and (ii) tax payments under paragraph 5.4 are borne by the parties in
proportion to their respective shares of the pertinent revenue under paragraph
5.2.
6. Intellectual Property
6.1 Ownership of Intellectual Property Rights
-----------------------------------------
The parties agree that all prior patent, copyright, trademark or other
intellectual property rights in and to any product or idea existing prior to the
date of this Agreement shall remain with the party holding such rights. Each
party grants to the other parties a license for use of such intellectual
property to the extent necessary to perform its obligations hereunder. All
materials developed pursuant to any accepted final proposal (including, without
limitation, all preliminary and final plans and all Software and collateral
materials, regardless of the medium) pursuant to Paragraph 4.9 above, and all
corresponding copyrights, trade secret rights, and patent rights, shall be the
property of parties as they may agree pursuant to paragraph 4.9. In no event,
however, will ZoomTown.com acquire any ownership rights to any underlying
intellectual property of Purchase Pro, notwithstanding any agreement under
paragraph 4.9 that ZoomTown.com shall have or acquire any ownership rights in a
derivative work thereof. Purchase Pro and ZoomTown.com shall execute and deliver
all documents reasonably requested by the other as necessary to perfect,
register, and/or enforce all patents, copyrights and other rights and protection
relating to materials subject to paragraph 4.9 in any and all countries.
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6.2 Co-Branding
-----------
The parties acknowledge and agree that the other parties' own valuable
trademarks for various trade names, which will be contributed to the co-branding
of the Software. Each party agrees to take, in consultation with the other party
and at its written request and expense, all actions reasonably necessary to
protect the trademarks of the other and to avoid confusion in the public and
inadvertent loss of trademark rights, and to comply with the other's guidelines
and procedures on trademark usage.
6.3 Patent, Copyright and Trademark Indemnity
-----------------------------------------
Purchase Pro warrants that its Software does not and will not infringe upon
any US patent issued as of the Effective Date, US copyright, US trademark or
trade secret owned by any third party, and shall, at its expense, defend and
indemnify ZoomTown.com for costs and damages and expenses (including reasonable
attorneys fees) incurred in any suit, claim or proceeding brought against
ZoomTown.com alleging that the Software or software sold or offered for use
pursuant to this Agreement infringes any such patents, copyrights, trademarks or
other intellectual property rights, provided Purchase Pro has sole control over
and ZoomTown.com fully cooperates in such defense and any settlement of such
claim. Should Access or the use of any unit of the Software by ZoomTown.com or
its Customers be enjoined, or in the event that Purchase Pro desires to minimize
its liabilities hereunder, Purchase Pro may, at its option, either (i)
substitute a fully equivalent non-infringing unit of the Software, modify the
infringing item so that it no longer infringes but remains fully equivalent, or
obtain for ZoomTown.com and ZoomTown.com's Customers, at its own expense, the
right to continue use of such item or (ii) if the alternatives under clause (i)
are not available at commercially reasonable cost, terminate this Agreement as
to the subject Software.
7. Attorneys Fees
--------------
If any arbitration or litigation is commenced between or among parties to
this Agreement or their personal representatives concerning any of the
provisions of this Agreement or the rights and duties of any person in relation
thereto, the party or parties prevailing in such arbitration or litigation shall
be entitled, in addition to such other relief as may be granted, to a reasonable
sum for their attorneys fees which shall be determined by the Court in such
litigation or in a separate action brought for that purpose.
8. Force Majeure
-------------
A party shall be excused from any delay or failure in its performance
hereunder caused by any labor dispute, governmental requirement, act of God, and
other causes beyond its control. If such delaying cause shall continue for more
than ten (10) days, the party injured by the inability of the other to perform
shall have the right upon ten (10) days prior written notice to terminate this
Agreement.
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9. Governmental Authorities
------------------------
No party shall be required to do anything contrary to any applicable
directive or obligation of any competent governmental authority, and shall
promptly notify the other parties if compelled by law, act, or government decree
to act otherwise than in accordance with this Agreement.
10. Assumption of Liabilities or Obligations
----------------------------------------
Except as specified herein, this Agreement in no way confers upon any party
the right to act as the legal representative or agent of any other party, nor
shall any party have the right or authority to assume any liability or
obligation of any kind on behalf of any other party.
11. Agreement Termination
---------------------
11.1 Termination
-----------
(i) The parties warrant that all identifying signs, literature, logos and
other evidence linking ZoomTown.com and Purchase Pro shall be removed
or destroyed upon termination of this Agreement.
(ii) Should this Agreement be terminated by any party in accordance with
paragraphs 11.2 or 11.3 prior to payment of amounts due hereunder or
pursuant hereto for periods prior to the date of termination, such
amount shall be paid (by the responsible party, as the case may be)
as when due in accordance with the terms hereof.
11.2 Termination by Default
----------------------
This Agreement shall terminate, at the option of a non-defaulting party,
upon substantial default or material breach of any of the terms, conditions, or
obligations hereunder unless the defaulting party is able to fully remedy the
default or breach within thirty (30) days (or one (1) business day in the case
of a default under paragraph 4.7). Upon termination of this Agreement by
substantial default or material breach, all rights and privileges granted under
this Agreement to the defaulting party shall immediately terminate. Termination
of this Agreement by default shall not relieve the defaulting party of its
obligations hereunder.
11.3 Insolvency or Bankruptcy
------------------------
This Agreement shall terminate if any party becomes insolvent or bankrupt,
or admits in writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors, or ceases to function as a going
concern or to conduct its operations in the normal course of business.
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11.4 Provision for Customers in the Event of Termination
---------------------------------------------------
(i) In the event this Agreement is terminated, whether by default or
otherwise, the responsible party shall continue to remit to the other
party all amounts owed, pursuant to Paragraph 5.2, above.
(ii) In the event this Agreement is terminated, ZoomTown.com shall be
permitted to offer to any Customer any such other or additional
software and services, whether competing or not, or access thereto,
without further liability to Purchase Pro or E-MarketPro.
11.5 Escrow Agreement for the Retention of Software
----------------------------------------------
Within sixty (60) days after the Effective Date, ZoomTown.com and Purchase
Pro shall enter into a source code escrow with a mutually agreeable escrow
agent, substantially in the form attached as Exhibit C hereto.
11.6 Limitation of Default Rights and Remedies.
-----------------------------------------
Notwithstanding anything in this Agreement to the contrary, it is expressly
understood and agreed by the parties that the right to declare default hereunder
by E-MarketPro shall be limited to claims of non-payment under Paragraph 5 and
Paragraph 2.2(d) and claims of breach of obligations to offer the right of first
refusal under Paragraph 2.2(c), and E-MarketPro specifically waives any rights
to declare default except for those claims specified above. In the event E-
MarketPro declares default, remedies shall be limited to collection of amounts
found owing to E-MarketPro. In no event shall a declaration of default by E-
MarketPro constitute a default of any other provision hereunder, or relieve any
party including E-MarketPro, from continuing to perform all obligations
hereunder.
12. Assignment
----------
This Agreement may not be assigned in whole or in part by a party without
the consent of the other parties hereto. Such consent shall not be required in
the case of a sale of all or substantially all the assets of the assigning party
or an assignment to an entity directly or indirectly owning or controlling,
owned or controlled by, or under common control with the assigning party and, in
any event, shall not be unreasonably withheld except for good and just cause and
shall not be deemed a waiver of this Article for any proposed subsequent
assignments. Notwithstanding the foregoing, ZoomTown.com shall retain the right
to terminate this Agreement without further obligation or liability to Purchase
Pro or E-MarketPro, its successors or assigns, if, in its sole and exclusive
judgment, any assignment or purported assignment by Purchase Pro or E-MarketPro
is to be made to a competitor of Cincinnati Bell.
13. Sole Agreement
--------------
This Agreement contains the sole and only agreement of the parties and
correctly sets forth the rights, duties, and obligations of each party to the
other parties as of its date together with the standards
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and any other agreements in writing which the parties mutually agree upon. Any
prior agreements, promises, negotiations, or representations with respect to the
specific subject matter of this Agreement that are not expressly set forth in
this Agreement are of no force and effect. This Paragraph 13 does not affect or
apply to the E-MarketPro Agreement, except so far as this Agreement specifically
supercedes or amends the E-MarketPro Agreement.
14. Paragraph Titles
----------------
Paragraph titles or captions contained herein are inserted only as a matter
of convenience and for reference, and in no way define, limit, extend, or
describe the scope of this Agreement, nor the intent of any provision thereof.
15. Confidentiality and Non-Disclosure
----------------------------------
Each party acknowledges that in the course of its performance hereunder,
and in offering services to Customers, it may obtain confidential information,
including without limitation customer lists, buying habits and marketing
strategies, concerning E-MarketPro, Purchase Pro, Cincinnati Bell Inc.,
ZoomTown.com, and/or the affiliates and/or customers of such entities. Each
party expressly agrees that it shall not, without express written consent of the
other party, disclose any such information of the other party or its affiliates
or customers to any third party, or use such information for purposes not
related to its performance hereunder. The parties will discuss in good faith a
separate agreement regarding the sale of Customer lists and other similar data
generated by operation of the Software as contemplated by this Agreement.
16. Jurisdiction
------------
16.1 Governing Law
-------------
This Agreement, and all of the rights and duties in connection therewith,
shall be governed by and construed under the laws of the State of Ohio, USA.
16.2 Subject Matter and Personal Jurisdiction
----------------------------------------
The courts located in the State Ohio shall have full subject matter
jurisdiction, and shall have full personal jurisdiction over E-MarketPro,
Purchase Pro and ZoomTown.com in connection with any controversy, claim, or
award arising out of this Agreement or between the parties. Any suit to enforce
the terms herein or between the parties shall be brought in any court of
competent jurisdiction in Hamilton County, Ohio, and the parties specifically
waive hereby any claims or defenses of personal jurisdiction, improper venue, or
forum non-conveniens with respect to litigation brought in accordance with this
paragraph 16.2.
17. Amendments
----------
This Agreement may be amended only by the mutual written consent of all the
parties hereto.
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18. Waivers
-------
Except as herein provided to the contrary, failure by any party to insist
upon strict and complete performance of any or all of the terms or conditions
contained in this Agreement shall not constitute nor be construed as a waiver of
that party's right to thereafter enforce any such terms or conditions, nor shall
it be deemed a waiver of any other term or condition contained herein.
