<PAGE>
As filed with the Securities and Exchange Commission on February 16, 2000
Registration 333-93273
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 3
TO
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>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title Of Each Class Of Aggregate Amount Of
Securities To Be Registered Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par value........... $119,600,000 $31,575(2)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the amount of the registration fee.
(2) Previously paid.
---------------
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 FEBRUARY 16, 2000
8,000,000 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
$11.00 and $13.00 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 a 30-day option to purchase a maximum of 1,200,000
additional shares to cover over-allotments of shares.
Immediately following and conditioned upon the sale of the shares in the
initial public offering, we will sell $40.0 million worth of additional shares,
or, if greater, 2,666,666 shares, to Internet Capital Group in a private
placement at a price equal to the initial public offering price per share.
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
Chase H&Q
Robertson Stephens
William Blair & Company
E*OFFERING
The date of this Prospectus is , 2000.
<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................................................................. 30
Management............................................................... 44
Related Party Transactions............................................... 54
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Notice to Canadian Residents............................................. 67
Legal Matters............................................................ 68
Experts.................................................................. 68
Where To Find Additional Information..................................... 68
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.
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.
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.
<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 news, product and service
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 an effective 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. 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 designed for their needs.
Small businesses account for roughly half of the United States gross domestic
product, according to the U.S. Small Business Administration. We believe that
the growth in the number of small businesses and in the volume of small
business e-commerce 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 18,000
businesses that act as suppliers across 100 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 37,000 products and nine business services selected for the
particular needs of small businesses that can be purchased quickly and
conveniently through our "Purchase 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................................ 8,000,000 shares
Common stock offered in the concurrent private 3,333,333 shares,
placement.......................................... assuming an initial
public offering price of
$12.00 per share
Common stock to be outstanding after the offering... 79,514,015 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 December 31, 1999 and
excludes the following shares:
. 1,262,638 shares issuable upon exercise of warrants outstanding as of
December 31, 1999 at a weighted average exercise price of $0.93 per
share;
. 5,875,382 shares issuable upon exercise of options outstanding as of
December 31, 1999 at a weighted average exercise price of $1.60 per
share;
. 5,678,412 shares of common stock available for future grant under our
1999 stock option plan;
. 600,000 shares of common stock available for issuance under our 2000
directors' stock option plan; and
. 600,000 shares of common stock available for issuance under our 2000
employee stock purchase plan.
----------------
Unless otherwise indicated, the information in this prospectus reflects the
number of shares outstanding on December 31, 1999 assuming:
. the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering;
. a two-for-one forward stock split of our capital stock to be effected
prior to 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 sale by us of 3,333,333 shares of our common stock at an assumed
initial public offering price of $12.00 per share to Internet Capital
Group in a private placement concurrent with this offering;
. the exercise of warrants to purchase 705,144 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
(inception)
to Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
------------ ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
Consolidated Statements of Operations
Data:
Revenue................................ $ 62 $1,037 $ 27,177
Gross margin........................... 15 (45) (4,397)
Total operating expenses............... 146 623 38,428
Loss from operations................... (130) (669) (42,825)
Net loss............................... $( 130) $ (672) $(43,366)
Net loss attributable to common
stockholders.......................... $ (130) $ (672) $(57,373)
Basic and diluted net loss per common
share................................. $(0.02) $(0.08) $ (4.59)
Basic and diluted weighted average
shares outstanding.................... 8,001 8,001 12,508
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------
Pro Forma
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $38,518 $166,448
Total assets................................................ 50,279 178,209
Long-term debt.............................................. 5,171 5,171
Total stockholders' equity.................................. 26,613 154,544
</TABLE>
The pro forma as adjusted information in the above consolidated balance
sheet data table is adjusted to reflect the sale of 8,000,000 shares of common
stock offered by us in this offering and 3,333,333 shares of common stock to be
sold in the concurrent private placement at an assumed initial public offering
price of $12.00 per share, after deduction of the estimated underwriting
discounts and commissions and estimated offering expenses, and the exercise of
warrants to purchase 705,144 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 December 31, 1999, had an accumulated deficit of $58.2 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 those discussed throughout this "Risk Factors" section.
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. In addition,
our quarterly results will be affected by the mix of revenue generated from the
sale of services and products. If the percentage of revenue from products
increases and the percentage of revenue from services decreases, our gross
margin will likely be negatively impacted.
6
<PAGE>
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, Internet use generally declines during the summer
months.
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 as well as other disruptive
problems, a security breach could occur again in the future.
To help reduce our network's vulnerability to security breaches, we have
completed a network security audit, upgraded all of our network components,
updated our software to current release levels and implemented extensive site
monitoring software. Further, we have hired employees dedicated solely to
ensuring network security and developing related policies, procedures and
internal controls.
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.
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
7
<PAGE>
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 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 including
BizBuyer.com, Digitalwork.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 America Online, Microsoft, NBCi 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 of resell business
service and products such as AT&T Wireless, Circuit City and CompUSA.
Due to the new and rapidly evolving nature of the market in which we
compete, we believe that reliable and useful metrics for use in comparing us to
our competitors are not readily available. However, the following table lists
the percentage of U.S. home and workplace users who visited our web site and
the web sites of our current and potential competitors listed above during
December 1999, as reported in the Media Metrix World Wide Web Audience Ratings
Report:
<TABLE>
<CAPTION>
Percentage Home
Name and Work Reach
---- ---------------
<S> <C>
Onvia.com 0.4%
BizBuyer.com *
Digitalwork.com *
Works.com *
Beyond.com 4.0
Buy.com 7.5
Onsale.com *
America Online (including all sites) 65.9
Microsoft (includes all sites and LE Network) 80.0
NBCi 22.9
Yahoo! 65.1
AT&T Wireless 9.8
Circuit City 1.5
CompUSA 1.4
</TABLE>
- --------
*Not listed in report due to failure to reach a minimum of 0.2% penetration.
Although the table above includes some companies with broader target markets
than ours, it indicates that some of our competitors have significantly greater
market penetration than us. In addition, 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
8
<PAGE>
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. Many of our
competitors have had success raising money from well-known sources. For
example, according to VentureSource in May 1999 Works.com received
approximately $25 million in venture capital financing from investors including
Bowman Capital Management, Hummer Winblad Venture Partners and Merrill Lynch
Venture Capital. Also, according to VentureSource in August 1999
AllBusiness.com received $17 million in venture capital financing from
investors including Technology Crossover Ventures, Canaan Partners and Intel.
In February 2000, AllBusiness.com entered into an agreement to be acquired by
NBCi. 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 the proportion of revenue derived from 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.
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
9
<PAGE>
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 four major vendors:
Ingram Micro, TechData, Merisel and United Stationers. For the fiscal year
ended December 31, 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. Our relationships with our suppliers
are in the form of standard agreements. We do not have minimum commitments or
guaranteed pricing with any of our suppliers. Individual transactions become
contracts by way of our issuing purchase orders. Our agreements with our
suppliers are cancellable at any time by either party. 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 31, 1999, we
increased our employee base from 15 to 203. 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 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
10
<PAGE>
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 key employees, all of whom are employed on an at-will basis and have
worked together for only a short period of time. We believe that our key
employees include all of the executive officers and the key employee listed
under the caption "Management -- Executive Officers, Directors and Key
Employee," although the loss of many of our other employees not listed in that
section could adversely affect our business. See "Related Party Transactions --
Employment Agreements" for a description of the employment agreements that
exist between us and some of our executive officers. 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
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.
11
<PAGE>
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.
Success by John Meier in his action against us could negatively impact our
operating results and result in dilution to our stockholders
In February 2000, John Meier filed an action in the Supreme Court of British
Columbia, Canada asserting a claim against us and Glenn Ballman, our founder,
President and Chief Executive Officer. Mr. Meier's claim is based upon
allegations that he and Mr. Ballman had intentions to form a company similar to
ours and that Mr. Ballman's role in founding our company breached an alleged
partnership with Mr. Meier and fiduciary duties owed to him. In this action,
Mr. Meier asserts that he is entitled to 50% of Mr. Ballman's interest in
Onvia.com, as well as 50% of the assets of Onvia.com. Based upon our
investigation to date, we believe that the allegations against us are wholly
without merit and that the outcome of this action will not harm our business.
We believe that we have valid defenses to this claim and intend to vigorously
defend the action. Since the results of litigation proceedings are inherently
unpredictable, however, we are unable to provide assurance regarding the
outcome of this action or possible damages that may be incurred. Although we
believe that it is unlikely, if Mr. Meier were to prevail on his claim against
us in its entirety, this would severely harm our business. Any cash award or
settlement paid by us to Mr. Meier could negatively impact our operating
results and available liquidity. Any shares of common stock awarded or issued
to Mr. Meier by us would be dilutive to our stockholders. It is also possible
that defense of this claim will result in a significant diversion of management
attention. In the event that Mr. Meier is successful in his claim against Mr.
Ballman, it is possible that Mr. Meier could become one of our principal
stockholders and have an ability to exert influence over matters submitted to
our stockholders.
12
<PAGE>
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
Although we have no current plans to expand our international operations and
hire additional personnel outside of North America, we anticipate that we may
elect to do so in future. Therefore, in the future 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.
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
13
<PAGE>
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.
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.
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 and the concurrent private placement, our
officers, directors and stockholders with greater than 5% holdings will, in the
aggregate, beneficially own approximately 76.6% of our outstanding common
stock, or 75.4% if the underwriters' over-allotment option is exercised in
full. 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 have substantial influence over our management and
our affairs. Following this offering and the concurrent private placement,
Internet Capital Group will beneficially own approximately 22.5% of our
outstanding common stock, or 22.1% if the underwriters' over-allotment option
is exercised in
14
<PAGE>
full. 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, 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."
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 $12.00 per share, dilution to new investors will be $10.06 per share.
Accordingly, if you purchase shares of our common stock in this offering, you
will suffer immediate and substantial dilution. In addition, the issuance or
exercise of additional options or warrants to purchase our capital stock could
be dilutive to purchasers of shares in this offering. The table below shows the
number of outstanding warrants and options, including reserved but unissued
options, as of December 31, 1999. For more information on the warrants, see
"Description of Capital Stock--Warrants," and for more information on the
options, see "Benefit Plans."
<TABLE>
<CAPTION>
Number of Shares Underlying Outstanding
Options and/or Warrants Plus Number of
Reserved
Plan or Group but Unissued Options and/or Shares
------------- ---------------------------------------
<S> <C>
1999 Stock Option Plan....................... 11,553,794
2000 Directors' Stock Option Plan............ 600,000
2000 Employee Stock Purchase Plan............ 600,000
Warrants..................................... 1,262,638
</TABLE>
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 as well as provisions of Delaware law, will make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. In addition, following the closing of this offering we may adopt
a preferred shares rights agreement, which would also serve to discourage
takeover attempts. See "Description of Capital Stock" for a discussion of these
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 8,000,000 shares of
common stock we are offering and the 3,333,333 shares to be sold in the
concurrent private placement will be approximately $127.9 million, assuming an
initial public offering price of $12.00 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 $141.3 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 December 31, 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 705,144 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 8,000,000 shares of common stock in
this offering and 3,333,333 shares of common stock in the concurrent
private placement at an assumed initial public offering price of $12.00
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 December 31, 1999
----------------------------
Pro
Pro Forma As
Actual Forma Adjusted
-------- -------- --------
(in thousands, except
share data)
<S> <C> <C> <C>
Long-term debt................................... $ 5,171 $ 5,171 $ 5,171
Stockholders' equity:
Convertible preferred stock, par value $0.0001
per share; shares authorized:
46,000,000 actual and 15,000,000 pro forma and
pro forma as adjusted; shares outstanding:
38,143,068 actual and none pro forma and
pro forma as adjusted........................... 74,233 -- --
Common stock, par value $0.0001 per share; shares
authorized: 150,000,000 actual and 250,000,000
pro forma and pro forma as adjusted; shares
outstanding: 29,332,550 actual, 68,180,762 pro
forma and 79,514,015 pro forma as adjusted...... 3 7 8
Additional paid in capital....................... 24,904 99,134 227,063
Notes receivable from stockholders............... (156) (156) (156)
Unearned stock compensation...................... (14,195) (14,195) (14,195)
Accumulated deficit.............................. (58,176) (58,176) (58,176)
-------- -------- --------
Total stockholders' equity...................... 26,613 26,614 154,544
-------- -------- --------
Total capitalization........................... $ 31,784 $ 31,785 $159,715
======== ======== ========
</TABLE>
This table excludes the following shares:
. 1,262,638 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $0.93 per share;
. 5,875,382 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $1.60 per share;
. 5,678,412 shares of common stock available for future grant under our
1999 stock option plan;
. 600,000 shares of common stock available for issuance under our 2000
directors' stock option plan; and
. 600,000 shares of common stock available for issuance under our 2000
employee stock purchase plan.
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<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was $26.6 million, or
approximately $0.91 per share. 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 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 705,144 shares of
common stock which will expire if not exercised prior to this offering. After
giving effect to the sale of the 8,000,000 shares of common stock in this
offering and 3,333,333 shares of common stock in the concurrent private
placement at an assumed initial public offering price of $12.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, our net tangible book value at December 31, 1999 would have
been $154.5 million, or approximately $1.94 per share. This represents an
immediate increase in net tangible book value of $1.03 per share to existing
stockholders and immediate dilution of $10.06 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................ $12.00
Net tangible book value per share as of December 31, 1999.... $0.91
Increase per share attributable to new investors............. 1.03
-----
Adjusted net tangible book value per share after this
offering...................................................... 1.94
------
Dilution per share to new investors............................ $10.06
======
</TABLE>
The following table sets forth, as of December 31, 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 .. 67,475,618 85.6% $ 60,913,116 30.9% $ 0.90
New investors........... 11,333,333 14.4 135,999,996 69.1 12.00
---------- ----- ------------ -----
Total................. 78,808,951 100.0% $196,913,112 100.0% $ 2.50
========== ===== ============ =====
</TABLE>
The above table excludes the following shares:
. 1,262,638 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $0.93 per share;
. 705,144 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $0.0025 per share that expire if not
exercised prior to the closing of this offering;
. 5,875,382 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $1.60 per share;
. 5,678,412 shares of common stock available for future grant under our
1999 stock option plan;
. 600,000 shares of common stock available for issuance under our 2000
directors' stock option plan; and
. 600,000 shares of common stock available for issuance under our 2000
employee stock purchase plan.
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<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 years ended
December 31, 1998 and 1999 and consolidated balance sheet data as of December
31, 1998 and 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 historical results do not necessarily indicate the results you
should expect in any future period.
<TABLE>
<CAPTION>
March 25, 1997
(inception) to Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenue............................. $ 62,174 $1,037,271 $ 27,177,082
Cost of goods sold.................. 46,894 1,082,448 31,574,214
--------- ---------- ------------
Gross margin........................ 15,280 (45,177) (4,397,132)
Operating expenses:
Sales and marketing............... 41,321 206,436 16,285,970
Technology and development........ 12,707 191,968 7,443,881
General and administrative........ 91,624 224,941 4,235,091
Noncash stock-based compensation.. 10,462,762
--------- ---------- ------------
Total operating expenses........ 145,652 623,345 38,427,704
--------- ---------- ------------
Loss from operations................ (130,372) (668,522) (42,824,836)
Other income (expense), net......... (3,608) (540,934)
--------- ---------- ------------
Net loss............................ $(130,372) $ (672,130) $(43,365,770)
========= ========== ============
Net loss attributable to common
stockholders....................... $(130,372) $ (672,130) $(57,373,391)
========= ========== ============
Basic and diluted net loss per
common share....................... $ (0.02) $ (0.08) $ (4.59)
========= ========== ============
Basic and diluted weighted average
shares outstanding................. 8,000,800 8,000,800 12,507,500
========= ========== ============
<CAPTION>
December 31,
----------------------------------------
1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........... $ 5,607 $ 44,659 $ 38,517,985
Working (deficit) capital........... (120,302) (813,357) 23,307,491
Total assets........................ 11,910 180,072 50,278,832
Long-term debt...................... 5,171,417
Total stockholders' (deficit)
equity............................. (120,302) (792,432) 26,613,343
</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 improving
and expanding our technology infrastructure, incorporating new services and
products into our emarketplace, attracting suppliers and acquiring new
customers. Improvements to our technology infrastructure include the
development of functional features on our web site, enhancements to our order
processing and procurement systems, expansion of our web servers and traffic
capacity on our web site, development of our underlying databases and
development of accurate and comprehensive management reporting capabilities.
Further, 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 11 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 December 31, 1999, we have derived substantially all of our revenue
from product sales, as fees from sales of services constituted less than 1% of
our revenue. 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. These relationships are in the
form of standard agreements. We do not have minimum commitments or guaranteed
pricing with any of our suppliers. Individual transactions become contracts by
way of our issuing purchase orders. Our agreements with our suppliers are
cancellable at any time by either party. We believe that we are in compliance
with the terms of each of these agreements.
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
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competitive prices, in some cases below cost and often with shipping discounts.
As a result of our aggressive customer acquisition strategies, we had a
negative gross margin for the year ended December 31, 1999. We intend to
continue to sell some products at below cost for the forseeable future. We plan
to increase the proportion of revenue from positive-margin products and higher-
margin services. We believe the combination of our service and product
offerings, as well as our news, information and tools, will support our efforts
to retain and attract customers in the future. In addition, although we do not
expect to sell as many products at or below cost, we intend to maintain
competitive pricing on all products.
A substantial proportion of our total operating expenses for the year ended
December 31, 1999 was related to marketing and advertising programs designed to
build our brand and drive customer acquisition. We 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 December 31, 1999, our accumulated deficit was $58.2
million.
Noncash Stock-based Compensation
We record noncash 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 of our
non-employee advisors. In December 1999, our Board of Directors authorized the
acceleration of vesting on all such securities issued to non-employee advisors,
resulting in the recognition of $4.9 million in noncash stock-based
compensation expense. At December 31, 1999, unearned stock-based compensation
was $14.2 million, and we amortized $10.5 million of noncash stock-based
compensation expense for the year ended December 31, 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 four quarters ended December 31, 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. Dec. 31,
1999 1999 30, 1999 1999
--------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenue.............................. $ 1,476 $ 3,565 $ 8,128 $ 14,008
Cost of goods sold................... 1,826 4,226 9,657 15,865
------- ------- -------- --------
Gross margin......................... (350) (661) (1,529) (1,857)
Operating expenses:
Sales and marketing................ 170 1,198 5,152 9,766
Technology and development......... 76 378 2,227 4,763
General and administrative......... 498 905 1,019 1,813
Noncash stock-based compensation... 431 759 524 8,749
------- ------- -------- --------
Total operating expenses............. 1,175 3,240 8,922 25,091
------- ------- -------- --------
Loss from operations................. (1,525) (3,901) (10,451) (26,948)
Other income (expense), net.......... (75) 124 (374) (216)
------- ------- -------- --------
Net loss............................. $(1,600) $(3,777) $(10,825) $(27,164)
======= ======= ======== ========
</TABLE>
Revenue
Revenue increased sequentially on a quarterly basis from $1.5 million for
the quarter ended March 31, 1999 to $14.0 million for the quarter ended
December 31, 1999. Growth in revenue was 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 $15.9 million for the quarter ended December
31, 1999. The increases in cost of goods sold were attributable 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 13% for the quarter ended
December 31, 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
$170,000 for the quarter ended March 31, 1999 to $9.8 million for the quarter
ended December 1999. The increases in sales and marketing expenses were due 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, third and
fourth quarters of 1999. In December 1999, we entered into a one-year agreement
with CNET under which we pay CNET a fee each time a visitor
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clicks on a link from the CNET web site to our web site. We are required to
make minimum payments to CNET of $200,000 per month for the first six months
and $250,000 per month over the remainder of this agreement. In addition, our
subsidiary, Onvia.com Canada, entered into an agreement with Global Television
Network in May 1998 to pay 4% of Onvia.com Canada's gross sales to Global
Television Network in return for television advertisements. Either party may
cancel this agreement upon 30 days notice to the other party. We anticipate
that sales and marketing expenses will increase significantly for the
foreseeable future, particularly in the near term, as we implement new
advertising, branding and marketing campaigns.
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 $76,000 for
the quarter ended March 31, 1999 to $4.8 million for the quarter ended December
31, 1999. The increases in technology and development expenses were
attributable to an increase in the number of technology and development
personnel from two on December 31, 1998 to 77 on December 31, 1999, consulting
expenses of $1.8 million associated with the implementation of several
engineering projects performed for us by Oracle, and the use of contractors to
supplement technology and development staff. Most of these Oracle projects were
completed in the fourth quarter of 1999 and the first quarter of 2000, although
a few are still ongoing. We expect technology and development expenses to
increase 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 $498,000 for the quarter ended March 31, 1999 to
$1.8 million for the quarter ended December 31, 1999. Increases in general and
administrative expenses were attributable to the increase in administrative
personnel from three on December 31, 1998 to 25 on December 31, 1999, 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.
Noncash Stock-based Compensation
Noncash stock-based compensation was $431,000 in the quarter ended March 31,
1999, $759,000 in the quarter ended June 30, 1999, $524,000 in the quarter
ended September 30, 1999 and $8.7 million in the quarter ended December 31,
1999. Noncash 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 December 31, 1999, we expect to record
additional noncash stock-based compensation expense after December 31, 1999.
Other Income (Expense), Net
Other income (expense), net consists of interest income earned on average
cash balances, offset by interest expense on outstanding convertible notes,
subordinated debt and fixed asset financing. Other income (expense), net
increased from ($75,000) for the quarter ended March 31, 1999 to ($216,000) for
the quarter ended December 31, 1999. This net increase was attributable to
higher outstanding amounts on convertible notes, subordinated debt and
equipment loans. Total debt, including the current portion of long-term debt,
increased from $344,000 on December 31, 1998 to $9.7 million on December 31,
1999.
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Years Ended December 31, 1998 and 1999
Revenue
Revenue increased from $1.0 million for the year ended December 31, 1998 to
$27.2 million for the year ended December 31, 1999. Growth in revenue was
attributable to increased product sales to new and existing customers.
Cost of Goods Sold
Cost of goods sold increased from $1.1 million for the year ended December
31, 1998 to $31.6 million for the year ended December 31, 1999. The increase in
cost of goods sold was attributable to the corresponding increase in revenue
during the respective periods.
Sales and Marketing
Sales and marketing expenses increased from $206,000 for the year ended
December 31, 1998 to $16.3 million for the year ended December 31, 1999, due 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.
Technology and Development
Technology and development expenses increased from $192,000 for the year
ended December 31, 1998 to $7.4 million for the year ended December 31, 1999.
This increase was due to consulting expenses associated with the implementation
of several engineering projects and to increases in technology and development
personnel.
General and Administrative
General and administrative expenses increased from $225,000 for the year
ended December 31, 1998 to $4.2 million for the year ended December 31, 1999.
This increase in general and administrative expenses was attributable to the
increase in administrative personnel and higher office occupancy expenses
related to the relocation to our new corporate offices.
Noncash Stock-based Compensation
We had no amortization of noncash stock-based compensation for the year
ended December 31, 1998 and amortization of noncash stock-based compensation of
$10.5 million for the year ended December 31, 1999. This increase was due to
the issuance of options and non-vested common stock to our employees and non-
employee advisors, and to the acceleration of vesting of options and nonvested
common stock of our non-employee advisors.
Other Income (Expense), Net
Other income (expense), net increased from $(4,000) for the year ended
December 31, 1998 to $(541,000) for the year ended December 31, 1999. This net
increase was 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 December 31, 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
December 31, 1999,
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we had net operating loss carryforwards of $33.4 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.
Net Loss
Our net loss increased from $672,000 in 1998 to $43.4 million in 1999. In
addition to sustaining a 1999 gross margin loss of $4.4 million, operating
expenses increased to $38.4 million in 1999, including $10.5 million in noncash
stock-based compensation. Our operating expenses increased in 1999 as we hired
our staff, built our brand, expanded our customer base and improved our
operations and technological infrastructure.
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 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 attributable to the hiring of technology
and development personnel.
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
attributable to the increase in administrative personnel and general corporate
expenses.
Other Income (Expense), Net
We had no other income (expense), net in 1997 and other income (expense),
net 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. During 1998, SunCommerce Corporation, a
web-hosting company co-owned by Glenn Ballman, our founder, President and Chief
Executive Officer, advanced various payments and services to us, including
wages, benefits, management fees, office expenses and other miscellaneous
expenses. Through December 31, 1999, equity issuances have yielded gross
proceeds of $60.9 million and net proceeds of $58.5 million. Additionally, we
have issued subordinated notes and have entered into capital equipment term
loans to finance our
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operations. As of December 31, 1999, we had $38.5 million of cash and cash
equivalents on hand and $9.7 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.
In February 2000, we entered into an agreement with Internet Capital Group,
or ICG, to sell to ICG shares of our common stock at the initial public
offering price per share in this offering in a private placement transaction.
This transaction will occur immediately following the closing of this offering,
although the sale of some or all of these shares to ICG may occur later,
pending clearance of the waiting period under the Hart Scott Rodino Antitrust
Improvements Act of 1976. In this transaction, ICG will purchase at least $40
million worth of common stock, although, if greater, ICG has agreed to purchase
2,666,666 shares, which equals 33.3% of the aggregate number of shares to be
issued in this offering, prior to any exercise of the underwriters' over-
allotment option. Assuming an initial public offering price of $12.00 per
share, ICG will purchase 3,333,333 shares of our common stock in this
transaction.
Net cash used in operating activities totaled $23.4 million for the year
ended December 31, 1999 and approximately $276,000 for the year ended December
31, 1998. Net cash provided by operating activities totaled approximately
$6,000 in 1997. Net cash used in operating activities for the year ended
December 31, 1999 was attributable to net operating losses, increases in
inventory, prepaid expenses and other current assets, offset by noncash charges
and increases in accounts payable and accrued expenses. Net cash used in
operating activities in 1998 was attributable to net operating losses partially
offset by increases in accounts payable and accrued expenses. Net cash provided
by operating activities in 1997 was attributable to net operating losses offset
by increases in accrued expenses.
Net cash used in investing activities totaled $6.5 million for the year
ended December 31, 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 year ended December 31,
1999 and 1998 related to the acquisition of computer hardware and software and
other equipment.
Net cash provided by financing activities totaled $68.3 million for the year
ended December 31, 1999 and approximately $344,000 for the year ended December
31, 1998. Net cash provided by financing activities for the year ended December
31, 1999 was 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.
In December 1999, we signed a lease agreement for new corporate office
facilities. Monthly lease payments range from $61,625 to $173,188 over the
eight year term of the lease. Future minimum lease payments required on all
non-cancelable operating leases for the next five years range from $1,970,928
to $2,519,475. In February 2000, we signed an agreement with America Online
that requires us to make substantial payments to America Online.
Our future liquidity and capital requirements will depend on numerous
factors. For example, our pace of expansion will affect our future capital
requirements, as will our decision to acquire or invest in complementary
businesses and technologies. However, we believe that the net proceeds from
this offering, 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
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the U.S. dollar. However, due to the relative stability of these two currencies
in relation to one another, our past 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 December 31, 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 December 31, 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.
Assessment
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 completed both our internal and
external Year 2000 compliance assessment. We believe that we have identified
and reviewed 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 completed our
assessment of this software and have made the changes we consider necessary. We
also assessed the potential effect and costs of remediating the Year 2000
problem on our office equipment and facilities and have not become aware of any
significant operational Year 2000 issues or costs associated with our non-
information technology systems. However, despite our testing, assurances from
vendors, and the lack of any Year 2000 issues to date resulting from the date
rollover, we cannot be certain that our systems do not contain undetected
errors associated with Year 2000.
Costs to Address Year 2000 Issues
We have not incurred any material costs directly associated with Year 2000
compliance efforts. The limited costs to address Year 2000 issues have
consisted of internal labor costs for certain employees who have dedicated time
to our assessment of Year 2000 compliance and associated remedies. We do not
expect to incur additional material costs associated with Year 2000 compliance.
However, in the event that we have not identified and corrected any significant
Year 2000 compliance issues, we could be subject to unexpected material costs
in the future.
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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 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
We have not developed contingency plans for the Year 2000 compliance risks
previously discussed, either because our assessments have not detected material
issues or because we have not determined cost effective solutions in light of
our assessment of the risks. In the event that we encounter significant Year
2000 compliance issues for which we have not developed contingency plans, our
business and financial condition could be materially harmed.
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BUSINESS
Overview
We are the leading business-to-business emarketplace for small business
buyers and sellers. By aggregating a large audience of small businesses, we
provide an effective 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, such as news
and advice, and obtain productivity tools, such as business plan checklists.
These mutual benefits reinforce a network effect that we believe draws
participants to our emarketplace and therefore increases its value. Our
emarketplace has experienced significant growth since it was introduced, and,
as of December 31, 1999, we had attracted eleven service suppliers across nine
service categories, and over 1,100 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 18,000 service suppliers
at December 31, 1999. A key component of our strategy is to increase brand
awareness and our customer base through strategic relationships with small
business trade associations and co-branding relationships with other web sites.
In February 2000, we entered into a strategic relationship with America Online,
or AOL, to provide AOL's customers with access to our services and products
through an interactive co-branded web site. As part of this relationship, we
will provide to AOL a web-based buying directory to act as the engine for AOL's
business-to-business ecommerce platform. We will receive a percentage of the
advertising revenue from the co-branded web site.
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.
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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.
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 have limited e-commerce
service and product offerings. 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. With our seller ratings system, which we currently intend to
introduce by June 2000, 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 37,000
products from more than 1,100 manufacturers. In addition, we offer nine
critical business services, including Internet access,
telecommunications plans, business credit cards and payroll processing.
We also offer 100 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
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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 18,000 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 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 journalists, working in Seattle and
Washington, D.C., publish 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, such as business journals, magazines, radio, television, web
advertising and outdoor billboards. 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
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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 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 have developed an in-
bound sales force, which fields calls from customers to answer specific
service and product inquiries, which continues 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 18,000 businesses that act as suppliers across 100 services in
our RFQ network;
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. our broad array of more than 37,000 products, ranging from office
supplies to computer systems, and nine business services selected for
the particular needs of small businesses that can be purchased quickly
and conveniently through our "Purchase 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.
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, Internet use generally declines during the summer
months.
The Onvia.com Small Business Services Trading Hub
We have established relationships with more than 18,000 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 100 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;
. 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.
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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>
"Purchase Now" Services and Products--Overview
Our emarketplace offers a broad range of nine services and 37,000 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.
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.
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Making a purchase. By clicking the "Purchase 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.
"Purchase 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 Services 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>
"Purchase 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.
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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
- ------------------------------------------------------------------------------
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>
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
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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. This exclusive license prevents Successful Entrepreneur from
licensing this content to any other company targeting small businesses. We will
pay a fixed fee of $202,000 for this exclusive license which expires in
September 2002. 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:
America Online. In February 2000, we entered into a strategic relationship
with AOL to provide AOL's customers with access to our services and products,
including our RFQ services, through an interactive co-branded web site. As part
of this relationship, we will provide to AOL a web-based buying directory to
act as the engine for AOL's business-to-business ecommerce platform. In
addition, AOL will promote the co-branded site and our RFQ services, which will
be offered as part of AOL's aggregated RFQ site. We will receive a percentage
of the advertising revenue from the co-branded web site. Under the terms of
this agreement, we are required to make substantial payments to AOL.
CNET. We have a relationship with CNET to provide us advertising services.
Under our one-year agreement with CNET, we pay CNET a fee each time a visitor
clicks on a link from the CNET web site to our web site. This agreement is
cancelable by either party after six months upon 30 days notice. We are
required to make minimum payments of $200,000 per month for the first six
months and $250,000 per month over the remainder of this agreement.
VerticalNet. We have a relationship with VerticalNet to be a premier seller
in each of VerticalNet's approximately 55 online business-to-business
communities. In addition, VerticalNet will provide a link that connects these
55 online trade communities to our emarketplace. We are required to pay to
VerticalNet 3% of qualifying revenue generated by VerticalNet as well as a one-
time fee of $100,000. This one-year agreement terminates in February 2001.
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 penetrate and market to specific industries and market
niches.
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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.
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. We currently have approximately 20 co-branding
relationships with terms generally ranging from three to 12 months. In 1999, we
paid an aggregate of $1,970,359 in fees under these agreements. 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. We are required to pay to Dow Jones & Company a monthly
fee of $25,000 under this month-to-month agreement.
. 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. We are
required to pay a monthly fee of $20,833 under this agreement which
expires in August 2001.
. 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. We are required to pay a monthly fee of $20,833 under
this agreement which expires in November 2000.
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. We currently have approximately 11 relationships with
media and content providers with terms generally ranging from between one and
two years. The arrangements generally provide that we have the non-exclusive
right to use and display the content provided. The payment structure in these
arrangements takes a variety of forms, including fixed monthly fees, fees
charged per article provided and fees based on advertising revenue sharing
formulas. Average fees payable by us under the fixed-fee arrangements are
approximately $45,000 per year.
Sponsorship relationships. For a fee, a business may sponsor one of our
specific services or products. 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.
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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 opportunities to cross-sell our services and products. 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 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. Our relationships with our suppliers
are in the form of standard agreements. We do not have minimum commitments or
guaranteed
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pricing with any of our suppliers. Individual transactions become contracts by
way of our issuing purchase orders. Our agreements with our suppliers are
cancellable at any time by either party.
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 year ended December 31,
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 and rapidly increasing volume of web traffic and customer
transactions in a reliable and efficient manner without critical failures. 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;
. 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.
41
<PAGE>
In 1999 and 1998, our technology and development expense was $7.4 million
and $192,000, respectively.
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, Digitalwork.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.
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 seek to protect our internally developed
products, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We cannot assure you
that any of our proprietary rights with respect to our emarketplace will be
viable or of value
42
<PAGE>
in the future since the validity, enforceability and type of protection of
proprietary rights in Internet-related industries are uncertain and still
evolving.
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.
We presently have no issued U.S. patents or U.S. patent applications
pending. We have no current intention to file any U.S. patent applications. It
is possible that we may not develop proprietary products or technologies that
are patentable and that the patents of others will seriously harm our ability
to do business.
OnviaMail, Work. Wisely. and OnviaFlash are registered as trademarks in the
United States. We have filed trademark applications in the United States for
chaperoned access, CheckPoint, the Onvia checkmark logo, Onvia and Onvia.com.
In addition, we have filed trademarks applications for Onvia and Onvia.com in
one or more foreign countries. The trademark applications mentioned above are
subject to review by the applicable governmental authority, may be opposed by
private parties, and may not issue.
Employees
As of December 31, 1999 we had 203 full-time employees. Of the total, 54
were in sales and marketing, 47 were in customer support, 77 were in technology
and development and 25 were in finance and administration. Of these, 37 were
employees of our Canadian subsidiary, including 15 in sales and marketing, 14
in customer support, one in technology and development and seven 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. Our payments under all
of these leases will be approximately $1,970,928 in 2000. We believe that these
leased facilities will be sufficient to meet our growth for the forseeable
future.
Legal Proceedings
In February 2000, John Meier filed an action in the Supreme Court of British
Columbia, Canada asserting a claim against us and Glenn Ballman, our founder,
President and Chief Executive Officer. Mr. Meier's claim is based upon
allegations that he and Mr. Ballman had intentions to form a company similar to
ours and that Mr. Ballman's role in founding our company breached an alleged
partnership with Mr. Meier and fiduciary duties owed to him. In this action,
Mr. Meier asserts that he is entitled to 50% of Mr. Ballman's interest in
Onvia.com, as well as 50% of the assets of Onvia.com. Based upon our
investigation to date, we believe that the allegations against us are wholly
without merit and that the outcome of this action will not harm our business.
