<PAGE>
As filed with the Securities and Exchange Commission on December 21, 1999
Registration 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ONVIA.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7375 91-1859172
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------
1000 Dexter Avenue, Suite 400
Seattle, Washington 98109
(206) 282-5170
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Glenn Ballman
President and Chief Executive Officer
Onvia.com, Inc.
1000 Dexter Avenue, Suite 400
Seattle, Washington 98109
(206) 282-5170
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Mark J. Handfelt Mark A. Bertelsen
David R. Young Jose F. Macias
David T. Sobota Don S. Williams
Gordon Empey Burke Norton
Venture Law Group Wilson Sonsini Goodrich & Rosati
A Professional Corporation Professional Corporation
4750 Carillon Point 650 Page Mill Road
Kirkland, Washington 98033 Palo Alto, California 94304
(425) 739-8700 (650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration
statement.
---------------
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title Of Each Class Of Securities To Be Aggregate Amount Of
Registered Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par value........... $100,000,000.00 $26,400.00
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the amount of the registration fee.
---------------
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 which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We 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 we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
Shares
[LOGO OF ONVIA.COM]
Common Stock
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$ and $ per share. We have applied to list our common stock on the Nasdaq
Stock Market's National Market under the symbol "ONVI."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Onvia.com
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total........................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Hambrecht & Quist
Robertson Stephens
E*OFFERING
William Blair & Company
The date of this Prospectus is , 2000.
<PAGE>
"Helping small businesses succeed by saving time, making money and working
smarter."
ONVIA.com
Work. Wisely./TM/
<PAGE>
ONVIA.com...THE SMALL BUSINESS EMARKETPLACE
"What do I need to set up my network?"
"I spend $500 per month on long distance, what's the best plan for me?"
"Help me find the right 401(k) plan"
"I need to set up payroll"
[ARTWORK]
[The artwork is a circle with an arrow pointing into the left side labeled
"buyer" and an arrow pointing into the right side labeled "seller." Outside of
the circle is a ring with arrows pointing counter-clockwise. The top of the ring
reads "Exchange Services and Products" and the bottom of the ring reads
"Exchange Information." The circle itself is divided into five equal segments
which read in a clockwise direction: "Request for Quotes," "Buy and Sell
Services and Products," "News and Advice," "Efficiency Tools" and "Additional
Transaction Types." The center of the circle reads "Small Businesses Save Time
and Make Money."]
Onvia.com is providing a single online resource where small businesses can buy
and sell services and products, and exchange valuable information.
<PAGE>
"How do I find qualified leads for my business?"
"Help me find new customers"
"How do I increase my company's revenue?"
"How do I expand geographically?"
Onvia.com aggregates a large and targeted audience of small businesses to
provide a powerful sales, distribution and marketing channel to small business
buyers.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
You Should Not Rely On Forward-Looking Statements........................ 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 29
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 41
Related Party Transactions................................................. 50
Principal Stockholders..................................................... 53
Description of Capital Stock............................................... 55
Shares Eligible for Future Sale............................................ 57
Underwriting............................................................... 59
Notice to Canadian Residents............................................... 61
Legal Matters.............................................................. 62
Experts.................................................................... 62
Where To Find Additional Information....................................... 62
Index to Consolidated Financial Statements................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of the prospectus or of any sale of the common stock.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), 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 dealers' obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
OnviaMail, Work. Wisely. and OnviaFlash are our trademarks, and we have
filed for trademark registration for chaperoned access CheckPoint, the Onvia
checkmark logo, Onvia and Onvia.com. This prospectus also includes trade
dress, trade names, trademarks and service marks of other companies. Use or
display by Onvia.com of other parties' trademarks, trade dress or products is
not intended to and does not imply a relationship with, or endorsement or
sponsorship of Onvia.com by, the trademark or trade dress owners.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes to those statements appearing
elsewhere in this prospectus.
Onvia.com, Inc.
We are the leading business-to-business emarketplace for small business
buyers and sellers. Our emarketplace is designed to help small businesses
succeed by providing a single online destination where small businesses can buy
and sell services and products, exchange valuable information and access
productivity tools. We have designed our emarketplace to incorporate all of
these functions so that small businesses can conduct e-commerce and exchange
information without leaving our web site. By aggregating a large and targeted
audience of small businesses, our emarketplace provides a new and powerful
sales channel for both small and large vendors to the small business market.
Businesses are increasingly using the Internet to communicate and transact
commerce with their partners, suppliers and customers. According to Forrester
Research, the U.S.-based business-to-business e-commerce market is expected to
grow from $109 billion in 1999 to $1.3 trillion in 2003. To facilitate the
electronic exchange of information, services and products, businesses are
beginning to form electronic marketplaces, or emarketplaces, that aggregate
buyers and sellers in a central Internet destination.
As small businesses, which we define as businesses with fewer than 100
employees and income-generating home offices, increasingly rely on the
Internet, we believe that a significant market opportunity exists to provide
small businesses with an emarketplace specifically catered to their needs.
According to International Data Corporation, or IDC, there are approximately
29.6 million small businesses in North America today. Small businesses account
for roughly half of the United States gross domestic product, according to the
U.S. Small Business Association. We believe that the growth in the number of
small businesses, which IDC estimates will reach 38.5 million by 2002, and in
the volume of small business e-commerce, which IDC estimates will reach
approximately $107 billion in 2002, will drive the need for an emarketplace
that offers sellers a channel to reach the large, fragmented market of small
business buyers and provides these buyers with a single Internet location to
meet all of their needs.
Our emarketplace currently consists of:
. a small business services trading hub, which includes more than 6,500
businesses that act as suppliers across 50 services in our request for
quote network, a network which enables buyers to submit electronically
requests for quotes for various business services and sellers to respond
with pricing and fulfillment information;
. more than 25,000 products and nine critical business services selected
for the particular needs of small businesses that can be purchased
quickly and conveniently through our "Buy Now" system; and
. a collection of timely news, information, editorial content and business
tools designed to help small businesses enhance their operations.
We intend to build on our leadership position as the first comprehensive
emarketplace for small businesses by expanding our service, product and
information offerings to become the single source for all small business needs.
We believe that by expanding our offerings we will attract more small
businesses to our emarketplace, creating additional marketing opportunities for
our sellers. We believe that this will create a network effect in which the
value of our emarketplace increases with the addition of each participant.
Onvia.com was incorporated as MegaDepot, Inc. in Washington in March 1997.
In February 1999, we changed our name to MegaDepot.com, Inc., and in May 1999
we changed our name to Onvia.com, Inc. We intend to reincorporate in Delaware
prior to the closing of this offering. Our principal executive offices are
located at 1000 Dexter Avenue, Suite 400, Seattle, Washington 98109, and our
telephone number is (206) 282-5170. Our web site is located at www.onvia.com.
The information contained on our web site is not part of this prospectus.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered................................ shares
Common stock to be outstanding after the offering... shares
Use of proceeds..................................... For general corporate
purposes, including
working capital. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. ONVI
</TABLE>
This table is based on shares outstanding as of September 30, 1999 and
excludes the following shares:
. 631,319 shares issuable upon exercise of warrants outstanding as of
September 30, 1999 at a weighted average exercise price of $1.85 per
share;
. 4,478,016 shares issuable upon exercise of options outstanding as of
September 30, 1999 at a weighted average exercise price of $0.30 per
share;
. 4,008,872 shares of common stock available for future grant under our
1999 stock option plan;
. 300,000 shares of common stock available for issuance under our 2000
directors' stock option plan;
. 300,000 shares of common stock available for issuance under our 2000
employee stock purchase plan; and
. 1,689,701 shares of Series C preferred stock issued in December 1999.
----------------
Unless otherwise indicated, the information in this prospectus reflects the
number of shares outstanding on September 30, 1999 assuming:
. the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering;
. our reincorporation into Delaware which will be effected prior to the
closing of this offering;
. the filing of our amended and restated certificate of incorporation;
. the exercise of warrants to purchase 384,624 shares of our common stock
that will expire if not exercised before the closing of this offering;
and
. no exercise of the underwriters' over-allotment option.
4
<PAGE>
Summary Consolidated Financial Data
<TABLE>
<CAPTION>
March 25,
1997 Nine Months
(inception) Ended September
to Year Ended 30,
December 31, December 31, ----------------
1997 1998 1998 1999
------------ ------------ ------ --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenue........................... $ 62 $1,037 $ 653 $ 13,168
Gross margin...................... 15 (45) 45 (2,540)
Total operating expenses.......... 146 623 323 13,337
Loss from operations.............. (130) (669) (279) (15,877)
Net loss.......................... $ (130) $ (672) $ (281) $(16,202)
Basic and diluted net loss per
common share..................... $(0.03) $(0.17) $(0.07) $ (2.84)
Basic and diluted weighted average
shares outstanding............... 4,000 4,000 4,000 5,695
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
-------------------
Pro Forma
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $26,037 $
Total assets................................................ 38,199
Long-term debt.............................................. 5,465
Total stockholders' equity.................................. 22,878
</TABLE>
The pro forma as adjusted information in the above consolidated balance
sheet data table is adjusted to reflect the sale of shares of common
stock offered by us at an assumed initial public offering price of $ per
share, after deduction of the estimated underwriting discounts and commissions
and estimated offering expenses, and the exercise of warrants to purchase
384,624 shares of our common stock that will expire if not exercised before the
closing of this offering.
See note 1 of the notes to our consolidated financial statements for an
explanation of the determination of the number of weighted average shares used
to compute net loss per share amounts.
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline
substantially due to any of these risks, and you may lose all or part of your
investment.
Risks Related to Our Business
We have a limited operating history of less than three years, making it
difficult to evaluate our future prospects
We were incorporated in March 1997. In July 1997, we launched the initial
version of our emarketplace, targeted at the Canadian market. In July 1998, we
introduced our emarketplace for U.S. small businesses. We have a limited
operating history upon which an investor may evaluate our business and
prospects. Our potential for future profitability must be considered in light
of the risks, uncertainties, expenses and difficulties frequently encountered
by companies in their early stages of development, particularly companies in
new and rapidly evolving markets, such as emarketplaces in general and those
catering to small businesses in particular. We may not successfully address any
of these risks. If we do not successfully address these risks, our business
will be seriously harmed.
We have incurred losses in each quarter since inception, and we expect to incur
significant operating losses for the foreseeable future
We have incurred net losses from operations in each quarter since inception
and, as of September 30, 1999, had an accumulated deficit of $17.0 million. We
expect to continue to incur losses for the foreseeable future. Most of our
revenue to date has been generated by selling products at or below cost. We
expect to increase significantly our operating expenses in the near future as
we attempt to build our brand, expand our customer base and improve our
technology infrastructure. To become profitable, we must increase revenue
substantially and achieve and maintain positive gross margins. To increase
revenue, we will need to continue to attract customers and suppliers to our
emarketplace and expand our service and product offerings. To improve our gross
margins, we will need to increase the proportion of revenue generated from
higher-margin services, reduce service and product discounts and lower service
and product costs. We may not be able to increase revenue and gross margins
sufficiently to achieve profitability.
Our quarterly financial results are subject to fluctuations which may make it
difficult to forecast our future performance
We expect our revenue and operating results to vary significantly from
quarter to quarter making it difficult to formulate meaningful comparisons of
our results between quarters. Our limited operating history and new and
unproven business model further contribute to the difficulty of making
meaningful quarterly comparisons. Factors that may affect our quarterly results
include the following:
. limited or delayed customer acquisition or increases in customer
acquisition costs;
. our ability to retain existing customers, sellers and suppliers and
attract new customers, sellers and suppliers cost-effectively;
. changes in our pricing policies or those of our competitors or
suppliers;
. our ability to obtain adequate capital to effect our marketing and
acquisition strategies;
. changes in our mix of revenue generated from sales of services and
products;
6
<PAGE>
. our ability to introduce new services and products;
. delays in developing and introducing new emarketplace capabilities;
. introduction of new services or products by our competitors;
. our, or our suppliers', ability to maintain adequate supplies of
services and products; and
. changes in accounting standards, including standards relating to revenue
recognition, business combinations and stock-based compensation.
Substantially all of our revenue for a particular quarter is derived from
transactions that are initiated and completed during that quarter. Our current
and future levels of operating expenses and capital expenditures are based
largely on our growth plans and estimates of future revenue. These expenditure
levels are, to a large extent, fixed in the short term. We will not be able to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenue relative to planned
expenditures could harm our business and results of operations.
Our limited operating history and rapid growth make it difficult to assess
the seasonal factors in our business. Nevertheless, we expect there to be
seasonal fluctuations in our business, reflecting a combination of seasonal
trends for the services and products we offer, seasonal trends in the buying
habits of our target small business customers and seasonal trends reflecting
Internet usage. For example, small businesses tend to purchase fewer supplies
during December when budgets have been exhausted and business activity slows
for the holidays. Also, Internet use generally declines during the summer
months.
The development of our brand is essential to our future success and requires
significant expenditures
We believe that development of the Onvia.com brand is crucial to our future
success. The importance of brand recognition will increase as more companies
engage in commerce over the Internet. Because the online commerce aspects of
our business model have limited legal, technological and financial barriers to
entry, if we are unable to establish a trusted brand name, our business will
suffer.
We currently intend to invest significant capital resources to develop our
brand, including spending significant amounts of money on advertising and
promotions. Furthermore, the cost of advertising and promotions is growing
rapidly. In addition, if our competitors significantly increase their
advertising and promotions spending, we may be forced to increase our
expenditures accordingly. We cannot be certain that our efforts to promote our
brand will be successful or that we will have adequate financial resources to
continue to promote our brand.
If we fail to increase traffic to our web site and the proportion of visitors
who purchase services or products, our business will not grow as we expect
To generate revenue, we must drive traffic to our web site and convert
visitors into purchasers of services and products. We use a number of
techniques to increase traffic to our web site, including developing
relationships with third parties, advertising, e-mail and contests. Currently,
we are using a variety of techniques to increase customer conversion rates,
including using discounts on selected items and other incentives. Many of these
techniques are new and unproven, and we cannot be certain that any of them will
be successful in helping us increase traffic or conversion rates. If we are
unable to draw significantly higher traffic to our web site and convert a
significant number of web site visitors into customers, our business will not
grow as we expect.
Intense competition could impede our ability to gain market share and harm our
financial results
Emarketplaces are new, rapidly evolving and intensely competitive. In
addition, the traditional non-Internet-based markets for business products such
as computer hardware and software, office furniture, office
7
<PAGE>
equipment and office supplies are also intensely competitive. We compete with
both traditional distribution channels as well as other online services. Our
current and potential competitors include:
. Internet sites that target the small business market with a full-line
offering of products or services;
. Internet sites that offer specific products used by the small business
market or that target the consumer market, but also sell to small
business customers; and
. traditional retailers that sell or resell business services, either
through storefronts or through the Internet.
There are minimal barriers to entry to our market, and new competitors could
launch a competitive web site offering services and products targeted to the
small business market. To compete successfully and to gain market share, we
must significantly increase awareness of our brand name and our web site. In
addition, we must increase our customer base and the volume of services and
products we sell through our web site. Our failure to achieve these objectives
could cause our revenue to decline and limit our ability to achieve
profitability.
We may not compete successfully against current or future competitors, many
of which have substantially more capital, longer operating histories, greater
brand recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. These competitors may also be
more successful than we in engaging in more extensive development of their
technologies, adopting more aggressive pricing policies and establishing more
comprehensive marketing and advertising campaigns. Our competitors may develop
web sites that are more sophisticated than ours with better online tools, and
that have service and product offerings superior to ours. For these or other
reasons, our competitors' web sites may achieve greater acceptance than ours,
limiting our ability to gain market share and customer loyalty and to generate
sufficient revenue to achieve profitability.
Our business model is new, unproven and evolving and may not prove to be viable
in the long run
Our business model is new, unproven and continues to evolve. In particular,
our business model is based on several assumptions, any one of which may not
prove to be true, including the following:
. a significant number of small businesses will be willing to purchase
their business services and products online;
. a significant number of small businesses and small business service
providers will use our emarketplace to buy and sell services and
products; or
. small business customers will provide us data about themselves.
If any of these assumptions does not prove to be true, our business may not
be viable in the long run.
In addition, to date we have sold many of our products at or below our cost,
causing us to incur negative gross margins. We cannot assure you that if, in
the future, we choose to increase the prices at which we sell our products, we
will be able to retain existing customers and attract new customers. If we are
unable to retain and grow our existing customer base, our business model may
not prove to be viable.
If we fail to increase sales of services, our gross margins will not improve
In general, we derive higher gross margins from the sale of services than
from the sale of products. If we are to improve gross margins, we must increase
the proportion of revenue generated from sales of services. To date, our sales
of services have been minimal, and the sale of services over the Internet has
not yet achieved broad market acceptance. The sale of services through the
Internet may not achieve broad market acceptance, and, even if it does, we may
not achieve significant sales of services.
8
<PAGE>
If we do not develop additional and maintain existing relationships with third
parties, we may be unable to increase traffic to our web site
We depend on relationships with third parties to direct traffic to our web
site. Most of these agreements call for the third party to be paid a monthly
fee. Some of these relationships require us to pay the third party a percentage
of revenue generated from customers who make a purchase after linking through
from the third party's web site. Most of these relationships are for terms of
six months or less and many of them are cancelable by either party without
cause upon limited notice. We must maintain our existing relationships and
develop new relationships on terms acceptable to us to continue to increase
traffic to our web site. The termination of any of these existing agreements,
or the failure to secure similar relationships with new third parties would
limit the growth in traffic to our web site or cause it to decline, and would
likely impede our ability to attract a large enough customer base to make our
business viable. Additionally, we do not know if we will be able to renew any
or all of these agreements on acceptable terms.
Even if we maintain our existing relationships, because most of them have
been formed recently and several of them have not yet been fully established,
we do not have sufficient historical data to assess accurately whether they
will be successful in drawing sufficient traffic to our web site. Any
unexpected decline in traffic to the web sites of the third parties with whom
we have relationships could have a negative impact on the traffic to our web
site.
If we are unable to maintain our relationships on commercially favorable terms
with the small number of suppliers of the products we sell, our business will
suffer
We purchase substantially all of our products from only major vendors:
Ingram Micro, TechData, Merisel and United Stationers. For the nine months
ended September 30, 1999, approximately 78% of our revenue was derived from
sales of products supplied by Ingram Micro.
We do not typically maintain physical inventory but may do so for scarce
resources or when otherwise appropriate. We do not have long-term arrangements
with any of our suppliers and transact with them through purchase orders. Our
suppliers could:
. discontinue service to us at any time with little or no notice, in which
case we may be unable to obtain alternate supply sources on comparable
or acceptable terms;
. raise prices above the level at which we can profitably sell products to
our customers;
. establish more favorable pricing structures for our competitors; or
. establish strict payment terms that constrain our working capital.
Any unfavorable action or event concerning our supplier relationships that
hinders our ability to fulfill orders quickly, accurately and on competitive
terms would harm our business.
We have grown very quickly and if we fail to manage this growth, our ability to
increase revenue and achieve profitability will be harmed
We have rapidly and significantly expanded our operations, and we need to
grow quickly in the future. From January 1, 1999 to December 15, 1999, we
increased our employee base from 15 to 196. This growth has placed a
significant strain on our employees, management systems and other resources and
will continue to do so. If we do not manage our growth effectively, our revenue
may not grow as we expect, and we may never achieve profitability.
Effectively managing our expected future growth will require, among other
things, that we successfully upgrade our operating systems, improve our
management reporting capabilities and strengthen internal controls. For
example, we are currently migrating our accounting and control systems to a new
software package. We
9
<PAGE>
will also need to attract, hire and retain highly skilled and motivated
officers and employees. We must also maintain close coordination among our
marketing, operations, engineering and accounting departments. We may not
succeed in achieving any of these objectives.
Our business will suffer if we are unable to hire and retain highly qualified
employees
Our future success depends on our ability to identify, hire, train and
retain highly qualified sales and marketing, technical, managerial and
administrative personnel. As we continue to introduce new services, products
and features on our web site, and as our customer base and revenue continue to
grow, we will need to hire a significant number of qualified personnel.
Competition for qualified personnel, especially those with Internet experience,
is intense, and we may not be able to attract, train, assimilate or retain
qualified personnel in the future. Our failure to attract, train, assimilate
and retain qualified personnel could seriously disrupt our operations and could
increase our costs as we would be required to use more expensive outside
consultants.
Our executive officers and key employees are critical to our business, and
these officers and key employees may not remain with us in the future
Our business and operations are substantially dependent on the performance
of our executive officers and key employees, all of whom are employed on an at-
will basis and have worked together for only a short period of time. We do not
maintain "key person" life insurance on any of our executives other than Glenn
Ballman, our founder, President and Chief Executive Officer. The loss of Mr.
Ballman or other key executives would likely harm our business.
We will require significant additional capital in the future, which may not be
available on suitable terms, or at all
The expansion and development of our business will require significant
additional capital, which we may be unable to obtain on suitable terms, or at
all. If we are unable to obtain adequate funding on suitable terms, or at all,
we may have to delay, reduce or eliminate some or all of our advertising,
marketing, co-branding relationships, engineering efforts, general operations
or any other initiatives. We will require substantial additional funds to carry
out and expand our planned advertising and marketing activities and to continue
to develop and upgrade our technology. During the next 12 months, we expect to
meet our cash requirements with existing cash, cash equivalents and the net
proceeds from this offering. However, if our capital requirements vary
materially from those currently planned, we may require additional funding
sooner than anticipated. If we issue convertible debt or equity securities to
raise additional funds, our existing stockholders will be diluted.
If we fail to expand our current technology infrastructure, we will be unable
to accommodate our anticipated growth
To be successful, we must continue to increase substantially traffic to our
web site and convert web site visitors into customers. Accommodating this
potential growth in web site traffic and customer transactions will require us
to continue to develop our technology infrastructure. To maintain the necessary
technological platform in the future, we must continue to expand and stabilize
the performance of our web servers, improve our transaction processing system,
optimize the performance of our network servers and ensure the stable
performance of our entire network. We may not be successful in our ongoing
efforts to upgrade our systems, or if we do successfully upgrade our systems,
we may not do so on time and within budget. If we fail to achieve a stable
technological platform in time to handle increasing web site traffic or
customer order volume, potential customers could be discouraged from using our
emarketplace, our reputation could be damaged and our business could be harmed.
The performance of our web site is critical to our business and our reputation
Any system failure that causes an interruption in the service of our web
site or a decrease in its responsiveness could result in reduced user traffic
and reduced revenue. Further, prolonged or ongoing performance problems on our
web site could damage our reputation and result in the permanent loss of
10
<PAGE>
customers to our competitors' web sites. We have occasionally experienced
system interruptions that have made our web site totally unavailable, slowed
its response time or prevented us from efficiently fulfilling orders, and these
problems may occur again in the future.
In April 1999, we entered into an agreement with Exodus Communications to
maintain all of our web servers and database servers at Exodus's Seattle
location. Our operations depend on Exodus's ability to protect its and our
systems against damage from fire, power loss, water damage, telecommunications
failures, vandalism and similar unexpected adverse events. Any disruption in
the services provided by Exodus could severely disrupt our operations. Our
backup systems may not be sufficient to prevent major interruptions to our
operations, and we do not have a formal disaster recovery plan. We may not have
sufficient business interruption insurance to cover losses from major
interruptions.
Our customers and visitors to our web site depend on their own Internet
service providers, online service providers and other web site operators for
access to the Onvia.com web site. Each of these providers has experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems.
We expect to engage in future acquisitions or investments, which may harm our
operating results
Although we have no current agreements relating to acquisitions or
investments in other companies, we expect in the future to make acquisitions or
investments designed to increase our customer base, broaden our offerings and
expand our technology platform. We have not made acquisitions or investments in
the past, and therefore our ability to conduct acquisitions and investments is
unproven. If we fail to evaluate and to execute successfully acquisitions or
investments, they may seriously harm our business. To complete successfully an
acquisition, we must:
. properly evaluate the technology;
. accurately forecast the financial impact of the transaction, including
accounting charges and transaction expenses;
. integrate and retain personnel;
. combine potentially different corporate cultures; and
. effectively integrate services and products and technology, sales,
marketing and support operations.
If we fail to do any of these, we may suffer losses or our management may be
distracted from our day-to-day operations. In addition, if we conduct
acquisitions using convertible debt or equity securities, existing stockholders
may be diluted, which could affect the market price of our stock.
We may be harmed by issues related to the "Year 2000" problem
Many computer programs have been written using two digits rather than four
digits to define the applicable year. This could pose a problem at the end of
the century because these computer programs may recognize a date using "00" as
the year 1900, rather than the year 2000. This in turn could result in major
system failures or miscalculations and is generally referred to as the Year
2000 problem.
As an e-commerce company, we are dependent, to a very substantial degree, on
the proper functioning of our computer systems and on those of all of our
customers and suppliers. Any problems associated with the Year 2000 problem
that impede our systems or those of our customers or suppliers could seriously
harm our business.
Although we have made an assessment of our Year 2000 state of readiness and
have made the changes we consider necessary, we may experience significant
unanticipated problems caused by undetected errors or defects. We also cannot
assure that customers will be able to access our web site without serious
disruptions arising from the Year 2000 problem. Given the pervasive nature of
the Year 2000 problem, we cannot assure
11
<PAGE>
that disruptions will not occur to the Internet as a whole or to specific
industries or market segments in the entire economy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Impact of Year 2000."
Our services and products depend upon the continued availability of licensed
technology from third parties
We license and will continue to license technology integral to our services
and products from third parties. If we are unable to acquire or retain key
third-party product licenses or integrate the related third-party products into
our services and products, our service and product development may be delayed.
We also expect to require new licenses in the future as our business grows and
technology evolves. We may not be able to obtain these licenses on commercially
reasonable terms, if at all.
If we expand our international sales and marketing activities, our business
will be susceptible to numerous risks associated with international operations
We intend to expand our international operations and hire additional
personnel abroad. Therefore, we may commit significant resources to expand our
international sales and marketing activities. If successful, we will be subject
to a number of risks associated with international business activities. These
risks generally include:
. currency exchange rate fluctuations;
. seasonal fluctuations in purchasing patterns;
. unexpected changes in regulatory requirements;
. tariffs, export controls and other trade barriers;
. longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
. burdens of complying with a wide variety of foreign laws;
. risks related to the recent global economic turbulence; and
. political instability.
Risks Related to the Internet and Our Industry
We will not be able to grow our business unless small businesses increase their
use of the Internet to conduct commerce and the Internet is able to support the
demands of this growth
Our success depends on the increasing use of the Internet by small
businesses. If use of the Internet as a medium for consumer and business
communications and commerce does not continue to increase, demand for our
services and products will be limited and our financial results will suffer.
Even if small businesses increase their use of the Internet, the Internet
infrastructure may not be able to support the demands of this growth. The
Internet infrastructure must be continually improved and expanded in order to
alleviate overloading and congestion. If the Internet's infrastructure is not
improved or expanded, the Internet's performance and reliability will be
degraded. Internet users may experience service interruptions as a result of
outages and other delays occurring throughout the Internet. Frequent outages or
delays may cause consumers and businesses to slow or stop their use of the
Internet as a transaction-based medium.
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<PAGE>
We may not be able to keep up with rapid technological and industry changes
The Internet and online commerce markets are characterized by rapid
technological change, frequent introductions of new or enhanced hardware and
software products, evolving industry standards and changes in customer
preferences and requirements. We may not be able to keep up with any of these
or other rapid technological changes, and if we do not, our business will be
harmed. These changes and the emergence of new industry standards and practices
could render our existing web site and operational infrastructure obsolete. The
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require us to incur
substantial expenditures to modify or adapt our operating practices or
infrastructure. To be successful, we must enhance our web site responsiveness,
functionality and features, acquire and license leading technologies, enhance
our existing service and product offerings, and respond to technological
advances and emerging industry standards and practices in a timely and cost
effective manner.
Our network and software are vulnerable to security breaches and similar
threats which could result in our liability for damages and harm our reputation
Our network infrastructure is vulnerable to computer viruses, break-ins,
network attacks and similar disruptive problems. This could result in our
liability for damages, and our reputation could suffer, thus deterring
potential customers from transacting with us. Security problems caused by third
parties could lead to interruptions and delays or to the cessation of service
to our customers. Furthermore, inappropriate use of the network by third
parties could also jeopardize the security of confidential information stored
in our computer systems.
In July 1999, our former web site in Canada, MegaDepot.com, was subject to a
security breach in which an outside party was able to gain access to the
private account information, including credit card numbers, of some of our
customers. This security breach occurred when we inadvertently provided a few
of our customers with the URL link to our internal database, and also
inadvertently left the password protection for our internal database turned
off. Information about this security breach was forwarded to a newspaper
reporter in Toronto, Canada, prior to our becoming aware of the breach. This
resulted in negative publicity concerning our former web site for several days
in several Canadian newspapers. Even though we have taken steps to prevent the
recurrence of this specific security breach, a security breach could occur
again in the future.
We intend to continue to implement industry-standard security measures, but
we cannot assure you that the measures we implement will not be circumvented.
The costs and resources required to alleviate security problems may result in
interruptions, delays or cessation of service to our customers, which could
harm our business.
Future regulations could be enacted that either directly restrict our business
or indirectly impact our business by limiting the growth of e-commerce
As e-commerce evolves, federal, state and foreign agencies could adopt
regulations covering issues such as privacy, content and taxation of services
and products. If enacted, government regulations could limit the market for our
services and products. Although many regulations might not apply to our
business directly, we expect that laws regulating the collection or processing
of personal or consumer information could indirectly affect our business. It is
possible that legislation could expose companies involved in e-commerce to
liability, which could limit the growth of e-commerce generally. Legislation
could hinder the growth in Internet use and decrease its acceptance as a medium
for communication and commerce.
13
<PAGE>
Risks Related to Our Offering
You may not be able to resell your stock at or above the initial public
offering price
Before this offering, there has not been a public trading market for our
common stock, and an active trading market for our common stock may not develop
or be sustained after this offering. For this reason and for various other
reasons listed throughout these risk factors, the market price of our common
stock may decline below the initial public offering price. The initial public
offering price will be determined by negotiations between the representatives
of the underwriters and us. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
Our stock price may be volatile
The stock market and specifically the stock prices of Internet-related
companies have been very volatile. This broad market and industry volatility
may reduce the price of our common stock, without regard to our operating
performance. Due to this volatility, the market price of our common stock could
significantly decrease.
Our principal stockholders, officers and directors will own a controlling
interest in our voting stock
Upon completion of this offering, our officers, directors and stockholders
with greater than 5% holdings will, in the aggregate, beneficially own
approximately % of our outstanding common stock. As a result, these
stockholders, acting together, will have the ability to control substantially
all matters submitted to our stockholders for approval, including:
. election of our board of directors;
. removal of any of our directors;
. amendment of our certificate of incorporation or bylaws; and
. adoption of measures that could delay or prevent a change in control or
impede a merger, takeover or other business combination involving us.
These stockholders will thus have substantial influence over our management
and our affairs. Accordingly, this concentration of ownership may have the
effect of impeding a merger, consolidation, takeover or other business
consolidation involving us, or discouraging a potential acquiror from making a
tender offer for our shares, thereby causing our stock price to decline.
Substantial future sales of shares may impact the market price of our common
stock
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. Such sales might also make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. See "Shares Eligible for Future Sale."
We have broad discretion in using the proceeds from this offering, which may
increase the risk that the proceeds will not be applied effectively
The net proceeds of this offering are not allocated for specific purposes.
We will have broad discretion in determining how to spend the proceeds of this
offering and may spend proceeds in a manner that our stockholders may not deem
desirable. We cannot assure you that our investments will yield favorable
returns or results. See "Use of Proceeds."
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<PAGE>
You will experience immediate and substantial dilution
The initial public offering price of our common stock is substantially
higher than the book value per share of the outstanding common stock
immediately after this offering. At the estimated initial public offering price
of $ per share, dilution to new investors will be $ per share.
Accordingly, if you purchase shares of our common stock in this offering, you
will suffer immediate and substantial dilution.
We have implemented anti-takeover provisions that may discourage takeover
attempts and depress the market price of our stock
Provisions of our amended and restated certificate of incorporation and by-
laws, provisions of Delaware law as well as a stockholders' rights plan we
intend to adopt before the closing of this offering, will make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. See "Description of Capital Stock" for a discussion of
such anti-takeover provisions.
We do not intend to pay dividends, you will not receive funds without selling
shares and you may lose the entire amount of your investment
We have never declared or paid any cash dividends on our capital stock and
do not intend to pay dividends in the foreseeable future. We intend to invest
our future earnings, if any, to fund our growth. Therefore, you will not
receive any funds without selling your shares. We further cannot assure you
that you will receive a return on your investment when you sell your shares or
that you will not lose the entire amount of your investment.
15
<PAGE>
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and in other sections of this prospectus are forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
factors are described in "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other sections of this
prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," or the negative of these
terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable as of the date of this prospectus, we cannot
guarantee future results, levels of activity, performance or achievements.
16
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common
stock we are offering will be $ million, assuming an initial public
offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $ million.
The principal purposes of this offering are to increase our working capital,
fund our operating expenses, create a public market for our common stock,
facilitate our future access to the public capital markets and fund potential
acquisitions. We have no current agreements relating to any acquisitions or
investments.
We will retain broad discretion in allocating the net proceeds of this
offering. Pending the use of the net proceeds, we will invest them in short-
term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. We currently
intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any
dividends in the foreseeable future. Our existing borrowing agreements prohibit
the payment of dividends.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of all
outstanding shares of preferred stock into common stock and the exercise
of warrants to purchase 384,624 shares of common stock which will expire
if not exercised prior to this offering; and
. on a pro forma as adjusted basis after giving effect to our receipt of
the net proceeds from the sale of shares of common stock in
this offering at an assumed initial public offering price of $ per
share.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1999
----------------------------
Pro
Pro Forma As
Actual Forma Adjusted
-------- -------- --------
(in thousands, except
share data)
<S> <C> <C> <C>
Long-term debt................................... $ 5,465 $ 5,465 $ 5,465
Stockholders' equity:
Convertible preferred stock, par value $
per share; shares authorized:
20,000,000 actual and 15,000,000 pro forma and
pro forma as adjusted; shares outstanding:
17,381,833 actual and none pro forma and
pro forma as adjusted........................... 37,695 --
Common stock, par value $ per share; shares
authorized: 62,000,000 actual and 150,000,000
pro forma and pro forma as adjusted; shares
outstanding: 12,024,232 actual, 29,790,689 pro
forma and pro forma as adjusted... 5,391 43,087
Unearned stock compensation...................... (3,203) (3,203) (3,203)
Accumulated deficit.............................. (17,005) (17,005) (17,005)
-------- -------- --------
Total stockholders' equity...................... 22,878 22,879
-------- -------- --------
Total capitalization........................... $ 28,343 $ 28,344 $
======== ======== ========
</TABLE>
This table excludes the following shares:
. 631,319 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.85 per share;
. 4,478,016 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $0.30 per share;
. 4,008,872 shares of common stock available for future grant under our
1999 stock option plan;
. 300,000 shares of common stock available for issuance under our 2000
directors' stock option plan;
. 300,000 shares of common stock available for issuance under our 2000
employee stock purchase plan; and
. 1,689,701 shares of Series C preferred stock issued in December 1999.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was $22.9
million, or approximately $0.78 per share. Pro forma net tangible book value
per share represents the amount of our total tangible assets less total
liabilities divided by the number of shares of common stock outstanding.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common
stock immediately after the completion of this offering, assuming the
conversion of all outstanding shares of preferred stock into common stock and
the exercise of warrants to purchase 384,624 shares of common stock which will
expire if not exercised prior to this offering. After giving effect to the sale
of the shares of common stock in this offering at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses, our net
tangible book value at September 30, 1999 would have been $ million, or
approximately $ per share. This represents an immediate increase in
net tangible book value of $ per share to existing stockholders and
immediate dilution of $ per share to new investors purchasing shares in
this offering. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share as of September 30,
1999.......................................................... $0.78
Increase per share attributable to new investors...............
-----
Net tangible book value per share after this offering............
---
Dilution per share to new investors.............................. $
===
</TABLE>
The following table sets forth, as of September 30, 1999, the differences
between the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by existing
stockholders and by new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ---------------------- Price
Number Percentage Amount Percentage Per Share
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders .. 29,406,065 % $36,593,423 % $1.24
New investors...........
---------- ----- ----------- ----- -----
Total................. 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The above table excludes the following shares:
. 631,319 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.85 per share;
. 384,624 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $0.005 per share that expire if not
exercised prior to the closing of this offering;
. 4,478,016 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $0.30 per share;
. 4,008,872 shares of common stock available for future grant under our
1999 stock option plan;
. 300,000 shares of common stock available for issuance under our 2000
directors' stock option plan;
. 300,000 shares of common stock available for issuance under our 2000
employee stock purchase plan;
. 1,689,701 shares of Series C preferred stock issued in December 1999.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our historical financial data. You should read the
following selected consolidated financial data in conjunction with our
consolidated financial statements and the related notes and with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in this prospectus. The selected data in this section is not intended
to replace the financial statements.
The consolidated statements of operations data set forth below for the
period from March 25, 1997 (inception) to December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1999 and consolidated
balance sheet data as of December 31, 1998 and September 30, 1999 have been
derived from our audited financial statements included elsewhere in this
prospectus, which have been audited by Deloitte & Touche LLP. The consolidated
balance sheet data as of December 31, 1997 have been derived from our audited
financial statements not included in this prospectus. The consolidated
statements of operations data for the nine months ended September 30, 1998 are
derived from our unaudited consolidated financial statements which, in the
opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and reflect all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of our
results of operations and financial position. The historical results do not
necessarily indicate the results you should expect in any future period.
<TABLE>
<CAPTION>
March 25,
1997
(inception) Nine Months Ended
to Year Ended September 30,
December 31, December 31, ------------------------
1997 1998 1998 1999
------------ ------------ --------- -------------
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenue.................... $ 62,174 $1,037,271 $ 653,232 $ 13,168,472
Cost of goods sold......... 46,894 1,082,448 608,691 15,708,812
--------- ---------- --------- ------------
Gross margin............... 15,280 (45,177) 44,541 (2,540,340)
Operating expenses:
Sales and marketing....... 41,321 206,436 74,646 6,320,734
Technology and
development.............. 12,707 191,968 97,123 2,576,634
General and
administrative........... 91,624 224,941 151,612 2,725,017
Amortization of unearned
stock-based
compensation............. -- -- -- 1,714,252
--------- ---------- --------- ------------
Total operating
expenses............... 145,652 623,345 323,381 13,336,637
--------- ---------- --------- ------------
Loss from operations....... (130,372) (668,522) (278,840) (15,876,977)
Interest expense, net...... -- (3,608) (2,039) (325,372)
--------- ---------- --------- ------------
Net loss................... $(130,372) $ (672,130) $(280,879) $(16,202,349)
========= ========== ========= ============
Basic and diluted net loss
per common share.......... $ (0.03) $ (0.17) $ (0.07) $ (2.84)
========= ========== ========= ============
Basic and diluted weighted
average shares
outstanding............... 4,000,400 4,000,400 4,000,400 5,695,076
========= ========== ========= ============
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents.. $ 5,607 $ 44,659 $ 26,036,867
Working (deficit) capital.. (120,302) (813,357) 22,544,115
Total assets............... 11,910 180,072 38,198,858
Long-term debt............. -- -- 5,464,670
Total stockholders'
(deficit) equity.......... (120,302) (792,432) 22,877,721
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
consolidated financial statements, including the notes, appearing elsewhere in
this prospectus. Some information contained in the discussion and analysis set
forth below and elsewhere in this prospectus, including information with
respect to our plans and strategy for our business and related financing,
includes forward-looking statements that involve risk and uncertainties. See
"Risk Factors" for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the
forward-looking statements contained in this prospectus.
Overview
We are the leading business-to-business emarketplace for small business
buyers and sellers. Since inception, we have devoted our resources to expanding
our technology infrastructure, incorporating new services and products into our
emarketplace, attracting suppliers and acquiring new customers. In particular,
during this period we developed the infrastructure that allows us to integrate
our systems with those of our suppliers. This enables us to monitor inventory
levels and prices from multiple suppliers, thereby facilitating an efficient
order process. Our operations are currently focused in the United States and
Canada. Our Canadian operations consist primarily of sales and marketing
personnel. See note 10 of the notes to our consolidated financial statements
for segment information relating to our U.S. and Canadian operations.
Our Sources of Revenue
We generate revenue from product sales and fees from sales of services.
Through September 30, 1999, we have derived substantially all of our revenue
from product sales. Product revenue includes sales of computer hardware and
software and other office machines and products. Product revenue is reported as
the aggregate value of the products we sell and is recognized upon receipt by
the customer. Orders are initiated directly from our customers through our web
site. We take title to products from shipment until receipt by the customer and
assume economic risk related to collections, customer service and returns.
Product orders are received on our web site, forwarded to a specific supplier
based on product availability and price and then shipped directly to our
customers with Onvia.com packaging. We do not typically maintain physical
inventory but may do so for scarce resources or when otherwise appropriate. We
have fulfillment relationships with several large suppliers, such as Ingram
Micro, Merisel, TechData and United Stationers.
One of our important strategies is to encourage our customers to begin to
participate more actively in our service offerings, such as long distance and
cellular phone services, credit card processing and payroll services, and
custom services that can be obtained through our request for quote program.
Because of the insignificant costs of goods sold associated with these
services, which are primarily commission-based, they carry significantly higher
margins. As a result, if we are successful in our strategy, we anticipate that
gross margin from service revenue will account for a greater portion of total
gross margin in the future.
Our Costs and Expenses
Cost of goods sold primarily consists of the cost of products sold to
customers, shipping charges and credit card fees. We acquire customers and
drive traffic to our web site in part by offering our customers competitive
prices, in some cases below cost and often with shipping discounts. We intend
to use competitive pricing to attract customers. As a result of our aggressive
customer acquisition strategies, we had a negative gross margin for the nine-
month period ended September 30, 1999. However, one of our primary strategies
is to increase sales of higher-margin services. To the extent we are successful
in this strategy, we expect our gross margins to increase.