19. Construction and Severance
--------------------------
The language in all parts of this Agreement shall be in all cases construed
according to its fair meaning and not strictly for or against any party hereto.
If any term, covenant, condition, or provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unreasonable, the
remainder of the provisions hereof shall remain in full force and effect.
20. Access to Records
-----------------
The parties hereto shall keep accurate records in sufficient detail to
enable the determination of the payments payable to the other parties and each
party shall permit examination and inspection of the records by authorized
representatives of the other parties, upon reasonable notice, during usual
business hours to the extent necessary to verify the reports and payments
required hereunder.
21. Term of Agreement
-----------------
21.1 Initial Term of Agreement
-------------------------
This Agreement shall become effective on the date on which it is executed
and shall continue until the last day of the calendar month in which the third
anniversary of the Launch Date occurs.
21.2 Extensions of Agreement
-----------------------
At the expiration of this Agreement, as described in Paragraph 21.1 above,
and provided that it has not been subject to earlier termination, this Agreement
shall continue on a year to year basis thereafter unless a party advises the
other parties in writing at least thirty (30) days in advance of its intent to
terminate this Agreement, in which event such termination shall become effective
thirty (30) days after receipt of such notice.
22. Counterparts
------------
This Agreement may be executed in counterparts, all of which taken together
shall be deemed one original.
23. Corporate Authority
-------------------
The persons executing this Agreement warrant that they have the right,
power, legal capacity, and appropriate authority to enter into this Agreement on
behalf of the entity for whom they sign.
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24. Remedies: Non-Exclusive
------------------------
No remedy conferred by any specific provision of this Agreement is intended
to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder now or
hereinafter existing in law, or in equity, or by stature, or by otherwise. The
election of one or more remedies by a party shall not constitute a waiver of the
right to pursue other available remedies.
25. Notices
-------
With the exception of bills, invoices, and shipping papers, all notices or
other communications provided for by this Agreement shall be made in writing and
shall be deemed properly delivered (i) when delivered personally, or (ii) by the
mailing of such notice to the parties entitled thereto, registered or certified
mail, postage prepaid to the parties at their address set forth below: (or such
address designated, in writing, by one party to the other parties).
To ZoomTown.com, Inc. To Purchase Pro, Inc.
--------------------- ---------------------
ZoomTown.com, Inc. Purchase Pro International, Inc.
Attention: Michael O'Brien Attention: Christopher P. Carton
Suite 102-715 3291 North Buffalo Drive
201 East Fourth Street Las Vegas, Nevada 89129
Cincinnati, Ohio 45202
With a copy to:
Purchase Pro International, Inc.
Attention: Brad Redmon
2623 Regency Road
Lexington, Kentucky 40503
To: E-MarketPro
---------------
E-MarketPro, LLC
Attention: Brad Redmon
2623 Regency Road
Lexington, Kentucky 40503
26. Participation on the Software Steering Committee
------------------------------------------------
It is acknowledged that Purchase Pro maintains a committee known as the
Software Steering Committee ("Committee") which is responsible for the design of
all software of Purchase Pro, including the Software, and all alterations,
upgrades and updates thereto, together with the implementation of such changes
to the Software or other Purchase Pro software. In furtherance hereof,
ZoomTown.com shall be entitled to appoint one member of the Committee during the
term of this Agreement, with full power as is granted all other members.
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PURCHASE PRO INTERNATIONAL, INC. ZOOMTOWN.COM
(Purchase Pro)
BY:
Signature: /s/ CHARLES JOHNSON, JR. Signature: /s/ MICHAEL O'BRIEN
---------------------------- -----------------------------
Typed Name: Charles Johnson, Jr. Typed Name: Michael O'Brien
-------------------------- ---------------------------
Title: Chief Executive Officer Title: President
------------------------------ --------------------------------
Date: 5/19/99 Date: 5/19/99
------------------------------- ---------------------------------
E-MARKETPRO, LLC
(E-MarketPro)
BY:
Signature: /s/ BRADLEY REDMON
---------------------------
Typed Name: Bradley Redmon
--------------------------
Title: Sole Member
------------------------------
Date: 5/19/99
-------------------------------
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Exhibit A
---------
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<PAGE>
Exhibit B
---------
List of the Purchase Pro House Account Customers
------------------------------------------------
as of the Effective date
------------------------
Office Depot
CompUSA
HPS & Affiliates
Marriott
Hilton
Meristar
Starwood
Best Western
Orlando Chamber of Commerce (Orlando, FL)
Phoenix Chamber of Commerce (Phoenix, AZ)
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Exhibit C
---------
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Exhibit D
---------
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<PAGE>
EXHIBIT 10.9
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
- -----------------------------------------------------------------------------
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
- ----------------------------------------------------------------
AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of the 21st day of May 1999, is
by and between PURCHASE PRO. INC., 3291 North Buffalo Drive, Las Vegas, Nevada
89129 USA ("Licensor"), a Nevada corporation, and HOSPITALITYCITY PTE LTD., 8
Temasek Boulevard, #42-01 Suntec Tower Three, Singapore 038988 ("Licensee"), a
Singapore registered company.
NOW, THEREFORE, Licensor and Licensee, intending to be legally bound,
hereby agree as follows.
SECTION 1
---------
DEFINITIONS
-----------
1.1 "Changes" means the Licensee Changes and the Licensor Changes.
1.2 "Confidential Information" means any competitively sensitive or secret
business, marketing or technical information of Licenser. In all cases
Licensor's Confidential Information shall include the Software and
Documentation, including all Licensor Changes. Additionally, Confidential
Information will include Licensor's Marketing Plans/Programs, Contracts as well
as all responses to RFP'S, RFQ's and RFI'S. Confidential Information shall not
include, however, information that (a) is generally known to the public or
readily ascertainable from public sources (other than as a result of a breach of
confidentiality by Licensee or any person or entity associated with Licensee),
(b) is independently developed without reference to or reliance on any
Confidential Information of Licensor, as demonstrated by written records in
Licensee's possession (which shall be provided to Licensor at Licensor's
request) or (c) is obtained from an independent third party who created or
acquired such information without reference to or reliance on Confidential
Information of Licensor, as demonstrated by written records in Licensee's
possession (which shall be provided to Licensor at Licensor's request).
1.3 "Conversion" means conversion and formatting of a Customer's existing
data for use with the Software.
1.4 "Correction" means a change made in the Software to correct errors or
defects in the Software or to make the Software conform to Licensor's then-
current technical specifications.
1.5 "Customer" means an Eligible Prospect that has executed a Licensor
approved License Agreement with Licensee.
1.6 "Documentation" means (a) the technical and operating documentation
relating to the Software and/or Program provided to Licensee by Licensor for
Licensee to provide to Customers, (b) all Licensor Changes provided to Licensee
or applicable Customers by Licensor, or otherwise made or obtained by or for
Licensee or any Customers, and (c) all other written or recorded information
relating to the Software and or Program, whether created by or for Licensor,
Licensee or any customer.
1.7 "Eligible Prospect" means (a) a person or entity engaged in the
Hospitality and Leisure Sectors and doing business in the Territory, or (b) such
other customers located inside or outside the Territory as Licensor may
hereafter agree in writing to be an Eligible Prospect.
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1.8 Enhancement" means a new function or feature for any portion of the
Software that provides a new capability that the previous releases or versions
of the Software did not have and that may be incorporated into the Software by
modification to the then existing programs or by development of new programs.
For the sake of clarity, "Enhancement" does not include the Licensee Software
and/or any modification or improvement to the Licensee Software.
1.9 "Hospitality and Travel Sectors" means the hospitality and travel
sectors including businesses relating to airlines, hotels, resorts, theme parks,
clubs, cruise lines, food service, restaurants, pubs and entertainment
facilities.
1.10 "Installation" means the installation of the Software on the
Customer's computer network.
1.11 "License Agreement" means a license agreement in respect of the
Software directly between an Eligible Prospect and Licensee [substantially in
the form set out in Exhibit C]. No License Agreement shall be effective, and no
license to use the Software shall be valid, unless a License Agreement has been
signed by Licensee and the Customer. Licensor may change, revise or update the
form of the License Agreement with the concurrence of the Licensee. Such
changes, revision or updates shall not apply to License Agreements already
entered into with Customers.
1.12 "Licensee Changes" means updates, upgrades, additions, and
modifications to the Software and Documentation, including translations into
foreign languages used in the Territory, nationalizations for countries included
in the Territory, Corrections, Enhancements, and any other new or additional
works based in whole or in part on the Software, Program or Documentation.
1.13 "Licensee Software" means software developed or to be developed by
Licensee for incorporating into Licensee's electronic commerce network (whether
existing in source code or object code form), including without limitations,
centralized procurement and procurement manager modules.
1.14 "Licensor Changes" means updates, upgrades, additions, and
modifications to the Software and Documentation, including translations into
foreign languages used in the Territory, nationalizations for countries included
in the Territory, Corrections, Enhancements, and any other new or additional
works based in whole or in part on the Software, Program or Documentation.
1.15 "Program" means the concept developed by Licensor pursuant to which
the Software or other software is used (a) by potential sellers of goods and/or
services to make offers to sell or solicit offers to buy goods and/or services
and (b) by potential buyers of goods and/or services to acquire or evaluate the
acquisition of goods or services.
1.16 "Software" means the most current compiled version of the Licensor's
program, presently known as PurchasePro Version 4.0, which will be capable of
operating in its entirety to provide an electronic commerce network that allows
businesses to buy from or sell to a wide variety of businesses. Source code will
be available for check out within 24 hours, subject to the terms of this
agreement, for any specific module which the Licensee requires to make
modification. The Software shall include all Licensor Changes provided to the
Licensee or applicable Customers by Licensor or otherwise made or obtained by or
for the Licensee or any Customers. For the sake of clarity, "Software" does not
include the Licensee Software and/or any modification or improvement to the
Licensee Software.
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1.17 "Subject Revenue" means any and all receipts, gross revenues or other
gross income directly attributable to the Software.
1.18 "Support Services" means the services to be performed by Licensee in
support of Customer's use of the Software under the terms of a License
Agreement; for example, installation, Conversion, delivery of Corrections and
Enhancements provided by Licensor, production of customized Changes, and such
other services as training, hot-line support, and troubleshooting,
1.19 "Territory" means, subject to the limitations of Section 17.2 hereof,
Australia, China (including Hong Kong), Indonesia, Malaysia, New Zealand, the
Philippines, Singapore, Taiwan and Thailand. Licensor and Licensee may in the
future decide by mutual agreement to modify the definition of the Territory to
include additional countries or territories, but each party reserves absolute
discretion whether to agree to such a modification and/or require further terms
or conditions in connection with the modification, and the modification shall
not be valid unless made in writing and signed as provided in Section 15 hereof.