We believe that we have valid defenses to this claim and intend to vigorously
defend the action. Since the results of litigation proceedings are inherently
unpredictable, however, we are unable to provide assurance regarding the
outcome of this action or possible damages that may be incurred.
In addition, from time to time we are subject to various other legal
proceedings that arise in the ordinary course of our business. Although we can
not predict the outcomes of these proceedings with certainty, we do not believe
that the disposition of these matters will have a material adverse effect on
our financial position, results of operations or cash flows.
43
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employee
Our executive officers, directors and other key employee and their ages as
of December 31, 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 and Chief Technology Officer
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
James R. Bridges............ 53 Vice President of Customer Service
J. Gary Meehan.............. 41 President of Onvia.com Canada
Michael D. Pickett.......... 52 Chairman and Director
Jeffrey C. Ballowe (1)(2)... 44 Director
William W. Ericson.......... 41 Director
Kenneth A. Fox (1)(2)....... 29 Director
Nancy J. Schoendorf (1)(2).. 45 Director
Steven D. Smith............. 41 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.,
44
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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 and Chief Technology Officer
since February 2000. From October 1997 to February 2000, Mr. Paul served as our
Vice President of Engineering. 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.
James R. Bridges has served as our Vice President of Customer Service since
February 2000. From October 1999 to February 2000, Mr. Bridges served as our
Director of Sales and Customer Service. Prior to joining Onvia.com, Mr. Bridges
was Director of Operations for Brigadoon.com, an Internet service provider,
from July 1999 to October 1999. From February 1998 to July 1999, Mr. Bridges
was an independent consultant in the direct mail industry and a principal in
ACOBA Technologies, Ltd., a technology company. From January 1997 to February
1998, Mr. Bridges served as Vice President of Operations for e-Merchant Group,
an Internet retailer. From February 1995 to November 1996, Mr. Bridges was Vice
President of Customer Service for Helly Hansen, a manufacturer and wholesaler
of outerwear. From September 1979 to February 1995,
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Mr. Bridges held a number of positions with Eddie Bauer Co., including Director
of Direct Sales. Mr. Bridges holds a Bachelor of Arts in Business
Administration from the University of Washington.
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 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 February
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.
Steven D. Smith has served as a director of Onvia.com since January 2000.
Since March 1997, Mr. Smith has served as Managing Director of GE Equity, a
subsidiary of GE Capital. From August 1990 to February
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<PAGE>
1997, Mr. Smith served in a variety of positions at GE Capital, most recently
as Managing Director, Ventures. Mr. Smith holds a Bachelor of Business
Administration from Southern Methodist University and a Master of Business
Administration from The Wharton School of Business.
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 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. Smith 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 provide cash compensation to 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 40,000 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, assuming continuing service as a director. 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 10,000 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.
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<PAGE>
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.
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 years ended December 31, 1998 and December 31, 1999 by our
Chief Executive Officer and our four other highest-paid executive officers who
were paid at least $100,000 during the fiscal year ended December 31, 1999,
whom we collectively refer to as the named executive officers:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation Securities
---------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
--------------------------- ---- ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Glenn S. Ballman(1)............ 1999 $ 75,117 $20,000 600,000 $13,000
President and Chief Executive
Officer 1998 47,807 -- -- --
Mark T. Calvert(2)............. 1999 137,500 -- 971,120 --
Vice President, Chief
Financial Officer and 1998 -- -- -- --
Secretary
Kristen M. Hamilton(3)......... 1999 74,417 45,000 1,600,000 1,850
Vice President and Chief
Strategy Officer 1998 13,000 -- -- --
Douglas H. Kellam(4) .......... 1999 57,320 -- 500,000 53,950
Vice President of Marketing 1998 -- -- -- --
Robert D. Ayer(5) ............. 1999 78,333 25,000 -- 7,000
Vice President of Products and
Services 1998 14,400 -- -- --
</TABLE>
- --------
(1) Mr. Ballman's salary 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. Mr. Ballman's other compensation consists of $13,000 representing
the fair market value of common stock issued in exchange for services.
(2) Mr. Calvert commenced employment with us in February 1999. Mr. Calvert's
salary on an annualized basis is $150,000.
(3) Ms. Hamilton commenced employment with us in June 1998 as our Vice
President of Business Development. In December 1999, Ms. Hamilton became
our Vice President and Chief Strategy Officer.
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<PAGE>
Ms. Hamilton's salary on an annualized basis is $80,000. Ms. Hamilton's
other compensation consists of $1,850 representing the fair market value of
common stock issued in exchange for services.
(4) Mr. Kellam commenced employment with us in August 1999. Mr. Kellam's
salary on an annualized basis is $170,000. Mr. Kellam's other compensation
consists of $50,000 in relocation expenses and $3,950 in transportation
expenses related to his relocation.
(5) Mr. Ayer's other compensation consists of $7,000 representing the fair
market value of common stock issued in exchange for services.
Option Grants in Last Fiscal Year
No stock options were granted to the named executive officers during the
year ended December 31, 1998.
The following table describes certain information regarding stock options
granted to each of the named executive officers in the fiscal year ended
December 31, 1999, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the fair market value on the date of grant
determined by us for accounting purposes. These assumed rates of appreciation
comply with the rules of the Securities and Exchange Commission and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock. In addition, the deemed value as of the date of grant was determined
after the date of grant solely for financial accounting purposes taking into
consideration, with the benefit of hindsight, various factors including service
and product introductions, our operating results and cash position, competitive
developments, management team developments and the prices at which we issued
preferred stock. No stock appreciation rights were granted to these individuals
during the year.
In the fiscal year ended December 31, 1999, we granted options to purchase
up to an aggregate of 11,466,032 shares to employees, directors and
consultants. All options were granted under our 1999 stock option plan at
exercise prices at the fair market value of our common stock on the date of
grant, as determined in good faith by the board of directors. All options have
a term of ten years. Optionees may pay the exercise price by cash, check,
promissory note or delivery of already-owned shares of our common stock. All
options are exercisable as determined by the plan administrator.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------- Value at Assumed
% of Total Annual Rates
Number of Options of Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term
Options in Last Price Expiration ----------------------
Name Granted Fiscal Year Per Share Date 5% 10%
---- ---------- ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Glenn S. Ballman........ 600,000 5.2% $ 6.17 12/19/2009 $4,150,705 $10,518,700
Mark T. Calvert......... 140,000 1.2 0.0625 3/23/2009 34,778 88,134
286,000 2.5 0.0625 3/23/2009 71,046 180,045
545,120 4.8 0.125 4/21/2009 178,268 451,766
Kristen M. Hamilton..... 1,600,000 14.0 0.0625 3/23/2009 397,461 1,007,245
Douglas H. Kellam....... 500,000 4.4 0.375 8/30/2009 350,609 888,511
Robert D. Ayer.......... -- -- -- -- -- --
</TABLE>
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
No options were exercised by the named executive officers during the year
ended December 31, 1998, nor did any named executive officer hold any options
as of December 31, 1998.
49
<PAGE>
The following table describes for the named executive officers their option
exercises for the fiscal year ended December 31, 1999 and exercisable and
unexercisable options held by them as of December 31, 1999.
The value of unexercised in-the-money options at fiscal year end set forth
below is based on an assumed initial offering price of $12.00 per share, less
the per share exercise price, multiplied by the number of shares issued upon
exercise of the option. All options were granted under our 1999 stock option
plan.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-The-Money
Unexercised Options at Fiscal Options at Fiscal
Shares Year End Year End
Acquired Value -------------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn S. Ballman........ -- -- -- 600,000 -- $3,498,000
Mark T. Calvert......... 971,120 $ 904,635 -- -- -- --
Kristen M. Hamilton..... 1,600,000 1,500,001 -- -- -- --
Douglas H. Kellam....... 400,000 350,000 100,000 -- $1,162,500 --
Robert D. Ayer.......... -- -- -- -- -- --
</TABLE>
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 18,000,000 total shares of common stock reserved for
issuance under our 1999 stock option plan at December 31, 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 3,200,000 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 February 2009 unless the board of directors
terminates it earlier. As of December 31, 1999, options to purchase 5,875,382
shares of common stock were outstanding at a weighted average exercise price of
$1.60 per share, 6,326,206 shares had been issued upon exercise of outstanding
options or pursuant to stock purchase agreements and 5,678,412 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
2,000,000 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
50
<PAGE>
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 600,000 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.
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 40,000 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 10,000 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
51
<PAGE>
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 600,000 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 600,000 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 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 2,000 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
52
<PAGE>
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 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.
53
<PAGE>
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:
. 22,958,136 shares of restricted common stock at a price of $0.00125 per
share in January 1999;
. 1,026,224 shares of restricted common stock at a price of $0.0125 per
share in April 1999;
. 120,000 shares of restricted common stock at a price of $1.25 per share
in December 1999;
. 20,219,496 shares of Series A preferred stock at a price of $0.58 per
share in February 1999;
. warrants to purchase up to 833,352 shares of common stock at an exercise
price of $0.0025 per share in connection with the sale of notes
convertible into shares of Series A preferred stock from September 1998
through February 1999;
. 14,544,170 shares of Series B preferred stock at a price of $1.72 per
share in September 1999; and
. 3,379,402 shares of Series C preferred stock at a price of $6.86 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....... -- 9,322,956 4,654,128 541,060
Internet Capital Group,
Inc.................... -- 8,552,972 5,235,966 729,266
GE Capital Equity
Investments............ -- -- 4,072,370 216,630
Glenn S. Ballman........ 10,000,000 9,568 -- --
Robert D. Ayer.......... 5,600,000 -- -- --
Kristen M. Hamilton..... 1,480,000 -- -- --
Arthur R. Paul.......... 1,200,000 -- -- --
Michael D. Pickett...... 1,026,224 85,532 -- --
VLG Investments 1999.... 513,896 42,764 -- 7,294
Wendy L. Ayer........... 240,000 -- -- --
William W. Ericson...... 187,204 17,108 -- 3,646
Mark T. Calvert......... 64,104 42,764 -- 14,586
Jeffrey C. Ballowe...... 120,000 -- -- --
</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.
54
<PAGE>
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 $0.58
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 64,104 shares of common stock at an
exercise price of $0.0025 per share. Mr. Calvert exercised his warrant to
purchase 64,104 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. 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. Accordingly, in connection with the exercise of options, Douglas H.
Kellam issued us a promissory note in the amount of $150,000 in December 1999
and Mr. Kellam, Kristen M. Hamilton and Glenn S. Ballman issued us promissory
notes in February 2000 in the amounts of $50,000, $100,000 and $75,000,
respectively. Each of these notes is secured by shares of our common stock and
is due on the earlier of the following:
. five years after issuance;
. after a public offering of Onvia.com's common stock in which the officer
is a selling stockholder; and
. the expiration of any lock-up period imposed by contract or securities
laws following an acquisition of Onvia.com.
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.
55
<PAGE>
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.
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 -- 545,120 Severance equal to
twelve months of full
salary and benefits
upon termination for
any reason
Douglas H. Kellam....... August 25, 1999 170,000 $42,500 500,000 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 70,000 Relocation expenses from
Oregon to Seattle
Mark A. Pawlosky........ July 23, 1999 130,000 30,000 100,000 --
Clayton W. Lewis........ March 15, 1999 80,000 10,000 100,000 --
James R. Bridges........ October 14, 1999 99,900 15,000 30,000 --
</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 $221,000 from March 25,
1997 (inception) through December 31, 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 $347,000 under this
agreement through December 31 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 800 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.
56
<PAGE>
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
31, 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 February
2000, we agreed to sell Internet Capital Group, Inc. shares of our common stock
in a private placement immediately following and conditioned upon the offering.
See "Description of Capital Stock--Concurrent Private Placement."
In December 1999, we accelerated the vesting of and eliminated our
repurchase option with respect to the unvested portion of the 513,896 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 2,671,554.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, giving effect to the
appointment of new directors, assuming conversion of all outstanding shares of
preferred stock into common stock and as adjusted to reflect the sale of
8,000,000 shares of common stock offered by us in this offering and the
3,333,333 shares of common stock to be issued in the concurrent private
placement at an assumed initial public offering price of $12.00 per share, 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 officers 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. As of December 31, 1999, there were 68,180,762 shares of common stock
outstanding on an as converted basis, and 79,514,095 shares of common stock
outstanding after this offering. For the purposes of calculating percent
ownership, for any individual who beneficially owns shares represented by
exercisable options, 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>
Shares Beneficially
Owned Percentage of Ownership
--------------------- ------------------------
Prior to
This After This Prior to This After This
Offering Offering Offering Offering
---------- ---------- ------------- ----------
Name and Address of Beneficial
Owner
- ------------------------------
<S> <C> <C> <C> <C>
Entities affiliated with Mohr,
Davidow Ventures (1)........... 14,518,144 14,518,144 21.3% 18.3%
2775 Sand Hill Road, Suite 240
Menlo Park, California 94025
Internet Capital Group, Inc.
(2)............................ 14,518,144 17,851,477 21.3 22.5
44 Montgomery Street, Suite
3705
San Francisco, California 94014
GE Capital Equity Investments
(3)............................ 4,289,000 4,289,000 6.3 5.4
c/o Capital Equity Investments,
Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Glenn S. Ballman................ 10,609,568 10,609,568 15.4 13.2
Robert D. Ayer (4).............. 5,730,000 5,730,000 8.4 7.2
Kristen M. Hamilton (5)......... 3,080,000 3,080,000 4.5 3.9
Mark T. Calvert (6)............. 1,012,574 1,012,574 1.5 1.3
Douglas H. Kellam............... 500,000 500,000 * *
Nancy J. Schoendorf (1)......... 14,518,144 14,518,144 21.3 18.3
c/o Mohr, Davidow Ventures
2775 Sand Hill Road, Suite 240
Menlo Park, California 94025
Kenneth A. Fox (2).............. 14,518,144 17,851,477 21.3 22.5
c/o Internet Capital Group,
Inc.
44 Montgomery Street, Suite
3705
San Francisco, California 94014
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned Percentage of Ownership
--------------------- ------------------------
Prior to
This After This Prior to This After This
Offering Offering Offering Offering
---------- ---------- ------------- ----------
Name and Address of Beneficial
Owner
- ------------------------------
<S> <C> <C> <C> <C>
Steven D. Smith (3)............. 4,289,000 4,289,000 6.3 5.4
c/o Capital Equity Investments,
Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Michael D. Pickett.............. 1,111,756 1,111,756 1.6% 1.4%
4640 Admiralty Way, Fifth Floor
Marina Del Ray, California
90292
William W. Ericson (7).......... 771,912 771,912 1.1 1.0
c/o Venture Law Group
4750 Carillon Point
Kirkland, Washington 98033
Jeffrey C. Ballowe.............. 120,000 120,000 * *
85 Estrada Calabasa
Santa Fe, New Mexico 87501
All directors and officers as a
group (17 persons) (8)......... 58,674,298 62,007,631 84.2% 76.6%
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock
(1) Consists of 10,022,970 shares held by Mohr, Davidow Ventures V, L.P.,
3,781,480 shares held by Mohr, Davidow Ventures V-L, L.P. and 713,694
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. Shares
beneficially owned and percentage of ownership after this offering include
3,333,333 shares to be purchased in the concurrent private placement,
assuming an initial public offering price of $12.00 per share.
(3) Mr. Smith is a director of Onvia.com and Managing Director of GE Equity, a
subsidiary of GE Capital. Mr. Smith disclaims beneficial ownership of
those shares except to the extent of his pecuniary interest in them.
(4) Consists of 5,490,000 shares held by Mr. Ayer and 240,000 shares held by
his spouse Wendy Ayer.
(5) Includes 30,000 shares held by Christian McLaughlin, as trustee of the
Hamilton Family Trust dated 11/22/99 and 24,000 shares held by Christian
McLaughlin, as trustee of the Kristen Hamilton Trust dated 12/17/99.
(6) Includes 14,586 shares held by Mark and Norma Calvert, the parents of Mr.
Calvert, and an aggregate of 60,000 shares held for the benefit of various
family members. Mr. Calvert disclaims beneficial ownership of those shares
except to the extent of his pecuniary interest in them.
(7) Consists of 207,958 shares held by Mr. Ericson and 563,954 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.
(8) Includes an aggregate of 1,480,000 shares subject to options outstanding
as of December 31, 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.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the closing of this offering, our authorized capital stock will
consist of 250,000,000 shares of common stock, par value $0.0001 per share, and
15,000,000 shares of preferred stock, par value $0.0001 per share.
Common Stock
As of December 31, 1999, there were 68,180,762 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 705,144 shares
of our common stock that will expire if not exercised prior to the 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 are considering using a portion of these
shares of preferred stock in connection with the potential adoption of a
preferred shares rights agreement as more fully described below under
"Antitakeover Provisions." We have no other present plans to issue any shares
of preferred stock.
Warrants
As of December 31, 1999, warrants were outstanding to purchase an aggregate
of 1,967,782 shares of common stock with exercise prices ranging between
$0.0025 and $1.24 per share. Of these, warrants to purchase 705,144 shares of
common stock with an exercise price of $0.0025 per share issued as
consideration in connection with purchase of the notes convertible into shares
of Series A preferred stock in 1998, will automatically expire if not exercised
upon completion of this offering. Of the warrants to purchase 1,262,638 shares
of common stock still outstanding after close of this offering, a warrant to
purchase 97,328 shares of common stock at an exercise price of $1.24 per share
expires on the fourth anniversary of the closing of this offering and warrants
to purchase 1,165,310 shares of common stock at an exercise price of $0.90 per
share expire on the fifth anniversary of the closing of this offering.
Registration Rights
Upon completion of this offering and the concurrent private placement, the
holders of approximately 71,504,095 shares of common stock, including shares of
common stock issuable upon exercise of warrants, are entitled to certain rights
with respect to registration of these shares under the Securities Act. We refer
to these
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<PAGE>
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 of the then-
outstanding registrable securities may require by a written request that we
register their shares for public resale provided that the value of the
securities to be registered is at least $10,000,000, net of underwriting
discounts and commissions. We are obligated to effect no more than two of these
registrations requested by the holders of registrable securities. 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, we are subject to Washington laws that could have the effect of
delaying, deferring or preventing the change of control of Onvia.com. Chapter
23B.19 of the Washington Business Corporation Act prohibits, with some
exceptions, a 10% or greater stockholder from engaging in any of the following
transactions, among others, without approval of our board of directors for five
years after date on which the individual or entity became a 10% stockholder:
. a merger or consolidation with us;
. the sale or lease of our assets to the 10% stockholder with a value
greater than the fair market value of 5% of our total assets or 5% of
our total outstanding capital stock; and
. the receipt by the 10% stockholder of a disproportionate benefit as a
stockholder.
After the five-year period, the transactions above may take place as long as
they comply with fair price provisions of Washington law. Chapter 23B.19 will
apply to us for so long as we maintain our principal offices in Washington, we
are a reporting company under the Securities Exchange Act of 1934 and specified
percentages or numbers of our employees, stockholders and assets are located in
Washington. We are not able to opt out of this statute.
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;
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<PAGE>
. 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 are considering using a portion of these shares
of preferred stock as part of a preferred shares rights agreement.
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.
Concurrent Private Placement
In February 2000, we entered into a common stock purchase agreement with
Internet Capital Group, or ICG, one of our principal stockholders, under which
we agreed to sell to ICG shares of our common stock in a private placement
immediately following and conditioned upon the sale of shares in this offering.
The price of the shares in the concurrent private placement will be the same as
the initial public offering price per share. The number of shares we will sell
to ICG is equal to the greater of:
. $40 million worth of common stock priced at the initial public offering
price per share, or
. 2,666,666 shares, which equals 33.3% of the aggregate number of shares
to be issued in this offering, prior to any exercise of the
underwriters' over-allotment option.
The sale of these shares to ICG is conditioned upon the clearance of the
waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976.
To the extent this clearance is not obtained by the closing of this offering,
we will sell only that number of shares of common stock to ICG that would be
allowed prior to termination of this waiting period under the Hart Scott Rodino
Act. After the termination of this waiting period, we will sell the remainder
of the shares, if any.
Transfer Restrictions. ICG has agreed not to sell, transfer, encumber or
otherwise dispose of any of the shares of common stock acquired in the
concurrent private placement in a public or private sale for a period of 180
days following the closing of the offering.
Registration Rights. We have committed to grant ICG registration rights
relating to the shares of common stock they will purchase in the concurrent
private placement. See "--Registration Rights."
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.
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<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 79,514,095 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 71,514,095 shares outstanding 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 49,487,942
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 1,262,638 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 approximately 14,544,170 shares will be eligible for sale
pursuant to Rule 144 after September 2000, an additional approximately
64,104 shares will be eligible for sale pursuant to Rule 144 after
October 2000, an additional approximately 3,379,402 shares will be
eligible for sale pursuant to Rule 144 after December 2000, and an
additional approximately 4,038,477 shares will be eligible for sale
pursuant to Rule 144 after February 2001.
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 795,141 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
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<PAGE>
been our affiliate at any time during the three months preceding a sale and who
has beneficially owned the 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 December 31,
1999, there were outstanding options for the purchase of 5,875,382 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.
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<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, Chase Securities
Inc., 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. ...............................
Chase Securities Inc. .............................................
E*OFFERING Corp. ..................................................
William Blair & Company, L.L.C. ...................................
---------
Total............................................................ 8,000,000
=========
</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 1,200,000 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.
At our request, the underwriters have reserved up to 5% of the 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,
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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.
E*OFFERING Corp., one of the underwriters, will allocate for distribution by
E*TRADE Securities, Inc. a portion of the shares that E*OFFERING is
underwriting in this offering. Copies of the prospectus in electronic format
will be made available on Internet web sites maintained by E*OFFERING Corp. and
E*TRADE Securities, Inc. Customers of E*TRADE Securities, Inc. who complete and
pass an online eligibility profile may place conditional offers to purchase
shares in this offering through E*TRADE's Internet web site.
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 $6.86 per share. In this private
placement, Credit Suisse First Boston Corporation purchased 145,854 shares,
FleetBoston Robertson Stephens Inc. purchased 72,926 shares, Chase Securities
Inc. purchased 72,926 shares and William Blair & Company, L.L.C. purchased
72,926 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.
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<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 U.S. 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.
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<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 563,954 shares of our common stock, William W. Ericson, a director
of Onvia.com and a director of Venture Law Group, owns 207,958 shares of our
common stock, and other attorneys at Venture Law Group own an aggregate of
64,728 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 1999 and
for the period from March 25, 1997 (inception) through December 31, 1997, for
the years ended December 31, 1998 and 1999 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing in this prospectus, and are 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.
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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 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, and for the years ended December 31, 1998, and 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 1999, and the results of their operations and their cash flows for the
period from March 25, 1997 (inception) through December 31, 1997, and for the
years ended December 31, 1998, and 1999, in conformity with generally accepted
accounting principles.
Seattle, Washington
February 4, 2000 (February 16, 2000, as to Note 13)
The accompanying consolidated financial statements reflect a change in the par
value of common stock to $.0001 and in the par value of the preferred stock to
$.0001, a two-for-one split of common and preferred stock, and a
reincorporation in the state of Delaware, which are to be effected prior to the
effective date of the Prospectus. The above opinion is in the form that will be
signed by Deloitte & Touche LLP upon consummation of the above events, which
are described in Note 13 of the Notes to Consolidated Financial Statements, and
assuming that, from February 4, 2000 (February 16, 2000, as to Note 13) to the
date of such event, no other events have occurred that would affect the
accompanying consolidated financial statements and notes thereto.
/s/ Deloitte & Touche LLP
Seattle, Washington
February 16, 2000
F-2
<PAGE>
ONVIA.COM, INC.
Consolidated Balance Sheets
December 31, 1998 and 1999
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, December 31, Equity at
1998 1999 December 31, 1999
------------ ------------ -----------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents....... $ 44,659 $ 38,517,985
Accounts receivable............. 47,072 509,555
Inventory....................... 65,204 1,359,926
Prepaid expenses and other
current assets................. 2,212 1,064,097
Note receivable from related
party.......................... 350,000
--------- ------------
Total current assets.......... 159,147 41,801,563
Property and equipment, net....... 20,925 6,176,791
Other assets, net................. 2,300,478
--------- ------------
Total assets.................. $ 180,072 $ 50,278,832
========= ============
Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
Accounts payable................ $ 219,852 $ 6,719,074
Accrued expenses................ 365,820 6,633,430
Unearned revenue................ 42,425 659,665
Convertible notes............... 344,407
Current portion of long-term
debt........................... 4,481,903
--------- ------------
Total current liabilities..... 972,504 18,494,072
Long-term debt.................... 5,171,417
--------- ------------
Total liabilities............. 972,504 23,665,489
--------- ------------
Commitments and contingencies
(Note 7)
Stockholders' (deficit) equity:
Convertible preferred stock;
$.0001 par value:
Series A; 24,000,000 shares
authorized; 20,219,496 shares
issued and outstanding;
($11,819,991 liquidation
preference).................. 12,740,551
Series B; 16,000,000 shares
authorized; 14,544,170 shares
issued and outstanding;
($25,000,000 liquidation
preference).................. 24,969,851
Series C; 6,000,000 shares
authorized; 3,379,402 shares
issued and outstanding;
($23,165,801 liquidation
preference).................. 36,522,042
Common stock; $.0001 par value:
150,000,000 shares authorized;
8,000,800 and 29,332,550 shares
issued and outstanding......... 800 2,933 $ 6,747
Additional paid in capital...... 9,270 24,904,116 99,132,746
Notes receivable from
stockholders................... (155,593) (155,593)
Unearned stock compensation..... (14,194,664) (14,194,664)
Accumulated deficit............. (802,502) (58,175,893) (58,175,893)
--------- ------------ ------------
Total stockholders' (deficit)
equity....................... (792,432) 26,613,343 $ 26,613,343
--------- ------------ ============
Total liabilities and
stockholders' (deficit)
equity......................... $ 180,072 $ 50,278,832
========= ============
</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 and
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
March 25, 1997
(inception) to Year ended Year ended
December 31, December 31, December 31,
1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Revenue............................. $ 62,174 $1,037,271 $ 27,177,082
Cost of goods sold.................. 46,894 1,082,448 31,574,214
---------- ---------- ------------
Gross margin........................ 15,280 (45,177) (4,397,132)
Operating expenses:
Sales and marketing............... 41,321 206,436 16,285,970
Technology and development........ 12,707 191,968 7,443,881
General and administrative........ 91,624 224,941 4,235,091
Noncash stock-based compensation.. 10,462,762
---------- ---------- ------------
Total operating expenses........ 145,652 623,345 38,427,704
---------- ---------- ------------
Loss from operations................ (130,372) (668,522) (42,824,836)
Other income (expense):
Interest income................... 534,299
Interest expense.................. (3,608) (1,075,233)
---------- ---------- ------------
Net loss............................ (130,372) (672,130) (43,365,770)
Beneficial conversion feature on
convertible preferred stock........ (14,007,621)
---------- ---------- ------------
Net loss attributable to common
stockholders....................... $ (130,372) $ (672,130) $(57,373,391)
========== ========== ============
Basic and diluted net loss per
common share....................... $ (0.02) $ (0.08) $ (4.59)
========== ========== ============
Pro forma net loss per common share
(unaudited)........................ $ (1.72)
============
Basic and diluted weighted average
shares outstanding................. 8,000,800 8,000,800 12,507,500
========== ========== ============
Pro forma weighted average shares
outstanding (unaudited)............ 33,420,375
============
</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 and
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Additional
Series A Series B Series C preferred Onvia.com, Inc. paid in
preferred stock preferred stock stock common stock capital
---------------------- ---------------------- --------------------- ------------------ -----------
Shares Amount Shares Amount Shares Amount Shares Amount Amount
---------- ----------- ---------- ----------- --------- ----------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March
25, 1997
(inception)..... -- $ -- -- $ -- -- $ -- 8,000,000 $ 800 $ 9,200
Issuance of
common stock....
Net loss........
---------- ----------- ---------- ----------- --------- ----------- ---------- ------ -----------
BALANCE,
December 31,
1997............ 8,000,000 800 9,200
Exchange of
Onvia.com, Inc.
(Subsidiary)
common stock for
Onvia.com, Inc.
common stock.... 800 70
Net loss........
---------- ----------- ---------- ----------- --------- ----------- ---------- ------ -----------
BALANCE,
December 31,
1998............ 8,000,800 800 9,270
Cancellation of
inception
shares.......... (8,000,800) (800) 800
Issuance of
nonvested common
stock........... 24,104,360 2,410 2,015,159
Conversion of
notes payable
into Series A
preferred
stock........... 2,258,036 1,319,997
Issuance of
Series A
preferred stock,
net of offering
costs of
$232,580........ 17,961,460 10,267,411
Issuance of
Series B
preferred stock,
net of offering
costs of
$30,149......... 14,544,170 24,969,851
Issuance of
Series C
preferred stock,
net of offering
costs of
$651,380........ 3,379,402 22,514,421
Beneficial
conversion
feature related
to convertible
preferred
stock........... 14,007,621
Payment received
on subscription
receivable......
Issuance of
common stock
warrants........ 241,853
Issuance of
Series A
preferred
warrants........ 1,153,143
Exercise of
stock options
and warrants.... 5,428,190 543 725,732
Repurchase of
nonvested common
stock and
acceleration of
stock-based
compensation.... (200,000) (20) 905,020
Unearned
compensation
relating to
issuance of
stock options... 14,933,826
Change in
unearned
compensation for
non-employees... 6,072,456
Amortization of
unearned
compensation on
nonvested common
stock...........
Amortization of
unearned
compensation on
stock options...
Acceleration of
nonvested common
stock...........
Acceleration on
stock options to
consultants.....
Net loss........
---------- ----------- ---------- ----------- --------- ----------- ---------- ------ -----------
BALANCE,
December 31,
1999............ 20,219,496 $12,740,551 14,544,170 $24,969,851 3,379,402 $36,522,042 29,332,550 $2,933 $24,904,116
========== =========== ========== =========== ========= =========== ========== ====== ===========
<CAPTION>
Onvia.com,
Inc.
(Subsidiary) Notes
common stock receivable
-------------- from Unearned Accumulated
Shares Amount stockholders compensation deficit Total
------ ------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March
25, 1997
(inception)..... -- $ -- $ -- $ -- $ -- $ 10,000
Issuance of
common stock.... 800 70 70
Net loss........ (130,372) (130,372)
------ ------- ------------ ------------- ------------- ------------
BALANCE,
December 31,
1997............ 800 70 (130,372) (120,302)
Exchange of
Onvia.com, Inc.
(Subsidiary)
common stock for
Onvia.com, Inc.
common stock.... (800) (70)
Net loss........ (672,130) (672,130)
------ ------- ------------ ------------- ------------- ------------
BALANCE,
December 31,
1998............ (802,502) (792,432)
Cancellation of
inception
shares..........
Issuance of
nonvested common
stock........... (1,646,144) 371,425
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........ (15,593) 10,251,818
Issuance of
Series B
preferred stock,
net of offering
costs of
$30,149......... 24,969,851
Issuance of
Series C
preferred stock,
net of offering
costs of
$651,380........ 22,514,421
Beneficial
conversion
feature related
to convertible
preferred
stock........... (14,007,621)
Payment received
on subscription
receivable...... 10,000 10,000
Issuance of
common stock
warrants........ 241,853
Issuance of
Series A
preferred
warrants........ 1,153,143
Exercise of
stock options
and warrants.... (150,000) 576,275
Repurchase of
nonvested common
stock and
acceleration of
stock-based
compensation.... 905,000
Unearned
compensation
relating to
issuance of
stock options... (14,933,826)
Change in
unearned
compensation for
non-employees... (6,072,456)
Amortization of
unearned
compensation on
nonvested common
stock........... 654,689 654,689
Amortization of
unearned
compensation on
stock options... 2,916,060 2,916,060
Acceleration of
nonvested common
stock........... 1,503,136 1,503,136
Acceleration on
stock options to
consultants..... 3,383,877 3,383,877
Net loss........ (43,365,770) (43,365,770)
------ ------- ------------ ------------- ------------- ------------
BALANCE,
December 31,
1999............ -- $ -- $(155,593) $(14,194,664) $(58,175,893) $26,613,343
====== ======= ============ ============= ============= ============
</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 and
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
March 25, 1997
(inception) to Year ended Year ended
December 31, December 31, December 31,
1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(130,372) $(672,130) $(43,365,770)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation and amortization.... 10,000 2,158 1,154,388
Loss on disposal of assets....... 448,658
Noncash stock-based
compensation.................... 10,462,762
Amortization of debt discount.... 271,419
Noncash interest expense related
to issuance of common stock
warrants........................ 241,853
Change in certain assets and
liabilities:
Accounts receivable............ (48,268) (456,875)
Inventory...................... (2,873) (64,116) (1,289,496)
Prepaid expenses and other
current assets................ (3,631) 1,177 (1,008,782)
Other assets................... (2,299,748)
Accounts payable............... 9,130 216,784 6,471,237
Accrued expenses............... 121,871 246,798 5,360,331
Unearned revenue............... 2,148 41,644 613,557
--------- --------- ------------
Net cash provided (used) by
operating activities.............. 6,273 (275,953) (23,396,466)
Cash flows from investing activities:
Additions to property and
equipment......................... (23,083) (6,495,931)
Cash flows from financing activities:
Proceeds from convertible debt..... 344,407 975,590
Proceeds from issuance of long-term
debt.............................. 9,939,177
Repayments on long-term debt....... (1,062,747)
Proceeds from issuance of nonvested
common stock...................... 70 162,828
Proceeds from exercise of stock
options and warrants.............. 576,275
Proceeds from issuance of Series A
preferred stock, net.............. 10,261,818
Proceeds from issuance of Series B
preferred stock, net.............. 24,969,851
Proceeds from issuance of Series C
preferred stock, net.............. 22,514,421
--------- --------- ------------
Net cash provided by financing
activities........................ 70 344,407 68,337,213
Effect of exchange rate changes on
cash................................ (736) (6,319) 28,510
--------- --------- ------------
Net increase in cash and cash
equivalents......................... 5,607 39,052 38,473,326
Cash and cash equivalents, beginning
of year............................. 5,607 44,659
--------- --------- ------------
Cash and cash equivalents, end of
year................................ $ 5,607 $ 44,659 $ 38,517,985
========= ========= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 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. In December 1999, the
Subsidiary changed its name 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 which 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.
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 for the year
ended December 31, 1999. Three suppliers comprised 41%, 29% and 25%,
respectively, of 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
F-7
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
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 is recognized when the transaction occurs, ratably over the duration
of the placement, or over the term of the agreement, as applicable, and is
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 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 December 31, 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.
F-8
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
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 based on the related vesting periods.
Advertising costs and co-branding fees
The Company expenses advertising costs as incurred. Advertising expense,
excluding amounts for co-branding agreements, for the years ended December 31,
1999 and 1998 was $9,932,761 and $22,560, respectively. There was no
advertising expense for the period from March 25, 1997 (inception) to
December 31, 1997. Fees on co-branding agreements are recorded as services are
performed (see Note 7).
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 years ended December
31, 1999 and 1998, the components of other comprehensive income were
insignificant.
Foreign currency adjustment
The functional currency of the Subsidiary is the Canadian dollar. Realized
foreign currency transaction gains and losses are primarily related to the
purchase of products from U.S. suppliers and are included in cost of sales.
Assets and liabilities of the Subsidiary have been translated to U.S. dollars
at year-end exchange rates. Revenues and expenses have been translated at
average monthly exchange rates. During the years ended December 31, 1999 and
1998, foreign currency transaction losses were $0 and $82,426, respectively.
Commitments and contingencies
The Company is subject to various legal proceedings that arise in the
ordinary course of business. The Company provides for any anticipated losses at
the time an estimate can be made. While management believes that the
disposition of these matters will not have a material adverse effect on the
financial position, results of operations, or cash flows of the Company, the
ultimate outcome is inherently uncertain (see Note 13).