A substantial proportion of our total operating expenses in the nine months
ended September 30, 1999 was related to marketing and advertising programs
designed to build our brand and drive customer acquisition. We
21
<PAGE>
believe that our future growth will depend on our ability to increase brand
awareness and establish a large and sustainable customer base. As a result, we
expect that sales and marketing expenses will increase significantly and
continue to account for a significant portion of our total operating expenses.
In addition, we believe that we must continue to expand our service and product
offerings if we are to become the primary purchasing hub for small businesses.
We also plan to invest significantly in technology and development. As a
result, we anticipate increasing losses for at least the next twelve months. We
have incurred net losses and negative operating cash flow in each quarterly
period since our inception, and, as of September 30, 1999, our accumulated
deficit was $17.0 million.
Amortization of Unearned Stock-based Compensation
We record unearned stock-based compensation in connection with the grant of
stock options and other equity instruments. This charge represents the
difference between the deemed value of our common stock for accounting purposes
and the exercise price of the options or sale price of other equity
instruments. This amount is presented as a reduction of stockholders' equity
and is amortized on an accelerated basis over the vesting period of the option,
typically four years. In addition, we have issued securities to some non-
employees which vest over various service periods. The charge related to these
securities is variable and is recorded as the securities vest. At September 30,
1999, unearned stock-based compensation was $3.2 million, and we amortized $1.7
million of stock-based compensation expense in the nine months ended September
30, 1999.
Results of Operations
In view of the rapidly changing nature of our business and our limited
operating history, we believe that a historical comparison of revenue and
operating results is not necessarily meaningful and should not be relied upon
as an indication of future performance. This is particularly true of companies
such as ours that operate in new and rapidly evolving markets. As a result, our
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in their early state of development, particularly
companies in new and rapidly evolving markets, such as ours. See "Risk Factors"
for a more complete description of the many risks we face.
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Quarterly Results of Operations
The following table sets forth our consolidated statement of operations data
for the three quarters ended September 30, 1999. This information has been
derived from our unaudited financial statements which, in the opinion of
management, include all necessary adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such information in
accordance with generally accepted accounting principles. The results of
operations for any quarter should not be deemed necessarily indicative of the
results of operations for any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------
June
March 31, 30, Sept.
1999 1999 30, 1999
--------- ------- --------
(in thousands)
<S> <C> <C> <C>
Revenue....................................... $ 1,476 $ 3,565 $ 8,128
Cost of goods sold............................ 1,826 4,226 9,657
------- ------- --------
Gross margin.................................. (350) (661) (1,529)
Operating expenses:
Sales and marketing......................... 163 1,150 5,008
Technology and development.................. 75 361 2,141
General and administrative.................. 506 970 1,249
Amortization of unearned stock-based
compensation............................... 431 759 524
------- ------- --------
Total operating expenses...................... 1,175 3,240 8,922
------- ------- --------
Loss from operations.......................... (1,525) (3,901) (10,451)
Interest income (expense), net................ (75) 124 (374)
------- ------- --------
Net loss...................................... $(1,600) $(3,777) $(10,825)
======= ======= ========
</TABLE>
Revenue
Revenue increased sequentially on a quarterly basis from $1.5 million for
the quarter ended March 31, 1999 to $8.1 million for the quarter ended
September 30, 1999. Growth in revenue was primarily attributable to increased
sales of products to new and existing customers.
Cost of Goods Sold
Cost of goods sold increased in each quarter from $1.8 million for the
quarter ended March 31, 1999 to $9.7 million for the quarter ended September
30, 1999. The increases in cost of goods sold were attributable almost entirely
to the corresponding increases in revenue during the respective periods. In
addition, we have sold many products, inclusive of shipping, at prices at or
below cost to attract customers. As a result, we continued to experience
negative gross margins during this period. However, gross margin improved from
negative 24% for the quarter ended March 31, 1999 to negative 19% for the
quarter ended September 30, 1999. We expect to continue to experience negative
gross margins for the foreseeable future.
Sales and Marketing
Sales and marketing expenses consist primarily of advertising, including
payments related to our co-branding relationships, and salaries and related
costs of personnel. Sales and marketing expenses increased in each quarter from
$163,000 for the quarter ended March 31, 1999 to $5.0 million for the quarter
ended September 30, 1999. The increases in sales and marketing expenses were
due primarily to higher advertising expenses and increases in advertising and
marketing personnel. In particular, we launched a major advertising campaign
and initiated numerous co-branding relationships during the second and third
quarters of 1999. We anticipate that sales and marketing expenses will increase
significantly in absolute dollars for the foreseeable future, particularly in
the near term, as we implement new advertising, branding and marketing
campaigns.
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Technology and Development
Technology and development expenses consist primarily of fees paid to third
parties for consulting services, salaries and related costs of engineering and
operations personnel and amortization of costs for purchased software.
Technology and development expenses increased in each quarter from $75,000 for
the quarter ended March 31, 1999 to $2.1 million for the quarter ended
September 30, 1999. The increases in technology and development expenses were
due primarily to a large consulting project we initiated to enhance our
information systems and related architecture. We expect technology and
development expenses to increase in absolute dollars for the foreseeable future
as we hire additional personnel and incur consulting costs to enhance and
upgrade our technology infrastructure.
General and Administrative
General and administrative expenses consist primarily of salaries,
recruiting and related costs for general corporate functions including
executive, accounting and administrative personnel, lease expenses,
professional fees including legal expenses, facilities costs and other
miscellaneous general corporate expenses. General and administrative expenses
increased in each quarter from $506,000 for the quarter ended March 31, 1999 to
$1.2 million for the quarter ended September 30, 1999. Increases in general and
administrative expenses were primarily attributable to the increase in
administrative personnel and higher office occupancy costs associated with our
new lease. We expect to incur higher general and administrative expenses as we
hire additional personnel and incur additional costs to support our growth and
our obligations as a public company.
Amortization of Unearned Stock-based Compensation
Amortization of unearned stock-based compensation was $431,000 in the
quarter ended March 31, 1999, $759,000 in the quarter ended June 30, 1999 and
$524,000 in the quarter ended September 30, 1999. Unearned stock-based
compensation resulted from the issuance of options and non-vested common stock
to employees and non-employees. Additionally, based on the options granted
through September 30, 1999, we expect to record additional unearned stock-based
compensation after September 30, 1999.
Interest Income (Expense), Net
Interest income (expense), net typically consists of interest income earned
on average cash balances, offset by interest expense on outstanding convertible
notes and subordinated debt. Interest expense increased significantly in the
quarter ended September 30, 1999 due primarily to higher interest expense on
equipment loans and subordinated debt.
Nine Months Ended September 30, 1998 and 1999
Revenue
Revenue increased from $653,000 for the nine months ended September 30, 1998
to $13.2 million for the nine months ended September 30, 1999. Growth in
revenue was primarily attributable to increased product sales to new and
existing customers.
Cost of Goods Sold
Cost of goods sold increased from $609,000 for the nine months ended
September 30, 1998 to $15.7 million for the nine months ended September 30,
1999. The increase in cost of goods sold was attributable almost entirely to
the corresponding increase in revenue during the respective periods.
Sales and Marketing
Sales and marketing expenses increased from $75,000 for the nine months
ended September 30, 1998 to $6.3 million for the nine months ended September
30, 1999, due primarily to higher advertising expenses associated with the
launch of a major advertising campaign, the initiation of numerous co-branding
relationships and increases in advertising and marketing personnel.
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Technology and Development
Technology and development expenses increased from $97,000 for the nine
months ended September 30, 1998 to $2.6 million for the nine months ended
September 30, 1999. This increase was primarily due to a large consulting
project we initiated in the third quarter of 1999 to enhance our information
systems and related architecture and to increases in technology and development
personnel.
General and Administrative
General and administrative expenses increased from $152,000 for the nine
months ended September 30, 1998 to $2.7 million for the nine months ended
September 30, 1999. This increase in general and administrative expenses was
primarily attributable to the increase in administrative personnel and higher
office occupancy expenses related to the relocation to our new corporate
offices.
Amortization of Unearned Stock-based Compensation
We had no amortization of unearned stock-based compensation for the nine
months ended September 30, 1998, and amortization of unearned stock-based
compensation was $1.7 million for the nine months ended September 30, 1999.
This increase was due to the issuance of options and non-vested common stock to
employees and non-employees.
Interest Income (Expense), Net
Interest income (expense), net increased from ($2,000) for the nine months
ended September 30, 1998 to ($325,000) for the nine months ended September 30,
1999. This net increase was primarily attributable to higher outstanding
amounts on convertible notes, subordinated debt and equipment loans.
Provision for Income Taxes
We incurred net operating losses from inception through September 30, 1999,
and therefore have not recorded a provision for income taxes. We have recorded
a valuation allowance for the full amount of our net deferred tax assets, as
the future realization of the tax benefit is not currently likely. As of
September 30, 1999, we had net operating loss carryforwards of $16.8 million.
These loss carryforwards are available to reduce future taxable income and
expire at various dates beginning in 2017 through 2019. Under the provisions of
the Internal Revenue Code, certain substantial changes in our ownership may
limit the amount of net operating loss carryforwards that could be utilized
annually in the future to offset taxable income.
Inception to December 31, 1997 and Year Ended December 31, 1998
Revenue
Revenue increased from $62,000 in 1997 to $1.0 million in 1998. Growth in
revenue was attributable to increased sales of products to new and existing
customers.
Cost of Goods Sold
Cost of goods sold increased from $47,000 in 1997 to $1.1 million in 1998.
The increase in cost of goods sold was attributable to an increase in product
sales during the respective periods.
Sales and Marketing
Sales and marketing expenses increased from $41,000 in 1997 to $206,000 in
1998. This increase was primarily due to the hiring of additional sales and
marketing personnel.
Technology and Development
Technology and development expenses increased from $13,000 in 1997 to
$192,000 in 1998. This increase was primarily attributable to the hiring of
technology and development personnel.
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General and Administrative
General and administrative expenses increased from $92,000 in 1997 to
$225,000 in 1998. This increase in general and administrative expenses was
primarily attributable to the increase in administrative personnel and general
corporate expenses.
Interest Income (Expense), Net
We had no interest income (expense), net in 1997 and interest expense of
$4,000 in 1998. The increase was due to the issuance of convertible notes in
1998.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the
issuance of equity and debt securities and, during 1998, through advances from
SunCommerce Corporation, a web hosting company co-owned by Glenn Ballman, our
founder, President and Chief Executive Officer. Through September 30, 1999,
equity issuances have yielded gross proceeds of $36.5 million. In December
1999, we issued 1,689,701 shares of Series C preferred stock, resulting in
gross proceeds to us of $23.2 million. Additionally, we have issued
subordinated notes and have entered into capital equipment term loans to
finance our operations. As of September 30, 1999, we had $26.0 million of cash
and cash equivalents on hand and $9.2 million outstanding under existing
subordinated debt and equipment loans. See note 4 of the notes to our
consolidated financial statements for more information on outstanding long-term
debt.
Net cash used in operating activities totaled $10.7 million for the nine
months ended September 30, 1999 and approximately $276,000 in 1998. Net cash
provided by operating activities totaled approximately $6,000 in 1997. Net cash
used in operating activities for the nine months ended September 30, 1999 was
primarily attributable to net operating losses, increases in prepaid expenses
and other assets, partially offset by non-cash charges and increases in
accounts payable and accrued expenses. Net cash used in operating activities in
1998 was primarily attributable to net operating losses partially offset by
increases in accounts payable and accrued expenses. Net cash provided by
operating activities in 1997 was primarily attributable to net operating losses
offset by increases in accrued expenses.
Net cash used in investing activities totaled $4.1 million for the nine
months ended September 30, 1999 and approximately $23,000 for the year ended
December 31, 1998. We did not use or generate any funds from investing
activities in 1997. Net cash used in investment activities for the nine months
ended September 30, 1999 and in 1998 related primarily to the acquisition of
computer hardware and software and other equipment.
Net cash provided by financing activities totaled $40.9 million for the nine
months ended September 30, 1999 and approximately $344,000 in 1998. Net cash
provided by financing activities for the nine months ended September 30, 1999
was primarily attributable to the sale of equity securities and proceeds from
long-term borrowings. Net cash provided by financing activities in 1998 was
attributable to proceeds from the issuance of convertible debt. We generated
insignificant cash in 1997 from the sale of common stock.
We believe that the net proceeds from this offering and the issuance of
Series C preferred stock, together with existing cash and cash equivalents,
will be sufficient to satisfy our cash requirements for at least the next 12
months. Depending on our growth rate and cash requirements, we may require
additional equity or debt financing to meet future working capital needs, which
may have a dilutive effect on our then current stockholders. We cannot assure
you that additional financing will be available or, if available, that such
financing can be obtained on satisfactory terms.
Quantitative and Qualitative Disclosures About Market Risk
Due to the operations of our wholly-owned subsidiary in Canada, our results
of operations, financial position and cash flows can be materially affected by
changes in the relative values of the Canadian dollar to the U.S. dollar.
However, due to the relative stability of these two currencies in relation to
one another, our past
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results of operations have not been materially affected by fluctuations in
exchange rates. We do not use derivative financial instruments to limit our
foreign currency risk exposure.
Our investments are classified as cash and cash equivalents with original
maturities of three months or less. As of September 30, 1999, we consider the
reported amounts of these investments to be reasonable approximations of their
fair values. Therefore, changes in the market interest rates will not have a
material impact on our financial position. Through September 30, 1999, our
interest expense was not sensitive to the general level of U.S. interest rates
because all of our debt arrangements were based on fixed interest rates.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and hedging activities. SFAS
No. 133, which will be effective for us for the fiscal years and quarters
beginning after June 15, 2000, requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We do not expect the
potential effect of adopting the provisions of SFAS No. 133 to have a
significant impact on our financial position, results of operations and cash
flows.
Impact of Year 2000
Many computers, software and other equipment are coded to accept or
recognize only two-digit entries in the date code field and thus can not
distinguish 21st century dates from 20th century dates. Due to this design
decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. As a
result, many companies' software and computer systems may need to be upgraded
or replaced to comply with Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities. We are
exposed to the risk that the systems on which we depend, plus those of our
suppliers, customers and the Internet as a whole, are not Year 2000 compliant.
State of Readiness
The Year 2000 problem may affect the network infrastructure, computers,
software and other equipment that we use, operate or maintain for our
operations. The key milestones to our Year 2000 program have been internal and
external assessment and testing. We have substantially completed both our
internal and external Year 2000 compliance assessment. We believe that we have
identified and reviewed substantially all of the internally and externally
developed software that supports the development and delivery of our services
and products or is necessary to maintain our normal operating functions. We
have substantially completed our assessment of this software and have made the
changes we consider necessary. We are also assessing the potential effect and
costs of remediating the Year 2000 problem on our office equipment and
facilities but are not aware of any significant operational Year 2000 issues or
costs associated with our non-information technology systems. However, we may
experience significant unanticipated problems and costs caused by undetected
errors or defects in the technology used in these systems.
Costs to Address Year 2000 Issues
We estimate the total cost of completing any required assessments,
modifications, upgrades or testing of our internal systems will not exceed
$100,000, all of which will be incurred during 1999. Most of these expenses are
related to the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters. If future expenses related
to Year 2000 compliance are higher than anticipated, this could harm our
business.
Most Reasonably Likely Worst Case Scenarios
A business disruption caused by the Year 2000 problem could interrupt our
operations and damage our relationships with our customers. An internal
disruption unique to us could give our competitors a comparative
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advantage. Failure of our internal systems to be Year 2000 ready could delay
order processing as well as hinder the functionality of our web site and could
require us to devote significant resources to correcting such problems.
Further, our customers' purchasing plans could be affected by Year 2000
preparation and remediation of the need to expend significant resources to fix
their existing systems.
Based on the activities described above, we do not believe that the Year
2000 problem will significantly harm our business, without taking into account
our efforts to avoid or fix such problems. In addition, we have not deferred
any material information technology projects, nor equipment purchases, as a
result of our Year 2000 problem activities.
Contingency Plans
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have substantially completed this assessment. We have not developed a Year 2000
specific contingency plan. If Year 2000 compliance issues are discovered, we
then will evaluate the need for contingency plans relating to such issues. If
the need arises, the cost of implementing any of these contingency plans could
harm our business.
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BUSINESS
Overview
We are the leading business-to-business emarketplace for small business
buyers and sellers. By aggregating a large and targeted audience of small
businesses, we provide a new and powerful sales channel for small and large
vendors that serve the highly fragmented small business community. Our
emarketplace also helps small businesses succeed by providing a single online
destination where they can buy services and products, access and exchange
valuable information and obtain productivity tools. These mutual benefits
reinforce a network effect that increases the value of our emarketplace with
the addition of each participant. Our emarketplace has experienced significant
growth since it was introduced, and, as of December 21, 1999, we had attracted
over nine service suppliers and 1,000 product vendors. In addition, our small
business services trading hub, which allows customers to submit requests for
quotes from a network of service suppliers, had over 6,500 service suppliers at
December 21, 1999.
Industry Background
The Growth of Business-to-Business E-commerce
The Internet is fundamentally changing the way businesses interact with
other businesses. According to International Data Corporation, or IDC, by 2003
Internet users are expected to reach 510 million users, up from 159 million
users at the end of 1998. To capitalize on this potential opportunity,
companies of all sizes have adopted Internet strategies to drive revenue,
increase efficiencies and reduce costs. Forrester Research estimates that the
U.S.-based business-to-business e-commerce market, which encompasses the
conduct of electronic transactions over Internet protocols between businesses
and their partners and suppliers, is expected to account for more than 90% of
the dollar value of e-commerce in the United States by 2003, growing to
$1.3 trillion from $109 billion in 1999.
The growth in business-to-business e-commerce is being fueled in large part
by the recurring nature of business needs and transactions, which offers
businesses the opportunity to create loyal and valuable long-term relationships
with other businesses. Business-to-business e-commerce solutions provide buyers
and suppliers with opportunities to increase revenue by reaching a broader
customer base and realize operating efficiencies by reducing the costs of
accessing information and streamlining complex purchasing and distribution
processes. These benefits have spurred the creation of electronic marketplaces,
or emarketplaces, that aggregate buyers and sellers in a centralized trading
hub. Emarketplaces are most well-suited for large, highly fragmented markets
where buyers and sellers have limited access to information and high
procurement costs.
The Growth of Small Business E-commerce
The small-business market, which we define as businesses with fewer than 100
employees and income-generating home offices, is large and rapidly growing. IDC
estimates that by 2002, the North American small business market will grow to
38.5 million businesses from 29.6 million today. Small businesses are
increasingly relying on the Internet to access information, communicate and
transact commerce. According to Access Media International, by the end of 2002,
75% of small businesses will use the Internet, as compared to 52% at the end of
1999. In addition, IDC estimates that small businesses will account for about
$106.8 billion in e-commerce in 2002, increasing from $6.2 billion at the end
of 1998.
The Need for Small Business Emarketplaces
Several factors are driving the growth in business-to-business e-commerce in
the small business market. Currently, small businesses have difficulty in cost-
effectively reaching a large percentage of their potential customers through
traditional marketing channels, since most small businesses are located outside
of major metropolitan areas and possess limited resources. As a result, small
businesses are using the Internet to expand significantly their market reach,
procure services and products and become more competitive. Additionally, small
businesses often have limited time, resources and access to expertise. The
Internet addresses these constraints by allowing small businesses to access and
exchange information quickly and inexpensively among trading partners.
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Despite the significant growth of small business Internet use, existing
Internet-based and software-based offerings targeting this market have not
provided a comprehensive solution that addresses the e-commerce and
informational needs of small businesses. Web sites that aggregate small
business news and information, for example, often do an inadequate job of
enabling e-commerce. Similarly, companies with web sites that focus on e-
commerce often have limited or inconsistent content offerings. As a result,
small businesses are forced to use multiple, distinct web sites to conduct
commerce, interact with other businesses and suppliers and obtain targeted,
business-specific news and content.
The Onvia.com Solution
Our emarketplace is designed to help small businesses succeed by providing a
single online destination where small businesses can buy and sell services and
products, exchange valuable information and access productivity tools. Our
emarketplace provides numerous benefits to small business buyers and sellers.
Sellers are able to expand cost-effectively their reach and customer base,
without incurring the significant sales and marketing costs typically
associated with traditional efforts. Because our services and products are
dedicated exclusively to small businesses, our emarketplace provides sellers
targeted access to the small business market. Ultimately, as we continue to
collect information on buyer purchasing patterns, we expect to be able to offer
sellers the ability to personalize and target further their service and product
offerings.
Buyers benefit from access to a single source for service, product and price
comparisons, helping to drive greater efficiency in the procurement process.
Because we offer multiple vendors in most service and product categories, we
provide context and choice for small business purchasing decisions.
Complementing our broad service and product offerings, we provide small
businesses with information, news and business tools to enhance business
operations. Using our soon-to-be-introduced seller ratings system, buyers will
also be able to discover which sellers have garnered the highest ratings for
service and availability. Our news, expert advice and other content also
provides resource-constrained small businesses with timely and valuable
information and expertise.
Key elements of our solution include:
. Comprehensive array of pre-selected services and products and
interactive purchasing tools. Our emarketplace offers more than 25,000
products from more than 1,000 manufacturers. In addition, we offer nine
critical business services, including Internet access,
telecommunications plans, business credit cards and payroll processing.
We also offer over 50 services in our request for quote, or RFQ,
network. We have selected these services and products based on their
ability to meet the specific needs of small businesses. Our interactive
purchasing tools, which facilitate real-time service and product
comparisons, also help small businesses make more informed purchasing
decisions. By providing access to numerous suppliers as well as valuable
information, our emarketplace helps small businesses lower their
procurement costs and affords greater choice and convenience.
. Complete on-site transaction processing capabilities. Our emarketplace
provides all necessary transaction processing capabilities to allow
small businesses to purchase and sell services and products without ever
leaving our web site. This feature enables small businesses to
accomplish all of their purchasing needs from a single location and to
rely on a single source for service- and product-related order tracking
and customer support. We also offer multiple transaction processing
capabilities. For example, small businesses may purchase commodity
services and products based on published selling prices or request
quotes for more complex services and products from more than 6,500
companies that sell to small businesses. Because we allow customers to
establish personalized accounts, they do not need to enter shipping and
billing information each time they transact commerce through our
emarketplace. We have implemented these personalized accounts to help
maximize our customer retention efforts.
. Integrated product and service fulfillment. We source products from
multiple service providers, such as AT&T Wireless, Qwest, and Verio, and
suppliers, such as Ingram Micro, Merisel and Tech Data. Our order
processing systems are integrated with those of our service providers
and suppliers. This integration allows us to provide our customers with
information on service plans and pricing. In
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addition, we are able to verify product pricing and availability at each
of our suppliers' warehouses before forwarding an order for fulfillment,
which helps facilitate the timely delivery of products.
. Efficient small business seller channel. We have designed our
emarketplace to aggregate small businesses into a single Internet
destination. As a result, our emarketplace provides an efficient
distribution channel to help sellers to small businesses reach a very
targeted audience. In addition to selling existing services or products
through this channel, sellers can use our emarketplace to test market
new services and products targeted to small business. As we continue to
aggregate buyer information in our emarketplace, we expect to be able to
enable sellers to personalize their offerings using our chaperoned
access program.
. Proprietary value-added information and business tools and relationships
with leading content providers. In addition to our broad service and
product offerings, our emarketplace provides small businesses with
proprietary information, news and business tools that enhance the
utility of our emarketplace. Our staff of journalists, working in
Seattle and Washington, D.C., publishes daily stories and two
newsletters tailored to the interests of small businesses. We also offer
"how-to" advice and business tools designed to help small businesses
enhance their operations. In addition to the content that we develop
internally, we provide small businesses additional content from third
parties, such as Business 2.0, Business Week, Fast Company and Reuters
News Service.
. Comprehensive customer service and support. We maintain a trained
customer service staff, including vendor-certified professionals, that
provides multiple levels of customer service, ranging from site usage to
post-sales technical support. This provides our customers with a single
source for support, allowing them to avoid having to deal individually
with the many suppliers from which they purchase services and products.
In addition, by providing customer service in-house we maintain a direct
relationship with our customers. These services help us maintain high
levels of customer satisfaction, foster customer loyalty and tailor our
offerings to meet customer needs and preferences.
Strategy
We intend to continue to enhance our position as the leading business-to-
business emarketplace for small businesses. Key elements of our strategy
include to:
. Increase brand awareness and credibility. We believe that we are the
first provider of a comprehensive emarketplace providing content,
commerce and community for small businesses, and we intend to capitalize
on this position. We are committed to becoming the best known and most
trusted brand for small businesses on the Internet by investing
aggressively using traditional and innovative methods of advertising and
promotions. We also intend to continue to align ourselves with well-
known, respected brands and enter into only those relationships that are
consistent with the Onvia.com brand image. For example, we have
developed a co-branding relationship with DowJones.com where we are the
exclusive provider of small business services and products on the
DowJones.com web site.
. Aggressively pursue customer acquisition and retention strategies. We
seek to drive customer acquisition through a combination of marketing
initiatives, continued focus on customer service and the provision of
services, products and information that meet our customers' business
needs. For example, we intend to continue to establish strategic
relationships with major online portals and develop joint marketing
arrangements with additional small business associations. In addition,
we intend to increase our customer base through direct advertising
campaigns, co-branding initiatives with leading web sites that cater to
small businesses and viral-marketing programs. By continuously enhancing
and syndicating our service, product and information offerings, we seek
to expand our customer base and encourage repeat use of our
emarketplace.
. Become a single source for all small business needs. We intend to become
a single source for all small business needs by continuing to expand our
service, product and information offerings and the functionality of our
web site. We also intend to introduce additional methods of conducting
e-commerce transactions and develop additional tools that will allow
small businesses to reach new
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customers, become more competitive and improve operating efficiencies.
We believe these expanded offerings will attract more small businesses
to our emarketplace, creating additional value and marketing
opportunities for our sellers. This will help attract a growing number
and greater diversity of sellers which, in turn, will attract more
buyers, creating a network effect in which the value of our emarketplace
increases with the addition of each participant.
. Maintain our commitment to customer service. We maintain a strong
commitment to providing the highest level of customer service. We will
continue to invest significant resources in delivering high-quality
customer service to maintain our high levels of customer satisfaction
and to drive customer retention. For example, we plan to develop an in-
bound sales force for account management, continue to augment our multi-
tiered customer service processes and expand our training programs to
provide additional levels of support for our service and product
offerings.
. Enable more effective direct marketing to small businesses. By tracking
the demographic and purchasing data on our small business customers, we
intend to become an intelligent electronic-marketing channel to help
sellers cost-effectively reach small businesses. Our large and growing
customer base positions our emarketplace as a gateway for communicating
with the small business community. For example, we intend to facilitate
targeted marketing through which sellers can communicate special
promotions and sales to a select audience. We do not now, and do not
intend to, share attributed customer information with third parties
absent the explicit permission of our small business customers. We
intend all facilitated marketing to be permission-based.
. Pursue strategic alliances and acquisitions. We intend to pursue
aggressively strategic alliances and acquisitions designed to increase
our customer base, broaden our offerings and expand our technology
platform. We also intend to use alliances and acquisitions to facilitate
our entry into new domestic and international markets. By aggressively
pursuing strategic relationships and acquisitions, we believe we can
significantly enhance our core business and secure and extend our
position as the leading small business emarketplace.
The Onvia.com Emarketplace
Our emarketplace provides a single online destination where small
businesses can buy and sell services and products and exchange valuable
information and productivity tools.
The Onvia.com emarketplace includes:
. our small business services trading hub, which currently consists of
more than 6,500 businesses that act as suppliers across 50 services in
our RFQ network;
. our broad array of more than 25,000 products, ranging from office
supplies to computer systems, and nine critical business services
selected for the particular needs of small businesses that can be
purchased quickly and conveniently through our "Buy Now" system; and
. our content and business tools selections, which provide timely news,
information, editorial content and business tools designed to help small
businesses enhance their operations.
The Onvia.com Small Business Services Trading Hub
We have established relationships with more than 6,500 businesses that
function as suppliers within our small business services trading hub.
Currently our primary trading mechanism is our RFQ network, which we launched
in November 1999. Our emarketplace enables small business customers to specify
their needs across 50 services through an electronic questionnaire that is
formulated into a request for quote, or RFQ. The RFQ is then filtered and
routed to qualified suppliers of the desired service. Suppliers within our
network can evaluate the RFQ, respond to requests with specific pricing and
fulfillment information and establish relationships with qualified buyers.
We believe that our RFQ network provides numerous benefits to sellers,
including:
. enhanced revenue opportunities by providing access to new customers and
new markets;
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<PAGE>
. the ability to reach efficiently their target market without incurring
the marketing and sales costs traditionally associated with broader
advertising campaigns, particularly for providers of niche or
specialized services and products; and
. a greater understanding of the dynamics involved in purchasing
decisions.
We believe that our RFQ network also provides numerous benefits to buyers,
including:
. the ability to reach efficiently and cost-effectively multiple service
providers, particularly for time-sensitive requests and for services
that might not otherwise be available in the buyer's geographic area;
. the ability to compare competitive quotes and pricing; and
. the ability to make more informed buying decisions with immediate
information about the marketplace.
We believe that our RFQ services form the basis of a small business trading
community that we intend to expand significantly. We intend to grow this
trading community by providing additional transactional processing capabilities
and by using our knowledge of our customers to create sub-communities based
upon, for example, vertical industry specialization, regionalization and job
specifications.
We categorize our RFQ services into "business centers" for convenient
presentation to the buyer. We currently provide RFQ services in the following
business centers:
<TABLE>
<C> <S>
Business Center Features
- ------------------------------------------------------------------------------
Accounting Payroll, merchant processing, general accounting,
tax accounting and collection services
- ------------------------------------------------------------------------------
Finance Business loans, business plan services and
financial consulting
- ------------------------------------------------------------------------------
Hospitality Convention services and facilities and event
planning
- ------------------------------------------------------------------------------
Human Resources 401(k) plans, recruiting services, temporary
staffing, administrative staffing and human
resources and personnel consulting
- ------------------------------------------------------------------------------
Insurance Health insurance and property and casualty
insurance
- ------------------------------------------------------------------------------
Internet Services Internet access, web site hosting and web design
- ------------------------------------------------------------------------------
Legal Services Legal services relating to general business law,
tax law and incorporation
- ------------------------------------------------------------------------------
Marketing Market research, public relations, corporate
gifts, banner advertisement design and placement,
prospect lists, promotional products,
telemarketing services, e-mail marketing and
advertising and direct mail service
- ------------------------------------------------------------------------------
Office Services Security systems and storage
- ------------------------------------------------------------------------------
Printing Printing of marketing materials, business cards,
stationery and signs
- ------------------------------------------------------------------------------
Shipping and Logistics Freight forwarding and customs brokerage services
- ------------------------------------------------------------------------------
Support Software technical support, hardware technical
support, cable installation and PC hardware
installation
- ------------------------------------------------------------------------------
Telecommunications Telephone systems and conference calling services
- ------------------------------------------------------------------------------
Training Computer training and technical certification
</TABLE>
"Buy Now" Services and Products--Overview
Our emarketplace offers a broad range of nine services and 25,000 products
selected specifically to meet the needs of small businesses. Our emarketplace
enables the customer to effectively screen services and products and contains
interactive tools designed to help small businesses make more informed service
and product selections.
33
<PAGE>
Information. We provide detailed information about most of the services and
products we feature in our emarketplace. This information, together with full-
color photographs of most of our offered products, allows our customers to
compare features among different services and products and helps them make
informed buying decisions.
Search capabilities. Our web site features sophisticated but easy-to-use
search tools. This allows customers to find quickly and easily specific
products. The search function is directly accessible on most pages of our web
site.
Companion products. Our web site highlights optional companion products to
complement products selected by the customer.
Selection wizards. Our emarketplace features numerous selection wizards, or
guides, which allow customers to directly compare and contrast competing
services in a specific category without having to move back and forth between
multiple pages of our web site.
Making a purchase. By clicking the "Buy Now!" or "Add" buttons located next
to our service and product descriptions, customers can add a service or product
to their shopping cart. Customers can continue browsing and adding services and
products for as long as they wish before heading to a convenient checkout
process.
Security and privacy. We designed our systems to maintain the
confidentiality and security of our customers' personal and financial
information. We use powerful encryption technology to prevent information
piracy or theft. When customers establish accounts with us, they are assigned a
confidential password that only they can use to gain information about their
account. As an added protection, customers returning to our web site who use
the same billing information are not asked to provide credit card numbers a
second time. We do not now, and do not intend to, share attributed customer
information with third parties absent the explicit permission of our small
business customers. We intend all facilitated marketing to be permission-based.
"Buy Now" Services
Our emarketplace offers a wide variety of common business services typically
used by small businesses, including long distance telephone service, payroll
service and merchant credit card processing. Our goal is to aggregate the most
common business services and offer the most competitive rates among a variety
of alternatives. Our selection wizard technology is designed to ease the
service-selection process by helping small businesses choose the provider that
best suits their individual needs.
We group our services into "business centers" organized around specific
functional tasks. We currently provide the following business centers:
<TABLE>
<C> <S>
Business Center Features
- ------------------------------------------------------------------------------
Accounting Web-based payroll services
- ------------------------------------------------------------------------------
Finance Business credit cards
- ------------------------------------------------------------------------------
Internet Dial-up, DSL, T1 line and T3 line Internet access
and web-hosting services provided by Verio and
EarthLink
- ------------------------------------------------------------------------------
Support 1-800 phone support from DecisionOne, which
provides telephone-based tech support for a
variety of computer hardware, software and
network problems
- ------------------------------------------------------------------------------
Telecommunications Long distance telephone service, wireless phone
service, and paging service through service
providers such as Qwest, Cable & Wireless USA,
TTI National, AT&T Wireless and SkyTel Paging
</TABLE>
34
<PAGE>
"Buy Now" Products
We offer a wide range of competitively priced products selected to meet the
needs of small businesses. Our team of product managers works closely with
manufacturers and suppliers to select quality brands and products to feature on
our emarketplace. We have selected the products that appear on our emarketplace
based upon their utility to small businesses, and we supplement our selections
on an ongoing basis based upon customer feedback.
We organize our products into the following categories:
<TABLE>
<C> <S>
Product Category Description
- ------------------------------------------------------------------------------
Computer Hardware . We offer more than 8,000 computers and
related accessories from leading
manufacturers, such as IBM, Compaq, Hewlett
Packard and Toshiba
. Product offerings include: complete computer
systems, notebook computers, handheld
computers, printers, monitors, memory
upgrades, storage devices and a wide variety
of accessories such as cables, modems and
system components
- ------------------------------------------------------------------------------
Computer Software . We offer more than 3,500 software titles
conveniently categorized by function from
leading software developers, such as
Microsoft, IBM, Intuit and Lotus
. Product offerings include: general business,
operating systems, development tools and
databases
- ------------------------------------------------------------------------------
Network Products . We offer more than 2,500 network products
from leading vendors, such as 3Com, Cisco and
Nortel Networks
. Product offerings include: complete network
systems as well as individual components such
as adapters, hubs, switches and routers
- ------------------------------------------------------------------------------
Office Furniture . We offer more than 3,000 pieces of office
furniture from leading manufacturers, such as
Hon, Global and Superior Chaircraft
. Product offerings include: desks, chairs,
tables, printer stands, file cabinets, desk
lamps and bookcases, as well as a full line
of accessories, including chair mats, foot
rests and coat racks
- ------------------------------------------------------------------------------
Office Supplies . We offer more than 15,000 office supply
products from leading manufacturers, such as
Pentel, Epson, 3M and Universal Office
Products
. Product offerings include: paper products,
toner cartridges, writing instruments, file
folders, staplers and paper fasteners and a
broad array of office supplies, including
calendars, personal organizers, business
forms, break-room supplies and janitorial
supplies
- ------------------------------------------------------------------------------
Other Business Machines . We offer more than 2,000 business machines
from leading manufacturers, such as Fellowes,
Brother and Ibico
. Product offerings include: copiers, fax
machines, shredders, calculators and
typewriters
- ------------------------------------------------------------------------------
Phone Systems . We offer more than 500 phone systems and
components from leading manufacturers, such
as AT&T, Plantronics, Nortel and Polycom
. Product offerings include: phone systems,
individual phones, multi-line systems and
related equipment and accessories including
answering machines and accessories
</TABLE>
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<PAGE>
Information and Business Tools
We provide a broad offering of editorial content targeting small business
owners. Our journalistic staff publishes editorial content that is developed
from multiple sources, including items that are created in-house, contracted to
freelancers, picked up from wire services or provided by regular columnists and
contributors. We also offer Small Business Today and Washington Wire, which are
focused newsletters that deliver actionable small business news. Our reporters
also write daily features, case studies, trend stories, personality profiles,
brief capsules of news and other relevant information and industry-specific or
regional information. We supplement our own coverage with news and feature
stories from Business Week, Business 2.0, FastCompany and Reuters News Service.
We also offer a variety of how-to advice and business tools designed to help
small business owners grow their businesses. We have exclusive rights in the
small business field to Successful Entrepreneur's interactive road map and
toolkit, a step-by-step guide to starting, marketing, growing and selling a
small business. Our business tools are designed to enable small businesses to
benchmark themselves against other companies in their industry based on key
metrics, such as profitability, customer base and cost structure.
In addition, we offer information regarding local, state and federal rules
and regulations applicable to small businesses, as well as contacts and content
relating to various small business associations and groups of interest to small
business owners. We intend to add community and opinion components to our
editorial offering, including political and economic commentary, bulletin
boards and chat rooms.
Strategic Relationships
We pursue strategic relationships to increase our reach to small businesses,
increase traffic to our web site and improve the content and functionality of
our emarketplace. Our principal strategic relationships include the following:
Small business trade associations. We have established and seek additional
strategic relationships with several vertical and horizontal industry
associations representing small businesses. These relationships are a key
component of our brand-building and customer acquisition strategies. These
strategic relationships take numerous forms, but in general they:
.provide us with grassroots marketing access to large, targeted small
business audiences;
. give us a "seal of approval" through our relationships with them that
helps us market our services, products and information and business
tools to the associations' members in a trusted manner and establish
long-term customer loyalty;
. provide us with new resources by leveraging marketing dollars spent by
the association; and
. allow us to develop vertical market opportunities in specific market
niches.
Working closely with these associations, we develop marketing campaigns
targeted to each association's members, which may include the following
elements:
. direct mail, telemarketing, newsletters, conferences, e-mail, broadcast
fax, advertisements, editorial placement, speaking opportunities and
additional communications vehicles; and
. link placement on the associations' web sites, which link to a co-
branded purchasing center using our emarketplace technologies.
We have established relationships with a broad range of business and special
interest associations, including American Business Women's Association,
American Management Association International, California Small Business
Association, National Small Business United, Society of American Florists,
Small Business Legislative Council, Home Based Business Owners Association and
American Subcontractors Association. These associations have a combined
membership of approximately 420,000 small businesses.
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<PAGE>
We have established a strategic relationship with the Service Corps of
Retired Executives, or SCORE, which is funded by the U.S. Small Business
Administration and provided more than 350,000 individuals with business advice,
counseling, mentoring and workshop sessions in 1998. We are featured on the
SCORE web site and in numerous SCORE publications and press releases.
Co-branding relationships. We host co-branded web site pages with a number
of different Internet sites targeted toward entrepreneurs and small business
owners. These co-branded pages look and operate similar to Onvia.com web pages
except they may have a banner advertisement at the top of each screen featuring
the logos of both companies. Some of our relationships include:
. Dow Jones & Company. We have a relationship with Dow Jones & Company to
integrate our business-focused service and products solutions into the
DowJones.com web site. Onvia.com is featured as an e-commerce provider
to DowJones.com users, and DowJones.com users have access to our
emarketplace.
. Bloomberg.com. We have a relationship with Bloomberg.com to provide
Bloomberg.com users access to business-focused service and products
solutions. Our small business-related advice and articles are also
featured prominently on the Bloomberg Small Business Center site.
. Business Week. We have a relationship with Business Week to provide
Business Week Online users with a co-branded site offering business-
focused service and products solutions. The Business Week
Online/Onvia.com co-branded site is accessible from the Business Week
Online web site.
Media and content relationships. We syndicate our proprietary content to
businesses, such as Bloomberg, that desire to offer their users a broader
content offering. In addition, we have relationships with various parties that
provide media and other content to our web site, including Business Week, Fast
Company and Business 2.0.
Sponsorship relationships. For a fee, a business may sponsor a specific
Onvia.com service or product. These sponsors are able to target their marketing
efforts by placing their respective logos on web pages they believe their
customers are likely to visit.
Sales and Marketing
We have designed our marketing strategy to build brand awareness, increase
traffic to our web site, build our customer base, encourage repeat business and
develop incremental sales opportunities. We target the small business owner who
wants to save time and money by using the Internet to conduct routine
transactions as well as special purchases.
Advertising. We have traditionally used highly focused advertising programs
to reach our target audience, including leveraging our relationships with small
business trade associations to reach their members through special promotions
or newsletters. We use traditional media to build brand loyalty among our very
targeted market. We also use niche media to reach the small business audience.
We anticipate using both traditional and targeted media in the future to reach
our core audience.
Online marketing relationships. We have established online marketing
relationships with leading web sites which feature an integrated link to our
web site. These links allow users of these web sites to access our
emarketplace. We currently have online marketing relationships with ZDNet, USA
Today, Infospace and About.com.
OnviaFlash. Every week we send out "OnviaFlash," an e-mail newsletter
alerting our customers of discounts, special offerings, editorial content on
our web site and other items of interest to our customers. Our customers
voluntarily subscribe to OnviaFlash and may unsubscribe at any time.
Promotions and contests. We use an array of promotions to drive traffic and
transactions. In the past, these have included free shipping, coupons, free RFQ
trial periods and special pricing on key items.
We also periodically conduct contests which offer entrants the opportunity
to win free products or other prizes. These contests are typically advertised
on co-branded web sites or through other means and are designed
37
<PAGE>
to attract the awareness and attention of potential customers. Contest entrants
are required to submit data such as their name, e-mail address, job title and
number of employees. This information is retained in our customer database.
Customer Service
We believe that a high level of customer service is critical to retaining
and expanding our customer base. Our customer service representatives,
including vendor-certified professionals, are available to respond to any
customer inquiry via phone or e-mail. Our customer service representatives help
customers with issues such as the use of our web site, product availability,
order status and billing questions. If needed, our customer service
representatives can direct product-specific questions directly to our product
managers for assistance.