SECTION 2
---------
LICENSE
-------
2.1 Licensor hereby grants to Licensee, and Licensee accepts, subject to
the terms and conditions set forth herein. the right and license to:
(a) Demonstrate and promote the Software to Eligible Prospects.
(b) License the Software to Eligible Prospects by entering into License
Agreement with Eligible Prospects. For the sake of clarity, the Software and
Documentation may not be provided to any Eligible Prospect or any other person
(for evaluation, use, or any other purpose) except pursuant to a License
Agreement.
(c) Subject to Section 5.3 hereof, make Licensee Changes to the Software
and Documentation for the sole purpose of providing such Licensee Changes
together with the Software and Documentation to Customers pursuant to a License
Agreement.
(d) Make copies of the Software and Documentation as necessary to give
effect to and to fulfill obligations arising from items (a) through (c) above.
2.2 Licensor shall provide one master copy of the Software and
Documentation to Licensee for purposes of permitting Licensee to exercise its
rights under Section 2.1 hereof.
2.3 The right to market the Software and provide Support Services to
Customers in the specified countries in the Territory shall be exclusive to the
Licensee for a period of three years. During the exclusivity period of the
License, neither Licensee nor any entity affiliated with Licensee shall offer,
sell, lease or license services, products or programs that compete with the
Program or the Software in the Territory to customers in the Hospitality and
Travel Sector.
As exceptions to such exclusivity, Licensor reserves the right (either
directly or in collaboration with other distributors, subcontractors, or
marketing agents and without obligation to Licensee) to do business with any
person who/which is engaged in any business other than the Hospitality Travel
and Leisure Sectors or who/which does business outside the Territory provided
that such person is not also predominantly engaged in the Hospitality Travel and
Leisure Sectors within the Territory.
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2.4 Licensee agrees to devote its best efforts to promote and market the
Software to Eligible Prospects in the Territory during the term of this
Agreement, and to devote a reasonable level of management and resources to the
promotion, marketing, and support of the Software. Best efforts shall include,
but are not limited to, an ongoing marketing campaign, hardware hosting and
maintenance, and computer support and maintenance. Licensee agrees to provide
Licensor at least once each quarter with information regarding its marketing
plans and forecasts. Such plans and forecasts shall be non-binding and subject
to change and may be delivered formally or informally, and orally or in writing
but shall be sufficient to demonstrate that the effort and resources being
devoted by Licensee are reasonable to promote and meet the needs of Eligible
Prospects in the Territory. Licensee shall provide the Licensor a quarterly
report listing all Customers.
2.5 Licensee may sub-license its rights hereunder to wholly owned
subsidiaries of the Licensee and to any joint ventures in which Licensee has
management control. Licensee shall notify Licensor within thirty (30) days of
any sub-license. Such sub-licenses shall be subject to all restrictions and
requirements contained within this Agreement and shall be in a form acceptable
to Licensor.
2.6 Licensor hereby grants to Licensee the right to use any and all of
Licensor's trademarks, service marks and trade names in conjunction with the
performance of its obligations under this Agreement. Licensee shall at
Licensor's request, provide Licensor with samples of its use of the marks.
SECTION 3
---------
SERVICES; RESTRICTIONS
----------------------
3.1 Licensor shall use commercially reasonable efforts to provide the
services described on Exhibit "A" hereto in a reasonably timely manner. However,
Licensor shall not be required to travel to the Territory or any other location.
3.2 In the event Licensee requires services from Licensor that are beyond
the scope of Section 3.1 hereof, Licensor shall have no obligation to provide
such services unless it agrees to do so and satisfactory provision is made for
associated fees and travel and living expenses.
3.3 Subject to the other provisions of this Agreement, Licensee shall
perform all Support Services provided to Customers in accordance with the terms
of the License Agreement.
3.4 In addition to the Support Services provided to Customers pursuant to
Section 3.3 hereof and subject to mutual agreement between the Licensor and the
Licensee, Licensee may provide Support Services to other licensed end users
located inside or outside the Territory. Such Support Services may be provided
by Licensee working directly for specified end users, or as a subcontractor
working for Licensor. In the latter case, fees and charges shall be agreed to by
Licensor and Licensee on a case by case basis provided that Licensee agrees that
its fees and charges shall not exceed the fees and charges it customarily
obtains for similar services in other circumstances. Revenues or Fees derived by
Licensee as a result of a referral by Licensor including Support Services will
be considered "Subject Revenue" and subject to License Fees described in Exhibit
"B."
3.5 Subject to mutual agreement between the Licensor and the Licensee,
Licensor may provide support services to other licensed end users located
outside the Territory. Such support services may be provided by Licensor working
directly for specified end users, or as a subcontractor working for Licensee. In
the latter case, fees and charges shall be agreed to by
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Licensor and Licensee on a case by case basis provided that Licensor agrees that
its fees and charges shall not exceed the fees and charges it customarily
obtains for similar services in other circumstances.
3.6 Except as expressly stated in this Agreement, until two (2) years
following the termination of this Agreement (whether voluntary or involuntary
whether by Licensor or Licensee and whether by expiration of the term or
otherwise) neither Licensee, nor any affiliate of Licensee shall use the
Software and any associated documentation, combined, or merged, in whole or in
part, with any competitive software product without Licensor's consent.
3.7 Except as expressly stated in this Agreement, Licensor shall have no
obligation to render any services or provide any effort, or to refrain from any
business or activity. Licensor provides no assurance with regard to the results
or profitability of the promotional activities and services Licensee is
authorized to pursue hereunder.
SECTION 4
---------
TERM
----
4.1 Subject to earlier termination as provided herein, this Agreement
shall take effect from the date of this Agreement and shall continue until
terminated by the Licensee upon 90 days' notice by the Licensee to the Licensor.
4.2 Upon termination of this Agreement, Licensee shall immediately deliver
to Licensor at Licensee's own expense, all copies of the Software,
Documentation. and any other materials related to Licensor or the Program in the
possession of or previously delivered to Licensee by Licensor, except that
Licensee may retain copies of such materials to the extent necessary to continue
to provide Support Services and fulfill its obligations under License Agreements
to Customers (the "Subsisting Agreements").
4.3 Termination of this Agreement shall not terminate any License
Agreement or other agreement in effect between Licensee and a Customer. For the
purpose of the Licensee fulfilling its obligations under such License Agreement,
Licensor hereby grants to Licensee such rights to the Software to the extent
necessary for Licensee to fulfill such obligations, otherwise, Licensee shall
not use, sell, distribute or have any rights in the Software, documentation, or
other materials related to this Agreement. Each of Licensee and Licensor agrees
that it shall be entitled to no compensation from the other or any Customer in
connection with, or following, termination of this Agreement except that until
the termination of each of these Subsisting Agreements, Licensee shall continue
to be entitled to any payment due from Customers in respect to the relevant
Subsisting Agreement; and Licensor shall be entitled to the fees arising
therefrom on the basis set forth in Exhibit "B".
4.4 Sections 3.6, 5.2, 5.3(b), 5.3(c), 5.4, 5.6, 6, and 8 hereof shall
survive termination of this Agreement and shall thereafter remain in effect in
accordance with their terms.
4.5 This Agreement may be terminated earlier, at Licensor's election, if
Licensee falls to perform its obligations hereunder in any material respect
including the requirement that Licensee use its best efforts to market the
Software (provided that Licensor notifies Licensee of the first occurrence of
any such breach and gives Licensee a reasonable period of time, not less than
thirty (30) days to cure such breach).
Confidential
<PAGE>
SECTION 5
---------
TITLE; INTELLECTUAL PROPERTY
----------------------------
5.1 Licensee may copy the compiled Software and/or Documentation only as
required to perform its duties hereunder, to fulfill its obligations under any
License Agreement or as agreed in writing by Licensor, except that Licensee may
also make a reasonable number of copies of the Software and Documentation to be
maintained in its custody and control for nonproductive backup purposes. All
copies of the Software and Documentation provided to or made by or for Licensee
shall be accounted for upon Licensor's request.
5.2 Software, Program, Documentation and Licensor Changes are protected by
U. S. and international copyright laws, treaties, and conventions; the Software
and Documentation are copyrighted works under U.S. and foreign laws; and the
Software and Documentation are protected as trade secrets and Confidential
Information of Licensor. Licensor retains all right, title, and interest in and
to the Software, Documentation, and all intellectual property rights contained
therein, subject only to the limited license granted to Licensee in Section 2.1
hereof.
5.3 (a) Licensor may authorize Licensee and/or Customers, including their
respective employees and agents to make (alone or in collaboration with
Licensor) or receive Licensor Changes. Licensor reserves the absolute right to
determine when and how such Licensor Changes are produced and used. Licensee
agrees that all Licensor Changes made or obtained by Licensor, Licensee, or any
Customer, or their respective employees or agents acting alone or in
collaboration with each other, shall together with all intellectual properly
rights associated therewith be the exclusive property of Licensor. Licensee
shall not implement and distribute Licensor Changes, until such Licensor Changes
have been approved by Licensee.
(b) Licensor may use all Licensee Changes and Enhancements created by
Licensee, its employees, agents or assigns under the following circumstances.
Licensee shall as soon as developed present such Licensee Changes or
Enhancements to Licensor who shall expressly accept or reject such Changes or
Enhancements. In the event that Licensor accepts such Licensee Changes or
Enhancements, the License Fee payable by Licensee to Licensor for that year and
each and every subsequent year so long as Licensor continues to use such
Licensee Changes and Enhancements (as set forth in Exhibit B) shall be reduced
by ** of the aggregate Subject Revenue, but in no event shall the License Fee be
--
reduced to less than ** of that set forth in Schedule B. This reduction in the
--
subject Revenue shall entitle Licensor to a fully paid and irrevocable worldwide
license to the Licensee Changes and Enhancements that shall survive the
termination of this Agreement. Licensee changes for multiple currencies, multi-
lingual and multi-national capabilities will be excluded from this reduction.