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
F-9
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
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. For the years ended December 31,
1999 and 1998, 56,744,290 and 589,152 shares 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 net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's convertible preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on the date the shares were
originally issued (see Note 9).
Unaudited pro forma stockholders' equity
The Company's Board of Directors has authorized the filing of a registration
statement with the Securities and Exchange Commission to register shares of its
common stock in connection with a proposed initial public offering (the "IPO").
If the IPO is consummated under the terms presently anticipated, all of the
outstanding shares of convertible preferred stock as of December 31, 1999 will
be converted into 38,143,068 shares of common stock upon the closing of the
IPO. The effect of the conversion of the preferred stock outstanding at
December 31, 1999 has been reflected in the unaudited pro forma balance sheet.
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 $828,853 in internally developed software costs
during the year ended December 31, 1999. 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 $135,738 for the
year ended December 31, 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
F-10
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
financial position and measure those instruments at fair value. The Company
does not expect the 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.
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, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Computer equipment................................. $ 17,921 $3,635,813
Software........................................... 558 2,512,037
Furniture and fixtures............................. 4,604 797,013
Leasehold improvements............................. 373,961
-------- ----------
23,083 7,318,824
Less: Accumulated depreciation..................... (2,158) (1,142,033)
-------- ----------
$ 20,925 $6,176,791
======== ==========
</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 833,352 shares of common stock at $0.0025 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 2,258,036 shares of the Company's Series A
preferred stock in conjunction with the Series A preferred financing described
in Note 9.
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
F-11
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
assets of the Company. In conjunction with the debt financing, the Company
issued warrants to purchase 1,165,310 shares of Series A preferred stock at
$0.90 per share. The exercise price on these warrants may be reduced based upon
certain future events. 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 Company received proceeds of $2,163,888 from its initial drawdown under
this line. 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 36 monthly payments; the first 35 payments of $68,514 and the last
payment of $393,097, which is due in August 2002. In December 1999, the Company
obtained an additional $775,289 on the equipment line which bears coupon
interest at an average rate of 8.91% and an effective interest rate of 18.1%
per annum. The loan matures in December 2002. Principal and interest are
payable in 36 monthly payments; the first 35 payments of $24,667 and the last
payment of $140,960. The loans are secured by the equipment of the Company. In
conjunction with the original loan, the Company issued warrants to purchase
97,328 shares of Series A preferred stock at $1.24 per share. The original debt
and warrants were recorded at their fair values of $2,106,045 and $57,843,
respectively. As of December 31, 1999, the Company has $274,300 available to
borrow on the equipment financing agreement.
Debt consists of the following at December 31, 1999:
<TABLE>
<S> <C>
Note payable.................................................... $ 920,625
Subordinated debt obligation.................................... 6,888,887
Equipment term loan............................................. 2,725,700
-----------
10,535,212
Less: Unamortized debt discount................................. (881,892)
-----------
$ 9,653,320
===========
</TABLE>
Maturities of long-term debt at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000............................................................ $ 5,094,152
2001............................................................ 4,109,690
2002............................................................ 1,331,370
-----------
10,535,212
Less: Unamortized debt discount................................. (881,892)
-----------
9,653,320
Less: Current portion, net of discount.......................... (4,481,903)
-----------
$ 5,171,417
===========
</TABLE>
Note 5: Income Taxes
At December 31, 1999 and 1998, the Company had net operating loss
carryforwards of $33,372,573 and $552,154, respectively, which may be used to
offset future taxable income. These carryforwards expire at various dates
beginning in 2017 through 2019. Should certain changes in the Company's
ownership occur, there could be a limitation on the utilization of its net
operating losses.
F-12
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
The effective rate differs from the federal statutory rate as follows:
<TABLE>
<CAPTION>
Period from
March 25, 1997
through Year ended Year ended
December 31, December 31, December 31,
1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Tax benefit at statutory rate..... (34.0)% (34.0)% (34.0)%
Stock-based compensation.......... 29.4 4.4 8.1
Other............................. 0.6 0.2 0.1
Change in valuation allowance..... 4.0 29.4 25.8
----- ----- -----
0.0 % 0.0 % 0.0 %
===== ===== =====
</TABLE>
The Company's net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Net operating loss carryforwards................ $ 187,732 $ 11,346,675
Prepaid expenses and other assets currently
deductible..................................... (488,777)
Accrued expenses not currently deductible....... 484 559,994
Depreciation different for tax purposes......... 14,920 (46,939)
--------- ------------
Net deferred tax assets......................... 203,136 11,370,953
Less: Valuation allowance....................... (203,136) (11,370,953)
--------- ------------
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: Employee Retirement Plan
In December 1999, the Board of Directors approved the Onvia.com Savings and
Retirement Plan (the "Retirement Plan") which will cover all eligible
employees. The Retirement Plan, which will be effective on March 1, 2000, is a
qualified salary reduction plan in which all eligible employees may elect to
have a percentage of their pre-tax compensation contributed to the Retirement
Plan, subject to certain guidelines issued by the Internal Revenue Service.
Contributions by the Company are at the discretion of the Board of Directors.
Note 7: Commitments and Contingencies
Operating leases: The Company is committed under non-cancellable 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 minimum sublease rental receipts are approximately
$65,000.
In December 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 2008. Total lease
obligations under this agreement aggregate to $14,598,750 over the eight year
lease period.
F-13
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
Total rent expense was $294,307 and $20,330 for the years ended December 31,
1999 and 1998, respectively. Future minimum lease payments required on non-
cancelable operating leases are approximately as follows:
<TABLE>
<CAPTION>
For the years ending December 31,
---------------------------------
<S> <C>
2000........................................................ $ 1,970,928
2001........................................................ 2,263,491
2002........................................................ 2,302,894
2003........................................................ 2,479,269
2004........................................................ 2,519,475
Thereafter.................................................. 5,935,124
-----------
$17,471,181
===========
</TABLE>
Lease deposit: The Company's leasing arrangement for its existing 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.
The Company's leasing arrangement for its new corporate facilities requires
a letter of credit of $2,000,000 to be issued to the landlord through February
2008. This letter of credit was obtained in January 2000, is secured by a
deposit of $2,000,000 and expires in January 2001. This letter of credit is
automatically renewed for consecutive one-year periods through January 2003.
Upon the earlier of six months after the effective date of the lease or the
date the tenant delivers its notice to commence certain tenant improvements,
the $2,000,000 will be increased to $2,500,000.
Advertising agreement: In 1998, the Subsidiary entered into an agreement to
pay 4% of certain revenues to a third party in exchange for advertising
services performed in Canadian markets. The agreement is cancellable by either
party with 30 days notice. Advertising expenses of $259,500 and $22,560 were
incurred under this agreement for the years ended December 31, 1999 and 1998,
respectively.
In December 1999, the Company entered into an agreement with CNET for
certain advertising services under which the Company must make payments each
time a visitor clicks on a link from the web page of CNET to the web page of
the Company. The term of the agreement is for one year starting January 1, 2000
and is cancellable by either party after six months with 30 days notice.
Minimum guaranteed payments are $200,000 per month for the first six months and
$250,000 per month thereafter.
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 monthly license
fees are expensed as incurred and the related co-branding royalties are
expensed in the month the associated sales are generated. The Company recorded
$1,970,359 in co-branding fees for the year ended December 31, 1999.
Note 8: 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 10,400,000 shares of common stock to be issued
in conjunction
F-14
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
with the 1999 Plan. In conjunction with the Series B preferred financing
discussed in Note 9, the Board of Directors reserved an additional 2,908,830
shares of common stock for issuance under the 1999 Plan. In December 1999, the
Board of Directors amended the 1999 Plan to increase the number of shares
reserved for issuance to a total of 18,000,000 shares. Pursuant to common stock
purchase agreements described in Note 9, 1,146,224 shares were issued from the
1999 Plan option pool. There were 5,678,412 shares available for issuance under
the 1999 Plan as of December 31, 1999.
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, generally 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 year ended
December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
average
Options exercise
outstanding price
----------- ---------
<S> <C> <C>
Options granted..................................... 11,466,032 $0.89
Options exercised................................... (5,299,982) $0.14
Options forfeited................................... (290,668) $0.35
----------
Outstanding at December 31, 1999.................... 5,875,382 $1.60
==========
Options exercisable at December 31, 1999............ 271,874 $0.09
==========
</TABLE>
The weighted average fair value of options granted during 1999 was $1.52 per
share. During the year ended December 31, 1999, the Company recorded
compensation expense of $999,061 related to the issuance of stock options for
services provided by consultants, exclusive of the compensation expense from
the acceleration of vesting described below, and $1,928,208 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.
In December 1999, the Board of Directors approved the acceleration of
vesting on all outstanding unvested stock options issued to non-employees. The
stock options had vesting periods ranging from one to four years from the date
of issuance. The Company recognized $3,383,877 in compensation expense in
conjunction with this transaction. Further, options to purchase 2,396,554
shares of common stock issued to certain employees were converted to common
stock which are subject to a repurchase option at a purchase price equal to the
original exercise price of the underlying options upon termination of
employment. Individuals paid $324,569 in cash to exercise their options. The
repurchase options expire over the remaining vesting period of the original
stock option grants. No compensation expense was recognized in conjunction with
the conversion.
F-15
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period
from March 25, 1997 (inception) through December 31, 1997
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding
--------------------------------------------------------------------------------
Weighted-
average
Range of remaining
exercise Number contractual Options
prices of options life exercisable
-------- ---------- ----------- -----------
<S> <C> <C> <C>
$0.06 726,668 8.84 160,000
$0.13 1,850,382 9.00 108,542
$0.25 63,332 9.45 3,332
$0.38 809,000 9.59
$0.50 212,000 9.70
$1.00 422,000 9.80
$1.25 567,000 9.86
$6.17 1,225,000 9.96
--------- -------
5,875,382 271,874
========= =======
</TABLE>
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: average risk free interest
rate of 5.50%; 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>
Year ended
December 31,
1999
------------
<S> <C>
Net loss:
As reported................................................ $(57,373,391)
Pro forma.................................................. $(57,626,582)
Net loss per share:
As reported-basic and diluted.............................. $ (4.59)
Pro forma-basic and diluted................................ $ (4.61)
</TABLE>
In December 1999, the Board of Directors approved the 2000 Directors' Stock
Option Plan (the "Directors' Plan"). The Directors' Plan shall commence on the
effective date of the Company's initial public offering. The Directors' Plan
authorizes the grant of 600,000 shares of non-qualified stock options to non-
employee directors. Initially, 40,000 shares will be granted to all non-
employee directors upon the closing of an initial public offering and,
thereafter, to each eligible non-employee director on the date such person is
first elected or appointed as a non-employee director. Annually, each non-
employee director will be granted an additional option to purchase 10,000
shares of common stock, provided such person has been a non-employee director
of the Company for at least the prior six months. The initial option grant
under the Directors' Plan is exercisable 25% each year for four years on the
anniversary of the date of grant. The annual grants are exercisable in full on
the day before the first anniversary of the date of grant. The options have a
term of ten years and terminate when the non-employee director no longer
continues to serve as a director of the Company.
F-16
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period
from March 25, 1997 (inception) through December 31, 1997
In December 1999, the Board of Directors approved the 2000 Employee Stock
Purchase Plan (the "ESPP"). The ESPP shall commence on the effective date of
the Company's initial public offering. The ESPP allows all full-time employees
to participate by purchasing the Company's common stock at a discount allowed
under guidelines issued by the Internal Revenue Service. A total of 600,000
shares of the Company's common stock has been reserved for issuance under the
ESPP. Each year, the number of shares reserved for issuance under the purchase
plan will automatically be increased by 1% of the total number of shares of
common stock then outstanding or, if less, by 600,000 shares or such lesser
number of shares as the Board of Directors determines.
Note 9: 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 100,000,000 to
124,000,000 and increase the number of authorized shares of preferred stock
from 24,000,000 to 40,000,000, of which 24,000,000 are designated as Series A
preferred stock and 16,000,000 are designated as Series B preferred stock. On
December 20, 1999, the Articles of Incorporation were amended to increase the
number of authorized shares of common stock to 150,000,000 and increase the
number of authorized shares of preferred stock to 46,000,000.
Common and Preferred 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 was increased from 20,000,000 shares to
40,000,000 shares. On July 29, 1999, the Board of Directors approved an
additional two-for-one common and preferred 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 17,961,460 shares of Series A
convertible voting preferred stock at $0.58 per share resulting in proceeds of
$10,251,818, net of issuance costs of $232,580 and stock subscription
receivables of $15,593. The Company received a $10,000 payment on this
receivable in October 1999. A consulting firm was issued 119,744 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 589,152 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 1,668,884 shares of Series A preferred
stock.
On September 30, 1999, the Company issued 14,544,170 shares of its Series B
preferred stock at $1.72 per share resulting in proceeds of $24,969,851, net of
issuance costs of $30,149.
On December 20, 1999, the company issued 3,379,402 shares of Series C
preferred stock at $6.86 per share resulting in proceeds of $22,514,421, net of
issuance costs of $651,380. The Company recorded, immediately upon issuance, a
preferred stock dividend of $14,007,621 representing the value of the
beneficial conversion feature on the issuance of Series C preferred stock in
December 1999. The beneficial conversion
F-17
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period
from March 25, 1997 (inception) through December 31, 1997
feature was calculated at the issuance date of the Series C preferred stock
based on the difference between the conversion price of $6.86 per share and the
estimated fair value of the common stock at that date.
Each share of Series A, Series B and Series C preferred stock is convertible
on a one for one basis to common stock at the option of the holder 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,
Series B and Series C preferred stock would be converted upon an Offering at a
price of not less than $10.29 per share with aggregate proceeds of not less
than $30,000,000, or by the written consent of the holders of eighty percent of
the outstanding shares of Series B preferred stock. The conversion price is
subject to adjustment in certain instances including stock splits and
dividends, reverse stock splits and issuances of additional capital stock below
the conversion price then in effect. In the event of the latter, the conversion
price in effect is decreased by a formula, which reduces the dilutive effect to
the preferred stockholders.
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 $0.05, $0.16 and $0.62 per share per annum
on each outstanding share of Series A, Series B and Series C 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 C
preferred stock will receive a liquidation preference of up to $6.86 per share
over the holders of Series A, Series B and common stock. Upon satisfaction of
Series C preferences, distributions will be made to Series B preferred
stockholders in an amount up to $1.72 per share. Upon satisfaction of Series B
preferences, distributions will be made to Series A preferred stockholders in
an amount up to $0.58 per share. Upon completion of preference distributions to
Series A, Series B and Series C 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 8,000,000 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 8,000,800 outstanding shares
of the Company's common stock, pursuant to the issuance of 22,958,136 shares of
nonvested common stock to employees and other outside parties.
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 as of December 31, 1998.
F-18
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
In January 1999, the Company issued 22,958,136 shares of nonvested common
stock to employees and other outside parties for services performed. These
shares are subject to a repurchase option, which allows the Company the right
to repurchase the shares at the original purchase price 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. Noncash stock-based compensation expense of
$458,475, $86,084 and $122,673 was recognized for the issuance of these shares
during the years ended December 31, 1999 and 1998 and the period from March 25,
1997 (inception) through December 31, 1997, respectively.
In April 1999, the Company issued 1,026,224 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 $0.40 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 at the original purchase price 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 $196,213 was
recognized for these shares for the year ended December 31, 1999.
In October 1999, the Company exercised its option to repurchase 200,000
shares of nonvested common stock from a former employee and removed any
remaining restrictions on the 200,000 shares still held by the individual. In
conjunction with this transaction, the Company recognized $905,000 of
compensation expense.
In December 1999, the Company issued 120,000 shares of nonvested common
stock under the 1999 Plan to a member of the Board of Directors in exchange for
$150,000. The shares had a fair value of $11.00 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 at the original purchase price upon termination
of service as a member of the Board of Directors. 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. Unearned stock-based compensation in the amount of $1,170,000 was
recorded at the date of issue.
In December 1999, the Company waived its repurchase option on the nonvested
common shares issued to non-employees. The Company recognized an additional
$1,503,136 in compensation expense in connection with this transaction.
Warrants to purchase Series A preferred stock
During 1999, the Company issued warrants to purchase up to 1,165,310 shares
of its Series A preferred stock at $0.90 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 97,328 shares of its
Series A preferred stock at $1.24 per share in conjunction with its equipment
loan 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.
F-19
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period
from March 25, 1997 (inception) through December 31, 1997
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 833,352
shares of its common stock in conjunction with its convertible debt financing
in 1998. The warrants are exercisable at $0.0025 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 1999, warrant holders exercised their warrants to
purchase 128,208 shares of common stock.
Note 10: Related Party Transactions
The Company paid a company owned by the principal stockholder of the Company
$119,441, $83,761 and $17,497 for the years ended December 31, 1999 and 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 December 31, 1999, 1998
and 1997, the Company owed $0, $10,880 and $17,497 to this affiliated entity
for services performed during the respective periods. For the years ended
December 31, 1999 and 1998 and the period from March 25, 1997 (inception)
through December 31, 1997, respectively, the Company had sales of $51,723, $0
and $15,132 to this affiliated entity. In February 1999, the Company entered
into an agreement 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 $505,892 during the year ended December 31, 1999.
Additionally, as of December 31, 1998, the Company owed certain employees
$44,407 under convertible debt agreements. The Company purchased software for
approximately $347,000 from a vendor who has a common stockholder with the
Company.
In October 1999, the Company received a promissory note from a principal
stockholder in the amount of $350,000, collateralized by 350,000 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 becomes due if
certain change of control events take place.
In December 1999, 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 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 following a public
offering. The notes become due if certain change of control events takes place.
In December 1999, the Company received a promissory note from an employee in
the amount of $150,000, collateralized by 150,000 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 December 2004 or the
expiration of any lock-up period after an Offering in which the employee is a
selling stockholder. The note becomes due if certain change of control events
take place.
F-20
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period
from March 25, 1997 (inception) through December 31, 1997
Note 11: 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. Intercompany
transactions are insignificant and have been recorded at cost as part of the
parent's investment in its Subsidiary. 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
Year ended December 31, 1999:
Net revenue......................... $ 21,994,442 $ 5,182,640 $ 27,177,082
Net loss............................ (41,141,420) (2,224,350) (43,365,770)
Total assets........................ 48,889,980 1,388,852 50,278,832
Property and equipment.............. 5,914,305 262,486 6,176,791
Other assets........................ 2,274,386 26,092 2,300,478
Depreciation and amortization....... 1,097,997 56,391 1,154,388
Interest income..................... 534,299 534,299
Interest expense.................... 1,075,233 1,075,233
Noncash compensation expense........ 10,281,324 181,438 10,462,762
Additions to property and
equipment.......................... 7,443,642 307,800 7,751,442
Additions to other assets........... 2,274,386 26,092 2,300,478
</TABLE>
Note 12: Supplemental Cash Flow Information
Noncash investing and financing activities are as follows:
On March 25, 1997, the Company issued 8,000,000 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 833,352
shares of its common stock at $.0025 per share. The noncash value allocated
to these warrants was $241,853.
F-21
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception) through December 31, 1997
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.
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.
On December 20, 1999, a senior executive exercised stock options in
exchange for a note of $150,000.
Supplemental cash flow information:
Cash paid for interest during the year ended December 31, 1999 was $736,605.
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 13: Subsequent Events
On January 27, 2000, the Board of Directors authorized the Company's
reincorporation in the State of Delaware and authorized an amendment to the
Delaware Certificate of Incorporation to issue 265,000,000 shares, each with a
par value of $0.0001 per share. 250,000,000 shares would be common stock and
15,000,000 shares would be undesignated preferred stock.
The Board of Directors also amended the Company's Articles of Incorporation
and authorized a two-for-one common and preferred stock split to be implemented
in connection with the Company's reincorporation in the State of Delaware.
Common and preferred stock issued and stock option information in these
financial statements have been restated to reflect this split.
On February 4, 2000, the Company entered into a common stock purchase
agreement with Internet Capital Group, an existing investor, where Internet
Capital Group agrees to purchase at the closing of an initial public offering
the greater of $40,000,000 or one-third of the number of shares sold to the
public. The shares will be valued at the offering price.
In February 2000, the Company entered into a strategic relationship with
America Online (AOL), under which AOL will provide its customers with access to
the Company's services and products, through an interactive co-branded web
site. As part of this relationship, the Company will provide to AOL a web-based
buying directory to act as the engine for AOL's business-to-business ecommerce
platform. In addition, AOL will promote the co-branded site and will pay a
percentage of the advertising revenue earned from the co-branded web site.
Under the terms of this agreement, the Company is required to make substantial
payments to AOL.
In February 2000, the Company received promissory notes from three employees
totaling $225,000 collateralized by 225,000 shares of the Company's common
stock. The notes bear interest at 6% per annum. The principal and interest are
payable upon demand at the earlier of February 2005 or the expiration of any
lock-up period after an Offering in which the employees are selling
stockholders. The notes become due if certain change of control events take
place.
F-22
<PAGE>
ONVIA.COM, INC.
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1999 and 1998 and Period from
March 25, 1997 (inception through December 31, 1997
In February 2000, a former associate of the chief executive officer of the
Company filed an action against the Company and the chief executive officer of
the Company alleging a breach of a partnership arrangement. In this action, the
plaintiff asserts that he is entitled to 50% of the chief executive officer's
interest in the Company and 50% of the assets of the Company. Management is
currently investigating the claims and believes that the claims against the
Company are without merit. Nevertheless, litigation is inherently uncertain and
should litigation ensue, there can be no assurance that the Company would
prevail in such a suit. Any cash award or settlement paid to the plaintiff
could negatively impact the Company's operating results and available
liquidity. Any shares of common stock awarded or issued to the plaintiff by the
Company would be dilutive to the Company's stockholders.
F-23
<PAGE>
The Onvia.com, Work. Wisely. logo appears at the top of the page. Below the
logo are three overlapping screen shots from Onvia.com's web page. The first
screen shot is labeled "Request for Quote" and shows Onvia.com's Request for
Quote page. The second screen shot is labeled "Seller Inbox" and shows an
example of a Request for Quote Seller Inbox. The third screen shot is labeled
"Buyer Inbox" and shows an example of a Request for Quote Buyer Inbox. On the
bottom of the page, the following sentence is written: "Onvia.com
Business-to-Business Emarketplace for Small Business Buyers and Sellers."
<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............................................. $ 31,575
NASD filing fee.................................................. 12,460
Nasdaq National Market listing fee............................... 95,000
Printing and engraving expenses.................................. 275,000
Legal fees and expenses.......................................... 550,000
Accounting fees and expenses..................................... 350,000
Blue Sky qualification fees and expenses......................... 3,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous fees and expenses.................................. 22,965
----------
Total........................................................ $1,350,000
==========
</TABLE>
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 8,000,000 shares of its common
stock at a price of $0.00125 per share for an aggregate purchase price of
$10,000 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 800 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 22,958,136 shares of its
common stock at a price of $0.00125 per share for an aggregate purchase price
of $28,698 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 a transaction 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 20,219,496 shares of Series A
preferred stock to a total of 35 investors for an aggregate purchase price of
$11,819,991. 2,258,036 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 17,961,460 of these shares were sold for
cash. In February 1999 Onvia.com also issued warrants to purchase up to an
aggregate of 833,352 shares of common stock at an exercise price of $0.0025 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 97,328 shares of Series A Preferred Stock at an exercise price
of $1.235 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 499,418 shares of Series A preferred stock at an
exercise price of $0.90 per share to MMC/GATX Partnership No. 1 and a warrant
to purchase up to 665,892 shares of Series A Preferred Stock at an exercise
price of $0.90 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 a transaction 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 14,544,170 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 3,379,402 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 a transaction 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 11,466,032 options to purchase its
common stock to 247 of its employees, directors and consultants with exercise
prices ranging from $0.0625 to $9.50 per share and has issued and sold
29,332,550 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* Certificate of Incorporation of Onvia.com (proposed, post-
reincorporation into Delaware, pre-offering).
3.3* Bylaws of Onvia.com, as amended and restated.
3.4* Bylaws of Onvia.com (proposed, post reincorporation into Delaware).
3.5* Amended and Restated Certificate of Incorporation (proposed, post-
offering).
4.1 Form of Onvia.com's common stock certificate.
4.2 Amended and Restated Investors' Rights Agreement dated December 20,
1999, as amended.
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 S. 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 Amended and Restated 1999 Stock Option Plan.
10.11* Secured Promissory Note issued by Glenn S. Ballman to Onvia.com dated
as of October 14, 1999.
10.12 Offer Letter dated March 25, 1999 with Mark T. Calvert.
10.13* Offer Letter dated August 25, 1999 with Douglas H. Kellam.
10.14* Offer Letter dated July 27, 1999 with Louis T. Mickler.
10.15* Offer Letter dated July 23, 1999 with Mark A. Pawlosky.
10.16 Offer Letter dated March 18, 1999 with Clayton W. Lewis.
10.17* Common Stock Purchase Agreement with Glenn S. Ballman dated as of
January 9, 1999.
10.18* Common Stock Purchase Agreement with Glenn S. Ballman dated as of
January 18, 1999.
10.19* Common Stock Purchase Agreement with Robert D. Ayer dated as of
January 18, 1999.
10.20* Common Stock Purchase Agreement with Kristen M. Hamilton dated as of
January 18, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.21* Common Stock Purchase Agreement with William W. Ericson dated as of
January 18, 1999.
10.22* Common Stock Purchase Agreement with Michael D. Pickett dated as of
April 9, 1999.
10.23* Common Stock Purchase Agreement with Jeffrey C. Ballowe dated as of
December 8, 1999.
10.24* Mercer Yale Building Office Lease Agreement between Onvia.com and
Blume Yale Limited Partnership dated as of December 9, 1999.
10.25* 2000 Employee Stock Purchase Plan.
10.26* 2000 Directors' Stock Option Plan.
10.27 Offer Letter dated October 14, 1999 with James R. Bridges.
10.28*+ Interactive Marketing Agreement between America Online, Inc. and
Onvia.com dated as of February 4, 2000.
10.29* Common Stock Purchase Agreement between Internet Capital Group, Inc.
and Onvia.com dated as of February 4, 2000.
10.30 Form of Indemnification Agreement (Delaware).
10.31 General Security Agreement between Onvia.com and Imperial Bank dated
May 7, 1999.
10.32 Form of Secured Promissory Note (Officers).
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.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested as to certain portions of this
Exhibit.
(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.
II-5
<PAGE>
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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 3 to 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 February 16, 2000.
Onvia.com, Inc.
By: *
----------------------------------
Glenn S. Ballman
President and Chief Executive
Officer
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>
* President, Chief Executive February 16, 2000
____________________________________ Officer and Director
Glenn S. Ballman (Principal Executive
Officer)
/s/ Mark T. Calvert Vice President and Chief February 16, 2000
____________________________________ Financial Officer
Mark T. Calvert (Principal Financial and
Accounting Officer)
* Director February 16, 2000
____________________________________
Kenneth A. Fox
* Director February 16, 2000
____________________________________
Michael D. Pickett
* Director February 16, 2000
____________________________________
Nancy J. Schoendorf
* Director February 16, 2000
____________________________________
William W. Ericson
Director
____________________________________
Steven D. Smith
Director
____________________________________
Jeffrey C. Ballowe
</TABLE>
/s/ Mark T. Calvert
*By: __________________________
Mark T. Calvert
Attorney-in-Fact
II-7
<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* Certificate of Incorporation of Onvia.com (proposed, post-
reincorporation into Delaware, pre-offering).
3.3* Bylaws of Onvia.com, as amended and restated.
3.4* Bylaws of Onvia.com (proposed, post reincorporation into Delaware).
3.5* Amended and Restated Certificate of Incorporation (proposed, post-
offering).
4.1 Form of Onvia.com's common stock certificate.
4.2 Amended and Restated Investors' Rights Agreement dated December 20,
1999, as amended.
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 S. 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 Amended and Restated 1999 Stock Option Plan.
10.11* Secured Promissory Note issued by Glenn S. Ballman to Onvia.com dated
as of October 14, 1999.
10.12 Offer Letter dated March 25, 1999 with Mark T. Calvert.
10.13* Offer Letter dated August 25, 1999 with Douglas H. Kellam.
10.14* Offer Letter dated July 27, 1999 with Louis T. Mickler.
10.15* Offer Letter dated July 23, 1999 with Mark A. Pawlosky.
10.16 Offer Letter dated March 18, 1999 with Clayton W. Lewis.
10.17* Common Stock Purchase Agreement with Glenn S. Ballman dated as of
January 9, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.18* Common Stock Purchase Agreement with Glenn S. Ballman dated as of
January 18, 1999.
10.19* Common Stock Purchase Agreement with Robert D. Ayer dated as of
January 18, 1999.
10.20* Common Stock Purchase Agreement with Kristen M. Hamilton dated as of
January 18, 1999.
10.21* Common Stock Purchase Agreement with William W. Ericson dated as of
January 18, 1999.
10.22* Common Stock Purchase Agreement with Michael D. Pickett dated as of
April 9, 1999.
10.23* Common Stock Purchase Agreement with Jeffrey C. Ballowe dated as of
December 8, 1999.
10.24* Mercer Yale Building Office Lease Agreement between Onvia.com and
Blume Yale Limited Partnership dated as of December 9, 1999.
10.25* 2000 Employee Stock Purchase Plan.
10.26* 2000 Directors' Stock Option Plan.
10.27 Offer Letter dated October 14, 1999 with James R. Bridges.
10.28*+ Interactive Marketing Agreement between America Online, Inc. and
Onvia.com dated as of February 4, 2000.
10.29* Common Stock Purchase Agreement between Internet Capital Group, Inc.
and Onvia.com dated as of February 4, 2000.
10.30 Form of Indemnification Agreement (Delaware).
10.31 General Security Agreement between Onvia.com and Imperial Bank dated
May 7, 1999.
10.32 Form of Secured Promissory Note (Officers).
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.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested as to certain portions of this
Exhibit.
<PAGE>
EXHIBIT 4.1
Onvia.com, Inc.
Upon request the Corporation will furnish any holder of shares of Common
Stock of the Corporation, without charge, with a full statement of the powers,
designations, preferences, and relative, participating, optional or other
special rights of any class or series of capital stock of the Corporation, and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ................... Custodian ...................
(Cust) (Minor)
under Uniform Gifts to Minors
Act .............................................
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEES)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full presence of substitution in the premises.
Dated
---------------------------
In presence of
X X
------------------------------- -------------------------------
THE SIGNATURE TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS
NOTICE: WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO SEC RULE
17Ad-15.
<PAGE>
COMMON SHARES COMMON SHARES
NUMBER ONVIA.com SHARES
ONV
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 68338T 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that ____________________________________________________________
is the record holder of ________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.0001
PER SHARE, OF
- -------------------------------Onvia.com, Inc.----------------------------------
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of the Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused this Certificate to be executed
and attested to by the manual or facsimile signatures of its duly authorized
officers, under a facsimile of the corporate seal to be affixed hereto.
[CORPORATE SEAL OF ONVIA.com, Inc.]
/s/ Mark T. Calvert /s/ Glenn S. Ballman
SECRETARY PRESIDENT
<PAGE>
Exhibit 4.2
ONVIA.COM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-------------------------------------------------------
This Onvia.com, Inc. Second Amended and Restated Investors' Rights
Agreement (this "Agreement") is made as of the 20/th/ day of December 1999, by
---------
and among Onvia.com, Inc., a Washington corporation (the "Company"), the
-------
investors listed on Exhibit A hereto (each, an "Investor," and collectively, the
--------
"Investors") and the holders of the Company's common stock (the "Common Stock")
--------- ------------
listed on Exhibit B hereto (each, a "Common Holder," and together, the "Common
--------- ------------- ------
Holders").
- -------
RECITALS
--------
A. Certain of the Investors hold shares of the Company's Series A
Preferred Stock (the "Series A Preferred Stock"), the Company's Series B
------------------------
Preferred Stock (the "Series B Preferred Stock") and/or shares of the Company's
------------------------
Common Stock issued upon conversion thereof and possess registration rights,
information rights and other rights pursuant to that certain Onvia.com, Inc.,
Investors' Rights Agreement dated as of September 30, 1999 by and among the
Company and such certain Investors (the "Old Investors' Rights Agreement").
-------------------------------
B. The Company and certain of the Investors have entered into that certain
Onvia.com, Inc. Series C Preferred Stock Purchase Agreement (the "Series C
--------
Purchase Agreement") of even date herewith pursuant to which the Company desires
- ------------------
to sell to such certain Investors, and such certain Investors desire to purchase
from the Company, shares of the Company's Series C Preferred Stock (the "Series
------
C Preferred Stock").
- -----------------
C. A condition to such certain Investors' obligations under the Purchase
Agreement is that the Company, the Common Holders and the Investors enter into
this Agreement in order to provide the Investors with, among other things, (1)
certain rights to register shares of the Company's Common Stock issuable upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock held by the Investors, (2) certain rights to receive or
inspect information pertaining to the Company and (3) a right of first offer
with respect to certain issuances by the Company of its securities, all
according to the terms and conditions, but subject to the limitations, set forth
in this Agreement.
D. The Company, the Investors and the Common Holders desire (1) to induce
certain Investors to purchase shares of Series C Preferred Stock pursuant to the
Purchase Agreement and (2) to terminate the Old Investors' Rights Agreement and
to accept the rights and obligations set forth in this Agreement, by agreeing to
the terms and conditions set forth below.
AGREEMENT
---------
In consideration of the foregoing recitals and the mutual promises set
forth in this Agreement, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
<PAGE>
1. Registration Rights. The Company, the Investors and the Common Holders
-------------------
hereby covenant and agree as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The terms "register," "registered," and "registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
--------------
registration statement or document;
(b) The term "Registrable Securities" means (i) the shares of
----------------------
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock, (ii) the shares
of Common Stock issued to the Common Holders (the "Common Holders' Stock");
---------------------
provided, however, that for the purposes of Section 1.2, 1.4 or 1.13 the Common
Holders' Stock shall not be deemed Registrable Securities and the Common Holders
shall not be deemed Holders, (iii) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the shares listed in
(i) and (ii) and (iv) the shares of Common Stock issued or issuable upon
conversion or exercise of securities purchased by Holders pursuant to any right
of first offer, right of first refusal or co-sale right set forth in the
Agreements; provided, however, that the foregoing definition shall exclude in
all cases any Registrable Securities sold by a person in a transaction in which
his or her rights under this Agreement are not assigned. Notwithstanding the
foregoing, Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (A) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then
---------------------------
outstanding" shall be determined by the number of shares of Common Stock
- -----------
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the right
------
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the Securities Act
--------
as in effect on the date hereof or any successor form under the Securities Act;
(f) The term "SEC" means the Securities and Exchange Commission;
---
and
<PAGE>
(g) The term "Qualified IPO" means a firm commitment
-------------
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act, the public
offering price of which is not less than Twenty Dollars and Fifty-Seven Cents
($20.57) per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) and which results in aggregate cash
proceeds to the Corporation of Thirty Million Dollars ($30,000,000) (net of
underwriting discounts and commissions).