We offer all of our customers a "Satisfaction Guarantee" that allows them to
return any product within 30 days of purchase for any reason for a full refund.
Our web site features a Returns Policies & Procedures page that makes it easy
for a customer to arrange for a return and refund.
Distribution and Order Fulfillment
Integrated product distribution. We have established order fulfillment
relationships with several of the largest suppliers in the telecommunications,
computer hardware and software and business products industries. This allows us
to verify product pricing and availability at each of our suppliers' warehouses
before forwarding an order for fulfillment. The supplier drop-ships the product
with Onvia.com packaging directly to the customer via UPS, FedEx or other
common carrier. We bill the customer's credit card when the order is placed on
our web site, and our suppliers invoice us under standard negotiated payment
terms. Orders are initiated directly from our customers through our web site.
We take title to products from shipment until receipt by the customer and
assume the economic risk related to collections, customer service and returns.
We do not typically maintain physical inventory but may do so for scarce
resources or when otherwise appropriate. We do not have long-term relationships
with any of our suppliers and transact with them through purchase orders.
We currently source all of our product orders from multiple suppliers. Our
primary supplier in the computer hardware and software, networking products and
phone systems categories is Ingram Micro. If Ingram Micro does not carry or is
out of stock of a particular item, the order is automatically directed to one
of our two current secondary suppliers, TechData and Merisel. Most product
orders in the office supplies, office furniture and business machines
categories are fulfilled by United Stationers. For the nine months ended
September 30, 1999, approximately 78% of our revenue was derived from sales of
products supplied by Ingram Micro.
Fulfillment of orders for business services. All of the business services we
feature are provided by third-party service providers. Each service we offer
has its own unique order process, but in general customers fill out a custom
application form directly on our web site. We then electronically submit the
application to the service provider for fulfillment.
Technology
We support our emarketplace using an advanced technology platform designed
to serve a large volume of web traffic and customer transactions in a reliable,
efficient, scalable and fault-tolerant manner. We designed and programmed our
own proprietary core systems for customer interaction, order processing, order
fulfillment and back-end systems. Our systems have been designed to:
. provide fast, secure and uninterrupted visitor access to our web site;
. validate and process customer orders promptly and accurately;
. provide accurate order placement with vendors to allow prompt
fulfillment of customer orders;
. store large amounts of historical data;
. provide timely, comprehensive and accurate management-reporting
capabilities easily;
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<PAGE>
. update products, prices and other information on our web site;
. accommodate upgrades to tools and features on our web site;
. scale to accommodate growth in our operations; and
. provide redundancy in case of component system failures.
Our systems use a combination of our own proprietary technologies and
commercially available licensed technologies. The backbone of our technology
infrastructure consists of database servers running on an Oracle database with
Sun hardware. The front end consists of multiple redundant web servers which
are expandable as our operations grow. These systems interact with our own
proprietary system for customer interaction, order processing, order
fulfillment and other assorted functions. Our web servers use Verisign digital
certificates to help ensure secure transactions and communications over the
Internet. We designed the system to scale easily to support rapid growth, as
well as to sustain multiple failures by various components without down-time.
Our web servers, database servers, transaction-processing servers and other
core systems that conduct our essential business operations are physically
housed at Exodus Communications in Seattle. Exodus provides professional
housing and hosting services along with 24-hour monitoring and engineering
support in a climate-controlled and physically secure environment. Exodus
provides redundant communications lines from multiple Internet connectivity
providers and has its own generator and other emergency backup systems. We
house all non-critical systems such as development servers, quality assurance
servers, and internal network servers at our headquarters in Seattle. We also
maintain redundant backup equipment and systems in our office headquarters in
the event of a failure of our systems at Exodus.
In addition to maintaining responsibility for the technical architecture,
security and up-time of our emarketplace, our technology department works
closely with our sales and marketing department to ensure that customer
feedback for new technology features is incorporated into our emarketplace
offerings.
Competition
The e-commerce market is new, rapidly evolving and intensely competitive.
The e-commerce market targeting small business customers is still undeveloped
and fragmented. The industry is characterized by minimal barriers to entry, and
new competitors can launch, at relatively low cost, a competitive web site
offering service and products targeted to the small business market. We believe
that several other e-commerce competitors are developing business strategies
similar to ours targeting the small business market.
We compete with both Internet-based as well as traditional providers of
business services and products. Our current and potential competitors include:
. Internet sites that target the small business market including
AllBusiness.com, BizBuyer.com, Digitalworks.com and Works.com;
. Internet sites targeting the consumer market that also sell to small
business customers, including Beyond.com, Buy.com and Onsale.com;
. companies such as Microsoft, America Online 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; and
. traditional non-Internet-based retailers that sell or resell business
service and products such as AT&T Wireless, Circuit City and CompUSA.
Many of our current and potential competitors have longer operating
histories, greater brand recognition, larger market presence and greater
financial, marketing and other resources than we do. Our competition may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements. Competitive pressures could reduce our market share or
require us to reduce the price of our services or products, any of which could
harm our business.
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<PAGE>
We compete on the basis of several factors, including:
. brand recognition and loyalty;
. mix and depth of products, services, information and interactive
business tools;
. reliability and speed of order fulfillment;
. quality of customer service;
. timeliness and relevance of news, editorials and advice offerings;
. web site performance; and
. pricing.
We believe that we currently compete favorably with respect to each of these
factors. However, our market is still rapidly evolving, and we may not be able
to compete successfully against current and potential competitors.
Intellectual Property Rights
Our future success depends in part on our proprietary rights and technology.
We rely on a combination of copyright, trademark and trade secret laws,
employee and third-party nondisclosure agreements and other methods to protect
our proprietary rights.
We license and will continue to license certain products integral to our
services and products from third parties, including products which are
integrated with internally developed products and used jointly to provide key
content and services. These third-party product licenses may not continue to be
available to us on commercially reasonable terms and we may not be able to
successfully integrate such third-party products into our solutions.
Employees
As of December 15, 1999 we had 196 full-time employees. Of the total, 53
were in sales and marketing, 45 were in customer support, 75 were in technology
and development and 23 were in finance and administration. Of these, 33 were
employees of our Canadian subsidiary, including 15 in sales and marketing, 11
in customer support, one in technology and development and six in finance and
administration. None of our employees is represented by a union or collective
bargaining agreement, and we have never had a work stoppage. We consider our
relations with our employees to be good.
Facilities
Our headquarters are located in Seattle, Washington, where we lease three
locations totaling approximately 95,000 square feet of office space under three
leases. These leases expire between 2001 and 2008. Our Canadian subsidiary
company in Vancouver, British Columbia also leases two locations totaling
approximately 6,900 square feet of office space under leases which expire in
2001. One of the leases is renewable at our option for up to three periods of
three years each. The leases generally require us to pay insurance, utilities,
real estate taxes and repair and maintenance expenses. We believe that these
leased facilities will be sufficient to meet our growth and space requirements
for approximately the next year. After that, or possibly sooner, we may be
required to seek additional facilities.
Legal Proceedings
From time to time, we may be involved in legal proceedings and litigation
incidental to the normal conduct of our business. We are not currently involved
in any material legal proceedings or litigation.
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<PAGE>
MANAGEMENT
Executive Officers, Directors and Other Key Employee
Our executive officers, directors and other key employee and their ages as
of December 21, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Glenn S. Ballman........ 28 President, Chief Executive Officer and Director
Mark T. Calvert......... 41 Vice President, Chief Financial Officer and Secretary
Kristen M. Hamilton..... 29 Vice President and Chief Strategy Officer
Douglas H. Kellam....... 41 Vice President of Marketing
Mark A. Pawlosky........ 42 Vice President and Editor-in-Chief
Arthur R. Paul.......... 30 Vice President of Engineering
Clayton W. Lewis........ 40 Vice President of Business Affiliations
Louis T. Mickler........ 53 Vice President of IT Operations
Robert D. Ayer.......... 34 Vice President of Products and Services
J. Gary Meehan.......... 41 President of Onvia.com Canada
Michael D. Pickett...... 51 Chairman and Director
Jeffrey C. Ballowe
(1)(2)................. 43 Director
William W. Ericson...... 41 Director
Kenneth A. Fox (1)(2)... 29 Director
Nancy J. Schoendorf
(1)(2)................. 45 Director
Anton R. Simunovic...... 34 Director
</TABLE>
- --------
(1) Member of our Compensation Committee
(2) Member of our Audit Committee
Glenn S. Ballman founded Onvia.com and has served as our President and Chief
Executive Officer since February 1997. Mr. Ballman has also served as a
director of Onvia.com since February 1999. Mr. Ballman served as Chief
Executive Officer at SunCommerce Corporation, an e-commerce consulting firm to
small and medium sized businesses, from March 1997 to November 1997. From
February 1996 to October 1996, Mr. Ballman was Project Director for e-commerce
applications deployment at Axion Internet Communications, an electronic
commerce solutions provider. Mr. Ballman holds an Honors Bachelor of Arts in
Business Administration from the University of Western Ontario.
Mark T. Calvert was a consultant to Onvia.com from July 1998 to February
1999 and has been our Vice President, Chief Financial Officer and Secretary
since February 1999. Prior to joining Onvia.com, Mr. Calvert was Executive Vice
President, Chief Financial Officer, Secretary and Treasurer at Treasure Bay
Gaming and Resorts, Inc., an emerging market gaming corporation, from 1994 to
1997. From 1990 to 1994, Mr. Calvert served as Managing Director at Alexander
Hutton Advisors Inc. Prior to Alexander Hutton Advisors Inc., Mr. Calvert was
employed by Ernst & Young in the Entrepreneurial Division from 1982 to 1990.
Mr. Calvert holds a Bachelor of Arts in Business Administration from the
University of Washington. Mr. Calvert is a CPA and a CTP.
Kristen M. Hamilton has served as our Vice President and Chief Strategy
Officer since December 1999. From June 1998 to December 1999, Ms. Hamilton
served as our Vice President of Business Development. Prior to joining
Onvia.com, Ms. Hamilton was co-founder of Technology Solutions Network, a
provider of vertical technology solutions to small businesses, from July 1997
to May 1998. From February 1998 to May 1998, Ms. Hamilton also served as an
independent consultant to various clients. Prior to working at Technology
Solutions Network, Ms. Hamilton was Director of Consulting at MSI Consulting
Group, a technology marketing consulting firm, from August 1994 to June 1997.
Ms. Hamilton holds an Honors Bachelor of Arts in Business Administration from
the University of Western Ontario.
Douglas H. Kellam has served as our Vice President of Marketing since August
1999. Prior to joining Onvia.com, Mr. Kellam was Vice President of Marketing
and General Manager at First Alert Inc., a manufacturer of home safety
products, from March 1997 to February 1999. Prior to working at First Alert
Inc.,
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Mr. Kellam was a Vice President of Sales and Marketing at Austin Nichols, a
Division of Pernod Ricard Group, a beverage company, from June 1995 to February
1997. From January 1988 to June 1995, Mr. Kellam held various positions at
Pepsi Cola Company, including Field Marketing Manager, Director of Marketing
and General Manager. Mr. Kellam holds a Bachelor of Science in Business
Administration from the University of Minnesota and a Master of Business
Administration from Northwestern University's Kellogg School.
Mark A. Pawlosky has served as our Vice President and Editor-in-Chief since
August 1999. Prior to joining Onvia.com, Mr. Pawlosky was an Executive Producer
of MSNBC on the Internet, an Internet news site, from July 1996 to August 1999.
Prior to working at MSNBC, Mr. Pawlosky was Senior and Chief Editor for MSN
News, the online news service for Microsoft and forerunner to MSNBC.com, from
September 1995 to July 1996. Prior to working at MSN News, Mr. Pawlosky was a
reporter for the Wall Street Journal, from April 1995 to September 1995. Prior
to working at the Wall Street Journal, Mr. Pawlosky was Editor-in-Chief of Biz
Magazine, a small business magazine published by Dow Jones and American City
Business Journals, from September 1993 to February 1995. Mr. Pawlosky holds a
Bachelor of Journalism from the University of Missouri.
Arthur R. Paul has served as our Vice President of Engineering since October
1997. Prior to joining Onvia.com, Mr. Paul was Application Development Manager
at Internet Stock Market, a real-time web-based financial and market
information site, from May 1997 to October 1997. Prior to working at Internet
Stock Market, Mr. Paul was Lead Engineer at MultiActive Education Inc., an
online interactive education web site, from January 1997 to May 1997. Prior to
working at MultiActive Education Inc., Mr. Paul was Lead Engineer at Axion
Internet Communications, an e-commerce solutions provider, from April 1996 to
January 1997. Mr. Paul holds an Associate Degree in Information Technology from
Kwantlen College.
Clayton W. Lewis joined Onvia.com in March 1999 and has served as our Vice
President of Business Affiliations since July 1999. Prior to joining Onvia.com,
Mr. Lewis was an independent consultant for e-commerce start-ups from April
1998 to February 1999. Prior to being an independent consultant, Mr. Lewis was
Executive Vice President of ETC, a subsidiary of Tele-Communications, Inc.,
from October 1995 to March 1998. Prior to working at ETC, Mr. Lewis was senior
Vice President of Business Development at RXL Pulitzer, the multimedia arm of
Pulitzer Publishing Company, from January 1990 to September 1995. Mr. Lewis
holds a Bachelor of Arts in Business Administration from the University of
Washington.
Louis T. Mickler has served as our Vice President of IT Operations since
August 1999. Prior to joining Onvia.com, Mr. Mickler was Vice President of IS
Systems Operations at Bear Creek Corporation, a direct marketer via catalog,
stores and the Internet, from January 1996 to August 1999. Prior to working at
Bear Creek Corporation, Mr. Mickler was Director of IS Operations at Eddie
Bauer, another direct marketing company with channels via catalog, stores and
the Internet, from August 1994 to January 1996. Mr. Mickler holds a Bachelor of
Science from Jones College.
Robert D. Ayer has served as our Vice President of Products and Services
since February 1997. Prior to joining Onvia.com, Mr. Ayer was Vice President of
Sales and Marketing at Axion Internet Communications, an e-commerce solutions
provider, from March 1995 to February 1997. Prior to working at Axion Internet
Communications, Mr. Ayer was a shipping and logistics specialist for Pitney
Bowes Inc. from September 1991 to September 1994. Mr. Ayer holds a Bachelor of
Arts in Economics from the University of Waterloo.
J. Gary Meehan has served as an officer of Onvia.com Canada since June 1998
and was appointed as President of Onvia.com Canada in December 1999. Prior to
joining Onvia.com Canada, Mr. Meehan served in a variety of positions at
Doppler Industries, Inc., a reseller of computer equipment, from 1992 to 1998,
most recently as Vice President of Inventory. Prior to that, Mr. Meehan worked
at Safety Supply Canada where he served in a variety of positions including
Operations Manager. Mr. Meehan received a Business Administration Certificate
from the British Columbia Institute of Technology.
Michael D. Pickett has served as our Chairman and as a director of Onvia.com
since February 1999. Since August 1999, Mr. Pickett has served as Chief
Executive Officer of Hardware.com, Inc., an online retailer. From July 1997 to
March 1999, Mr. Pickett was Chairman and Chief Executive Officer of
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Technology Solutions Network, LLC. From October 1983 to February 1996, Mr.
Pickett served in a variety of positions and most recently as Chairman, Chief
Executive Officer and President of Merisel, Inc., wholesale distributor of
computer products. Mr. Pickett has served as a director of many companies,
including Digital Archeology and Optimum Yield Inc. Mr. Pickett holds a
Bachelor of Arts in Business Administration from the University of Southern
California.
Jeffrey C. Ballowe has served as a director of Onvia.com since December
1999. In August 1999, Mr. Ballowe became Chairman of deja.com where he had been
a member of the board of directors since March 1998. Since 1997, Mr. Ballowe
has been self-employed. From 1986 until 1997, Mr. Ballowe held various
management positions at Ziff-Davis, an international media company, including
President of the Interactive Media and Development Group. Mr. Ballowe also
serves as a director of Drkoop.com, GiveMeTalk.com, Jupiter Communications,
VerticalNet, NBCi, and ZDTV, and on the advisory board of Internet Capital
Group. Mr. Ballowe holds a Bachelor of Arts from Lawrence University, a Master
of Arts in French from the University of Wisconsin and a Master of Business
Administration from the University of Chicago.
William W. Ericson has served as a director of Onvia.com since September
1999. Since August 1995, Mr. Ericson has been an attorney at Venture Law Group,
A Professional Corporation, a law firm specializing in the representation of
technology companies. Mr. Ericson is the managing director and founder of
Venture Law Group's Pacific Northwest Office located in Kirkland, Washington.
Prior to joining Venture Law Group, Mr. Ericson was an associate in the Palo
Alto, California office of the law firm of Brobeck, Phleger and Harrison, LLP
from October 1992 through August 1995. Mr. Ericson holds a Bachelor of Science
in Foreign Service from Georgetown University and a Juris Doctor from the
Northwestern University School of Law.
Kenneth A. Fox has served as a director of Onvia.com since February 1999. In
1996, Mr. Fox co-founded Internet Capital Group, an Internet company primarily
engaged in managing and operating a network of business-to-business e-commerce
companies. Mr. Fox has served as one of Internet Capital Group's Managing
Directors since its inception in March 1996. Mr. Fox has also served as a
director of Internet Capital Group since February 1999. Prior to forming
Internet Capital Group, Mr. Fox was the Director of West Coast Operations for
Safeguard Scientifics, Inc. and Technology Leaders II, LP, a venture capital
partnership, from 1994 to 1996. Mr. Fox serves as a director of deja.com and
several privately held companies. Mr. Fox holds a Bachelor of Science in
Economics from Pennsylvania State University.
Nancy J. Schoendorf has served as a director of Onvia.com since January
1999. Ms. Schoendorf has been a general partner of Mohr, Davidow Ventures, a
venture capital firm, since 1993, and Managing Partner since 1997. Prior to
joining Mohr, Davidow, Ms. Schoendorf spent seventeen years in the computer
industry including management positions with Hewlett-Packard, Software
Publishing Corporation and Sun Microsystems, Inc. Ms. Schoendorf currently
serves as a director of Actuate Corporation, Agile Software Corporation,
Broadbase Software, Inc. and several privately held companies. Ms. Schoendorf
holds a Bachelor of Science in Computer Science from Iowa State University and
a Master of Business Administration from Santa Clara University.
Anton R. Simunovic has served as a director of Onvia.com since February
1999. Mr. Simunovic has served as Senior Vice President and Group Head of the
Business-to-Business E-Commerce and Internet Infrastructure effort at GE
Equity, a subsidiary of GE Capital since December 1998. From August 1996 to
December 1998, Mr. Simunovic was a Vice President at GE Equity responsible for
equity investments in the Enterprise Software sector. From June 1993 through
August 1996, Mr. Simunovic served as Manager of Barents Group LLC.
Mr. Simunovic holds a Bachelor of Science in Mechanical Engineering from
Queen's University in Canada and a Master of Business Administration from the
Harvard Business School.
Board Composition
Our bylaws currently provide for a board of directors consisting of seven
members. Ms. Schoendorf and Mr. Fox were elected to the board of directors
pursuant to a voting agreement among Onvia.com and some of
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<PAGE>
its principal stockholders. This voting agreement will terminate upon
completion of this offering. Each of our current directors will continue to
serve on the board of directors upon completion of this offering.
Upon consummation of this offering, our certificate of incorporation will
provide for a classified board of directors consisting of three classes of
directors, each serving staggered three-year terms. As a result, a portion of
our board of directors will be elected each year. To implement the classified
structure, prior to the consummation of the offering, two of the nominees to
the board will be elected to one-year terms, two will be elected to two-year
terms and three will be elected to a three-year term. After that, directors
will be elected for three-year terms. Mr. Fox and Mr. Simunovic have been
designated Class I directors whose term expires at the 2001 annual meeting of
stockholders. Mr. Pickett and Ms. Schoendorf have been designated Class II
directors whose term expires at the 2002 annual meeting of stockholders. Mr.
Ballman, Mr. Ballowe and Mr. Ericson have been designated Class III directors
whose term expires at the 2003 annual meeting of stockholders. See "Description
of Capital Stock--Anti-Takeover Provisions."
Executive officers are appointed by the board of directors and serve until
their successors have been duly elected and qualified. There are no family
relationships among any of our directors, officers or key employees.
Board Compensation
We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with activities as directors,
including attendance at meetings of the board of directors or its committees.
Our directors are generally eligible to participate in our 1999 stock option
plan and, if a director is an employee of Onvia.com, to participate in our 2000
employee stock purchase plan. Directors who are not employees will also receive
periodic stock option grants under our 2000 directors' stock option plan.
The 2000 directors' stock option plan provides for an initial grant of an
option to purchase 20,000 shares of common stock to each non-employee director
on the effective date of this offering and to each person who first becomes a
non-employee director after that. These options become exercisable in four
equal installments on the first, second, third and fourth anniversaries of the
grant. On the date of each annual stockholders' meeting, each non-employee
director who has served on our board of directors for at least six months will
be granted an additional option to purchase 5,000 shares of common stock, which
will become exercisable in full on the day before the first anniversary of the
date of grant. The exercise price of all stock options granted under the
directors' stock option plan will be equal to the fair market value of a share
of our common stock on the date of grant of an option. See "Benefit Plans--2000
Directors' Stock Option Plan."
Board Committees
The compensation committee currently consists of Mr. Ballowe, Mr. Fox and
Ms. Schoendorf. The compensation committee:
. reviews and makes recommendations to the board regarding all forms of
compensation and benefits provided to our officers; and
. establishes and reviews general policies relating to the compensation
and benefits of all of our employees.
The audit committee currently consists of Mr. Ballowe, Mr. Fox and Ms.
Schoendorf. The audit committee:
. reviews and monitors our internal accounting procedures, corporate
financial reporting, external and internal audits, the results and scope
of the annual audit and other services provided by our independent
accountants; and
. makes recommendations to the board of directors regarding the selection
of independent auditors.
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Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of our board of directors are
currently Mr. Ballowe, Mr. Fox and Ms. Schoendorf. Mr. Pickett, our Chairman of
the Board, served on our Compensation Committee until December 1999. None of
Mr. Ballowe, Mr. Fox or Ms. Schoendorf has at any time been an officer or
employee of Onvia.com. No executive officer of Onvia.com serves as a member of
the board of directors or compensation committee of an entity that has one or
more executive officers serving on our board of directors or compensation
committee. See "Related Party Transactions."
Executive Compensation
Summary Compensation. The following table sets forth the compensation
received for the year ended December 31, 1998 by our Chief Executive Officer.
No other executive officers earned more than $100,000 in salary and bonus
during that year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation Securities
Name and Principal ------------- Other Annual Underlying All Other
Position Salary Bonus Compensation Options (#) Compensation
------------------ ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Glenn S. Ballman
President and Chief
Executive Officer....... $47,807 -- -- -- --
</TABLE>
Includes $18,407 paid to Mr. Ballman by our Canadian subsidiary prior to the
purchase of its outstanding shares by us from Mr. Ballman. This amount assumes
an average exchange rate of one U.S. dollar for each 0.680222 Canadian dollar
over the period this Canadian income was earned.
Option Grants in Last Fiscal Year
No stock options were granted to the executive officer named in the summary
compensation table during the year ended December 31, 1998.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
No options were exercised by the executive officer named in the summary
compensation table during the year ended December 31, 1998, nor did this
officer hold any options as of December 31, 1998.
Benefit Plans
1999 Stock Option Plan
Our 1999 stock option plan provides for the grant of incentive stock options
to employees and nonstatutory stock options to employees, directors and
consultants to acquire shares of our common stock. The purposes of the 1999
stock option plan are to attract and retain the best available personnel,
provide additional incentives to our employees and consultants and promote the
success of our business. Our board of directors originally adopted the 1999
stock option plan in February 1999 and our stockholders approved the plan in
August 1999. There were 6,654,415 total shares of common stock reserved for
issuance under our 1999 stock option plan at September 30, 1999, and this
amount was increased to a total of 9,000,000 in December 1999. Our 1999 stock
option plan was amended in December 1999 to provide for an automatic annual
increase on the first day of each of our fiscal years beginning in 2001 and
ending in 2009 equal to the lesser of 1,600,000 shares, 4% of our outstanding
common stock on the last day of the immediately preceding fiscal year or a
lesser number of shares as the board of directors determines. The 1999 stock
option plan will terminate in
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<PAGE>
February 2009 unless the board of directors terminates it earlier. As of
September 30, 1999, options to purchase 4,478,016 shares of common stock were
outstanding at a weighted average exercise price of $0.30 per share, 513,112
shares had been issued upon exercise of outstanding options or pursuant to
stock purchase agreements and 1,663,287 shares remained available for future
grant.
The administrator of the 1999 stock option plan may be either the board of
directors or a committee of the board. The administrator determines the terms
of options granted under the 1999 stock option plan, including the number of
shares subject to the option, exercise price, term and exercisability. In no
event, however, may an individual employee receive option grants for more than
1,000,000 shares under the stock plan in any fiscal year. Incentive stock
options granted under the 1999 stock option plan must have an exercise price of
at least 100% of the fair market value of the common stock on the date of grant
and at least 110% of the fair market value in the case of an optionee who holds
more then 10% of the total voting power of all classes of our stock.
Nonstatutory stock options granted under the 1999 stock option plan must have
an exercise price of at least 110% of the fair market value in the case of an
optionee who holds more than 10% of the total voting power of all classes of
our stock. Payment of the exercise price may be made in cash or other
consideration as determined by the administrator.
The administrator determines the term of options, which may not exceed ten
years, except in the case of an incentive stock option granted to a holder of
more than 10% of the total voting power of all classes of our stock for which
the term may not exceed five years. No option may be transferred by the
optionee other than by will or the laws of descent or distribution. Each option
may be exercised during the lifetime of the optionee only by the optionee or a
permitted transferee. The administrator determines when options become
exercisable. Options granted under the 1999 stock option plan generally must be
exercised:
. no later than three months after the termination of the optionee's
status as an employee, director or consultant of Onvia.com;
. within six months if the termination is due to the death of the
optionee;
. within 12 months if the termination is due to the total disability of
the optionee; and
. within six months if the termination is due to the less than total and
permanent disability of the employee.
In no event may an option be exercised later than the expiration of the
option's term.
In the event of our merger with or into another corporation, the successor
corporation may assume each option or may substitute an equivalent option. To
the extent the outstanding option is not assumed by the successor corporation,
the vesting of the option shall automatically be accelerated so that 25% of the
unvested shares covered by the option shall be fully vested upon the
consummation of the merger. Each outstanding option held by an optionee who is
an executive officer will be accelerated completely so that 100% of the
unvested shares covered by the option are fully vested if within 12 months of
the change of control, the executive officer is terminated other than for cause
or by the optionee for good reason. The board of directors has the authority to
amend or terminate the 1999 Stock option plan, except that the board may not
take any action that impairs the rights of any holder of an outstanding option
without the holder's consent.
2000 Directors' Stock Option Plan
We have reserved a total of 300,000 shares of common stock for issuance
under our 2000 directors' stock option plan. The directors' plan provides for
the grant of nonstatutory stock options to non-employee directors of Onvia.com.
The directors' plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
board of directors. To the extent that conflicts of interest arise, it is
expected that conflicts will be addressed by having any interested director
abstain from both deliberations and voting regarding matters in which the
director has a personal interest. Unless terminated earlier, the directors'
plan will terminate ten years after effectiveness of this offering.
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The directors' plan provides that each person who is or becomes a non-
employee director of Onvia.com will be granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the later of the date on which he or
she first becomes a non-employee director of Onvia.com or the date of the
effectiveness of this offering. After that, on the date of our annual
stockholders' meeting each year, each non-employee director of Onvia.com will
be granted an additional option to purchase 5,000 shares of common stock if, on
that date, he or she has served on our board of directors for at least six
months. The initial option grant under the directors' plan becomes exercisable
in installments of 25% of the total number of shares subject to the option on
the first, second, third and fourth anniversaries of the date of grant. The
annual grants become exercisable in full on the day before the first
anniversary of the date of grant. No option granted under the directors' plan
is transferable by the option holder other than by will or the laws of descent
or distribution or under a domestic relations order, and each option will be
exercisable during the lifetime of the option holder only by that option
holder. The exercise price of all stock options granted under the directors'
plan is set equal to the fair market value of a share of Onvia.com common stock
on the date of grant of the option. Options granted under the directors' plan
have a term of ten years. However, unvested options terminate when the optionee
ceases to serve as a directors and vested options terminate if they are not
exercised within 12 months after the director's death or disability or within
90 days after the director ceases to serve as a director for any other reason.
In the event of a merger or acquisition of Onvia.com in which there is not
greater than 50% change in ownership, each option outstanding under the
directors' plan will be assumed or equivalent options will be substituted by
our acquiror, unless our acquiror does not agree to such assumption or
substitution, in which case the options will terminate to the extent not
previously exercised. In the event of a merger or acquisition of Onvia.com in
which there is greater than 50% change in ownership, each director holding
options under the directors' plan will have the right to exercise his or her
options immediately before the consummation of the merger or acquisition as to
all shares underlying the options, including previously unvested shares. Our
board of directors will be able to amend or terminate the 2000 directors'
option plan as long as the amendment does not adversely affect any outstanding
option and we obtain stockholder approval to the extent required by law.
2000 Employee Stock Purchase Plan
We have reserved a total of 300,000 shares of common stock for issuance
under the 2000 employee stock purchase plan. The number of shares reserved for
issuance under the 2000 employee stock purchase plan is subject to an automatic
annual increase on the first day of each of our fiscal years beginning in 2001
and ending in 2010 equal to the lesser of 300,000 shares, 1% of our outstanding
common stock on the last day of the immediately preceding fiscal year or such
lesser number of shares as the board of directors determines. The employee
stock purchase plan becomes effective upon the date of this offering. Unless
terminated earlier by the board of directors, the 2000 employee stock purchase
plan will terminate ten years after the effectiveness of this offering.
The 2000 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, is implemented by a series of
overlapping offering periods of approximately 24 months' duration, with new
offering periods, other than the first offering period, commencing on May 1 and
November 1 of each year. Each offering period generally consists of four
consecutive purchase periods of six months' duration, at the end of which an
automatic purchase will be made for participants. The initial offering period
is expected to commence on the date of this offering and end on April 30, 2002.
The initial purchase period is expected to begin on the date of this offering
and end on October 31, 2000, with subsequent purchase periods ending on April
30, 2001, October 31, 2001 and April 30, 2002. The 2000 employee stock purchase
plan is administered by the board of directors or by a committee appointed by
the board. Our employees, including officers and employee directors, or of a
subsidiary designated by the board, are eligible to participate in the 2000
employee stock purchase plan if they are employed by us or the designated
subsidiary for at least 20 hours per week and more than five months per year.
The 2000 employee stock purchase plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed 15% of an
employee's base salary. The purchase price is equal to the lower of 85% of the
fair market value of the
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common stock at the beginning of each offering period or at the end of each
purchase period, subject to adjustments as provided in the plan. Employees are
able to end their participation in the 2000 employee purchase plan at any time
during an offering period, and participation will end automatically on
termination of employment.
An employee will not be granted an option under the 2000 employee stock
purchase plan if immediately after the grant the employee would own stock
and/or hold outstanding options to purchase stock equaling 5% or more of the
total voting power or value of all classes of our stock or stock of our
subsidiaries, or if the option would permit an employee's rights to purchase
stock under the 2000 employee stock purchase plan at a rate that exceeds
$25,000 of fair market value of such stock for each calendar year in which the
option is outstanding. In addition, no employee is allowed to purchase more
than 1,000 shares of common stock under the 2000 employee stock purchase plan
in any one purchase period. If the fair market value of the common stock on a
purchase date is less than the fair market value at the beginning of the
offering period, each participant in that offering period will automatically be
withdrawn from the offering period as of the end of the purchase date and re-
enrolled in the new 24-month offering period beginning on the first business
day following the purchase date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 2000
employee stock purchase plan will be assumed or an equivalent right substituted
by our acquiror. If our acquiror does not agree to assume or substitute stock
purchase rights, any offering period and purchase period then in progress will
be shortened and a new exercise date occurring prior to the closing of the
transaction will be set. Our board of directors will have the power to amend or
terminate the 2000 employee stock purchase plan and to change or terminate
offering periods as long as this action does not adversely affect any
outstanding rights to purchase stock under the plan. However, the board of
directors will be able to amend or terminate the 2000 employee stock purchase
plan or an offering period even if it would adversely affect outstanding
options to avoid our incurring adverse accounting charges.
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of the director's fiduciary duties except for liability:
. for any breach of the director's duty of loyalty to us or to our
stockholders:
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which a director derives an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers and employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to obtain insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in his or her capacity, regardless of whether the bylaws
would permit indemnification.
In addition to the indemnification provided for in our articles of
incorporation and bylaws, we have entered into indemnification agreements with
some of our directors and officers. These agreements provide for
indemnification of our directors and officers for specified expenses, including
attorneys' fees, judgments, fines and settlement amounts incurred by any of
these people in any action or proceeding arising out of their services as a
director or officer of Onvia.com, any subsidiary of Onvia.com or any other
company or enterprise to which
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the person provides services at the request of Onvia.com. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and officers. We also expect to obtain directors' and officers'
liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Onvia.com where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
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RELATED PARTY TRANSACTIONS
Benefits to Related Parties in Private Placement Transactions
Since our inception in March 1997, we have issued and sold shares of our
capital stock and warrants to purchase our capital stock, not including
warrants issued to our creditors, in private placement transactions as follows:
. 11,479,068 shares of restricted common stock at a price of $0.0025 per
share in January 1999;
. 513,112 shares of restricted common stock at a price of $0.025 per share
in April 1999;
. 60,000 shares of restricted common stock at a price of $2.50 per share
in December 1999;
. 10,109,748 shares of Series A preferred stock at a price of $1.1692 per
share in February 1999;
. warrants to purchase up to 416,676 shares of common stock at an exercise
price of $0.005 per share in connection with the sale of notes
convertible into shares of Series A preferred stock from September 1998
through February 1999;
. 7,272,085 shares of Series B preferred stock at a price of $3.4378 per
share in September 1999; and
. 1,689,701 shares of Series C preferred stock at a price of $13.7100 per
share in December 1999.
All shares of our preferred stock will convert into common stock on a 1-for-
1 basis upon the closing of this offering. The following table summarizes the
shares of capital stock purchased by executive officers, directors and 5%
stockholders and their affiliates in these private placement transactions,
although this table does not necessarily reflect the currently outstanding
securities:
<TABLE>
<CAPTION>
Series A Series B Series C
Investor Common Stock Preferred Stock Preferred Stock Preferred Stock
-------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Entities Affiliated with
Mohr,
Davidow Ventures....... -- 4,661,478 2,327,064 270,530
Internet Capital Group,
Inc.................... -- 4,276,486 2,617,953 364,633
GE Capital Equity
Investments............ -- -- 2,036,185 108,315
Glenn S. Ballman........ 5,000,000 4,784 -- --
Robert D. Ayer.......... 2,800,000 -- -- --
Kristen M. Hamilton..... 740,000 -- -- --
Arthur R. Paul.......... 600,000 -- -- --
Michael D. Pickett...... 513,112 42,766 -- --
VLG Investments 1999.... 256,948 21,382 -- 3,647
Wendy L. Ayer........... 120,000 -- -- --
William W. Ericson...... 93,602 8,554 -- 1,823
Mark T. Calvert......... 32,052 21,382 -- 7,293
Jeffrey C. Ballowe...... 60,000 -- -- --
</TABLE>
Affiliate Relationships
Ms. Schoendorf, one of our directors, is a member of Mohr, Davidow Venture
Partners. Mr. Fox, one of our directors, is a managing director of Internet
Capital Group, Inc. Mr. Ballowe, one of our directors, is on the advisory board
of Internet Capital Group, Inc. Wendy L. Ayer is married to Robert D. Ayer, our
Vice President of Products and Services. Mr. Ericson, one of our directors, is
a director at Venture Law Group, our principal legal counsel. VLG Investments
1999 is an investment partnership affiliated with Venture Law Group. The shares
of Series C preferred stock attributed to Mark T. Calvert in the above table
are held of record by Mark and Norma Calvert, the parents of Mr. Calvert.
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Debt Financing
Between October 1998 and February 1999, we issued and sold convertible
promissory notes to the following executive officers, directors and 5%
stockholders and persons and entities associated with them, in the amounts set
forth opposite each of these parties' names. The promissory notes were
cancelled and converted into shares of our Series A preferred stock at $1.1692
per share on February 25, 1999.
<TABLE>
<CAPTION>
Annual Amount of
Stockholder Interest Rate Promissory Note Date Issued
----------- ------------- --------------- -----------
<S> <C> <C> <C>
Mark T. Calvert................. 8% $25,000 October 26, 1998
Michael D. Pickett.............. 6% $50,000 February 12, 1999
VLG Investments 1999............ 6% $25,000 February 17, 1999
William W. Ericson.............. 6% $10,000 February 17, 1999
Glenn S. Ballman................ 6% $ 5,593 February 17, 1999
</TABLE>
We issued Mark T. Calvert, along with other investors who bought convertible
notes in 1998, a warrant to purchase 32,052 shares of common stock at an
exercise price of $0.005 per share. Mr. Calvert exercised his warrant to
purchase 32,052 shares of common stock in October 1999.
Loans to Officers
In October 1999, we loaned Mr. Ballman, our President and Chief Executive
Officer, $350,000 at 6% annual interest. Mr. Ballman pledged his Onvia.com
common stock as security for the note. The note is due on the earlier of the
following:
. October 2004;
. after a public offering of Onvia.com's common stock in which Mr. Ballman
is a selling stockholder; and
. the expiration of any lock-up period imposed by contract or the
securities laws following an acquisition of Onvia.com.
In addition, in December 1999, our board of directors authorized loans to
our senior executives in an aggregate amount of up to $1,000,000,
collateralized by shares of our common stock held by them. When issued, the
loans will bear interest at 6% per annum and will be due on similar terms as
the loan to Mr. Ballman.
Option Plan Acceleration for Executive Officers Upon a Change of Control
Our 1999 stock option plan provides that each outstanding option held by an
executive officer will be accelerated completely so that 100% of the unvested
shares covered by the option are fully vested if, within 12 months of a change
of control, the employment of the executive officer is terminated other than
for cause or by the executive officer for good reason.
Indemnification Agreements
We have entered into indemnification agreements with some of our officers
and directors containing provisions requiring us to indemnify them against
liabilities that may arise by reason of their status or service as officers or
directors, and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. These indemnification
agreements do not cover liabilities arising from willful misconduct of a
culpable nature.
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Employment Agreements
The following executive officers are individually parties to offer letter
agreements with Onvia.com that provide for at-will employment, standard medical
and dental benefits, and salary as listed below:
<TABLE>
<CAPTION>
Shares
Date of Letter Annual Potential Underlying
Officer Agreement Salary Bonus Options Other
------- --------------- -------- --------- ---------- ------------------------
<C> <C> <C> <C> <C> <S>
Mark T. Calvert......... March 25, 1999 $150,000 -- 272,560 Severance equal to
twelve months of full
salary and benefits
upon termination for
any reason
Douglas H. Kellam....... August 25, 1999 170,000 $42,500 250,000 Up to $50,000 in moving
expenses and 24
roundtrip air tickets
from Seattle to Chicago
Louis T. Mickler........ July 27, 1999 110,000 20,000 35,000 Relocation expenses from
Oregon to Seattle
Mark A. Pawlosky........ July 23, 1999 130,000 30,000 50,000 --
Clayton W. Lewis........ March 15, 1999 80,000 10,000 50,000 --
</TABLE>
Some of these officers have been granted options in addition to those set
forth in the offer letters. In addition, our board of directors has granted to
each of our executive officers six months salary and six months COBRA benefits
as severance upon termination of employment with us for any reason or no
reason.
Other Related Party Transactions
We have paid SunCommerce Corporation approximately $195,000 from March 25,
1997 (inception) through September 30, 1999 for software development,
consulting and other services. In addition, we entered into a lease agreement
with SunCommerce Corporation in July 1999 under which we sublease office space
in Seattle, Washington to SunCommerce Corporation. The lease calls for monthly
payments of $2,212 and expires in May 2001. We are a guarantor of the primary
lease and will be liable if SunCommerce Corporation fails to meet its
obligations under the sublease. Mr. Ballman is a majority stockholder of
SunCommerce Corporation.
We entered into an agreement with Broadbase Software, Inc., in September
1999 pursuant to which we purchased software for our management information
system. We have paid Broadbase Software, Inc. approximately $201,500 under this
agreement through December 20, 1999. Mohr, Davidow Ventures, one of our
principal stockholders, is an investor in Broadbase Software, Inc. Ms.
Schoendorf, one of our directors, is a partner of Mohr, Davidow Ventures. See
"Principal Stockholders."
Our Canadian subsidiary was incorporated as M-Depot Internet Superstore,
Inc. in British Columbia, Canada in June 1997 and was wholly owned by Glenn
Ballman, our founder, President and Chief Executive Officer. In January 1999,
we issued 400 shares of our common stock to Mr. Ballman in exchange for all of
the outstanding shares of M-Depot Internet Superstore, Inc, which subsequently
changed its name to Onvia.com, Inc.
We entered into a marketing agreement with ZDNet in March 1999. We have
incurred costs of approximately $167,000 under this agreement as of December
20, 1999. Mr. Ballowe, one of our directors, served as the President,
Interactive Media and Development Group, of Ziff-Davis until December 1997 and
is a director of ZDTV. Ziff-Davis and ZDTV are affiliates of ZDNet.
Mr. Ballowe, one of our directors, is on the advisory board of Internet
Capital Group, Inc. Mr. Fox, also one of our directors, has served as a
Managing Director of Internet Capital Group, Inc. since March 1996.
In December 1999, we accelerated the vesting of and eliminated our
repurchase option with respect to the unvested portion of the 256,948 shares of
common stock held by VLG Investments 1999.