(c) Notwithstanding Section 5.3(b) and subject to the proviso below,
Licensee grants to Licensor the right to use those parts of Licensee Changes (i)
which enable the Software to process transactions involving more than one
currency or (ii) which provide the Software with multi-lingual and multi-
national capabilities, PROVIDED where Licensee has to incur any costs or
expenses to enable Licensor to exercise its fights under this sub-Section
5.3(c), Licensor shall pay for such costs and expenses if approved in writing by
Licensee. The provisions of this Section 5.3(c) shall survive termination of
this Agreement and Licensor's license to use the Licensee Changes described in
this Section 5.3(c) shall be
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- ------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- ------------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
- -----------------------------------
Confidential
<PAGE>
deemed fully paid and irrevocable. The execution of this Agreement shall
constitute payment for the rights granted under this Section 5.3(c).
5.4 Licensee may not distribute, sell, sublease, assign, give, or transfer
in any way the original or any copies of the Software or Documentation except as
provided in this Agreement or as otherwise hereafter agreed by Licensor in
writing. Licensee may not modify, reverse engineer, de-compile, or translate the
Software or Documentation without the prior written consent of Licensor.
Licensee may not use the Software or Documentation to process accounts or
records, to generate output data, or otherwise for the direct benefit of, or for
purposes of rendering services to, any person, business entity or organizations,
except Customers as expressly authorized in their applicable License Agreement.
5.5 Licensee is authorized to identify Licensee as an independent business
that has been authorized by Licensor to market the Software and provide Support
Services to Customers and, with the prior written consent of Licensor which
shall not be unreasonably withheld, to use and display Licensor's trade name,
trademarks, service marks, and logos for purposes of promotion and marketing of
the Software intended for Eligible Prospects. All such action shall be subject
to reasonable advertising and usage guidelines provided by Licensor. In all
other respects, this Agreement confers no right or license with regard to
Licensor's trade name, trademarks, service marks, logos, or packaging, or any
related goodwill, all of which shall be the exclusive property of Licensor.
Licensee shall assist Licensor, at Licensor's request, in perfecting and
maintaining Licensor's rights under trademark and similar laws in each country
in the Territory by advising Licensor of any special registration, recording, or
notice requirements.
5.6 Licensee shall notify Licensor in the event that it discovers any
infringement of Licensor's rights in the Software or any violation of the terms
of the License Agreement, and shall cooperate with Licensor and assist in the
prosecution of Licensor's claims, provided that Licensor retains financial
responsibility for costs of assistance and prosecution. Licensor shall be
entitled to retain any proceeds from such claims, including settlement amounts
for purposes of funding Licensor's worldwide intellectual property protection
programs.
SECTION 6
---------
CONFIDENTIALITY OBLIGATIONS
---------------------------
6.1 Licensee acknowledges that the Software, Program and Documentation
contain Confidential Information of Licensor.
6.2 Licensee agrees at all times to maintain the complete confidentiality
of the Software, Documentation, Program and all other Confidential Information
of Licensor.
6.3 Licensee agrees not to permit or authorize access to, or disclosure
of, the Software, Documentation, Program and all other Confidential Information
of Licensor to any person or entity other then (a) Eligible Prospects to the
extent necessary for such Eligible Prospects to evaluate the Software, (b)
Customers, to the extent necessary for such Customers to exercise their rights
under applicable License Agreements, and (c) employees of Licensee who "need to
know" such information in order to enable Licensee to perform its obligations
under this Agreement and applicable License Agreements. The Software and
Documentation and all other Confidential Information of Licensor may not be
disclosed or provided to any independent contractors or consultants dealing with
Licensee, Eligible Prospects, or Customers, unless Licensor gives its prior
written approval. Licensee may disclose necessary portions of the Software,
Documentation, Program or other Confidential lnformation of Licensor to
governmental regulatory authorities if such disclosure is required for
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<PAGE>
compliance with applicable laws or otherwise as required by applicable law, but
Licensee shall to the extent practicable notify Licensor of the applicable legal
requirements before such disclosure occurs and Licensee shall use its best
efforts to help Licensor obtain protection as may be available to preserve the
confidentiality of such information following disclosure.
6.4 Prior to disposal of any media or materials that contain any part of
the Software, Documentation, Program, or other Confidential Information of
Licensor, Licensee shall, unless prohibited by applicable law, obliterate or
otherwise destroy all code, instructions, commentary, or further evidence of
Confidential Information, for example, by erasing, incinerating, or shredding
such materials. The said disposal/destruction will be performed by an outside
party and a receipt of this destruction will be provided to the Licensor.
SECTION 7
---------
FEES AND CHARGES; POSSIBLE JOINT VENTURE
----------------------------------------
7.1 Licensee shall use its best endeavours to promptly and timely collect
all Subject Revenues from the Customers and Licensee shall not permit any person
or entity access to the Software, Program, Documentation or any modification
thereof unless such person or entity has, on commercially reasonable terms and
for cash only, entered into a License Agreement approved by Licensor and the
execution of such License Agreement is promptly reported to Licensor.
7.2 Licensee shall pay Licensor the fees set forth in Exhibit "B" hereto.
On or before the fifteenth (15th) day of each calendar quarter (January 15,
April 15, July 15, and October 15), the Licensee shall (a) provide the Licensor
by facsimile a detailed written report showing all Subject Revenue received by
Licensee and/or its affiliates in the immediately previous calendar quarter and
(b) cause the Licensor to have received a wire transfer of a payment of all
amounts due to Licensor in respect to all Subject Revenue received by Licensee
and its affiliates prior to the end of the immediately previous calendar
quarter. Fees paid to Licensor are to be in United States dollars and will be
calculated based on the relevant bank selling exchange rate for United States
dollars quoted by the Bank of America, N.A., Singapore Branch, five (5) days
prior to the due date. Should this day fall on a day which these rates are not
available due to legal or banking holidays, the next most current rate will be
used,
7.3 Subject to Licensee's payment of the amounts owing to Licensor
hereunder, Licensee shall have sole responsibility for establishing and
collecting fees, and shall be entitled to retain (but only during the term of a
License Agreement), all fees and charges payable by Customers relating to a
Program and/or the Software, or any services provided by Licensee in connection
therewith.
7.4 Licensee shall collect, report, and pay to the relevant taxing
authority, and indemnify Licensor for any liability relating to, all applicable
excise, property, value-added tax (VAT), sales and use or similar taxes, in
addition to or in lieu thereof, and any custom, import, export or other duties,
levies, tariffs, taxes, or other similar charges that are imposed by any
jurisdiction outside the United States of America for the transactions
contemplated herein, including the license of the Software by Licensor.
7.5 Time is of the essence with respect to all payments due from Licensee
hereunder. Licensee may not suspend or set off any payment due Licensor
hereunder on any basis whatsoever. All amounts past due shall accrue interest
at the rate of ** per annum above the prime rate of the Bank of America, N.A.,
--
Singapore Branch on the date which the payment is due.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- ------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- ------------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
- -----------------------------------
Confidential
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7.6 Notwithstanding anything in this Agreement to the contrary, the
Licensor may upon five (5) days' notice to Licensee audit and inspect any and
all of the Licensee's books and records provided such audit shall not be
conducted more than once every quarter. If any such audit or any other audit or
investigation efforts of Licensor shall ever reflect underpayment of fees of
more than ten thousand dollars ($10,000.00) for any calendar quarter, the
Licensee shall reimburse the Licensor for all of the expenses incurred by the
Licensor in conducting such audit or other investigation.
7.7 Notwithstanding anything in this Agreement to the contrary, the
parties hereto agree that at any time after the second (2nd) anniversary of this
Agreement, either party may, but shall not be obligated to, notify the other
party of its intention to form a joint venture with the other party. Upon
sending such notice, the parties shall immediately meet and in good faith
negotiate the terms of the joint venture.
SECTION 8
---------
LIMITATIONS
-----------
8.1 LICENSOR SHALL HAVE NO LIABILITY FOR THE SOFTWARE OR ANY SERVICES
PROVIDED HEREUNDER, INCLUDING ANY LIABILITY FOR NEGLIGENCE. LICENSOR MAKES AND
LICENSEE RECEIVES NO WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, IN
ANY PROVISION OF THIS AGREEMENT OR ANY OTHER COMMUNICATION, AND LICENSOR
SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
8.2 The cumulative liability of Licensor to Licensee for all claims
relating to the Software and any services rendered hereunder, in contract, tort,
or otherwise, shall not exceed the total amount of all license fees paid by
Licensee to Licensor for the relevant Software within the prior year. In no
event shall Licensor be liable to Licensee for any consequential, indirect,
special, or incidental damages, including without limitation lost profits, even
if Licensor has been advised of the possibility of such potential loss or
damage. The foregoing limitation of liability and exclusion of certain damages
shall apply regardless of the success or effectiveness of other remedies.
8.3 LICENSEE SHALL HAVE NO LIABILITY FOR THE LICENSEE CHANGES OR ANY OTHER
SOFTWARE OR SERVICES PROVIDED HEREUNDER, INCLUDING ANY LIABILITY FOR NEGLIGENCE.
LICENSEE MAKES AND LICENSOR RECEIVES NO WARRANTIES, EXPRESS, IMPLIED, STATUTORY,
OR OTHERWISE, IN ANY PROVISION OF THIS AGREEMENT OR ANY OTHER COMMUNICATION, AND
LICENSEE SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
SECTION 9
---------
INDEMNIFICATION
---------------
9.1 Except as hereafter otherwise provided, if a third party claims that
the Software infringes any patent, copyright, trade secret, or other
intellectual property rights of a third party, Licensor shall (as long as
Licensee is not in default under this Agreement) defend Licensee against that
claim at Licensor's expense and pay all damages awarded by a court in a final
judgment, provided that Licensee promptly notifies Licensor in writing of any
such claim, and allows Licensor to control, and cooperates with Licensor in the
defense and disposition of such claim, including any related settlement
negotiations. If such a claim is made or appears possible, Licensor may, at its
option, secure for Licensee the right to continue to use the Software, modify or
replace the Software so that it is non-infringing, or
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refund all license fees paid for the infringing material less a reasonable
deduction for prior use. Notwithstanding the foregoing, Licensor shall have no
obligation hereunder for (a) any claim based on Licensee Changes, or for any
combination, operation, or use of the Software with any product data, or
apparatus specifically disallowed by Licensor and notified to the Licensee in
writing or (b) any claim based on theories of law that are not substantially
equivalent to laws, treaties, and conventions applicable to U.S. patents,
copyrights, trade secrets, and similar intellectual property rights. THIS
SECTION STATES LICENSOR'S ENTIRE OBLIGATION TO LICENSEE WITH RESPECT TO MATTERS
OF TITLE OR ANY CLAIM OF INFRINGEMENT THEREOF.