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier
of (i) February 24, 2003, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or an SEC Rule 145 transaction), a written request from the Holders
of a majority of the Registrable Securities then outstanding that the Company
file a registration statement under the Securities Act covering the registration
of the Registrable Securities having an aggregate public offering price not less
than Ten Million Dollars ($10,000,000) (net of underwriting discounts and
commissions). Then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), use its commercially reasonable best
efforts to effect as soon as practicable, and in any event within sixty (60)
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.3.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
- --------------------
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to
<PAGE>
be included in such underwriting shall not be reduced unless all other
securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the board of directors of the Company (the "Board of
--------
Directors") it would be seriously detrimental to the Company and its
- ---------
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than one hundred
twenty (120) days after receipt of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right more than once in
any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.3, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on
<PAGE>
Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders, (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than Five Million Dollars
($5,000,000), (iii) if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period, (iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected a registration
on Form S-3 for the Holders pursuant to this Section 1.4, (v) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance or (vi) during the period ending one
hundred eighty (180) days after the effective date of a registration statement
subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. Registrations effected pursuant to this Section 1.4 shall not
be counted as demands for registration or registrations effected pursuant to
Sections 1.2.
1.5 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall use commercially reasonable best efforts to:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable best
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up
<PAGE>
to one hundred twenty (120) days. The Company shall not be required to file,
cause to become effective or maintain the effectiveness of any registration
statement that contemplates a distribution of securities on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for up to one hundred twenty (120) days.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably requested by the Holders; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when (i) a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days, or (ii)
there is any stop order issued by the SEC suspending the effectiveness of such
registration statement or the initiation of any proceedings for that purpose and
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction or
the initiation or threatening of such procedure.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
<PAGE>
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price specified in subsection 1.2(a) or
subsection 1.4(b)(2), whichever is applicable.
1.7 Expenses of Registration.
------------------------
(a) Demand Registration. All expenses (other than underwriting
-------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2), including without limitation, all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders selected by them with the
approval of the Company, which approval shall not be unreasonably withheld,
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2.
(b) Company Registration and Registration on Form S-3. All
-------------------------------------------------
expenses other than underwriting discounts and commissions incurred in
connection with registrations, filings or qualifications of Registrable
Securities pursuant to Section 1.3 and Section 1.4 for each Holder (which right
may be assigned as provided in Section 1.12), including (without limitation) all
registration, filing, and qualification fees, printers' and accounting fees,
<PAGE>
fees and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holder or Holders selected by them
with the approval of the Company, which approval shall not be unreasonably
withheld, shall be borne by the Company.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall (i) any shares being sold by
a stockholder exercising a demand registration right similar to that granted in
Section 1.2 be excluded from such offering, (ii) the amount of securities of the
selling Holders included in the offering be reduced below thirty percent (30%)
of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case, except as provided in (i) the selling stockholders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included or (iii) any securities held by a Common Holder be
included if any securities held by any selling Holder are excluded. For
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
-------------------
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the
<PAGE>
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), against any losses, claims, damages, or liabilities (joint or several) to
- ---
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
---------
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to any Holder,
underwriter or controlling person for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will,
severally and not jointly, indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Holder,
against any losses, claims, damages, or liabilities (joint or several) to which
any of the foregoing persons may become subject, under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, severally and not jointly, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; and provided
further, however, that in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying
<PAGE>
party under this Section 1.10, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the reasonable fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, however, that in no event shall any contribution by a
Holder under this Subsection 1.10(d) exceed the net proceeds from the offering
received by such Holder. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
<PAGE>
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after the effective date of
the first registration statement filed by the Company for the offering of its
securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least two hundred fifty thousand (250,000) shares of such
securities; provided, however, the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided further, however, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. The foregoing notwithstanding, any
Investor may assign its rights and obligations pursuant to this Section 1 to an
affiliate or successor so long as such affiliate or successor agrees to be bound
by the terms of this Agreement. For the purposes of determining the number of
shares of Registrable Securities held by a transferee or assignee, the holdings
of transferees and assignees of a partnership who are partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.
1.13 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder
<PAGE>
or prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 1.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is included
or (b) to make a demand registration which could result in such registration
statement being declared effective prior to the earlier of either of the dates
set forth in subsection 1.2(a) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 1.2.
1.14 "Market Stand-Off" Agreement. Each Holder hereby agrees that, during
----------------------------
the period (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 (i) Common Stock included in such registration,
(ii) securities acquired pursuant to such registration statement, or (iii)
securities acquired on the open market; 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
(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;
(c) such agreement shall be on customary terms.
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.
1.15 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after the earlier
of (i) five (5) years following the consummation of a Qualified IPO or (ii) such
time as Rule 144 or another similar exemption
<PAGE>
under the Securities Act is available for the sale of all of such Holder's
shares during a three (3)-month period without registration.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Holder of at least two hundred fifty thousand (250,000) shares of
Registrable Securities (other than a Holder reasonably deemed by the Company to
be a competitor of the Company):
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
----
and certified by an independent public accounting firm of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within thirty (30)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited income statement, a statement of cash flows for
such fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan as approved by
the board of directors for the next fiscal year, prepared on a monthly basis,
and, as soon as prepared, any other budgets or revised budgets prepared by the
Company;
(e) as soon as practicable after the Closing of the transactions
contemplated in the Purchase Agreement and related Agreements, a written plan
setting forth the Company's proposed use of the proceeds to be obtained from its
sale of the Series C Preferred Stock; and
(f) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interests of the Company to do
so.
<PAGE>
2.2 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2.2, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this
Section 2.2, a "Major Investor" shall mean any person who holds at least two
--------------
hundred fifty thousand (250,000) shares of the Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock (or the Common Stock issued or
issuable upon conversion thereof) issued pursuant to the Purchase Agreement.
For purposes of this Section 2.2, Major Investor includes any general partners
and affiliates of a Major Investor. A Major Investor who chooses to exercise
the right of first offer may designate as purchasers under such right itself or
its partners or affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
------
each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to offer
------
such Shares, (ii) the number of such Shares to be offered and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within fifteen (15) calendar days after delivery of the
Notice, the Major Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Major Investor that purchases all the shares available to it (each,
a "Fully-Exercising Investor") of any other Major Investor's failure to do
-------------------------
likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Major Investors were entitled to subscribe but
which were not subscribed for by the Major Investors that is equal to the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock then outstanding and held by the Fully-
Exercising Investors (assuming full conversion and exercise of all convertible
or exercisable securities).
(c) The Company may, during the 45-day period following the
expiration of the period provided in subsection 2.2(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within sixty (60) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Major Investors in accordance herewith.
<PAGE>
(d) The right of first offer in this paragraph 2.2 shall not be
applicable (i) to the issuance or sale of Common Stock (or options therefor) to
employees, consultants and directors, pursuant to plans or agreements approved
by the Board of Directors for the primary purpose of soliciting or retaining
their services, (ii) to or after consummation of a Qualified IPO, (iii) to the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities, (iv) to the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, (v) to
the issuance of securities to financial institutions, lessors or vendors in
connection with commercial credit arrangements, equipment financings, or similar
transactions, (vi) to the issuance or sale of the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock or (vii) to the issuance of
securities that, with unanimous approval of the Board of Directors, are not
offered to any existing stockholder of the Company.
2.3 Board Observer Seat. For any meeting of the Board of Directors,
-------------------
the Company shall allow one representative of GE Capital Equity Investments,
Inc. ("GE") (the "Representative") designated from time to time by GE to attend
-- --------------
all meetings of the Board (and all committees thereof) in a non-voting observer
capacity; reimburse GE for the Representatives's out-of-pocket expenses in
connection with attending such meetings; provide to the Representative copies of
all notices, minutes, consents and other materials that the Company provides to
its directors in connection with meetings of the Board (or any committee
thereof, as the case may be) at the same time such is given to its directors;
and allow the Representative to participate in discussions of matters brought to
the Board. The rights in this Section 2.3 are personal to GE and its affiliates
and therefore may only be transferred or assigned with the prior consent of the
Company, which consent will not be unreasonably withheld.
2.4 Use of Proceeds. The Company will use the proceeds of its Series
---------------
C Preferred Stock financing for expansion of the Company sales efforts,
marketing efforts, general working capital purposes and retirement of debt.
2.5 Termination of Covenants.
------------------------
(a) The covenants set forth in Sections 2.1, 2.2, 2.3 and 2.4
shall terminate as to each Holder and be of no further force or effect (i) as of
the closing date of a Qualified IPO or (ii) when the Company shall sell, convey,
or otherwise dispose of or encumber all or substantially all of its property or
business or merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary corporation) or effect any other transaction or series
of related transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of, provided that this subsection (ii) shall
not apply to a merger effected exclusively for the purpose of changing the
domicile of the Corporation.
(b) The covenants set forth in Sections 2.1, 2.2, 2.3 and 2.4
shall terminate as to each Holder and be of no further force or effect when the
Company first becomes subject to the periodic reporting requirements of Sections
13 or 15(d) of the Exchange Act, if this occurs earlier than the events
described in Section 2.5(a) above.
3. Miscellaneous.
-------------
<PAGE>
3.1 Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series A Preferred Stock, Series B
Preferred Stock, or Series C Preferred Stock or any Common Stock issued upon
conversion thereof). Any Investor may assign its rights and obligations under
this Agreement to any of its affiliates or successors so long as such affiliate
or successor agrees to be bound by the terms of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of (a) the Company, (b) the
holders of a majority of the Company's Series A Preferred Stock then
outstanding, (c) the holders of a majority of the Company's Series B Preferred
Stock and (d) the holders of a majority of the Company's Series C Preferred
Stock, not including the Common Holders' Stock; provided, however, that if such
amendment has the effect of affecting the Common Holders' Stock (i) in a manner
different than securities issued to the Investors and (ii) in a manner adverse
to the interests of the holders of the Common Holders' Stock, then such
amendment shall require the consent of the holder or holders of a majority of
the Common Holders' Stock. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and the
Company.
3.3 Notices. Unless otherwise provided, any notice required or
-------
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or one hundred twenty (120) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address or fax number as set forth
on the signature page on Exhibit A hereto or as subsequently modified by written
---------
notice.
3.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
3.5 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Delaware, without giving effect to principles of
conflicts of laws.
3.6 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 and the same instrument.
<PAGE>
3.7 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.8 Aggregation of Stock. All shares of the Preferred Stock held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.9 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
--------------------
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE AGREEMENTS, THE STOCK OR THE COMMON STOCK, OR THE SUBJECT MATTER
HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. THIS SECTION 3.9 HAS BEEN FULLY DISCUSSED BY EACH OF THE
PARTIES HERETO AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS.
EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
(WITHOUT A JURY) BY THE COURT.
3.10 Amendment and Restatement. Effective upon the closing of the
-------------------------
sale and issuance of the Series C Preferred Stock pursuant to the Purchase
Agreement, all provisions of, rights granted and covenants made in the Old
Investors' Rights Agreement are hereby waived, released and terminated in their
entirety and shall have no further force or effect whatsoever. The rights and
covenants contained in this agreement set forth the sole and entire agreement
among the Company, the investors, and the common holders on the subject matter
hereof and supersede any and all rights granted or covenants made under any
prior agreement with respect to the subject matter hereof including the Old
Investors' Rights Agreement. Notwithstanding the foregoing, this Amendment does
not supersede, and is subject to, any notice and waiver of notice of
registration rights executed by a party hereto before, on or after the date of
this Agreement.
3.11 Attorneys' Fees. If any action at law or in equity is necessary
---------------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
<PAGE>
[Signature Page Follows]
<PAGE>
The parties have executed this Onvia.com, Inc. Second Amended and Restated
Investors' Rights Agreement as of the date first above written.
COMPANY:
ONVIA.COM, INC.,
a Washington corporation
By: /s/ Glenn Ballman
----------------------------
Name: __________________________
(print)
Title:__________________________
Address: 1000 Dexter Avenue
Suite 400
Seattle, WA 98104
[COUNTERPART SIGNATURE PAGE TO ONVIA.COM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
INVESTORS:
MOHR, DAVIDOW VENTURES V, L.P.
By: Fifth MDV Partners, LLC
Its General Partner
By: /s/
---------------------------------
Member
MOHR, DAVIDOW VENTURES V, L.P. as nominee
for MDV Entrepreneurs' Network Fund II (A),
L.P. and MDV Entrepreneurs' Network Fund II
(B), L.P.
By: Fifth MDV Partners, LLC
Its General Partner
By: /s/
---------------------------------
Member
[COUNTERPART SIGNATURE PAGE TO ONVIA.COM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
INVESTORS:
INTERNET CAPITAL GROUP, INC.
By: /s/
-----------------------------------
Kenneth A. Fox, Managing Director
GE CAPITAL EQUITY
INVESTMENTS, INC.
By: /s/
-----------------------------------
Its: __________________________________
RIT VENTURES I LLC
By: /s/
-----------------------------------
Its: __________________________________
[COUNTERPART SIGNATURE PAGE TO ONVIA.COM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
SERIES A INVESTORS:
_______________________________________
(Print Name of Purchaser)
By: ___________________________________
Name: _________________________________
(Print Name)
Title: ________________________________
Address: ______________________________
______________________________
______________________________
[COUNTERPART SIGNATURE PAGE TO ONVIA.COM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
INVESTORS:
_______________________________________
(Print Name of Purchaser)
By: ___________________________________
Name: _________________________________
(Print Name)
Title: ________________________________
Address: ______________________________
______________________________
______________________________
Fax: ______________________________
[COUNTERPART SIGNATURE PAGE TO ONVIA.COM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
COMMON HOLDERS:
__________________________________________
(Print Name of Common Holder)
By: ______________________________________
Signature
Address: _________________________________
_________________________________
_________________________________
[COUNTERPART SIGNATURE PAGE TO ONVIA.COM, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
EXHIBIT A
---------
INVESTORS
---------
Mohr, Davidow Ventures V, L.P. Arnold Blinn
2775 Sand Hill Road 9401 N.E. 27/th/ Street
Suite 240 Bellevue, WA 98004
Menlo Park, CA 94025
Will Poole
Mohr, Davidow Ventures V, L.P. 4050 134/th/ Avenue N.E.
as nominee for MDV Entrepreneurs' Bellevue, WA 98005
Network Fund II (A), L.P. and MDV
Entrepreneurs' Network Fund II (B), L.P. David Bell
Warburg Dillon & Read
Stanford University 677 Washington Blvd.
Attn: Carol Gilmer Stamford, CT 06901
Stanford, CA 94305
Allan Adler
Internet Capital Group, Inc. c/o MSI Consulting Group
44 Montgomery Street 4700 42nd Avenue SW, Suite 400
Suite 3705 Seattle, WA 98116
San Francisco, CA 94104
George Baker
GE Capital Equity Investments, Inc. c/o Ovation Communications
120 Long Ridge Road Nicholson House
Stamford, CT 06927 Nicholson Walk
Maidenhead
Allen & Co. Berkshire SL61RQ
711 5/th/ Avenue United Kingdom
New York, NY 10022
Anson Brooks
Riverside Holdings II, L.P. 2009 Broadmoor Drive East
One Atlantic Street, 4/th/ Floor Seattle, WA 98112
Stamford, CT 06901
Tim Buckley
Gary Meehan c/o Visio
Suite 212 - 1008 Hower Street 520 Pike Street, Ste. 1800
Vancouver, B.C. Seattle, WA 98101
V6B 2X1
C&H Associates
Jayson Carmichael Clinton T. Mead, Manager
P.O. Box 38088 P.O. Box 3946
King Edward Mall Bellevue, WA 98009
Vancouver, BC
V5Z 4L9 Thomas Cable
9623 S.E. 16/th/
Mark Calvert Bellevue, WA 98004
Suite 302 - 209 1/2 1st Avenue
Seattle, WA 98104 Jeff Canin
9604 11/th/ Avenue N.E.
Brian Hilgendorf Kirkland, WA 98033
15412 29/th/ Avenue, S.E.
Mill Creek, WA 98012
<PAGE>
David W. Chase Cascadia Capital
6309 N.E. 138/th/ Place 5350 Carillon Point
Kirkland, WA 98034 Kirkland, WA 98033
Charles deLaChappelle William W. Ericson
3206 Home Drive 4750 Carillon Point
Yakima, WA 98902 Kirkland, WA 98033
Rowland Hanson Christopher J. Hurley
15127 N.E. 24/th/, Suite 111 4750 Carillon Point
Redmond, WA 98052 Kirkland, WA 98033
Peter Joers Glenn Ballman
8819 N.E. 14/th/ 209 1/2 1/st/ Avenue, Ste. 302
Clyde Hill, WA 98004 Seattle, WA 98104
Madrona Investment Group Internet Capital Group
c/o Tom Alberg 435 Devon Park Drive
1000 2/nd/ Avenue, Ste. 3700 800 Safeguard Bldg.
Seattle, WA 98104 Wayne, PA 19087
Oki Enterprises, LLC Van Wagoner Funds
10838 Main Street 345 California Street, Ste. 2450
Bellevue, WA 98004 San Francisco, CA 94104
Mike Pickett Amerindo Technology Growth Fund II
4640 Admiralty Way, 5/th/ Fl (c/o Amerindo Investments Advisors, Inc.)
Marina del Rey, CA 90292 43 Upper Grosvenor Street
London W1X 9PG UK
Scott Sandell
Park Hyatt, S.F. Emeric McDonald
c/o NEA One Embarcadero, #2300
33 Batley Street San Francisco, CA 94104
San Francisco, CA 94111
Aman Ventures
Martin Tobias 10539 Bellagio Road
c/o Encoding.com Los Angeles, CA 90077
3406 Union E.
Seattle, WA 98122 Comdisco, Inc.
6111 North River Road
Grosvenor Select LP Rosemont, IL 60018
c/o C. Bowdoin Train Attn: Jill Hanses
1717 Pennsylvania Ave., Ste. 225
Washington D.C. 20006 Credit Suisse First Boston
Venture Fund I, L.P.
Wally Walker 2400 Hanover Street
c/o Seattle Sonics Palo Alto, CA 94304
490 Fifth Avenue, North
Seattle, WA 98109 William Blair & Company
222 W. Adams
VLGI 1999 Chicago, IL 60606
2800 Sand Hill Road
Menlo Park, CA Vertex Capital II LLC
150 W. Lake Street
Wayzata, MN 55391
<PAGE>
Access Technology Partners, L.P. Anthony Cuilla
One Bush Street, 12/th/ Floor 1080 Sunshine Circle
San Francisco, CA 94104 Danville, CA 94506
Bayview 99 I, L.P. James Stableford
555 California Street, Ste. 2600 (c/o Amerindo Investments Advisors, Inc.)
San Francisco, CA 94104 43 Upper Grosvenor Street
Attn: Jennifer Sherrill London W1X 9PG UK
Bayview 99 II, L.P. H&Q EemployeeVenture Fund 2000, L.P.
555 California Street, Ste. 2600 One Bush Street, 12/th/ Floor
San Francisco, CA 94104 San Francisco, CA 94104
Attn: Jennifer Sherrill
Joaquin Garcia-Larrieu
RIT Ventures, L.L.C.
1 Atomic Street, 4/th/ Floor William S. Slattery
Stamford, CT 06901
Gordon Empey
Matthew O. Fitzmaurice 4750 Carillon Point
150 W. Lake Street Kirkland, WA 98033
Wayzata, MN 55391
J. Makr and Norma Calvert Access Technology Partners Brokers Fund,
13208-136/th/ Avenue NE L.P.
Kirkland, WA 98034 One Bush Street, 12/th/ Floor
San Francisco, CA 94104
Mark J. Handfelt
4750 Carillon Point Ivan Gaviria
Kirkland, WA 98033 4750 Carillon Point
Kirkland, WA 98033
Hambrecht & Quist California
One Bush Street, 12/th/ Floor
San Francisco, CA 94104
Van Wagoner Capital Partners
345 California Street, Ste. 2450
San Francisco, CA 94104
<PAGE>
EXHIBIT B
---------
COMMON HOLDERS
--------------
Glenn Ballman Ben Richardson
c/o Onvia.com, Inc. 1000 Dexter Avenue, Suite 400
1000 Dexter Avenue, Suite 400 Seattle, WA 98104
Seattle, WA 98104
Trevor Orr
Rob Ayer 1008 Homer Street
c/o Onvia.com, Inc. Suite 205
1000 Dexter Avenue, Suite 400 Vancouver, BC V6B 2X1
Seattle, WA 98104
Linda Collings
Kent Patterson 1008 Homer Street
c/o Onvia.com, Inc. Suite 205
1000 Dexter Avenue, Suite 400 Vancouver, BC V6B 2X1
Seattle, WA 98104
Esko Heikkila
Ross Paul 1008 Homer Street
c/o Onvia.com, Inc. Suite 205
1000 Dexter Avenue, Suite 400 Vancouver, BC V6B 2X1
Seattle, WA 98104
Bliss Mott
Eden Clark 1008 Homer Street
c/o Onvia.com, Inc. Suite 205
1000 Dexter Avenue, Suite 400 Vancouver, BC V6B 2X1
Seattle, WA 98104
VLG Investments 1999
Kristen Hamilton 2800 Sand Hill Road
c/o Onvia.com, Inc. Menlo Park, CA
1000 Dexter Avenue, Suite 400
Seattle, WA 98104 William W. Ericson
4750 Carillon Point
Darren Popoff Kirkland, WA 98033
c/o Onvia.com, Inc.
1000 Dexter Avenue, Suite 400 Scott Lees
Seattle, WA 98104 1000 South Road, Unit 5
Belmont, CA 94002
Andy Fedak
209 1/2 1/st/ Avenue Wendy Ayer
Suite 302 1000 Dexter Avenue, Suite 400
Seattle, WA 98104 Seattle, WA 98104
Gary Meehan Erica Lechner
1008 Homer Street 1008 Homer Street
Suite 205 Suite 205
Vancouver, BC V6B 2X1 Vancouver, BC V6B 2X1
Jill Popoff
1000 Dexter Avenue, Suite 400
Seattle, WA 98104
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. REGISTRATION RIGHTS.......................................... 2
1.1 Definitions.............................................. 2
1.2 Request for Registration................................. 3
1.3 Company Registration..................................... 4
1.4 Form S-3 Registration.................................... 5
1.5 Obligations of the Company............................... 5
1.6 Furnish Information...................................... 7
1.7 Expenses of Registration................................. 7
1.8 Underwriting Requirements................................ 8
1.9 Delay of Registration.................................... 8
1.10 Indemnification.......................................... 9
1.11 Reports Under Securities Exchange Act of 1934............ 11
1.12 Assignment of Registration Rights........................ 11
1.13 Limitations on Subsequent Registration Rights............ 12
1.14 Market Stand-Off Agreement............................... 12
1.15 Termination of Registration Rights....................... 13
2. COVENANTS OF THE COMPANY..................................... 13
2.1 Delivery of Financial Statements......................... 13
2.2 Right of First Offer..................................... 14
2.3 Board Observer Seat...................................... 15
2.4 Use of Proceeds.......................................... 15
2.5 Termination of Covenants................................. 15
3. MISCELLANEOUS................................................ 16
3.1 Successors and Assigns................................... 16
3.2 Amendments and Waivers................................... 16
3.3 Notices.................................................. 16
3.4 Severability............................................. 17
3.5 Governing Law............................................ 17
3.6 Counterparts............................................. 17
3.7 Titles and Subtitles..................................... 17
3.8 Aggregation of Stock..................................... 17
3.9 Waiver of Jury Trial..................................... 17
3.10 Amendment and Restatement................................ 18
3.11 Attorney's Fees.......................................... 18
</TABLE>
i
<PAGE>
ONVIA.COM, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
December 20, 1999
<PAGE>
ONVIA.COM, INC.
---------------
AMENDMENT TO AMENDED AND RESTATED
---------------------------------
INVESTORS' RIGHTS AGREEMENT
---------------------------
This Amendment (the "Amendment") to the Amended and Restated Investors'
---------
Rights Agreement dated as of December 20, 1999 (the "Rights Agreement"), is made
----------------
as of February 4, 2000, by and among Onvia.com, Inc., a Washington corporation
(the "Company"), Internet Capital Group, Inc. ("ICG") and the undersigned
------- ----
holders of shares of Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock of the Company (each a "Holder" and together
------
the "Holders"). Capitalized terms not otherwise defined herein shall have the
-------
meaning assigned to them in the Rights Agreement.
WHEREAS, the Company has determined it to be in the best interest of the
Company to issue to ICG shares of its Common Stock pursuant to a Common Stock
Purchase Agreement dated as of February 4, 2000 (the "Purchase Agreement").
------------------
WHEREAS, pursuant to Section 3.2 of the Rights Agreement, the written
consent of the Company, the holders of a majority of the outstanding shares of
Series A Preferred Stock of the Company, the holders of a majority of the
outstanding shares of Series B Preferred Stock of the Company and the written
consent of a majority of the outstanding shares of Series C Preferred Stock of
the Company (collectively, the "Required Holders") is necessary to amend or
----------------
waive any provision of the Rights Agreement;
WHEREAS, the Company and the undersigned Holders, constituting the Required
Holders, desire to amend the Rights Agreement as set forth herein in order to
induce ICG to purchase shares of Common Stock of the Company pursuant to the
Purchase Agreement
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Section 1.1(b) of the Rights Agreement is amended to read in its
entirety as follows:
(b) The term "Registrable Securities" means (i) the shares of Common
----------------------
Stock issuable or issued upon conversion of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock, (ii) the shares of
Common Stock issued pursuant to the Common Stock Purchase Agreement dated as of
February 4, 2000 by and between the Company and Internet Capital Group, Inc.,
(iii) the shares of Common Stock issued to the Common Holders (the "Common
------
Holders' Stock"); provided, however, that for the purposes of Section 1.2, 1.4
- --------------
or 1.13 the Common Holders' Stock shall not be deemed Registrable Securities and
the Common Holders shall not be deemed Holders, (iv) any other shares of Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares listed in (i), (ii) and (iii) and (v) the shares of Common Stock issued
or issuable upon conversion or exercise of securities purchased by Holders
pursuant to any
<PAGE>
right of first offer, right of first refusal or co-sale right set forth in the
Agreements; provided, however, that the foregoing definition shall exclude in
all cases any Registrable Securities sold by a person in a transaction in which
his or her rights under this Agreement are not assigned. Notwithstanding the
foregoing, Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (A) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;
2. Except as provided herein, the Rights Agreement shall remain in full
force and effect. If one or more provisions of this Amendment are held to be
unenforceable under applicable law, such provision shall be excluded from this
Amendment and the balance of this Amendment shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3. Nothing in this Amendment, express or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Amendment, except as expressly provided herein.
4. This Amendment shall be governed by and construed under the laws of
the State of Delaware, without regard to its principles of conflict of laws.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
COMPANY:
ONVIA.COM, INC.,
a Washington corporation
By: /s/ Mark T. Calvert
--------------------------------------
Name: ____________________________________
(print)
Title: ___________________________________
Address: 1000 Dexter Avenue
Suite 400
Seattle, WA 98109
HOLDERS:
__________________________________________
Glenn Ballman
__________________________________________
Rob Ayer
__________________________________________
Kristen Hamilton
SIGNATURE PAGE TO AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
MOHR, DAVIDOW VENTURES V, L.P.
By:Fifth MDV Partners, LLC
Its General Partner
By: /s/
----------------------------------------
Member
MOHR, DAVIDOW VENTURES V, L.P. as nominee
for MDV Entrepreneurs' Network Fund II (A),
L.P. and MDV Entrepreneurs' Network Fund II
(B), L.P.
By:Fifth MDV Partners, LLC
Its General Partner
By: /s/
----------------------------------------
Member
MOHR, DAVIDOW VENTURES V-L, L.P.
By:Fifth MDV Partners, LLC
Its General Partner
By: /s/
----------------------------------------
Member
SIGNATURE PAGE TO AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INTERNET CAPITAL GROUP, INC.
By: /s/
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
VAN WAGONER FUNDS
By: /s/
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
VAN WAGONER CAPITAL PARTNERS
By: /s/
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
SIGNATURE PAGE TO AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
Exhibit 4.5
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION
OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PRO
VISIONS OF SECTION 7 OF THIS WARRANT.
ONVIA.COM, INC. (f/k/a Megadepot.com, Inc.)
WARRANT TO PURCHASE SHARES
OF SERIES A PREFERRED STOCK
THIS CERTIFIES THAT, for value received, COMDISCO, INC. and its assignees
are entitled to subscribe for and purchase that number of the fully paid and
nonassessable shares of Series A Preferred Stock (as adjusted pursuant to
Section 4 hereof, the "Shares") of ONVIA.COM, INC. (f/k/a Megadepot.com, Inc.),
a Washington corporation (the "Company"), as is determined pursuant to the next
paragraph hereof at the price per share as is determined pursuant to the next
paragraph hereof (such price and such other price as shall result, from time to
time, from the adjustments specified in Section 4 hereof is herein referred to
as the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, (a) the term "Series
Preferred" 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, and after the automatic conversion of the
Series A Preferred Stock to Common Stock shall mean the Company's Common Stock,
(b) the term "Date of Grant" shall mean August 5, 1999, and (c) the term "Other
Warrants" shall mean any other warrants issued by the Company in connection with
the transaction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of or in lieu of this Warrant. The term
"Warrant" as used herein shall be deemed to include Other Warrants unless the
context clearly requires otherwise.
The number of Shares granted pursuant to this Warrant shall be the
nearest whole number obtained by dividing $600,000 by the Exercise Price. The
Exercise Price shall be determined according to subparagraphs (A), (B), (C) or
(D) below:
(A) Subject to subparagraphs (B), (C) and (D) below, if, on or
prior to October 31, 1999, the Company completes a private offering of its
equity securities, the aggregate gross proceeds from which exceed $5,000,000
(whether in one transaction or in a series of transactions after the date of
this Warrant and excluding the conversion of debt to equity) (a "Qualified
Financing"), then the Exercise Price shall be determined as follows:
Exercise Price = X + (A/B) (Y-X)
Y = The product obtained by multiplying .80 times the
lesser of (i) the price per share of equity
securities (expected to be Series B Preferred
Stock) sold in the Qualified Financing (the
"Qualified Valuation") and (ii) the quotient
obtained by dividing 300,000,000 by the
<PAGE>
number of shares (on a common stock equivalent
basis) of the Company outstanding immediately
after the closing of the Qualified Financing
(assuming the exercise or conversion into common
stock of the Company of all outstanding warrants,
options, convertible securities, and other rights
to acquire common stock of the Company);
A= 2;and
B = The number of months (rounded to the nearest whole
number) which have elapsed from May 1, 1999, to
the date of the closing of the Qualified
Financing.
(B) Notwithstanding subparagraph (A) above, if the Warrant is
exercised after December 31, 1999 and if the Exercise Price calculated in
subparagraph (A) exceeds the quotient obtained by dividing 100,000,000 by
the number of shares (on a common stock equivalent basis) of the Company
outstanding immediately after the closing of the Qualified Financing
(assuming the exercise or conversion into common stock of the Company of
all outstanding warrants, options, convertible securities, and other rights
to acquire common stock of the Company) (the "Adjusted Valuation") and if
the Company has not signed up at least 700,000 customer members by December
31, 1999, then the Exercise Price shall be the Adjusted Valuation. The
Company shall deliver to Comdisco, Inc. a certificate certifying as to the
number of customer members as of December 31, 1999, as promptly as possible
and in no event later than January 15, 2000.
(C) Notwithstanding subparagraph (A) above, if the Warrant is
exercised (i) after the closing of a Qualified Financing, but on or prior
to December 31, 1999, and (ii) in connection with a merger, acquisition or
sale of all or substantially all of the assets of the Company (the "Merger
Event") where the Acquisition Valuation (as defined below) is less than the
Qualified Valuation, then the Exercise Price shall be the Adjusted
Valuation. For purposes of this provision, the term "Acquisition Valuation"
means the quotient obtained by dividing the aggregate consideration
received by the Company in the Merger Event by the number of shares (on a
common stock equivalent basis) of the Company outstanding immediately prior
to the closing of such Merger Event (assuming the exercise or conversion
into common stock of the Company of all outstanding warrants, options,
convertible securities, and other rights to acquire common stock of the
Company)
(D) If the Company does not complete the Qualified Financing on
or prior to October 31, 1999, or if this Warrant is exercised on or prior to
October 31, 1999 and the Company has not completed the Qualified Financing, then
the Exercise Price shall be $1.17.
1. Term. The purchase right represented by this Warrant is exercisable,
----
in whole or in part, at any time and from time to time from the Date of Grant
through the later of (i) ten (10) years after the Date of Grant or (ii) five (5)
years after the closing of the Company's initial public offering of its
-2-
<PAGE>
Common Stock ("IPO") effected pursuant to a Registration Statement on Form S-i
(or its successor) filed under the Securities Act of 1933, as amended (the
"Act"), provided that if there is no IPO within ten (10) years of the Grant
Date, then this Warrant shall terminate ten (10) years after the Date of Grant.
This Warrant will automatically and without further action become a warrant to
purchase shares of the Company's Common Stock, subject to all of the terms and
provisions of this Warrant, upon the effectiveness of the Registration Statement
filed by the Company in connection with its IPO.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
----------------------------------------------------
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A-i
duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or bank check, or by wire transfer to an
account designated by the Company (a "Wire Transfer") of an amount equal to the
then applicable Warrant Price multiplied by the number of Shares then being
purchased; (b) if in connection with 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 completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Shares then being
purchased; or (c) exercise of the "net issuance" right provided for in Section
10.2 hereof. The person or persons in whose name(s) any certificate(s)
representing shares of Series Preferred 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 the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered to
the holder hereof as soon as possible and in any event within thirty (30) days
after such exercise 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 and in any event within such
thirty-day period; provided, however, at such time as the Company is subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
if requested by the holder of this Warrant, the Company shall cause its transfer
agent to deliver the certificate representing Shares issued upon exercise of
this Warrant to a broker or other person (as directed by the holder exercising
this Warrant) within the time period required to settle any trade made by the
holder after exercise of this Warrant.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued
---------------------------------------
upon the exercise of the rights represented by this Warrant will, upon issuance
pursuant to the terms and conditions herein, be fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Series Preferred to provide for
the exercise of the rights represented by this Warrant and a sufficient number
of shares of its Common Stock to provide for the conversion of the Series
Preferred into Common Stock.
-3-
<PAGE>
4. Adjustment of Warrant Price and Number of Shares. The number and kind
------------------------------------------------
of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification or
--------------------------
change 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 (other than a
merger with another corporation in which the Company is the acquiring and the
surviving 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, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), or the Company shall
make appropriate provision without the issuance of a new Warrant, so that the
holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Series Preferred theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Series Preferred then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the
valuation of the Series Preferred at the time of the transaction. Any new
Warrant shall provide for adjustments that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 4. The provisions
of this subparagraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Series Preferred, the Warrant Price shall be
proportionately decreased and the number of Shares issuable hereunder shall be
proportionately increased in the case of a subdivision and the Warrant Price
shall be proportionately increased and the number of Shares issuable hereunder
shall be proportionately decreased in the case of a combination.
(c) Stock Dividends and Other Distributions. If the Company at any
---------------------------------------
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Series Preferred payable in Series Preferred, then the Warrant
Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (A) the numerator of which shall be the
total number of shares of Series Preferred outstanding immediately prior to such
dividend or distribution, and (B) the denominator of which shall be the total
number of shares of Series Preferred outstanding immediately after such dividend
or distribution; or (ii) make any other distribution with respect to Series
Preferred (except any distribution specifically provided for in Sections 4(a)
and 4(b)), then, in each such case, provision shall be made by the Company such
that the holder of this
-4-
<PAGE>
Warrant shall receive upon exercise of this Warrant a proportionate share of any
such dividend or distribution as though it were the holder of the Series
Preferred (or Common Stock issuable upon conversion thereof) as of the record
date fixed for the determination of the shareholders of the Company entitled to
receive such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price, the number of Shares of Series Preferred purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(e) Antidilution Rights. The other antidilution rights, if any,
-------------------
applicable to the Shares of Series Preferred purchasable hereunder are set forth
in the Company's articles of incorporation, as amended through the Date of
Grant, a true and complete copy of which is attached hereto as Exhibit B (the
"Charter"). Such antidilution rights shall not be restated, amended, modified or
waived in any manner that is adverse to the holder hereof without such holder's
prior written consent. The Company shall promptly provide the holder hereof with
any restatement, amendment, modification or waiver of the Charter promptly after
the same has been made.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
---------------------
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such certificate to be mailed
(without regard to Section 13 hereof, by first class mail, postage prepaid) to
the holder of this Warrant. In addition, whenever the conversion price or
conversion ratio of the Series Preferred shall be adjusted, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
conversion price or ratio of the Series Preferred after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (without
regard to Section 13 hereof, by first class mail, postage prepaid) to the holder
of this Warrant.