We have granted options to purchase common stock to our executive officers,
and, in December 1999, we allowed these officers to exercise the previously
unvested portion of these options, subject to a repurchase option by us which
lapses as the shares vest. The aggregate number of these previously unvested
options was 1,335,777.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 30, 1999, giving effect to the
sale of 1,689,701 shares of our Series C preferred stock in December 1999,
appointment of new directors, assuming conversion of all outstanding shares of
preferred stock into common stock and as adjusted to reflect the sale of
shares of common stock offered by Onvia.com in this offering, as to:
. each person or entity (or group of affiliated persons or entities) known
by us to own beneficially more than 5% of our common stock;
. each of our directors;
. the executive officer named in the summary compensation table; and
. all of our directors and executive officers as a group.
Except as indicated in the footnotes to this table and under applicable
community property laws, to our knowledge, the persons named in the table have
sole voting power and investment power with respect to all shares of common
stock. For the purposes of calculating percent ownership, the denominator
includes 29,406,065 shares issued and outstanding as of September 30, 1999,
1,689,701 shares of our Series C preferred stock issued in December 1999 and,
for any individual who beneficially owns shares represented by options
exercisable on or before November 29, 1999, these shares are counted in the
denominator for that person, but not for any other person. Options held by our
executive officers were made immediately exercisable by our board of directors
in December 1999 and are reflected as outstanding in this table. These shares
are subject to a repurchase option by us which lapses as the shares vest.
Unless otherwise indicated, the address of each of the individuals named below
is: c/o Onvia.com, Inc., 1000 Dexter Avenue North, Suite 400, Seattle,
Washington 98109.
<TABLE>
<CAPTION>
Percentage of Ownership
Shares ------------------------
Beneficially Prior to This After This
Owned Offering Offering
------------ ------------- ----------
Name and Address of Beneficial Owner
- ------------------------------------
<S> <C> <C> <C>
Entities affiliated with Mohr, Davidow
Ventures (1)........................... 7,259,072 23.3%
2775 Sand Hill Road, Suite 240
Menlo Park, California 94025
Internet Capital Group, Inc. (2)........ 7,259,072 23.3
44 Montgomery Street, Suite 3705
San Francisco, California 94014
GE Capital Equity Investments (3)....... 2,144,500 6.9
c/o Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Glenn S. Ballman........................ 5,004,784 16.1
Robert D. Ayer (4)...................... 2,920,000 9.4
Nancy J. Schoendorf (1)................. 7,259,072 23.3
c/o Mohr, Davidow Ventures
2775 Sand Hill Road, Suite 240
Menlo Park, California 94025
Kenneth A. Fox (2)...................... 7,259,072 23.3
c/o Internet Capital Group, Inc.
44 Montgomery Street, Suite 3705
San Francisco, California 94014
Anton R. Simunovic (3).................. 2,144,500 6.9
c/o Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Percentage of Ownership
Shares ------------------------
Beneficially Prior to This After This
Owned Offering Offering
------------ ------------- ----------
Name and Address of Beneficial Owner
- ------------------------------------
<S> <C> <C> <C>
Michael D. Pickett...................... 555,878 1.8%
4640 Admiralty Way, Fifth Floor
Marina Del Ray, California 90292
William W. Ericson (5).................. 385,956 1.2
c/o Venture Law Group
4750 Carillon Point
Kirkland, Washington 98033
Jeffrey C. Ballowe...................... 60,000 *
85 Estrada Calabasa
Santa Fe, New Mexico 87501
All directors and officers as a group
(16 persons) (6)....................... 29,170,562 88.3%
</TABLE>
- --------
*Less than 1% of the outstanding shares of common stock
(1) Consists of 5,011,485 shares held by Mohr, Davidow Ventures V, L.P.,
1,890,740 shares held by Mohr, Davidow Ventures V-L, L.P. and 356,847
shares held by Mohr, Davidow Ventures V, L.P. as nominee for Mohr, Davidow
Ventures Entrepreneurs' Network Fund II (A), L.P. and Mohr, Davidow
Ventures Entrepreneurs' Network Fund II (B), L.P. Ms. Schoendorf is a
director of Onvia.com and a member of Mohr, Davidow Ventures, the general
partner of Mohr, Davidow Ventures V, L.P. Ms. Schoendorf disclaims
beneficial ownership of shares held by these entities except to the extent
of her pecuniary interest in them.
(2) Mr. Fox is a director of Onvia.com and managing director of Internet
Capital Group, Inc. Mr. Fox disclaims beneficial ownership of those shares
except to the extent of his pecuniary interest in them.
(3) Mr. Simunovic is a director of Onvia.com and Senior Vice President of GE
Equity, a subsidiary of GE Capital. Mr. Simunovic disclaims beneficial
ownership of those shares except to the extent of his pecuniary interest in
them.
(4) Consists of 2,800,000 shares held by Mr. Ayer and 120,000 shares held by
his spouse Wendy Ayer.
(5) Consists of 103,979 shares held by Mr. Ericson and 281,977 shares held by
VLG Investments 1999. Mr. Ericson is a director of Onvia.com and a director
of Venture Law Group. VLG Investments 1999 is an investment partnership
affiliated with Venture Law Group. Mr. Ericson disclaims beneficial
ownership of the shares held by VLG Investments 1999 except to the extent
of his pecuniary interest in them.
(6) Includes an aggregate of 1,925,560 shares subject to options outstanding as
of September 30, 1999 that were made immediately exercisable by our board
in December 1999 subject to a repurchase option by us which lapses as the
shares vest. Also includes shares of which the applicable officer or
director may disclaim beneficial ownership.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the closing of this offering, our authorized capital stock will
consist of 150,000,000 shares of common stock, par value $ per share, and
15,000,000 shares of preferred stock, par value $ per share.
Common Stock
As of September 30, 1999, there were 29,790,689 shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock and the exercise of warrants to purchase 384,624 shares
of our common stock that will expire if not exercised prior to the offering.
This excludes 1,689,701 shares of Series C preferred stock we sold in December
1999 which will convert into common stock upon closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. There are no cumulative voting
rights. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive dividends,
if any, as may be declared by the board of directors out of funds legally
available for dividends. In the event of a liquidation, dissolution or winding
up of Onvia.com, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior rights of
preferred stock, if any, then outstanding. The common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable.
Preferred Stock
We are authorized to issue 15,000,000 shares of undesignated preferred
stock. The board of directors has the authority, without vote or action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock
upon the rights of holders of the common stock until the board of directors
determines the specific rights of the holders of the preferred stock. However,
the effects might include restricting dividends on the common stock, diluting
the voting power of the common stock, impairing the liquidation rights of the
common stock and delaying or preventing a change in control of Onvia.com
without further action by the stockholders and may adversely affect the rights
of the holders of common stock. We intend to reserve shares of preferred stock
in connection with the adoption of a stockholders' rights plan. We have no
other present plans to issue any shares of preferred stock.
Warrants
As of September 30, 1999, warrants were outstanding to purchase an aggregate
of 1,015,943 shares of common stock with exercise prices ranging between $0.005
and $2.47 per share. Of these, warrants to purchase 384,624 shares of common
stock with an exercise price of $0.005 per share will automatically expire if
not exercised upon completion of this offering.
Registration Rights
As of September 30, 1999, the holders of approximately 31,727,085 shares of
common stock, including shares of common stock issuable upon exercise of
warrants and upon conversion of shares of Series C preferred stock we issued in
December 1999, are entitled to certain rights with respect to registration of
these shares under the Securities Act. We refer to these shares as the
"registrable securities," although some of these shares that are held by
holders of shares of our common stock are only considered to be registrable
securities for purposes of participation in registrations undertaken by us.
These rights are provided under the terms of an agreement between us and the
holders of these securities. Under these registration rights, beginning on the
earlier of February 24, 2003 or six months after the effective date of this
offering, holders of at least a majority
55
<PAGE>
of the then-outstanding registrable securities may require on two occasions
that we register their shares for public resale. In addition, any holder or
holders of then-outstanding registrable securities may require that we register
their shares for public resale on Form S-3 or similar short-form registration,
provided we are eligible to use Form S-3 or similar short-form registration
statement and that the value of the securities to be registered is at least
$5,000,000. In the event Onvia.com elects to register any of its shares of
common stock in a public offering, the holders of registrable securities are
entitled to include their shares of common stock in the registration, subject
to the right of the underwriters of the offering to reduce the number of shares
proposed to be registered in view of market conditions. We are required to pay
all expenses in connection with any of these registrations other than
underwriting discounts and commissions. All registration rights will terminate
five years after the date of this offering or, with respect to each holder of
registrable securities, at the time as the holder is entitled to sell all of
its shares in any three-month period under Rule 144 of the Securities Act.
Anti-Takeover Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, with some exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of Onvia.com without further action by the
stockholders.
In addition, upon completion of this offering, we will have in place the
following provisions which may have the effect of delaying or preventing
changes in control of Onvia.com:
. we will have a classified board of directors where only approximately
one-third of our directors will be up for election by the stockholders
each year;
. we will have provisions in our charter documents that will limit the
ability of our stockholders to call meetings of the stockholders;
. we will eliminate the ability of our stockholders to take action by
written consent; and
. we will have authorized 15,000,000 shares of preferred stock that,
without further vote or action by the stockholders, may be issued by the
board of directors to impede the success of any attempt to change
control of Onvia.com. We intent to use a portion of these shares of
preferred stock as part of a stockholders' rights plan, which will give
our board significant power in avoiding unwanted takeovers of Onvia.com.
Our stock option plan, employee stock purchase plan and directors' stock
option plan generally provide for assumption of these plans or substitution of
an equivalent option of a successor corporation or, alternatively, at the
discretion of the Board of Directors, exercise of some or all of the options
stock, including non-vested shares, or acceleration of vesting of shares issued
pursuant to stock grants, upon a change of control or similar event.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is U.S. Stock Transfer
Corporation.
Listing
We have applied for approval for quotation on the Nasdaq Stock Market's
National Market under the symbol "ONVI" for our common stock.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect its market price and impair our ability to raise equity
capital in the future. Only a limited number of shares will be available for
sale shortly after this offering because of contractual and legal restrictions
on resale as described below; however, after these restrictions lapse, sales of
substantial amounts of our common stock in the public market are possible.
Upon completion of the offering, we will have outstanding shares of
common stock. Of these shares, the shares sold in the offering, plus any shares
issued upon exercise of the underwriters' over-allotment option, will be freely
tradable without restriction under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act.
Affiliates are generally our officers, directors and 10% stockholders.
The remaining 31,480,390 shares outstanding, which includes the 1,689,701
shares of Series C preferred stock that we issued in December 1999, are
"restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted shares may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 under the Securities Act, which are summarized below. Sales of the
restricted shares in the public market or the availability of these shares for
sale could adversely affect the market price of the common stock.
Our directors, officers and securityholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation, the representative of the underwriters. Taking into account the
lock-up agreements, and assuming Credit Suisse First Boston Corporation does
not release stockholders from these agreements, the following shares will be
eligible for sale in the public market at the following times:
. Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.
. Beginning 180 days after the effective date, approximately 22,518,604
shares will be eligible for sale pursuant to Rule 701 and Rule 144,
assuming no exercise of options. In addition, warrants to purchase an
aggregate of 631,319 shares will be outstanding after this offering,
which, if exercised pursuant to net-exercise provisions, may be sold
beginning 180 days after the effective date.
. An additional 7,272,085 shares will be eligible for sale pursuant to
Rule 144 after September 2000, and an additional 1,689,701 shares will
be eligible for sale pursuant to Rule 144 after December 2000.
Under Rule 144, the number of shares that may be sold by our affiliates are
subject to volume restrictions. In general, under Rule 144, and beginning after
the expiration of the lock-up agreements 180 days after the date of this
prospectus, a person who has beneficially owned restricted securities for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of the following:
. one percent of the number of shares of common stock then outstanding
(which will equal approximately shares immediately after the
offering);
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the three months preceding a sale and who has
beneficially owned the
57
<PAGE>
shares proposed to be sold for at least two years, is entitled to sell these
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with some of its restrictions, including the
holding period requirement. Any of our employees, officers, directors or
consultants who purchased shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 144. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirement of Rule 144. Rule 701 further
provides that non-affiliates may sell these shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. In addition, we intend to file one
or more registration statements under the Securities Act promptly after the
effective date to register shares to be issued pursuant to our employee benefit
plans. As a result, any options exercised under the 1999 stock option plan, the
2000 employee stock purchase plan, the 2000 directors' stock option plan or any
other benefit plan after the effectiveness of a registration statement will
also be freely tradable in the public market, except that shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144. As of September 30,
1999, there were outstanding options for the purchase of 4,478,016 shares of
our common stock under the 1999 stock option plan. No shares have been issued
to date under the 2000 employee stock purchase plan or the 2000 directors'
stock option plan.
58
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist
LLC, FleetBoston Robertson Stephens Inc., E*OFFERING Corp. and William Blair &
Company, L.L.C. are acting as representatives, the following respective number
of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
FleetBoston Robertson Stephens Inc. ...............................
Hambrecht & Quist LLC..............................................
E*OFFERING Corp. ..................................................
William Blair & Company, L.L.C. ...................................
---------
Total............................................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of common stock in the offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or the offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $
per share on sales to other broker/dealers. After the initial public offering,
the public offering price and concession and discount to dealers may be changed
by the representatives.
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-Allotment Over-Allotment Over-Allotment Over-Allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We and our officers and directors and all of our stockholders have agreed
that we and they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to any
additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except,
in our case, issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
59
<PAGE>
At our request, the underwriters have reserved up to shares of common
stock offered hereby for sale at the initial public offering price to our
customers, consultants and others with whom we do business, existing
stockholders and friends of Onvia.com. As a result, the number of shares
available for sale to the general public will be reduced to the extent that
persons purchase these reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares of common stock offered hereby.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in respect to those liabilities.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "ONVI."
In December 1999, we sold shares of our Series C preferred stock in a
private placement at a purchase price of $13.71 per share. In this private
placement, Credit Suisse First Boston Corporation purchased 72,927 shares,
FleetBoston Robertson Stephens Inc. purchased 36,463 shares, Hambrecht & Quist
LLC purchased 36,463 shares, E*OFFERING Corp. purchased 7,293 shares and
William Blair & Company, L.L.C. purchased 36,463 shares. These organizations
purchased theses shares of Series C preferred stock on the same terms as the
other investors in the private placement.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
. the information set forth in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for future earnings;
. the present state of our development and our current financial
condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
60
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under these securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent; and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action Applicable to Ontario Purchasers
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside of Canada and, as a result, it may not
be possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
61
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Onvia.com by Venture Law Group, A Professional Corporation, Kirkland,
Washington. An investment partnership affiliated with Venture Law Group owns an
aggregate of 281,977 shares of our common stock, Mr. Ericson, a director of
Onvia.com and a director of Venture Law Group, owns 103,979 shares of our
common stock, and other attorneys at Venture Law Group own an aggregate of
32,364 shares of our common stock. The underwriters have been represented by
Wilson Sonsini Goodrich & Rosati, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 1998 and September
30, 1999 and for the period from March 25, 1997 (inception) through December
31, 1997, for the year ended December 31, 1998, and for the nine months ended
September 30, 1999 included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing in this
prospectus, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
WHERE TO FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
shares of common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement or in the exhibits and
schedules to the registration statement. For more information about us and the
common stock we are offering, you should review the registration statement and
the exhibits and schedules filed with the registration statement. Statements
contained in this prospectus regarding the contents of any contract or other
document to which reference is made are not necessarily complete, and in each
instance you should review the copy of such contract or other document filed as
an exhibit to the registration statement. A copy of the registration statement
may be inspected by anyone without charge at the Public Reference Section of
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. You may also obtain copies of all or any portion of the registration
statement from that office at prescribed rates. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference room. The SEC maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including us, that file electronically
with the SEC.
62
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Changes in Stockholders' (Deficit) Equity...... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Onvia.com, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Onvia.com,
Inc. and subsidiary (the Company) as of December 31, 1998 and September 30,
1999, and the related consolidated statements of operations, changes in
stockholders' (deficit) equity, and cash flows for the period from March 25,
1997 (inception) through December 31, 1997, for the year ended December 31,
1998, and for the nine months ended September 30, 1999. These consolidated
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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and September 30, 1999, and the results of their operations and their cash
flows for the period from March 25, 1997 (inception) through December 31, 1997,
for the year ended December 31, 1998, and for the nine months ended September
30, 1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Seattle, Washington
November 18, 1999 (December 20, 1999 as to Note 12)
F-2
<PAGE>
ONVIA.COM, INC.
Consolidated Balance Sheets
December 31, 1998 and September 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
December 31, September 30, September 30, 1999
1998 1999 (Note 8)
------------ ------------- ------------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents...... $ 44,659 $ 26,036,867
Accounts receivable............ 47,072 192,827
Inventory...................... 65,204 531,942
Prepaid expenses............... 2,212 1,638,946
Stock subscription receivable.. 4,000,000
--------- ------------
Total current assets......... 159,147 32,400,582
Property and equipment, net...... 20,925 4,826,993
Other assets..................... 971,283
--------- ------------
Total assets................. $ 180,072 $ 38,198,858
========= ============
Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
Accounts payable............... $ 219,852 $ 3,137,379
Accrued expenses............... 365,820 2,699,175
Unearned revenue............... 42,425 253,721
Convertible notes.............. 344,407
Current portion of long-term
debt.......................... 3,766,192
--------- ------------
Total current liabilities.... 972,504 9,856,467
Long-term debt................... 5,464,670
--------- ------------
Total liabilities............ 972,504 15,321,137
--------- ------------
Commitments and contingencies
(Note 6)
Stockholders' (deficit) equity:
Convertible preferred stock; no
par value:
Series A; 12,000,000 shares
authorized; 10,109,748
shares issued and
outstanding; ($11,819,991
liquidation preference)..... 12,724,961 $ --
Series B; 8,000,000 shares
authorized; 7,272,085 shares
issued and outstanding;
($25,000,000 liquidation
preference)................. 24,969,851 --
Common stock; no par value:
62,000,000 shares authorized;
4,000,400 and 12,024,232
shares issued and
outstanding................... 10,070 5,390,468 43,085,280
Unearned stock compensation.... (3,202,708) (3,202,708)
Accumulated deficit............ (802,502) (17,004,851) (17,004,851)
--------- ------------ -----------
Total stockholders' (deficit)
equity...................... (792,432) 22,877,721 $22,877,721
--------- ------------ ===========
Total liabilities and
stockholders' (deficit)
equity........................ $ 180,072 $ 38,198,858
========= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ONVIA.COM, INC.
Consolidated Statements of Operations
Period from March 25, 1997 (inception) through December 31, 1997,
Year Ended December 31, 1998 and Nine Months Ended September 30, 1998 and 1999
<TABLE>
<CAPTION>
Nine months
March 25, 1997 ended Nine months
(inception) to Year ended September 30, ended
December 31, December 31, 1998 September 30,
1997 1998 (unaudited) 1999
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue................. $ 62,174 $1,037,271 $ 653,232 $ 13,168,472
Cost of goods sold...... 46,894 1,082,448 608,691 15,708,812
---------- ---------- ---------- ------------
Gross margin............ 15,280 (45,177) 44,541 (2,540,340)
Operating expenses:
Sales and marketing... 41,321 206,436 74,646 6,320,734
Technology and
development.......... 12,707 191,968 97,123 2,576,634
General and
administrative....... 91,624 224,941 151,612 2,725,017
Amortization of
unearned stock-based
compensation......... 1,714,252
---------- ---------- ---------- ------------
Total operating
expenses........... 145,652 623,345 323,381 13,336,637
---------- ---------- ---------- ------------
Loss from operations.... (130,372) (668,522) (278,840) (15,876,977)
Other income (expense):
Interest income....... 182,463
Interest expense...... (3,608) (2,039) (507,835)
---------- ---------- ---------- ------------
Net loss................ $ (130,372) $ (672,130) $ (280,879) $(16,202,349)
========== ========== ========== ============
Basic and diluted net
loss per common share.. $ (0.03) $ (0.17) $ (0.07) $ (2.84)
========== ========== ========== ============
Pro forma net loss per
common share
(unaudited)............ $ (0.17) $ (1.18)
========== ============
Basic and diluted
weighted average shares
outstanding............ 4,000,400 4,000,400 4,000,400 5,695,076
========== ========== ========== ============
Pro forma weighted
average shares
outstanding
(unaudited)............ 4,000,400 13,731,030
========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ONVIA.COM, INC.
Consolidated Statements of Changes in Stockholders' (Deficit) Equity
Period from March 25, 1997 (inception) through December 31, 1997,
Year Ended December 31, 1998 and Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
M-Depot Internet
Series A Series B Onvia.com, Inc. Superstore, Inc.
preferred stock preferred stock common stock common stock
---------------------- --------------------- ---------------------- ------------------ Unearned
Shares Amount Shares Amount Shares Amount Shares Amount compensation
---------- ----------- --------- ----------- ---------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March
25, 1997
(inception)...... -- $ -- -- $ -- 4,000,000 $ 10,000 -- $ -- $ --
Issuance of
common stock.... 400 70
Net loss........
---------- ----------- --------- ----------- ---------- ---------- ------- -------- -----------
BALANCE, December
31, 1997......... 4,000,000 10,000 400 70
Exchange of M-
Depot Internet
Superstore, Inc.
common stock for
Onvia.com, Inc.
common stock.... 400 70 (400) (70)
Net loss........
---------- ----------- --------- ----------- ---------- ---------- ------- -------- -----------
BALANCE, December
31, 1998......... 4,000,400 10,070
Cancellation of
inception
shares.......... (4,000,400)
Issuance of
nonvested common
stock........... 11,992,180 697,569 (476,144)
Conversion of
notes payable
into Series A
preferred
stock........... 1,129,018 1,319,997
Issuance of
Series A
preferred stock,
net of offering
costs of
$232,580........ 8,980,730 10,251,821
Issuance of
common stock
warrants........ 241,853
Issuance of
Series A
preferred
warrants........ 1,153,143
Exercise of
common stock
warrants........ 32,052 160
Issuance of
Series B
preferred stock,
net of offering
costs of
$30,149......... 7,272,085 24,969,851
Unearned
compensation
relating to
issuance of
stock options... 3,569,221 (3,569,221)
Change in
unearned
compensation for
non-employees... 871,595 (871,595)
Amortization of
unearned
compensation on
nonvested common
stock........... 331,235
Amortization of
unearned
compensation on
stock options... 1,383,017
Net loss........
---------- ----------- --------- ----------- ---------- ---------- ------- -------- -----------
BALANCE,
September 30,
1999............. 10,109,748 $12,724,961 7,272,085 $24,969,851 12,024,232 $5,390,468 -- $ -- $(3,202,708)
========== =========== ========= =========== ========== ========== ======= ======== ===========
<CAPTION>
Accumulated
deficit Total
------------- ------------
<S> <C> <C>
BALANCE, March
25, 1997
(inception)...... $ -- $ 10,000
Issuance of
common stock.... 70
Net loss........ (130,372) (130,372)
------------- ------------
BALANCE, December
31, 1997......... (130,372) (120,302)
Exchange of M-
Depot Internet
Superstore, Inc.
common stock for
Onvia.com, Inc.
common stock....
Net loss........ (672,130) (672,130)
------------- ------------
BALANCE, December
31, 1998......... (802,502) (792,432)
Cancellation of
inception
shares..........
Issuance of
nonvested common
stock........... 221,425
Conversion of
notes payable
into Series A
preferred
stock........... 1,319,997
Issuance of
Series A
preferred stock,
net of offering
costs of
$232,580........ 10,251,821
Issuance of
common stock
warrants........ 241,853
Issuance of
Series A
preferred
warrants........ 1,153,143
Exercise of
common stock
warrants........ 160
Issuance of
Series B
preferred stock,
net of offering
costs of
$30,149......... 24,969,851
Unearned
compensation
relating to
issuance of
stock options...
Change in
unearned
compensation for
non-employees...
Amortization of
unearned
compensation on
nonvested common
stock........... 331,235
Amortization of
unearned
compensation on
stock options... 1,383,017
Net loss........ (16,202,349) (16,202,349)
------------- ------------
BALANCE,
September 30,
1999............. $(17,004,851) $22,877,721
============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ONVIA.COM, INC.
Consolidated Statements of Cash Flows
Period from March 25, 1997 (inception) through December 31, 1997,
Year Ended December 31, 1998 and Nine Months Ended September 30, 1998 and 1999
<TABLE>
<CAPTION>
Nine months
March 25, 1997 ended Nine months
(inception) to Year ended September 30, ended
December 31, December 31, 1998 September 30,
1997 1998 (unaudited) 1999
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(130,372) $(672,130) $(280,879) $(16,202,349)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Depreciation and
amortization......... 10,000 2,158 1,114 636,680
Amortization of
unearned stock-based
compensation......... 1,714,252
Amortization of debt
discount............. 70,218
Noncash interest
expense related to
issuance of common
stock warrants....... 241,853
Change in certain
assets and
liabilities:
Accounts
receivable......... (48,268) (16,194) (142,279)
Inventory........... (2,873) (64,116) (7,629) (463,368)
Prepaid expenses.... (3,631) 1,177 1,226 (1,235,845)
Other assets........ (1,018,634)
Accounts payable.... 9,130 216,784 228,224 2,901,854
Accrued expenses.... 121,871 246,798 88,709 2,539,667
Unearned revenue.... 2,148 41,644 5,294 208,594
--------- --------- --------- ------------
Net cash provided
(used) by operating
activities........... 6,273 (275,953) 19,865 (10,749,357)
Cash flows from
investing activities:
Additions to property
and equipment........ (23,083) (10,629) (4,133,365)
Cash flows from
financing activities:
Proceeds from
convertible debt..... 344,407 975,590
Proceeds from issuance
of long-term debt.... 9,163,888
Repayments on long-
term debt............ (508,715)
Proceeds from issuance
of common stock...... 70 12,828
Proceeds from issuance
of Series A preferred
stock, net........... 10,251,821
Proceeds from issuance
of Series B preferred
stock, net........... 20,969,851
--------- --------- --------- ------------
Net cash provided by
financing
activities........... 70 344,407 40,865,263
Effect of exchange rate
changes on cash........ (736) (6,319) (6,066) 9,667
--------- --------- --------- ------------
Net increase in cash and
cash equivalents....... 5,607 39,052 3,170 25,992,208
Cash and cash
equivalents, beginning
of year................ 5,607 5,607 44,659
--------- --------- --------- ------------
Cash and cash
equivalents, end of
year................... $ 5,607 $ 44,659 $ 8,777 $ 26,036,867
========= ========= ========= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1998 (unaudited) and 1999, Year Ended December
31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
Note 1: Summary of Significant Accounting Policies
Description of business
Onvia.com, Inc., formerly known as MegaDepot.com, Inc., (the "Company") was
incorporated on March 25, 1997 as MegaDepot, Inc. in the State of Washington.
M-Depot Internet Superstore, Inc., a company owned by the majority stockholder
of the Company, was incorporated in British Columbia, Canada on June 6, 1997.
In June 1998, the Company moved its headquarters from Vancouver, B.C. to
Seattle, Washington. On December 28, 1998, MegaDepot, Inc. exchanged shares of
its common stock for all of the outstanding common stock of M-Depot Internet
Superstore, Inc. (the "Subsidiary"). In February 1999, the Company changed its
name from MegaDepot, Inc. to MegaDepot.com, Inc., and in May 1999, changed its
name from MegaDepot.com, Inc. to Onvia.com, Inc.
The Company is an online supplier of goods and services to the small
business market. Through its web site customers can order a wide variety of
products commonly used by small businesses, such as computer hardware and
software, office supplies, office machines, office furniture and phone systems.
In addition, customers can order a variety of services commonly used by small
businesses, such as long distance phone service, cellular phone service, credit
card processing and payroll service. The Company also provides an online
business exchange service that connects small business buyers and sellers.
Basis of consolidation
The financial statements include the accounts of the Company and its wholly
owned subsidiary. As the companies were under common control from inception of
the Company, the financial statements are presented on a consolidated or
combined basis for all periods presented. All significant intercompany accounts
and transactions have been eliminated.
Unaudited interim financial information
The interim financial information for the nine months ended September 30,
1998 is unaudited and has been prepared on the same basis as the audited
financial statements. In the opinion of management, such unaudited financial
information includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim information.
Fair value of financial instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, prepaid expenses, other assets, accounts payable, accrued
liabilities, convertible notes and long-term debt. Except for long-term debt
and convertible notes, the carrying amounts of financial instruments
approximate fair value due to their short maturities. The fair values of long-
term debt and convertible notes are not materially different from their
carrying amounts, based on interest rates available to the Company for similar
types of arrangements.
Significant vendors
Approximately 78% of inventory purchases were from one supplier in the nine
months ended September 30, 1999. Three suppliers comprised 50%, 21%, and 21%,
respectively of total inventory purchases for the nine months ended September
30, 1998. Three suppliers comprised 41%, 29% and 25%, respectively, of
F-7
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
total inventory purchases for the year ended December 31, 1998. Two suppliers
comprised 69% and 31%, respectively, of total inventory purchases for the
period from March 25, 1997 (inception) to December 31, 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. Inventory represents
product shipped by the Company's suppliers, which has not been received by
customers. The Company does not stock its own inventory or maintain warehouse
locations, however, the Company does take ownership at the time of shipment
from the supplier until the product is received by the customer. In addition,
the Company assumes economic risk related to returned or damaged products.
Property and equipment
Equipment is stated at cost. Depreciation expense is recorded using the
straight-line method over estimated useful lives ranging from three to five
years. Leasehold improvements are depreciated over the lesser of the useful
lives or term of the lease.
Revenue recognition
Revenue from product sales is recognized upon receipt of product by the
customer. The Company acts as principal in those transactions, as orders are
initiated directly on the Company's web site, the Company takes title to the
goods during shipment, and has economic risk related to collection, customer
service and returns. Unearned revenue consists of payments received from
customers for product in transit to the customer. Revenue from exchange
services provided to customers was insignificant for all periods presented.
Income taxes
The Company accounts for income taxes using the asset and liability method
under which deferred tax assets, including the tax benefit from net operating
loss carryforwards and liabilities are determined based on temporary
differences between the book and tax bases of assets and liabilities. A
valuation allowance has been established for the full amount of the deferred
tax assets.
Valuation of long-lived assets
The Company periodically evaluates the carrying value of its long-lived
assets, including, but not limited to, property and equipment and other assets.
The carrying value of a long-lived asset is considered impaired
F-8
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
when the undiscounted net cash flow from such asset is estimated to be less
than its carrying value. Management does not believe that there were any long-
lived assets, which were subject to impairment at September 30, 1999.
Detachable stock purchase warrants
Proceeds from debt issued with detachable stock purchase warrants are
allocated between the debt and the warrants based on their relative fair
values. The value ascribed to the warrants is recorded as a debt discount and
amortized to interest expense over the term of the related debt using the
effective interest method.
Stock-based compensation
The Company's stock option plan is subject to the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Under the provisions of this standard, employee and
director stock-based compensation expense is measured using either the
intrinsic-value method as prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"), or the fair value
method described in SFAS 123. Companies choosing the intrinsic-value method are
required to disclose the pro forma impact of the fair value method on net
income. The Company has elected to account for its employee and director stock-
based awards under the provisions of APB 25. Under APB 25, compensation cost
for stock options is measured as the excess, if any, of the fair value of the
underlying common stock on the date of grant over the exercise price of the
stock option. The Company is required to implement the provisions of SFAS 123
for stock-based awards to those other than employees and directors. Stock-based
compensation expense for all equity instruments is recognized on an accelerated
basis.
Advertising costs
The Company expenses advertising costs as incurred. Advertising expense,
excluding amounts for co-branding agreements, for the nine months ended
September 30, 1999, the nine months ended September 30, 1998 and the year ended
December 31, 1998 was $3,533,955, $18,576 and $22,560, respectively. There was
no advertising expense for the period from March 25, 1997 (inception) to
December 31, 1997. At September 30, 1999, prepaid advertising costs of
$1,075,534, which are for future advertising placements, are included in
prepaid expenses.
Comprehensive income
The Company has adopted the provisions of Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective
January 1, 1998. SFAS No. 130 requires the presentation of comprehensive income
and its components. Comprehensive income is the change in equity from
transactions and other events and circumstances other than those resulting from
investments by owners and distributions to owners. For the nine months ended
September 30, 1999 and the year ended December 31, 1998, the components of
other comprehensive income were insignificant.
Foreign currency adjustment
The functional currency of the Subsidiary in Canada is the Canadian dollar.
Realized foreign currency transaction gains and losses are insignificant and
are included in cost of sales. Assets and liabilities of the Subsidiary in
Canada have been translated to U.S. dollars at year-end exchange rates.
Revenues and expenses have been translated at average monthly exchange rates.
F-9
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
Commitments and contingencies
The Company is subject to various legal proceedings that arise in the
ordinary course of business. In the opinion of management, the outcome of these
matters is not expected to have a material effect on the consolidated financial
position or results of operations of the Company.
Net loss per share
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period, including
contingently issuable shares for which all necessary conditions have been
satisfied. Diluted net loss per share is computed by dividing net loss by the
weighted average number of common shares and dilutive potential common shares
outstanding during the period. Securities totaling 27,902,354, 16,599 and
294,578 shares for the nine months ended September 30, 1999, the nine months
ended September 30, 1998 and for the year ended December 31, 1998,
respectively, have been excluded from the computation of diluted net loss per
share as their effects would be antidilutive. There were no dilutive common
stock equivalents for the period from March 25, 1997 (inception) through
December 31, 1997. Pro forma loss per share (unaudited) and pro forma weighted
average shares outstanding (unaudited) reflect the assumed conversion of
convertible preferred stock, as if such conversion occurred at the original
date of issuance (see Note 8).
Internally developed software
Effective for fiscal years beginning after December 15, 1998, the American
Institute of Certified Public Accountants ("AICPA") issued Statement of
Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires all costs related to
the development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. The Company adopted SOP 98-1 on
January 1, 1999 and capitalized $198,814 in internally developed software
costs. Capitalized software costs are amortized on a straight-line basis over a
useful life ranging from one to three years. Amortization related to the
capitalized software was $47,381 for the nine months ended September 30, 1999.
Start-up costs
In April 1998, the AICPA issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-Up Activities." This statement requires
companies to expense the costs of start-up activities and organization costs as
incurred. The Company adopted SOP 98-5 on January 1, 1999, and there was no
material impact on the accompanying financial statements.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS No. 133, which will be effective for the Company for the fiscal year and
quarters beginning after June 15, 2000, requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company does not
expect the potential effect of adopting the provisions of SFAS No. 133 to have
a significant impact on the Company's financial position, results of operations
and cash flows.
F-10
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
Reclassifications
Certain reclassifications of balances have been made for consistent
presentation.
Note 2: Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Computer equipment................................ $ 17,921 $2,569,830
Software.......................................... 558 1,797,337
Furniture and fixtures............................ 4,604 587,091
Leasehold improvements............................ 268,995
-------- ----------
23,083 5,223,253
Less: Accumulated depreciation.................... (2,158) (396,260)
-------- ----------
$ 20,925 $4,826,993
-------- ----------
</TABLE>
Note 3: Convertible Notes
During 1998, the Company issued convertible promissory notes in the amount
of $344,407, which accrued interest at 8% and matured one year from issuance.
In connection with these notes, the Company issued warrants to the noteholders
to purchase up to 416,676 shares of common stock at $0.005 per share upon the
closing of the Company's Series A preferred financing on February 25, 1999.
Interest expense of $241,853 was recorded upon issuance of the warrants.
In February 1999, the Company issued additional convertible promissory notes
in the amount of $975,590 to new and existing noteholders. The notes bore
interest at 6% and matured one year from issuance.
On February 25, 1999, the outstanding principal on the convertible notes of
$1,319,997 was converted into 1,129,018 shares of the Company's Series A
preferred stock in conjunction with the Series A preferred financing described
in Note 8.
Note 4: Long-term Debt
In August 1999, the Company obtained financing for the purchase of software
and post-contract software support in the amount of $1,658,614. The debt bears
interest at 13.8% per annum and matures in September 2000. Payments of
$110,278, including principal and interest, are to be made monthly through
September 2000.
In August 1999, the Company also entered into a subordinated debt
arrangement with two lenders to provide financing in the amount of $7,000,000.
The obligation bears interest at a coupon interest rate of 13.2% with an
effective rate of 24.2% per annum and matures in February 2002. Monthly
principal payments of $259,259 are scheduled beginning December 1999 through
February 2002. The debt is collateralized by all assets of the Company. In
conjunction with the debt financing, the Company issued warrants to purchase
582,655 shares of Series A preferred stock at $1.80 per share. The exercise
price on these warrants may be reduced based upon certain events to occur in
the future. The debt and warrants were recorded at their fair values of
$5,905,770 and $1,094,230, respectively.
In June 1999, the Company obtained an equipment loan financing in the
aggregate amount of up to $3,000,000 for the acquisition of capital equipment.
The loan bears interest at an average rate of 8.5% with an effective rate of
19.6% per annum and matures on August 1, 2002. The principal amount is payable
in
F-11
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
36 monthly payments; the first 35 payments of $68,514 and the last payment of
$393,097, which is due in August 2002. The loan is collateralized by the
equipment of the Company. In conjunction with the loan, the Company issued
warrants to purchase 48,664 shares of Series A preferred stock at $2.47 per
share. The debt and warrants were recorded at their fair values of $2,106,045
and $57,843, respectively. As of September 30, 1999, the Company has $836,112
available to borrow on the equipment financing agreement.
Debt consists of the following at September 30, 1999:
<TABLE>
<S> <C>
Note payable.................................................... $ 1,255,863
Subordinated debt obligation.................................... 7,000,000
Equipment term loan............................................. 2,057,924
-----------
10,313,787
Less: Unamortized debt discount................................. (1,082,925)
-----------
$ 9,230,862
===========
</TABLE>
Maturities of long-term debt at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ending September 30,
-------------------------
<S> <C>
2000.......................................................... $ 4,460,714
2001.......................................................... 3,834,893
2002.......................................................... 2,018,180
-----------
10,313,787
Less: Unamortized debt discount............................... (1,082,925)
-----------
9,230,862
Less: Current portion, net of discount........................ (3,766,192)
-----------
$ 5,464,670
===========
</TABLE>
Note 5: Income Taxes
At September 30, 1999, the Company had net operating loss carryforwards of
approximately $16,832,860, which may be used to offset future taxable income.
These carryforwards expire beginning in 2017. Should certain changes in the
Company's ownership occur, there could be a limitation on the utilization of
its net operating losses.
A reconciliation of taxes on net loss at the federal statutory rate to
actual tax expense is as follows:
<TABLE>
<CAPTION>
Period from
March 25, 1997 Nine months Nine months
through Year ended ended ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Tax at statutory rate... (34.0)% (34.0)% (34.0)% (34.0)%
Stock-based
compensation........... 29.4 % 4.4 % 7.7 % 3.6 %
Other................... 0.6 % 0.2 % 0.3 % 0.1 %
Change in valuation
allowance.............. 4.0 % 29.4 % 26.0 % 30.3 %
------- ------- ------- -------
0.0 % 0.0 % 0.0 % 0.0 %
======= ======= ======= =======
</TABLE>
F-12
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
The Company's net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Net operating loss carryforwards.................. $ 187,732 $ 5,723,172
Prepaid expenses and other assets................. -- (596,491)
Other accruals.................................... 484 46,660
Fixed assets...................................... 14,920 (63,137)
--------- -----------
Net deferred tax assets........................... 203,136 5,110,204
Less: Valuation allowance......................... (203,136) (5,110,204)
--------- -----------
Net deferred tax asset............................ $ -- $ --
========= ===========
</TABLE>
The Company has recorded a 100% valuation allowance equal to the net
deferred tax asset balance based upon management's determination that the
recognition criteria for realization have not been met.
Note 6: Commitments and Contingencies
Operating leases: The Company is committed under non-cancelable operating
leases for its current and former office space. During 1999, the Company
subleased certain office space for amounts equal to the rental obligation,
which expire in 2001. Future receipts under the operating subleases are
approximately $76,000.
Total rent expense was approximately $127,340, $3,937 and $20,330 for the
nine months ended September 30, 1999, the nine months ended September 30, 1998
and for the year ended December 31, 1998, respectively. Future minimum lease
payments required on non-cancelable operating leases are approximately as
follows:
<TABLE>
<CAPTION>
For the years ending September 30,
----------------------------------
<S> <C>
2000........................................................ $ 551,256
2001........................................................ 545,510
2002........................................................ 515,769
2003........................................................ 515,769
2004........................................................ 506,352
Thereafter.................................................... 852,190
-----------
$ 3,486,846
===========
</TABLE>
Lease deposit: The Company's leasing arrangement for its main corporate
facilities requires a letter of credit of $650,000 to be issued to the
landlord. This letter of credit is secured by a deposit of $650,000, which is
recorded in other assets. The letter of credit expires in May 2000; however,
the letter of credit is required to be renewed for consecutive one-year periods
for the term of the leasing arrangement.
Advertising agreement: In 1998, the Subsidiary entered into an agreement to
pay 4% of its revenues to a third party in exchange for advertising services.
Advertising expenses of $156,775, $17,874 and $22,560 were incurred under this
agreement for the nine months ended September 30, 1999, the nine months ended
September 30, 1998 and the year ended December 31, 1998, respectively.
Co-branding agreements: During 1999, the Company entered into approximately
20 co-branding agreements. These agreements require monthly license fees, and
certain agreements require payments based on sales generated on the co-branded
site. These agreements typically lapse over a period of three to twelve months
or upon 30 days notice by either party to the agreement. The related co-
branding royalties are included
F-13
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
in sales and marketing expenses. The Company recorded $955,736 in co-branding
fees in the nine months ended September 30, 1999.
Note 7: Stock Options
In February 1999, the Company adopted a combined stock option plan (the
"1999 Plan") which provides for the issuance of incentive and nonstatutory
common stock options to employees, directors and consultants of the Company.
The Board of Directors reserved 5,200,000 shares of common stock to be issued
in conjunction with the 1999 Plan. In conjunction with the Series B preferred
financing discussed in Note 8, the Board of Directors reserved an additional
1,454,415 shares of common stock for issuance under the 1999 Plan. Pursuant to
a common stock purchase agreement described in Note 8, 513,112 shares were
issued from the 1999 Plan option pool.
Stock options are granted at exercise prices and vesting schedules
determined by the Board of Directors. All options granted to employees have
been approved by the Board of Directors with four year vesting schedules.