9.2 If a third party claims Licensee Changes infringe any patent,
copyright, trade secret or other intellectual property rights of a third party,
or should a third party bring any claim against Licensor resulting from
Licensee's breach of this Agreement, Licensee shall defend and indemnify
Licensee against that claim at Licensee's expense and pay all damages awarded by
a court in a final judgment; provided, that Licensor promptly notifies Licensee
in writing of any such claim. and allows Licensee to control, and cooperates
with Licensee in, the defense and disposition of such claim, including any
related settlement negotiations.
SECTION 10
----------
POWER AND AUTHORITY
-------------------
Each party hereby represents and warrants to the other party hereto that it
has full power and authority to enter into and perform under the terms of this
Agreement, and the person executing this Agreement on behalf of such party has
been properly authorized and empowered to so execute this Agreement.
SECTION 11
----------
NOTICES
-------
All notices or other communications to be given hereunder shall be in
writing and delivered either by telecopy (confirmation by air mail) or by
international second-day courier, courier charges prepaid, and addressed to the
appropriate party as set forth below:
If to Licensee: HospitalityCity Pte Ltd
8 Temasek Boulevard
#42-01 Suntec Tower Three
Singapore 038988
Facsimile Number: +65 234-3604
If to Licensor: 3291 North Buffalo Drive
Suite 200
Las Vegas, NV 89129
USA
Facsimile Number: (702) 316-7001
Notices delivered personally shall be effective upon delivery and notices
delivered by mail shall be effective upon their receipt by the party to whom
they are addressed.
Confidential
<PAGE>
SECTION 12
----------
ASSIGNMENT
----------
Except as provided herein, this Agreement may not be assigned by Licensee,
nor may Licensee delegate or subcontract any obligation incurred hereunder or
under any applicable License Agreement, except with the prior written consent of
Licensor which shall not be unreasonably withheld or refused. Licensor may
terminate this Agreement in the event that Licensee experiences (in one
transaction or any series of transactions) a change of majority ownership or
principal management, unless Licensor is promptly notified of such change and is
provided satisfactory assurance that Licensee shall be able to perform its
obligations hereunder to Licensor's satisfaction. Subject to the foregoing,
this Agreement shall inure to the benefit of, and shall be binding on, the
parties hereto, their successors and assigns.
SECTION 13
----------
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one
instrument.
SECTION 14
----------
GOVERNING LAW
-------------
This Agreement shall be governed by and construed and enforced in
accordance with English law without regard to principles of conflicts of laws.
As between the parties hereto, the United Nations convention related to the sale
of goods shall not apply to any sale of goods deemed to arise under or related
to this Agreement. All funds shall be paid to Licensor in U.S. dollars in the
United States of America; and nothing herein shall be construed to require
Licensor to do business or maintain any office of business establishment outside
the United States of America.
SECTION 15
----------
ENTIRE AGREEMENT
----------------
This Agreement may not be modified except by writing signed by authorized
representatives of both parties. A waiver by either party of its rights
hereunder shall not be binding unless contained in writing signed by an
authorized representative of the party waiving its rights. The nonenforcement
or waiver of any provision on one occasion shall not constitute a waiver of such
provision on any other occasions unless expressly so agreed in writing. It is
agreed that no usage of trade or other regular practice or method of dealing
between the parties hereto shall be used to modify, interpret, supplement, or
alter in any manner the term of this Agreement.
SECTION 16
----------
HEADINGS
--------
The headings contained in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation hereof.
Confidential
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SECTION 17
----------
COMPLIANCE WITH LAWS
--------------------
17.1 Licensee shall, at its own expense, comply with all laws relating to
the marketing, distribution, or licensing of the Software, and shall procure all
licenses and pay all fees and other charges required thereby.
17.2 Notwithstanding anything in this Agreement to the contrary, it is
acknowledged and agreed that neither Licensor nor Licensee may ship, export, or
re-export the Software, Program or Documentation, or any other information,
process, product, or service obtained directly or indirectly from Licensor, to
any country or entity that is the subject of any prohibition imposed by the U.S.
Export Administration Act of 1979, U.S. Executive Orders, the U.S. Department of
Commerce, and the North Atlantic Treaty Organization (NATO), Licensee
understands that, if such a prohibition applies and an export license cannot be
obtained with reasonable effort, the disclosure or delivery of the Software,
Program and Documentation may not occur. To ensure compliance, Licensee agrees
to notify Licensor of each Eligible Prospect as soon as possible so that
Licensor can evaluate whether prohibitions may apply or export licenses may be
available. If unusual costs are involved in obtaining export licenses, Licensor
may require Licensee to accept responsibility for some or all of those costs.
17.3 Licensee hereby agrees that Licensee and its directors, officers,
employees, and agents shall comply with the Foreign Corrupt Practices Act of
1977, as amended (the "Act") with respect to the subject matter of this
Agreement. In this regard, neither Licensee nor any of its directors, officers,
employees, or agents shall make or offer to make any payment or gift directly or
indirectly to any employee, officer, or representative of any governmental
entity or instrumentality or to any foreign political party any official of a
foreign political party, or candidate, when such payment would constitute a
bribe, kickback or illegal payment under U.S. or applicable foreign laws.
17.4 In performing its duties under this Agreement, Licensee shall use its
best efforts to prevent any action which would cause Licensor to be in violation
of any law or regulation applicable in the jurisdiction constituting the
Territory, including but not limited to, laws and regulations governing
franchises, distribution and sales. Further, Licensee will use its best efforts
to prevent any action which would result in Licensor's loss of any intellectual
property rights to the Software in the jurisdictions constituting the Territory.
SECTION 18
----------
INDEPENDENT CONTRACTOR
----------------------
Each party hereto shall be and remain an independent contractor; nothing
herein shall be deemed to constitute the parties as partners, and neither party
shall have early authority to act, or attempt to act. or represent itself,
directly or by implication, as an agent of the other or in any manner assume or
create, or attempt to assume or create, any obligation on behalf of or in the
name of the other, nor shall either be deemed the agent or employee of the
other.
Confidential
<PAGE>
SECTION 19
----------
ARBITRATION
-----------
In the event a claim, controversy, or dispute between Licensor and Licensee
arises out of or in connection with this Agreement or the transactions and
business contemplated hereby, including the validity, construction, or
enforcement thereof, either party may demand that such matter be submitted to
final and binding arbitration before a single arbitrator selected by the parties
in accordance with the then existing rules of the International Chamber of
Commerce. The situs of all arbitration proceedings shall be Brussels, Belgium
unless Licensor and Licensee agree in writing to another situs. All arbitration
proceedings and records shall be in English. Issuance of an arbitration demand
shall suspend the effect of any default entailed by such claim, controversy, or
dispute and any judicial or administrative proceedings instituted in connection
therewith, for the duration of the arbitration proceedings. If Licensor and
Licensee cannot agree on the identity of a single arbitrator within five (5)
days of receipt of the arbitration demand, each of them shall appoint one (1)
arbitrator and the party-appointed arbitrators shall appoint a third arbitrator
within five (5) days of their appointment. The arbitrator or arbitrators shall
determine whether a default has occurred, and shall deliver its or their
decision within ninety (90) days of the date of receipt of the arbitration
demand, specifying such remedy (including money damages) as shall (1) fully
implement the intent and purposes of this Agreement and (2) indemnify and hold
harmless the nonbreaching party from all losses, costs, and expenses (including
costs of arbitration and reasonable attorney's fees) resulting from the default.
Termination or limitation of Licensor's rights in the Software, the
Documentation, or any associated intellectual property rights may not be awarded
under any circumstances. The right to demand arbitration and to receive damages
and obtain other available remedies as provided hereunder shall be the exclusive
remedy in the event an arbitration demand is made, except that Licensor shall be
entitled to obtain equitable relief, such as injunctive relief, from any court
of competent jurisdiction in order to protect its rights in the Software, the
Documentation, or any associated intellectual property rights while such
proceeding is pending or in support of any award made pursuant to such
arbitration. Licensor and Licensee hereby consent to the enforcement in the
courts of each country in the Territory and the United States of any arbitral
judgment or award rendered pursuant to this Section.
SECTION 20
----------
INSPECTION
----------
Licensor shall have the right to enter the premises of Licensee at any time
upon reasonable request during regular business hours in a non-disruptive
manner, for the purpose of inspecting the location and use of the Software,
Program and Documentation and the standard procedures of Licensee regarding
retention, safekeeping, and disposal of all media and materials, pertaining
thereto.
SECTION 21
----------
SOURCE CODE ESCROW
------------------
To be subsequently agreed upon.
Confidential
<PAGE>
Confidential
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above-written.
<TABLE>
<CAPTION>
LICENSOR: LICENSEE:
<S> <C>
By: /s/ CHRIS P. CARTON By: /s/ GREG KENNISH
------------------------------------------- -------------------------------------
Title: President and Chief Operating Officer Title: Director
---------------------------------------- ----------------------------------
Date: 2 June 99 Date: 3 June 99
----------------------------------------- -----------------------------------
<CAPTION>
WITNESS: WITNESS:
<S> <C>
By: /s/ KEVIN LISKE By: /s/ JERRY LAU
------------------------------------------- -------------------------------------
Title: Vice President Operations Title: Director
---------------------------------------- ----------------------------------
Date: 2 June 99 Date: 3 June 99
----------------------------------------- -----------------------------------
</TABLE>
Confidential
<PAGE>
EXHIBIT "A"
<PAGE>
EXHIBIT "B"
LICENSE FEES
All amounts due hereunder shall be paid in U.S. Dollars via wire transfer
to the bank account in the United States as designated by Licensor from time to
time,
The Licensee shall pay the Licensor (a) a one-time lump sum fee of **
--
payable in four (4) equal quarterly installments of ** each, the first of which
--
was paid no later than 14 days after the execution and delivery of this
Agreement and the other three installments will be paid by wire transfer three,
six and nine months respectively thereafter and (b) a quarterly fee of:
i. ** of the aggregate Subject Revenue received by Licensee and its
--
affiliates during each quarter of the first year of the term of this
Agreement.
ii. ** of the aggregate Subject Revenue received by Licensee and its
--
affiliates during each quarter of the second year of the term of this
Agreement.
iii. ** of the aggregate Subject Revenue received by Licensee and its
--
affiliates during each quarter of the third year of the term of this
Agreement.
iv. ** of the aggregate Subject Revenue received by Licensee and its
--
affiliates during each quarter of the fourth year of the term of this
Agreement.
v. ** of the aggregate Subject Revenue received by Licensee and its
--
affiliates during each quarter of the fifth year of the term of this
Agreement.
vi. ** of the aggregate Subject Revenue received by Licensee and its
--
affiliates during each quarter of the sixth and each subsequent year of the
term of this Agreement.