6. Fractional Shares. No fractional shares of Series Preferred 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 on the fair market
value of the Series Preferred on the date of exercise as reasonably determined
in good faith by the Company's Board of Directors.
7. Compliance with Act; Disposition of Warrant or Shares of Series
---------------------------------------------------------------
Preferred.
- ---------
(a) Compliance with Act. The holder of this Warrant, by acceptance
-------------------
hereof, agrees that this Warrant, and the shares of Series Preferred to be
issued upon exercise hereof and any Common Stock issued upon conversion thereof
are being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant, or any shares of Series Preferred to be
issued upon
-5-
<PAGE>
exercise hereof or any Common Stock issued upon conversion thereof except under
circumstances which will not result in a violation of the Act or any applicable
state securities laws. Upon exercise of this Warrant, unless the Shares being
acquired are registered under the Act and any applicable state securities laws
or an exemption from such registration is available, the holder hereof shall
confirm in writing that the shares of Series Preferred so purchased (and any
shares of Common Stock issued upon conversion thereof) are being acquired for
investment and not with a view toward distribution or resale in violation of the
Act and shall confirm such other matters related thereto as may be reasonably
requested by the Company. This Warrant and all shares of Series Preferred issued
upon exercise of this Warrant and all shares of Common Stock issued upon
conversion thereof (unless registered under the Act and any applicable state
securities laws) shall be stamped or imprinted with a legend in substantially
the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO,
(ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION
LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a holder,
at such time as the restrictions on the transfer of the applicable security
shall have terminated. In addition, in connection with the issuance of this
Warrant, the holder specifically represents to the Company by acceptance of this
Warrant as follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof in violation of the Act.
(2) The holder understands that this Warrant has not been registered
under the Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of the holder's
investment intent as expressed herein.
(3) The holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and qualified under
any applicable state securities laws, or unless exemptions from registration and
qualification are otherwise available. The holder is aware of the provisions of
Rule 144, promulgated under the Act.
(4) The holder is an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Act.
-6-
<PAGE>
(b) Disposition of Warrant or Shares. With respect to any offer, sale
--------------------------------
or other disposition of this Warrant or any shares of Series Preferred acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or shares, the holder hereof 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, or other evidence, if reasonably satisfactory to the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state securities law then in effect) of this Warrant or such
shares of Series Preferred or Common Stock and indicating whether or not under
the Act certificates for this Warrant or such shares of Series Preferred to be
sold or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such law.
Upon receiving such written notice and reasonably satisfactory opinion or other
evidence, the Company, as promptly as practicable but no later than fifteen (15)
days after receipt of the written notice, shall notify such holder that such
holder may sell or otherwise dispose of this Warrant or such shares of Series
Preferred or Common Stock, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant to this
Section 7(b) that the opinion of counsel for the holder or other evidence is not
reasonably satisfactory to the Company, the Company shall so notify the holder
promptly with details thereof after such determination has been made.
Notwithstanding the foregoing, this Warrant or such shares of Series Preferred
or Common Stock may, as to such federal laws, be offered, sold or otherwise
disposed of in accordance with Rule 144 or I 44A under the Act, provided that
the Company shall have been furnished with such information as the Company may
reasonably request to provide a reasonable assurance that the provisions of Rule
144 or I44A have been satisfied. Each certificate representing this Warrant or
the shares of Series Preferred thus transferred (except a transfer pursuant to
Rule 144 or I44A) shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with such laws, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to ensure compliance with such laws. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
(c) Applicability of Restrictions. Neither any restrictions of any
-----------------------------
legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer of, or grant of a security interest in, this Warrant
(or the Series Preferred or Common Stock obtainable upon exercise thereof) or
any part hereof (i) to a partner of the holder if the holder is a partnership or
to a member of the holder if the holder is a limited liability company, (ii) to
a partnership of which the holder is a partner or to a limited liability company
of which the holder is a member, or (iii) to any affiliate of the holder if the
holder is a corporation; provided, however, in any such transfer, if applicable,
--------- -------
the transferee shall on the Company's request agree in writing to be bound by
the terms of this Warrant as if an original holder hereof.
8. Rights as Shareholders: Information. No holder of this Warrant, as
-----------------------------------
such, shall be entitled to vote or receive dividends or be deemed the holder of
Series Preferred or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. Notwithstanding
-7-
<PAGE>
the foregoing, the Company will transmit to the holder of this Warrant such
information, documents and reports as are generally distributed to the holders
of any class or series of the securities of the Company concurrently with the
distribution thereof to the shareholders.
9. [Reserved]
10. Additional Rights.
-----------------
10.1 Acquisition Transactions. The Company shall provide the holder of
------------------------
this Warrant with at least twenty (20) days' written notice prior to closing
thereof of the terms and conditions of any of the following transactions (to the
extent the Company has notice thereof): (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, or (ii) its merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of.
10.2 Right to Convert Warrant into Stock: Net Issuance.
--------------------------------------------------
(a) Right to Convert. In addition to and without limiting the rights
----------------
of the holder under the terms of this Warrant, the holder shall have the right
to convert this Warrant or any portion thereof (the "Conversion Right") into
shares of Series Preferred (or Common Stock if the Series Preferred has been
automatically converted into Common Stock) as provided in this Section 10.2 at
any time or from time to time during the term of this Warrant. Upon exercise of
the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
holder (without payment by the holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Series
Preferred (or Common Stock if the Series Preferred has been automatically
converted into Common Stock) as is determined according to the following
formula:
X = B-A
---
Y
Where: X = the number of shares of Series Preferred (or Common Stock if
the Series Preferred has been automatically converted to
Common Stock) that shall be issued to holder
Y = the fair market value of one share of Series Preferred (or
Common Stock if the Series Preferred has been automatically
converted to Common Stock)
A = the aggregate Warrant Price of the specified number of
Converted Warrant Shares immediately prior to the exercise
of the Conversion Right (i.e., the number of Converted
Warrant Shares multiplied by the Warrant Price)
-8-
<PAGE>
B = the aggregate fair market value of the specified number of
Converted Warrant Shares (i.e., the number of Converted
Warrant Shares multiplied by the fair market value of one
Converted Warrant Share)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the
------------------
holder by the surrender of this Warrant at the principal office of the Company
together with a written statement (which may be in the form of Exhibit A-l or
Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in Section 10.2(a) hereof as the
Converted Warrant Shares) in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), and, at the election of the holder hereof, may be made
contingent upon the closing of the sale of the Company's Common Stock to the
public in a public offering pursuant to a Registration Statement under the Act
(a "Public Offering"). Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing the balance of the
shares remaining subject to this Warrant, shall be issued as of the Conversion
Date and shall be delivered to the holder within thirty (30) days following the
Conversion Date.
(c) Determination of Fair Market Value. For purposes of this Section
----------------------------------
10.2, "fair market value" of a share of Series Preferred (or Common Stock if the
Series Preferred has been automatically converted into Common Stock) as of a
particular date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with and
contingent upon a Public Offering, and if the Company's Registration Statement
relating to such Public Offering ("Registration Statement") 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.
(ii) If the Conversion Right is not exercised in connection with
and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market value of the
Common Stock shall be deemed to be the average of the closing prices of the
Common Stock on such exchange over the 30-day period ending five business days
prior to the Determination Date, and the fair market value of the Series
Preferred shall be deemed to be such fair market value of the Common Stock
multiplied by the number of shares of Common Stock into which each share of
Series Preferred is then convertible;
(B) If traded on the Nasdaq Stock Market or other over-the-counter
system, the fair
-9-
<PAGE>
market value of the Common Stock shall be deemed to be the average of the
closing bid prices of the Common Stock over the 30-day period ending five
business days prior to the Determination Date, and the fair market value of the
Series Preferred shall be deemed to be such fair market value of the Common
Stock multiplied by the number of shares of Common Stock into which each share
of Series Preferred is then convertible; and
(C) If there is no public market for the Common Stock, then fair
market value shall be determined by mutual agreement of the holder of this
Warrant and the Company.
10.3 Exercise Prior to Expiration. To the extent this Warrant is not
-------------- -------------
previously exercised as to all of the Shares subject hereto, and if the fair
market value of one share of the Series Preferred is greater than the Warrant
Price then in effect, this Warrant shall be deemed automatically exercised
pursuant to Section 10.2 above (even if not surrendered) immediately before its
expiration. For purposes of such automatic exercise, the fair market value of
one share of the Series Preferred upon such expiration shall be determined
pursuant to Section 10.2(c). To the extent this Warrant or any portion thereof
is deemed automatically exercised pursuant to this Section 10.3, 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.
11. Representations and Warranties. The Company represents and warrants to
------------------------------
the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
(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 non-assessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Series Preferred and the holders thereof are as set forth in
the Charter, and on the Date of Grant, each share of the Series Preferred
represented by this Warrant is convertible into one share of Common Stock;
(d) The shares of Common Stock issuable upon conversion of the Shares
have been duly authorized and reserved for issuance by the Company and, when
issued in accordance with the terms of the Charter will be validly issued, fully
paid and nonassessable;
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws, do
not and will not contravene any law, governmental rule or regulation, judgment
or order applicable to the Company, and do not and will not conflict with or
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,
-10-
<PAGE>
the giving of notice to, the registration or filing with or the taking of any
action in respect of or by, any Federal, state or local government authority or
agency or other person, except for the filing of notices pursuant to federal and
state securities laws, which filings will be effected by the time required
thereby; and
(f) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant.
(g) The number of shares of Common Stock of the Company outstanding
on the date hereof, on a fully diluted basis (assuming the conversion of all
outstanding convertible securities and the exercise of all outstanding options
and warrants (other than a warrant to purchase Series A Preferred Stock issued
to Dominion Capital Management LLC)), does not exceed 27,718,604 shares.
12. 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.
13. Notices. Any notice, request, communication or other document required
-------
or permitted to be given or delivered to the holder hereof or the Company shall
be delivered, or shall be sent by certified or registered mail, postage prepaid,
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.
14. 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, and all of the obligations of
the Company relating to the Series Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof.
15. 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 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 will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. 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. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. 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 Washington.
-11-
<PAGE>
18. Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
--------
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
20. No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms 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.
21. Severability. The invalidity or unenforceability of any provision of
------------
this Warrant in any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction, or affect any other provision of
this Warrant, which shall remain in full force and effect.
22. 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.
23. Entire Agreement; Modification. This Warrant constitutes the entire
------------------------------
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
24. "Market Standoff' Agreement. Each holder of this Warrant 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:
-12-
<PAGE>
(a) such agreement shall be applicable only with respect to 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
(b) all officers and directors of the Company, all one-percent
securityholders, and all other persons with registration rights enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the shares 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 of this Warrant agrees that, if so
requested, such holder will execute an agreement in the form provided by the
underwriter containing the terms which are essentially consistent with the
provisions of this Section 24.
Notwithstanding the foregoing, the obligations described in this
Section 24 shall not apply to a registration relating solely to employee benefit
plans on Form S-I 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.
[Signature page follows]
-13-
<PAGE>
The Company has caused this Warrant to be duly executed and delivered as of
the Date of Grant specified above.
ONVIA.COM, INC. (f/k/a Megadepot.com. Inc.),
a Washington corporation
By /s/ Mark Calvert
--------------------------------------
Title CFO
--------------------------------------
Address: 209 1/2 First Avenue South Suite 302
Seattle, WA 98104
<PAGE>
EXHIBIT A-1
NOTICE OF EXERCISE
To: ONVIA.COM, INC. (17k/a Megadepot.com, Inc.) (the "Company")
1. The undersigned hereby:
[_] elects to purchase________ shares of [Series A Preferred
Stock] [Common 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 10.2 of the attached Warrant with respect to Shares of [Series A
Preferred Stock] [Common Stock].
2. Please issue a certificate or certificates representing _________
the undersigned or in such other name or names as are specified below:
______________________________________
(Name)
______________________________________
______________________________________
(Address)
3. The undersigned represents that the aforesaid shares are 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,
all except as in compliance with applicable securities laws.
___________________________________
(Signature)
_______________
(Date)
(Signature)
<PAGE>
EXHIBIT A-2
NOTICE OF EXERCISE
To: ONVIA.COM, INC. (17k/a Megadepot.com, Inc.) (the "Company")
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 ___________, 19__, the undersigned hereby:
[_] elects to purchase shares of [Series A Preferred Stock] [Common 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 10.2 of
the attached Warrant with respect to ______ Shares of [Series A Preferred Stock]
[Common 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.
___________________________________
(Signature)
_______________
(Date)
<PAGE>
EXHIBIT B
CHARTER
<PAGE>
Exhibit 4.6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION
OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PRO
VISIONS OF SECTION 7 OF THIS WARRANT.
ONVIA.COM, INC. (f/k/a Megadepot.com, Inc.)
WARRANT TO PURCHASE SHARES
OF SERIES A PREFERRED STOCK
THIS CERTIFIES THAT, for value received, MEIER MITCHELL & COMPANY and its
assignees are entitled to subscribe for and purchase that number of the fully
paid and nonassessable shares of Series A Preferred Stock (as adjusted pursuant
to Section 4 hereof, the "Shares") of ONVIA.COM, INC. (f/k/a Megadepot.com,
Inc.), a Washington corporation (the "Company"), as is determined pursuant to
the next paragraph hereof at the price per share as is determined pursuant to
the next paragraph hereof (such price and such other price as shall result, from
time to time, from the adjustments specified in Section 4 hereof is herein
referred to as the "Warrant Price"), subject to the provisions and upon the
terms and conditions hereinafter set forth. As used herein, (a) the term
"Series Preferred" 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, and after the automatic conversion of
the Series A Preferred Stock to Common Stock shall mean the Company's Common
Stock, (b) the term "Date of Grant" shall mean August 5, 1999, and (c) the term
"Other Warrants" shall mean any other warrants issued by the Company in
connection with the transaction with respect to which this Warrant was issued,
and any warrant issued upon transfer or partial exercise of or in lieu of this
Warrant. The term "Warrant" as used herein shall be deemed to include Other
Warrants unless the context clearly requires otherwise.
The number of Shares granted pursuant to this Warrant shall be the
nearest whole number obtained by dividing $450,000 by the Exercise Price. The
Exercise Price shall be determined according to subparagraphs (A), (B), (C) or
(D) below:
(A) Subject to subparagraphs (B), (C) and (D) below, if, on or
prior to October 31, 1999, the Company completes a private offering of its
equity securities, the aggregate gross proceeds from which exceed $5,000,000
(whether in one transaction or in a series of transactions after the date of
this Warrant and excluding the conversion of debt to equity) (a "Qualified
Financing"), then the Exercise Price shall be determined as follows:
<PAGE>
Exercise Price = X + (A/B) (Y-X)
Where: X = $1.17;
Y = The product obtained by multiplying .80 times the
lesser of (i) the price per share of equity
securities (expected to be Series B Preferred
Stock) sold in the Qualified Financing (the
"Qualified Valuation") and (ii) the quotient
obtained by dividing 300,000,000 by the number of
shares (on a common stock equivalent basis) of the
Company outstanding immediately after the closing
of the Qualified Financing (assuming the exercise
or conversion into common stock of the Company of
all outstanding warrants, options, convertible
securities, and other rights to acquire common
stock of the Company);
A = 2; and
B = The number of months (rounded to the nearest whole
number) which have elapsed from May 1, 1999, to
the date of the closing of the Qualified
Financing.
(B) Notwithstanding subparagraph (A) above, if the Warrant is
exercised after December 31, 1999 and if the Exercise Price calculated in
subparagraph (A) exceeds the quotient obtained by dividing 100,000,000 by the
number of shares (on a common stock equivalent basis) of the Company outstanding
immediately after the closing of the Qualified Financing (assuming the exercise
or conversion into common stock of the Company of all outstanding warrants,
options, convertible securities, and other rights to acquire common stock of the
Company) (the "Adjusted Valuation") and if the Company has not signed up at
least 700,000 customer members by December 31, 1999, then the Exercise Price
shall be the Adjusted Valuation. The Company shall deliver to Meier Mitchell &
Company a certificate certifying as to the number of customer members as of
December 31, 1999, as promptly as possible and in no event later than January
15, 2000.
(C) Notwithstanding subparagraph (A) above, if the Warrant is
exercised (i) after the closing of a Qualified Financing, but on or prior to
December 31, 1999, and (ii) in connection with a merger, acquisition or sale of
all or substantially all of the assets of the Company (the "Merger Event") where
the Acquisition Valuation (as defined below) is less than the Qualified
Valuation, then the Exercise Price shall be the Adjusted Valuation. For purposes
of this provision, the term "Acquisition Valuation" means the quotient obtained
by dividing the aggregate consideration received by the Company in the Merger
Event by the number of shares (on a common stock equivalent basis) of the
Company outstanding immediately prior to the closing of such Merger Event
(assuming the exercise or conversion into
-2-
<PAGE>
common stock of the Company of all outstanding warrants, options, convertible
securities, and other rights to acquire common stock of the Company)
(D) If the Company does not complete the Qualified Financing on
or prior to October 31, 1999, or if this Warrant is exercised on or prior to
October 31, 1999 and the Company has not completed the Qualified Financing, then
the Exercise Price shall be $1.17.
1. Term. The purchase right represented by this Warrant is exercisable,
----
in whole or in part, at any time and from time to time from the Date of Grant
through the later of (i) ten (10) years after the Date of Grant or (ii) five (5)
years after the closing of the Company's initial public offering of its Common
Stock ("IPO") effected pursuant to a Registration Statement on Form S-1 (or its
successor) filed under the Securities Act of 1933, as amended (the "Act"),
provided that if there is no IPO within ten (10) years of the Grant Date, then
this Warrant shall terminate ten (10) years after the Date of Grant. This
Warrant will automatically and without further action become a warrant to
purchase shares of the Company's Common Stock, subject to all of the terms and
provisions of this Warrant, upon the effectiveness of the Registration Statement
filed by the Company in connection with its IPO.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
----------------------------------------------------
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A-1
duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or bank check, or by wire transfer to an
account designated by the Company (a "Wire Transfer") of an amount equal to the
then applicable Warrant Price multiplied by the number of Shares then being
purchased; (b) if in connection with 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 completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Shares then being
purchased; or (c) exercise of the "net issuance" right provided for in Section
10.2 hereof. The person or persons in whose name(s) any certificate(s)
representing shares of Series Preferred 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 the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered to
the holder hereof as soon as possible and in any event within thirty (30) days
after such exercise 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 and in any event within such
thirty-day period; provided, however, at such time as the Company is subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
if requested by the holder of this Warrant, the Company shall cause its transfer
agent to deliver the certificate
-3-
<PAGE>
representing Shares issued upon exercise of this Warrant to a broker or other
person (as directed by the holder exercising this Warrant) within the time
period required to settle any trade made by the holder after exercise of this
Warrant.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
---------------------------------------
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Series Preferred
to provide for the exercise of the rights represented by this Warrant and a
sufficient number of shares of its Common Stock to provide for the conversion of
the Series Preferred into Common Stock.
4. Adjustment of Warrant Price and Number of Shares. The number and kind
------------------------------------------------
of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification or
--------------------------
change 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 (other than a
merger with another corporation in which the Company is the acquiring and the
surviving 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, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), or the Company shall
make appropriate provision without the issuance of a new Warrant, so that the
holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Series Preferred theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Series Preferred then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the
valuation of the Series Preferred at the time of the transaction. Any new
Warrant shall provide for adjustments that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 4. The
provisions of this subparagraph (a) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Series Preferred, the Warrant Price shall be
proportionately decreased and the number of Shares issuable hereunder shall be
proportionately increased in the case of a subdivision and
-4-
<PAGE>
the Warrant Price shall be proportionately increased and the number of Shares
issuable hereunder shall be proportionately decreased in the case of a
combination.
(c) Stock Dividends and Other Distributions. If the Company at any
---------------------------------------
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Series Preferred payable in Series Preferred, then the Warrant
Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (A) the numerator of which shall be the
total number of shares of Series Preferred outstanding immediately prior to such
dividend or distribution, and (B) the denominator of which shall be the total
number of shares of Series Preferred outstanding immediately after such dividend
or distribution; or (ii) make any other distribution with respect to Series
Preferred (except any distribution specifically provided for in Sections 4(a)
and 4(b)), then, in each such case, provision shall be made by the Company such
that the holder of this Warrant shall receive upon exercise of this Warrant a
proportionate share of any such dividend or distribution as though it were the
holder of the Series Preferred (or Common Stock issuable upon conversion
thereof) as of the record date fixed for the determination of the shareholders
of the Company entitled to receive such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price, the number of Shares of Series Preferred purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(e) Antidilution Rights. The other antidilution rights, if any,
-------------------
applicable to the Shares of Series Preferred purchasable hereunder are set forth
in the Company's articles of incorporation, as amended through the Date of
Grant, a true and complete copy of which is attached hereto as Exhibit B (the
"Charter"). Such antidilution rights shall not be restated, amended, modified
or waived in any manner that is adverse to the holder hereof without such
holder's prior written consent. The Company shall promptly provide the holder
hereof with any restatement, amendment, modification or waiver of the Charter
promptly after the same has been made.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
---------------------
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such certificate to be mailed
(without regard to Section 13 hereof, by first class mail, postage prepaid) to
the holder of this Warrant. In addition, whenever the conversion price or
conversion ratio of the Series Preferred shall be adjusted, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
conversion price or ratio of the Series
-5-
<PAGE>
Preferred after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (without regard to Section 13 hereof, by first class
mail, postage prepaid) to the holder of this Warrant.
6. Fractional Shares. No fractional shares of Series Preferred 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 on the fair market
value of the Series Preferred on the date of exercise as reasonably determined
in good faith by the Company's Board of Directors.
7. Compliance with Act; Disposition of Warrant or Shares of Series
---------------------------------------------------------------
Preferred.
- ---------
(a) Compliance with Act. The holder of this Warrant, by acceptance
-------------------
hereof, agrees that this Warrant, and the shares of Series Preferred to be
issued upon exercise hereof and any Common Stock issued upon conversion thereof
are being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant, or any shares of Series Preferred to be
issued upon exercise hereof or any Common Stock issued upon conversion thereof
except under circumstances which will not result in a violation of the Act or
any applicable state securities laws. Upon exercise of this Warrant, unless the
Shares being acquired are registered under the Act and any applicable state
securities laws or an exemption from such registration is available, the holder
hereof shall confirm in writing that the shares of Series Preferred so purchased
(and any shares of Common Stock issued upon conversion thereof) are being
acquired for investment and not with a view toward distribution or resale in
violation of the Act and shall confirm such other matters related thereto as may
be reasonably requested by the Company. This Warrant and all shares of Series
Preferred issued upon exercise of this Warrant and all shares of Common Stock
issued upon conversion thereof (unless registered under the Act and any
applicable state securities laws) shall be stamped or imprinted with a legend in
substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO,
(ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION
LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a holder,
at such time as the restrictions on the transfer of the applicable security
shall have terminated. In addition, in connection with the issuance of this
Warrant, the holder specifically represents to the Company by acceptance of this
Warrant as follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this
-6-
<PAGE>
Warrant for its own account for investment purposes only and not with a view to,
or for the resale in connection with, any "distribution" thereof in violation of
the Act.
(2) The holder understands that this Warrant has not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the holder's
investment intent as expressed herein.
(3) The holder further understands that this Warrant must be
held indefinitely unless subsequently registered under the Act and qualified
under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available. The holder is aware of
the provisions of Rule 144, promulgated under the Act.
(4) The holder is an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Act.
(b) Disposition of Warrant or Shares. With respect to any offer,
--------------------------------
sale or other disposition of this Warrant or any shares of Series Preferred
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or shares, the holder hereof 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, or other evidence, if reasonably
satisfactory to the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state securities law then in effect) of this
Warrant or such shares of Series Preferred or Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Series Preferred to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to ensure
compliance with such law. Upon receiving such written notice and reasonably
satisfactory opinion or other evidence, the Company, as promptly as practicable
but no later than fifteen (15) days after receipt of the written notice, shall
notify such holder that such holder may sell or otherwise dispose of this
Warrant or such shares of Series Preferred or Common Stock, all in accordance
with the terms of the notice delivered to the Company. If a determination has
been made pursuant to this Section 7(b) that the opinion of counsel for the
holder or other evidence is not reasonably satisfactory to the Company, the
Company shall so notify the holder promptly with details thereof after such
determination has been made. Notwithstanding the foregoing, this Warrant or such
shares of Series Preferred or Common Stock may, as to such federal laws, be
offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under
the Act, provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 or 144A have been satisfied. Each
certificate representing this Warrant or the shares of Series Preferred thus
transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with such laws, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
-7-
<PAGE>
(c) Applicability of Restrictions. Neither any restrictions of any
-----------------------------
legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer of, or grant of a security interest in, this Warrant
(or the Series Preferred or Common Stock obtainable upon exercise thereof) or
any part hereof (i) to a partner of the holder if the holder is a partnership or
to a member of the holder if the holder is a limited liability company, (ii) to
a partnership of which the holder is a partner or to a limited liability company
of which the holder is a member, or (iii) to any affiliate of the holder if the
holder is a corporation; provided, however, in any such transfer, if
applicable, the transferee shall on the Company's request agree in writing to be
bound by the terms of this Warrant as if an original holder hereof.
8. Rights as Shareholders; Information. No holder of this Warrant, as
-----------------------------------
such, shall be entitled to vote or receive dividends or be deemed the holder of
Series Preferred or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. Notwithstanding the foregoing, the Company
will transmit to the holder of this Warrant such information, documents and
reports as are generally distributed to the holders of any class or series of
the securities of the Company concurrently with the distribution thereof to the
shareholders.
9. [Reserved]
10. Additional Rights.
-----------------
10.1 Acquisition Transactions. The Company shall provide the holder of
------------------------
this Warrant with at least twenty (20) days' written notice prior to closing
thereof of the terms and conditions of any of the following transactions (to the
extent the Company has notice thereof): (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, or (ii) its merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of.
10.2 Right to Convert Warrant into Stock: Net Issuance.
--------------------------------------------------
(a) Right to Convert. In addition to and without limiting the rights
----------------
of the holder under the terms of this Warrant, the holder shall have the right
to convert this Warrant or any portion thereof (the "Conversion Right") into
shares of Series Preferred (or Common Stock if the Series Preferred has been
automatically converted into Common Stock) as provided in this Section 10.2 at
any time or from time to time during the term of this Warrant. Upon exercise of
the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
holder (without payment by the holder of any exercise price or any cash or other
consideration) that number of shares of fully
-8-
<PAGE>
paid and nonassessable Series Preferred (or Common Stock if the Series Preferred
has been automatically converted into Common Stock) as is determined according
to the following formula:
X = B-A
---
Y
Where: X = the number of shares of Series Preferred (or Common Stock if
the Series Preferred has been automatically converted to
Common Stock) that shall be issued to holder
Y = the fair market value of one share of Series Preferred (or
Common Stock if the Series Preferred has been automatically
converted to Common Stock)
A = the aggregate Warrant Price of the specified number of
Converted Warrant Shares immediately prior to the exercise of
the Conversion Right (i.e., the number of Converted Warrant
Shares multiplied by the Warrant Price)
B = the aggregate fair market value of the specified number of
Converted Warrant Shares (i.e., the number of Converted
Warrant Shares multiplied by the fair market value of one
Converted Warrant Share)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the
------------------
holder by the surrender of this Warrant at the principal office of the Company
together with a written statement (which may be in the form of Exhibit A-1 or
Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in Section 10.2(a) hereof as the
Converted Warrant Shares) in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), and, at the election of the holder hereof, may be made
contingent upon the closing of the sale of the Company's Common Stock to the
public in a public offering pursuant to a Registration Statement under the Act
(a "Public Offering"). Certificates for the shares issuable upon exercise of
the Conversion Right and, if applicable, a new warrant evidencing the balance of
the shares remaining subject to this Warrant, shall be issued as of the
Conversion Date and shall be delivered to the holder within thirty (30) days
following the Conversion Date.
-9-
<PAGE>
(c) Determination of Fair Market Value. For purposes of this
----------------------------------
Section 10.2, "fair market value" of a share of Series Preferred (or Common
Stock if the Series Preferred has been automatically converted into Common
Stock) as of a particular date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with and
contingent upon a Public Offering, and if the Company's Registration Statement
relating to such Public Offering ("Registration Statement") 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.
(ii) If the Conversion Right is not exercised in connection with
and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market value of the
Common Stock shall be deemed to be the average of the closing prices of the
Common Stock on such exchange over the 30-day period ending five business days
prior to the Determination Date, and the fair market value of the Series
Preferred shall be deemed to be such fair market value of the Common Stock
multiplied by the number of shares of Common Stock into which each share of
Series Preferred is then convertible;
(B) If traded on the Nasdaq Stock Market or other over-the-counter
system, the fair market value of the Common Stock shall be deemed to be the
average of the closing bid prices of the Common Stock over the 30-day period
ending five business days prior to the Determination Date, and the fair market
value of the Series Preferred shall be deemed to be such fair market value of
the Common Stock multiplied by the number of shares of Common Stock into which
each share of Series Preferred is then convertible; and
(C) If there is no public market for the Common Stock, then fair
market value shall be determined by mutual agreement of the holder of this
Warrant and the Company.
10.3 Exercise Prior to Expiration. To the extent this Warrant is not
----------------------------
previously exercised as to all of the Shares subject hereto, and if the fair
market value of one share of the Series Preferred is greater than the Warrant
Price then in effect, this Warrant shall be deemed automatically exercised
pursuant to Section 10.2 above (even if not surrendered) immediately before its
expiration. For purposes of such automatic exercise, the fair market value of
one share of the Series Preferred upon such expiration shall be determined
pursuant to Section 10.2(c). To the extent this Warrant or any portion thereof
is deemed automatically exercised pursuant to this Section 10.3, 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.
11. Representations and Warranties. The Company represents and warrants
------------------------------
to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms,
-10-
<PAGE>
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and the rules of law or principles at equity governing
specific performance, injunctive relief and other equitable remedies;
(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 non-assessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Series Preferred and the holders thereof are as set forth in
the Charter, and on the Date of Grant, each share of the Series Preferred
represented by this Warrant is convertible into one share of Common Stock;
(d) The shares of Common Stock issuable upon conversion of the Shares
have been duly authorized and reserved for issuance by the Company and, when
issued in accordance with the terms of the Charter will be validly issued, fully
paid and nonassessable;
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws, do
not and will not contravene any law, governmental rule or regulation, judgment
or order applicable to the Company, and do not and will not conflict with or
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 or filing with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby; and
(f) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant.
(g) The number of shares of Common Stock of the Company outstanding
on the date hereof, on a fully diluted basis (assuming the conversion of all
outstanding convertible securities and the exercise of all outstanding options
and warrants (other than a warrant to purchase Series A Preferred Stock issued
to Dominion Capital Management LLC)), does not exceed 27,718,604 shares.
12. 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.
13. Notices. Any notice, request, communication or other document
-------
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or
-11-
<PAGE>
shall be sent by certified or registered mail, postage prepaid, 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.
14. 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, and all of the obligations of
the Company relating to the Series Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof.
15. 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 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 will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. 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. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. 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 Washington.
18. Survival of Representations. Warranties and Agreements. All
---------------------------
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
--------
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
20. No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms 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.
-12-
<PAGE>
21. Severability. The invalidity or unenforceability of any provision of
------------
this Warrant in any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction, or affect any other provision of
this Warrant, which shall remain in full force and effect.
22. 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.
23. Entire Agreement; Modification. This Warrant constitutes the entire
------------------------------
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
24. "Market Standoff" Agreement. Each holder of this Warrant 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 with respect to 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
(b) all officers and directors of the Company, all one-percent
securityholders, and all other persons with registration rights enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the shares 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 of this Warrant agrees that, if so
requested, such holder will execute an agreement in the form provided by the
underwriter containing the terms which are essentially consistent with the
provisions of this Section 24.
Notwithstanding the foregoing, the obligations described in this
Section 24 shall not apply to a registration relating solely to employee benefit
plans on Form S-i or Form S-S 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. [Signature page
follows]
-13-
<PAGE>
The Company has caused this Warrant to be duly executed and delivered as of
the Date of Grant specified above.
ONVIA.COM, INC. (f/k/a Megadepot.com, Inc.),
a Washington corporation
By: /s/: Mark Calvert
Title: CFO
Address: 209 1/2 First Avenue South,
Suite 302
Seattle, WA 98104
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<PAGE>
EXHIBIT A-1
NOTICE OF EXERCISE
To: ONVIA.COM, INC. (f/k/a Megadepot.com, Inc.) (the "Company")
1. The undersigned hereby:
[_] elects to purchase ________ shares of [Series A Preferred Stock]
[Common 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
10.2 of the attached Warrant with respect to _______ Shares of [Series
A Preferred Stock] [Common Stock].
2. Please issue a certificate or certificates representing _________
shares in the name of the undersigned or in such other name or names as are
specified below:
_____________________________________
(Name)
_____________________________________
_____________________________________
(Address)
3. The undersigned represents that the aforesaid shares are 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, all except as in
compliance with applicable securities laws.
___________________________________
(Signature)
______________
(Date)
<PAGE>
EXHIBIT A-2
NOTICE OF EXERCISE
To: ONVIA.COM, INC. (f/k/a Megadepot.com, Inc.) (the "Company")
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 _____, l9__, the undersigned hereby:
[_] elects to purchase ______ shares of [Series A Preferred Stock]
[Common 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
10.2 of the attached Warrant with respect to ______ Shares of
[Series A Preferred Stock] [Common 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.
___________________________________
(Signature)
______________
(Date)
<PAGE>
EXHIBIT B
CHARTER
<PAGE>
Exhibit 10.5
LOAN AND SECURITY AGREEMENT
No. 11010
This LOAN AND SECURITY AGREEMENT, dated as of June 15, 1999 is entered by
and between:
(1) ONVIA.COM, INC. (formerly d/b/a MEGADEPOT.COM), a Washington
corporation ("Borrower"); and
(2) DOMINION VENTURE FINANCE L.L.C. ("Lender").
RECITALS
--------
A. Borrower desires to obtain a loan upon the security of certain
equipment owned or to be acquired by Borrower.
B. Lender is willing to make a loan upon the terms and subject to the
conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and of the covenants,
conditions and agreements set forth herein, the parties agree as follows:
ARTICLE 1. DEFINITIONS.
For purposes of this Loan Agreement the following capitalized terms shall
have the meanings set forth below:
1.1 "Business Day" shall mean any day on which commercial banks are not
------------
authorized or required to close in San Francisco, California.
1.2 "Closing" shall mean the date, time and place as the parties may agree
-------
for the consummation of the loan contemplated hereby.
1.3 "Collateral" shall have the meaning set forth in Section 3.1 of this
----------
Loan Agreement.
1.4 "Commitment" shall have the meaning set forth in Section 2.1 of this
----------
Loan Agreement.
1.5 "Commitment Termination Date" shall have the meaning set forth in
---------------------------
Section 2.1 of this Loan Agreement.
1.6 "Contractual Obligation" of any Person shall mean, any indenture,
----------------------
note, security, deed of trust, mortgage, security agreement, lease, guaranty,
instrument, contract, agreement or
<PAGE>
other form of obligation or undertaking to which such Person is a party or by
which such Person or any of its property is bound.