Options granted to consultants of the Company have been approved by the Board
of Directors with varying vesting schedules of up to four years. Stock options
expire ten years after the date of grant. The following table summarizes stock
option activity for the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
Weighted-
average
Options exercise
outstanding price
----------- ---------
<S> <C> <C>
Options granted...................................... 4,572,016 $0.30
Options forfeited.................................... (94,000) $0.30
---------
Outstanding at September 30, 1999.................... 4,478,016 $0.30
=========
Options exercisable at September 30, 1999............ 1,103,828 $0.17
=========
</TABLE>
There were 1,663,287 shares available for issuance under the 1999 Plan as of
September 30, 1999, and the weighted average fair value of options granted
during this period was $.84 per share. During the nine months ended September
30, 1999, the Company recorded compensation expense of $172,381 related to the
issuance of stock options for services provided by consultants and $1,210,636
on stock options issued to employees. The Company did not issue any stock
options during the year ended December 31, 1998 or the period from March 25,
1997 (inception) to December 31, 1997.
The following table summarizes information about stock options outstanding
and exercisable at September 30, 1999:
<TABLE>
<CAPTION>
Options outstanding
--------------------------------------------------------------------------------
Weighted-
average
Range of remaining
exercise Number contractual Options
prices of options life exercisable
-------- ---------- ----------- -----------
<S> <C> <C> <C>
$0.13 1,756,956 8.91 742,622
$0.25 1,836,560 9.08 361,206
$0.50 69,000 9.71 --
$0.75 707,000 9.86 --
$1.00 108,500 9.96 --
--------- ---------
4,478,016 9.17 1,103,828
========= =========
</TABLE>
F-14
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
In accordance with SFAS 123, the fair value of each employee option grant is
estimated on the date of grant using the minimum value option-pricing model
assuming the following weighted average assumptions: risk free interest rate of
5.60%; volatility of 0%; dividends of $0; and an expected life of four years.
Had the Company determined compensation expense based on the fair value of the
option at the grant date for all stock options issued to employees, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Nine months
ended
September 30,
1999
-------------
<S> <C>
Net loss
As reported................................................. $(16,202,349)
Pro forma................................................... $(16,307,094)
Net loss per share
As reported-basic and diluted............................... $ (2.84)
Pro forma-basic and diluted................................. $ (2.86)
</TABLE>
Note 8: Stockholders' (Deficit) Equity
Authorized shares
On September 29, 1999, the Articles of Incorporation were amended to
increase the number of authorized shares of common stock from 50,000,000 to
62,000,000 and increase the number of authorized shares of preferred stock from
12,000,000 to 20,000,000, of which 12,000,000 are designated as Series A
preferred stock and 8,000,000 are designated as Series B preferred stock.
Common stock splits
On February 16, 1999, the Board of Directors amended the Company's Articles
of Incorporation and authorized a two-for-one common stock split. The number of
authorized shares of common stock of the Company was increased from 10,000,000
shares to 20,000,000 shares. In addition, on July 29, 1999, the Board of
Directors approved an additional two-for-one common stock split. The stock
splits were effected in the form of a stock dividend. These stock splits have
been presented retroactively in the accompanying financial statements.
Convertible preferred stock
On February 25, 1999, the Company issued 8,980,730 shares of Series A
convertible voting preferred stock at $1.17 per share resulting in proceeds of
$10,251,821, net of issuance costs of $232,580 and stock subscription
receivables of $15,593. A consulting firm was issued 59,872 shares as a part of
this financing round in consideration for past services provided to the
Company. Expense of $70,050 was recorded in conjunction with this transaction.
The $344,407 of convertible promissory notes outstanding as of December 31,
1998 were converted into 294,576 shares of Series A preferred stock as part of
this transaction. In addition, convertible promissory notes for $975,590 issued
in February 1999 were converted into 834,442 shares of Series A preferred
stock.
On September 30, 1999, the Company issued 7,272,085 shares of its Series B
preferred stock at $3.44 per share resulting in proceeds of $24,969,851, net of
issuance costs of $30,149. Proceeds of $4,000,000 were received by the Company
subsequent to period end and are recorded as a stock subscription receivable
within total current assets at September 30, 1999.
F-15
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
Each share of Series A and Series B preferred stock is convertible on a one
for one basis to common stock at the option of the holder, subject to
adjustment in certain instances or automatically upon registration of the
Company's common stock pursuant to a public offering under the Securities Act
of 1933 ("an Offering"). The Series A and Series B preferred stock would be
converted upon an Offering at a price of not less than $6.89 per share with
aggregate proceeds of not less than $30,000,000, or by the written consent of
the holders of seventy-five percent of the outstanding shares of Series B
preferred stock.
The holder of each share of preferred stock has the right to one vote for
each share of common stock into which such preferred stock can be converted.
Preferred stockholders have the same voting rights and powers as common
stockholders. Holders of the Company's preferred stock and warrants have no
registration rights.
Dividends are based on a rate of $.105 and $.31 per share per annum on each
outstanding share of Series A and Series B preferred stock, respectively, or,
if greater, an amount equal to any dividend paid on any other outstanding
shares of the Company. Dividends are not cumulative and are payable when and if
declared by the Board of Directors.
In the event of a liquidation of the Company, the holders of Series B
preferred stock will receive a liquidation preference of up to $3.44 per share
over the holders of Series A preferred and common stock. Upon satisfaction of
Series B preferences, distributions will be made to Series A preferred
stockholders in an amount up to $1.17 per share. Upon completion of preference
distributions to Series A and Series B preferred stockholders , any remaining
amounts will be distributed among the common stockholders on a pro rata basis.
Dividend Policy
The Company has never declared or paid dividends on its capital stock. The
Company's existing borrowing agreements prohibit the payment of dividends.
Issuance and cancellation of common stock
On March 25, 1997, the Company issued 4,000,000 shares of common stock to
the founder in exchange for certain assets with a fair value of $10,000.
On January 18, 1999, the Company cancelled all 4,000,400 outstanding shares
of the Company's common stock, pursuant to the issuance of 11,479,068 shares of
nonvested common stock to employees and other outside parties.
Issuance of nonvested common stock
Prior to December 31, 1998 the Company entered into agreements with certain
employees and other outside parties to perform services, which would be settled
in cash or equity securities, at the Company's discretion. The Company recorded
a liability for the cost of these agreements for each period through December
31, 1998.
In January 1999, the Company issued 11,479,068 shares of nonvested common
stock to these employees and outside parties related to these agreements. These
shares are subject to a repurchase option, which allows the Company the right
to repurchase the shares upon termination of employment. The repurchase option
on the nonvested common stock expires ratably over four years from date of hire
or commencement of services on a monthly basis. The expiration of the
repurchase option may accelerate upon certain change of control transactions.
Compensation expense of $44,994, $63,212, $86,084 and $122,673 was recognized
during the
F-16
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
nine months ended September 30, 1999, the nine months ended September 30, 1998,
the year ended December 31, 1998 and the period from March 25, 1997 (inception)
through December 31, 1997, respectively, related to these agreements. Expense
relating to nonvested common stock to third parties was $136,582 for the nine
months ended September 30, 1999.
In April 1999, the Company issued 513,112 shares of nonvested common stock
under the 1999 Plan to the chairman of the Board of Directors in exchange for
$12,828. The issued shares had a fair value of $.79 per share as of the grant
date. These shares are subject to a repurchase option which allows the Company
the right to repurchase the shares upon termination of employment or consulting
services provided. The repurchase option expires over four years with a 25%
cliff after the first year and ratably thereafter on a monthly basis, and may
accelerate upon certain change of control transactions. Compensation expense in
the amount of $149,659 was recognized for these shares for the nine months
ended September 30, 1999.
Warrants to purchase Series A preferred stock
During 1999, the Company issued warrants to purchase up to 582,655 shares of
its Series A preferred stock at $1.80 per share in conjunction with its
subordinated debt financing. These warrants are exercisable immediately upon
grant and expire through the later of ten years after date of grant or five
years after the closing of an Offering. The exercise price of the warrants is
subject to adjustment upon the occurrence of certain corporate events or the
Company meeting specified operating criteria. The Series A preferred stock
purchase warrants automatically convert into common stock purchase warrants
upon the effectiveness of an Offering.
The Company also issued warrants to purchase up to 48,664 shares of its
Series A preferred stock at $2.47 per share in conjunction with its equipment
line financing. These warrants are exercisable immediately upon grant and
expire through the later of nine years after date of grant or four years after
the closing of an Offering. The warrants automatically convert into common
stock purchase warrants upon the effectiveness of an Offering.
Warrants to purchase common stock
In February 1999, the Company issued warrants to purchase up to 416,676
shares of its common stock in conjunction with its convertible debt financing
in 1998. The warrants are exercisable at $0.005 per share and vest immediately
upon issuance. The warrants expire on the earliest of five years from the date
of issuance; upon a change of control, as defined; or upon the closing of an
initial public offering. In July 1999, a warrant holder exercised warrants to
purchase 32,052 shares of common stock.
Note 9: Related Party Transactions
The Company paid a company owned by the majority stockholder of the Company
$92,808, $30,710, $83,761 and $17,497 for the nine months ended September 30,
1999, the nine months ended September 30, 1998, the year ended December 31,
1998 and the period from March 25, 1997 (inception) through December 31, 1997,
respectively, for certain services, including wages, benefits, management fees,
office expenses and other miscellaneous expenses. As of September 30, 1999 and
1998, and December 31, 1998 and 1997, the Company owed $12,753, $0, $10,880 and
$17,497 to this affiliated entity for services performed during the respective
periods. For the nine months ended September 30, 1999, the year ended December
31, 1998 and the period from March 25, 1997 (inception) through December 31,
1997, respectively, the Company had sales of $34,916, $0 and $15,132 to this
affiliated entity. In February 1999, the Company entered into an agreement
F-17
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
with this affiliated entity to pay $3,300 per month for certain shared costs.
This agreement was terminated in August 1999. In August 1999, the Company sub-
leased its former office space to this affiliated entity. The lease expires in
May 2001 with monthly payments of $2,279. The Company is a guarantor of the
primary lease in the event that the affiliated entity fails to meet its
obligations under the sublease.
A director and stockholder provided legal and professional services to the
Company in the amount of $247,055 during the nine month period ended September
30, 1999. Additionally, as of December 31, 1998, the Company owed certain
employees $44,407 under convertible debt agreements.
Note 10: Segment Information
Statement of Financial Accounting Standards No. 131 (SFAS No. 131")
"Disclosures about Segments of an Enterprise and Related Information"
establishes reporting and disclosure standards for an enterprise's operating
segments. The Company uses identical principles to account for segment
information as used in the accompanying financial statements. Operating
segments are defined as components of an enterprise for which separate
financial information is available and regularly reviewed by management.
Management operates its business based upon geographic area. Operating results
by business segment are as follows:
<TABLE>
<CAPTION>
US Canada Totals
------------ ---------- ------------
<S> <C> <C> <C>
Period from March 25, 1997 (inception)
to December 31, 1997
Net revenue........................... $ -- $ 62,174 $ 62,174
Net loss.............................. (112,518) (17,854) (130,372)
Total assets.......................... 193 11,717 11,910
Year ended December 31, 1998
Net revenue........................... $ 153,356 $ 883,915 $ 1,037,271
Net loss.............................. (406,795) (265,335) (672,130)
Total assets.......................... 67,402 112,670 180,072
Property and equipment................ 17,319 3,606 20,925
Depreciation and amortization......... 1,288 870 2,158
Interest expense...................... -- (3,608) (3,608)
Additions to property and equipment... 19,477 3,606 23,083
Nine months ended September 30, 1998
(unaudited)
Net revenue........................... $ 17,928 $ 635,304 $ 653,232
Net loss.............................. (186,222) (94,657) (280,879)
Total assets.......................... 7,048 38,691 45,739
Property and equipment................ 4,836 4,482 9,318
Depreciation and amortization......... 771 343 1,114
Interest expense...................... -- (2,039) (2,039)
Additions to property and equipment... 7,607 3,022 10,629
Nine months ended September 30, 1999
Net revenue........................... $ 9,917,034 $3,251,438 $ 13,168,472
Net loss.............................. (15,215,774) (986,575) (16,202,349)
Total assets.......................... 37,481,352 717,506 38,198,858
Property and equipment................ 4,605,905 221,088 4,826,993
Other assets.......................... 945,602 25,681 971,283
Depreciation and amortization......... 614,668 22,012 636,680
Interest income....................... 182,463 -- 182,463
Interest expense...................... (507,835) -- (507,835)
Noncash compensation expense.......... 1,628,324 85,928 1,714,252
Additions to property and equipment... 5,152,549 236,327 5,388,876
Additions to other assets............. 992,953 25,681 1,018,634
</TABLE>
F-18
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
Note 11: Supplemental Cash Flow Information
Noncash investing and financing activities are as follows:
On March 25, 1997, the Company issued 4,000,000 shares of common stock
to the founder in exchange for certain assets with a fair value of $10,000.
On February 25, 1999, the Company issued warrants to purchase its common
stock at $.005 per share. The noncash value allocated to these warrants was
$241,853.
On February 25, 1999, the outstanding convertible debt of the Company in
the amount of $1,319,997 was converted into shares of its Series A
preferred stock.
On June 15, 1999 and August 5, 1999, the Company issued warrants to
purchase its Preferred A stock in conjunction with its debt financings on
these dates. The value allocated to the warrants was $1,153,143.
In conjunction with its Series B preferred stock financing on September
30, 1999, the Company issued a stock subscription receivable for shares
with a value of $4,000,000. The proceeds from this receivable were
collected subsequent to September 30, 1999.
On August 13, 1999, the Company purchased software of $1,255,511 and
post-contract support of $403,103 in exchange for a promissory note.
Supplemental cash flow information:
Cash paid for interest during the nine months ended September 30, 1999 was
$320,684. The Company paid no cash for interest in the year ended December 31,
1998 or the period from March 25, 1997 (inception) to December 31, 1997.
Note 12: Subsequent Events
On December 20, 1999, the Board of Directors authorized the Company to file
a registration statement with the Securities and Exchange Commission for the
purpose of an initial public offering of the Company's common stock. Upon the
completion of this offering, the Company's preferred stock will be converted
into shares of common stock, and all outstanding shares of preferred stock will
be cancelled and retired. Further, warrants to purchase 384,624 shares of
common stock will expire if not exercised prior to the close of this offering.
On December 15, 1999, the Company's Board of Directors approved the
acceleration of vesting on all outstanding nonvested common stock and stock
options issued to advisors and other outside parties. This acceleration
established a measurement date for these equity instruments resulting in a
significant charge to the Company's statement of operations in the fourth
quarter of 1999. Further, certain stock options to purchase 1,335,777 shares of
common stock issued to senior management were converted to common stock which
are subject to a repurchase option upon termination of employment. These
repurchase options expire over the remaining vesting period of the original
stock option agreements.
From October 1, 1999 through December 20, 1999, employees exercised options
for 748,801 shares of common stock in consideration for $202,124. Non-employees
exercised options for 553,956 shares of common stock in consideration for
$99,244.
F-19
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Nine Months Ended September 30, 1998 (unaudited) and 1999,
Year Ended December 31, 1998
and Period from March 25, 1997 (inception) through December 31, 1997
On December 16, 1999, the Company signed a lease agreement for new corporate
office facilities. Monthly lease payments range from $61,625 to $173,188
through the expiration of the agreement in February, 2007. Total lease
obligations under this agreement aggregate to $14,598,750 over the seven year
lease period.
On December 20, 1999, the Company consummated a sale of convertible Series C
preferred stock at $13.71 per share resulting in gross proceeds of $23.2
million. The Company estimates its issuance costs to have been approximately
$700,000. The Series C preferred stock is convertible into one share of common
stock and has preferences, liquidation and voting rights similar to those of
the Series A and B preferred stock. The Company recorded a significant
preferred stock dividend immediately upon issuance of the Series C preferred
stock for the value of a beneficial conversion feature equal to the difference
between the estimated fair value of the Company's common stock and the purchase
price. To facilitate the sales of Series C preferred stock, the Board of
Directors approved an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of preferred stock from 20,000,000 to
23,000,000, of which 3,000,000 is designated as Series C preferred stock.
On December 20, 1999, the Board of Directors approved an amendment to the
Company's Articles of Incorporation to increase the number of authorized common
stock from 62,000,000 to 65,000,000.
On December 20, 1999, the Board of Directors approved an amendment to the
1999 stock option plan to increase the number of shares reserved for issuance
to 9,000,000 to allow for an annual automatic increase in the number of shares
reserved. Further, the Board approved a 2000 Directors' Stock Option Plan for
issuance of up to 300,000 shares of common stock and a 2000 Employee Stock
Purchase Plan for issuance of up to 300,000 shares of common stock. Between
October 1, 1999 and December 20, 1999, the Board of Directors granted to
employees 755,666 options for common stock, at a weighted average exercise
price of $5.10.
On December 20, 1999, the Board of Directors authorized the Company to re-
incorporate in the State of Delaware.
In October 1999, the Company received a promissory note from its majority
stockholder in the amount of $350,000, collateralized by shares of the
Company's common stock. The note bears interest at 6% per annum. The principal
and interest are payable upon demand at the earlier of October 2004 or the
expiration of any lock-up period after an Offering. The note also becomes due
if certain change of control events take place.
In addition, the Board of Directors authorized the issuance of promissory
notes to senior executives in an aggregate amount of up to $1,000,000,
collateralized by shares of the Company's common stock held by them. When
issued, the notes will bear interest at a rate of 6% per annum. The principal
and interest are payable upon demand at the earlier of four years from the date
of issuance or the expiration of any lock-up period after a public offering.
The note becomes due if certain change of control events take place.
F-20
<PAGE>
WHAT SMALL BUSINESSES SAY ABOUT ONVIA.COM
"As a small business owner and as a one-person shop, Onvia.com has really
simplified my life-you've allowed me to have the resources at my fingertips to
be able to look like I am a larger company-that's very important to me. Thank
you for simplifying my life!"
- --Mark Dyce, principal of Kavacom
"We have generated over $15,000 worth of business as a result of Onvia.com's RFQ
program in only 1 month. It's an excellent source of great leads!'
- --David Daniels, Cloud Source
"I am very impressed with the OnviaFlash! newsletter I received today. It is
absolutely a value-added service. Well done."
- --Bruce D. Weinberg, Assistant Professor of Marketing and E-commerce, Boston
University Graduate School of Management
"Starting my business 20 years ago I wish I would have had a service like
Onvia.com--I've found it amazing what it can do for me as far as the marketing
research, as well as the shopping for my office supplies & equipment, and long
distance services. I love how you can actually compare--it's a great service for
my business, like having a whole other department!'
- --Crystal Wilson, founder and owner, Salon Ultimate
<PAGE>
[LOGO OF ONVIA.COM]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Onvia.com in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to
be Paid
---------
<S> <C>
SEC registration fee............................................... $ 26,400
NASD filing fee.................................................... 10,500
Nasdaq National Market listing fee................................. *
Printing and engraving expenses.................................... 225,000
Legal fees and expenses............................................ 350,000
Accounting fees and expenses....................................... 250,000
Blue Sky qualification fees and expenses........................... 3,000
Transfer Agent and Registrar fees.................................. 10,000
Miscellaneous fees and expenses.................................... *
--------
Total.......................................................... *
========
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporations's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification under
specific circumstances for liabilities including reimbursement for expenses
incurred arising under the Securities Act. Onvia.com's Certificate of
Incorporation and Bylaws will provide for indemnification of Onvia.com's
directors, officers, employees and other agents to the maximum extent permitted
by Delaware law. In addition, Onvia.com has entered into indemnification
agreements (Exhibit 10.1) with some of its officers and directors. The
Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification
among Onvia.com and the Underwriters with respect to certain matters, including
matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
(a) Since inception in March 1997, Onvia.com has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:
(1) In March 1997 Onvia.com issued and sold 4,000,000 shares of its common
stock at a price of $0.0025 per share to Glenn Ballman. The issuance of these
securities was deemed to be exempt from registration under the Securities Act
in reliance on Section 4(2) of the Securities Act as a transaction by an issuer
not involving any public offering. Based on information supplied by Onvia.com
to Mr. Ballman and the relationship between Onvia.com and Mr. Ballman, Mr.
Ballman had adequate access to information about Onvia.com. Onvia.com did not
make any offer to sell the securities by means of any general solicitation or
general advertising within the meaning of Rule 502 of Regulation D under the
Securities Act.
(2) In January 1999, Onvia.com issued and sold 400 shares of its common
stock to Glenn Ballman in consideration for all of the outstanding shares of M-
Depot Internet Superstore, Inc., which in December 1999 changed its name to
Onvia.com, Inc., a Canadian federal corporation. The issuance of these
securities was deemed to be exempt from registration under the Securities Act
in reliance on Section 4(2) of the Securities Act as a transaction by an issuer
not involving any public offering. Based on information supplied by
II-1
<PAGE>
Onvia.com to Mr. Ballman and the relationship between Onvia.com and Mr.
Ballman, Mr. Ballman had adequate access to information about Onvia.com. Mr.
Ballman represented his intentions to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and an appropriate legend was affixed to the securities. Onvia.com did
not make any offer to sell the securities by means of any general solicitation
or general advertising within the meaning of Rule 502 of Regulation D under the
Securities Act.
(3) In January 1999, Onvia.com issued and sold 11,479,068 shares of its
common stock at a price of $0.0025 per share to 20 individuals. The issuance of
these securities was deemed to be exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act as transactions by an
issuer not involving any public offering. Based on representations made to
Onvia.com by the investors, information supplied by Onvia.com to the investors
and the relationship between Onvia.com and the investors, all investors had
adequate access to information about Onvia.com. In addition, based on
representations made to Onvia.com by the investors, the investors were able to
bear the financial risk of their investment. The investors represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the securities. Onvia.com did not make any offer to sell the
securities by means of any general solicitation or general advertising within
the meaning of Rule 502 of Regulation D of the Securities Act.
(4) In February 1999, Onvia.com issued 10,109,748 shares of Series A
preferred stock to a total of 35 investors for an aggregate purchase price of
$11,819,991. 1,129,018 of these shares of Series A preferred stock were issued
pursuant to conversion of convertible notes sold by Onvia.com between September
1998 and February 1999. The remaining 8,980,730 of these shares were sold for
cash. In February 1999 Onvia.com also issued warrants to purchase up to an
aggregate of 416,676 shares of common stock at an exercise price of $0.005 per
share to six investors who had bought convertible notes between September and
December 1998. The issuance of these securities was deemed to be exempt from
registration under the Securities Act pursuant to Rule 506 under Regulation D.
Based on representations made to Onvia.com by the investors, information
supplied by Onvia.com to the investors and the relationship between Onvia.com
and the investors, all investors had adequate access to information about
Onvia.com. Based on representations made to Onvia.com by the investors, the
investors were all accredited investors within the meaning of Rule 501 of
Regulation D under the Securities Act and were able to bear the financial risk
of their investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
securities. Onvia.com did not make any offer to sell the securities by means of
any general solicitation or general advertising within the meaning of Rule 502
of Regulation D of the Securities Act.
(5) In June 1999, in connection with a loan and security agreement between
Onvia.com and Dominion Venture Finance L.L.C., Onvia.com issued a warrant to
purchase up to 48,664 shares of Series A Preferred Stock at an exercise price
of $2.47 per share. The issuance of this security was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as a transaction by an issuer not involving any public offering.
The investor was a lending institution. Based on representations made to
Onvia.com by the investor, information supplied by Onvia.com to the investor
and the relationship between Onvia.com and the investor, the investor had
adequate access to information about Onvia.com The investor represented its
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the securities. Onvia.com did not make any offer to sell the
securities by means of any general solicitation or general advertising within
the meaning of Rule 502 of Regulation D of the Securities Act.
(6) In August 1999, in connection with a loan and security agreement among
Onvia.com, MMC/GATX Partnership No. 1 and Comdisco, Inc., Onvia.com issued a
warrant to purchase up to 249,709 shares of Series A preferred stock at an
exercise price of $1.80 per share to MMC/GATX Partnership No. 1 and a warrant
to purchase up to 332,946 shares of Series A Preferred Stock at an exercise
price of $1.80 per share to Comdisco, Inc. The issuance of these securities was
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving
II-2
<PAGE>
any public offering. The investors were lending institutions. Based on
representations made to Onvia.com by the investors, information supplied by
Onvia.com to the investors and the relationship between Onvia.com and the
investors, the investors had adequate access to information about Onvia.com.
Based on representations made to Onvia.com by the investors, the investors were
accredited investors within the meaning of Rule 501 of Regulation D under the
Securities Act and were able to bear the financial risk of their investment.
The investors represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities.
Onvia.com did not make any offer to sell the securities by means of any general
solicitation or general advertising within the meaning of Rule 502 of
Regulation D of the Securities Act.
(7) In September 1999, Onvia.com issued and sold 7,272,085 shares of Series
B preferred stock to a total of 6 investors for an aggregate purchase price of
$25,000,000. The issuance of these securities was deemed to be exempt from
registration under the Securities Act pursuant to Rule 506 under Regulation D.
Based on representations made to Onvia.com by the investors, information
supplied by Onvia.com to the investors and the relationship between Onvia.com
and the investors, all investors had adequate access to information bout
Onvia.com. Based on representations made to Onvia.com by the investors, the
investors were all accredited investors within the meaning of Rule 501 of
Regulation D under the Securities Act and were able to bear the financial risk
of their investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
securities. Onvia.com did not make any offer to sell the securities by means of
any general solicitation or general advertising within the meaning of Rule 502
of Regulation D of the Securities Act.
(8) In December 1999, Onvia.com issued and sold a total of 1,689,701 shares
of Series C preferred stock to 32 private investors for an aggregate purchase
price of $23,165,800. The issuance of these securities was deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
These investors were sophisticated venture capital or other funds, corporations
and sophisticated individuals. The actual number of investment decisionmakers
is smaller than the number of investors due to the splitting out of the
allocated investment by the venture capital funds among affiliated entities and
individuals. Based on representations made to Onvia.com by the investors,
information supplied by Onvia.com to the investors and the relationship between
Onvia.com and the investors, all investors had adequate access to information
bout Onvia.com. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
securities. Onvia.com did not make any offer to sell the securities by means of
any general solicitation or general advertising within the meaning of Rule 502
of Regulation D of the Securities Act.
(9) Onvia.com has issued an aggregate of 5,317,682 options to purchase its
common stock to 210 of its employees, directors and consultants with exercise
prices ranging from $0.125 to $12.34 per share and has issued and sold
3,211,646 shares its common stock, net of repurchases, pursuant to the exercise
of such options or pursuant to stock purchase agreements. These issuances were
made in reliance upon Rule 701 promulgated under the Securities Act in that
they were sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of Onvia.com.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.2* Amended and Restated Certificate of Incorporation of Onvia.com
(proposed).
3.3 Bylaws of Onvia.com, as amended and restated.
3.4* Amended and Restated Bylaws (proposed).
4.1* Form of Onvia.com's common stock certificate.
4.2* Amended and Restated Investors' Rights Agreement dated December 20,
1999.
4.3* Form of Common Stock Purchase Warrant issued in connection with the
Series A Preferred Stock financing on February 25, 1999.
4.4 Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Dominion Capital Management L.L.C. as of June 15, 1999.
4.5* Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Comdisco, Inc. as of August 5, 1999.
4.6* Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Meier Mitchell & Company as of August 5, 1999.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1 Form of Indemnification Agreement between Onvia.com and each of its
officers and directors.
10.2* Series A Preferred Stock Purchase Agreement dated February 25, 1999.
10.3* Series B Preferred Stock Purchase Agreement dated September 30, 1999.
10.4* Series C Preferred Stock Purchase Agreement dated December 20, 1999.
10.5* Loan and Security Agreement between Onvia.com and Dominion Venture
Finance L.L.C. dated as of June 15, 1999.
10.6 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Comdisco, Inc. and Onvia.com dated as of August 5, 1999.
10.7* Office Lease between Firdex Associates and MegaDepot.com, Inc. dated
as of April 1999.
10.8* Office Lease among Stratton Properties, Inc., Glenn Ballman and
MegaDepot.com, Inc. dated as of May 9, 1998.
10.9* Lease between Onvia.com and No. 150 Cathedral Ventures Ltd. dated as
of June 1, 1999.
10.10* 1999 Stock Option Plan.
10.11* Secured Promissory Note issued by Glenn Ballman to Onvia.com dated as
of October 14, 1999.
10.12* Offer Letter dated March 25, 1999 with Mark Calvert.
10.13 Offer Letter dated August 25, 1999 with Douglas Kellam.
10.14 Offer Letter dated July 27, 1999 with Louis T. Mickler.
10.15 Offer Letter dated July 23, 1999 with Mark Pawlosky.
10.16* Offer Letter dated March 15, 1999 with Clayton Lewis.
10.17* Common Stock Purchase Agreement with Glenn Ballman dated as of January
9, 1999.
10.18* Common Stock Purchase Agreement with Glenn Ballman dated as of January
18, 1999.
10.19* Common Stock Purchase Agreement with Mark Calvert dated as of January
18, 1999.
10.20* Common Stock Purchase Agreement with Rob Ayer dated as of January 18,
1999.
10.21* Common Stock Purchase Agreement with Kristen Hamilton dated as of
January 18, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.22* Common Stock Purchase Agreement with William W. Ericson dated as of
January 18, 1999.
10.23* Common Stock Purchase Agreement with Mike Pickett dated as of April 9,
1999.
10.24* Common Stock Purchase Agreement with Jeffrey Ballowe dated as of
December 8, 1999.
10.25* Mercer Yale Building Office Lease Agreement between Onvia.com and
Blume Yale Limited Partnership dated as of December 9, 1999.
10.26* 2000 Employee Stock Purchase Plan.
10.27* 2000 Directors' Stock Option Plan.
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Venture Law Group, A Professional Corporation (see Exhibit
5.1).
24.1 Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are inapplicable
or the requested information is shown in the financial statements of the
registrant or the related notes to the financial statements.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (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 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4), or
497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and this
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, State of Washington, on December 21, 1999.
Onvia.com, Inc.
By: /s/ Glenn S. Ballman
----------------------------------
Glenn S. Ballman
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Glenn S. Ballman and Mark T. Calvert, and each
one of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and any and all
registration statements filed pursuant to Rule 462 under the Securities Act of
1933, as amended, in connection with or related to the offering contemplated by
this registration statement and its amendments, if any, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof. This Power of Attorney may be signed in
several counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Glenn S. Ballman President, Chief Executive December 21, 1999
____________________________________ Officer and Director
Glenn S. Ballman (Principal Executive
Officer)
/s/ Mark T. Calvert Vice President and Chief December 21, 1999
____________________________________ Financial Officer
Mark T. Calvert (Principal Financial and
Accounting Officer)
/s/ Kenneth A. Fox Director December 21 1999
____________________________________
Kenneth A. Fox
/s/ Michael Pickett Director December 21, 1999
____________________________________
Michael Pickett
/s/ Nancy J. Schoendorf Director December 21, 1999
____________________________________
Nancy J. Schoendorf
/s/ William W. Ericson Director December 21, 1999
____________________________________
William W. Ericson
/s/ Anton Simunovic Director December 21, 1999
____________________________________
Anton Simunovic
Director December , 1999
____________________________________
Jeffrey Ballowe
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of Onvia.com.
3.2* Amended and Restated Certificate of Incorporation of Onvia.com
(proposed).
3.3 Bylaws of Onvia.com, as amended and restated.
3.4* Amended and Restated Bylaws (proposed).
4.1* Form of Onvia.com's common stock certificate.
4.2* Amended and Restated Investors' Rights Agreement dated December 20,
1999.
4.3* Form of Common Stock Purchase Warrant issued in connection with the
Series A Preferred Stock financing on February 25, 1999.
4.4 Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Dominion Capital Management L.L.C. as of June 15, 1999.
4.5* Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Comdisco, Inc. as of August 5, 1999.
4.6* Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Meier Mitchell & Company as of August 5, 1999.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1 Form of Indemnification Agreement between Onvia.com and each of its
officers and directors.
10.2* Series A Preferred Stock Purchase Agreement dated February 25, 1999.
10.3* Series B Preferred Stock Purchase Agreement dated September 30, 1999.
10.4* Series C Preferred Stock Purchase Agreement dated December 20, 1999.
10.5* Loan and Security Agreement between Onvia.com and Dominion Venture
Finance L.L.C. dated as of June 15, 1999.
10.6 Loan and Security Agreement among MMC/GATX Partnership No. 1,
Comdisco, Inc. and Onvia.com dated as of August 5, 1999.
10.7* Office Lease between Firdex Associates and MegaDepot.com, Inc. dated
as of April 1999.
10.8* Office Lease among Stratton Properties, Inc., Glenn Ballman and
MegaDepot.com, Inc. dated as of May 9, 1998.
10.9* Lease between Onvia.com and No. 150 Cathedral Ventures Ltd. dated as
of June 1, 1999.
10.10* 1999 Stock Option Plan.
10.11* Secured Promissory Note issued by Glenn Ballman to Onvia.com dated as
of October 14, 1999.
10.12* Offer Letter dated March 25, 1999 with Mark Calvert.
10.13 Offer Letter dated August 25, 1999 with Douglas Kellam.
10.14 Offer Letter dated July 27, 1999 with Louis T. Mickler.
10.15 Offer Letter dated July 23, 1999 with Mark Pawlosky.
10.16* Offer Letter dated March 15, 1999 with Clayton Lewis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.17* Common Stock Purchase Agreement with Glenn Ballman dated as of January
9, 1999.
10.18* Common Stock Purchase Agreement with Glenn Ballman dated as of January
18, 1999.
10.19* Common Stock Purchase Agreement with Mark Calvert dated as of January
18, 1999.
10.20* Common Stock Purchase Agreement with Rob Ayer dated as of January 18,
1999.
10.21* Common Stock Purchase Agreement with Kristen Hamilton dated as of
January 18, 1999.
10.22* Common Stock Purchase Agreement with William W. Ericson dated as of
January 18, 1999.
10.23* Common Stock Purchase Agreement with Mike Pickett dated as of April 9,
1999.
10.24* Common Stock Purchase Agreement with Jeffrey Ballowe dated as of
December 8, 1999.
10.25* Mercer Yale Building Office Lease Agreement between Onvia.com and
Blume Yale Limited Partnership dated as of December 9, 1999.
10.26* 2000 Employee Stock Purchase Plan.
10.27* 2000 Directors' Stock Option Plan.
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Venture Law Group, A Professional Corporation (see Exhibit
5.1).
24.1 Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
Exhibit 3.3
AMENDED AND RESTATED
BYLAWS
OF
ONVIA.COM, INC.
<PAGE>
Exhibit 3.3
AMENDED AND RESTATED BYLAWS
OF
ONVIA.COM, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the corporation's board of directors
(the "Board of Directors") may designate. The corporation may have such other
------------------
offices, either within or without the State of Washington, as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting
Unless another date is selected by the Board of Directors, the annual
meeting of the Shareholders shall be held the third week in May of each year in
Seattle, Washington for the purpose of electing directors and transacting such
other business as may properly come before the meeting. If the day fixed for
the annual meeting is a legal holiday at the place of the meeting, the meeting
shall be held on the next succeeding business day.
2.2 Special Meetings
The Corporation's chairman of the board (the "Chairman of the Board"),
---------------------
the Corporation's president (the "President") or the Board of Directors may call
---------
special meetings of the Corporation's Shareholders (the "Shareholders") for any
------------
purpose. Further, a special meeting of the Shareholders shall be held if the
holders of not less than twenty-five percent (25%) of all the votes entitled to
be cast on any issue proposed to be considered at such special meeting have
dated, signed and delivered to the Corporations' secretary (the "Secretary") one
---------
or more written demands for such meeting, describing the purpose or purposes for
which it is to be held.
2.3 Meetings by Communication Equipment
Shareholders may participate in any meeting of the Shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall
constitute presence in person at a meeting.
2.4 Date, Time and Place of Meeting
Except as otherwise provided herein, all meetings of Shareholders,
including those held pursuant to demand by Shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board of
Directors.
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2.5 Notice of Meeting
Written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board of Directors, the
Chairman of the Board, the President or the Secretary to each shareholder
entitled to notice of or to vote at the meeting not less than ten (10) nor more
than sixty (60) days before the meeting, except that notice of a meeting to act
on an amendment to the Corporation's articles of incorporation (the "Articles of
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Incorporation"), a plan of merger or share exchange, the sale, lease, exchange
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or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than twenty (20) nor more than sixty (60)
days before such meeting. Such notice may be transmitted by mail, private
carrier, personal delivery, telegraph, teletype or communications equipment
which transmits a facsimile of the notice to like equipment which receives and
reproduces such notice. If these forms of written notice are impractical in the
view of the Board of Directors, the Chairman of the Board, the President or the
Secretary, written notice may be transmitted by an advertisement in a newspaper
of general circulation in the area of the corporation's principal office. If
such notice is mailed, it shall be deemed effective when deposited in the
official government mail, first-class postage prepaid, properly addressed to the
shareholder at such shareholder's address as it appears in the corporation's
current record of Shareholders. Notice given in any other manner shall be
deemed effective when dispatched to the shareholder's address, telephone number
or other number appearing on the records of the corporation. Any notice given
by publication as herein provided shall be deemed effective five (5) days after
first publication.
2.6 Waiver of Notice
Whenever any notice is required to be given to any shareholder under
the provisions of these amended and restated bylaws (the "Bylaws"), the Articles
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of Incorporation or the Washington Business Corporation Act, a waiver thereof in
writing, signed by the person or persons entitled to such notice and delivered
to the corporation, whether before or after the date and time of the meeting,
shall be deemed equivalent to the giving of such notice. Further, notice of the
time, place and purpose of any meeting will be deemed to be waived by any
shareholder by attendance thereat in person or by proxy, unless such shareholder
at the beginning of the meeting objects to holding the meeting or transacting
business at the meeting.
2.7 Fixing of Record Date for Determining Shareholders
For the purpose of determining Shareholders entitled (a) to notice of
or to vote at any meeting of Shareholders or any adjournment thereof, (b) to
demand a special meeting, or (c) to receive payment of any dividend, or in order
to make a determination of Shareholders for any other purpose, the Board of
Directors may fix a future date as the record date for any such determination.
Such record date shall be not more than seventy (70) days, and in case of a
meeting of Shareholders not less than ten (10) days prior to the date on which
the particular action requiring such determination is to be taken. If no record
date is fixed for the determination of Shareholders entitled to notice of or to
vote at a meeting, the record date shall
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be the day immediately preceding the date on which notice of the meeting is
first given to Shareholders. Such a determination shall apply to any adjournment
of the meeting unless the Board of Directors fixes a new record date, which it
shall do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting. If no record date is
set for the determination of Shareholders entitled to receive payment of any
stock dividend or distribution (other than one involving a purchase, redemption,
or other acquisition of the corporation's shares), the record date shall be the
date the Board of Directors authorizes the stock dividend or distribution.
2.8 Voting Record
At least ten (10) days before each meeting of Shareholders, an
alphabetical list of the Shareholders entitled to notice of such meeting shall
be made, arranged by voting group and by each class or series of shares therein,
with the address of and number of shares held by each shareholder. This record
shall be kept at the principal office of the corporation for ten (10) days prior
to such meeting, and shall be kept open at such meeting, for the inspection of
any shareholder or any shareholder's agent.
2.9 Quorum
A majority of the votes entitled to be cast on a matter by the holders
of shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of Shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business thereat, it is
deemed present for quorum purposes for the remainder of the meeting and any
adjournment thereof (unless a new record date is or must be set for the
adjourned meeting) notwithstanding the withdrawal of enough Shareholders to
leave less than a quorum.
2.10 Manner of Acting
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
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2.11 Proxies
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid eleven (11) months after the date of its
execution, unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.
2.12 Voting of Shares
Except as provided in the Articles of Incorporation or in Section 2.13
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of Shareholders shall be entitled to one vote upon such
matter.
2.13 Voting for Directors
Each shareholder entitled to vote at an election of Directors may
vote, in person or by proxy, the number of shares owned by such shareholder for
as many persons as there are Directors to be elected and for whose election such
shareholder has a right to vote, or (unless otherwise provided in the Articles
of Incorporation) each such shareholder may cumulate such shareholder's votes by
distributing among one or more candidates as many votes as are equal to the
number of such Directors multiplied by the number of such shareholder's shares.
Unless otherwise provided in the Articles of Incorporation, the candidates
elected shall be those receiving the largest number of votes cast, up to the
number of Directors to be elected.
2.14 Action by Shareholders Without a Meeting
Any action which could be taken at a meeting of the Shareholders may
be taken without a meeting or a vote if the action is taken by Shareholders
holding of record or otherwise entitled to vote in the aggregate not less than
the minimum number of votes necessary to authorize or take such action at a
meeting at which all shares entitled to vote on the action were present and
voted. The taking of action by Shareholders without a meeting or vote must be
evidenced by one or more written consents describing the action taken, signed by
Shareholders holding of record or otherwise entitled to vote in the aggregate
not less than the minimum number of votes necessary in order to take such action
by written consent.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, the Board of Directors, except as may be otherwise provided in
these Bylaws, the Articles of Incorporation or the Washington Business
Corporation Act.
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3.2 Number and Tenure
The Board of Directors shall be composed of seven (7) directors. The
number of Directors may be changed from time to time by amendment to these
Bylaws, but no decrease in the number of Directors shall have the effect of
shortening the term of any incumbent director. Unless a director dies, resigns,
or is removed, his or her term of office shall expire at the next annual meeting
of Shareholders; provided, however, that a director shall continue to serve
until his or her successor is elected or until there is a decrease in the
authorized number of Directors. Directors need not be Shareholders of the
corporation or residents of the State of Washington and need not meet any other
qualifications.
3.3 Annual and Regular Meetings
An annual Board of Directors meeting shall be held without notice
immediately after and at the same place as the annual meeting of Shareholders.
By resolution the Board of Directors, or any committee thereof, may specify the
time and place either within or without the State of Washington for holding
regular meetings thereof without notice other than such resolution.
3.4 Special Meetings
Special meetings of the Board of Directors or any committee designated
by the Board of Directors may be called by or at the request of the Chairman of
the Board, the President, the Secretary or, in the case of special Board of
Directors meetings, any three Directors and, in the case of any special meeting
of any committee designated by the Board of Directors, by the Chairman thereof.