Notwithstanding the above, payment of the quarterly fee ** until the earlier of
--
the following: (a) the end of the first year of this Agreement; or (b) when
Licensee's aggregate Subject Revenue exceeds Licensee's expenses. This ** of
--
first year quarterly fee shall not affect the calculation of quarterly fee
increases as set forth above.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- ------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- ------------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
- -----------------------------------
Confidential
<PAGE>
EXHIBIT "C"
Form of License Agreement
<PAGE>
EXHIBIT 10.10
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
- ------------------------------------------------------------------------------
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
- -----------------------------------------------------------------
AGREEMENT
---------
THIS AGREEMENT (the "Agreement") is made and entered into effective as of
the ___ day of January, 1999, by and among PURCHASE PRO INTERNATIONAL, INC., a
Nevada corporation, whose address is 3291 North Buffalo Drive, Las Vegas, NV
89129 ("PPI"), and E-MARKETPRO, LLC, with its principal office and place of
business at________________________________________________ ("Contractor").
RECITALS:
WHEREAS, PPI is the developer and owner of an Internet purchasing network
operated by PPI under the name "Purchase Pro" (the "Network"); and
WHEREAS, PPI and Contractor desire to enter into this Agreement relating to
Contractor's marketing of Network subscriptions;
NOW, THEREFORE, in consideration of their mutual covenants and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree to and affirm the foregoing recitals
and further agree as follows:
1. Marketing Rights; Revenue Sharing; Related Matters.
--------------------------------------------------
a. PPI hereby grants to Contractor the right from and after the date of
this Agreement and for the term set forth herein to sell subscriptions to the
Network to all persons or entities with their residence or principal place of
business located in the following designated area (herein the "Territory"): the
states of Kentucky and Ohio. Provided, however, Contractor shall have the right
to market the Network to persons and entities outside of the Territory if such
persons or entities are doing business with a subscriber within the Territory
and the existence of such other persons or entities is made aware to Contractor
by such subscriber. PPI agrees that neither it nor any other person to whom it
may grant Network marketing rights shall establish an office in the Territory
for the purpose of marketing Network subscriptions. Contractor shall not
establish an office or have a place of business for the purpose of marketing the
Network anywhere outside of the Territory without PPI's prior written consent.
Contractor acknowledges that third parties to whom PPI may grant marketing
rights and PPI itself have the right to market Network subscriptions to persons
or entities located within the Territory on the same terms as Contractor has the
right to market to persons outside of the Territory as stated above in this
paragraph. Contractor shall have no rights of any kind with respect to the
Network or the marketing of the Network outside of the Territory except as
provided in this Agreement.
a. For all Network subscriptions obtained by Contractor in accordance with
this Agreement from subscribers outside of the Territory but from an area for
which the Network marketing rights have been granted to a third party or where
PPI itself is marketing subscriptions (herein collectively the "Ex-Territory
Subscriptions"), Contractor agrees that such Ex-Territory Subscriptions may, at
the request of PPI, be serviced by either PPI or the owner of the marketing
rights in such area by installing and providing normal customer support to such
subscribers, in which case revenue from such Ex-Territory Subscriptions shall be
credited ** each to Contractor and the person providing the installation and
--
customer service for as long as such customer support is provided by PPI or such
third person. Provided, however, if Contractor desires to service such Ex-
Territory Subscriptions and demonstrates its ability to do so in accordance with
PPI's customer service standards, Contractor shall retain the servicing of such
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
- ------------------------------------------------------------------------------
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
- ----------------------------------------------------------------------------
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY
- --------------------------------------------------------------------------------
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Confidential Page 1
<PAGE>
subscriptions. Provided, further, however, all amounts credited to Contractor
for Ex-Territory Subscriptions shall remain subject to the revenue split in
favor of PPI as provided hereinbelow. Likewise, Contractor agrees that upon
request by PPI, Contractor shall install the Network software and provide normal
customer support to subscribers located within the Territory but which
subscribers are obtained by PPI or a third party (the "Support Only
Subscriptions"), in which case revenue from the Support Only Subscriptions shall
be credited ** to Contractor for as long as such customer support is provided by
--
Contractor. Provided, further, however, such amounts credited to Contractor
shall remain subject to the revenue split in favor of PPI as provided
hereinbelow. Contractor agrees that in the event of any dispute between
Contractor and any third party regarding Ex-Territory Subscriptions or Support
Only Subscriptions, PPI shall be the sole and final arbiter of any such dispute,
whose determination shall be binding on all parties.
a. All Network subscriptions and other Network services shall be marketed
and sold by Contractor at a price approved in writing in advance by PPI and upon
such other terms as PPI may require in its sole discretion, which prices and
terms may not be same for all Network subscribers. PPI shall not reduce the
approved prices at which Contractor shall sell subscriptions or other Network
services without the Contractor's prior consent, not to be unreasonably
withheld. PPI shall provide Contractor with marketing materials, subscriber
contracts and other marketing materials as determined by PPI. Contractor's use
of the name "Purchase Pro" shall be subject to the prior written approval of
PPI, not to be unreasonably withheld. PPI may from time to time promulgate
written rules and regulations applicable to Contractor and all other persons in
similar relationships to PPI relating to the manner of use of the Network, the
marketing of the subscriptions to the Network, its name and trademarks and
servicemarks, and its other intellectual property, which Contractor, shall
immediately upon receipt, adhere to in its operations hereunder. Provided,
however, such rules and regulations shall not unreasonably interfere with
Contractor's own marketing strategies.
a. Contractor shall at all times employ competent and qualified personnel
as shall be necessary to fulfill the purposes and intent of this Agreement and
to allow Contractor to actively market the Network pursuant to this Agreement.
Contractor shall require all of its marketing and customer support personnel to
complete such training sessions as may be required by PPI. The training sessions
shall conducted at PPI's offices in Las Vegas, Nevada, at no cost to Contractor,
except that Contractor shall pay all travel expenses for its personnel to attend
the training sessions, and shall pay any compensation to its personnel for the
time spent in training. In lieu of training at PPI's offices, at Contractor's
request, PPI agrees to provide an instructor for training sessions to held at
Contractor's offices provided that Contractor pays all travel, food and lodging
expenses for the instructor. Contractor agrees to submit its personnel for
training updates within not more than sixty (60) days after Network software
updates or other enhancements in the Network as PPI may reasonably require.
a. PPI shall administer the Network and provide Network access to the
subscribers obtained by Contractor, but Contractor shall pay all of its own
operating expenses, including without limitation, office, sales and other
personnel, and marketing expenses. Contractor and PPI shall communicate
regarding Contractor's suggestions for improvement and development of the
Network and the business of PPI, and Contractor shall be entitled to appoint one
member to PPI's software development advisory committee.
a. PPI shall collect all revenue (including without limitation subscription
fees, web hosting fees, and any transaction fees) from subscriptions and other
Network services sold by Contractor. Within ten (10) days of the end of each
calendar month, PPI shall remit to Contractor
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
- ------------------------------------------------------------------------------
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
- ----------------------------------------------------------------------------
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY
- --------------------------------------------------------------------------------
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Confidential Page 2
<PAGE>
the following percentage of the revenue collected by PPI from subscribers
obtained by Contractor (net of all taxes and costs of collection paid to third
parties, such as EFT draft fees), provided this Agreement is still then in
effect:
Year 1 - **
--
Year 2 and all years thereafter - **
--
Provided, however, Contractor shall not be entitled to any net revenue
sharing or distributions for any period this Agreement is in effect during which
the amount of net revenue to be retained by PPI as its share of net revenue
based on the above formula does not equal or exceed the total subscription
revenue received by PPI during such period from subscribers on the Network as of
the date of this Agreement (the "Existing Subscribers") which are now hereby
considered subscribers obtained by and to be serviced by Contractor hereunder.
In such case, PPI shall retain all net revenue from all subscribers obtained by
Contractor up to the amount of revenue for such period from Existing Subscribers
and Contractor shall be entitled to the balance of the net revenue received
during such period, if any. Provided, further, however, Contractor shall retain,
and PPI shall not be entitled to share in, any sums paid by subscribers to
Contractor to solely reimburse Contractor for costs incurred in establishing
private networks for groups of Network Subscribers, provided the amounts of such
payments and the nature thereof are disclosed in writing to PPI by Contractor
and provided that such payments are not based on usage of the Network or
represent payments for Network services of any kind.
a. Provided, however, to the extent the revenue collected in the
first, second or third three month period represents payment in advance for
subsequent periods, the percentage payable by PPI to Contractor shall be at the
rate applicable to the period during which the subscription revenue shall be
earned. For example, Contractors share of the net revenue from a paid in full
one year subscription sold in the first three month period would be ** , which
--
is equal to the percentage of the revenue that would be due if the subscription
was paid monthly over the full year.
a. The rights granted to Contractor hereunder are granted for a term
of one (1) year from the date hereof, but such rights and this Agreement shall
be automatically renewed for consecutive one (1) year terms, provided that in
each year the total net revenue from subscriptions and other Network services
obtained by Contractor in each twelve month period this agreement remains in
effect exceeds the following amounts:
Year 1: **
--
Year 2: **
--
Year 3: **
--
Year 4: **
--
Year 5: **
--
Year 6: **
--
Year 7: **
--
Year 8: **
--
Year 9: **
--
Year 10 and all years thereafter: **
--
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
- ------------------------------------------------------------------------------
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
- ----------------------------------------------------------------------------
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY
- --------------------------------------------------------------------------------
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Confidential Page 3
<PAGE>
If Contractor fails to sell a sufficient number of subscriptions and other
Network Services to generate such revenue, the exclusivity of the marketing
rights granted to Contractor hereunder shall automatically terminate at the end
of the one (1) year period during which such failure occurred, but this
Agreement shall otherwise continue in effect. Provided, further, however, if
Contractor fails to sell a sufficient number of subscriptions and other Network
services to generate not less than ** of the revenue minimums set forth above,
--
this Agreement and all of Contractor's rights hereunder may, at the option of
the Company at any time thereafter, be terminated due to such failure, and if
terminated by PPI solely for this reason, PPI shall pay Contractor a sum ** the
--
revenues payable to Contractor under the terms of this Agreement during the one
(1) year period immediately preceding the effective date of termination (subject
to set-off of any money due from Contractor to PPI at such time). Contractor's
share of net revenue from Ex-Territory Subscriptions and Support Only
Subscriptions shall be included in the net revenue attributable to Contractor
for purposes of these minimum revenue requirements. To the extent Contractor or
any of its affiliates own marketing rights for areas in addition to the
Territory, Contractor or such affiliates must identify the particular marketing
rights agreement under which each subscription is sold, which designation may
not be changed by Contractor.