1.7 "Default" shall mean any event or circumstance not yet constituting
-------
an Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.
1.8 "Default Rate" shall mean, as of any date of determination, an
------------
interest rate per annum equal to five percent (5%) in excess of the rate per
annum otherwise applicable on such date.
1.9 "Disclosure Schedule" shall have the meaning set forth in Article 5
-------------------
of this Loan Agreement.
1.10 "Eligible Equipment" shall mean computers, furniture, Softcosts, and
------------------
office equipment, to the extent acceptable to Lender; provided that the
aggregate value of Softcosts, defined as software and leasehold improvements, is
not to exceed 25% of the total equipment funded. All New Equipment to be
purchased by Borrower and intended to constitute Collateral must be approved by
Lender and shall be valued at cost (net of freight, taxes, installation and
similar costs). All Used Equipment owned by Borrower as of the date of this
Loan Agreement, or acquired by Borrower after the date of this Loan Agreement in
one or more transactions, and which Borrower intends to constitute Collateral
must be approved by Lender and shall be valued using straight line depreciation
from the original cost (net of freight, taxes, installation and similar costs)
over thirty-six (36) months. All appraisal costs shall be borne by Borrower.
1.11 "Environmental Laws" means all Requirements of Law relating to the
------------------
protection of human health or the environment, including, without limitation,
(a) all Requirements of Law, pertaining to reporting, licensing, permitting,
investigation, and remediation of emissions, discharges, releases, or threatened
releases of hazardous materials, chemical substances, pollutants, contaminants,
or hazardous or toxic substances, materials or wastes whether solid, liquid, or
gaseous in nature, into the air, surface water, groundwater, or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials, or wastes, whether
solid, liquid, or gaseous in nature; and (b) all Requirements of Law pertaining
to the protection of the health and safety of employees or the public.
1.12 "Equipment" shall have the meaning set forth in Section 3.1 of this
---------
Loan Agreement.
1.13 "Event of Default" shall have the meaning set forth in Section 10.1
----------------
of this Loan Agreement.
1.14 "Financial Statements" shall mean, with respect to any accounting
--------------------
period for any Person, statements of operations, retained earnings and cash flow
of such Person for such period, and balance sheets of such Person as of the end
of such period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year if such period
-2-
<PAGE>
is less than a full fiscal year or, if such period is a full fiscal year,
corresponding figures from the preceding fiscal year, all prepared in reasonable
detail and in accordance with generally accepted accounting principles. Unless
otherwise indicated, each reference to Financial Statements of any Person-shall
be deemed to refer to Financial Statements prepared on a consolidated basis.
1.15 "Governmental Authority" shall mean any domestic or foreign national,
----------------------
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
1.16 "Governmental Rule" shall mean any law, rule, regulation, ordinance,
-----------------
order, code interpretation, judgment, decree, directive, guidelines, policy or
similar form of decision of any Governmental Authority.
1.17 "Indebtedness" of any Person shall mean and include 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 (other than accounts payable
incurred in the ordinary course of business determined in accordance with
generally accepted accounting principles), (d) all obligations under capital
leases 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 guaranties of such Person of the obligations of another
Person; (g) all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even if the rights and remedies of the seller or lender under such agreement
upon an event of default are limited to repossession or sale of such property),
(h) net exposure under any interest rate swap, currency swap, forward, cap,
floor or other similar contract that is not entered to in connection with a bona
fide hedging operation that provides offsetting benefits to such Person, which
agreements shall be marked to market on a current basis, and (i) all
reimbursement and other payment obligations, contingent or otherwise, in respect
of letters of credit.
1.18 "Lien" shall mean, with respect to any property, any security
----
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any of the
foregoing, and the filing of any financing statement or similar instrument under
the Uniform Commercial Code or comparable law of any jurisdiction.
1.19 "Loan" shall have the meaning set forth in Section 2.1 of this Loan
----
Agreement.
1.20 "Loan Agreement" shall mean this Loan and Security Agreement.
--------------
1.21 "Make-Whole 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 (and the final payment pursuant to Section 2.2.4 with respect to)
the Loans prepaid, or portion of such payment, which
-3-
<PAGE>
will not be required to be made as a result of such prepayment (each such
payment an "Amount Payable" and each such Amount Payable to be discounted
separately at the Treasury Rate, compounded monthly, from the date such Amount
Payable would be due), over (y) the principal amount of the Loans prepaid. The
"Treasury Rate" shall be the rate set forth in The Wall Street Journal for
actively traded U.S. Treasury securities having a maturity of one year on the
third Business Day prior to the date of prepayment, but shall in no event be
greater than eight percent (8%).
1.22 "Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, assets, operations, prospects or financial or other condition of
Borrower and its Subsidiaries, taken as a whole; (b) the ability of Borrower
and its Subsidiaries to pay or perform the Obligations in accordance with the
terms of this Loan Agreement and the other Operative Documents and to avoid an
Event of Default under any Operative Document; or (c) the rights and remedies
of Lender under this Loan Agreement, the other Operative Documents or any
related document, instrument or agreement.
1.23 "New Equipment" shall mean Eligible Equipment purchased with the
-------------
proceeds of a Loan or placed in service not more than ninety (90) days prior to
the date of funding of the applicable Loan.
1.24 "Note" shall mean a promissory note or notes of Borrower
----
substantially in the form attached as Exhibit A hereto.
1.25 "Obligations" shall mean and include all loans, advances, debts,
-----------
liabilities, and obligations, including, without limitation, the noncancelable
obligation to make each payment scheduled to be made under Sections 2.2.2, 2.2.3
and 2.2.4, howsoever arising, owed by Borrower to Lender of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), now existing or hereafter arising under or
pursuant to the terms of this Loan Agreement or the other Operative Documents,
including, without limitation, all interest, Make-Whole Premium, fees, charges,
expenses, attorneys' fees and costs and accountants' fees and costs chargeable
to and payable by Debtor hereunder and thereunder, in each case, whether direct
or indirect, absolute or contingent, due or to become due, and whether or not
arising after the commencement of a proceeding under Title 11 of the United
States Code (11 U.S.C. Section 101 et seq.), as amended from time to time
(including post-petition interest) and whether or not allowed or allowable as a
claim in any such proceeding.
1.26 "Operative Documents" shall mean, collectively, the Loan Agreement,
-------------------
the Notes and the other documents executed in connection herewith.
1.27 "Permitted Liens" shall mean and include: (a) Liens for taxes or
---------------
other Governmental Charges not at the time delinquent or thereafter payable
without penalty or being contested in good faith, provided provision is made to
the reasonable satisfaction of Lender for the eventual payment thereof if
subsequently found payable; (b) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith, provided provision is
made to the reasonable satisfaction of Lender for the eventual payment thereof
if subsequently found
-4-
<PAGE>
payable; and (c) Liens in favor of Lender; (d) Liens on any of the Company's
assets other than the Equipment; and (e) Liens subordinate to those of the
Lender.
1.28 "Person" shall mean and include an individual, a partnership, a
------
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a Governmental Authority.
1.29 "Requirement of Law" applicable to any Person shall mean (a) the
------------------
articles or certificate of incorporation, bylaws or other governing documents of
such Person, (b) any Governmental Rule applicable to such Person, (c) any
license, permit, approval or other authorization granted by any Governmental
Authority to or for the benefit of such Person and (d) any judgment, decision or
determination of any Governmental Authority or arbitrator, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
1.30 "Subsidiary" of any Person shall mean (a) any corporation of which
----------
more than fifty percent (50%) of the issued and outstanding equity securities
having ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries, (b) any
partnership, joint venture, or other association of which more than fifty
percent (50%) of the equity interest having the power to vote, direct or control
the management of such partnership, joint venture or other association is at the
time owned and controlled by such Person, by such Person and one or more of the
other Subsidiaries or by one or more of such Person's other subsidiaries and (c)
any other Person included in the financial statements of such Person on a
consolidated basis. Any reference to a Subsidiary without designation of the
ownership of such Subsidiary shall be deemed to refer to a Subsidiary of
Borrower.
1.31 "Used Equipment" shall mean Eligible Equipment which is not New
--------------
Equipment.
ARTICLE 2. THE LOANS.
2.1 Commitment. Subject to the terms and conditions of this Loan
----------
Agreement, from time to time on or prior to June 15, 2000 (the "Commitment
Termination Date), Lender agrees to advance to Borrower term loans (the "Loans")
in an aggregate principal amount of up to Three Million Dollars ($3,000,000)
(the "Commitment"). Loans shall be made not more often than monthly.
2.2 Loan Payments.
-------------
2.2.1 Loan Interest. Borrower shall pay interest in advance on the
-------------
unpaid principal amount of each Loan from the date of such Loan until such Loan
is paid in full, at an initial rate of interest equal to eight percent (8%) per
annum, based upon a year of 360 days and actual days elapsed. At each funding
under the Loan, the Interest Rate will be adjusted based on
-5-
<PAGE>
the change in yield, if any, for U.S. Treasury Notes of comparable maturity as
quoted in the Wall Street Journal three days before the date of funding. The
Treasury rate assumed for the initial rate of interest above for 36 (month
Treasury Notes is 5.22%. For each basis point change from this Treasury rate,
the Interest Rate will be adjusted by one basis point and a new Interest Rate
calculated. The Interest Rate for each funding shall be fixed for each Loan
Term. f Borrower pays interest on such 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 the Loan.
2.2.2 Payments of Principal and Interest. Borrower shall make
----------------------------------
thirty-six (36) equal payments of principal and interest (payable in advance),
which payments shall fully amortize the principal and interest due on the Loan
over such thirty-six (36) month period, on the first Business Day of each month
until the Loan is paid in full.
2.2.3 Interim Interest Payment. Concurrently, with the funding of
------------------------
each Loan, Borrower shall make an advance payment of interest for the period
from the date of funding to the first Business Day of the month after the
funding of such Loan.
2.2.4 Final Payment. On the date on which the last payment is due
-------------
under Section 2.2.2 with respect to each Loan, Borrower shall pay to Lender, in
addition to any remaining unpaid principal and accrued interest and all other
amounts previously due with respect to such Loan, an amount equal to fifteen
percent (15%) of the original principal amount of such Loan.
2.2.5 Prepayment. Upon three (3) Business Days' prior written notice
----------
to Lender, Borrower may, at its option, at any time, prepay all and not less
than all of the Loans, (or in the case of a prepayment pursuant to Section 6.10,
in an amount equal to the replacement value of the item of Equipment) at a
prepayment price equal to the outstanding principal amounts of the Loans, (or in
the case of a prepayment pursuant to Section 6.10, in an amount equal to the
replacement value of the item of Equipment), plus interest accrued thereon
through and including the date of such prepayment, plus a premium equal to the
Make-Whole Premium. If an Event of Default occurs and is continuing, and Lender
exercises its right under Section 10 to accelerate the Loan, Borrower expressly
agrees that the amount then due and payable shall include the Make-Whole Premium
as of the date of such acceleration.
Use of Proceeds; the Loan and the Note; Disbursement.
-----------------------------------------------------
2.2.6 Use of Proceeds. The proceeds of the Loan shall be used solely
---------------
for purchasing Eligible Equipment.
2.2.7 The Loan and the Notes. The obligation of Borrower to repay
----------------------
the aggregate unpaid principal amount of and interest on each Loan shall be
evidenced by a Note setting forth the principal amount of such Loan and the
payments due with respect thereto. Any failure by Lender to obtain or retain
such a Note shall not limit or otherwise affect the obligations of Borrower to
pay amounts due hereunder with respect to a Loan.
-6-
<PAGE>
2.2.8 Disbursement. Subject to the satisfaction of the conditions
------------
set forth in this Agreement, Lender shall disburse each Loan to Borrower as
directed in writing by Borrower.
2.3 Other Payment Terms.
-------------------
2.3.1 Place and Manner. Borrower shall make all payments due to
----------------
Lender in lawful money of the United States, in immediately available funds, at
the address for payments specified in Section 11.5.
2.3.2 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, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
2.3.3 Default Rate. If 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, Borrower shall pay interest on the aggregate, outstanding
principal balance hereunder from the date due until such past due amounts are
paid in fall, at a per annum rate equal to the Default Rate. All computations
of such interest shall be based on a year of 360 days and actual days elapsed.
2.3.4 Commitment Fee. Lender has received a commitment fee from
--------------
Borrower in the amount of $4,000 (the "Commitment Fee"). The Commitment Fee
will be applied by Lender pro rata (based on the ratio of the principal amount
of the Loan to the amount of the Commitment) to the Advance Payment delivered to
Lender under Section 3.2 in connection with each Loan. If all or any part of
the Commitment is not funded prior to the Commitment Termination Date, any
portion of the Commitment Fee not set aside for application as set forth in the
previous sentence shall be retained by Lender as compensation for expenses.
ARTICLE 3. CREATION OF SECURITY INTEREST.
3.1 Grant of Security Interest. As collateral security for the
--------------------------
Obligations, Borrower hereby grants to Lender a continuing security interest in
and to the following property and interests in property of Borrower (the
"Collateral"):
All right, title, interest, claims and demands of Borrower in and to
each and every item of equipment, fixtures or personal property now or
hereafter listed on Schedule I hereto, whether now owned or hereafter
acquired, together with all substitutions, renewals or replacements of and
additions, improvements, accessions, replacement parts and accumulations to
any and all of such equipment, fixtures or personal property (collectively,
the "Equipment"), together with all proceeds thereof, including, without
limitation, insurance, condemnation, requisition or similar payments, and
all proceeds from sales, renewals, releases or other dispositions thereof.
Schedule I and Schedule II shall be deemed amended upon the execution of each
- ---------- -----------
Note to identify (i) the items of Equipment financed with the Loan evidenced by
such Note and in which a security interest is granted hereunder and (ii) the
locations of such items of Equipment, and such
-7-
<PAGE>
amendment shall be effective whether or not a listing of such items or locations
is actually appended thereto.
3.2 Advance Payment. As additional security for the Obligations,
---------------
Borrower shall deposit with Lender upon the Closing an amount equal to the last
month's payment on the amount of the Commitment (the "Advance Payment") which
shall be held by Lender (without payment of interest thereon). A pro rata
portion of the Advance Payment shall be deemed to pay as of the date of this
Loan Agreement the last payment due on each Loan. If the Commitment is not fully
utilized by the Commitment Termination Date, Lender shall retain the unutilized
portion of the Advance Payment as compensation for expenses. Borrower hereby
grants to Lender a security interest in such Advance Payment. Lender shall be
under no obligation to segregate the Advance Payment from its other funds.
3.3 Liabilities Unconditional. Borrower is and shall remain absolutely
-------------------------
and unconditionally liable for the performance of its obligations under the
Operative Documents, including without limitation any deficiency by reason of
the failure of the Collateral to satisfy all amounts due Lender under the Note
or pursuant to any other Operative Document.
ARTICLE 4. CLOSING.
4.1 Conditions to Closing. The obligation of Lender to fund a Loan shall
---------------------
be subject to the following conditions precedent:
4.1.1 Conditions to Closing. Lender shall have received in
---------------------
connection with the Closing in form and substance satisfactory to Lender.
(a) This Loan Agreement, duly executed by Borrower;
(b) Copies, certified by the Secretary or Assistant
Secretary of Borrower, of: (A) the Articles of
Incorporation and Bylaws of Borrower (as amended to the
date of this Loan Agreement), (B) the resolutions
adopted by Borrower's board of directors authorizing
the transaction and the documents being executed in
connection therewith, and (C) the incumbency of the
officers executing this Loan Agreement and the other
Operative Documents on behalf of Borrower.
(c) Subject to the restrictions set forth in the definition
of Eligible Equipment, if a Loan includes software
which is intended to become Collateral under such Loan
and the aggregate cost of such software exceeds Thirty
Thousand Dollars ($30,000), then Lender may request
that assignment or sublicensing documentation in form
and substance satisfactory to Lender be executed prior
to the inclusion of the software as Collateral under
such Loan and Borrower shall use commercially
reasonable efforts to accommodate said request with the
vendor of such software.
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<PAGE>
(d) Good Standing Certificate(s) (including tax status if
available) with respect to Borrower from Borrower's state of
incorporation and principal place of business, if different,
(each) dated a date reasonably close to the date of this
Loan Agreement.
(e) Evidence of the insurance coverage required by Section 6.6
of this Loan Agreement.
(f) All necessary consents of shareholders and other third
parties, if any, with respect to the subject matter of the
Loan Agreement and the other documents being executed in
connection therewith.
(g) All other documents as Lender shall have reasonably
requested.
4.1.2 Conditions to Funding of Each Loan. Prior to the funding of each
----------------------------------
Loan, the following conditions with respect to such Loan shall have been
satisfied or waived by Lender:
(a) Borrower shall have executed and delivered a Note prepared
by Lender setting forth the terms of the Loan.
(b) Borrower shall have provided to Lender, with respect to the
Equipment constituting Collateral, such invoices, bills of
sale, receipts, agreements, canceled checks, and other
documents as Lender shall reasonably request to evidence the
ownership by Borrower of, and the payment in full of the
purchase price of such Equipment, each in form and substance
reasonably satisfactory to Lender; and, except with the
prior written consent of Lender which shall not be
unreasonably withheld, all such Equipment shall be Eligible
Equipment and acceptable to Lender as to value and type.
(c) Borrower shall have taken such actions, if any, as Lender
shall reasonably determine are necessary or desirable to
perfect and protect its security interest in the Collateral
and the priority thereof.
(d) No Event of Default or Default shall have occurred and be
continuing.
(e) In Lender's sole discretion, there shall not have occurred
any Material Adverse Effect.
(f) The representations and warranties contained in this
Agreement and the other Operative Documents to which
Borrower is a party, as modified by any Disclosure Schedule,
shall be true and correct in all material respects as if
made on the date of funding of the Loan and the items listed
on such Disclosure Schedule shall be reasonably acceptable
to Lender.
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<PAGE>
(g) Each of the Operative Documents remains in full force and
effect.
(h) The requested date of funding the Loan shall not be later
than June 15, 2000.
(i) Borrower shall have provided to Lender a Landlord Waiver in
the form of Exhibit B hereto or otherwise in form and
substance satisfactory to Lender, from each owner of record
of real property at which items of Collateral will be
located, setting forth the rights of Lender with respect to
such items of Collateral.
(j) Borrower shall have provided to Lender a UCC-1 financing
statement duly executed by Borrower for each state (and
county, if applicable) in which Equipment financed by the
Loan is or will be located.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BORROWER
Except as set forth on Schedule II hereto (the "Disclosure Schedule"),
-----------
Borrower represents and warrants to Lender:
5.1 Due Incorporation, Qualification. etc. Each of Borrower and its
-------------------------------------
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation; (ii) has the power and
authority to own, lease and operate its properties and carry on its business as
now conducted; and (iii) is duly qualified, licensed to do business and in good
standing as a foreign corporation in each jurisdiction where the failure to be
so qualified or licensed could reasonably be expected to have a Material Adverse
Effect.
5.2 Authority. The execution, delivery and performance by Borrower of
---------
each Operative Document to be executed by Borrower and the consummation of the
transactions contemplated thereby (i) are within the power of Borrower and (ii)
have been duly authorized by all necessary actions on the part of Borrower.
5.3 Enforceability. Each Operative Document executed, or to be executed,
--------------
by Borrower has been, or will be, duly executed and delivered by Borrower and
constitutes, or will constitute, a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except as
limited by bankruptcy, insolvency or other similar laws of general application
relating to or affecting the enforcement of creditors' rights generally and
general principles of equity.
5.4 Non-Contravention. The execution and delivery by Borrower of the
-----------------
Operative Documents executed by Borrower and the performance and consummation of
the transactions contemplated thereby do not and will not (i) violate any
Requirement of Law applicable to Borrower; (ii) violate any provision of, or
result in the breach or the acceleration of, or entitle any other Person to
accelerate (whether after the giving of notice or lapse of time or both), any
Contractual Obligation of Borrower, or (iii) result in the creation or
imposition of any Lien upon
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<PAGE>
any property, asset or revenue of Borrower (except such Liens as may be created
in favor of Lender pursuant to this Loan Agreement or the other Operative
Documents).
5.5 Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority or other
Person (including, without limitation, the shareholders of any Person) is
required in connection with the execution and delivery of the Operative
Documents executed by Borrower and the performance and consummation of the
transactions contemplated thereby.
5.6 No Violation or Default. None of Borrower or Borrower's Subsidiaries
-----------------------
is in violation of or in default with respect to (i) any Requirement of Law;
(ii) any Contractual Obligation (nor is there any waiver in effect which, if not
in effect, would result in such a violation or default), where, in each case,
such violation or default, individually, or together with all such violations or
defaults, could reasonably be expected to have a Material Adverse Effect.
Without limiting the generality of the foregoing, none of Borrower or Borrower's
Subsidiaries (A) has violated any Environmental Laws, (B) has any liability
under any Environmental Laws or (C) has received notice or other communication
of an investigation or is under investigation by any Governmental Authority
having authority to enforce Environmental Laws, where such violation, liability
or investigation could reasonably be expected to have a Material Adverse Effect.
No Event of Default or Default has occurred and is continuing.
5.7 Litigation. No actions (including, without limitation, derivative
----------
actions), suits, proceedings or investigations are pending or, to the knowledge
of Borrower, threatened against Borrower or Borrower's Subsidiaries at law or in
equity in any court or before any other Governmental Authority which if
adversely determined (i) could reasonably be expected (alone or in the
aggregate) to have a Material Adverse Effect or (ii) seeks to enjoin, either
directly or indirectly, the execution, delivery or performance by Borrower of
the Operative Documents or the transactions contemplated thereby.
5.8 Title. Borrower has good and marketable title to all Collateral, free
-----
and clear of all Liens, other than Permitted Liens.
5.9 Financial Statements. The Financial Statements of Borrower which have
--------------------
been delivered to Lender (i) are in accordance with the books and records of
Borrower and its Subsidiaries, which have been maintained in accordance with
good business practice; (ii) have been prepared in conformity with generally
accepted accounting principles; and (iii) fairly present the consolidated
financial position of Borrower as of the dates presented therein and the results
of operations, changes in financial positions or cash flows, as the case may be,
for the periods presented therein. As of the date hereof, none of Borrower or
any of Borrower's Subsidiaries has any contingent obligations, liability for
taxes or other outstanding obligations which are material in the aggregate,
except as disclosed in the most recent audited Financial Statements furnished by
Borrower to Lender prior to the date hereof.
5.10 Governmental Charges. To Borrower's knowledge, each of Borrower and
--------------------
its Subsidiaries has filed or caused to be filed all tax returns which are
required to be filed by it. To Borrower's knowledge, Borrower and Borrower's
Subsidiaries have paid, or made provision for
-11-
<PAGE>
the payment of, all taxes and other Governmental Charges which have or may have
become due pursuant to said returns or otherwise, except such Governmental
Charges, if any, which are being contested in good faith and as to which
adequate reserves (determined in accordance with generally accepted accounting
principals) have been provided or which could not reasonably be expected to have
a Material Adverse Effect if unpaid.
5.11 Catastrophic Events; Labor Disputes. None of Borrower or Borrower's
-----------------------------------
Subsidiaries and none of their 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. 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 or Borrower's Subsidiaries is a party, and
there are no strikes, lockouts, work stoppages or slowdowns, or, to the best
knowledge of Borrower, jurisdictional disputes or organizing activity occurring
or threatened which could reasonably be expected to have a Material Adverse
Effect.
5.12 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.
5.13 Accuracy of Information Furnished. None of the Operative Documents
---------------------------------
and none of the other certificates, statements or information furnished to
Lender by or on behalf of Borrower or Borrower's Subsidiaries 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.
5.14 First Priority. Assuming the timely filing of financing statements
--------------
covering the Collateral, the security interest granted hereby constitutes a
first priority security interest in and Lien on all of the Collateral, subject
only to Permitted Liens.
5.15 Principal Place of Business. 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 in Section 11.5.
ARTICLE 6. COVENANTS OF BORROWER.
While any Obligations remain outstanding:
6.1 Financial Statements; Other Information. Borrower shall provide to
---------------------------------------
Lender the financial statements specified in this Section 6.1, prepared in
accordance with generally accepted accounting principles, consistently applied
(except, in the case of unaudited financial statements, for the absence of
footnotes and normal year-end adjustments); provided, however, that after the
effective date of the initial registration statement covering a public offering
of Borrower's securities, Borrower shall only be required to deliver those
financial statements required to be
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<PAGE>
filed by the Securities and Exchange Commission, to be provided as soon as
practicable and no less frequently than quarterly.
6.1.1 As soon as practicable (and in any event within thirty (30)
days after the end of each month), a reasonably detailed balance sheet as of the
end of such month and the related statements of income or loss, cash flow and
capital structure of the Borrower during such month (including notification of
the commencement of any material litigation by or against Borrower), certified
by Borrower's Chief Executive Officer or Chief Financial Officer fairly to
present the data reflected therein.
6.1.2 As soon as practicable (and in any event within ninety (90)
days alter the end of each fiscal year), audited balance sheets as of the end of
such year (consolidated if applicable), and related statements of income or
loss, retained earnings or deficit, cash flows and capital structure of Borrower
for such year, setting forth in comparative form the corresponding figures for
the preceding fiscal year, and accompanied by an audit report and opinion of the
independent certified public accountants of recognized national standing
selected by Borrower.
6.2 Other Information. Borrower shall simultaneously provide to Lender
-----------------
copies of all reports (including, but not limited to financial), that are sent
to shareholders of the Company.
6.3 Suits. Borrower shall deliver to Lender, promptly after the
-----
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which suits or proceedings if decided
adversely to Borrower could reasonably be expected to have a Material Adverse
Effect.
6.4 Financing Statements and Other Actions Regarding Collateral. At the
-----------------------------------------------------------
reasonable request of Lender, Borrower shall join Lender in executing and
delivering one or more financing statements or other documents or instruments in
form and substance satisfactory to Lender for filing or recording in any state,
county or other jurisdiction Lender or its legal counsel reasonably deems
advisable to perfect the security interests granted hereunder. Borrower agrees
that Lender may file this Loan Agreement as a Financing Statement in any such
jurisdiction.
6.5 Corporate Identity. Borrower shall notify Lender in writing prior to
------------------
any change in Borrower's principal place of business or chief executive office
and any proposed or actual change of Borrower's name, identity or corporate
structure.
6.6 Insurance. Borrower shall, at its own expense, maintain the following
---------
types of insurance, with companies with an A-5 Best rating or better, acceptable
to Lender:
6.6.1 Personal property insurance on all property owned by Borrower
(including without limitation all of the Equipment) in an agreed amount based
upon the following:
(a) Standard "all risk" property insurance, including boiler
and machinery insurance, and flood insurance if any
Equipment is located in an identified "flood hazard area,"
in which flood
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<PAGE>
insurance has been made available pursuant to the National
Flood Insurance Act of 1968;
(b) The amount of such insurance covering the Equipment shall
be not less than the fair market value of the Equipment.
The amount of such -insurance allocable to loss or damage
or personal property shall not have a deductible in excess
of One Thousand Dollars ($1,000) per occurrence. Such
insurance shall contain an endorsement issued by the
insurer (as opposed to a certificate issued by an agent of
the insurer) in which Lender is named as loss payee with
respect to the Equipment, and shall set aside the amount
stated in Section 6.6.1(b) for the sole benefit of, and
payable directly to, Lender. Employee dishonesty insurance
payable to Lender with respect to the theft of the
Equipment. Business interruption insurance in an amount at
all times of Two Hundred Fifty Thousand Dollars ($250,000)
per occurrence. Commercial general liability insurance
covering bodily injury (including death) and property
damage, naming Lender, its directors, officers, agents and
employees as an Additional Insureds on all policies
(evidenced by an endorsement issued by the insurer (as
opposed to a certificate issued by an agent of the
insurer)), and providing total limits in amounts as are at
the time carried by entities engaged in the same or
similar business and which are similarly situated, but in
no event less than Two Million Dollars ($2,000,000) for
combined single limit occurrence. All such policies shall
cover any injury or damage occasioned by, or occurring
upon, Borrower's premises, products, operations and, at
Lender's option, explosion, collapse and underground
hazards. All such policies shall contain contractual
liability coverage including all liability assumed under
this agreement, and a cross liability clause providing
that such insurance shall, except with respect to the
limits of liability, apply separately to each insured.
Workers compensation insurance. All insurance specified in
this Section 6.6 shall be primary over, and in no event
shall, any insurance carried by Lender be called upon to
contribute to any loss relating to or arising out of this
Loan Agreement. All insurance shall be in effect, and
shall be evidenced by policies and/or endorsements
delivered to Lender no later than twenty (20) days after
the date upon which Borrower executes this Loan Agreement.
Notwithstanding anything to the contrary contained in this
Loan Agreement, Lender shall have no obligation to
purchase any Equipment until all policies are in place.
All such policies shall provide for at least thirty (30)
days' prior written notice to Lender in the event of any
cancellation, non-renewal or material change in coverage,
and Lender shall receive a copy of
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<PAGE>
any and all endorsements or other documentation relating
to such policies.
6.7 Title. Borrower shall promptly notify Lender in writing of any event
-----
which materially affects the value of the Collateral, the ability of Borrower or
Lender to dispose of the Collateral, or the rights or remedies of Lender in
relation thereto, including, but not limited to, the levy of any legal process
against the Collateral. Borrower shall deliver to Lender any and all evidence
of ownership of, and certificates of title to, any and all of the Equipment.
Borrower shall not grant to any Person (other than Lender or the holder of a
Permitted Lien) a Lien in the Collateral.
6.8 Further Identification of Collateral. Borrower shall furnish to
------------------------------------
Lender from time to time such statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Lender may reasonably request, all in reasonable detail.
6.9 Good Repair. Borrower shall keep and maintain all Collateral in good
-----------
operating condition and repair, subject to ordinary wear and tear, make all
necessary repairs thereto and replacement of parts thereof so that the value and
operating efficiency thereof shall at all times be maintained and preserved;
and Borrower shall keep complete and accurate books and records with respect to
the Collateral, including maintenance records.
6.10 Loss; Damage; Destruction and Seizure.
-------------------------------------
6.10.1 If while payment Obligations are outstanding any item of
Equipment is lost, stolen, destroyed, damaged or seized by a Governmental
Authority (an "Event of Loss"), then, at Borrower's option, either (i) Lender
shall receive from the proceeds of insurance maintained pursuant to Section 6.6,
from any award paid by the seizing Governmental Authority or, to the extent not
received from the proceeds of insurance or award or both, from Borrower, on or
before the next scheduled payment date succeeding such Event of Loss, an amount
equal to the replacement value of the item of Equipment subject to the Event of
which shall be held as additional Collateral for the Loan, or (ii) if no Event
of Default has occurred and is continuing, Borrower may use any such proceeds to
purchase an item of Equipment to replace the item of Equipment which was subject
to the Event of Loss and such replacement Equipment shall become part of the
Collateral. On the date of receipt by Lender of the amount specified
hereinabove with respect to each such item of Collateral subject to an Event of
Loss, the provisions of this Agreement shall terminate as to such Collateral.
Any proceeds of insurance maintained by Borrower with respect to the Collateral
pursuant to Section 6.6 and received by Borrower shall be paid to Lender
promptly upon their receipt by Borrower. If any proceeds of insurance or awards
received from Governmental Authorities are in excess of the amount owed under
this Section 6.10.1, Lender shall promptly remit to Borrower the amount in
excess of the amount to be held by Lender.
6.10.2 So long as no Event of Default has occurred and is continuing,
any proceeds of insurance maintained pursuant to Section 6.6 received by Lender
or Borrower with
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<PAGE>
respect to an item of Collateral the repair of which is practicable shall, at
the election of Borrower, be applied either to the repair or replacement of such
Collateral or, upon Lender's receipt of evidence of the repair or replacement of
the Collateral reasonably satisfactory to Lender, to the reimbursement of
Borrower for the cost of such repair or replacement. All replacement parts and
equipment acquired by Borrower in replacement of Collateral pursuant to this
Section 6.10 shall immediately become part of the Collateral upon acquisition by
Borrower. Borrower shall take such actions and provide such documentation as may
be reasonably requested by Lender to protect and preserve Lender's first
priority security interest and otherwise to avoid any impairment of Lender's
rights under the Operative Documents, in connection with such repair or
replacement.
ARTICLE 7. CONFIDENTIALITY.
Lender agrees to hold non-public information received by it in confidence
and shall not disclose such information to third parties except to the extent
any disclosure of such information is required by auditors, lenders, a court of
competent jurisdiction or governmental authority, or to its partners or the
partners of its affiliated investment funds. Lender further agrees to use its
commercially reasonable efforts to bind those third parties to whom non-public
information is disclosed to the terms of this Article 7.
ARTICLE 8. PRESERVATION OF COLLATERAL BY LENDER.
Should Borrower fall or refuse to make any payment, perform or observe any
other covenant, condition or obligation, or take any other action which Borrower
is obligated under any Operative Document to make, perform, observe, take or do
at the time or in the manner provided in any Operative Document, then at
Lender's sole and absolute discretion, without notice to or demand upon Borrower
and without releasing Borrower from any obligation, covenant or condition in any
Operative Document, Lender may make, perform, observe, take or do the same in
such manner and to such extent as Lender may deem necessary to protect its
security interest in or the value of the Collateral, and Borrower shall be
liable to Lender for all costs and expenses incurred by Lender in connection
therewith.
ARTICLE 9. INSPECTION RIGHTS; LOCATION.
9.1 Inspection. Borrower hereby grants Lender or its agents, from time to
----------
time upon not less than forty-eight (48) hours' advance written notice to
Borrower during Borrower's normal business hours, the right to enter Borrower's
premises for the purposes of inspecting all items of Collateral and ascertaining
their location and condition. Borrower shall make reasonably available to
Lender or its representative its personnel knowledgeable in the location,
function and condition of such Collateral and shall reasonably assist Lender and
its representatives in their inspection of such Collateral.
9.2 Location. Borrower shall keep the Collateral at the location
--------
specified in Section 11.5, the locations specified in Schedule III hereto as it
may be amended from time to time and such other locations as Lender shall
consent to in writing, all of which locations shall be in the
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<PAGE>
state of Washington. Borrower shall not permit any Collateral to be moved to a
new location without the prior written consent of Lender.
ARTICLE 10. EVENTS OF DEFAULT.