The person or persons authorized to call special meetings may fix any place
either within or without the State of Washington as the place for holding any
special Board of Directors or committee meeting called by them.
3.5 Meetings by Communications Equipment
Members of the Board of Directors or any committee designated by the
Board of Directors may participate in a meeting of such Board of Directors or
committee by, or conduct the meeting through the use of, any means of
communication by which all Directors participating in the meeting can hear each
other during the meeting. Participation by such means shall constitute presence
in person at a meeting.
3.6 Notice of Special Meetings
Notice of a special Board of Directors or committee meeting stating
the place, day and hour of the meeting shall be given to a director in writing
or orally. Neither the business to be transacted at, nor the purpose of, any
special meeting need be specified in the notice of such meeting.
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3.6.1 Personal Delivery
If notice is given by personal delivery, the notice shall be
effective if delivered to a director at least twenty-four (24) hours before the
meeting.
3.6.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deemed
effective if deposited in the official government mail at least five (5) days
before the meeting, properly addressed to a director at his or her address shown
on the records of the corporation, with postage thereon prepaid.
3.6.3 Delivery by Private Carrier
If notice is given by private carrier, the notice shall be
deemed effective when dispatched to a director at his or her address shown on
the records of the corporation at least three (3) days before the meeting.
3.6.4 Facsimile Notice
If notice is delivered by wire or wireless equipment which
transmits a facsimile of the notice, the notice shall be deemed effective when
dispatched at least two (2) days before the meeting to a director at his or her
telephone number or other number appearing on the records of the corporation.
3.6.5 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be deemed
effective if the content thereof is delivered to the telegraph company for
delivery to a director at his or her address shown on the records of the
corporation at least three (3) days before the meeting.
3.6.6 Oral Notice
If notice is delivered orally, by telephone or in person, the
notice shall be deemed effective if personally given to the director at least
two (2) days before the meeting.
3.7 Waiver of Notice
3.7.1 In Writing
Whenever any notice is required to be given to any director
under the provisions of these Bylaws, the Articles of Incorporation or the
Washington Business Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice and delivered to the corporation,
whether before or after the date and time of the meeting, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at,
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nor the purpose of, any regular or special meeting of the Board of Directors or
any committee designated by the Board of Directors need be specified in the
waiver of notice of such meeting.
3.7.2 By Attendance
A director's attendance at or participation in a Board of
Directors or committee meeting shall constitute a waiver of notice of such
meeting, unless the director at the beginning of the meeting, or promptly upon
his or her arrival, objects to holding the meeting or transacting business
thereat and does not thereafter vote for or assent to action taken at the
meeting.
3.8 Quorum
A majority of the number of Directors fixed by or in the manner
provided in these Bylaws shall constitute a quorum for the transaction of
business at any Board of Directors meeting but, if less than a majority are
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
3.9 Manner of Acting
If a quorum is present when the vote is taken, the act of the majority
of the Directors present at a Board of Directors meeting shall be the act of the
Board of Directors, unless the vote of a greater number is required by these
Bylaws, the Articles of Incorporation or the Washington Business Corporation
Act.
3.10 Presumption of Assent
A director of the corporation who is present at a Board of Directors
or committee meeting at which any action is taken shall be deemed to have
assented to the action taken unless (a) the director objects at the beginning of
the meeting, or promptly upon the director's arrival, to holding the meeting or
transacting any business thereat, (b) the director's dissent or abstention from
the action taken is entered in the minutes of the meeting, or (c) the director
delivers written notice of the director's dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation within a
reasonable time after adjournment of the meeting. The right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
3.11 Action by Board of Directors or Committees Without a Meeting
Any action which could be taken at a meeting of the Board of Directors
or of any committee created by the Board of Directors may be taken without a
meeting if one or more written consents setting forth the action so taken are
signed by each of the Directors or by each committee member either before or
after the action is taken and delivered to the corporation. Action taken by
written consent of Directors without a meeting is effective when the last
director signs the consent, unless the consent specifies a later effective date.
Any such written consent
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shall be inserted in the minute book as if it were the minutes of a Board of
Directors or a committee meeting.
3.12 Resignation
Any director may resign at any time by delivering written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors. Any such resignation is effective upon delivery thereof unless the
notice of resignation specifies a later effective date and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
3.13 Removal
At a meeting of Shareholders called expressly for that purpose, one or
more members of the Board of Directors, including the entire Board of Directors,
may be removed with or without cause (unless the Articles of Incorporation
permit removal for cause only) by the holders of the shares entitled to elect
the director or Directors whose removal is sought if the number of votes cast to
remove the director exceeds the number of votes cast not to remove the director.
If the Articles of Incorporation permit cumulative voting in the election of
Directors, then a director may not be removed if the number of votes sufficient
to elect such director if then cumulatively voted at an election of the entire
Board of Directors or, if there are classes of Directors, at an election of the
class of Directors of which such director is a part, is voted against the
director's removal.
3.14 Vacancies
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board of Directors may be filled by the Shareholders, the Board
of Directors or, if the Directors in office constitute fewer than a quorum, by
the affirmative vote of a majority of the remaining Directors. Any vacant
office held by a director elected by the holders of one or more classes or
series of shares entitled to vote and be counted collectively thereon shall be
filled only by the vote of the holders of such class or series of shares. A
director elected to fill a vacancy shall serve only until the next election of
Directors by the Shareholders.
3.15 Executive and Other Committees
3.15.1 Creation of Committees
The Board of Directors, by resolution adopted by the greater
of a majority of the Directors then in office and the number of Directors
required to take action in accordance with these Bylaws, may create standing or
temporary committees, including an Executive Committee, and appoint members
thereto from its own number and invest such committees with such powers as it
may see fit, subject to such conditions as may be prescribed by the Board of
Directors, these Bylaws and applicable law. Each committee must have two or more
members, who shall serve at the pleasure of the Board of Directors.
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3.15.2 Authority of Committees
Each committee shall have and may exercise all of the
authority of the Board of Directors to the extent provided in the resolution of
the Board of Directors creating the committee and any subsequent resolutions
pertaining thereto and adopted in like manner, except that no such committee
shall have the authority to: (a) authorize or approve a distribution except
according to a general formula or method prescribed by the Board of Directors,
(b) approve or propose to Shareholders actions or proposals required by the
Washington Business Corporation Act to be approved by Shareholders, (c) fill
vacancies on the Board of Directors or any committee thereof, (d) adopt, amend
or repeal Bylaws, (e) amend the Articles of Incorporation pursuant to RCW
23B.10.020, (f) approve a plan of merger not requiring shareholder approval, or
(g) authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations of a
class or series of shares except that the Board of Directors may authorize a
committee or a senior executive officer of the corporation to do so within
limits specifically prescribed by the Board of Directors.
3.15.3 Quorum and Manner of Acting
A majority of the number of Directors composing any committee
of the Board of Directors, as established and fixed by resolution of the Board
of Directors, shall constitute a quorum for the transaction of business at any
meeting of such committee but, if less than a majority are present at a meeting,
a majority of such Directors present may adjourn the meeting from time to time
without further notice. Except as may be otherwise provided in the Washington
Business Corporation Act, if a quorum is present when the vote is taken the act
of a majority of the members present shall be the act of the committee.
3.15.4 Minutes of Meetings
All committees shall keep regular minutes of their meetings
and shall cause them to be recorded in books kept for that purpose.
3.15.5 Resignation
Any member of any committee may resign at any time by
delivering written notice thereof to the Chairman of the Board, the President,
the Secretary or the Board of Directors. Any such resignation is effective upon
delivery thereof, unless the notice of resignation specifies a later effective
date, and the acceptance of such resignation shall not be necessary to make it
effective.
3.15.6 Removal
The Board of Directors may remove any member of any committee
elected or appointed by it but only by the affirmative vote of the greater of a
majority of the Directors then in office and the number of Directors required to
take action in accordance with these Bylaws.
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3.16 Compensation
By Board of Directors resolution, Directors and committee members may
be paid their expenses, if any, of attendance at each Board of Directors or
committee meeting, or a fixed sum for attendance at each Board of Directors or
committee meeting, or a stated salary as director or a committee member, or a
combination of the foregoing. No such payment shall preclude any director or
committee member from serving the corporation in any other capacity and
receiving compensation therefor.
SECTION 4. OFFICERS
4.1 Appointment and Term
The officers of the corporation shall be those officers appointed from
time to time by the Board of Directors or by any other officer empowered to do
so. The Board of Directors shall have sole power and authority to appoint
executive officers. As used herein, the term "executive officer" shall mean the
President, any Vice President in charge of a principal business unit, division
or function or any other officer who performs a policy-making function. The
Board of Directors or the President may appoint such other officers and
assistant officers to hold office for such period, have such authority and
perform such duties as may be prescribed. The Board of Directors may delegate
to any other officer the power to appoint any subordinate officers and to
prescribe their respective terms of office, authority and duties. Any two or
more offices may be held by the same person. Unless an officer dies, resigns or
is removed from office, he or she shall hold office until his or her successor
is appointed.
4.2 Resignation
Any officer may resign at any time by delivering written notice
thereof to the corporation. Any such resignation is effective upon delivery
thereof, unless the notice of resignation specifies a later effective date, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
4.3 Removal
Any officer may be removed by the Board of Directors at any time, with
or without cause. An officer or assistant officer, if appointed by another
officer, may be removed by any officer authorized to appoint officers or
assistant officers.
4.4 Contract Rights of Officers
The appointment of an officer does not itself create contract rights.
4.5 Chairman of the Board
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board of Directors from time to time and
shall preside over
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meetings of the Board of Directors and Shareholders unless another officer is
appointed or designated by the Board of Directors as Chairman of such meetings.
4.6 President
If appointed, the President shall be the chief executive officer of
the corporation unless some other officer is so designated by the Board of
Directors, shall preside over meetings of the Board of Directors and
Shareholders in the absence of a Chairman of the Board, and, subject to the
Board of Director's control, shall supervise and control all of the assets,
business and affairs of the corporation. In general, the President shall
perform all duties incident to the office of President and such other duties as
are prescribed by the Board of Directors from time to time. If no Secretary has
been appointed, the President shall have responsibility for the preparation of
minutes of meetings of the Board of Directors and Shareholders and for
authentication of the records of the corporation.
4.7 Vice President
In the event of the death of the President or his or her inability to
act, the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board of Directors as the successor to the
President, or if no Vice President is so designated, the Vice President first
elected to such office) shall perform the duties of the President, except as may
be limited by resolution of the Board of Directors, with all the powers of and
subject to all the restrictions upon the President. Vice Presidents shall
perform such other duties as from time to time may be assigned to them by the
President or by or at the direction of the Board of Directors.
4.8 Secretary
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board of Directors and Shareholders, maintenance
of the corporation records and stock registers, and authentication of the
corporation's records and shall in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the President or by or at the direction of the Board of
Directors. In the absence of the Secretary, an Assistant Secretary may perform
the duties of the Secretary.
4.9 Treasurer
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board of Directors. In
the absence of the Treasurer, an Assistant Treasurer may perform the duties of
the Treasurer. If required by the Board of
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Directors, the Treasurer or any Assistant Treasurer shall give a bond for the
faithful discharge of his or her duties in such amount and with such surety or
sureties as the Board of Directors shall determine.
4.10 Salaries
The salaries of the officers shall be fixed from time to time by the
Board of Directors or by any person or persons to whom the Board of Directors
has delegated such authority. No officer shall be prevented from receiving such
salary by reason of the fact that he or she is also a director of the
corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts
The Board of Directors may authorize any officer or officers, or agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation. Such authority may be general or
confined to specific instances.
5.2 Loans to the Corporation
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
5.3 Checks, Drafts, Etc.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, or agent or agents, of the corporation and
in such manner as is from time to time determined by resolution of the Board of
Directors.
5.4 Deposits
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the Board of Directors may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares
No shares of the corporation shall be issued unless authorized by the
Board of Directors, or by a committee designated by the Board of Directors to
the extent such committee is empowered to do so.
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6.2 Certificates for Shares
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by the President or any Vice President and by
the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary and shall include on their face written notice of any restrictions
which may be imposed on the transferability of such shares. All certificates
shall be consecutively numbered or otherwise identified.
6.3 Stock Records
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 Transfer of Shares
The transfer of shares of the corporation shall be made only on the
stock transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to
the corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.5 Lost or Destroyed Certificates
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board of Directors may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its
Shareholders and the Board of Directors, a record of all actions taken by the
Shareholders or the Board of Directors without a meeting, and a record of all
actions taken by a committee of the Board of Directors exercising the authority
of the Board of Directors on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its Shareholders, in a form that permits
preparation of a list of the names and addresses of all Shareholders, in
alphabetical order by class of shares
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showing the number and class of shares held by each; provided, however, such
record may be maintained by an agent of the corporation.
(d) Maintain its records in written form or in another form capable
of conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
(i) the Articles of Incorporation and all amendments thereto
as currently in effect;
(ii) the Bylaws and all amendments thereto as currently in
effect;
(iii) the minutes of all meetings of Shareholders and records of
all action taken by Shareholders without a meeting, for the past three (3)
years;
(iv) the financial statements described in Section
23B.16.200(1) of the Washington Business Corporation Act, for the past three (3)
years;
(v) all written communications to Shareholders generally
within the past three (3) years;
(vi) a list of the names and business addresses of the current
Directors and officers; and
(vii) the most recent annual report delivered to the Washington
Secretary of State.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year,
provided that if a different accounting year is at any time selected by the
Board of Directors for purposes of federal income taxes, or any other purpose,
the accounting year shall be the year so selected.
SECTION 9. SEAL
The Board of Directors may provide for a corporate seal which shall
consist of the name of the corporation, the state of its incorporation and the
year of its incorporation.
SECTION 10. INDEMNIFICATION
10.1 Right to Indemnification
Each person who was, is or is threatened to be made a named party to
or is otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or
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was a director or officer of the corporation or, that being or having been such
a director or officer or an employee of the corporation, he or she is or was
serving at the request of an executive officer of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation or of a
partnership, joint venture, trust, employee benefit plan or other enterprise
(hereinafter an "indemnitee"), whether the basis of a proceeding is alleged
action in an official capacity as such a director, officer, partner, trustee,
employee or agent or in any other capacity while serving as such a director,
officer, partner, trustee, employee or agent, shall be indemnified and held
harmless by the corporation against all expense, liability and loss (including
counsel fees, judgments, fines, ERISA excise taxes or penalties and amounts to
be paid in settlement) actually and reasonably incurred or suffered by such
indemnitee in connection therewith, and such indemnification shall continue as
to an indemnitee who has ceased to be a director, officer, partner, trustee,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. Except as provided in Section 10.4 of this Section
with respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if a proceeding (or part
thereof) was authorized or ratified by the Board of Directors. The right to
indemnification conferred in this Section shall be a contract right.
10.2 Restrictions on Indemnification
No indemnification shall be provided to any such indemnitee for acts
or omissions of the indemnitee finally adjudged to be intentional misconduct or
a knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification, except that if
Section 23B.08.560 or any successor provision of the Washington Business
Corporation Act is hereafter amended, the restrictions on indemnification set
forth in this Section 10.2 shall be as set forth in such amended statutory
provision.
10.3 Advancement of Expenses
The right to indemnification conferred in this Section 10.3 shall
include the right to be paid by the corporation the expenses incurred in
defending any proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"). An advancement of expenses shall be made upon
delivery to the corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this Section 10.3.
10.4 Right of Indemnitee to Bring Suit
If a claim under Section 10.1 or 10.3 of this Section is not paid in
full by the corporation within sixty (60) days after a written claim has been
received by the corporation,
-15-
<PAGE>
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the indemnitee may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim. If successful in whole or in part, in any such suit or in a suit
brought by the corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. The indemnitee shall be presumed
to be entitled to indemnification under this Section 10.4 upon submission of a
written claim (and, in an action brought to enforce a claim for an advancement
of expenses, where the required undertaking has been tendered to the
corporation) and thereafter the corporation shall have the burden of proof to
overcome the presumption that the indemnitee is so entitled.
10.5 Procedures Exclusive
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section 10.5 are in lieu of the
procedures required by Section 23B.08.550 or any successor provision of the
Washington Business Corporation Act.
10.6 Nonexclusivity of Rights
The right to indemnification and the advancement of expenses conferred
in this Section 10.6 shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation, general or specific action of the
Board of Directors, contract or otherwise.
10.7 Insurance, Contracts and Funding
The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The
corporation may enter into contracts with any director, officer, partner,
trustee, employee or agent of the corporation in furtherance of the provisions
of this Section and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in this Section.
10.8 Indemnification of Employees and Agents of the Corporation
The corporation may, by action of the Board of Directors, grant rights
to indemnification and advancement of expenses to employees and agents or any
class or group of employees and agents of the corporation (a) with the same
scope and effect as the provisions of this Section with respect to the
indemnification and advancement of expenses of Directors and officers of the
corporation; (b) pursuant to rights granted pursuant to, or provided by, the
Washington Business Corporation Act; or (c) as are otherwise consistent with
law.
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<PAGE>
10.9 Persons Serving Other Entities
Any person who, while a director, officer or employee of the
corporation, is or was serving (a) as a director or officer of another foreign
or domestic corporation of which a majority of the shares entitled to vote in
the election of its Directors is held by the corporation or (b) as a partner,
trustee or otherwise in an executive or management capacity in a partnership,
joint venture, trust or other enterprise of which the corporation or a wholly
owned subsidiary of the corporation is a general partner or has a majority
ownership shall be deemed to be so serving at the request of an executive
officer of the corporation and entitled to indemnification and advancement of
expenses under Sections 10.1 and 10.3 of this section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board of Directors, except that the Board of Directors may not
repeal or amend any Bylaw that the Shareholders have expressly provided, in
amending or repealing such Bylaw, may not be amended or repealed by the Board of
Directors. The Shareholders may also alter, amend and repeal these Bylaws or
adopt new Bylaws. All Bylaws made by the Board of Directors may be amended,
repealed, altered or modified by the Shareholders.
The foregoing Bylaws were adopted by the Shareholders as of September
__, 1999.
/s/ Glenn Ballman
------------------------------------------
Glenn Ballman, Secretary
-17-
<PAGE>
Exhibit 4.4
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED NEITHER THIS WARRANT NOR THE SHARES
OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE,
TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES
MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii)
RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER
THE ACT IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF SERIES A PREFERRED STOCK
Expires: June 15, 2008
THIS CERTIFIES THAT, for value received, DOMINION CAPITAL MANAGEMENT L.L.C.,
a Delaware limited liability company, is entitled to subscribe for and purchase
up to that number of shares (as adjusted pursuant to the provisions hereof, the
"Shares") of Series A Preferred Stock (as hereinafter defined) of ONVIA.COM,
INC., a Washington Corporation (the "Company")which, at the time of exercise of
this Warrant, is equal to $120,000 divided by the price per share (as adjusted
pursuant to the terms hereof, the "Exercise Price") as shall be determined in
accordance with Section 1.1 hereof. As used herein, the term "Grant Date" shall
mean June 15, 1999.
1. Exercise Price; Preferred Stock; Term.
-------------------------------------
1.1 Exercise Price. The Exercise Price shall be determined as
--------------
follows:
(a) If, prior to October 31, 1999, the Company completes a
private offering of its next authorized series of preferred stock, which next
authorized series the Company intends to designate "Series B Preferred Stock,"
the aggregate gross proceeds from which exceeds $7,000,000 (whether in one
transaction or in a series of transactions after the date of this Warrant and
excluding the conversion of debt to equity) (the "Financing"), then the Exercise
Price shall be determined based on the following formula:
Price per share: X + (A/B) x (Y-X).
Where: X = Price per share of the last round (2.34).
Y = Price per share of the next round.
A = Months from the last round (3).
B = Months between Series A and Series B closing.
(b) If the Company does not complete the Financing prior to
October 31, 1999, then the Exercise Price shall be $ 2.34.
1.2 Preferred Stock. The term "Preferred Stock" shall mean as
---------------
follows:
-1-
<PAGE>
(a) If the Company completes the Financing prior to October 31,
1999, then the term "Preferred Stock" shall mean the series of the Company's
preferred stock issued in the Financing, and any stock into or for which such
preferred stock may thereafter be converted or exchanged.
(b) If the Company does not complete the Financing prior to
October 31, 1999, then the term "Preferred Stock" shall mean the Company's
presently authorized Series A Preferred Stock, and any stock into or for which
such Series A Preferred Stock may hereafter be converted or exchanged.
1.3 Term. This Warrant is exercisable, in whole or in part, at any
----
time and from time to time from and after the Grant Date and prior to the
earlier of (a) the ninth anniversary of the Grant Date, (b) the fourth
anniversary of the consummation of the Company's initial public offering of its
Common Stock pursuant to a registration statement filed under the Securities Act
of 1933, as amended (the "Securities Act"), the aggregate gross proceeds from
which exceed $10,000,000 or (c) the occurrence of an event set forth in Section
10.2 below.
(i) It is understood and agreed upon the consummation of the
Company's initial public offering of its Common Stock under the terms of this
Section 1.3, that this Warrant shall simultaneously and automatically convert
into a Warrant in the same form and with all the same rights except that it
shall be a Warrant to purchase shares of Common Stock.
2. Method of Exercise; Net Issue Exercise.
--------------------------------------
2.1 Method of Exercise; Payment; Issuance of New Warrant. This
----------------------------------------------------
Warrant may be exercised by the holder hereof, in whole or in part and from time
to time, by either of the following, at the election of the holder hereof: (a)
the surrender of this Warrant (with the Notice of Exercise form attached hereto
as Exhibit A-1 duly executed) at the principal office of the Company and by the
payment to the Company, by cash, check or cancellation of indebtedness, of an
amount equal to the Exercise Price per share multiplied by the number of Shares
then being purchased; or (b) if in connection with a sale of Shares pursuant to
a registered public offering of the Company's securities, the surrender of this
Warrant (with the Notice of Exercise form attached hereto as Exhibit A-2 duly
executed), which surrender may be made contingent upon the closing of such
offering, at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company for payment to the Company
from the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the Exercise Price per share multiplied by the
number of Shares then being purchased. The person or persons in whose name(s)
any certificate(s) representing Shares shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the Shares represented
thereby (and such Shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of this Warrant, certificates for the
Shares so purchased shall be delivered to the holder hereof as soon as possible
and in any event within fifteen (15) days of receipt of such notice (or,
following, the Company's initial public offering, within five (5) days of
receipt of such notice) and, unless this Warrant has been fully exercised or
expired, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to the holder hereof as soon as possible thereafter.
2.2 Automatic Exercise. To the extent this Warrant is not previously
-------------------
exercised, and if the fair market value of one share of the Company's Preferred
Stock is greater than the Exercise Price then in effect, this Warrant shall be
deemed automatically exercised pursuant to Section 2.3 below (even if not
surrendered) immediately before its expiration. For purposes of such automatic
exercise, the fair market value of one share
-2-
<PAGE>
of the Company's Preferred Stock upon such expiration shall be determined
pursuant to Section 2.3 (b) below. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.2, the
Company agrees to promptly notify the holder hereof of the number of Shares, if
any, the holder hereof is to receive by reason of such automatic exercise.
2.3 Right to Convert Warrant into Stock: Net Issuance.
--------------------------------------------------
(a) In addition to and without limiting the rights of the holder
under the terms of this Warrant, the holder may elect to convert this Warrant or
any portion thereof (the "Conversion Right") into shares of Preferred Stock, the
aggregate value of which shares shall be equal to the value of this Warrant or
the portion thereof being converted. The Conversion Right may be exercised by
the holder by surrender of this Warrant at the principal office of the Company
together with notice of the holder's intention to exercise the Conversion Right,
in which event the Company shall issue to the holder a number of shares of the
Company's Preferred Stock computed using the following formula:
X = Y (A-B)
--------
A
Where: X = The number of shares of Preferred Stock to be issued to the
holder.
Y = The number of shares of Preferred Stock purchasable under this
Warrant subject to the exercise election.
A = The fair market value of one share of the Company's Preferred
Stock.
B = Exercise Price (as adjusted to the date of such calculations).
(b) For purposes of this Section 2.3, the "fair market value"
per share of the Company's Preferred Stock shall mean:
(i) If the Conversion Right is exercised in connection with
and contingent upon the Company's initial public offering, and if the Company's
registration statement relating to such offering has been declared effective by
the Securities and Exchange Commission, then the initial "Price to Public"
specified in the final prospectus with respect to such offering; or
(ii) If the Conversion Right is not exercised in connection
with and contingent upon the Company's initial public offering, then as follows:
(A) If the Preferred Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or
is listed on the Nasdaq National Market (the "National Market System"), the
fair market value shall be the average of the last reported sale prices of
the Preferred Stock on such exchange or on the Nasdaq National Market on the
last ten (10) trading days (or all such trading days such Preferred Stock
has been traded if fewer than 10 trading days) before the effective date of
exercise of the Conversion Right or if no such sale is
3
<PAGE>
made on any such day, the mean of the closing bid and asked prices for such
day on such exchange or on the Nasdaq National Market;
(B) If the Preferred Stock is not so listed or admitted to
unlisted trading privileges, the fair market value shall be the average of
the means of the last bid and asked prices reported on the last ten (10)
trading days (or all such trading days such Preferred Stock has been traded
if fewer than 10 trading days) before the date of the election (1) by the
Nasdaq Stock Market or (2) if reports are unavailable under clause (1)
above, by the National Quotation Bureau Incorporated; and
(C) If the Preferred Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not reported, the
fair market value shall be the price per share which the Company could
obtain from a willing buyer for shares sold by the Company from authorized
but unissued shares, as such price shall be determined by mutual agreement
of the Company and the holder of this Warrant.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued
---------------------------------------
upon the exercise of this Warrant, and all Common Stock issuable upon conversion
of the Shares shall, upon issuance, be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which this Warrant may be exercised,
the Company will at all times have duly authorized and reserved, for the purpose
of issuance upon exercise of this Warrant, a sufficient number of shares of
Preferred Stock (and Common Stock issuable upon conversion thereof).
4. Adjustments to Exercise Price and Number of Shares. The number and
--------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as set forth in
that certain Amended and Restated Articles of Incorporation of the Company,
dated February, 23, 1999, (the "Articles of Incorporation"), and in Appendix I
hereto upon the occurrence of certain events described therein. The provisions
of the Articles of Incorporation, and Appendix I are incorporated by reference
herein with the same effect as if set forth in full herein.
5. Notices of Record Date. In the event of any taking by the Company of a
----------------------
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed merger or consolidation of the Company with or into any other
corporation, or any proposed sale, lease or conveyance of all or substantially
all of the assets of the Company, or any proposed liquidation, dissolution or
winding up of the Company, then, in connection with each such event, the Company
shall mail to the holder of this Warrant at least twenty (20) days prior written
notice of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right(s) or vote of the shareholders. Each such
written notice shall specify the amount and character of any such dividend,
distribution or right(s), and shall set forth, in reasonable detail, the matter
requiring any such vote of the shareholders.
6. Fractional Shares. No fractional shares of Preferred Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based upon the per share
fair market value of the Preferred Stock on the date of exercise.
4
<PAGE>
7. Compliance with Securities Act; Disposition of Warrant or Shares of
-------------------------------------------------------------------
Preferred Stock.
---------------
(a) Compliance with Securities Act. The holder of this Warrant, by
------------------------------
acceptance hereof, agrees that this Warrant, the Shares to be issued upon
exercise hereof and the Common Stock to be issued upon conversion of such Shares
are being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant or any Shares to be issued upon exercise
hereof (or Common Stock issued upon conversion of such Shares) except under
circumstances which will not result in a violation of the Securities Act. This
Warrant and all Shares issued upon exercise of this Warrant (unless registered
under the Securities Act) shall be stamped or imprinted with a legend in
substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
(b) Disposition of Warrant and Shares. With respect to any offer,
---------------------------------
sale or other disposition of this Warrant or any Shares acquired pursuant to the
exercise of this Warrant (or Common Stock issued upon conversion of such Shares)
prior to registration thereof, the holder hereof and each subsequent holder of
this Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, if reasonably requested by the Company, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification (under the Securities Act as then in effect or any federal or
state law then in effect) of this Warrant or such Shares or Common Stock and
indicating whether or not under the Securities Act certificates for this Warrant
or such Shares or Common Stock to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Securities Act. Each certificate representing this
Warrant or the Shares or Common Stock thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act unless, in
the aforesaid opinion of counsel for the holder, such legend is not required in
order to insure compliance with the Securities Act. Nothing herein shall
restrict the transfer of this Warrant or any portion hereof by the initial
holder hereof to any partnership affiliated with the initial holder, or to any
partner of any such partnership provided such transfer may be made in compliance
with applicable federal and state securities laws. The Company may issue stop
transfer instructions to its transfer agent in connection with the foregoing
restrictions.
8. Rights as Shareholders; Information.
-----------------------------------
8.1 Shareholder Rights. Except as set forth herein, no holder of this
------------------
Warrant, as such, shall be entitled to vote upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or be
deemed the holder of Preferred Stock until this Warrant shall have been
exercised and the Shares purchasable upon such exercise shall have become
deliverable, as provided herein.
5
<PAGE>
8.2 Financial Statements and Information. The Company shall deliver
------------------------------------
to the registered holder hereof (i) within one-hundred-twenty (120) days after
the end of the fiscal year of the Company, a consolidated balance sheet of the
Company as of the end of such year and a consolidated statement of income, cash
flows and shareholders' equity for such year, which year-end financial reports
shall be in reasonable detail and certified by independent public accountants of
nationally recognized standing selected by the Company, and (ii) within forty-
five (45) days after the end of each fiscal quarter (other than the last fiscal
quarter), unaudited consolidated statements of income and cash flows for such
quarter and a consolidated balance sheet as of the end of such quarter,
certified by the Company's chief financial officer. In addition, the Company
shall deliver to the registered holder hereof any other information or data
provided generally to the shareholders of the Company. The registered holder
hereby acknowledges and agrees that all information delivered in this section 8
shall be held strictly confidential, except to the extent any disclosure of such
information is required by auditors, lenders, or a court of competent
jurisdiction or governmental authority. The registered holder agrees to sue its
commercially reasonable efforts to bind those third parties to whom confidential
information is disclosed to the terms of this Section 8.
9. Registration Rights. The rights of the holder of this Warrant and the
-------------------
obligations of the Company with respect to registration under the Securities Act
and the applicable rules and regulations thereunder shall be as set forth in
that certain Investor Rights Agreement dated February 23, 1999, between the
Company and the parties who have executed the counterpart signature pages
thereto or are otherwise bound thereby (the "Investor Rights Agreement"), the
provisions of which are incorporated by reference herein with the same effect as
if set forth in full herein.
10. Additional Rights.
-----------------
10.1 Mergers. The Company agrees to provide the holder of this Warrant
-------
with at least twenty (20) days' prior written notice of the terms and
conditions of any proposed transaction, in which the Company would (i) sell,
lease, exchange, convey or otherwise dispose of all or substantially all of its
property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than fifty percent (50%) of the voting power of the
Company is disposed of. The Company will cooperate with the holder in arranging
the sale of this Warrant in connection with any such transaction.
11. Representations and Warranties. This Warrant is issued and delivered
------------------------------
on the basis of the following:
(a) This Warrant has been duly authorized, executed and delivered by
the Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Shares and the holders thereof are as set forth in the
Company's Articles of Incorporation, as amended (the "Charter"), a true and
complete copy of which has been delivered to the original holder of this
Warrant;
6
<PAGE>
(d) The shares of Common Stock issuable upon conversion of the Shares
have been duly authorized and reserved and, when issued in accordance with the
terms of the Company's Charter, will be validly issued, fully paid and
nonassessable;
(e) As of the Grant Date, the capitalization of the Company shall be
as set forth in the Capitalization Schedule attached hereto as Appendix IV,
which indicates the following: (i) the authorized capital stock of the Company
(including the authorized number of shares of Common Stock and each series of
Preferred Stock); (ii) the number of shares of Common Stock and each series of
Preferred Stock issued and outstanding; (iii) the number of shares of Common
Stock reserved for issuance upon conversion of any Preferred Stock; (iv) the
number of shares for which options have been granted under the Company's Stock
Option Plan; and (v) any other securities that are convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
Common Stock or such convertible or exchangeable securities, and the number of
shares of Common Stock issuable upon any conversion, exchange or exercise of
such securities, options or rights. All issued and outstanding shares of the
Company's Common Stock and Preferred Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. Except as set forth in Appendix
IV, there are no outstanding rights, options, warrants, conversion rights,
preemptive rights, rights of first refusal or similar rights for or
understandings relating to the purchase or acquisition from the Company of any
securities of the Company.
(f) The execution and delivery of this Warrant, the issuance of the
Shares upon exercise of this Warrant in accordance with the terms hereof and the
compliance by the Company with the provisions hereof (i) are not and will not be
inconsistent with the Company's Charter or Bylaws, (ii) do not and will not
contravene any law, governmental rule or regulation, judgment or order
applicable to the Company, and (iii) do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage, contract
or other instrument of which the Company is a party or by which it is bound or
require the consent or approval of, the giving of notice to, the registration
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person.
12. Amendment of Conversion Rights. The Company shall promptly provide
------------------------------
the holder of this Warrant with any restatement, amendment, modification or
waiver of the Charter promptly after the same has been made.
13. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
14. Notices. Any notice, request or other document required or permitted
-------
to be given or delivered to the holder hereof or the Company shall be delivered
or sent to each such holder at its address as shown on the books of the Company
or to the Company at the address indicated therefor on the signature page of
this Warrant and shall be deemed received by the holder upon the earlier of
actual receipt or, if sent by certified mail (postage pre-paid), five (5) days
after deposit in the U.S. mail.
15. Binding Effect on Successors. This Warrant shall be binding upon any
----------------------------
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Shares, or the Company's Common Stock issuable upon
7
<PAGE>
conversion thereof, shall survive the exercise and termination of this Warrant.
All of the covenants and agreements of the Company shall inure to the benefit of
the successors and assigns of the holder hereof. The Company will, at the time
of the exercise of this Warrant, in whole or in part, upon request of the holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the holder hereof in respect of any rights (including, without
limitation, any right to registration of the Shares in accordance with Appendix
II) to which the holder hereof shall continue to be entitled after such exercise
in accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the holder hereof in respect of such rights.
16. Lost Warrants or Stock Certificates. The Company covenants to the
-----------------------------------
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate issued upon exercise thereof and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company shall make and
deliver a new Warrant or stock certificate, or like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
17. No Impairment. The Company will not, by amendment of its Charter or
-------------
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment.
18. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
19. Recovery of Litigation Costs. If any legal action or other proceeding
----------------------------
is brought for the enforcement of this Warrant, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Warrant, the successful or prevailing party or parties shall
be entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
20. "Market Standoff" Agreement. Each Holder hereby agrees that, during
--------------------------
the period of duration (up to, but not exceeding, one hundred eighty (180) days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
8
<PAGE>
(b) all officers and directors of the Company, all one-percent
securityholders, and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this Section 1.14
shall not apply to a registration relating solely to employee benefit plans on
Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or
a registration relating solely to an SEC Rule 145 transaction on Form S-4 or
similar forms which may be promulgated in the future.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
21. Governing Law. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
-------------
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF CALIFORNIA.
Date: June 15, 1999 ONVIA.COM, INC.
a Washington corporation
By: /s/ Mark Calvert
--------------------------------
Name: Mark Calvert
------------------------------
Title: CFO
-----------------------------
Address: 209 1/2 1st Ave S.
---------------------------
Suite 302
---------------------------
Seattle, WA 98104
---------------------------
10
<PAGE>
EXHIBIT A-1
NOTICE OF EXERCISE
------------------
To: ONVIA.COM, INC.
(Company Name)
1. The undersigned hereby:
[_] elects to purchase __________ shares of Series A Preferred Stock
of the Company pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in
full; or
[_] elects to exercise its net issuance rights pursuant to Section
2.3 of the attached Warrant with respect to __________ shares of
Series A Preferred Stock.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
________________________________________
(Name)
________________________________________
(Address)
________________________________________
(Address)
3. The undersigned represents that the aforesaid shares being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
_______________
(Date)
__________________________________________________
(Signature)
<PAGE>
EXHIBIT A-2
NOTICE OF EXERCISE
------------------
To: ONVIA.COM, INC.
(Company Name)
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S-___, filed on ____________, 19___, the undersigned hereby:
[_] elects to purchase __________ shares of Series A Preferred Stock
of the Company (or such lesser number of shares as may be sold on
behalf of the undersigned at the Closing) pursuant to the terms
of the attached Warrant; or
[_] elects to exercise its net issuance rights pursuant to Section
2.3 of the attached Warrant with respect to __________ shares of
Series A Preferred Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such __________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $__________ or, if less, the net proceeds
due the undersigned from the sale of shares in the aforesaid public offering. If
such net proceeds are less than the purchase price for such shares, the
undersigned agrees to deliver the difference to the Company prior to the
Closing.
_______________
(Date)
__________________________________________________
(Signature)
12
<PAGE>
APPENDIX I
ADJUSTMENT PROVISIONS
---------------------
1. Reclassification or Merger. In case of any reclassification, change or
--------------------------
conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation or entity
(other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation or entity, as the case may
be, shall execute a new Warrant (in form and substance satisfactory to the
holder of this Warrant) providing that the holder of this Warrant shall have the
right to exercise such new Warrant and upon such exercise to receive, in lieu of
each share of Preferred Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder of
one share of Preferred Stock. Such new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Appendix I. The provisions of this Section 3 shall
similarly apply to successive reclassifications, changes, mergers and transfers.
-2-
<PAGE>
APPENDIX II
CAPITALIZATION SCHEDULE
-----------------------
<PAGE>
Exhibit 10.1
ONVIA.COM, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") dated as of December __,
---------
1999 is made by and between Onvia.com, Inc., a Washington corporation formerly
known as MegaDepot.com, Inc. (the "Company"), and ________________
-------
("Indemnitee").
----------
RECITALS
A. Indemnitee is a director or officer of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance and the significant cost of such
insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting directors and officers to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The Company has adopted bylaws (the "Bylaws") providing for
------
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Business Corporation Act of Washington (the
"Statute").
-------
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and thereby contemplate that contracts may be entered into between
the Company and its directors and officers with respect to indemnification of
such directors and officers.
F. To induce Indemnitee to serve or continue to serve as a director or
officer of the Company, the Company desires to confirm the contract
indemnification rights provided in the Bylaws and agrees to provide the
Indemnitee with the benefits contemplated by this Agreement.
AGREEMENT
In consideration of the recitals above, the mutual covenants and agreements
herein contained, and Indemnitee's continued service as a director or officer,
as the case may be, of the Company after the date hereof, the parties to this
Agreement agree as follows:
1. Indemnification of Indemnitee.
-----------------------------
(a) Scope. The Company agrees to hold harmless and indemnify
-----
Indemnitee to the full extent provided under the provisions of the Company's
Articles of Incorporation, as amended (the "Articles"), and the Bylaws, as
--------
amended (the "Bylaws"), and to the full extent permitted by law, notwithstanding
------
that the basis for such indemnification is not specifically enumerated in this
Agreement, the Company's Articles, Bylaws, any statute or otherwise. In the
event of any change, after the date of this Agreement, in any applicable law,
statute or rule
<PAGE>
regarding the right of a Washington corporation to indemnify a member of its
board of directors or an officer, such change, to the extent that it would
expand Indemnitee's rights hereunder, shall be included within Indemnitee's
rights and the Company's obligations hereunder, and, to the extent that it would
narrow Indemnitee's rights or the Company's obligations hereunder, shall not
affect or limit the scope of this Agreement; provided, however, that in no event
shall any part of this Agreement be construed so as to require indemnification
when such indemnification is not permitted by then applicable law.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles, Bylaws, any agreement, any vote of shareholders or
disinterested directors, the Statute, or otherwise, whether as to action in
Indemnitee's official capacity or otherwise.
(c) Included Coverage. If Indemnitee was or is made a party, or is
-----------------
threatened to be made a party, to or is otherwise involved (including, without
limitation, as a witness) in any Proceeding (as defined below), the Company
shall hold harmless and indemnify Indemnitee from and against any and all
losses, claims, damages (compensatory, exemplary, punitive or otherwise),
liabilities or expenses, including, without limitation, attorneys' fees, costs,
judgments, fines, ERISA excise taxes or penalties, witness fees, amounts paid in
settlement and other expenses incurred in connection with the investigation,
defense, settlement or approval of such Proceeding (collectively, "Damages").
-------
(d) Definition of Proceeding. For purposes of this Agreement,
------------------------
"Proceeding" shall mean any completed, actual, pending or threatened action,
----------
suit, claim, hearing or proceeding, whether civil, criminal, arbitrative,
administrative, investigative or pursuant to any alternative dispute resolution
mechanism (including an action by or in the right of the Company) and whether
formal or informal, in which Indemnitee is, was or becomes involved by reason of
the fact that Indemnitee is or was a director, officer, employee or agent of the
Company or that, being or having been such a director, officer, employee or
agent, Indemnitee is or was serving at the request of the Company as a director,
officer, employee, trustee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise (collectively, a "Related Company"),
---------------
including service with respect to an employee benefit plan, whether the basis of
such proceeding is alleged action (or inaction) by Indemnitee in an official
capacity as a director, officer, employee, trustee or agent or in any other
capacity while serving as a director, officer, employee, trustee or agent;
provided, however, that, except with respect to an Enforcement Action (defined
in Section 3(a) below, an action challenging the Company's determination that
Indemnitee is not entitled to indemnification pursuant to Section 1(e), and any
other action to enforce the provisions of this Agreement, "Proceeding" shall not
----------
include any action, suit, claim or proceeding instituted by or at the direction
of Indemnitee unless such action, suit, claim or proceeding is or was authorized
by the Company's Board of Directors.
(e) Determination Of Entitlement. In the event that a determination
----------------------------
of Indemnitee's entitlement to indemnification is required pursuant to Section
23B.08.550 of the Statute or a successor statute or pursuant to other applicable
law, the appropriate decision- maker shall make such determination; provided,
however, that Indemnitee shall initially be presumed in all cases to be entitled
to indemnification, that Indemnitee may establish a conclusive
-2-
<PAGE>
presumption of any fact necessary to such a determination by delivering to the
Company a declaration made under penalty of perjury that such fact is true and
that, unless the Company shall deliver to Indemnitee written notice of a
determination that Indemnitee is not entitled to indemnification within twenty
(20) calendar days after the Company's receipt of Indemnitee's initial written
request for indemnification, such determination shall conclusively be deemed to
have been made in favor of the Company's provision of indemnification, and that
the Company hereby agrees not to assert otherwise.