a. Notwithstanding that this Agreement is renewable under certain
circumstances, Contractor agrees and acknowledges that PPI has established
prestige and goodwill in connection with the name "Purchase Pro" and the
Network. Contractor agrees that it shall at all time conduct its business
relating to this Agreement and the Network in an ethical manner and in
compliance with all federal, state and local laws, rules and regulations, and
that Contractor shall exercise its best efforts throughout its operations under
this Agreement to safeguard the prestige and goodwill of PPI. Contractor will
not, at any time, do or suffer to be done any act or thing which may, in any
way, impair the rights of PPI in and to any of its intellectual property rights
or the Network, or which may depreciate the value of any such intellectual
property or the Network.
a. For each new one-year subscription to the Network sold by
Contractor and paid for by the subscriber while this Agreement is in effect, up
to a maximum of ** one-year subscriptions to the Network, PPI shall grant to
--
Contractor an option to purchase ** of the common stock of PPI for the striking
--
price equal to the last asking price for PPI's common stock on such date if such
stock is traded on a national market, or if not so traded, the fair market value
of PPI's common stock as of the date of the grant as determined by PPI's outside
accountants. Upon exercise of the options, payment for the shares must be made
in cash, and the options shall expire five (5) years from the date each option
is granted. The options shall be granted at the end of each year this Agreement
is in effect after the actual subscriber revenue and fair market value of the
stock at year end can be determined. For purposes of measuring the number of
subscribers for purpose of the grant of options, a one-year subscription means
twelve months of subscription revenue cash receipts by PPI from a subscriber or
subscribers. For example, if at the end of the first year Contractor has sold **
--
subscriptions, but due to cancellations, non-payment or other factors PPI has
collected the revenue equivalent of only ** one-year subscriptions, then
--
Contractor shall only be entitled to options to purchase ** shares of PPI.
--
Options shall not be granted with respect to renewal subscription revenues, only
new subscribers. For purposes of this Agreement and the number of shares that
may be purchased by Contractor pursuant to the options, such number of shares
shall be hereafter adjusted for any stock splits, reverse splits, or other
similar events. PPI hereby agrees to cause any shares purchased by Contractor
pursuant to its options to be registered for resale at the same
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
- ------------------------------------------------------------------------------
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
- ----------------------------------------------------------------------------
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY
- --------------------------------------------------------------------------------
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
time and upon the same terms as shares purchased by employees of PPI pursuant to
employee stock options.
a. Contractor shall prepare, and at all times maintain at its principal
executive offices, true, correct and complete separate books of account and
records reflecting all transactions and operations within the scope of this
Agreement, in accordance with generally accepted accounting principles
consistently applied. Contractor shall prepare and furnish to PPI a statement of
operations, in form and scope satisfactory to PPI and certified as accurate by a
senior financial officer of Contractor, for each quarterly period ended the last
day of March, June, September and December in each year this Agreement is in
effect, which shall be furnished to PPI within thirty (30) days after the end of
each such period.
a. Provided there does not exist any default under this Agreement by
Contractor, Contractor retains exclusive rights to the Territory, and that this
Agreement is still in effect, PPI hereby grants Contractor the right of first
refusal to acquire rights similar to those granted herein for all states
contiguous to the Territory (exclusive of the state of Illinois), in the event
PPI proposes to grant same to a third party. Contractor shall have ten (10) days
from written notice from PPI of the terms on which PPI proposes to grant such
rights to a third party in which Contractor may exercise its right of first
refusal by written notification to PPI, in which case Contractor shall be deemed
to have contracted with PPI upon the terms contained in the notice from PPI.
This right of first refusal shall automatically terminate at such time as Brad
Redmon does not own a majority of the equity interests in, and exercise
managerial control over, Contractor. This right of first refusal shall also not
apply to any activities of PPI in any of the areas to which the right of first
refusal otherwise applies.
a. In the event PPI fails to have the Network operable for a
consecutive period of two (2) weeks, PPI shall involve Contractor in the efforts
to restore the operability of the Network and Contractor shall have the right to
expend its own resources in the effort to restore the Network, but PPI shall not
have any liability whatsoever to Contractor for any such sums expended, nor
shall PPI have any liability whatsoever for the failure of the Network.
a. PPI and Contractor hereby agree to take whatever further action
that may be necessary to implement the terms and conditions of this Agreement.
1. Restrictions on Transfer; Right of First Refusal.
------------------------------------------------
a. The rights granted herein are strictly personal to Contractor. Neither
this Agreement nor any of the rights granted to or obligations undertaken by
Contractor hereunder may be transferred, assigned, pledged, sold, mortgaged,
sublicensed or otherwise hypothecated or disposed of, either directly or
indirectly, in whole or in part, by operation of law or otherwise (collectively,
"transfer"), to any Person without the express prior written consent of PPI,
such consent to not be unreasonably withheld as long as Brad Redmon controls a
majority of the voting equity interests in, and has managerial control of,
Contractor. Any attempted transfer without such consent shall be null, void, and
of no force or effect. As used herein, the term "Contractor" shall include any
assignee, licensee or subcontractor of Contractor approved by PPI in writing as
hereinabove provided.
a. In addition to the requirement that PPI consent to any transfer of
rights of Contractor under this Agreement, Contractor hereby grants PPI the
right of first refusal to purchase or otherwise acquire any rights sought to be
assigned or transferred by Contractor on
Confidential Page 5
<PAGE>
the same terms as may be offered by a third party and accepted by Contractor.
Contractor shall notify PPI in writing of the terms of the proposed transfer to
a third party, in which case PPI shall have ten (10) business days within which
to exercise its right of first refusal by providing Contractor with written
notice of same. if such right is exercised, PPI shall acquire the rights from
the Contractor upon the same terms and schedule as contained in the third
party's offer.
1. Events of Default: Termination.
-------------------------------
a. Each of the following shall constitute an event of default under
this Agreement:
i. If Contractor shall fail to pay any funds owing to PPI pursuant to
this Agreement as and when due, provided that with respect to the first such
failure by Contractor PPI shall not be entitled to call a default under this
section until it shall have given Contractor notice thereof and Contractor shall
have failed to cure such default within thirty (30) days of such notice;
i. If Contractor shall institute proceedings to be adjudicated a
voluntary bankrupt or insolvent, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer seeking reorganization
or arrangement under any bankruptcy act or any other similar applicable law of
any country, or shall consent to the appointment of a receiver or liquidator or
trustee or assignee in bankruptcy or insolvency for itself, or any of its
property, or shall make an assignment for the benefit of creditors, or shall be
unable to pay its debts generally as they become due, or shall cease doing
business as a going concern, or action shall be taken by it in furtherance of
any of the foregoing purposes; or
i. If an order, judgment or decree of a court having jurisdiction shall
have been entered adjudicating the Contractor a bankrupt or insolvent, or
approving, as properly filed, a petition seeking reorganization of Contractor or
of all or a substantial part of its properties or assets under any bankruptcy
act or other similar applicable law, as from time to time amended, or appointing
a receiver, trustee or liquidator of Contractor, and such order, judgment or
decree shall remain in force, undischarged and unstayed for a period of thirty
(30) days, or a judgement or lien for the payment of money in excess of ** shall
--
be rendered or entered against it and the same shall remain undischarged or
unbonded for a period of thirty (30) days or any writ or warrant or attachment
shall be issued or levied against a substantial part of its property and the
same shall not be released, vacated or bonded within thirty (30) days after
issue or levy; or
i. If Contractor shall, without the prior written consent of PPI first
had and obtained, sell (regardless of how designated) all or substantially all
of its assets, or shall merge or consolidate with or into another corporation or
entity, or if there shall be a change in control of Contractor, in each case
whether in a single transaction or as the aggregate result of a series of
transactions, and whether the transaction or transactions involve an affiliated
or unaffiliated person or entity; or
i. If any representation or warranty of Contractor contained herein shall
be or become false or misleading in any material respect, or if Contractor shall
fail to perform or observe any term, condition, agreement or covenant in this
Agreement on its part to be performed or observed, and such default is not
remedied within thirty (30) days after written notice thereof from PPI.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- -------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
- -----------------------------------------------------------------------------
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
a. If any event of default shall occur and be continuing, PPI may,
by written notice to Contractor, immediately terminate this Agreement, in which
case PPI shall have no further obligations to Contractor and Contractor shall
have no further rights under this Agreement. In addition, all rights of
Contractor hereunder shall terminate and revert automatically to PPI, and
neither Contractor nor any of its receivers, representatives, trustees, agents,
successors or assigns (by operation of law or otherwise) shall have any rights
hereunder. Upon termination, Contractor shall deliver to PPI all information and
documents of any kind whatsoever relating to Contractor's performance of this
Agreement, the Network, and all subscribers, and shall thereafter cease and
desist from using the Network, the name "Purchase Pro" or any of PPI's
intellectual or other property in any manner.
a. Notwithstanding any termination or expiration of this Agreement
(whether by reason of the expiration of the stated term of this Agreement, by
earlier termination of this Agreement or otherwise), PPI shall have, and hereby
reserves, all the rights and remedies which it may have, at law or in equity,
with respect to the collection of funds payable by Contractor pursuant to this
Agreement, the enforcement of all rights relating to the establishment,
maintenance and protection of PPI's property, and damages for breach of
Agreement on the part of Contractor. PPI may recover its costs and expenses,
including reasonable attorneys' fees, incurred in enforcing this Agreement
against Contractor.
a. Contractor acknowledges that PPI will suffer great and
irreparable harm as a result of the breach by Contractor of any covenant or
agreement to be performed or observed by Contractor under this Agreement other
than the covenants to make monetary payments, and, whether such breach occurs
before or after the termination of this Agreement, Contractor acknowledges that
PPI shall be entitled to apply for and receive from any court of competent
jurisdiction a temporary restraining order, preliminary injunction and permanent
injunction, without any necessity of proving damages or any requirement for the
posting of a bond or other security, enjoining Contractor from further breach of
this Agreement or further infringement or impairment of PPI's rights. Such
relief shall be in addition to and not to substitution of any other remedies
available to PPI pursuant to this Agreement or otherwise.