10.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" under this Loan Agreement and the Notes:
10.1.1 Failure to Pay. Borrower shall fail to pay when due any
--------------
principal, interest or other payment required under the terms of this Loan
Agreement or any other Operative Document on the .date due and such payment
shall not have been made within five (5) Business Days of the due date; or
10.1.2 Insurance. Borrower or any of its Subsidiaries shall fail to
---------
observe or perform any covenant set forth in Section 6.6 and such failure shall
continue for a period of five (5) Business Days after notice thereof is given to
Borrower by Lender; or
10.1.3 Breaches of Other Covenants. Borrower or any of its
---------------------------
Subsidiaries shall fail to observe or perform any other covenant, obligation,
condition or agreement contained in this Loan Agreement or the other Operative
Documents (other than those specified in Sections 10.1.1 and 10.1.2) and such
failure shall continue for ten (10) Business Days; or
10.1.4 Representations and Warranties. Any representation,
------------------------------
warranty, certificate, or other statement (financial or otherwise) made or
furnished by or on behalf of Borrower to Lender in writing in connection with
this Loan Agreement or any of the other Operative Documents, or as an inducement
to Lender to enter into this Loan Agreement, shall be false, incorrect,
incomplete or misleading in any material respect when made or furnished; or
10.1.5 Other Payment Obligations. Borrower or any of its
-------------------------
Subsidiaries shall fail to make any payment when due under the terms of any
Indebtedness to be paid by such Person (excluding this Loan Agreement and the
other Operative Documents but including any other Indebtedness of Borrower or
any of its Subsidiaries to Lender) and such failure shall continue beyond any
period of grace provided with respect thereto, or shall default in the
observance or performance of any other agreement, term or condition contained in
any such Indebtedness, and the effect of such failure or default is to cause, or
permit the holder or holders thereof to cause Indebtedness in an aggregate
amount of Fifty Thousand Dollars ($50,000) or more to become due prior to its
stated date of maturity; or
10.1.6 Voluntary Bankruptcy or Insolvency Proceedings. Borrower or
----------------------------------------------
any of its Subsidiaries shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial
part of its property, (ii) be unable, or admit in writing its inability, to pay
its debts generally as they mature, (iii) make a general assignment for the
benefit of its or any of its creditors, (iv) be dissolved or liquidated in full
or in part, (v) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
-17-
<PAGE>
its property by any official in an involuntary case or other proceeding
commenced against it, or (vi) take any action for the purpose of affecting any
of the foregoing; or
10.1.7 Involuntary Bankruptcy or Insolvency Proceedings.
------------------------------------------------
Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of Borrower or any of its Subsidiaries or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to Borrower or any of
its Subsidiaries or the debts thereof under any bankruptcy, insolvency or other
similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged within
thirty (30) days of commencement; or
10.1.8 Judgments. A final judgment or order for the payment of
---------
money in excess of Fifty Thousand Dollars ($50,000) shall be rendered against
Borrower or any of its Subsidiaries 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 or any of its Subsidiaries and such judgment, writ, or
similar process shall not be released, stayed, vacated or otherwise dismissed
within thirty (30) days after issue or levy; or
10.1.9 Operative Documents. Any Operative Document or any material
-------------------
term thereof shall cease to be, or be asserted by Borrower not to be, a legal,
valid and binding obligation of Borrower enforceable in accordance with its
terms or if the Liens of Lender in the Collateral shall cease to be or shall not
be valid, first priority perfected Liens or Borrower shall assert that such
Liens are not valid, first priority and perfected Liens.
10.2 Rights of Lender upon Default. Upon the occurrence or existence of
-----------------------------
any Event of Default (other than an Event of Default referred to in Sections
10.1.6 and 10.1.7) and at any time thereafter during the continuance of such
Event of Default, Lender may, by written notice to Borrower, declare all
outstanding Obligations payable by Borrower hereunder (including a Make-Whole
Premium) to be immediately due and payable without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Notes to the contrary notwithstanding. Upon
the occurrence or existence of any Event of Default described in Sections 10.1.6
and 10.1.7, immediately and without notice, all outstanding Obligations payable
by Borrower hereunder (including a Make-Whole Premium) shall automatically
become immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Notes to the contrary notwithstanding.
10.3 Rights Regarding Collateral. Borrower agrees that when any Event of
---------------------------
Default has occurred and is continuing, Lender shall have the tights, options,
duties and remedies of a secured party as permitted by law and, in addition to
and without limiting the foregoing, Lender may exercise any one or more or all,
and in any order, of the remedies herein set forth, including the following:
(a) Lender, 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 Lender at a place
to be designated by Lender or to take immediate possession of the Collateral, or
any portion thereof, and for that purpose may pursue
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<PAGE>
the same wherever it may be found, and may enter any 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; (b) Lender
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 Lender 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, Lender or the holder or holders of the Note, or of any interest
therein, may bid and become the purchaser at any such sale; and (c) Lender 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, arid 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.
10.4 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 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 Lender, but
will suffer and permit the execution of every such power as though no such
power, law or laws had been made or enacted.
10.5 Effect of Sale. Any sale, whether under any power of sale available
--------------
to Lender 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
-19-
<PAGE>
any and all persons claiming the property sold or any part thereof under, by or
through Borrower, its successors or assigns.
10.6 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 Lender at the
time of, or received by Lender 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 Lender; (b) Second, to the payment to Lender of
the amount then owing or unpaid on the Note, and in case such proceeds shall be
insufficient to pay in full the whole amount so due, owing or unpaid upon the
Note, then first, to the unpaid interest thereon, and second, to unpaid
principal thereof; such application to be made upon presentation of the Note,
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 Lender under any of the Operative Documents; and (d) Fourth, to
the payment of the surplus, if any, to Borrower, it successors and assigns, or
to whomsoever may be lawfully entitled to receive the same.
10.7 Reinstatement of Rights. If Lender 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),
Lender shall be restored to its former position and rights hereunder with
respect to the property subject to the security interest created under this
Agreement.
ARTICLE 11. MISCELLANEOUS.
11.1 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.
11.2 No Implied Waivers; Cumulative Remedies; Writing Required. No delay
---------------------------------------------------------
or failure of Lender 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 tight,
power or remedy preclude any further exercise thereof or of any other tight,
power or remedy. The tights and remedies hereunder of Lender 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
Lender 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.
11.3 Expenses; Indemnification. Borrower agrees upon demand to pay or
-------------------------
reimburse Lender for all liabilities, obligations and out-of-pocket expenses,
including reasonable fees and
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<PAGE>
expenses of counsel for Lender, from time to time arising in connection with the
enforcement or collection of sums due under the Operative Documents. Borrower
shall indemnify, reimburse and hold Lender and its permitted assigns, each of
Lender's or its permitted assigns' 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 Loan,
including acquisition, use, ownership, operation, possession, control, storage,
return or condition of any item of Equipment constituting Collateral (regardless
of whether such item of Equipment is at the time in the possession of Borrower),
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 constituting 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 from any
item of Equipment financed by a Loan or constituting Collateral, 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 Lender for any liability incurred by Lender as a
direct and sole result of Lender's gross negligence or willful misconduct. Such
indemnities shall continue in full force and effect, notwithstanding the
expiration or termination of this Agreement. Upon Lender's written demand,
Borrower shall assume and diligently conduct, at its sole cost and expense, the
entire defense of Lender and its permitted assigns, each of Lender's or its
permitted assigns' partners, and each of their respective successors, assigns,
agents, officers, directors, shareholders, servants, agents and employees
against any indemnified Claim described in this Section 11.3. Borrower shall not
settle or compromise any Claim against or involving Lender without first
obtaining Lender's written consent thereto, which consent shall not be
unreasonably withheld.
11.4 Waivers; Limitation on Damages. (a) Borrower shall give Lender
------------------------------
written notice within three hundred sixty-five (365) days of obtaining knowledge
of the occurrence of any claim or cause of action it believes it has, or may
seek to assert to allege against Lender, 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 Lender with respect hereto or thereto, and that if it shall
fail to give such notice to Lender 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
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<PAGE>
IN THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM
LENDER UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
11.5 Notices; Payments. 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: ONVIA.COM, INC.
1000 Dexter Avenue
Suite 400
Seattle, WA 98104
Telephone: (206) 583-8752
Telecopier: (206) 583-8918
Attention: Chief Financial Officer
Lender: DOMINION VENTURE FINANCE L.L.C.
44 Montgomery Street
Suite 4200
San Francisco, CA 94104
Telephone: (415) 362-4890
Telecopier: (415) 394-9245
Attention: Chief Financial Officer
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.
11.6 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.
11.7 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
Loan hereunder, the granting of security and the issuance of the Note.
11.8 Governing Law. This Agreement, the other Operative Documents and the
-------------
rights and obligations of the parties hereto and thereto together with matters
arising in connection therewith, shall be governed by and construed and enforced
in accordance with the laws of the
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<PAGE>
State of California. Any action to enforce this Agreement against Borrower may
be brought in California or, with regard to Collateral, may also be brought
wherever such Collateral is located.
11.9 Successors and Assigns. This Agreement and the other Operative
----------------------
Documents shall be binding upon and inure to the benefit of Lender, all future
holders of the Note, 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 Lender. Lender may
assign all or any portion of its rights hereunder and under one or more Notes to
any of its affiliated investment funds (an "Assignee") and may sell such rights
to any other financial entity (a "Participant") participation interests in
Lender's rights under this Agreement and the other Operative Documents. Lender
may disclose the Operative Documents and any other financial or other
information relating to Borrower or any Subsidiary to any potential Assignee or
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.
11.10 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.
11.11 Further Assurances. Borrower will, at its own expense, from time to
------------------
time do, execute, acknowledge and deliver all and every 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.
11.12 Right of First Offer. So long as any Obligations are outstanding
--------------------
hereunder, Borrower shall provide Lender with all requests for additional debt
or lease financing prior to the time that such requests are provided to other
financing sources. Should Borrower and Lender fail to agree on the terms and
conditions of such financing within ten (10) Business Days of receipt of a
request from Borrower, then Borrower may accept a funding source other than
Lender.
11.13 Power of Attorney in Respect of the Collateral. Borrower does
----------------------------------------------
hereby irrevocably appoint Lender (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 Lender 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 3.1 with full power to settle, adjust or compromise any
claim thereunder as fully as if Lender 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 Lender's possession or under Lender's control, (d) to make all demands,
consents and waivers, or take any other action with respect to, the Collateral,
(e) in Lender's 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 Lender may reasonably deem necessary or
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<PAGE>
appropriate to protect and preserve the right, title and interest of Lender in
and to the Collateral, and (f) to otherwise act with respect thereto as though
Lender 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 Lender's reasonable
opinion immediate action is necessary to preserve or protect the Collateral.
Borrower agrees to reimburse Lender upon demand for all reasonable costs and
expenses, including attorneys' fees and expenses, which Lender may incur while
acting as Borrower's attorney in fact hereunder, all of which costs and expenses
are included within the Obligations.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Loan Agreement as
of the date first written above.
LENDER: BORROWER:
DOMINION VENTURE FINANCE L.L.C. ONVIA.COM, INC.
a Delaware Limited Liability Company a Washington corporation
By: DOMINION CAPITAL MANAGEMENT L.L.C. By: /s/: Mark Calvert
a Delaware Limited Liability company,
its Managing Member Name: Mark Calvert
By: /s/: Emily Walther Title: CFO
Name: Emily Walther
Title: VP Finance
<PAGE>
SCHEDULE I
Collateral
----------
<PAGE>
SCHEDULE II
Disclosure Schedule
-------------------
<PAGE>
SCHEDULE III
Collateral Locations
--------------------
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
-----------------------
$________________ Dated: ____________, 199_
FOR VALUE RECEIVED, the undersigned, ONVIA.COM, INC. ("Borrower"), a
Washington corporation, HEREBY PROMISES TO PAY to the order of DOMINION VENTURE
FINANCE L.L.C., a Delaware Limited Liability Company ("Lender") the principal
amount of _____________________Dollars ($________) or such lesser amount as
shall equal the aggregate outstanding principal balance of the Loan made by
Lender to Borrower pursuant to the Loan and Security Agreement referred to below
(the "Loan Agreement"), and to pay all other amounts due with respect to the
Loan, on the dates and in the amounts set forth in the Loan Agreement.
The principal amount of this Note shall be payable in_________ (___)
consecutive monthly payments, the first_________ (___) of which shall be in the
amount of _____________________ ($_________) per month, and the _________ (__th)
of which shall be in the amount of______________________ ($________), each of
which shall be payable on the first day of each month commencing on ___________,
199_. This Note shall bear interest at a per annum rate of interest equal to
_________percent (___%) per annum based upon a year of 360 days and actual days
elapsed. If any interest 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 the Loan.
On the date on which the last payment is due pursuant to the preceding
paragraph, a final payment in addition to any remaining unpaid principal and
accrued interest and all other amounts previously due hereunder, in the amount
of $___________ shall be payable.
Concurrently, with the funding of the Loan evidenced by this Note, Borrower
has made an advance payment of interest for the period from the date hereof to
the first Business Day of the month after the date hereof.
Whenever any payment due hereunder shall fall on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall be included in the computation of interest or
fees, as the case may be.
Principal, interest, premium, if any, and all other amounts due with
respect to each Loan, are payable in lawful money of the United States of
America to Lender at the address specified in the Loan Agreement. All payments
made with respect to this Note shall be recorded by Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto which is part of this
Note.
This Note is one of the Notes referred to in, and is entitled to the
benefits of the Loan and Security Agreement, dated as of [Date], between
Borrower and Lender. The Loan Agreement, among other things, (a) provides for
the making of a secured Loan by Lender to Borrower equal to
***Nothing after this on Original***
A-1
<PAGE>
Exhibit 10.8
OFFICE LEASE
In consideration of the rents and covenants set forth below, this Lease is
made in duplicate as of the 8th day of May, 1998, between STRATTON PROPERTIES,
INC., a Washington corporation, hereinafter referred to as "Landlord", and GLENN
BALLMAN, individually, and MEGADEPOT, INC., a Washington corporation,
hereinafter referred to collectively as "Tenant".
RECITALS
A. Landlord is the owner of the real property known as the Marathon Building,
having a street address of 209 1/2 First Avenue South, Seattle, Washington
98104, and which is legally described as:
The South 1/2 of Lot 7 in Block 2, Town of Seattle, as laid out by
D.S. Maynard, commonly known as D.S. Maynard's Plat of Seattle, as
.per plat recorded in Volume 1 of Plate, page 23, Records of King
County, Washington, Except the east 9 feet condemned for street
purposes; situate in the City of Seattle, County of King, State of
Washington. SUBJECT TO Indemnity Agreement recorded January 25, 1921,
under Auditor's File No. 1486936.
B. Tenant desires to take possession of the leased premises hereunder
described for office use and for no other business or purpose without the
written consent of the Landlord.
LEASE TERMS AND CONDITIONS
I.
Commencement of Lease and Occupancy
-----------------------------------
The Landlord and Tenant agree that the premises shall be made ready for
occupancy, and the Tenant agrees to occupy the premises and to commence the
payment of rent as of the 1st day of June, 1998.
II.
Premises
--------
The Landlord hereby leases and demises unto the Tenant, and the Tenant
hereby leases and takes from the Landlord, for the term of the rental, and upon
the covenants and conditions hereinafter set forth, the office space referred to
herein as the "premises" and described as follows: the rear portion of the third
floor of the Marathon Building, namely Suite 302, which premises include the
shared use of the restrooms and entry vestibule immediately outside the entrance
doors to the office space.
<PAGE>
III.
Term
----
The term of this Lease shall commence on the 1st day of June, 1998, and
shall continue for a period of thirty-six (36) months, terminating on the 31st
day of May, 2001.
IV.
Rental
------
The Tenant covenants and agrees to pay to the Landlord during the term of
this Lease as rental for the premises the following amounts:
a. June, 1998 through August, 1998: No rent;
b. September, 1998 through May, 1999: Two Thousand One Hundred and Forty-
five and 46/100 Dollars ($2,145.46) per month;
c. June, 1999 through May, 2000: Two Thousand Two Hundred Eleven and
79/100 Dollars ($2,211.79) per month; and
d. June, 2000 through May, 2001: Two Thousand Two Hundred Seventy-eight
and 79/100 Dollars ($2,278.79) per month.
The rent shall be due and payable in advance on the first day of each
calendar month and any amount not received by the tenth (10th) day of the
calendar month shall be subject to an additional late payment fee of five
percent (5%) of the amount due and shall bear interest at the rate of twelve
percent (12%) per annum from such date until paid. Rent shall be paid by check
payable to the order of Stratton Properties, Inc. and shall be mailed to
Stratton Properties, Inc., Suite 1315, 1411 Fourth Avenue, Seattle, Washington
98101 or to such other office or place as Landlord may designate in writing.
As partial consideration for the execution of this Lease, the Tenant has as
of this day paid the Landlord a deposit of Four Thousand Four Hundred Twenty-
four and 25/100 Dollars ($4,424.25), of which Two Thousand One Hundred Forty-
five and 46/100 Dollars ($2,145.46) shall be applied by Landlord to the rent due
and payable by Tenant for the month of September, 1998, and the balance of
which, being Two Thousand Two Hundred Seventy-eight and 79/100 Dollars
($2,278.79), will be held by Landlord as a security deposit for the term of this
Lease. Such pre-paid rent and security deposit shall be deposited by Landlord
with Landlord's other funds and shall not accrue interest for the credit of
Tenant. Such security deposit shall be refundable to Tenant thirty (30) days
after the expiration of the term of this Lease if the Tenant has complied with
all of the covenants, agreements, terms and conditions of this Lease. In the
event of the default by Tenant hereunder, such deposit shall be retained by
Landlord and applied towards any damages incurred by Landlord as a result of
such default.
-2-
<PAGE>
V.
Option to Extend Term
---------------------
Tenant shall have no options to extend the term of this Lease.
VI.
Acceptance of Premises and Repairs
----------------------------------
Subject to completion by Landlord of certain improvements to the premises
described in more detail in Exhibit "A" attached hereto and made a part hereof,
the premises are accepted by Tenant in their "as-is" condition and Tenant agrees
that Landlord is not required to make any additional improvements to or
alterations of the premises in connection with Tenant's occupancy.
All normal repairs necessary to maintain the premises in a tenantable
condition, normal wear and tear excepted, shall be done by or under the
direction of Landlord, at Landlord's expense, except those caused by negligence
or acts of Tenant, its agents or invitees, which repairs shall be made at the
sole cost of Tenant. Landlord shall be the sole judge of what repairs are
necessary.
Tenant will at all times keep the premises neat, clean, and in a sanitary
condition. Except for reasonable wear and tear by unavoidable casualty, Tenant
will at all times preserve said premises in as good repair as they now are or
may hereafter be put to. Any alterations, additions, or improvements to the
premises which Tenant desires to undertake, at Tenant's expense, shall be
subject to the prior approval of Landlord, which approval may be conditioned on
Tenant's agreeing to remove such additions or otherwise restore the premises
upon the termination of this Lease.
If the Tenant shall perform work with the consent of the Landlord, as
aforesaid, Tenant agrees to comply with the laws, ordinances, rules and
regulations of the City of Seattle, King County, or any other authorized public
authority. The Tenant further agrees to save the Landlord free and harmless from
damage, loss or expense arising out of the said work. Tenant agrees that at the
expiration or sooner termination of this Lease, Tenant will surrender the said
premises in a neat and clean condition, and will deliver up all keys belonging
to said premises to the Landlord or Landlord's agent.
VII.
Services
--------
The Landlord, so long as Tenant is not in default of any provisions of this
Lease, shall provide heating and air conditioning, water, and electrical
current, in reasonable amounts for office purposes. The Tenant shall provide
janitorial services for the premises. Tenant shall also be responsible. for
changing light bulbs in the premises on an as-needed basis; provided, however,
that Landlord shall periodically provide Tenant with a reasonable supply of
-3-
<PAGE>
replacement light bulbs. The Landlord shall not be liable for any losses or
damages caused by or resulting from any interruption or failure of municipal
utility service due to causes beyond the control or responsibility of the
Landlord, and no such temporary interruption or temporary failure of such
services incident to restoring services to the building or due to accident or
strike or other conditions or events not under Landlord's control or
responsibility, and which do not substantially interfere with Tenant's enjoyment
of the leased premises, shall be deemed an eviction of the Tenant or relieve the
Tenant of any of the Tenant's obligations hereunder.
VIII.
Accidents
---------
All personal property on said leased premises or on other temporary
premises provided for Tenant's use elsewhere in the building shall be at the
risk of Tenant. Tenant agrees to defend and hold Landlord and Landlord's agents
harmless from any and all claims arising out of Tenant's negligence for damages
suffered in or about the premises by any person, firm or corporation.
Except in the case of Landlord's gross negligence or of defects in the premises
known to Landlord, Landlord or Landlord's agents shall not be liable for theft,
or any damage, either to person or property, sustained by Tenant or others
Caused by any defects now in said premises, or the building in which the
premises are located, or any service facilities, or hereafter occurring therein,
or due to the building in which the leased premises are situated, or any part or
appurtenance thereof, becoming out of repair or caused by fire or by the
bursting or letting of water, gas, sewer or steam pipes, or from any act or
negligence of another occupant of said building, or any other persons, or due to
the happening of any accident from whatsoever cause in and about said building.
IX.
Care of Premises
----------------
The Landlord shall not be called upon to make any improvements of any kind
upon said premises other than those described in Section VI of this Lease. The
premises shall at all times be kept and used in accordance with the laws of the
State of Washington and ordinances of City of Seattle, and in accordance with
all directions, rules and regulations of the health officer, fire marshal,
building inspector, or other proper officer of the City of Seattle, at the sole
cost and expense of Tenant, and Tenant will permit no waste, damage or injury to
the premises; nor will the Tenant maintain anything that might be dangerous to
life or limb or overload the floors, or permit any objectionable noise or odor
to escape from said premises, or permit anything to be done upon the leased
premises in any way that will tend to create a nuisance or to disturb any other
tenant of the building, or use or permit the use of the premises for any illegal
purpose.
X.
Use
---
-4-
<PAGE>
The Tenant shall conduct and carry on in said premises, the business for
which said premises are leased, and shall not use the premises for residential
purposes, or for any immoral or illegal purposes. The Tenant agrees that no
stock of goods will be carried, or anything done in or about the premises, which
will increase the present rate of insurance; provided, however, if the Tenant
shall engage in such business with the consent of the Landlord, which business
shall increase insurance rates, Tenant shall pay such increase. Tenant agrees
that it has determined to Tenant's satisfaction that the premises can be used
for the purpose for which they are leased and waives any right to terminate this
Lease in the event the premises for any reason may not be used for such purposes
during the term of this Lease.
XI.
Liens and Insolvency
--------------------
Tenant shall keep the leased premises and the property in which the leased
premises are situated, free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. In the event Tenant
becomes insolvent, voluntarily or involuntarily bankrupt, or if a receiver,
assignee or other liquidating officer is appointed for the business of the
Tenant, then the Landlord may cancel this Lease at Landlord's option.
XII.
Assignment
----------
Tenant shall not let or sublet the premises or any part thereof, nor assign
this Lease or any part thereof without the written consent of the Landlord,
which consent shall not be unreasonably withheld. This Lease shall not be
assignable by operation of law. If consent is once given by the Landlord to the
assignment of this Lease, or any interest therein, Landlord shall not be barred
from afterwards refusing to consent to any further assignment. In the event that
Tenant sublets the premises or assigns this Lease for an amount which exceeds
the rent, or applicable portion thereof, otherwise required to be paid by Tenant
to Landlord hereunder, the amount of such excess shall be paid to Landlord and
shall not accrue to the benefit of Tenant.
XIII.
Access
------
Tenant will allow Landlord or Landlord's agent free access at all
reasonable times to said premises for the purpose of inspection or of making
repairs, additions or alterations to the premises or any property owned by or
under the control of Landlord but this right shall not be construed as an
agreement on the part of the Landlord to make repairs, additions or alterations.
The Landlord shall have the right to show the premises to prospective tenants
during business hours only for sixty (60) days prior to the expiration of this
Lease and shall have the right to put "For Rent" signs in the front windows of
the premises during such period.
XIV.
-5-
<PAGE>
Damage or Destruction
---------------------
In the event that the premises are damaged to such an extent as to render
the same untenantable in whole or in a substantial part thereof or are destroyed
so as to render the premises untenantable for the stated purposes, it shall be
optional with the Landlord to terminate this Lease. After the happening of any
such contingency, the Tenant shall give Landlord or Landlord's agent immediate
written notice thereof. Landlord shall have not more than thirty (30) days after
the date of such notification to notify the Tenant in writing of Landlord's
intentions to repair or rebuild said premises, or the part so damaged as
aforesaid, and if Landlord elects to repair or rebuild said premises, Landlord
shall prosecute the work of such repairing or rebuilding without unnecessary
delay and during such period, the rent of said premises shall be abated in the
same ratio that that portion of the premises rendered for the time being unfit
for occupancy shall bear to the whole of the leased premises. If the Landlord
shall fail to give the notice aforesaid, Tenant shall have the right to declare
this Lease terminated by written notice served upon the Landlord or Landlord's
agent.
In the event the building in which the premises hereby leased are located
shall be damaged (even though the premises hereby leased shall not be damaged
thereby) to such an extent that in the opinion of the Landlord it shall not be
practicable to repair or rebuild, or is destroyed, then it shall be optional
with the Landlord to terminate this Lease by written notice served within thirty
(30) days after such damage or destruction.
XV.
Notice
------
Any notice required to be served in accordance with the terms of this
Lease, shall be sent by mail or personal delivery, the notice from the Tenant to
be sent to the Landlord at the address set forth in Section IV, and the notice
from the Landlord to be sent to Tenant at the leased premises. However, hand
delivery to a signatory to this Lease or their authorized agent shall meet any
notice requirements contained herein.
XVI.
Signs
-----
Any sign, notice, picture, placard or poster, or any advertising matter
whatsoever, anywhere in or about the leased premises or said building which
Tenant desires to install shall be subject to Landlord's prior consent, provided
that places not visible from anywhere without said premises are excepted. Tenant
shall be solely responsible for obtaining any and all governmental approvals
which may be required with respect to such signs.
XVII.
Default and Re-Entry
--------------------
If any rents above reserved, or any part thereof, shall be unpaid when the
same shall become due and shall remain unpaid ten (10) days after written notice
thereof from Landlord to
-6-
<PAGE>
Tenant, or if Tenant shall violate or default in any of the other covenants and
agreements herein contained and such violations or defaults shall remain uncured
thirty (30) days after written notice thereof from Landlord to Tenant, then the
Landlord may cancel this Lease upon giving the notice required by law, and re-
enter said premises, using such force within the process of the law as may be
required. Notwithstanding such re-entry by the Landlord, the liability of the
Tenant for the rent provided for herein shall not be extinguished for the
balance of the term of this Lease, and Tenant covenants and agrees to make good
to the Landlord any deficiency arising from a re-entry and reletting of the
premises at a lesser rental than is herein agreed. The Tenant shall pay such
deficiency each month as the amount thereof is ascertained by the Landlord. In
the event Landlord incurs any Costs or expenses in connection with such
reletting, including leasing commissions or any changes, alterations or
additions to the premises, or such part thereof, in order to restore the
premises to their condition before Tenant's occupancy as may be required for the
purposes of reletting said premises or any part thereof, Tenant shall be
responsible for such cost.
XVIII.
Costs and Attorney's Fees
-------------------------
If either party commences litigation, costs and reasonable attorney fees
shall be included as an award in any judgment rendered in favor of the
prevailing party.
XIX.
Non-Waiver of Breach
--------------------
The failure of the Landlord or Tenant to insist upon strict performance of
any of the covenants and agreements of this Lease, or to exercise any option
herein conferred in any one or more instances, shall not be construed to be a
waiver of relinquishment of any such, or any other covenants or agreements, but
the same shall be and remain in full force and effect.
XX.
Removal of Property
-------------------
In the event of any entry in, or taking possession of, the leased premises,
the Landlord shall have the right, but not the obligation to remove from the
leased premises all personal property located therein, and may store the same in
any place selected by Landlord, including but not limited to a public warehouse,
at the expense and risk of the owners thereof, with the right to sell such
stored property, without notice to Tenant, after it has been stored for a period
of thirty (30) days or mere, the proceeds of such sale to be applied first to
the cost of such sale, second to the payment of the charges for storage, if any
and third to the payment of any other sums of money which may then be due from
Tenant to Landlord under any of the terms hereof, the balance, if any to be paid
to Tenant. Tenant hereby waives all claims for damages that may be caused by
Landlord's re-entry and taking possession of the premises in the Lease, and will
save Landlord harmless from all loss, costs, or damage occasioned thereby and no
such re-entry and taking possession shall be considered or construed to be a
forcible entry.
-7-
<PAGE>
XXI.
Heirs and Successors
--------------------
Subject to the provisions hereof pertaining to assignment and subletting,
the covenants and agreements of this Lease shall be binding upon the heirs,
legal representatives, successors and assigns of any or all of the parties
hereto.
XXII.
Conditions of Occupancy
-----------------------
Tenant agrees to abide and be bound by the following rules and policies of
Landlord, which shall be considered as covenants of this Lease:
a) Light and Air. This Lease does not grant or purport to grant any
-------------
rights to access to light or air over property, and this Lease does not warrant
or protect against interferences with light or air in the leased premises by
construction upon adjacent, abutting or nearby property.
b) Locks. No lock shall be put on any door without the prior consent of
-----
Landlord.
c) Electrical Installations. Tenant shall not without the prior consent
------------------------
of Landlord operate or install any specialized electrical equipment or machinery
(other than ordinary office equipment), or replace or move any electric light
fixtures.
d) Awnings. Any existing awnings shall not be removed or altered without
-------
the consent of Landlord and no additional awnings shall be attached to the
outside of any windows or the premises hereby leased.
e) Windows. The Tenant shall not allow anything to be placed on the
-------
outside window ledges of said premises; and nothing shall be thrown by the
Tenant or others out of the windows of said building.
f) Floor coverings. The Tenant or other person shall not lay linoleum or
---------------
other similar floor covering with any paste materials save and excepting that
which may be easily removed with water. The use of cement or similar adhesive
material is expressly prohibited. The tacking or fastening of any flooring
material to the base board molding is expressly prohibited.
g) Furniture and Bulky Articles. No safe or other article of over 1,000
----------------------------
pounds shall be moved into said premises without the consent of the Landlord;
the Landlord shall have the right to fix the position of any article of weight
in said premises.
h) Windows-Rain and snow. Tenant shall lace great care not to leave
---------------------
windows open when it rains or snows. Damage resulting either to Landlord or to
other tenants from failure to observe this precaution shall be chargeable to the
Tenant on which premises the neglect occurred.
-8-
<PAGE>
i) Plumbing. Water closet and other water fixtures shall not be used for
--------
any purposes other than those for which they are intended, and any damage
resulting from misuse on the part of the Tenant, its agents or employees, shall
be paid for by Tenant. No person shall waste water by interfering or tampering
with the faucets or otherwise.
j) Doors. Tenant shall close and keep locked all entrance and exit doors
-----
to the premises during non--business hours or as otherwise required by any
governmental authorities having jurisdiction over the building or by Landlord's
insurance company.
k) No Smoking. Neither Tenant, nor any of Tenant's employees, invitees,
----------
licensees, agents, customers or guests, shall smoke any tobacco products in the
premises or anywhere else in the Marathon Building at any time.
l) Other Regulations. Landlord reserves the right to make such other and
-----------------
further reasonable regulations as in its judgment may from time to time be
needed or desirable for the safety, care and cleanliness of the premises or the
building and the preservation of good order therein.
XXIII.
Hold-Over
---------
If the Tenant shall, with the written consent of Landlord, hold over after
the expiration of the term of this Lease, such tenancy shall be for an
indefinite period of time on a month-to-month tenancy, which tenancy may be
terminated as provided by the Laws of the State of Washington. During such
tenancy Tenant agrees to pay to the Landlord the same rate of rental as set
forth herein, unless a different rate is agreed upon, and to be bound by all of
the terms, covenants, and conditions as herein specified, so far as applicable.
XXIV.
Subordination
-------------
This Lease is subject and subordinate to all mortgages and/or deeds of
trust which may now or hereafter encumber or otherwise affect the premises and
to all renewals, modifications, consolidations, replacements and extensions
thereof. Tenant agrees to execute from time to time a written agreement to
evidence the subordination of this Lease to such mortgage or deed of trust.
XXV.
Insurance
---------
Landlord, for the benefit of Landlord, shall maintain fire and extended
coverage insurance throughout the term of this Lease in an amount acceptable to
Landlord. Such insurance shall cover the premises and the building, but shall
not cover the contents of the premises or the building. Tenant agrees that
during the term of this Lease, and for any option periods thereafter, Tenant, at
its sole cost and expense, and for the mutual benefit of Landlord and Tenant,
shall
-9-
<PAGE>
carry and maintain the following types of insurance for the premises leased in
the amounts specified:
a) Tenant agrees to maintain public liability insurance on the premises
in the minimum limit of $500,000 for property damage and in the minimum of
$1,000,000 for bodily injuries and death, and shall name Landlord as an
additional insured.
b) Fire and Extended Coverage Insurance, including vandalism and
malicious mischief coverage, in an amount equal to the full replacement value of
all fixtures, furniture and improvements installed by or at the expense of
Tenant.
The aforementioned minimum limits of policies shall in no event limit the
liability of Tenant hereunder. The aforesaid insurance shall name Landlord as an
additional insured. Said insurance shall be with a company or companies
reasonably acceptable to Landlord. Tenant shall furnish from the insurance
companies or cause the insurance companies to furnish certificates of coverage.
No such policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord by
the insurer. All such policies shall be written as primary policies, not
contributing with and not in excess of the coverage which Landlord may carry.
Tenant shall, at least twenty (20) days prior to the expiration of such
policies, furnish Landlord with renewals of binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and charge Tenant
the premiums together with a twenty-five percent (25%) handling charge, payable
upon demand. Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by Tenant provided such blanket policies
expressly afford coverage to the premises and to Tenant as required by this
Lease.
XXVI.
Captions
--------
Paragraph headings are for convenience and ease of reference, and shall
neither be deemed part of the paragraph nor considered in the construction
thereof.
XXVII.
Incorporation
-------------
All Exhibits and the Addendum referred to in this Lease, and all terms
contained in such Exhibits and the Addendum, shall be incorporated in this Lease
by this reference.
XXVIII.
Quiet Enjoyment
---------------
Landlord covenants and agrees that Tenant, upon paying the rent and all
other charges provided for in this Lease and upon observing and keeping all of
the Covenants, agreements and provisions of this Lease on Tenant's part to be
observed and kept, and subject to the provisions
-10-
<PAGE>
of this Lease, Tenant shall be entitled to the peaceable and quiet enjoyment of
the premises and all rights and privileges granted to Tenant under this Lease.
XXIX.
Liability
---------
Each individual or entity signing this Lease as Tenant shall be jointly and
severally liable for all obligations, covenants and liabilities of Tenant
hereunder.
XXX.
Brokers
-------
In connection with the negotiation and execution of this Lease, Landlord
was represented by Madison & Co., LLC and Tenant was not represented by a
broker.
IN WITNESS WHEREOF, the Landlord and Tenant have signed, sealed and
executed this Lease as of the day and year first above written.
Landlord Tenant
- -------- ------
STRATTON PROPERTIES, INC. GLENN BALLMAN, individually
By /s/: C. Jairus Stratton /s/: Glenn Ballman
C. Jairus Stratton, III President MEGADEPOT, INC.
By: /s/: Glenn Ballman
Glenn Ballman President
PROVIDENCE OF WASHINGTON )
) ss:
COUNTY OF KING )
I certify that I know or have satisfactory evidence that C. JAIRUS STRATON,
III is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President of STRATTON PROPERTIES, INC. to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
-11-
<PAGE>
GIVEN under my hand and official seal this 12th day of May, 1998
(Seal or Stamp) /s/: Margery W. Howie
Notary Public in and for the State of Washington,
residing at Bainbridge Island
My commission expires 8/25/2001
OFFICIAL SEAL
MARGERY W. HOWIE
Notary Public - State of Washington
My Commission expires 8/25/01
-12-
<PAGE>
PROVIDENCE OF BRITISH COLUMBIA )
) ss:
COUNTY OF VANCOUVER )
I certify that I know or have satisfactory evidence that GLENN BALLMAN is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the instrument
and acknowledged it as the President of MEGADEPOT, INC. to be the free and
voluntary act of such party for the uses and purposes mentioned in the
instrument.
GIVEN under my hand and official seal this 8th day of May, 1998
(Seal or Stamp) /s/: Brigitte A. Farkas
Notary Public in and for the Province of British
Columbia, residing at Vancouver
My commission expires Life Appointment
BRIGITTE A. FARKAS
Notary Public
Honorary Vice-Consul of Hungary
#201, 1039 Richards Street
Vancouver, B.C., V6B 3E4
Tel: 681-5936 - Fax: 681-5930
-13-
<PAGE>
PROVIDENCE OF BRITISH COLUMBIA )
) ss:
COUNTY OF VANCOUVER )
I certify that I know or have satisfactory evidence that GLENN BALLMAN is
the person who appeared before me, and said person acknowledged that he signed
this instrument and acknowledged it to be his free and voluntary act of such
party for the uses and purposes mentioned in the instrument.