(f) Contribution. If the indemnification provided under Section 1(a)
------------
is unavailable by reason of a court decision, based on grounds other than any of
those set forth in paragraphs (ii) through (iv) of Section 4(a), then, in
respect of any Proceeding in which the Company is jointly liable with Indemnitee
(or would be if joined in such Proceeding), the Company shall contribute to the
amount of Damages (including attorneys' fees) actually and reasonably incurred
and paid or payable by Indemnitee in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
Indemnitee on the other from the transaction from which such Proceeding arose
and (ii) the relative fault of the Company on the one hand and of Indemnitee on
the other in connection with the events that resulted in such Damages as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such Damages. The Company agrees that it would not be just and equitable if
contribution pursuant to this Section 1(f) were determined by pro rata
allocation or any other method of allocation that does not take account of the
foregoing equitable considerations.
(g) Survival. The indemnification and contribution provided under
--------
this Agreement shall apply to any and all Proceedings, notwithstanding that
Indemnitee has ceased to serve the Company or a Related Company and shall
continue so long as Indemnitee shall be subject to any possible Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was a director or officer of the Company or serving in any other capacity
referred to in Section 1(d) of this Agreement.
2. Expense Advances.
----------------
(a) Generally. The right to indemnification of Damages conferred by
---------
Section 1 shall include the right to have the Company pay Indemnitee's expenses
in any Proceeding as such expenses are incurred and in advance of such
Proceeding's final disposition (such right, an "Expense Advance").
---------------
(b) Conditions to Expense Advance. The Company's obligation to
-----------------------------
provide an Expense Advance is subject to the following conditions:
(i) Undertaking. If the Proceeding arose in connection with
-----------
Indemnitee's service as a director or an officer of the Company (and not in any
other capacity in which Indemnitee rendered service, including service to any
Related Company), then Indemnitee or Indemnitee's representative shall have
executed and delivered to the Company an undertaking,
-3-
<PAGE>
which need not be secured and shall be accepted without reference to
Indemnitee's financial ability to make repayment, by or on behalf of Indemnitee
to repay all Expense Advances if it shall ultimately be determined by a final,
unappealable decision rendered by a court having jurisdiction over the parties
that Indemnitee is not entitled to be indemnified under this Agreement or
otherwise.
(ii) Cooperation. Indemnitee shall give the Company such
-----------
information and cooperation as it may reasonably request and as shall be within
Indemnitee's legal power to so provide.
(iii) Affirmation. Indemnitee shall furnish, upon request by the
-----------
Company and if required under applicable law, a written affirmation of
Indemnitee's good faith belief that any applicable standards of conduct have
been met by Indemnitee.
3. Procedures For Enforcement
--------------------------
(a) Enforcement. In the event that any claim for indemnification,
-----------
whether an Expense Advance or otherwise, is made hereunder and is not paid in
full within thirty (30) calendar days after written notice of such claim is
delivered to the Company, Indemnitee may, but need not, at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim (an
"Enforcement Action").
------------------
(b) Presumptions in Enforcement Action. In any Enforcement Action,
----------------------------------
the following presumptions (and limitation on presumptions) shall apply:
(i) The Company expressly affirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereunder
to induce Indemnitee to continue as a director or officer, as the case may be,
of the Company;
(ii) Neither (1) the failure of the Company (including the
Company's Board of Directors, independent or special legal counsel or the
Company's shareholders) to have made a determination prior to the commencement
of the Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (2) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall create a presumption that Indemnitee is
not entitled to indemnification hereunder; and
(iii) If Indemnitee is or was serving as a director or officer
of a corporation of which a majority of the shares entitled to vote in the
election of its directors is held by the Company or as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the Company or a wholly owned
subsidiary of the Company is a general partner or has a majority ownership, then
such corporation, partnership, joint venture, trust or other enterprise shall
conclusively be deemed a Related Company and Indemnitee shall conclusively be
deemed to be serving such Related Company at the Company's request.
-4-
<PAGE>
(c) Attorneys' Fees and Expenses for Enforcement Action. In the event
---------------------------------------------------
Indemnitee is required to bring an Enforcement Action, the Company shall pay all
of Indemnitee's fees and expenses in bringing and pursuing the Enforcement
Action (including attorneys' fees at any stage, including on appeal); provided,
however, that the Company shall not be required to provide such payment for such
attorneys' fees or expenses if a court of competent jurisdiction determines that
each of the material assertions made by Indemnitee in such Enforcement Action
was not made in good faith.
4. Limitations on Indemnity; Mutual Acknowledgment
-----------------------------------------------
(a) Limitation on Indemnity. No indemnity pursuant to this Agreement
-----------------------
shall be provided by the Company:
(i) On account of any suit in which a final, unappealable
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company in violation of
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended;
(ii) For Damages that have been paid directly to Indemnitee by
an insurance carrier under a policy of insurance maintained by the Company;
(iii) With respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iv) On account of Indemnitee's conduct which is finally
adjudged by a court having jurisdiction in the matter to have been intentional
misconduct, a knowing violation of law or the RCW 23B.08.310 or any successor
provision of the Statute, or a transaction from which Indemnitee derived an
improper personal benefit; or
(v) If a final decision by a court having jurisdiction in the
matter with no further right of appeal shall determine that such indemnification
is not lawful.
(b) Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any Damages in connection with a Proceeding, but not, however, for
the total amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion of such Damages to which Indemnitee is entitled.
(c) Mutual Acknowledgment. The Company and Indemnitee acknowledge
---------------------
that, in certain instances, federal law or public policy may override applicable
state law and prohibit the Company from indemnifying Indemnitee under this
Agreement or otherwise. For example, the Company and Indemnitee acknowledge
that the Securities and Exchange Commission (the "SEC") has taken the position
---
that indemnification is not permissible for liabilities arising under certain
federal securities laws, and federal legislation prohibits indemnification for
certain ERISA violations. Furthermore, Indemnitee understands and acknowledges
that the Company has undertaken or may be required in the future to undertake
-5-
<PAGE>
with the SEC to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee.
5. Notification and Defense of Claim
---------------------------------
(a) Notification. Promptly after receipt by Indemnitee of notice of
------------
the commencement of any Proceeding, Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of the commencement thereof; but the omission so to notify the Company
will not, however, relieve the Company from any liability which it may have to
Indemnitee under this Agreement unless and only to the extent that such omission
can be shown to have prejudiced the Company's ability to defend the Proceeding.
If, at the time of the receipt of a notice of a claim pursuant to
Section 5(a), the Company has director and officer liability insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such Proceeding in accordance with the terms of such policies.
(b) Defense of Claim. With respect to any such Proceeding as to which
----------------
Indemnitee notifies the Company of the commencement thereof:
(i) The Company may participate therein at its own expense;
(ii) The Company, jointly with any other indemnifying party
similarly notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct of the
defense of such action, (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the Company's expense, or (iv) the Company
is not financially or legally able to perform its indemnification obligations.
The Company shall not be entitled to assume the defense of any proceeding
brought by or on behalf of the Company or as to which Indemnitee shall have
reasonably made the conclusion provided for in (ii) or (iv) above;
(iii) The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any Proceeding
effected without its written consent;
(iv) The Company shall not settle any action or claim in any
manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent; and
-6-
<PAGE>
(v) Neither the Company nor Indemnitee will unreasonably
withhold its, his or her consent to any proposed settlement.
6. Severability
------------
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or to fail to do any act in violation of
applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
7. Governing Law; Binding Effect; Amendment and Termination
--------------------------------------------------------
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Washington.
(b) This Agreement shall be binding on Indemnitee and on the Company
and its successors and assigns (including any transferee of all or substantially
all its assets and any successor by merger or otherwise by operation of law),
and shall inure to the benefit of Indemnitee and Indemnitee's heirs, personal
representatives and assigns and to the benefit of the Company and its successors
and assigns. The Company shall not effect any merger, consolidation, sale of
all or substantially all of its assets or other reorganization in which it is
not the surviving entity, unless the surviving entity agrees in writing to
assure all of the Company's obligations under this Agreement.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
8. Entire Agreement
----------------
This Agreement is the entire agreement of the parties regarding its
subject matter and supersedes all prior written or oral communications or
agreements.
9. Counterparts
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
10. Amendments; Waivers
-------------------
Neither this Agreement nor any provision may be amended except by
written agreement signed by the parties. No waiver of any breach or default
shall be considered valid
-7-
<PAGE>
unless in writing, and no such waiver shall be deemed a waiver of any subsequent
breach or default.
11. Notices
-------
All notices, claims and other communications hereunder shall be in
writing and made by hand delivery, registered or certified mail (postage
prepaid, return receipt requested), facsimile or overnight air courier
guaranteeing next-day delivery:
(a) If to the Company, to: with a copy to:
Onvia.com, Inc. Venture Law Group
1000 Dexter Ave., Suite 400 4750 Carillon Point
Seattle, WA 98104 Kirkland, WA 98033
Attn: Glenn Ballman Attn: William W. Ericson
(b) If to Indemnitee, to the address specified on the last page of
this Agreement or to such other address as either party may from time to time
furnish to the other party by a notice given in accordance with the provisions
of this Section 11. All such notices, claims and communications shall be deemed
to have been duly given if (i) personally delivered, at the time delivered, (ii)
mailed, five days after dispatched, (iii) sent by facsimile transmission, upon
confirmation of receipt, and (iv) sent by any other means, upon receipt.
12. Directors' and Officers' Insurance. The Company shall, from time
----------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among
other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of director and officer liability insurance, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, if Indemnitee is not an officer or director but is a
key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY: INDEMNITEE:
ONVIA.COM, INC. _______________________________________
By:_____________________________ Print name:______________________________
Name:___________________________ Address: __________________
(print) __________________
Title:__________________________ __________________
-9-
<PAGE>
Exhibit 10.6
LOAN AND SECURITY AGREEMENT
Agreement No. __________ Dated as of August 5, 1999
among
MMC/GATX PARTNERSHIP NO. I
and
COMDISCO, INC.
as Lenders
and
ONVIA.COM, INC.
a Washington, Inc. corporation
209 1/2 First Avenue South
Suite 302
Seattle, WA 98104
as Borrower
CREDIT AMOUNT: $7,000,000
Commitments: MMC/GATX Partnership No. I: $3,000,000
Comdisco, Inc.: $4,000,000
Repayment Period: 30 months
Treasury Note Maturity: 30 months
Loan Margin: 744 basis points
Commitment Termination Date: July 31, 1999
The defined terms and information set forth on this cover page are a part
of the LOAN AND SECURITY AGREEMENT, dated as of the date first written above
(this "Agreement"), entered into by and among MMC/GATX PARTNERSHIP NO. I and
COMDISCO, INC. (each individually a "Lender" and collectively, "Lenders") and
the borrower ("Borrower") set forth above. The terms and conditions of this
Agreement agreed to between Lenders and Borrower are as follows:
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<PAGE>
ARTICLE I
INTERPRETATION
--------------
1.01. Certain Definitions. Unless otherwise indicated in this Agreement or
-------------------
any other Operative Document, the following terms, when used in this Agreement
or any other Operative Document, shall have the following respective meanings:
"Applicable Premium" shall mean an amount equal to the greater of (i) zero and
------------------
(ii) the excess of (x) the sum of the present values, at the date of prepayment
of the amount of each remaining scheduled payment of interest on and principal
on a Loan, or portion of such payment, which will not be required to be made as
a result of such prepayment (each such payment an "Amount Payable") (each such
--------------
Amount Payable discounted separately at the Treasury Rate, determined on the
date three (3) Business Days before the date of prepayment, compounded monthly,
from the date such Amount Payable would be due), over (y) the principal amount
of such Note to be prepaid. The "Treasury Rate" shall be the yield (as quoted in
The Wall Street Journal on the date which is three (3) Business Days prior to
the date of prepayment) on U.S. Treasury securities adjusted to a constant
maturity equal to the then remaining number of full months to maturity of the
applicable Note.
"Borrower's Home State" shall mean Washington, the state in which Borrower's
---------------------
principal place of business is located.
"Business Day" shall mean any day other than a Saturday, Sunday or public
------------
holiday under the laws of California, Illinois or Borrower's Home State or other
day on which banking institutions are authorized or obligated to close in
California, Illinois or Borrower's Home State.
"Claim" has the meaning given to that term in Section 10.03.
----- -------------
"Collateral" has the meaning given to that term in Section 5.01.
---------- ------------
"Commitment" means, with respect to each Lender, the amount set forth
----------
following such term on the cover page of this Agreement and "Commitments" means
-----------
all such amounts collectively.
"Commitment Fee" has the meaning given to that term in Section 2.04.
-------------- ------------
"Commitment Termination Date" shall mean the date specified on the cover page
---------------------------
of this Agreement.
"Credit Amount" shall mean the maximum aggregate amount of the Loans under
-------------
this Agreement (if the conditions specified in Schedule 3 are satisfied), which
amount is set forth following such term on the cover page of this Agreement.
"Default" shall mean any event which with the passing of time or the giving of
-------
notice or both would become an Event of Default hereunder.
"Default Rate" shall mean the per annum rate of interest equal to the higher
------------
of (i) 18% or (ii) the Prime Rate plus 6%, but such rate shall in no event be
more than the highest rate permitted by applicable law.
"Disclosure Schedule" has the meaning set forth in the definition of the term
-------------------
"Permitted Liens."
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<PAGE>
"Environmental Law" shall mean the Resource Conservation and Recovery Act of
-----------------
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
and any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree (in each case having the force of law) regulating or
imposing liability or standards of conduct concerning any Hazardous Material, as
now or at any time hereafter in effect.
"Equity Securities" of any Person shall mean (a) all common stock, preferred
-----------------
stock, participations, shares, partnership interests or other equity interests
in and of such Person (regardless of how designated and whether or not voting or
non-voting) and (b) all warrants, options and other rights to acquire any of the
foregoing.
"Event of Default" has the meaning given to that term in Section 9.01.
---------------- ------------
"Facility Fee" has the meaning given to that term in Section 2.04.
------------ ------------
"Funding Date" shall mean a date on which a Loan is made to or on account of
------------
Borrower under this Agreement.
"GAAP" shall mean generally accepted accounting principles and practices as in
----
effect in the United States of America from time to time, consistently applied.
"Hazardous Material" means any hazardous, dangerous or toxic constituent
------------------
material, pollutant, waste or other substance, whether solid, liquid or gaseous,
which is regulated by any federal, state or local governmental authority.
"Indebtedness" shall mean, with respect to Borrower or any Subsidiary, the
------------
aggregate amount of, without duplication, (a) all obligations of such Person for
borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services (excluding
trade payables aged less than 180 days), (d) all capital lease obligations of
such Person, (e) all obligations or liabilities of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed, (f) all obligations or liabilities of others guaranteed by such Person;
and (g) any other obligations or liabilities which are required by GAAP to be
shown as debt on the balance sheet of such Person. Unless otherwise indicated,
the term "Indebtedness" shall include all Indebtedness of Borrower and the
------------
Subsidiaries.
"Intellectual Property" shall mean all of Borrower's right, title and interest
---------------------
in and to patents, patent rights (and applications and registrations therefor),
trademarks and service marks (and applications and registrations therefor),
inventions, copyrights, mask works (and applications and registrations
therefor), trade names, trade styles, software and computer programs, trade
secrets, methods, processes, know how, drawings, specifications, descriptions,
and all memoranda, notes, and records with respect to any research and
development, all whether now owned or subsequently acquired or developed by
Borrower and whether in tangible or intangible form or contained on magnetic
media readable by machine together with all such magnetic media.
"Investment" shall mean the purchase or acquisition of any capital stock,
----------
equity interest, or any obligations or other securities of, or any interest in,
any Person, or the extension of any advance, loan, extension of credit or
capital contribution to, or any other investment in, any Person.
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<PAGE>
"Lien" shall mean any pledge, bailment, lease, mortgage, hypothecation,
----
conditional sales and title retention agreements, charge, claim, encumbrance or
other lien in favor of any Person.
"Loan" means a Loan advanced by a Lender to Borrower under this Agreement
----
according to the Commitment of such Lender.
"Loan Margin" shall mean the number of basis points set forth following such
-----------
term on the cover page of this Agreement.
"Loan Rate" shall mean, with respect to each Loan, the per annum rate of
---------
interest (based on a year of twelve 30 day months) equal to the sum of (a) the
U.S. Treasury note rate of a term equal to the Treasury Note Maturity as quoted
in The Wall Street Journal on the date the Note with respect to each Loan is
prepared, plus (b) the Loan Margin.
"Note" shall mean one of the secured promissory notes of Borrower
----
substantially in the form of Exhibit A.
---------
"Obligations" has the meaning given to that term in Section 5.01.
----------- ------------
"Operative Documents" shall mean this Agreement, the Notes and the Warrants
-------------------
and all other documents, instruments and agreements executed and delivered in
connection herewith or therewith or in respect of the closing of the
transactions contemplated hereby or thereby.
"Payment Date" has the meaning given to that term in the Note.
------------
"Permitted Indebtedness" shall mean and include:
----------------------
(a) Indebtedness of Borrower to Lenders;
(b) Indebtedness of Borrower secured by Liens permitted under clause
(e) of the definition of Permitted Liens;
(c) Indebtedness arising from the endorsement of instruments in the
ordinary course of business;
(d) Indebtedness existing on the date hereof and set forth on the
Disclosure Schedule;
(e) Indebtedness in an aggregate principal amount not exceeding
$2,500,000.00 consisting of a revolving credit facility in which
the loans are limited to less than 100% of Borrower's outstanding
accounts receivable and which are secured solely by Borrower's
accounts receivable (and general intangibles in the nature of
rights to payment) and the proceeds thereof; and
(f) Subordinated Indebtedness.
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<PAGE>
"Permitted Investments" shall mean and include:
---------------------
(a) Deposits with commercial banks organized under the laws of the
United States or a state thereof to the extent such deposits are
fully insured by the Federal Deposit Insurance Corporation;
(b) Investments in marketable obligations issued or fully guaranteed
by the United States and maturing not more than one (1) year from
the date of issuance; and
(c) Investments in open market commercial paper rated at least "A1"
or "P1" or higher by a national credit rating agency and maturing
not more than one (1) year from the creation thereof.
(d) Investments pursuant to or arising under currency agreements or
interest rate agreements entered into in the ordinary course of
business;
(e) Investments consisting of deposit accounts of Borrower in which
Lenders have a perfected security interest; and
(f) Other Investments aggregating not in excess of Two Hundred Fifty
Thousand Dollars ($250,000) at any time.
"Permitted Liens" shall mean (a) the Lien created by this Agreement, (b) Liens
---------------
for fees, taxes, levies, imposts, duties or other governmental charges of any
kind which are not yet delinquent or which are being contested in good faith by
appropriate proceedings which suspend the collection thereof (provided, however,
-------- -------
that such proceedings do not involve any substantial danger of the sale,
forfeiture or loss of any item of equipment and that Borrower has adequately
bonded such Lien or reserves sufficient to discharge such Lien have been
provided on the books of Borrower), (c) Liens identified on the disclosure
schedule attached hereto as Schedule 2 ("Disclosure Schedule"), (d) Liens to
---------- -------------------
secure payment of worker's compensation, employment insurance, old age pensions
or other social security obligations of Borrower in the ordinary course of
business of Borrower, (e) Liens upon any equipment or other personal property
acquired by Borrower after the date hereof to secure (i) the purchase price of
such equipment or other personal property or (ii) lease obligations or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment or other personal property; provided that (A) such Liens are
--------
confined solely to the equipment or other personal property so acquired and the
amount secured does not exceed the acquisition price thereof, and (B) no such
Lien shall be created, incurred, assumed or suffered to exist in favor of
Borrower's officers, directors or shareholders holding five percent (5%) or more
of Borrower's Equity Securities, (f) carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other similar Liens arising in the
ordinary course of business which are not delinquent or remain payable without
penalty or which are being contested in good faith and by appropriate
proceedings; (g) non-exclusive licenses of Intellectual Property entered into in
the ordinary course of business and licenses, Liens or similar arrangements
entered into in connection with joint ventures and corporate collaborations; and
(h) Liens of the type contemplated under clause (e) of the definition of
Permitted Indebtedness securing Indebtedness permitted under such clause (e).
"Person" shall mean and include an individual, a partnership, a corporation, a
------
business trust, a joint stock company, a limited liability company, an
unincorporated association or other entity and any domestic or foreign national,
state or local government, any political subdivision thereof, and any
department, agency, authority or bureau of any of the foregoing.
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<PAGE>
"Prime Rate" shall mean the interest rate per annum specified in the "Money
----------
Rates" column of The Wall Street Journal, but such rate shall in no event be
more than the highest interest rate permitted by applicable law.
"Subordinated Indebtedness" shall mean Indebtedness subordinated to the
-------------------------
Obligations on terms and conditions acceptable to Lenders in their sole
discretion.
"Subsidiary" shall mean any corporation of which a majority of the outstanding
----------
capital stock entitled to vote for the election of directors (otherwise than as
the result of a default) is owned by Borrower directly or indirectly through
Subsidiaries.
"Term" shall mean the period from and after the date hereof until the payment
----
or satisfaction in full of all Obligations under this Agreement and the other
Operative Documents.
"Treasury Note Maturity" shall mean the period of months set forth following
----------------------
such term on the cover page of this Agreement.
"Warrants" shall mean separate warrants to be issued at the direction of the
--------
Lenders to purchase securities of Borrower substantially in the form of Exhibit
-------
B.
- -
1.02. Headings. Headings in this Agreement and each of the other Operative
--------
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
1.03. Plural Terms. All terms defined in this Agreement or any other
------------
Operative Document in the singular form shall have comparable meanings when used
in the plural form and vice versa.
---- -----
1.04. Construction. This Agreement is the result of negotiations among, and
------------
has been reviewed by, Borrower and Lenders and their respective counsel.
Accordingly, this Agreement shall be deemed to be the product of all parties
hereto, and no ambiguity shall be construed in favor of or against Borrower or
Lenders.
1.05. Entire Agreement. This Agreement, together with the terms set forth in
----------------
each of the other Operative Documents, taken together, constitute and, contain
the entire agreement of Borrower and Lenders and, with regard to their
respective subject matters, supersede any and all prior agreements, term sheets,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, with respect to their respective subject
matters.
1.06. Other Interpretive Provisions. References in this Agreement to
-----------------------------
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to articles,
sections, exhibits, schedules and annexes herein and hereto unless otherwise
indicated. References in this Agreement and each of the other Operative
Documents to any document, instrument or agreement shall include (a) all
exhibits, schedules, annexes and other attachments thereto, (b) all documents,
instruments or agreements issued or executed in replacement thereof, and (c)
such document, instrument or agreement, or replacement or predecessor thereto,
as amended, modified and supplemented from time to time and in effect at any
given time. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement or any other Operative Document shall refer
to this Agreement or such other Operative Document, as the case may be, as a
whole and not to any particular provision of this Agreement or such other
Operative Document, as the case may be. The words "include" and "including" and
words of similar import when used in this Agreement or any other Operative
Document shall not be construed to be limiting or exclusive. Unless otherwise
indicated in this
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<PAGE>
Agreement or any other Operative Document, all accounting terms used in this
Agreement or any other Operative Document shall be construed, and all accounting
and financial computations hereunder or thereunder shall be computed, in
accordance with GAAP.
ARTICLE II
THE CREDIT
----------
2.01. Credit Facility.
(a) The Credit Amount. Subject to the terms and conditions of this
-----------------
Agreement and relying upon the representations and warranties herein set forth
as and when made or deemed to be made, each Lender severally agrees to lend to
Borrower a Loan in the amount of such Lender's Commitment. No Lender shall be
required to make a Loan in an amount in excess of its Commitment. The Loans may
be prepaid only as set forth in Section 2.01(d).
---------------
(b) Interest Rates. Borrower shall pay interest on the unpaid
--------------
principal amount of each Loan from the date of such Loan until such Loan is paid
in full, at a per annum rate of interest equal to the Loan Rate for such Loan
determined in accordance with the definition of Loan Rate. The Loan Rate
applicable to a Loan shall not be subject to change in the absence of manifest
error. All computations of interest on a Loan shall be based on a year of twelve
30 day months. If Borrower pays interest on a Loan which is determined to be in
excess of the then legal maximum rate, then that portion of each interest
payment representing an amount in excess of the then legal maximum rate shall be
deemed a payment of principal and applied against the principal of such Loan.
(c) Payments of Principal and Interest. Borrower shall make payments
----------------------------------
of accrued interest only on the outstanding principal amount of each Loan on the
first three (3) Payment Dates specified in each Lender's Note, and twenty-seven
(27) equal payments of principal plus accrued interest on the outstanding
principal amount of such Lender's Loan on each subsequent Payment Date as set
forth in such Lender's Note.
(d) Optional Prepayment with Premium. Upon ten (10) Business Days'
--------------------------------
prior written notice to Lenders, Borrower may, at its option, at any time,
prepay all, and not less than all, of the Loans in full at a prepayment price
equal to the principal amount of each Loan, plus interest accrued on each Loan
through and including the date of such prepayment, plus a premium on each Loan
equal to the Applicable Premium. If an Event of Default occurs and is
continuing, and the Lenders exercise their right under Section 9.02 to
accelerate the Loans or the Loans are automatically accelerated, Borrower
expressly agrees that the amount then due and payable shall include the
Applicable Premium as of the date of such acceleration.
2.02. Use of Proceeds; the Loan and the Notes; Disbursement.
-----------------------------------------------------
(a) Use of Proceeds. The proceeds of the Loans shall be used solely
---------------
for working capital or general corporate purposes of Borrower.
(b) The Loans and the Notes. The obligation of Borrower to repay the
unpaid principal amount of and interest on each Lender's Loan shall be evidenced
by a Note issued to each Lender and each Lender is authorized to endorse on a
grid annexed to its Note appropriate notations regarding payments made
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<PAGE>
on the Note; provided, however, that the failure to make, or an error in making,
-------- -------
any such notation shall not limit or otherwise affect the obligations of
Borrower hereunder or thereunder.
(c) Disbursement. Each Lender shall disburse its Loan by wire transfer
------------
to Borrower unless otherwise directed in writing by Borrower. Notwithstanding
anything stated herein to the contrary, no Lender shall have any obligation to
advance funds on behalf of the another Lender.
(d) Termination of Commitment to Lend. Notwithstanding anything to the
---------------------------------
contrary in the Operative Documents, Lenders' obligations to advance the Loans
hereunder shall terminate on the earliest of (i) the occurrence of any Event of
Default hereunder and (ii) the Commitment Termination Date.
2.03. Other Payment Terms.
-------------------
(a) Place and Manner. Borrower shall make all payments due to Lenders
----------------
in lawful money of the United States, in immediately available funds, at the
address for payments and in the manner specified in Section 10.05(b).
----------------
(b) Date. Whenever any payment due hereunder shall fall due on a day
----
other than a Business Day, such payment shall be made on the next succeeding
Business Day.
(c) Default Rate. If either (i) any amounts required to be paid by
------------
Borrower under this Agreement or the other Operative Documents (including
principal or interest payable on the Loan, any fees or other amounts) remain
unpaid after such amounts are due, or (ii) an Event of Default has occurred and
is continuing, Borrower shall pay interest on the outstanding principal balance
hereunder from the date due or from the date of the Event of Default, as
applicable, until such past due amounts are paid in full or until all Events of
Defaults are cured, as applicable, at a per annum rate equal to the Default
Rate, such rate to change from time to time as the Prime Rate shall change. All
computations of such interest at the Default Rate shall be based on a year of
360 days and twelve 30 day months.
2.04. Facility Fee; Commitment Fee.
----------------------------
(a) Facility Fee. Upon the execution and delivery of this Agreement,
------------
Borrower will pay to Lenders a facility fee (a "Facility Fee") of $70,000.
------------
(b) Borrower has paid a Commitment Fee to the Lenders in the aggregate
amount of $25,000 (the "Commitment Fee"). The Commitment Fee, less $10,000 for
--------------
transaction and due diligence expenses, will be applied pro rata to the Facility
Fee due to each Lender.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.01. Representations and Warranties. Except as set forth in the Disclosure
------------------------------
Schedule, Borrower makes the following representations and warranties to Lenders
as of the date hereof and again on the Funding Date:
(a) Organization and Qualification. Borrower is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation and is duly qualified to do business
-8-
<PAGE>
in Borrower's Home State. Borrower has no Subsidiaries other than Onvia.com
Channels, Inc., a corporation organized under the laws of British Columbia.
(b) Authority. Borrower has all necessary corporate power, authority
---------
and legal right and has obtained all approvals and consents and has given all
notices necessary to execute and deliver this Agreement and the other Operative
Documents and to perform the terms hereof and thereof. Borrower has all
requisite corporate power and authority to own and operate its properties and to
carry on its businesses as now conducted.
(c) Conflict with Other Instruments, etc. Neither the execution and
------------------------------------
delivery of any Operative Document to which Borrower is a party nor the
consummation of the transactions therein contemplated nor compliance with the
terms, conditions and provisions thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of the charter or the
bylaws of Borrower or, to its knowledge, any law or any regulation, order, writ,
injunction or decree of any court or governmental instrumentality or any
material agreement or instrument to which Borrower is a party or by which it or
any of its properties is bound or to which it or any of its properties is
subject, or constitute a default thereunder or result in the creation or
imposition of any Lien, other than Permitted Liens.
(d) Properties. Borrower has good and marketable title to the
----------
Collateral, free and clear of all Liens, other than Permitted Liens. Borrower
has good title and ownership of, or is licensed under, all of Borrower's current
Intellectual Property, with no known infringement of the rights of others.
Borrower has not received any communications alleging that Borrower has
violated, or by conducting its business as proposed, would violate any
proprietary rights of any other Person. Borrower has no knowledge of any
infringement or violation by it of the intellectual property rights of any third
party and has no knowledge of any violation or infringement by a third party of
any of its Intellectual Property. The Collateral and the Intellectual Property
constitute substantially all of the assets and property of Borrower.
(e) Authorization, Governmental Approvals, etc. The execution and
-------------------------------------------
delivery by Borrower of each Operative Document, the granting of the security
interest in the Collateral, the issuance of the Warrants, the issuance of the
securities into which the Warrants are exercisable, the issuance of any
securities into which the securities issuable upon exercise of the Warrants are
convertible, and the performance of the obligations herein and therein
contemplated have each been duly authorized by all necessary action on the part
of Borrower. No authorization, consent, approval, license or exemption of, and
no registration, qualification, designation, declaration or filing with, or
notice to, any Person is, was or will be necessary to (i) the valid execution
and delivery of any Operative Document to which Borrower is a party, (ii) the
performance of Borrower's obligations under any Operative Document, or (iii) the
granting of the security interest in the Collateral, except for filings in
connection with the perfection of the security interest in any of the Collateral
or the issuance of the Warrants. The Operative Documents have been or will be
duly executed and delivered and constitute or will constitute legal, valid and
binding obligations of Borrower, enforceable in accordance with their respective
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws of general application relating to or affecting
the enforcement of creditors' rights or by general principles of equity.
(f) Litigation. There are no actions, suits, proceedings or
----------
investigations pending or, to the knowledge of Borrower, threatened against or
affecting Borrower, or the business or any property or asset owned by it, before
any court or governmental department, agency or instrumentality which, if
adversely determined, could reasonably be expected to have a material adverse
effect on the financial condition, business or operations of Borrower.
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<PAGE>
(g) Security Interest. Assuming the proper filing of one or more
-----------------
financing statement(s) identifying the Collateral with the proper state and/or
local authorities, the security interests in the Collateral granted to Lenders
pursuant to this Agreement (i) constitute and will continue to constitute first
priority security interests (except to the extent any other Permitted Lien may
create any priority to Lenders' Lien under this Agreement) and (ii) are and will
continue to be superior and prior to the rights in the Collateral of all other
creditors of Borrower (except to the extent of such Permitted Liens). Except as
set forth in the Disclosure Schedule, Borrower does not own any right, title or
interest in or to any real property (other than leasehold interests), motor
vehicles, promissory notes or other property (excluding Intellectual Property)
with respect to which a security interest must be perfected by a method other
than the filing of a UCC-1 financing statement.
(h) Executive Offices. The principal place of business and chief
-----------------
executive office of Borrower, and the office where Borrower will keep all
records and files regarding the Collateral, is set forth on the cover page of
this Agreement.
(i) Solvency, Etc. To Borrower's knowledge, Borrower is Solvent (as
-------------
defined below) and, after the execution and delivery of the Operative Documents
and the consummation of the transactions contemplated thereby, Borrower will be
Solvent. "Solvent" shall mean, with respect to any Person on any date, that on
-------
such date (a) the fair value of the property of such Person is greater than the
fair value of the liabilities (including, without limitation, contingent
liabilities) of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (d) such Person is not engaged in business or a
transaction, and is not about in business or a transaction, for which such
Person's property would constitute an unreasonably small capital.
(j) Catastrophic Events; Labor Disputes. None of Borrower or its
-------------------
properties is or has been affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty that could reasonably be expected to have a material
adverse effect on the financial condition, business or operations of Borrower.
There are no disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements, employment
contracts or employee welfare or incentive plans to which Borrower is a party,
and there are no strikes, lockouts, work stoppages or slowdowns, or, to the
knowledge of Borrower, jurisdictional disputes or organizing activity occurring
or threatened which could reasonably be expected to have a material adverse
effect on the financial condition, business or operations of Borrower.
(k) No Material Adverse Effect. To Borrower's knowledge, no event has
--------------------------
occurred and no condition exists which could reasonably be expected to have a
material adverse effect on the financial condition, business or operations of
Borrower since [date of last audited financial statements].
(l) Accuracy of Information Furnished. None of the Operative
---------------------------------
Documents and none of the other certificates, statements or information
furnished to Lenders by or on behalf of Borrower in connection with the
Operative Documents or the transactions contemplated thereby contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Lenders recognize that
all financial projections furnished to Lenders by or on behalf of Borrower in
connection with the Operative Documents or the transactions contemplated thereby
are not to be viewed as facts and that actual results during the period or
periods covered by such projections may differ from the projected or forecasted
results.
-10-
<PAGE>
(m) Certain Agreements of Officers, Employees and Consultants.
---------------------------------------------------------
(i) To the knowledge of Borrower, no officer, employee or
consultant of Borrower is, or is now expected to be, in violation of any term of
any employment contract, proprietary information agreement, nondisclosure
agreement, noncompetition agreement, or any other material contract or agreement
or any restrictive covenant relating to the right of any such officer, employee
or consultant to be employed by Borrower because of the nature of the business
conducted or to be conducted by Borrower or relating to the use of trade secrets
or proprietary information of others, and to Borrower's knowledge, the continued
employment of Borrower's officers, employees and consultants does not subject
Borrower to any material liability for any claim or claims arising out of or in
connection with any such contract, agreement, or covenant.
(ii) To the knowledge of Borrower, no officers of Borrower, and
no employee or consultant of Borrower whose termination, either individually or
in the aggregate, could reasonably be expected to have a material adverse effect
on the financial condition, business or operations of Borrower, has any present
intention of terminating his or her employment or consulting relationship with
Borrower.
ARTICLE IV
REPORTING REQUIREMENTS
----------------------
4.01. Furnishing Reports. Borrower shall furnish to Lenders:
------------------
(a) Financial Statements. So long as Borrower is not subject to
--------------------
the reporting requirements of Section 12 or Section 15 of the Securities and
Exchange Act of 1934, as amended, promptly as they are available, unaudited
quarterly and audited annual financial statements of Borrower and such other
financial information as Lenders may reasonably request from time to time. From
and after such time as Borrower becomes a publicly reporting company, promptly
as they are available and in any event: (i) at the time of filing of Borrower's
Form 10-K with the Securities and Exchange Commission after the end of each
fiscal year of Borrower, the financial statements of Borrower filed with such
Form 10-K; and (ii) at the time of filing of Borrower's Form 10-Q with the
Securities and Exchange Commission after the end of each of the first three
fiscal quarters of Borrower, the financial statements of Borrower filed with
such Form 10-Q.
(b) Notice of Defaults. As soon as possible, and in any event
------------------
within five (5) Business Days after the discovery of a Default or Event of
Default provide Lenders with an officer's certificate of Borrower setting forth
the facts relating to or giving rise to such Default or Event of Default and the
action which Borrower proposes to take with respect thereto.
(c) Miscellaneous. Such other information as Lenders may reasonably
-------------
request from time to time.
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<PAGE>
ARTICLE V
GRANT OF SECURITY INTEREST
GENERAL PROVISIONS CONCERNING SECURITY
---------------------------------------
5.01. Grant of Security Interest. Borrower, in order to secure the
--------------------------
payment of the principal and interest with respect to the Loans made pursuant to
this Agreement, all other sums due under and in respect hereof and of the other
Operative Documents, including fees, charges, expenses and attorneys' fees and
costs and the performance and observance by Borrower of all other terms,
conditions, covenants and agreements herein and in the other Operative Documents
(all such amounts and obligations being herein sometimes called the
"Obligations"), does hereby grant to Lenders and their successors and
- ------------
assigns, a security interest in and to the following property (collectively, the
"Collateral"): All right, title, interest,claims and demands of Borrower in
- -----------
and to:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all laboratory equipment, computer equipment,
office equipment, machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles (including
Intellectual Property), now owned or hereafter acquired, including, without
limitation, goodwill, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer disks, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to
payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower (subject, in each case, to the
contractual rights of third parties to require funds received by Borrower to be
expended in a particular manner), whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, letters of credit,
certificates of deposit, instruments, chattel paper and investment property,
including, without limitation, all securities, whether certificated or
uncertificated, security entitlements, securities accounts, commodity contracts
and commodity accounts, and all financial assets held in any securities account
or otherwise, wherever located, now owned or hereafter acquired and Borrower's
books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the
above and all substitutions for, additions and accessions to and proceeds
thereof, including, without limitation, insurance, condemnation, requisition or
similar payments and proceeds of the sale or licensing of Intellectual Property.
-12-
<PAGE>
5.02. Duration of Security Interest. Lenders' security interest in
-----------------------------
the Collateral shall continue until the payment in full and the satisfaction of
all Obligations, whereupon such security interest shall terminate. Lenders, upon
payment in full and the satisfaction of the Obligations, shall execute such
further documents and take such further actions as may be necessary to effect
the release and/or termination contemplated by this Section 5.02, including duly
------------
executing and delivering termination statements for filing in all relevant
jurisdictions.
5.03. Possession of Collateral. Except as set forth in Section 5.04,
------------------------
so long as no Event of Default has occurred and is continuing, Borrower shall
remain in full possession, enjoyment and control of the Collateral (except only
as may be otherwise required by Lenders for perfection of its security interest
therein) and to manage, operate and use the same and each part thereof with the
rights and franchises appertaining thereto; provided, however, that the
-------- -------
possession, enjoyment, control and use of the Collateral shall at all times be
subject to the observance and performance of the terms of this Agreement.
5.04. Location of Collateral. The Collateral is and shall remain in
----------------------
the possession of Borrower at Borrower's address stated on the cover page of
this Agreement.
5.05. Lien Subordination. Lenders agree that the Liens granted to it
------------------
hereunder shall be subordinate to (i) the Liens existing in connection with
Indebtedness permitted by clause (e) of the definition of Permitted
Indebtedness, and (ii) the Liens of existing and future lenders providing
equipment financing and equipment lessors and/or accounts receivable
financing; provided, that, in the case of equipment financings and leasing
--------
such Liens are confined solely to the equipment so financed and the proceeds
thereof and in the case of accounts receivable financings such Liens are
confined solely to the accounts receivable so financed; and provided, further,
that the Obligations hereunder shall not be subordinate in right of payment to
any obligations to other lenders, equipment lenders or equipment lessors and
Lenders' rights and remedies hereunder shall not in any way be subordinate to
the rights and remedies of any such lenders or equipment lessors. Lenders agree
to execute and deliver such agreements and documents as may be reasonably
requested by Borrower from time to time which set forth the lien subordination
described in this Section 5.05 and are reasonably acceptable to Lenders. Lenders
------------
shall have no obligation to execute any agreement or document which would impose
obligations, restrictions or lien priority on Lenders which are less favorable
to Lenders than those described in this Section 5.05.
------------
5.06 Intellectual Property. (a) Within 30 days of the date of this
---------------------
Agreement, Borrower shall register or cause to be registered with the United
States Copyright Office (i) any software (material to the business of Borrower)
developed or acquired by Borrower in connection with any product developed or
acquired for sale or licensing. (b) While any Obligations remain outstanding,
Borrower shall register or cause to be registered with the United States
Copyright Office (i) any software (material to the business of Borrower)
developed or acquired by Borrower hereafter from time to time in connection with
any product developed or acquired for sale or licensing and (ii) any major
revisions or upgrades to any software that has previously been registered with
the United States Copyright Office. Borrower shall file for registration within
30 days from the development or acquisition of such software, major revision or
upgrade.
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
6.01. Affirmative Covenants.
---------------------
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<PAGE>
(a) Payment of Taxes, etc. Borrower shall pay and discharge all
---------------------
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon any of its properties; provided that there shall be no
--------
requirement to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by appropriate proceedings or which presents
no risk of seizure, forfeiture, levy or other event which could jeopardize any
Collateral or (ii) for which payment in full is bonded or reserved in Borrower's
financial statements.
(b) Inspection Rights. Borrower shall, at any reasonable time and
-----------------
from time to time, permit Lenders or any of its agents or representatives to
inspect the Collateral, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, Borrower and to
discuss the affairs, finances and accounts of Borrower with any of its officers
or directors relating in each case to Lenders' capacity as lenders and secured
party hereunder and with respect to the Collateral.