1. Confidentiality.
---------------
a. Each party acknowledges that all information of a business or
technical nature imparted to the other party during the course of this Agreement
with respect to the business of the disclosing party, and certain affiliates,
were acquired, designed and/or developed by them at great expense, are secret,
confidential and unique, and constitute the trade secrets and exclusive property
of the disclosing party and its affiliates, and that any use by the other party
of any such trade secrets and property other than for the sole purpose of
implementing the terms of this Agreement would be wrongful and would cause
irreparable injury to the disclosing party and its affiliates.
a. Neither party will at any time disclose or divulge to any person,
firm or corporation or use or suffer the use by any third party, for any purpose
other than solely as required for the implementation of this Agreement, directly
or indirectly, for its own use or the benefit of any person, firm or
corporation, any property, any trade secrets or confidential information of the
other party or any of its affiliates, obtained from or through them, or any
confidential information belonging to any subscribers to the Network.
Confidential Page 7
<PAGE>
a. Contractor agrees that it shall cause each of its employees,
agents and subcontractors to execute a confidentiality and non-disclosure
agreement in form and substance satisfactory to PPI at all times this Agreement
is in effect.
1. Indemnity: Insurance.
--------------------
a. Contractor does hereby indemnify and agrees to save and hold PPI and
its officers, directors, agents, representatives and controlling persons
(collectively, for purposes of this section, "PPI"), individually, harmless of
and from any and all liability, claims, causes of action, suits, damages and
expenses (including reasonable attorneys' fees and expenses) which any such
entity or Person may become liable for, or may incur, or be compelled to pay, by
reason of any acts, whether of omission or commission, by Contractor and any of
its employees or agents, that may arise under or in connection with this
Agreement, in connection with the performance thereof on behalf of Contractor or
otherwise in connection with Contractor's business or by virtue of any
misrepresentation or breach of warranty or failure to perform or observe any
covenant on its part to be performed or observed hereunder.
a. PPI does hereby indemnify and agrees to save and hold Contractor
and its officers, directors, agents, representatives and controlling persons
(collectively, for purposes of this section, "Contractor"), individually,
harmless of and from any and all liability, claims, causes of action, suits,
damages and expenses (including reasonable attorneys' fees and expenses) which
any such entity or Person may become liable for, or may incur, or be compelled
to pay, by reason of any acts, whether of omission or commission, by PPI and any
of its employees or agents, that may arise under or in connection with this
Agreement, in connection with the performance thereof on behalf of PPI or
otherwise in connection with PPI's business or by virtue of any
misrepresentation or breach of warranty or failure to perform or observe any
covenant on its part to be performed or observed hereunder.
a. An indemnified party shall immediately give notice to the
indemnifying party of any claim, action or suit that may give rise to liability
under this section, provided that the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
hereunder. The indemnifying party hall have the option to defend any such claim
action or suit, including, but not limited to, the right to select counsel
control the defense, assert counterclaims and crossclaims, bond any lien or
judgment, take any appeal and to settle on such terms as it, in its discretion,
reasonably deems advisable, provided prior notice of any settlement is given to
the indemnified party and such party provides its express prior consent thereto.
No settlement of any claim may be effected without the prior written consent of
the indemnifying party.
a. Contractor shall maintain at its own expense in full force and
effect at all times during which this Agreement is in effect, with a recognized
and responsible insurance carrier licensed to do business in the state of
Contractor's domicile, and acceptable to PPI, a liability insurance policy with
limits of liability of at least $1,000,000 per Person and per accident or
occurrence. Such insurance shall be for the benefit of and shall name as co-
insured PPI and its respective officers, directors, agents, representatives and
controlling persons, and shall provide for at least thirty (30) days' prior
written notice by the carrier thereof (each an "Insurance Notice") to PPI and
Contractor of the cancellation or modification thereof. Contractor shall, as
promptly as practicable, but in any event within thirty (30) days after the
signing of this Agreement, and from time to time thereafter upon PPI's written
request, deliver to PPI (i) a true, correct and complete copy of its liability
insurance policy (including all endorsements), as then in effect, and (ii ) a
Confidential Page 8
<PAGE>
certificate of such insurance from the insurance carrier which sets forth the
scope of coverage and the limits of liability. Contractor's maintenance of the
insurance coverage as provided herein shall not limit, excuse or replace any of
Contractor's obligations under the provisions hereof, which shall remain
absolute.
a. The provisions of this section shall survive any termination or
expiration of this Agreement.
1. Representations and Warranties. Contractor hereby represents and
------------------------------
warrants to PPI as follows:
a. Contractor is a limited liability company, duly organized,
validly existing and in good standing under the laws of Kentucky, and is duly
qualified and authorized to do business and in good standing in all
jurisdictions in which the nature of its business requires such qualifications.
a. Neither the execution, delivery nor performance of this Agreement
by Contractor will, with or without the giving of notice or passage of time, or
both, conflict with, or result in a default or loss of rights under, any
provision of any other agreement or understanding to which Contractor is a party
or by which it or any of its properties may be bound.
a. Contractor has full power and authority to enter into this
Agreement and to carry out the transactions contemplated thereby in accordance
with its terms; the execution, delivery, and performance of this Agreement by
Contractor have been duly and properly authorized by all necessary actions; and
this Agreement constitutes the valid and binding obligation of Contractor
enforceable in accordance with its terms.
1. Notices. All reports, communications, requests, demands or notices
-------
required by or permitted under this Agreement shall be in writing and shall be
deemed to be duly given on the date same is sent and acknowledged via hand
delivery, facsimile or reputable overnight delivery service (with a copy
simultaneously sent by registered mail), or, if mailed, five (5) days after
mailing by certified or registered mail, return receipt requested, to the party
concerned at the address on page 1 hereof. Any party may change the address to
which such notices and communications shall be sent by written notice to the
other parties, provided that any notice of change of address shall be effective
only upon receipt.
1. Integration. This Agreement sets forth the entire agreement and
-----------
understanding between the parties relating in any way to the Network, or to the
subject matter hereof and supersedes and merges all prior discussions,
arrangements and agreements between them.
1. Amendments. This Agreement may not be amended or modified except by
----------
written instrument signed by each of the parties hereto.
1. Relationship of Parties. Nothing herein contained shall be construed
-----------------------
to constitute the parties hereto as partners or as joint venturers, or as
franchisor/franchisee, or either as agent of the other. Neither party hereto by
virtue hereof shall have the right or authority to act for or to bind the other
in any way or to sign the name of the other or to represent that the other is in
any way responsible for the acts or omissions of the other.
Confidential Page 9
<PAGE>
1. Mandatory Arbitration and Locale. Any controversy or claim arising
--------------------------------
out of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration in Lexington, Kentucky, before one (1) arbitrator administered by
the American Arbitration Association under its Commercial Arbitration Rules, and
judgment on the award rendered by the arbitrator may be entered in (any court
having jurisdiction thereof). Provided, however, either party shall be entitled
to seek injunctive relief to the extent entitled thereto. To the extent such
injunctive relief is sought, PPI and Contractor hereby (i) agree that the State
and Federal courts sitting in the State of Nevada, Clark County, City of Las
Vegas, shall have exclusive jurisdiction in any such injunctive action connected
in any way with this Agreement; (ii) each consent to personal jurisdiction of
and venue in such courts in any such matter; and (iii) further agree that the
service of process or of any other papers with respect to such proceedings upon
them by mail shall be deemed to have been duly given to and received by them
five (5) days after the date of certified mailing and shall constitute good,
proper and effective service.
1. Severability. In the event that any one or more provisions of this
------------
Agreement shall be held invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
1. Waiver. No failure or delay on the part of either party in
------
exercising any power or right under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. No waiver by either party of any provision of this Agreement, or
of any breach or default, shall be effective unless in writing and signed by the
party against whom such waiver is to be enforced. All rights and remedies
provided for herein shall be cumulative and in addition to any other rights or
remedies such parties may have at law or in equity.
1. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall be deemed an original.
1. Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereto and thereto shall be governed by and construed and enforced in
accordance with the substantive law of the state of Nevada.
1. Benefit and Binding Effect of Agreement. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of PPI and Contractor and their respective
successors and assigns.
PURCHASE PRO INTERNATIONAL, INC.
By: /S/ CHRISTOPHER P. CARTON
--------------------------------
Title: President and Secretary
------------------------------
E-MARKETPRO, LLC
/s/ Brad Redmon
-----------------------
Title: Chairman
-----------------
Confidential Page 10
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated June 2, 1999 (and to all references to our Firm) included in or
made a part of this Registration Statement on Form S-1.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
June 2, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 1,689,288 476,585
<SECURITIES> 0 0
<RECEIVABLES> 514,312 957,708
<ALLOWANCES> 200,000 235,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,023,600 1,261,176
<PP&E> 979,043 1,102,744
<DEPRECIATION> 415,039 497,472
<TOTAL-ASSETS> 2,744,757 2,219,286
<CURRENT-LIABILITIES> 1,116,324 1,791,327
<BONDS> 0 0
6,339,438 6,990,377
0 0
<COMMON> 76,000 77,700
<OTHER-SE> (5,956,944) (7,855,102)
<TOTAL-LIABILITY-AND-EQUITY> 2,744,757 2,219,286
<SALES> 1,670,238 673,907
<TOTAL-REVENUES> 1,670,238 673,907
<CGS> 445,639 162,870
<TOTAL-COSTS> 8,153,653 2,302,471
<OTHER-EXPENSES> (16,300) (4,335)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 332,895 122,990
<INCOME-PRETAX> (6,800,010) (1,747,219)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,800,010) (1,747,219)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,135,448)<F1> (1,898,158)<F1>
<EPS-BASIC> (0.94) (0.25)
<EPS-DILUTED> (0.87) (0.23)
<FN>
<F1>After preferred stock dividends and accretion of preferred stock to redemption
value.
</FN>
</TABLE>