GIVEN under my hand and official seal this 8th day of May, 1998
(Seal or Stamp) /s/: Brigitte A. Farkas
Notary Public in and for the Province of British
Columbia, residing at Vancouver
My commission expires Life Appointment
BRIGITTE A. FARKAS
Notary Public
Honorary Vice-Consul of Hungary
#201, 1039 Richards Street
Vancouver, B.C., V6B 3E4
Tel: 681-5936 - Fax: 681-5930
-14-
<PAGE>
EXHIBIT "A"
-----------
IMPROVEMENTS TO PREMISES
------------------------
Prior to the commencement of the term of this Lease, Landlord shall
undertake the following improvements and cleaning of the premises.
A. Replace Carpet and Pad (to be #19406 JEWELED BLUE from Landlord's
--------------
carpet book) paint walls and trim in building standard off-white;
B. Install a 36"x 36" fiberglass Shower Unit adjacent to the existing hot
-----------
water tank (as shown on sketch attached as Exhibit "A-1");
C. Privacy Wall: New privacy wall to be built out 8 feet from existing
------------
wall, with wall height to be not less than 8'6" with one 2/4 access
door to the space (see plan for layout & access door location).
Tenant will accept existing HW tank and exposed plumbing "as is" if
the wall behind the tank is completed and painted.
D. Server Floor: 3/4" by 5 ft. x 8 ft. smooth faced finished grade
------------
plywood (no knots) installed with finish nails and trimmed with 1x2
wood trim. Tenant will finish at their own expense.
E. Electrical: Remove receptacle near shower location. Install 220 V
----------
service at SERVER LOCATION ONLY. See plan layout. Tenant will supply
specification of the 220 V reception type. Install new 110 receptacle
42" off floor in locker room. Replace all flickering lights and
existing burned out tubes.
F. Ceiling tiles to be washed and replaced as necessary. HVAC outlets to
-------------
be cleaned or painted.
G. Skylight and windows to be cleaned.
--------------------
H. Deadbolt to be installed on entry door. ReKey entry door.
-------- -----
I. Walls and trim to be repainted building standard white. Tenant shall
--------------
paint "corporate" yellow area (wall) at own expense and will pay to
return wall to white upon lease termination.
-15-
<PAGE>
[THIRD LEVEL FLOOR PLAN APPEARS HERE]
Third Level Floor Plan
- -----------------------
209 1/2 1st avenue south
<PAGE>
MARATHON BUILDING--3rd floor west
REVISED TENANT IMPROVEMENTS dated 5/7/98
Stratton Interest Inc. - Megadepot
-18-
<PAGE>
EXHIBIT 10.10
ONVIA.COM, INC.
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Onvia.com, Inc. Amended and
Restated 1999 Stock Option Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to Employees and Consultants of the Company and its Subsidiaries and
to promote the success of the Company's business. Options granted under the
Plan may be incentive stock options (as defined under Section 422 of the Code)
or non-statutory stock options, as determined by the Administrator at the time
of grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board of Directors or any of its
Committees appointed pursuant to Section 4 below.
(b) "Affiliate" means an entity other than a Subsidiary in which the
Company owns an equity interest or which, together with the Company, is under
common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under applicable U.S. state corporate laws,
U.S. federal and applicable state securities laws, the Code, any Stock Exchange
rules or regulations and the applicable laws of any other country or
jurisdiction where Options are granted under the Plan, as such laws, rules,
regulations and requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means one or more committees or subcommittees
appointed by the Board of Directors in accordance with Section 4(a) below.
(g) "Common Stock" means the Common Stock of the Company.
(h) "Company" means Onvia.com, Inc., a Delaware corporation.
(i) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent, Subsidiary or Affiliate to render services
and is compensated for such services, and any director of the Company whether
compensated for such services or not.
(j) "Continuous Status as an Employee or Consultant" means the absence
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave, (ii) military leave, (iii) any
other leave of absence approved by the Administrator; provided, however, that
such leave is for a period of not more than ninety (90) days, unless re-
employment
<PAGE>
upon the expiration of such leave is guaranteed by contract or statute, or
unless provided otherwise pursuant to Company policy adopted from time to time
or (iv) in the case of transfers between locations of the Company or between the
Company, its Subsidiaries, its Affiliates, or their respective successors. For
purposes of this Plan, a change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
(k) "Director" means a member of the Board of Directors.
(l) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent, Subsidiary or Affiliate of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company to a Director shall not be sufficient to constitute "employment" of such
director by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the fair market value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq"), its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq (but not on the
National Market thereof) or regularly quoted by a recognized securities dealer
but selling prices are not reported, its Fair Market Value shall be the mean
between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(p) "Listed Security" means any security of the Company that is listed
or approved for listing on a national securities exchange or designated or
approved for designation as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
-2-
<PAGE>
(q) "Named Executive" means any individual who, on the last day of the
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(r) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Optioned Stock" means the Common Stock subject to an Option.
(u) "Optionee" means an Employee or Consultant who receives an Option.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(w) "Plan" means this Onvia.com, Inc. Amended and Restated 1999 Stock
Option Plan.
(x) "Reporting Person" means an officer, Director, or greater than ten
percent (10%) shareholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
(y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as the same may be amended from time to time, or any successor provision.
(z) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(aa) "Stock Exchange" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(bb) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(cc) "Ten Percent Holder" means a person who owns stock requesting
more than 10% of the voting power of all classes of stock of the Company or any
Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 18,000,000 shares of Common Stock (on a post-split basis),
plus an automatic annual increase on the first day of each of the Company's
fiscal years beginning in 2001 and ending in 2009 equal to the lesser of: (i)
3,200,000 Shares (on a post-split basis); (ii) four percent (4%) of the Shares
outstanding on the last day of the immediately preceding fiscal year; or (iii)
such lesser number of shares as is determined by the Board of Directors. The
shares may be authorized, but unissued, or reacquired Common Stock. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares that were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan. In addition, any shares of Common Stock which are retained by
the Company upon exercise of an Option in order to satisfy the exercise price
for such Option or any withholding
-3-
<PAGE>
taxes due with respect to such exercise shall be treated as not issued and shall
continue to be available under the Plan. Shares repurchased by the Company
pursuant to any repurchase right which the Company may have shall not be
available for future grant under the Plan.
4. Administration of the Plan
(a) General. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more Directors to grant Options under the Plan.
(b) Administration with Respect to Reporting Persons. With respect to
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any option granted hereunder;
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(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(g) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan and Options
granted under the Plan;
(x) to permit the early exercise of any Option in exchange for
restricted stock subject to a right of repurchase; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(e) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility
(a) Recipients of Grants. Nonstatutory Stock Options may be granted
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees; provided however that Employees of Affiliates shall not be eligible
to receive Incentive Stock Options. An Employee or Consultant who has been
granted an Option may, if he or she is otherwise eligible, be granted additional
Options.
(b) Type of Option. Each Option shall be designated in the written
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds One Hundred Thousand Dollars ($100,000), such excess
Options shall be treated as Nonstatutory Stock Options. For purposes of Section
5(b), Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of the Shares subject to an
Incentive Stock Option shall be determined as of the date of the grant of such
Option.
(c) At-Will Employment Relationship. The Plan shall not confer upon
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in
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Section 19 of the Plan. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
in Section 12 below, the maximum number of Shares which may be subject to
Options granted to any one Employee under this Plan for any fiscal year of the
Company shall be 2,000,000 Shares.
9. Option Exercise Price and Consideration
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, is a Ten Percent Holder, the per Share exercise
price shall be no less than one hundred ten percent (110%) of the Fair Market
Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the Fair Market Value
per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per share
Exercise Price shall be such price as determined by the Administrator; provided,
however, that if such eligible person is, at the time of the grant of such
Option, a Named Executive of the Company, the per share Exercise Price shall be
no less than 100% of the Fair Market Value on the date of grant if such Option
is intended to qualify as performance-based compensation under Section 162(m) of
the Code.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist
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entirely of (i) cash, (ii) check, (iii) at the discretion of the Board of
Directors, a promissory note, (iv) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (v) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (vi) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price and
any applicable income or employment taxes, (vii) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (viii) any combination of the
foregoing methods of payment or (ix) such other consideration and method of
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. Exercise of Option
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board of Directors, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
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<PAGE>
(b) Termination of Employment or Consulting Relationship. Subject to
Sections 10(c) and 10(d), in the event of termination of an Optionee's
Continuous Status as an Employee or Consultant with the Company, such Optionee
may, but only within three (3) months (or such other period of time not less
than thirty (30) days as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding three (3) months) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his or her Option to the
extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate. No termination shall be deemed to occur and this Section 10(b)
shall not apply if (i) the Optionee is a Consultant who becomes an Employee; or
(ii) the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee.
(i) Notwithstanding the provisions of Section 10(b) above, in the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (within the
meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three (3) months of the date of such termination, the Option
will not qualify for Incentive Stock Option treatment under the Code. To the
extent that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within six months (6) from the date of termination, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee
during the period of Continuous Status as an Employee or Consultant, or within
thirty (30) days following the termination of the Optionee's Continuous Status
as an Employee or Consultant, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent the
Optionee was entitled to exercise the Option at the date of
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<PAGE>
death or, if earlier, the date of termination of the Continuous Status as an
Employee or Consultant. To the extent that Optionee was not entitled to exercise
the Option at the date of death or termination, as the case may be, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(e) Extension of Exercise Period. The Administrator shall have full
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Status as
an Employee or Consultant from the periods set forth in Sections 10(b), 10(c)
and 10(d) above or in the Option Agreement to such greater time as the Board
shall deem appropriate, provided, that in no event shall such Option be
exercisable later than the date of expiration of the term of such Option as set
forth in the Option Agreement.
(f) Rule 16b-3. Options granted to Reporting Persons shall comply
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(g) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six (6)
months on the date of surrender and (ii) have a fair market value on the date of
surrender equal to or less than the statutory minimum tax withholding applicable
to the ordinary income recognized by the Optionee or (d) if permitted by the
Administrator, by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, if any, that number of Shares having a fair
market value equal to the statutory minimum amount required to be withheld. For
this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
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<PAGE>
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator; and
(d) if the Optionee is a Reporting Person, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization; Corporate Transactions
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, the number of Shares described in Sections 3(i) and 8 above, as
well as the price per share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination, recapitalization or reclassification
of the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board of Directors, whose determination in
that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Administrator. The Administrator may,
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<PAGE>
in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable.
(c) Acquisition, Merger or Change in Control
(i) In the event of a Change in Control, if and to the extent
such outstanding Option is not to be assumed by the successor corporation at the
consummation of the Change of Control, the vesting of such Option shall
automatically be accelerated so that twenty-five percent (25%) of the unvested
shares of Common Stock covered by such Option shall be fully vested upon the
consummation of the Change in Control.
(ii) The vesting of each outstanding Option held by an Optionee
who is an executive officer shall be accelerated completely so that one hundred
percent (100%) of the shares of common stock covered by such Option are fully
vested and exercisable in the event that within twelve (12) months of the
consummation of such Change of Control, such Optionee's employment by the
Company is either terminated by the Company other than for Cause (as defined
below) or terminated by the Optionee for Good Reason (as defined below). For
purposes of this Plan, "executive officer" shall mean: President, Chief
Financial Officer, Executive Officer, Chairman of the Board, Vice President
Marketing, Vice President Sales, Vice President Engineering, Director of
Customer Experience, Vice President of Business Development, Chief Financial
Officer and Vice President of Products and Services.
For purposes of this Section 11(c)(ii), "Cause" means fraud,
misappropriation or embezzlement on the part of the Optionee which results in
material loss, damage or injury to the Company, the Optionee's conviction of a
felony involving moral turpitude, or the Optionee's gross neglect of duties.
For purposes of this Section 11(c)(ii), "Good Reason" means a
material reduction in compensation or a relocation of the Optionee's principal
worksite to a location more than fifty (50) miles from the Optionee's pre-Change
of Control worksite or a material reduction in the Optionee's compensation,
responsibilities or authority as in effect before the Change of Control.
(iii) The Administrator shall have the authority, in the
Administrator's sole discretion, to provide for the automatic acceleration of
any outstanding Option upon the occurrence of a Change in Control, but only to
the extent that such acceleration does not interfere with any "pooling of
interests" accounting treatment used in connection with the Change in Control.
(d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
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<PAGE>
13. Non-Transferability of Options. Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution; provided however that,
after the date, if any, upon which the Common Stock becomes a Listed Security,
the Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying (i) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a transfer. An Option may be exercised, during the
lifetime of the holder of the Option, only by such holder or a transferee
permitted by this Section 13.
14. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board of
Directors. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
15. Amendment and Termination of the Plan
(a) Amendment and Termination. The Board of Directors may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with the Applicable
Laws, the Company shall obtain shareholder approval of any Plan amendment in
such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. No amendment or termination
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board of Directors, which
agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with the
Applicable Laws, with such compliance determined by the Company in consultation
with its legal counsel.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
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17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Agreements. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
19. Shareholder Approval. If required by the Applicable Laws, continuance
of the Plan shall be subject to approval by the shareholders of the Company
within twelve (12) months before or after the date the Plan is adopted or
amended, as applicable. Such shareholder approval shall be obtained in the
degree and manner required under the Applicable Laws. All Options issued under
the Plan shall become void in the event such approval is not obtained.
20. Information to Optionees. To the extent required by the Applicable
Laws, the Company shall provide financial statements at least annually to each
Optionee during the period such Optionee has one or more Options outstanding.
The Company shall not be required to provide such information if the issuance of
Options under the Plan is limited to key employees whose duties in connection
with the Company assure their access to equivalent information. In addition, at
the time of issuance of any securities under the Plan, the Company shall provide
to the Optionee a copy of the Plan and a copy of any agreement(s) pursuant to
which securities granted under the Plan are issued.
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Exhibit 10.12
March 25, 1999
Mark Calvert
7219 Autumn Avenue SE
Snoqualmie, Washington 98068
Dear Mark:
On behalf of MegaDepot.com, Inc., a Washington Corporation (the "Company"),
I am pleased to offer you the position of Chief Financial Officer for 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.
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a. You will become the Chief Financial Officer for the Company,
working out of the Company's headquarters office in Seattle, Washington. As
Chief Financial Officer, Summary - Directs and manages the Company's Financial,
Accounting, Contact Center, Information Technology and Human Resources
functions. Acts as critical internal and external strategic financial advisor.
Reports to the Chief Executive Officer. Significant - Assesses Company
accounting and operational systems/policies to safeguard assets and ensure
accurate financial information. Designs and produces upgraded internal
management reports for the Executive Committee and line managers and external
reports (GAAP) for financial institutions and regulatory requirements focusing
on the inclusion of all key business and financial statistics. Directs the
modeling of current and potential business issues; analyzes financial impact on
future decision making. Builds financial projections including Company cash flow
forecasts and distribution processes. Serves as key member of Executive
Committee; articulates Company posture to and obtains support from line managers
for Company financial objectives including earnings management, budget
preparation and adherence, and financial projections; acts as trusted advisor to
CEO and other executive managers. Creates and delivers highly sophisticated
presentations to the Board of Directors and potential corporate investors,
venture capitalists, and strategic partners. Manages the Company's pre-IPO
process, delivers presentations with CEO to potential investors/venture
capitalists; implements actual Offering when appropriate.
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
<PAGE>
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
February 1, 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.
4. Compensation.
------------
a. Base Salary. You will be paid a monthly salary of $12,500 which
-----------
is equivalent to $150,000 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. 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. The Company's board of directors approved in the
-------------
March 1999 meeting your employment. In connection with the commencement of your
employment, the Company's board of directors has or will grant you an option to
purchase 136,028 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. 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 1999Plan 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. In addition, the Company currently
indemnifies all
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officers and directors to the maximum extent permitted by law, and you will be
requested to enter into the Company's standard form of Indemnification Agreement
giving you such protection. Pursuant to the Indemnification Agreement, the
Company will agree to advance any expenses for which indemnification is
available to the extent allowed by applicable law.
b. Vacation. You will be entitled to 2 weeks paid vacation per year.
--------
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 other than outlined in paragraphs 10 and 11.
10. Severance. The company will provide you with a 12 month severance
---------
package, consisting of all employee benefits of any nature, paid or accrued
monthly as if employed; if employment is terminated for any reason.
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.
-3-
<PAGE>
Very truly yours,
MEGADEPOT.COM, INC.,
a Washington corporation
By: /s/: Glenn Ballman
Title: CEO
ACCEPTED AND AGREED:
/s/: Mark Calvert
Signature
_______________________
Date
Enclosure: Confidential Information and Invention Assignment Agreement
-4-
<PAGE>
Exhibit 10.16
Clayton Lewis
833 35th Avenue
Seattle, WA 98122
Dear Clayton:
On behalf of MegaDepot.com, Inc., a Washington corporation (the "Company"),
I am pleased to offer you the position of Director 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 Director of Marketing of the Company, working
out of the Company's headquarters office in Seattle, Washington. As Director of
Marketing, you will have overall responsibility for brand and business strategic
relationships. You will report to the Company's President, Glenn Ballman.
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 owing 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
_______________ ___, 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.
4. Compensation.
<PAGE>
Clayton Lewis
_______________, 2000
Page 2
a. Base Salary. You will be paid a monthly salary of $6666, which
is equivalent to $80,000 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 incentive bonus of up
to $10,000 for the fiscal year ending December 1999. You will also be eligible
to earn incentive bonuses in future years, again based on achievement of
objectives.]
c. Annual Review. Your base salary will be reviewed at the end of
each calendar year as part of the Company'' normal salary review process.
5. Stock Options.
[a. Initial Grant. Employees of the Company are eligible for Stock
Options after the initial three (3) months of employment (the "Initial Three
Month Period"), subject to approval by the Company's board of directors. 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. 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
determined as of the date of any such grant.]
OR
[You will be eligible to participate in any stock option or other
incentive programs available to officers or employees of the Company.]
6. Benefits.
a. Insurance Benefits. The Company will provide you with standard
medical and dental insurance benefits. In addition, the Company currently
indemnifies all officers and directors to the maximum extent permitted by law,
and you will be requested to enter into the Company's standard form of
Indemnification Agreement giving you such protection. Pursuant to the
Indemnification Agreement, the Company will agree to advance any expenses for
which indemnification is available to the extent allowed by applicable law.
b. Vacation. You will be entitled to 2 weeks' paid vacation per
year, pro-rated for the remainder of this calendar year.
<PAGE>
Clayton Lewis
_______________, 2000
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 purchases 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,
MEGADEPOT.COM, INC.,
a Washington corporation
By: /s/ Glenn Ballman
Title: CEO
ACCEPTED AND AGREED:
Clayton Lewis
/s/ Clayton Lewis
- ----------------------------
Signature
3/18/99
- ----------------------------
Date
Enclosure: Confidential Information and Invention Assignment Agreement
<PAGE>
Exhibit 10.27
October 14, 1999
Jim Bridges
17034 NE 133/rd/ Street
Redmond, WA 98052
Dear Jim:
On behalf of Onvia.com, Inc., a Washington Corporation (the "Company"), I
-------
am pleased to offer you the position of Director of Customer Service & Sales 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 Director of Customer Service & Sales of the
Company, working out of the Company's headquarters office in Seattle,
Washington. You will report to the Company's VP of Marketing.
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
November 1, 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>
October 14, 1999
Page 2
4. Compensation.
------------
a. Base Salary. You will be paid a monthly salary of $8,325.00,
-----------
which is equivalent to $99,900 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 15% of your annual salary with a guarantee of 5%. 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. Parking. Your monthly parking will be paid for by Onvia.com.
-------
d. 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 15,000 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.
-2-
<PAGE>
October 14, 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/
---------------------------
Title:_________________________
ACCEPTED AND AGREED:
JIM BRIDGES
-3-
<PAGE>
October 14, 1999
Page 4
/s/ Jim Bridges
- --------------------------------
Signature
- --------------------------------
Date
Enclosure: Confidential Information and Invention Assignment Agreement
-4-
<PAGE>
EXHIBIT 10.30
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of
_______________, by and between Onvia.com, Inc., a Delaware corporation (the
"Company"), and _____________________________________ (the "Indemnitee").
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
-2-
<PAGE>
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice
of a claim pursuant to Section 3(b) hereof, 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 thereafter
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.
(e) Selection of Counsel. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees
-3-
<PAGE>
of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i) Indemnitee shall have the right to employ counsel
in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense
or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(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 Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both 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 its directors and officers
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
-4-
<PAGE>
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake 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.
7. Officer and Director Liability 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. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or 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 8. 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 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.
9. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this
-5-
<PAGE>
Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such proceeding was not made in good
faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Agreement.
11. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to
-6-
<PAGE>
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.
12. Miscellaneous.
(a) Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or fax, or forty-eight (48) hours
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, and addressed to the party to be notified at such party's
address as set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
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<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
Onvia.com, Inc.
By:
---------------------------------------
Title:
------------------------------------
Address: 1000 Dexter Avenue, Suite 400
Seattle, WA 98104
AGREED TO AND ACCEPTED:
- ---------------------------------
(Signature)
Address:
------------------------
------------------------
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<PAGE>
EXHIBIT 10.31
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property
[LOGO OF IMPERIAL BANK]
This Agreement is executed on May 7, 1999 , by
MEGADEPOT.COM, INC., A WASHINGTON CORPORATION (hereinafter called Obligor),
in consideration of financial accommodations given, to be given or continued,
the Obligor grants to IMPERIAL BANK (hereinafter called "Bank") a security
interest in (a) all property (i) delivered to Bank by Obligor, (ii) which shall
be in Bank's possession or control in any matter or for any purpose, (iii)
described below, (iv) now owned or hereafter acquired by Obligor of the type or
class described below and/or in any supplementary schedule hereto, or in any
financing statement filed by Bank and executed by or on behalf of Obligor, (b)
all deposits accounts of Obligor at Bank and (c) the proceeds, increase and
products of such property, all accessions thereto, and all property which
Obligor may receive on account of such collateral which Obligor will immediately
deliver to Bank (collectively referred to as "Collateral") to secure payment and
performance of all of Obligor's present or future debts or obligations to Bank,
whether absolute or contingent thereafter referred to as "Debt"). Unless
otherwise defined, words used herein have the meanings given them in the
California Uniform Commercial Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
- --------------------------------------------------------------------------------
Make/ Identification License or
Year Manufacturer Model and Serial No. Registration No. New or Used
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Engine or other equipment:
------------------------------------------------------
(For aircraft-original ink signature on copy to FAA)
B. DEPOSIT ACCOUNTS:
Type TGD Account Number 4308340001 Amount $650,000.00
--------------- ------------------------ -----------
In name of MEGADEPOT.COM, INC. Depository IMPERIAL BANK
---------------------------------- -----------------------
AND ALL EXTENSIONS OR RENEWALS THEREOF.
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
The collateral not in Bank's possession will be located at:
[ ] If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
(Borrower").
All the terms and provisions on page 2 hereof are incorporated herein as though
set forth in full, and constitute a part of this Agreement.
Signature
Name (indicate title, if applicable) Address
208 1/2 First Avenue S,
Suite 302
MEGADEPOT.COM, INC., A BY: Seattle, WA 98104
- ---------------------- ----------------------------- -----------------------
WASHINGTON CORPORATION
- ---------------------- ----------------------------- -----------------------
- ---------------------- ----------------------------- -----------------------
<PAGE>
SECURITY AGREEMENT (CONTINUED)
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs
of collecting the Debt, of protecting, insuring or realizing on Collateral, and
any expenditure of Bank pursuant hereto, including attorneys' fees and expenses,
with interest at the rate of 24% per year, or the rate applicable to the Debt,
whichever is less, from the date of expenditure, and (c) any deficiency after
realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder
for the purpose indicated on the application therefore, and will promptly
contract to purchase and pay the purchase price of any property which becomes
Collateral hereunder from the proceeds of any loan made for that purpose.
3. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at the location disclosed to
Bank and will not remove the Collateral from the location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair if
necessary, clean, feed, shelter, water, medicate, fertilize, cultivate,
irrigate, prune and otherwise deal with the Collateral in all such ways as
are considered good practice by owners of like property, use it lawfully
and only as permitted by insurance policies, and permit Bank to inspect the
Collateral at any reasonable time.
(d) Not sell, contract to sell, lease encumber or transfer the Collateral
(other than Inventory Collateral) until the Debt has been paid, even though
Bank has a security interest in proceeds of such Collateral.
4. As to Collateral which is inventory and accounts, Obligor:
(a) May, until notice from Bank, sell, lease or otherwise dispose of
Inventory Collateral in the ordinary course of business only, and collect
the cash proceeds thereof.
(b) Will, upon notice from Bank, deposit all cash proceeds as received in
a demand deposit account with Bank, containing only such proceeds and
deliver statements identifying units of inventory disposed of, accounts
which gave rise to proceeds, and all acquisitions and returns of inventory
as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the Bank and
deliver to Bank all non-cash proceeds other than inventory received in
trade.
(d) If not in default, may obtain release of Bank's interest in individual
units of inventory upon request, therefore, payment to Bank of the release
price of such units shown on any collateral schedule supplementary hereto,
and compliance herewith as to proceeds thereof.
5. As to Collateral which are accounts, chattel paper, general intangibles
and proceeds described in 4(c) above, Obligor warrants, represents and agrees:
(a) All such Collateral is genuine, enforceable in accordance with its
terms, free from default, prepayment, defense and conditions precedent
(except as disclosed to and accepted by Bank in writing), and is supported
by consecutively numbered invoices to, or rights against, the debtor
thereon. Obligor will supply Bank with duplicate invoices or other evidence
of Obligor's rights on Bank's request;
(b) All persons appearing to be obligated on such Collateral have authority
and capacity to contract;
(c) All chattel paper is in compliance with law as to form, content and
manner of preparation and execution and has been properly registered,
recorded, and/or filed to protect Obligor's interest thereunder;
(d) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be
applied on any particular obligation shall be considered to be a payment on
the account in which Bank has a security interest. Should any remittance
include a payment not on an account, it shall be delivered to Bank and, if
no event of default has occurred, Bank shall pay Obligor the amount of such
payment;
(e) Obligor agrees not to compromise, settle or adjust any account or renew
or extend the time of payment thereof without Bank's prior written consent.
6. Obligor owns all Collateral absolutely, and no other person has or
claims any interest in any Collateral, except as disclosed to and accepted by
Bank in writing. Obligor will defend any proceeding which may affect title to or
Bank's security interest in any Collateral, and will indemnify and hold Bank
free and harmless from all costs and expense of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank,
and hereby assigns such policies to Bank, agrees to deliver them to Bank at
Bank's request, and authorizes Bank to make any claim thereunder, to cancel the
insurance on Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's cost
and expense, without any duty to do so, get and pay for insurance naming at the
insured, at Bank's option, either both Obligor and Bank, or only Bank, and the
cost thereof shall be secured by this Security Agreement, and shall be repayable
as provided in Paragraph 1 above.
9. Obligor will give Bank any information it requires. All information at
any time supplied to Bank by Obligor (including, but not limited to, the value
and condition of Collateral, financial statements, financing statements, and
statements made in documentary Collateral) is correct and complete, and Obligor
will notify Bank of any adverse change in such information. Obligor will
promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act
which Obligor is obligated hereby to do, to exercise such rights as Obligor may
exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's security interest, and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all to protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(a) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral:
(b) Make extension agreements with respect to or affecting Collateral,
exchange it for either Collateral, release persons liable thereon or take
security for the payment thereof, and compromise disputes in connection
therewith;
(c) Use or operate Collateral for the purpose of preserving Collateral or
its value and for preserving or liquidating Collateral.
11. If more than one Obligor signs this Agreement, their liability is joint
and several. Any Obligor who is married agrees that recourse may be had against
separate property for the Debt. Discharge of any Obligor except for full
payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor, or any transfer of an Obligor's
interest to another shall not affect the liability of any other Obligor. Until
the Debt shall have been paid or performed in full, Bank's rights shall
continue even if the Debt is outlawed. All Obligors waive; (a) any right to
require Bank to proceed against any Obligor before any other, or to pursue any
other remedy; (b) presentment, protest and notice of protest, demand and notice
of nonpayment, demand or performance, notice of safe, and advertisement of sale;
(c) any right to the benefit of or to direct the application of any Collateral
until the Debt shall have been paid; (d) and any right of subrogation to Bank
until Debt shall have been paid or performed in full.
12. Upon default, at Bank's option, without demand or notice, all or any
part of the Debt shall immediately become due. Bank shall have all rights given
by law, and may sell, in one or more sales, Collateral in any country where Bank
has an office. Bank may purchase at such sale. Sales for cash or on credit to
wholesale, retailer or user of the Collateral, or at public or private auction,
are all to be considered commercially reasonable. Bank may require Obligor to
assemble the Collateral and make it available to Bank at the enhance to the
location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with Bank or
breach of any warranty herein, or Borrower's failure to pay or perform any
agreement with Bank.
(b) Any change in Obligor's or borrower's financial condition which in
Bank's judgment impairs the prospect of Borrower's payment or performance.
(c) Any actual or reasonably anticipated deterioration of the Collateral or
in the market price thereof which causes it. In Bank's judgment, to become
unsatisfactory as security.
(d) Any levy or seizure against Borrower or any of the Collateral.
(e) Death, termination of business, assignment for creditors, insolvency,
appointment of receiver, or the filing of any petition under bankruptcy or
debtor's relief laws of, by or against Obligor or Borrower or any guarantor
of the Debt.
(f) Any warranty or representation which is false or is believed in good
faith by Bank to be false.
13. Bank's acceptance of partial or delinquent payments or the failure of
bank to exercise any right or remedy shall not waive any obligation of Obligor
or Borrower or right of Bank to modify this Agreement, or waive any other
similar default.
14. On transfer of all or any part of the Debt, Bank may transfer all or
any part of the Collateral. Bank may deliver all or any part of the Collateral
to any Obligor at any time. Any such transfer or delivery shall discharge Bank
from all liability and responsibility with respect to such Collateral
transferred or delivered. This Agreement benefits Bank's successors and assigns
and binds Obligor's heirs, legalees, personal representatives, successors and
assigns. Obligor agrees not to assert against any assignee of Bank any claim or
defense that may exist against Bank. Time is of the essence. This Agreement and
supplementary schedules hereto contain the entire security agreement between
Bank and Obligor. Obligor will execute any additional agreements, assignments or
documents reasonably required by Bank to carry this Agreement into effect.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, to the jurisdiction of whose courts the
Obligor hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein in
the singular shall be considered to have been used in the plural where the
context and construction so require.
16. To the extent that Obligor acquires any trademarks, service marks,
trade names and service names and/or the goodwill associated therewith,
copyrights, patents and/or patent applications (collectively "Intellectual
Property"), Obligor shall give prompt notice thereof to Bank and shall take any
and all actions requested from time to time by Bank to perfect Obligor's
interest in such Intellectual Property and to perfect Bank's first priority
interest therein. Without limiting the generality of the foregoing, the Obligor
agree as follows; Upon Obligor creating, writing, producing of acquiring any
software, computer source codes or other computer programs (collectively, the
"Software"), Obligor shall promptly upon such acquisition file with the U.S.
Copyright Office any and all documents necessary to perfect Obligor's rights
therein. Upon Obligor creating, writing, producing or otherwise accounting any
Software, Obligor shall give prompt notice thereof to Bank. Obligor shall
execute and deliver to Bank any and all copyright mortgages, UCC financing
statements and other documents and instruments which Bank may request in
connection with the Bank perfecting its first priority security interest in such
Software.
Page 2 of 2
<PAGE>
Exhibit 10.32
-------------
SECURED PROMISSORY NOTE
-----------------------
$
------------ -------------------------
Seattle, Washington
For value received, _____________, an individual residing in the State of
Washington ("Officer"), promises to pay to Onvia.com, Inc., a Washington
corporation (the "Holder"), the principal sum of ____________________. Interest
shall accrue from the date of this Note on the unpaid principal amount at a rate
equal to six percent (6%) per annum, compounded annually. This Note is subject
to the following terms and conditions.
1. Maturity. Principal and any accrued but unpaid interest under this
Note shall be due and payable upon demand by the Holder at any time after the
earlier to occur of (i) October 14, 2004, (ii) the expiration of any contractual
lock-up period after the Holder's initial public offering of its common stock
(the "IPO") (if Officer is a selling shareholder in such IPO or, if Officer is
not a selling shareholder in such IPO, in Holder's next registered public
offering of its securities in which Officer is a selling shareholder), or (iii)
the expiration of any contractual lock-up period or other lock-up period imposed
under the Securities Act of 1933, as amended, with respect to shares received by
Officer in exchange for his shares of Holder's Common Stock in connection with
an acquisition of Holder. The entire unpaid principal sum of this Note, together
with accrued and unpaid interest thereon will be forgiven and this Note will be
cancelled in its entirety upon the earlier to occur of (A) the insolvency of
Officer or Holder, (B) the commission of any act of bankruptcy by Officer or
Holder, (C) the execution by Officer or Holder of a general assignment for the
benefit of creditors, (D) the filing by or against Officer or Holder of a
petition in bankruptcy or any petition for relief under the federal bankruptcy
act or the continuation of such petition without dismissal for a period of
ninety (90) days or more, or (E) the appointment of a receiver or trustee to
take possession of the property or assets of Officer or Holder.
2. Payment. All payments shall be made in lawful money of the United
States of America at such place as the Holder hereof may from time to time
designate in writing to Officer. Payment shall be credited first to the accrued
interest then due and payable and the remainder applied to principal. Prepayment
of this Note may be made at any time without penalty.
3. Transfer; Successors and Assigns. The terms and conditions of this
Note shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Notwithstanding the foregoing, the Holder may not
assign, pledge, or otherwise transfer this Note without the prior written
consent of Officer, except for transfers to affiliates. Subject to the preceding
sentence, this Note may be transferred only upon surrender of the original Note
for registration of transfer, duly endorsed, or
<PAGE>
accompanied by a duly executed written instrument of transfer in form
satisfactory to the Holder. Thereupon, a new note for the same principal amount
and interest will be issued to, and registered in the name of, the transferee.
Interest and principal are payable only to the registered holder of this Note.
4. Governing Law. This Note and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
5. Notices. Any notice required or permitted by this Note shall be in
writing and shall be deemed sufficient upon delivery, when delivered personally
or by a nationally-recognized delivery service (such as Federal Express or UPS),
or forty-eight (48) hours after being deposited in the U.S. mail, as certified
or registered mail, with postage prepaid, addressed to the party to be notified
at such party's address as set forth below or as subsequently modified by
written notice.
6. Amendments and Waivers. Any term of this Note may be amended only
with the written consent of Officer and the Holder. Any amendment or waiver
effected in accordance with this Section 6 shall be binding upon Officer, the
Holder and each transferee of the Note.
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<PAGE>
7. Security Interest. This Note is secured by certain assets of Officer
in accordance with a separate Pledge Agreement (the "Pledge Agreement") of even
date herewith between Officer and the Holder. In case of an Event of Default (as
defined in the Pledge Agreement), the Holder shall have the rights set forth in
the Pledge Agreement.
OFFICER:
By:
--------------------------------
Address: 1000 Dexter Avenue
Suite 400
Seattle, WA 98104
AGREED TO AND ACCEPTED:
ONVIA.COM, INC.
By:
-----------------------------
Name:
---------------------------
(print)
Title:
--------------------------
Address: 1000 Dexter Avenue
Suite 400
Seattle, WA 98104
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