(c) Maintenance of Equipment and Similar Assets. Borrower shall keep
-------------------------------------------
and maintain all items of equipment and other similar types of personal property
that form any significant portion or portions of the Collateral in good
operating condition and repair and shall make all necessary replacements thereof
and renewals thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved, ordinary wear and tear excepted. Borrower
shall not permit any such material item of Collateral to become a fixture to
real estate or an accession to other personal property, without the prior
written consent of Lenders. Borrower shall not permit any such material item of
Collateral to be operated or maintained in violation of any applicable law,
statute, rule or regulation. With respect to items of leased equipment (to the
extent Lenders have any security interest in any residual Borrower's interest in
such equipment under the lease), Borrower shall keep, maintain, repair, replace
and operate such leased equipment in accordance with the terms of the applicable
lease.
(d) Insurance. Borrower shall, obtain and maintain, at its own
---------
expense, insurance of a type and with such limits as are carried by similarly
situated companies, including at a minimum:
(i) "All risk" insurance against loss or damage to the
Collateral. The coverage limit shall be determined to Lenders' reasonable
satisfaction. The deductible shall not exceed $25,000. The policy shall name
Lenders as loss payees with respect to the Equipment, shall not be invalidated
by any action of or breach of warranty by Borrower of any provision thereof and
waive subrogation against Lenders.
(ii) Commercial general liability insurance (including
contractual liability, products liability and completed operations coverages)
reasonably satisfactory to Lenders. The limit of liability shall be at least
$2,000,000 per occurrence. The policy shall be without deductible, except for
products liability coverage which may have a deductible up to $25,000. The
policy(ies) shall name Lenders as an additional insured in the full amount of
Borrower's liability coverage limits (or the coverage limits of any successor to
Borrower or such successor's parent which is providing coverage), be primary and
without contribution as respects any insurance carried by Lenders, and contain
cross liability and severability of interest clauses.
(iii) Such other insurance against risks of loss and with terms
as shall be reasonably required by Lenders.
All policies of insurance shall be placed with financially sound,
commercial insurers reasonably satisfactory to Lenders. All policies of
insurance shall provide that Lenders shall be given 30 days notice of
cancellation of coverage. This notice provision shall be without qualification.
On or prior to the first
-14-
<PAGE>
Funding Date and prior to each policy renewal, Borrower shall furnish to Lenders
certificates of insurance or other evidence satisfactory to Lenders that
insurance complying with all of the above requirements is in effect.
ARTICLE VII
NEGATIVE COVENANTS
------------------
7.01. Negative Covenants. So long as the Obligations remain
------------------
outstanding, Borrower shall not:
(a) Name; Location of Chief Executive Office and Collateral.
-------------------------------------------------------
Without thirty (30) days prior written notice to Lenders, change its chief
executive office or principal place of business or remove or cause to be removed
from the location set forth on the cover page hereof or move any Collateral to a
location other than that set forth on the cover page hereof.
(b) Liens on Collateral. Create, incur, assume or suffer to
-------------------
exist any Lien of any kind upon any Collateral, whether now owned or hereafter
acquired, except Permitted Liens.
(c) [reserved]
(d) Dispositions of Collateral or Intellectual Property.
---------------------------------------------------
Convey, sell, offer to sell, lease, transfer, exchange or otherwise dispose of
(collectively, a "Transfer") all or any part of the Collateral or Intellectual
--------
Property to any Person, other than: (i) transfers of inventory in the ordinary
course of business; (ii) transfers which would constitute Permitted Liens under
clause (g) of the definition of Permitted Liens; or (iii) transfers of worn-out
or obsolete equipment.
(e) Distributions. (i) Pay any dividends or make any
-------------
distributions on its Equity Securities; (ii) purchase, redeem, retire, defease
or otherwise acquire for value any of its Equity Securities (other than
repurchases pursuant to the terms of employee stock purchase plans, employee
restricted stock agreements or similar arrangements in an aggregate amount not
to exceed $100,000); (iii) return any capital to any holder of its Equity
Securities as such; (iv) make any distribution of assets, Equity Securities,
obligations or securities to any holder of its Equity Securities as such; or (v)
set apart any sum for any such purpose; provided, however, that Borrower may pay
dividends payable solely in Common Stock.
(f) Mergers or Acquisitions. Merge or consolidate with or
-----------------------
into any other Person or acquire or all or substantially all of the capital
stock or assets of another Person.
(g) Indebtedness Payments. (i) Prepay, redeem, purchase,
---------------------
defease or otherwise satisfy in any manner prior to the scheduled repayment
thereof any Indebtedness for borrowed money (other than amounts due or permitted
to be prepaid under this Loan Agreement or the Notes or under any revolving
credit agreement constituting Permitted Indebtedness under clause (e) of the
definition of Permitted Indebtedness) or lease obligations, (ii) amend, modify
or otherwise change the terms of any Indebtedness for borrowed money or lease
obligations so as to accelerate the scheduled repayment thereof or (iii) repay
any notes to officers, directors or shareholders.
(h) Indebtedness. Create, incur, assume or permit to exist
------------
any Indebtedness except Permitted Indebtedness.
(i) Investments. Make any Investment except for Permitted
-----------
Investments.
-15-
<PAGE>
ARTICLE VIII
CONDITIONS PRECEDENT
--------------------
8.01. Closing. At the time of execution and delivery of this
-------
Agreement, Borrower shall have duly executed and/or delivered to Lenders the
items set forth in Part I of Schedule 3.
--------------------
8.02. Other Conditions. The obligation of the Lenders to make the
----------------
Loans shall be subject to the execution and/or delivery to such Lenders of each
of the items set forth in Part I of Schedule 3 and the satisfaction by
--------------------
Borrower of each condition set forth in Part II of Schedule 3.
---------------------
8.03. Covenant to Deliver. Borrower agrees (not as a condition but
-------------------
as a covenant) to deliver to Lenders each item required to be delivered to
Lenders as a condition to a Loan, if the Loan is advanced. Borrower expressly
agrees that the extension of any Loan prior to the receipt by Lenders of any
such item shall not constitute a waiver by Lenders of Borrower's obligation to
deliver such item.
ARTICLE IX
DEFAULT AND REMEDIES
--------------------
9.01. Events of Default. An "Event of Default" shall mean the
-----------------
occurrence of one or more of the following described events:
(a) Borrower shall (i) default in the payment of principal of
or interest on any Loan when the same is due for five (5) business days after
receipt of written notice from a Lender that the same is due, or (ii) default in
the payment of any expense or other amount payable hereunder or thereunder for
five (5) business days after receipt of written notice from a Lender that the
same is due; or
(b) Borrower shall breach in any material respect any
provision of Section 6.01(d) or Section 7.01; or
--------------- ------------
(c) Borrower shall default in the performance in any material
respect of any covenant, agreement or obligation (other than a covenant,
agreement or obligation referred to in, Section 9.01(a) or Section 9.01(b))
--------------- ---------------
contained in any Operative Document (other than the Warrants) and Borrower shall
fail to cure within thirty (30) days after receipt of written notice from
Lenders any default in the performance of any such covenant, agreement or
obligation contained therein; or
(d) Borrower shall have breached in any material respect the
terms of any of the Warrants; or
(e) Any representation or warranty made herein or on the
Funding Date by Borrower in any Operative Document, or any certificate or
financial statement furnished pursuant to the provisions of any Operative
Document, shall prove to have been false or misleading in any material respect
as of the time made or furnished; or
(f) Any Operative Document shall in any material respect cease
to be, or Borrower shall assert that any Operative Document is not, a legal,
valid and binding obligation of Borrower enforceable in accordance with its
terms; or
-16-
<PAGE>
(g) Defaults shall exist under any agreements of Borrower which
consist of the failure to pay any Indebtedness at maturity or which result in a
right by such third party or parties, whether or not exercised, to accelerate
the maturity of Indebtedness of Borrower in an aggregate amount in excess of Two
Hundred Fifty Thousand Dollars ($250,000) or a default shall exist under any
financing agreement with a Lender or any of such Lender's affiliates; or
(h) A proceeding shall have been instituted in a court of competent
jurisdiction seeking a decree or order for relief in respect of Borrower in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian, trustee (or similar official) of Borrower or
for any substantial part of its property, or for the winding-up or liquidation
of its affairs, and such proceeding shall remain undismissed or unstayed and in
effect for a period of thirty (30) consecutive days or such court shall enter a
decree or order granting the relief sought in such proceeding; or
(i) Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian (or other similar official)
of Borrower or for any substantial part of its property, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action in furtherance of
any of the foregoing; or
(j) A final judgment or order for the payment of money in excess of
Two Hundred Fifty Thousand Dollars ($250,000) (exclusive of amounts covered by
insurance issued by an insurer not an affiliate of Borrower) shall be rendered
against Borrower and the same shall remain undischarged for a period of thirty
(30) days during which execution shall not be effectively stayed, or any
judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against a substantial part of the property of
Borrower and such judgment, writ, or similar process shall not be released,
stayed, vacated or otherwise dismissed within thirty (30) days after issue or
levy.
9.02. Consequences of Event of Default.
--------------------------------
(a) If an Event of Default specified under any of clauses (a)
-----------
through (g) or (j) of Section 9.01 shall occur and be continuing for ___ days,
- ------------------ ------------
any Lender may (i) declare all of the Loans, together with interest thereon,
plus the Applicable Premium and all other liabilities of Borrower hereunder and
under the other Operative Documents to be immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived, and (ii) terminate any commitment to make the Loans and
terminate any commitment to advance money or extend credit to or for the benefit
of Borrower pursuant to any other agreement or commitment extended by a Lender
to Borrower.
(b) If an Event of Default specified under clause (h) or (i) of
--------------------
Section 9.01 shall occur, then upon Borrower's receipt of written notice
- ------------
specifying in reasonable detail the nature of the Event of Default (i) the
Loans, together with interest thereon, plus the Applicable Premium and all other
liabilities of Borrower hereunder and under the other Operative Documents shall
automatically become due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and (ii) Lenders'
commitments hereunder to make the Loans and any other commitment of Lenders to
Borrower to advance money or extend credit pursuant to any other agreement or
commitment shall be terminated.
-17-
<PAGE>
(c) Borrower expressly agrees that the amount due and payable upon
any such acceleration or prepayment of the Loans contrary to the terms hereof
shall include a Applicable Premium as of the date of such acceleration or
prepayment.
9.03. Rights Regarding Collateral. Borrower agrees that when any Event of
---------------------------
Default has occurred and is continuing, Lenders shall have the rights, options,
duties and remedies of a secured party as permitted by law and, in addition to
and without limiting the foregoing, Lenders may exercise any one or more or all,
and in any order, of the remedies herein set forth, including the following:
(a) Lenders, personally or by agents or attorneys, shall have the
right (subject to compliance with any applicable mandatory legal requirements)
to require Borrower to assemble the Collateral and make it available to Lenders
at a place to be designated by Lenders or to take immediate possession of the
Collateral, or any portion thereof, and for that purpose may pursue the same
wherever it may be found, and may enter any of premises of Borrower, with or
without notice, demand, process of law or legal procedure, to the extent
permitted by applicable law, and search for, take possession of, remove, keep
and store the same, or use and operate or lease the same until sold. In
furtherance of Lenders' rights hereunder, Borrower hereby grants to Lenders an
irrevocable, non-exclusive license (exercisable without royalty or other payment
by Lenders) to use, license or sublicense any patent, trademark, trade name,
copyright or other intellectual property in which Borrower now or hereafter has
any right, title or interest together with the right of access to all media in
which any of the foregoing may be recorded or stored; provided, however, that
such license shall only be exercisable in connection with the disposition of
Collateral upon Lenders' exercise of their remedies hereunder.
(b) Lenders may, if at the time such action may be lawful and
always subject to compliance with any mandatory legal requirements, either with
or without taking possession and either before or after taking possession,
without instituting any legal proceedings whatsoever, having first given notice
of such sale by registered or certified mail to Borrower once at least ten (10)
days prior to the date of such sale, and having first given any other notice
which may be required by law, sell and dispose of the Collateral, or any part
thereof, at a private sale or at public auction, to the highest bidder, in one
lot as an entirety or in separate lots, and either for cash or on credit and on
such terms as Lenders may determine, and at any place (whether or not it be the
location of the Collateral or any part thereof) designated in the notice
referred to above. To the extent permitted by applicable law, any such sale or
sales may be adjourned from time to time by announcement at the time and place
appointed for such sale or sales, or for any such adjourned sale or sales,
without further published notice, and Borrower, Lenders or the holder or holders
of the Notes, or of any interest therein, may bid and become the purchaser at
any such sale.
(c) Lenders may proceed to protect and enforce this Agreement and
the other Operative Documents by suit or suits or proceedings in equity, at law
or in bankruptcy, and whether for the specific performance of any covenant or
agreement herein contained or in execution or aid of any power herein granted;
or for foreclosure hereunder, or for the appointment of a receiver or receivers
for any real property security or any part thereof, or for the recovery of
judgment for the Obligations or for the enforcement of any other proper, legal
or equitable remedy available under applicable law.
9.04. Waiver by Borrower. Upon the occurrence of an Event of Default, to
------------------
the extent permitted by law, Borrower covenants that it will not at any time
insist upon or plead, or in any manner whatsoever claim or take any benefit or
advantage of, any stay or extension law now or at any time hereafter in force,
nor claim, take nor insist upon any benefit or advantage of or from any law now
or hereafter in force providing for the valuation or appraisement of the
Collateral or any part thereof prior to any sale or sales thereof to be made
pursuant to any provision herein contained, or to the decree, judgment or order
of any court of
-18-
<PAGE>
competent jurisdiction; nor, after such sale or sales, claim or exercise any
right under any statute now or hereafter made or enacted by any state or
otherwise to redeem the property so sold or any part thereof, and, to the full
extent legally permitted, except as to rights expressly provided herein, hereby
expressly waives for itself and on behalf of each and every Person, except
decree or judgment creditors of Borrower, acquiring any interest in or title to
the Collateral or any part thereof subsequent to the date of this Agreement, all
benefit and advantage of any such law or laws, and covenants that it will not
invoke or utilize any such law or laws or otherwise hinder, delay or impede the
execution of any power herein granted and delegated to Lenders, but will suffer
and permit the execution of every such power as though no such power, law or
laws had been made or enacted.
9.05. Effect of Sale. Any sale, whether under any power of sale available
--------------
to Lenders or by virtue of judicial proceedings, shall operate to divest all
right, title, interest, claim and demand whatsoever, either at law or in equity,
of Borrower in and to the property sold, and shall be a perpetual bar, both at
law and in equity, against Borrower, its successors and assigns, and against any
and all persons claiming the property sold or any part thereof under, by or
through Borrower, its successors or assigns.
9.06. Application of Collateral Proceeds. The proceeds and/or avails of
----------------------------------
the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Lenders at
the time of, or received by Lenders after, the occurrence of an Event of Default
hereunder) shall be paid to and applied as follows:
(a) First, to the payment of reasonable costs and expenses,
-----
including all amounts expended to preserve the value of the Collateral, of
foreclosure or suit, if any, and of such sale and the exercise of any other
rights or remedies, and of all proper fees, expenses, liability and advances,
including reasonable legal expenses and attorneys' fees, incurred or made
hereunder by Lenders;
(b) Second, to the payment to Lenders of the amount then owing or
------
unpaid on the Notes, and in case such proceeds shall be insufficient to pay in
full the whole amount so due, owing or unpaid upon the Notes, then first, to the
-----
unpaid interest thereon, second, to unpaid principal thereof and third to the
------ -----
remaining balance of the Obligations under the Notes; such application to be
made upon presentation of the Notes, and the notation thereon of the payment, if
partially paid, or the surrender and cancellation thereof, if fully paid;
(c) Third, to the payment of other amounts then payable to Lenders
-----
under any of the Operative Documents; and
(d) Fourth, to the payment of the surplus, if any, to Borrower, its
------
successors and assigns, or to whomsoever may be lawfully entitled to receive the
same.
9.07. Reinstatement of Rights. If Lenders shall have proceeded to enforce
-----------------------
any right under this Agreement or any other Operative Document by foreclosure,
sale, entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely, then and in
every such case (unless otherwise ordered by a court of competent jurisdiction),
Lenders shall be restored to their former position and rights hereunder with
respect to the property subject to the security interest created under this
Agreement.
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<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
10.01. Modifications, Amendments or Waivers. The provisions of any
------------------------------------
Operative Document may be modified, amended or waived only by a written
instrument signed by the parties thereto.
10.02. No Implied Waivers; Cumulative Remedies; Writing Required. No delay
---------------------------------------------------------
or failure of Lenders in exercising any right, power or remedy hereunder shall
affect or operate as a waiver thereof; nor shall any single or partial exercise
thereof or any abandonment or discontinuance of steps to enforce such a right,
power or remedy preclude any further exercise thereof or of any other right,
power or remedy. The rights and remedies hereunder of Lenders are cumulative and
not exclusive of any rights or remedies which it would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of
Lenders of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only in the specified instance and to the extent specifically set
forth in such writing.
10.03. Expenses; Indemnification. Borrower agrees upon demand to pay or
-------------------------
reimburse Lenders for all liabilities, obligations and out-of-pocket expenses,
including reasonable fees and expenses of counsel for Lenders, from time to time
arising in connection with the enforcement or collection of sums due under the
Operative Documents, and in connection with any amendment or modification of the
Operative Documents or any "work-out" in connection with the Operative
Documents. Borrower shall indemnify, reimburse and hold Lenders, each of
Lenders' partners, and each of their respective successors, assigns, agents,
officers, directors, shareholders, servants, agents and employees harmless from
and against all liabilities, losses, damages, actions, suits, demands, claims of
any kind and nature (including claims relating to environmental discharge,
cleanup or compliance), all costs and expenses whatsoever to the extent they may
be incurred or suffered by such indemnified party in connection therewith
(including reasonable attorneys' fees and expenses), fines, penalties (and other
charges of applicable governmental authorities), licensing fees relating to any
item of Collateral, damage to or loss of use of property (including
consequential or special damages to third parties or damages to Borrower's
property), or bodily injury to or death of any person (including any agent or
employee of Borrower) (each, a "Claim"), directly or indirectly relating to or
-----
arising out of the use of the proceeds of the Loans or otherwise, the falsity of
any representation or warranty of Borrower or Borrower's failure to comply with
the terms of this Agreement or any other Operative Document during the Term.
The foregoing indemnity shall cover, without limitation, (i) any Claim in
connection with a design or other defect (latent or patent) in any item of
equipment included in the Collateral, (ii) any Claim for infringement of any
patent, copyright, trademark or other intellectual property right, (iii) any
Claim resulting from the presence on or under or the escape, seepage, leakage,
spillage, discharge, emission or release of any Hazardous Materials on the
premises of Borrower, including any Claims asserted or arising under any
Environmental Law, or (iv) any Claim for negligence or strict or absolute
liability in tort; provided, however, that Borrower shall not indemnify Lenders
-----------------
for any liability incurred by Lenders as a direct and sole result of Lenders'
gross negligence or willful misconduct. Such indemnities shall continue in full
force and effect, notwithstanding the expiration or termination of this
Agreement. Upon Lenders' written demand, Borrower shall assume and diligently
conduct, at its sole cost and expense, the entire defense of Lenders, each of
its partners, and each of their respective, agents, employees, directors,
officers, shareholders, successors and assigns against any indemnified Claim
described in this Section 10.03. Borrower shall not settle or compromise any
-------------
Claim against or involving Lenders without first obtaining Lenders' written
consent thereto, which consent shall not be unreasonably withheld.
10.04. Waivers. (a) Borrower shall give Lenders written notice within one
-------
hundred eighty (180) days of obtaining knowledge of the occurrence of any claim
or cause of action it believes it has, or may seek
-20-
<PAGE>
to assert to allege against Lenders whether such claim is based in law or
equity, arising under or related to this Agreement or any of the other Operative
Documents or to the transactions contemplated hereby or thereby, or any act or
omission to act by Lenders with respect hereto or thereto, and that if it shall
fail to give such notice to Lenders with regard to any such claim or cause of
action, Borrower shall be deemed to have waived, and shall be forever barred
from bringing or asserting such claim or cause of action in any suit, action or
proceeding in any court or before any governmental agency or authority or any
arbitrator. (b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDERS
UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.05. Notices; Payments.
-----------------
(a) All notices and other communications given to or made upon any
party hereto in connection with this Agreement shall be in writing (including
telexed, telecopied or telegraphic communication) and mailed (by certified or
registered mail), telexed, telegraphed, telecopied or delivered to the
respective parties, as follows:
Borrower: At the address set forth on the cover page of this Agreement.
Lenders: MMC/GATX PARTNERSHIP NO. I
c/o MEIER MITCHELL & COMPANY
4 Orinda Way, Suite 200B
Orinda, California 94563
and
COMDISCO, INC.
6111 North River Road
Rosemont, Illinois 60018
Attention: General Counsel
Fax: 847-518-5088
or in accordance with any subsequent written direction from either party to the
other. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective when received; or in the case of
delivery by messenger or overnight delivery service, when left at the
appropriate address.
(b) Unless Lenders specify otherwise in writing, all payments shall
be made by wire transfer to:
GATX Capital Corporation
Bank Name: NationsBank
Bank Address: Dallas, Texas 75202
Account No.: 3750878673
ABA Routing No.: 111-000012
Reference: ONVIA.COM Invoice #___________
and
-21-
<PAGE>
COMDISCO, INC.
Bank Name: Bank of America
Bank Address: 231 South LaSalle Street
Chicago, Illinois 60697
Account No.: 81882-00644
ABA Routing No.: 071000039
Reference: Onvia.com
10.06. Termination. This Agreement shall terminate at the end of the Term;
-----------
provided, however, that the termination of this Agreement shall not affect any
- -------- -------
of the rights and remedies of Lenders hereunder, it being understood and agreed
that all such rights and remedies shall continue in full force and effect until
payment of all amounts owed to Lenders under or in connection with the Operative
Documents, whether on account of principal, interest, fees or otherwise.
10.07. Severability. If any provision of any Operative Document is held
------------
invalid or unenforceable to any extent or in any application, the remainder of
such Operative Document and all other Operative Documents, or the application of
such provision to different Persons or circumstances or in different
jurisdictions, shall not be affected thereby.
10.08. Survival. All representations, warranties, covenants and agreements
--------
of Borrower contained herein or made in writing in connection herewith shall
survive the execution and delivery of the Operative Documents, the making of the
Loans hereunder, the granting of security and the issuance of the Notes.
10.09. Relationship of Parties. Subject to a separate Intercreditor
-----------------------
Agreement between the Lenders, Borrower and each Lender acknowledge, understand
and agree that:
(a) The relationship between the Borrower, on the one hand, and
Lenders, on the other, is, and at all time shall remain solely that of a
borrower and lenders. Lenders shall not under any circumstances be construed to
be partners or joint venturers of Borrower or any of its Affiliates; nor shall
Lenders under any circumstances be deemed to be in a relationship of confidence
or trust or a fiduciary relationship with Borrower or any of its Affiliates, or
to owe any fiduciary duty to Borrower or any of its Affiliates. Lenders do not
undertake or assume any responsibility or duty to Borrower or any of its
Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform the Borrower or any of its Affiliates of any matter in
connection with its or their Property, any Collateral held by any Lender or the
operations of Borrower or any of its Affiliates. Borrower and each of its
Affiliates shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply
of information undertaken or assumed by any Lender in connection with such
matters is solely for the protection of Lenders and neither Borrower nor any
Affiliate is entitled to rely thereon.
(b) The relationship between the Lenders is, and at all time shall
remain solely that of co-lenders. Lenders shall not under any circumstances be
construed to be partners or joint venturers of each other; nor shall the Lenders
under any circumstances be deemed to be in a relationship of confidence or trust
or a fiduciary relationship with each other, or to owe any fiduciary duty to
each other. Lenders do not undertake or assume any responsibility or duty to
each other to select, review, inspect, supervise, pass judgment upon or
otherwise inform each other of any matter in connection with Borrower or
Borrower's Property, any Collateral held by any Lender or the operations of
Borrower. Each Lender shall rely entirely on its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment or
supply of information undertaken or assumed by any Lender in connection with
such matters is solely for the protection of such Lender.
-22-
<PAGE>
10.10. Governing Law. This Agreement, the other Operative Documents and the
-------------
rights and obligations of the parties hereto and thereto shall be governed by
and construed and enforced in accordance with the laws of the State of Illinois.
Any action to enforce this Agreement against Borrower may be brought in Illinois
or, with regard to Collateral, may also be brought wherever such Collateral is
located.
10.11. Successors and Assigns. This Agreement and the other Operative
----------------------
Documents shall be binding upon and inure to the benefit of Lenders, all future
holders of the Notes, Borrower and their respective successors and permitted
assigns, except that Borrower may not assign or transfer its rights hereunder or
any interest herein without the prior written consent of Lenders. Each Lender
may sell to any other financial entity (a "Participant") participation interests
-----------
in Lender's rights under this Agreement and the other Operative Documents;
provided that notwithstanding the sale of participations, such Lender shall
remain solely responsible for the performance of its obligations under this
Agreement, such Lenders shall remain the holder of its Note for all purposes
under this Agreement and Borrower shall continue to deal solely and directly
with such Lender in connection with this Agreement and the other Operative
Documents. Lenders may disclose the Operative Documents and any other financial
or other information relating to Borrower or any Subsidiary to any potential
Participant, provided that such Participant agrees to protect the
confidentiality of such documents and information using the same measures that
it uses to protect its own confidential information.
10.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.13. Further Assurances. Borrower will, at its own expense, from time to
------------------
time do, execute, acknowledge and deliver all further acts, deeds, conveyances,
transfers and assurances, and all financing and continuation statements and
similar notices, reasonably necessary or proper for the perfection of the
security interest being herein provided for in the Collateral, whether now owned
or hereafter acquired.
10.14. Power of Attorney in Respect of the Collateral. Borrower does hereby
----------------------------------------------
irrevocably appoint Lenders (which appointment is coupled with an interest), the
true and lawful attorney-in-fact of Borrower with full power of substitution,
for it and in its name (a) to perform (but Lenders shall not be obligated to and
shall incur no liability to Borrower or any third party for failure to perform)
any act which Borrower is obligated by this Agreement to perform, (b) to ask,
demand, collect, receive, receipt for, sue for, compound and give acquittance
for any and all rents, issues, profits, avails, distributions, income, payment
draws and other sums in which a security interest is granted under Section 5.01
------------
with full power to settle, adjust or compromise any claim thereunder as fully as
if Lenders were Borrower itself, (c) to receive payment of and to endorse the
name of Borrower to any items of Collateral (including checks, drafts and other
orders for the payment of money) that come into Lenders' possession or under
Lenders' control, (d) to make all demands, consents and waivers, or take any
other action with respect to, the Collateral, (e) in Lenders' discretion, to
file any claim or take any other action or institute proceedings, either in its
own name or in the name of Borrower or otherwise, which Lenders may reasonably
deem necessary or appropriate to protect and preserve the right, title and
interest of Lenders in and to the Collateral, and (f) to otherwise act with
respect thereto as though Lenders were the outright owner of the Collateral;
provided, however, that the power of attorney herein granted shall be
- -------- -------
exercisable only upon the occurrence and during the continuation of an Event of
Default unless in Lenders' reasonable opinion immediate action is necessary to
preserve or protect the Collateral. Borrower agrees to reimburse Lenders upon
demand for all reasonable costs and expenses, including attorneys' fees and
expenses, which Lenders may incur while acting as Borrower's attorney in fact
hereunder, all of which costs and expenses are included within the Obligations.
-23-
<PAGE>
10.15. Confidentiality. All information (other than periodic reports filed
---------------
by Borrower with the Securities and Exchange Commission) disclosed by Borrower
to Lenders in writing or through inspection pursuant to this Agreement shall be
held strictly confidential by Lenders. Lenders agree to use at least the same
degree of care to safeguard and prevent disclosure of such confidential
information as Lenders uses with its own confidential information, but in any
event no less than a reasonable degree of care. Lenders shall not disclose such
information to any third party (other than Lenders' or Lenders' partner's
attorneys and auditors subject to the same confidentiality obligation set forth
herein) and shall use such information only for purposes of evaluation of its
investment in Borrower and the exercise of Lenders' rights and the enforcement
of their remedies under this Agreement and the other Operative Agreements. The
obligations of confidentiality shall not apply to any information that (a) was
known to the public prior to disclosure by Borrower under this Agreement, (b)
becomes known to the public through no fault of Lenders, (c) is disclosed to
Lenders by a third party' having a legal right to make such disclosure, or (d)
is independently developed by Lenders.
10.16 Integration. This Agreement and the Operative Documents constitute
-----------
the entire agreement between the Lenders, on the one hand, and the Borrower, on
the other, and supercede any prior written or oral agreements or understandings
of the parties. Borrower acknowledges that it is not relying on any
representation or agreement made by any Lender or any employee, agent or
attorney of any Lender, other than the specific agreements set forth in this
Agreement and the Operative Documents.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
ONVIA.COM, INC.,
By: /s/ Mark Calvert
--------------------------------
Name: Mark Calvert
------------------------------
Title: CFO
-----------------------------
MMC/GATX PARTNERSHIP NO. I
GATX Capital Corporation, as general
partner
By: /s/ Patricia W. Leicher
--------------------------------
Name: Patricia W. Leicher
------------------------------
Title: Vice President
-----------------------------
COMDISCO, INC.
By: /s/ James Labe
--------------------------------
Name: James Labe, President
------------------------------
Title: Comdisco Ventures Division
-----------------------------
<PAGE>
EXHIBIT 10.13
August 25, 1999
Douglas Kellam
3901 Liberty Street Road
Aurora, IL 60504
Dear Doug:
On behalf of Onvia.com, Inc., a Washington Corporation (the "Company"), I
-------
am pleased to offer you the position of Vice President of Marketing of the
Company. Speaking for myself, as well as the other members of the Company's
management team, we are all very impressed with your credentials and we look
forward to your future success in this position.
The terms of your new position with the Company are as set forth below:
1. Position.
--------
a. You will become the Vice President of Marketing of the Company,
working; out of the Company's headquarters office in Seattle, Washington. You
will report to the Company's Chief Executive Officer.
b. You agree to the best of your ability and experience that you will
at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's board of directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria, or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
2. Start Date. Subject to fulfillment of any conditions imposed by this
----------
letter agreement, you will commence this new position with the Company on August
30, 1999.
3. Proof of right to Work. For purposes of federal immigration law, you
----------------------
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
<PAGE>
August 23, 1999
Page 2
4. Compensation
------------
a. Base Salary. You will be paid a monthly salary of $14,166.66,
-- -----------
which is equivalent to $170,000 on an annualized basis. Your salary will be
payable in two equal payments per month pursuant to the Company's regular
payroll policy (or in the same manner as other employees of the Company).
b. Bonus. You will be eligible to receive an annual performance
-----
bonus of up to 25% of your base salary payable at year-end. This bonus will be
based upon the achievement of mutually agreed upon goals that will be set during
your first month with the Company.
c. Annual Review. Your base salary will be reviewed at the end of
-------------
each calendar year as part of the Company's normal salary review process.
5. Stock Options.
-------------
a. Initial Grant. In connection with the commencement of your
-- -------------
employment, the Company will recommend that the Company's board of directors
grant you an option to purchase 250,000 shares of the Company's Common Stock
("Shares") with an exercise price equal to the fair market value on the date of
------
the grant. These option shares will vest monthly over a 4-year period (with a
12-month cliff). Vesting will, of course, depend on your continued employment
with the Company. The option will be an incentive stock option to the maximum
extent allowed by the tax code and will be subject to the terms of the Company's
1999 Plan and the Stock Option Agreement between you and the Company.
b. Subsequent Option Grants. Subject to the discretion of the
-- ------------------------
Company's Board of Directors, you may be eligible to receive additional grants
of stock options or purchase rights from time to time in the future, on such
terms and subject to such conditions as the Company's board of directors shall
determine as of the date of any such grant.
6. Benefits.
--------
a. Insurance Benefits. The Company will provide you with standard
------------------
medical and dental insurance benefits commencing after the Initial Three Month
Period. During the Initial Three Month Period, the Company may agree to pay
expenses associated with your current health benefits plan.
b. Vacation. You will be entitled to two (2) weeks paid vacation
---------
per year, pro-rated for the remainder of this calendar year.
c. Relocation Expenses. In connection with your relocation from
-------------------
Chicago to Seattle, the Company will provide you with a $50,000 moving allowance
to cover miscellaneous expenses. In addition, the Company will pay for 24
Economy-class round trips from Seattle to Chicago in the first year of
employment. Any amounts received by you for relocation expense reimbursement
will be reported as taxable income to you in the year received
-2-
<PAGE>
August 23, 1999
Page 3
as required by applicable tax law.
In the event that you terminate your employment with the Company before the end
of the second year of employment, you agree to repay the Company 100% of the
relocation allowance by personal check or other negotiable instrument.
7. Confidential Information and Invention Assignment Agreement. Your
-----------------------------------------------------------
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy
of which is enclosed for your review and execution (the "Confidentiality
---------------
Agreement"), prior to or on your Start Date.
- ---------
8. Confidentiality of Terms. You agree to follow the Company's strict
------------------------
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. At-Will Employment. Your employment with the Company will be on an "at
------------------
will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
We are all delighted to be able to extend you this offer and look forward
to working with you. To indicate your acceptance of the Company's offer, please
sign and date this letter in the space provided below and return it to me, along
with a signed and dated copy of the Confidentiality Agreement. This letter,
together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
Very truly yours,
ONVIA.COM,INC.,
a Washington corporation
By: /s/ Julie Leitner
Title: Director of Human Resources
-3-
<PAGE>
August 23, 1999
Page 4
ACCEPTED AND AGREED:
douglas kellam
Signature /s/ Douglas Kellam
Date 8/25/99
Enclosure: Confidential Information and Invention Assignment Agreement
-4-
<PAGE>
EXHIBIT 10.14
July 27, 1999
Louis T. Mickler
3804 Princeton Way
Medford, OR 97504-9732
Dear Lou:
On behalf of Onvia.com, Inc., a Washington Corporation (the "Company"), I
-------
am pleased to offer you the position of VP of IT Operations. Speaking for
myself, as well as the other members of the Company's management team, we are
all very impressed with your credentials and we look forward to your future
success in this position.
The terms of your new position with the Company are as set forth below:
1. Position.
--------
a. You will become a VP of IT Operations of the Company, working out
of the Company's headquarters office in Seattle, Washington. You will report to
the Company's VP of Engineering.
b. You agree to the best of your ability and experience that you will
at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's board of directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria, or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange, without disclosure.
2. Start Date. Subject to fulfillment of any conditions imposed by this
----------
letter agreement, you will commence this new position with the Company on August
2, 1999.
3. Proof of Right to Work. For purposes of federal immigration law, you
----------------------
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
<PAGE>
July 27, 1999
Page 2
4. Compensation.
------------
a. Base Salary. You will be paid a monthly salary of $9,166.67, which
-----------
is equivalent to $110,000 on an annualized basis. Your salary will be payable in
two equal payments per month pursuant to the Company's regular payroll policy
(or in the same manner as other employees of the Company).
b. Bonus. You will be eligible to receive an annual incentive bonus
-----
of up to $20,000. This bonus will be based on achievement of mutually agreed
upon performance goals.
c. Annual Review. Your base salary will be reviewed at the end of
-------------
each calendar year as part of the Company's normal salary review process.
5. Stock Options.
-------------
a. Initial Grant. In connection with the commencement of your
-------------
employment, the Company will recommend that the Company's board of directors
grant you an option to purchase 17,500 shares of the Company's Common Stock
("Shares") with an exercise price equal to the fair market value on the date of
------
the grant. These option shares will vest monthly over a 4-year period (with a
12-month cliff). Vesting will, of course, depend on your continued employment
with the Company. The option will be an incentive stock option to the maximum
extent allowed by the tax code and will be subject to the terms of the Company's
1999 Plan and the Stock Option Agreement between you and the Company.
b. Subsequent Option Grants. Subject to the discretion of the
------------------------
Company's Board of Directors, you may be eligible to receive additional grants
of stock options or purchase rights from time to time in the future, on such
terms and subject to such conditions as the Company's board of directors shall
determine as of the date of any such grant.
6. Benefits.
--------
a. Insurance Benefits. The Company will provide you with standard
------------------
medical and dental insurance benefits commencing after the Initial Three Month
Period. During the Initial Three Month Period, the Company will pay expenses
associated with your current health benefits plan.
b. Vacation. You will be entitled to two (2) weeks paid vacation per
--------
year, pro-rated for the remainder of this calendar year.
c. Relocation Expenses. The Company will reimburse you for your
-------------------
relocation from Oregon to Seattle according to the attached relocation summary.
Any amounts received by you for relocation expense reimbursement will be
reported as taxable income to you in the year received as required by applicable
tax law.
-2-
<PAGE>
July 27, 1999
Page 3
In the event that you voluntarily terminate your employment with the Company
before the end of the second year of employment, you agree to repay the Company
100% of the relocation allowance by personal check or other negotiable
instrument.
7. Confidential Information and Invention Assignment Agreement. Your
-----------------------------------------------------------
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
---------------
Agreement"), prior to or on your Start Date.
- ---------
8. Confidentiality of Terms. You agree to follow the Company's strict
------------------------
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. At-Will Employment. Your employment with the Company will be on an "at
------------------
will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
We are all delighted to be able to extend you this offer and look forward
to working with you. To indicate your acceptance of the Company's offer, please
sign and date this letter in the space provided below and return it to me, along
with a signed and dated copy of the Confidentiality Agreement. This letter,
together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
Very truly yours,
ONVIA.COM, INC.,
a Washington corporation
By: /s/ Julie Leitner
--------------------------------
Title: Dir of Human Resources
-----------------------------
ACCEPTED AND AGREED:
LOUIS T. MICKLER
-3-
<PAGE>
July 27, 1999
Page 4
/s/ Louis T. Mickler
- -------------------------
Signature
7/31/99
- -------------------------
Date
Enclosure: Confidential Information and Invention Assignment Agreement
-4-
<PAGE>
Exhibit 10.15
July 23, 1999
Mark Pawlosky
4260 W. Mercer Way
Mercer Island, WA 98040
Dear Mark:
On behalf of Onvia.com, Inc., a Washington Corporation (the "Company"), I
-------
am pleased to offer you the position of Vice President, Editor In Chief of the
Company. Speaking for myself, as well as the other members of the Company's
management team, we are all very impressed with your credentials and we look
forward to your future success in this position.
The terms of your new position with the Company are as set forth below:
1. Position
--------
a. You will become a Vice President, Editor In Chief of the Company,
working out of the Company's headquarters office in Seattle, Washington. You
will report to the Company's Chief Executive Officer.
b. You agree to the best of your ability and experience that you will
at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's board of directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from-accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
2. Start Date. Subject to fulfillment of any conditions imposed by this
----------
letter agreement, you will commence this new position with the Company on August
2, 1999.
3. Proof of Right to Work. For purposes of federal immigration law,
-----------------------
you will be required to provide to the Company documentary evidence of your
identity and eligibility for employment in the United States. Such documentation
must be provided to us within three (3) business days of your date of hire, or
our employment relationship with you may be terminated.
<PAGE>
July 23, 1999
Page 2
4. Compensation.
------------
a. Base Salary. You will be paid a monthly salary of $10,833.33,
-----------
which is equivalent to $130,000 on an annualized basis. Your salary will be
payable in two equal payments per month pursuant to the Company's regular
payroll policy (or in the same manner as other employees of the Company).
b. Bonus. You will be eligible to receive an annual incentive bonus
-----
of up to $30,000. This bonus will be based upon the achievement of mutually
agreed upon goals that will be set during your first month with the Company.
c. Annual Review. Your base salary will be reviewed at the end of
-------------
each calendar year as part of the Company's normal salary review process.
5. Stock Options.
-------------
a. Initial Grant. In connection with the commencement of your
-------------
employment, the Company will recommend that the Company's board of directors
grant you an option to purchase 25,000 shares of the Company's Common Stock
("Shares") with an exercise price equal to the fair market value on the date of
------
the grant. These option shares will vest monthly over a 4-year period (with a
12-month cliff). Vesting will, of course, depend on your continued employment
with the Company. Your annual department budget will be determined during your
first month with the Company. If at any time after your first year of employment
your annual department budget is reduced by 25% or more, your job duties are
significantly altered or your position eliminated, 25% of your unvested options
will vest automatically. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Plan and the Stock Option Agreement between you and the Company.
b. Subsequent Option Grants. Subject to the discretion of the
------------------------
Company's Board of Directors, you may be eligible to receive additional grants
of stock options or purchase rights from time to time in the future, on such
terms and subject to such conditions as the Company's board of directors shall
determine as of the date of any such grant.
6. Benefits.
--------
a. Insurance Benefits. The Company will provide you with
------------------
standard medical and dental insurance benefits commencing after the Initial
Three Month Period. During the Initial Three Month Period, the Company may agree
to pay expenses associated with your current health benefits plan.
b. Vacation. You will be entitled to two (2) weeks paid
--------
vacation per year, pro-rated for the remainder of this calendar year.
-2-
<PAGE>
July 23, 1999
Page 3
7. Confidential Information and Invention Assignment Agreement. Your
-----------------------------------------------------------
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
---------------
Agreement"), prior to or on your Start Date.
- ---------
8. Confidentiality of Terms. You agree to follow the Company's strict
------------------------
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. At-Will Employment. Your employment with the Company will be on an "at
-------------------
will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
We are all delighted to be able to extend you this offer and look forward
to working with you. To indicate your acceptance of the Company's offer, please
sign and date this letter in the space provided below and return it to me, along
with a signed and dated copy of the Confidentiality Agreement. This letter,
together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
Very truly yours,
ONVIA.COM, INC.,
a Washington corporation
By: /s/ Julie Leftner
--------------------------------
Title: Dir of HR
----------------------------
ACCEPTED AND AGREED:
MARK PAWLOSKY
/s/ Mark Pawlosky
- --------------------------
Signature
-3-
<PAGE>
July 23, 1999
Page 4
July 30, 1999
- ------------------------
Date
Enclosure: Confidential Information and Invention Assignment Agreement
-4-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF ONVIA.COM, INC.
M-Depot Internet Superstores, Inc., a corporation incorporated under
the laws of British Columbia.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this registration statement of Onvia.com, Inc. on
Form S-1 of our report dated November 18, 1999 (December 20, 1999, as to Note
12), appearing in the Prospectus, which is part of this registration statement
and to the reference to us under the headings "Selected Consolidated Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Seattle, Washington
December 20, 1999
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
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<NET-INCOME> (16,202,349) (672,130)
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